Underwired*

Social media seems to have changed the way we look at things as marketers. I’m not saying social media is the centre of anything - certainly it shouldn’t be seen to be important as a channel in its own right, but it has shown brands that the consumer has a powerful say. The voice of the customer has been given weight, and in fact the advent of social media has brought into sharp relief the fact that what the customer says can propagate rapidly, sometimes changing the course of brand perception.

The customer could even be said to have power over a brand’s destiny that is out of the marketer’s hands. The notion that brands may have to react to the preponderance of opinion, gathered in the social sphere in plain public view (as opposed to hidden in one to one correspondence or at the dinner table or in the checkout queue), is novel and for some quite startling.

Digital has delivered a real shift in power, and we as marketers are having to react to - and not drive - this. Marketing is no longer about telling, it’s about listening. As, of course, it should be.

Listening is enabled by digital channels and these are of course not constrained to the social channels like Facebook, Twitter and the others. Listening is facilitated at every touch point, from B2B’s cornerstone of reverse IP lookups to Google’s AdWords, from the landing page to the shopping basket, through eCRM and the email or mobile-driven comms we use to engender loyalty and ultimately advocacy (back to social). Digital has empowered us by giving us the ability to understand how customers behave throughout their digital life, and map that to touch points and moments of truth as they apply to the intersection between their lives and our brand stories.

But marketing is much more than just digital. Consumers’ lives are not wholly lived online. Some of the critical touch points happen out there in real life, in store, at venues, walking down the street. So it is imperative that as marketers we understand that we need to meet our customers, create those intersections, wherever and whenever they are most appropriate.

This idea of Total Customer Engagement requires joined-up thinking. It requires an understanding not only that customers have behaviour, but that they have behaviour that shifts over time and according to venue, digital or not. And this plays back to the central power shift. As marketers we must recognise that the customer journey is not a journey we put our customers into (though of course this thinking does stem from the more perceptive eCRM agencies), it is a journey we need to identify - that the customers are on in their own right. Our job is to understand their needs states, their attitudes and their paths, so we can meet them. Our role as planners is to map them, and to target our comms cleverly, both in terms of venue or channel and the appropriateness of message type given their mind state at the moment we engage.

The power has shifted from the brand to the customer, therefore we can no longer broadcast and hope. We have to be precise and this requires two things: the ability to gather and interpret data (whether digital or not), and the ability to serve a coherent brand story in whichever channel is most able to serve the purpose of a relevant interaction. In turn, this requires us to be able to manage multiple marketing disciplines - and that may indicate where the real shift in thinking lies.

As marketers we can no longer afford to think in terms of social, or digital or traditional marketing. We have got to think about customer marketing. We need agencies and suppliers who are happy to work together, not as specialists with specialist strategic offerings, but as coherent deliverers of a unified customer journey, one which matches the customer’s pace and place.

Total Customer Engagement is a new way of thinking about marketing - one that Forrester identifies in terms of marketing as mediation rather than execution. It’s the way of the customer. And it’s the way of the future.

We’ve recently started talking to a brand which has around 700,000 customers in its database. They have collected lots of behavioural data, by which I mean transactional data - recency, frequency and value (or RFM) - and response data. This response data is all about what happens when the customer is sent a piece of communication, in this case an email. What they do, when they do it, where it leads. Say the database contains 30 fields. That’s 21 *million* pieces of information, all tied together to create a big fuzzy room we can in effect walk around, try to make sense of, and manipulate to achieve commercial goals. 21,000,000.

Everyone talks about Big Data as if it were some kind of technological nirvana. The reality is you can gather data from a whole lot of sources and stick it all together more or less by hand, if you need to. In practise, Big Data is shorthand for the notion that if only you could mine, interpret and extrapolate all the data you could get you’d have some kind of joined up living solution to customer engagement, almost a mindmeld between your brand and a collective representation of your customer base in its entirety. Nice.

The reality is that data is an enabler, something you can make use of - not something that should make your decisions for you.

So how does this pragmatic approach work? There are a number of critical steps to take you from having on the one hand a commercial goal and on the other some customer data. First, make sense of the data. Customer insights start with understanding what kind of data you have. In our CRM terms this information breaks down into three broad groups:

Demographic - who the customer is

Gender, age, life stage

Location

Income

Status

Family make-up

Education etc.

Behavioural - what they do

What they have bought

When

In response to what

How much do they spend

How long is their ‘customer lifetime’

What channels do they use

When do they respond most

You can see already that by combining some of this information you can infer quite a lot about the way you might want to talk to some of your customers. It is obvious that you can start to create segmentation based on demographic and behavioural data. However, this approach to segmentation may help you to be efficient (behavioural) and accurate (demographic) in who you talk to, but it often does not tell you what to talk to them about.

Taking the classic example of customers of a prize-based fantasy football league, segmenting by these two dimensions might lead you an easy segmentation based on whether the customer buys one or twenty teams (behavioural) and jump to conclusions about their financial status (demographic).

3D segmentation adds a new aspect, motivation, to the mix. If you can divine what motivates your customers then you can speak to them using motivation-based segmentation and that may actually provide the cut through that’s required in a highly competitive environment.

