Dr Dave Schrader has seven nuggets of advice for retailers who want to be seen to be responsible and get their message across to increasingly suspicious customers.

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The bad marketers have used these relatively low-cost channels to overwhelm consumers with offers they dont need. They get every dimension of the CRM Mantra wrong: they dont target the right people, they dont make the right offers, they dont get the timing right and they are ruining perfectly good channels to boot!

In case you havent noticed, consumers are revolting against bad marketing. In the UK, legislation has been passed to control the types and amount of unsolicited email, or spam. In the USA, the Do Not Call federal registry fielded 2300 requests per second in its first week, and more than 51 million households signed up to outlaw unwanted telephone calls.

The bad marketers have used these relatively low cost channels to overwhelm consumers with offers they dont need. They get every dimension of the CRM Mantra wrong: they dont target the right people, they dont make the right offers, they dont get the timing right, and they are ruining perfectly good channels to boot.

The good but under-reported news is that most companies are not spammers. They are responsible marketers and respect the wishes of customers who opt-out. A landmark report entitled Why Am I Getting All This Spam was conducted by the Center for Democracy and Technology (http://www.cdt.org/speech/spam/030319spamreport.shtml ) in March 2003. It studied the spam problem by setting up 250 different e-mail addresses, putting the e-mail addresses in public web places for harvesting by the e-mail address collectors, and then waiting six months to see what kind of mail those e-mail accounts received. These accounts received more than 10,000 responses.

They then asked to opt-out from further messages, and found 'in all of the cases where we disclosed an e-mail address and asked not to receive commercial e-mail, the Web site operator respected that request - we received no spam when we opted out when first giving our e-mail address'. The study also reports limited resell of information, debunking the myth that retailers are freely exchanging and selling information about consumers.

By contrast, the U.S. Federal Trade Commission hearings in the early summer highlighted the worst offenders, the so-called shifty 150 emailers who harvest emails from various open sources and sell them, at rates as low as 100 to send out 10 million emails. No wonder we get so much junk!

Technology can help your company continue to be a responsible retailer. To ensure your company’s messages aren’t perceived as junk, here are seven best practices.

1. You need to get to know your customers’ needs and desires by collecting all kinds of clues that customers create when they interact with your company. Market baskets of purchases are just a first step. In addition, you can add browser behavioural clues from the web (in addition to online checkout purchases). Capturing information from call center interactions is another rich source of information. Put all this information into one place, a data warehouse, not into a bunch of datamarts. The more clues you have, the smarter you can be. Even simple pieces of information like postcodes are powerful indicators of income levels and propensities to buy. An experiment in the Los Angeles area over Mother’s Day 2002 used variations of advertising over cable television to 79 different zip codes. The ad by 1-800-Flowers for 90210 (Beverly Hills) was considerably more upscale than the offer to other parts of L.A., and the results showed that better targeting paid off with a doubling of order rates and an overall 10% increase in the typical market basket sale.

2. Use Customer Relationship Management (CRM) segmentation tools to match or group customers to form customer segments of similar purchasers. New research from the Marketing Sciences Institute and Jupiter Research shows that behavioural information can be as strong, if not stronger, than traditional demographic and psychographic information as attributes for customer segments, but is underutilised. For example, Travelocity sent special offer emails to a segment of customers defined as those who had recently looked but not booked trips from L.A. to Puerto Rico, and achieved a 25% conversion rate. It didnt matter whether these people were male or female, in a particular age group. What counted was their common behaviour.

3. Identify key events that are clues that someone might want to hear from your company. Create multi-step dialogues that are kicked off when events occur, so that instead of push marketing based on when your company wants to run a campaign, you are doing pull marketing, based on each individuals event and a corresponding dialogue. Amazons collaborative filtering for book recommendations is an excellent example of making the right offer at the right time in response to a book browsing event. By examining the persons purchase history, and matching that history to the purchases other people who are like this customer, your suggestive sells will work better. In addition, most people see this style of advertising as contextually relevant and helpful, not as intrusive advertising. The banking industry pioneered this approach, called event-based marketing.