Motivation - why they do it

Need state

Environmental factors

This dimension can change based on changes in the other two dimensions; for example changes in family make-up or life stage may radically alter someone’s drivers for engaging with your brand.

In the case of the fantasy football league, by looking not at behaviour or demographics (which didn’t appear to correlate) but by motivation, through the simple expedient of a brainstorm with everyone we could find near the meeting room we reached an insight we could test - first by checking the correlation with the behavioural data, second by sending a brief questionnaire to a standard sample. The insight was that customers bought principally because they were either motivated by passion for the game (bought a single team) or by the desire to win the prize pot (bought twenty teams).

By using this simple insight we created two segments serving two types of (relevant) content. These were then split into time-based sets based on where the customer was in the product lifecycle (new joiners, mid-season etc.) so we had six or seven simple segments.

Revenue went up 93% in 90 days. The client was The Sun.

The job of data is not to confuse or confound. The job of data is to allow you to extract simple insights that allow you to run singleminded campaigns that tap into your customers’ motivations so that they want to engage with you. As we start to think beyond the age of CRM and focus on rapid growth, it is imperative that Big Data doesn’t become an encumbrance. Data should be there to provide insight so you can get on with the engagement - because how you engage with your customers is the only thing that will drive your success.

Let’s start at the beginning and imagine that you have a brand and a good proposition but no customers. In terms of CRM strategy, this means you have a blank sheet of paper. You need to devise a strategy and create a framework in which to find, acquire, nurture, convert, retain and ultimately generate loyal advocates for your brand.

Setting goals

But where to start? Part of the art (and science) of building a strategy lies in the ability to focus on core issues and subsequently ask and explore fundamental issues. So, in building your strategy, ask yourself these two fundamental questions; each of which is deceptively simple but also very challenging:

What do you want to do with your customers? And what do your customers want to do with you?

By answering the first question, you can quickly get to the core of what’s important to you. So, for example, do you want to get more? Get them to spend more? Or buy more often? Perhaps you want them to buy something new? Or feel differently about you? Of course, the possibilities are endless.

Your answers to the second question can quickly expose a lack of real customer insight but also highlight what kind of relationship you currently have with your customers. For instance, is it a long term relationship? Is it purely functional, based on price for example? Or convenience? Or does your brand fulfil some deeper need? The most effective strategy will spring from where the answers to these two questions lie.

Designing customer journeys

So now you have an idea of where your strategic priorities lie. Next, you need to build a customer journey that will enable customers to find your brand, understand and trust you, and show/register an interest. It is then hoped that they go on to buy something, stay interested and engaged, and eventually tell others about it and become loyal advocates. Each of these are quite distinct steps, though these often prove to be the failure of many brands who quickly dash from finding a customer, straight to attempting to convert them. But is this the most effective way of securing loyal advocates? Ask yourself, how many times have you signed up for emails from a brand only to subsequently be subjected to its ‘one size fits all’ weekly e-newsletter that always seems to feature a sale or some other kind of tactical sales promotion?

Instead, look at the sales process from your customer’s perspective: how and where do they find your brand? What do they have to do to find out more about you? How easy is the process? What data is being collected (and more importantly, how is this data then used)? Is the process designed with the customer’s interests and motivations in mind? Does it reflect the brand’s values/personality/ethos or is this an entirely rational process designed to convert the customer at the earliest possible opportunity?

Nudge theory

The most effective CRM strategies are designed to ‘nudge’ prospects and customers in small steps along this journey. They start at the beginning with a clear prospecting process, moving to acquisition, welcome, nurturing through to conversion, retention, loyalty and advocacy. These steps are designed to build relationships over time. Of course, some customers will dive straight and convert immediately, but the majority won’t. There will be far more disinterested, unengaged (but potentially valuable) prospects than engaged customers. This step by step approach acknowledges where the customer is and is designed to move them closer to your brand.

Value exchange

This nudge approach can also serve as a value exchange between you and your customers as you attempt to nudge customers along the journey. For example, at the beginning of your relationship, you may only ask a prospect to give their email address to sign up for more communications from you. Over time, as the relationship progresses, you can ask them for more details about themselves so you can learn more about them. But you need to offer them something in return. Everyone likes to talk about themselves and you can gather very valuable insights from well-crafted surveys for example. But they have to benefit the customer just as much as you. This doesn’t necessarily mean you have to give them a discount or offer in return, customers may just be as motivated by a piece of knowledge or even gossip.

Seeing your customers in 3D

Let’s now imagine that you have a database that contains your transactional data (purchases, spend, products, date etc) along with some demographics (name, gender, postcode etc). Whilst this is all good and useful stuff, this is still a two dimensional view of your customers. This view can become even more powerful when combined with a third perspective: an understanding of the attitudes towards your brand and sector and their motivations, for example, what makes them interested, what inspires them, what needs can your brand meet?

Understanding your customers’ needs will make your strategy much stronger and effective as it will allow you to find out why your customers buy your brand and more importantly why they don’t. Addressing these underlying issues is an important factor when developing your strategy, as these motivations are often deep rooted and can be fundamental to a customer’s personality and outlook.

Nevertheless, it’s the combination of these three dimensions that is so potent. Transactional data will identify which customers are currently the most valuable, demographics will help you find the most potentially valuable, and the behavioural data will help you express and position your brand in a way that is more relevant and engaging.

Advocacy

Now we have a clearer, fuller picture of our customers, we can understand them better and use this understanding to engage them and convert them. But what happens then? Do you have a strategy and process in place to turn customers into advocates for your brand?

There are many different ways to tackle this, but I suggest two approaches. Firstly, you have to give your customers a reason to sing your praises. This sounds like common sense but is certainly not common practice. One way you can do this is to take an under-promise/over-deliver approach and ensure you deliver a day early. You could also inspire your customers and show them how others use your product, or you could let them know that they have bought something that is worth sharing with others.

Secondly, you can make it easy for customers to become advocates: show them how and give them the tools to tweet, post pictures, videos or comments or pins. Direct them to your social media sites and encourage them to give their feedback and share it with their friends. And then make sure you react and respond to this, even if the feedback is negative. The way you respond will have a positive effect on the outcome.

A successful and effective eCRM strategy starts with really understanding and examining what your customers want from your brand. After all, the aim is to build a relationship which implies a two-way, reciprocal connection. The starting point of your strategy will be where your customers’ needs and your brand offering intersect. Once you have establish your starting point, you can start setting realistic goals, designing customer journeys step by step, building up your customer data, understanding customers’ motivations and making it easy for them to be advocates.

Why is – and why should it be that – FMCG marketing feels so vague? Everyone thinks the be-all and end-all is the big TV campaign. It takes six months to write, three months to edit, a whole bunch of illustrators, animators, storyboardists and directors’ assistants, a hundred grand in production and a hundred more grand for a slot in Corrie. This elephantine effort would be fine, were it not for one tiny flaw: you know fifty per cent of it works, but you don’t know which fifty per cent. The elephant in the room is accountability, and in today’s climate marketers must, must be accountable, as must their marketing.

We’ve come out of a recession, and are wobbling around the edge of a second iteration. Consumer confidence is low, partly driven by what people see in the financial sections of the TV news and partly driven by the doom mongers in the red tops. Businesses like yours aren’t bonkers so there is close scrutiny of every budget from procurement to overheads to manufacturing to marketing. The days of the “Let’s do TV, it works for the big brands” being sufficient justification for the board are over.

There is a second driver at work here: FMCG brands don’t sell to consumers, you sell to intermediaries – Nisa, Bookers, Asda, Tesco. You might argue that they should be doing your marketing for you (in fact, perhaps you should argue; if you spent your TV budget on selling more lines into Tesco they would have a vested interest in pushing your products hard, and yet we have devised ourselves an effective if expensive pull-oriented strategy, presumably because such tactics are too much like hard work). Yet we compete for shelf-space, PoS, the (very) occasional appearance in a promotion or an ad. FMCG brands focus their marketing towards the end consumer, essentially cutting out the middle man and appealing for share of basket. Works beautifully for the supermarkets.

So, two drivers: bypassing the supermarkets to get straight to influencing the consumer, and a terrible lack of clarity about whether this consumer focus can become more focused. Oh, and a third factor: the supermarkets sneakily deciding to launch their own brands (as distinct from own-brand) competing directly with yours. Anyone would think you were in trouble.

Over the past sixteen years – in fact ever since the Snickers® MegaBite online community was created for the brand’s Euro96 sponsorship – digital has become a valid and very useful channel for reaching and engaging consumers. Multi-brand FMCG companies have created websites, communities, games, multimedia, email and mobile campaigns very successfully, if success is measured in awards, media exposure and word of mouth. Over the past ten years, online channels have become properly measurable. The rise of analytics, and analytics specialists, has allowed marketers to track users’ online behaviour in great detail. Marketers are familiar with terms like UX (User Experience), IA (Information Architecture) and User Journeys (a term we appropriated from the supermarkets as it happens). We can drive people to websites, deliver appropriate experiences that support the brand architecture (brand onion, pyramid, pretzel... your ad agency will have its own version), and increase dwell time (the amount of time a consumer spends wandering around, through engagement or confusion, your website).

Digital can track absolutely everything. So it’s slightly surprising that most FMCG brands have not, because they believe they cannot, tracked the value they get from it. In the days when nobody knows which fifty per cent of the advertising works, you would think that having such an auditable medium would be a lifeline.

Digital means a consumer’s activity can be tracked all the way through to a sale. For example, if you sell a tin of beans on your website, we can track a visitor from before they get to the site (their first click on a Google Adword or a banner) through the site, around the site, to the basket and to a successfully concluded sale. We can attribute sales value to visits, which in turn means we can optimise campaigns, spend more on the sources which produce the highest sales, and generally be pleased that you know which fifty per cent is which. We can distinguish good from bad and make commercial decisions based on evidence. And evidence-based marketing is what your board wants.