Several users of Teradatas technology the National Australia Bank, Union Bank of Norway, and Bank of America have experienced profoundly better conversion rates by using event detectives that spot high-payoff events as they occur. At the National Australia Bank, for example, 370 event detective programs run every day, detecting 42,000 leads per week, which are rank-ordered and delivered to the desks of personal bankers for follow up. An elderly lady who closes a $10,000 savings account, for example, received a follow up call from a banker, who discovered that she was using the money to help her granddaughter get a loan. Based on her history with the bank, the banker converted this withdrawal and account closure into a new loan and 2 new customers, co-signed by their good customer, the little old lady. The cumulative impact of this kind of event-based marketing garnered A$2 billion in additional deposits in the first six months of the programme. The bank also reduced its general-purpose advertising by 75%, saving $20 million in postage costs.

4. Technology can help test and refine your messaging so it has the greatest impact. Simple things like layout, colour, fonts, pictures, and even back ground colour make great differences in the response rates you will see to your offers. The Internet is a great interactive tool, so use it to try out variations on messaging to different customer segments and measure what is ignored and what attracts people to shop at your site. A Swedish CD seller hooked up a genetic algorithm to their website to try out 8 variations on messaging about the artist and CD, and more than doubled their click through rates.

A company called Visible World (www.visibleword.com) is working on customising television ads to the household level over cable TV, so that three households on the same block may see different variations of, say, a trip to Bermuda. The elderly couple will see slow-paced golf and spa massages, while the single guy will see the bar scene, and the young couple with kids will see visuals of children playing at the beach. The goal for all is to book with British Airways, but the messages take into account the personal household information. If better targeting of television ads occurs, perhaps people will pay more attention to ads (and go to the bathroom during the content!).

5. Use technology to pay attention to timing. Making the right offer to the right customer is not good enough; it must also be timed appropriately. Teradata calls this right timing your offer. In some cases, you may be able to couple your marketing efforts to significant customer events such as birth of a child or purchase of a major appliance. Recognise that some people are early-adopters of products and others are laggards. Paying attention to the purchase history as a reaction to ads for new product yields some interesting 'timing elasticity' metrics for timing of product offers. This must be done at the individual level, and one must also do this by-product, since a person may be an early adopter of some merchandise (e.g., fashion) and a laggard in others (e.g., electronics). Getting the timing right is another way to ensure that your message is not perceived as spam.

6. Ensure that you dont over-touch customers. In the USA, one well-known financial company found that their multiple product marketing groups were simultaneously targeting the same segments of profitable customer with the net results that some customers were receiving up to 70 messages/offers per quarter and reacting ppropriately. It was a product-manager feeding frenzy on the good customers. Good CRM technology can help you control the frequency of your marketing communications.

7. Incorporate negative feedback from customers so you can calibrate your message. Interactive channels like the web and interactive TV are potentially rich sources of feedback by consumers that you didnt get the message, the product offer, or the timing right. Why not offer the ability to click on an inappropriate ad and fill out some information that may help you calibrate advertising more effectively? An example might be someone buying a new car. Your car ad might not be appealing because of timing the person already bought a new car and isnt in the market any more or because of the offer, e.g., the person doesnt want to buy any imported cars. You could create a pull-down menu or a free-form text input that might be quite useful to either take someone off a marketing list or to create a tickler for a future event, e.g., person just bought a car and wont buy again for 6 years.

The impact of using all this technology? Both higher conversion rates and high customer satisfaction scores. Leading edge companies are reporting conversion rates as high as 50-60% on campaigns that are well-crafted, following the principles of getting it all right segmenting to find the most appropriate customers, testing and refining messaging, and getting the timing right. What a difference this is from the spammers who get none of this right and as a result get pitiful results (one seller of herbal stimulants reported 36 sales from 10 million emails, a 0.00036% rate) while annoying way, way too many people. Next Generation CRM techniques hold great promise for smart marketers.

AUTHOR INFORMATION

Dr. Dave Schrader is director of strategy and marketing for Application Solutions for Teradata, a division of NCR. He has testified on spam for the Federal Trade Commission in Washington DC, and regularly gives talks on CRM topics at industry forums and Teradata User Groups worldwide. For more information about Teradata, see www.teradata.com

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