FMCG doesn’t trust digital in the same way. It’s why, for example, most brand campaigns have a limited shelf-life online, and why websites get replaced with alarming frequency. You’re marketing to the end consumer, but you’re selling indirectly. This perception is common among FMCG marketers: indirect means indistinct. Decision making is therefore down to gut instinct – and how many awards the campaign wins. For me, that makes online marketing for FMCG brands a hopeless case. I want to know how to attribute value, no matter how indirect the sale is.

So let’s discuss a method which means that indirect doesn’t necessarily make it quite so hopeless. We’ve used it over the last four years for McCain Foods.

We started with a database of customers, acquired from a number of sources: bought lists, competition entries, newsletter opt-ins; in fact anywhere we could find data. We cleaned it up, got rid of the stale, unidentifiable, lapsed and suspect data, and created a robust base of legally opted-in people. We put together an email programme. This was pretty simple, consisting of product riptions, recipe ideas, offers and simple calls to action. This gave us a backbone we could measure, and measure we did.

You will be familiar with the normal email marketing metrics: Open Rates, Click Through Rates and dwell time. We benchmarked the programme, making sure we had some consistency to start off with, so we could run some experiments. The first experiment: when should we send these emails? We sent the same email every couple of hours to a different section of the database to establish which time of day got the best open rates. At this best time of day we sent an email every day of the week to see which day of the week got the best open rates. Inside eight days we had the optimum send time.

The second experiment involved benchmarking against the real world. The assumption was that anyone in the database would be more engaged with the McCain brand than the general population (for obvious reasons: these people have opted in to regular emails, and they are getting regular brand exposure). What we wanted to do was to see if we could affect behaviour over time. Working alongside the brand tracking studies already being performed by Hall & Partners, Underwired created a comparable set of questions to mirror the study, in effect asking the same questions of the database so we could compare database versus general population at start, then after six months.

The results at the start were entirely predictable: 61% of people in the base loved the brand versus 20% in the general population. By the end, after the email marketing programme had been in action for six months, that score had risen to 64%, and in fact the gap had widened to 11%. The programme was clearly driving changes in perceptions of the brand, against a general fall in the advertising-only scores. But still, indirect and indistinct. How do we change this?

The next step for the campaign was to find a value benchmark. This consisted of two distinct phases: first find the comparison data, and second find a way to accurately measure any changes wrought by the digital activity. By using email only, the customer journey was kept very simple, and there was a built-in mechanism for running surveys so we could establish consumers’ shopping behaviour.

First we sourced a chunk of useful data. This came by way of Dunnhumby providing real-world shopper behaviour from Tesco customers; we sought out product choice, average purchase value and purchase frequency.

We continued this stage of the journey into attribution by refining the segmentation of the McCain database. The segmentation was fairly simple: brand engagers, brand resistors, category resistors, neutrals. This was also split demographically. The segmentation was tweaked to exactly match the Tesco shopper profiles so we could accurately compare one with the other.

So what have we found? We have discovered that when we put a person into the eCRM programme, in the first six months their purchase frequency goes up by 3%. Knowing what we know about average purchase value (in £s) and frequency for each segment, we can therefore easily find out not only how much the change is worth within the base, but also how much we should invest in acquiring more people into the database in order to drive ever-increasing incremental profit.

So what does this mean? Well, for one it means we know precisely which segments are worth investing in, how much to invest, and what the sales volumes we drive will be. This makes TV seem vague indeed – we do, now, know how to attribute value even when we’re marketing directly yet selling indirectly. We can justify every penny of the digital marketing budget (or at least that portion that’s spent on auditable campaigns) and, in a recession or in a post-recession world, that means we can be certain that what is being done is being done right.

Yet another unrepeatable offer! Bang, Flash!! 25% off today only!!! Ugh. We recently lost a pitch. Not a huge one, but the client was nice, the brand was fascinating and the task was really quite challenging. The client didn’t go for us. Or rather they liked us and loved our work but were sold by another agency who offered them a whopping great discount on an email marketing campaign based on some hard-hitting promotions. Which sort of goes to show that on occasion, when you’ve got one chance at a sale, making the Big Offer is often the best course of action.

Being bitter of course rarely gets you where you want to go. It does make for a very excellent basis for an article which is all about what not to do if you have a marketing, rather than a selling, job to do. And you’re reading this because you’re in marketing, after all. You may even run email marketing campaigns. I am sincerely hoping you may actually run eCRM programmes, or even better, want to transform email marketing into eCRM and then evolve that into multichannel eCRM. Which is about more than just a series of offers - it’s about building relationships around value exchanges that are mutual, and which actually lead somewhere.

Let’s start at the beginning for a minute, if you’ll indulge me. ECRM is about the journey you take your customers on. Segmentation allows you to create a meaningful, relevant journey for each distinct customer type. In my own business we focus on what we call 3D segmentation - who, what and why, with the “effectiveness” dimension having been beautifully articulated as far back as 1972 when ‘need states’ were beginning to be discussed seriously as a component of marketing. (If your agency produces personas, they’re probably at about 1983, a terrible year for music.) This customer journey takes the form of a series of incremental steps from the first moment they self-identify to the moment they stop ever being a customer, prospect or advocate. Put yourself now in the customer’s shoes on this journey. How many times in a row will you want, or tolerate, a 25% off offer? And how many times will you see one before you start to think that’s the normal price?

Imagine you’re a brand like Domestos (forgive me Unilever, I plucked it out of thin air). You can hit your potential customers with offers all day every day, and quite a lot of them will work - or at least when Joe has already decided they need a bottle of cleaner an offer might either sway them from own-brand, or reduce the margin from someone who would otherwise pay full price. But Domestos is a premium brand. Discounting is not the way to become successful. Discounting is the way that economies rebalance themselves, it’s not the way companies make money because it’s much more about fundamental survival. Domestos must look to other ways to engage with customers. ECRM with its customer journey and relevance and, ideally, with an understanding of what makes the customer tick, provides this opportunity.

Because really an offer on its own does not make Domestos interesting or engaging, it just makes it cheaper.

We create customer journeys on the basis of the nudge. The nudge says to a customer, because we understand something of the considerations in your life, here’s something of a little value, in exchange for a few moments of your attention. If we can do this with some charm, a modicum of relevance and a dash of intelligence, we might get to engage their attention... and if we can get it really right, this may snowball into increased consideration, purchase frequency and even - gasp! - loyalty.

Imagine you’re, say, a cleaning brand(!). How about singling out mums with young children. With permission to contact mum, perhaps obtained (and here I may sound a little hypocritical) through some kind of one-off promotion, we could use this demographic insight to plot some engagement. In Keystages 1 and 2 (and later) kids start to learn about hygiene. Perhaps over the course of three months we could send mum on a journey where our value exchange is all about providing her with a heads up about what her kids will be learning, followed by some materials so she can support the learning they do at school when they get home, with some fun activities (preferably not ones which increase her workload, and especially ones which involve creating a mess the kids might run away from!). Follow-the-curriculum, colouring-in activities, downloadables, uploadables, word games - I’m sure you can think of a whole string of things you can give mum which will help her help her kids keep healthy. Not to mention having a cleaner house as a bonus...

It’s a series of nudges along a journey to brand loyalty. And you don’t really ever need to do any selling. You don’t need to say ‘Domestos keeps your house safe’ out loud, it’s implicit in the exchanges of value and values you’ve transacted with your customer along the way. At some point, one of the little nudges may even involve a voucher or a promotion, just to cement the relationship. You may give them a social space they can meet other mums in too, so long as you listen to their advice to you and you respond in a manner consistent with your brand’s values.

ECRM is, or at least never ever should be, about banging on about buy buy buy (I was going to say “Harpic on” but that would have been a bad pun too far). It’s about nudging, gently, so your customer wants to go on your journey with you. Because if you can take customers on your journey, while the discount merchants may sacrifice margin for survival, you’ll have loyalty delivering straight to the bottom line.

How to measure ROI for email campaigns

ROI isn’t just about measuring. In times like these, to be brutally honest, it’s about winning. 

ROI (Return on [Marketing] Investment) really needs to be measured in financial terms to make the sort of sense your Financial Director wants to hear, although if you look at ‘value’ as the output, value can be defined in a number of ways. You could for example define value by how likely a customer is to speak highly of you, though it’s almost impossible to establish a financial value to this. Some of the wilder social media agencies will tell you a Facebook “Like” equals £10, which is every bit as useful as a Tweet being the same as a gumboot!

For simple - monetary - ROI, there are two approaches. You can either track your customer all the way to a completed online sale, or track changes in behaviour against a benchmarked control.

You can add a time dimension to this too by looking at the long-term value of a customer – the Customer Lifetime Value (CLTV) – which may be very different to their short-term value. If you’ve ever subscribed to TM Lewin or Richer Sounds emails, where there’s a constant barrage of sales until you capitulate, you’ll know all about balancing an increase in short-term spend against burn-out. In other words, milking the customer too hard usually increases churn... I may buy three times in quick succession but then you’ll lose me forever.

A customer must, by law, have opted in to your email communications, so you know who they are and, provided your email service provider has half-decent tracking and you can tie their purchases to emailed call to action, then you can see the ROI immediately – you spent X on the campaign, which drove Y sales. Presuming you spent less than the extra profit you generated, it’s probably worth doing again. Over time you can then see curves of drop-off in response and optimise your communications accordingly.

Tracking against a control (or baseline) requires a scientific approach and segmentation (perhaps low, medium and high spenders, defined by behaviour, demographics and motivation). This kind of approach will give you the means to track changes in purchase behaviour and attitude towards your brand over time – powerful stuff, In practical terms, if you have a benchmark (for example Tesco data) then you can compare your audience with Tesco’s and factor out TV campaigns and see the actual effect your email campaign is having.

You’ll probably be able to ascribe certain characteristics to a set of customer segments, for example average purchase frequency, average transaction value and CLTV. (For what it’s worth, you’ll nail 80% of everything you need to achieve with segmentation in around six or seven key segments.) If there’s a clear difference between the reactions of two segments to your campaign, for instance if one segment responds by spending twice as much every month, then you can probably guess which segment to spend the most money on.

This approach also tells you where to spend your advertising budget, because obviously you want more people like them... and conversely you can stop spending money on acquiring more people into the lowest performing segments.

Taken only at its face value, ROI is about working out what you got in return for what you spent. But it’s so much more: it leads you from email marketing to eCRM, and that’s a transformational shift. ROI is about gaining an understanding so you can spend less on low profit customers and more on high profit customers. When you do that, you start winning.

There are still some companies that haven’t understood the significance of eCRM (Electronic Customer Relationship Marketing). Yes, eCRM, that marketing nirvana, which comes with investment barriers that might make it impossible to buy. How could you turn down something that’s going to take a year to get right, that may cost a quarter of a million pounds but that might make you millions in new revenues?

It feels like an impossible proposition. It’s so difficult for brands to buy that many of them don’t. Those big innovators with money to burn can afford to experiment and reap the rewards, but most brands just can’t see it. Most brands have to focus on their immediate tactical requirements (sell, sell, sell!), and perhaps try social because they’ve heard they can do it for ten grand.

Most brands can’t afford to do eCRM, no matter how big the rewards, and how much it differentiates them from the rest of the market. Or can they?

Let’s go back a few years to when the first major eCRM campaigns started. In 2003 Underwired proposed to Virgin Holidays taking over an existing email newsletter campaign and building something more sophisticated.

Critical mass

The campaign became segmented, largely by behaviour to start with. What Customer Type 1’s preferred destination, time of year of booking, or decision making time was likely to be, informed when they’d get a special offer on a certain Florida hotel. Quite quickly the second dimension demographics came into play as well. Sending an offer for a free flight for your second child to parents of two made a big impact. The first segmented email sent generated £3million in direct holiday bookings. Virgin Holidays had taken a leap of faith and invested in a campaign that cost around £30k and justified a programme with an ROI of 100:1.

But once the initial surprise had worn off and customers got used to it, there was a long period of lots of detailed activity, lots of creative work going on, but not - it seemed - much return. It changed though, reached a critical mass after about a year, and finally the smiles started reappearing on the client’s faces. And stayed as the programme’s ROI three years later was still averaging 26:1. Fantastic.

The Virgin engagement went exactly like every other eCRM project. It started with a big bang that makes everyone very happy, and settles down. After a few months the quick wins have worn off and it starts looking like nothing is happening at all. After a long, long year though, the eCRM programme starts paying for itself again. But there’s this big, long, frustrating period of doldrums, where the project owner gets disillusioned and it all looks like very hard work for no return, and it’s this that I want to come back to. Why? Because actually it’s this period when the principles that really drive eCRM are hardest at work.

Creating relationships

The first principle is segmentation, and if you will indulge me while I teach granny to suck eggs for minute it will set the scene for the second. Segmentation is based on a simple idea, that if you send a specific call to action (an offer, for the sake of this example) that is relevant to the right person at the right time, it’s more likely to be acted on than if you send it to the wrong person or at the wrong time. Let’s take an example. You have three hundred people, 100 are golfers, 100 football fans and 100 cricket fans. You have three offers to go see the Ryder Cup, the FA Cup and the Ashes, in an email, one after the other with a paragraph each. You send the email to everyone. 100 football fans will see the golf offer first, and a third of them will bin the email. The golf players will see golf first and be happy. The cricketers, well two thirds will bin the email before seeing the third, cricket, offer. Your maximum response rate will be 175 – because only 175 of the 300 recipients will have read the offer that appeals to them. Simple. Segmentation says, send one email with one offer to each group (yes, the right offer!), and your maximum response rate is 300 out of 300, a 70 percent improvement.

The second principle is the principle of the nudge. ECRM isn’t an advertising medium, it doesn’t work by bombarding people with messages until they buy – in fact, if you send too many emails it’s obvious what will happen: after the initial hit of increased response people stop reading, after a while they add you to their junk filter, and you never know because after too many emails they can’t even be bothered to unsubscribe.

The job of eCRM is to create relationships. So while the segmentation principle is important, it must be balanced against the need to create a relationship. What we want to do is change people’s behaviour subtly over time. Small calls to action, little asks, are what is required. I want every customer to spend a tiny little bit more every time. I want them to increase their purchase frequency by 2% over six months. I want a 0.1 percentage point increase in average transaction value. Why so little?

What the big innovator brands realised a while ago is that little nudges add up. If I suggest you double your turnover in two years you’d think it impossible. Yet if I suggest you increase it by 3% this coming month you might feel it’s much more realistic. And what happens if you increase your turnover by 3% a month for the next two years? The laws of compound interest say you’ve doubled your turnover. That’s why eCRM is, really, so compelling. Yes there’s a quick win, and yes, there’s a long quiet patch, but patience pays off.

Everyone thinks of email as being more or less a broadcast medium. Email agencies and bureaux send millions of emails as newsletters every month to addresses lodged in databases. Some send them daily. No-one expects a reply.

But email has a richer use. With apologies for the reminder, but email was the way you had a conversation without picking up the phone. You send a message to your mate, and when they’re ready to answer they do. You can have conversations in real time, or with a delay for timezones, research or holidays. Email involves your counterpart in the decisions about how the conversation is paced, where it leads to, when it changes venue, when you meet up.

We appear to have lost sight of the dialogue. It’s easy to do so: if you’ve got 20,000 addresses on your database or 800,000, managing dialogue can be a daunting prospect. And notice I said addresses, not customers. More often than not the email broadcasts marketers manage go blind to everyone they can reach. So email gets a bad reputation, and newsletters have dwindling response rates. Where once it thrashed Direct Mail, now response rates are in the lowest single figures.

We all know what the solution is though. Segmentation makes response rates leap.

Imagine you’re sending an email to ten thousand people with three unbeatable holiday offers in it, one for families at the top, one for retired people in the middle, and one for singles at the bottom. And let’s assume that everyone reads the first offer, two thirds read down to the second and a third scroll down to the third. If the audience is equally split between the three target groups, the maximum possible response rate is 6,666.

If we could divide the audience into three segments, and send one email with one offer to each, the maximum possible response rate is ten thousand. That’s a huge difference in effectiveness. If you started with this three-part email, and it really is an unbeatable offer, just by segmenting it you increase your sales by 50%.

So that’s segmentation. Segmentation is a science – one which we practice and improve all the time. It can be really simple like the example above, or it can get very complex. We can segment by, for example, behaviour (what media they consume, do they request a brochure before making a decision, which wines do they prefer), or by demographics (where they live, how many there are in the family, what they earn), or by motivation (whether they are interested in their kids’ health, or the environment, or what their neighbours think). When we start working with a client this is what we address first, by looking at what data is available either in the client’s hands or commercially, because this will give us insights into what messaging might work to drive increased response.

Segmented email marketing is incredibly powerful, but it’s nothing to do with technology, and the technology vendors will always work with specialist eCRM partners with long experience in segmentation strategy to devise the campaigns they deliver for you.

ECRM adds something really special to all this. ECRM is channel-agnostic, in other words it’s concerned with reaching the customer wherever they are – email, SMS, social media or websites. A great eCRM strategy uses every touchpoint available to deliver the right messages for the right moment in the decision-making cycle to the right person. eCRM leverages segmentation through email, but creates a relationship through observing how customers behave and what they find most motivating by tracking across every digital venue, mobile to landing pages to social media, and that’s when email marketing becomes something different, something which transforms businesses through radical changes in revenue.

Time was that marketers simply marketed. They told a story that engaged potential customers in their brands. They talked at people, hoping to attract, seduce and exploit. Retention was simply about delivering what was expected – not disappointing – and being consistent. When I became aware of interactive marketing in the early 1990s it was because of a CD-Rom called Xpand Expo, a virtual exhibition hall that you could click around, read text files placed on virtual stands, and that was about it. They’d spent a lot of time rendering an exhibition hall-like suspended ceiling, and done a good job of selling virtual stands to the likes of HP. What occurred to me at the time was that here was a golden opportunity to give some power to the consumer, by removing the sales person – but it needed structure and marketing thinking to make it engaging and work. I started my first digital agency to do just that.

Interactive multimedia truly gave the power of self-selection to the consumer. It meant if we gave a consumer five choices, they’d (almost certainly) choose the option that appealed to their needs most. Slightly problematic in that getting CDs to enough potential customers was expensive and the media was fixed. No-one in marketing took it very seriously. Then the following year along came the world wide web, and the world changed in twelve months.

Marketers cottoned onto the opportunity – eventually – to engage customers in a dialogue driven by the customer herself. Websites became big business for forward-thinking clients and agencies like ours; getting people to the websites became the next challenge but again, tapping into elective channels made sense and worked in practice. In fact, the agency I run now started as a search engine optimisation (SEO) agency in 1996 as an offshoot to our web agency. And actually that leads me towards the problem marketers face at the moment, which in my view is crippling the advance of interactive, elective experiences that customers can enjoy and companies can make millions from. And they can, because some have seen how to solve the problem.

The issue is that in the years following the early pioneering experimentation, digital marketing has become siloed. When I last looked there were 3,500 companies claiming to build websites. SEO has become an industry in its own right – in fact, two industries: organic (natural) search optimisation and paid-for search, (PPC – pay-per-click). Web has become websites plus tactical microsites, often by different agencies. The DM agency probably has a microsite supporting a print campaign. The PR agency is looking after “reputation management”, though it might be subcontracting the Facebook page to a social media agency. Oh, and the online ad campaigns are being specified by the media buying company.

I’m sure it all made perfect sense at the time.

So here’s the situation most clients (except the really canny ones staffed by strategic thinkers) find themselves in today. A dozen agencies, some nested or subcontracted. Each of them doing what they’ve been told. And if they’re good, each one is trying extremely hard to improve on what they did last quarter, incrementally increasing click-throughs or eyeballs or impressions or recall by 3%.

Many of the really good ones will be coming to you with really great ideas for attracting new customers. Fantastic viral ideas coming from the ad agency. A really good creative hook with legs from the online agency that will reach new audiences and probably drive some extra traffic to the website too. And what with the e-commerce company annually improving the sales funnel, well, it’s an ever-improving world out there. But while all these bits and pieces are individually doing better than whatever they were doing before, they are also gradually losing touch with each other. It used to be that marketing marched to a single coherent beat, where the TV ad established the awareness and each other medium elaborated on the brand message. Yet that’s fragmented badly, and what we’re left with is a mess of tactical, competing, agency-income-motivated digital campaigns that have no backbone or strategy, and which often do more to confuse the customer than empower them.

It’s a situation we see all the time. And there is a simple way of getting out of it, though it takes will, vision and patience.

We need to go right back to the customer. The data is the key here. All of the various marketing activities I’ve described deliver data in fairly large quantities – data about who your customers are, how they behave, what they like, how many times they buy, how much they spend, how long they last, how quickly they churn and so on. Again, it’s probably in a variety of different places, but that doesn’t really matter. The first step is to find it all.

So, step one, find the data. Any eCRM agency worth its salt will be able to manage the aggregation of this data, manage its analysis, and come up with insights about your customers. These insights inform segmentation – behavioural, demographic, technographic; value (by whatever measures)-led, loyalty-led, influence. And segmentation tells you what you need to say to each of them at what time to increase their engagement and to increase sales... when McCain Foods did this, engagement rates with brand resistors went from 14% to 63% in just ten months.

So now we have a map of what needs to be said to whom and when. In its most basic form eCRM can easily be delivered by email. This might be augmented by microsites speaking and exchanging information with each segment. Supporting this you might want to extend forums or social media that allow customers to interact further with you, or each other. If you observe these closely enough you’ll find out what’s bothering customers – in fact they might show you how to segment them even further or what’s going to interest them in the future.

And suddenly (well, to be fair it might be three to twelve months) you have the kernel of a digital strategy. Followed through, the segmentation which came from all that disparate data can start delivering genuinely useful information that essentially becomes the foundation of a marketing strategy. Simply observing the success or failure of each strand of communication with a segment by watching the behaviour of the recipient, gives you the power to change the options you make available to her over time. It’s enormously powerful, and because all that is being done is observing response and making changes based on what is seen, the power really is back in the hands of the marketer, even if it appears that the whole machine is being driven by the customer.

And from this observation of what works and what doesn’t, what motivates or engages and what demotivates or disengages, comes the magic: very quickly we start to see which segments we want more of. And that means we know what to tell our agencies to do. They are suddenly working to your plan, not theirs, and your plan is driven by an eCRM strategy not an agency account handler’s desire to make themselves famous with an award-winning viral or a 0.002% increase in banner clicks. Time was that clients drove strategy, rather than herding agencies, and eCRM brings that time back, at long last.

Recession indicates retention. The solution (as everyone knows but few seem to practice) to the problems brought about by a severe downturn is first concentrate on what you have, not what you might have. Marketers must – must – get retention right, for a variety of reasons.

• It’s where your current revenue is
• It’s where the lowest hanging fruit for additional revenue is (all you have to do is not screw up, then ask for more business)
• It’s where your biggest advocates lie
• It’s where your data sits
• It’s the biggest source of prospective customers for your competitors

...And so on. Reducing churn protects your customer base against better offers or a better story from your competitors, and yes, they’ll try anything. But customers have a certain amount of inertia. Once they’ve started a relationship with a brand they’ll only move through lack of appropriate attention or if you don’t deliver on what’s been promised, so retention starts with not offending customers. eCRM creates stories that will keep customers engaged, and great eCRM creates stories that massively increase engagement and not only reduce churn to near-zero but increase purchase frequency, average transaction value, and active advocacy.

The customer relationship management bit of eCRM isn’t the whole story.

Buried in the above list though is a gem. “It’s where your data sits”. Your best source of information – not just for segmentation strategy – about who’s likely to spend more is your existing customer base. The data you already own can tell you how to run extraordinarily efficient acquisition campaigns.

(By the way, many people in digital have long thought that acquisition campaigns are a load of rubbish because generally they’re about feeding huge numbers of people into a funnel in the hope of converting the few people who, more or less by accident, have been hit at the right time to buy.)

By combining the segmentation that’s been created for eCRM programmes that focus on retention with the data that gets collected on how those segments behave over time in reaction, we suddenly have a potential gold mine. Great eCRM doesn’t just retain, enhance, increase – it tells you how to acquire. The new, richer data tells you which types of people are most likely to be movable from low-value to high-value. And this in turn tells you what kinds of people you want more of. And that, put simply, tells you where to spend your money to increase your feed into the improvable segments. eCRM suddenly becomes not just about retention marketing, but about all marketing.

Developing an effective segmentation may require a blend of behavioural and attitudinal data, argues Pete Anderson, planning director, Underwired

The nature of mass consumerism has changed dramatically in recent years and, in sync, the landscape of mass marketing and broadcast media has changed too – the identity and the ‘voice’ of the individual have become ever more prevalent, with the feeling that individuals can make big differences. Consumers have the power either to make or break a brand, through advocacy or criticism.

The problem is that, although the world has moved on, generalisations are still perpetuated, even in our industry, where recognition of the individual and the importance of ‘one-to-one’ dialogue are considered almost sacred.

Digital space provides expanded flexibility in achieving targeted and ‘one-to-one’ marketing, with email and SMS providing cost-effective communications. Consequently, some companies are making progress in terms of segmentation and ‘relevance’. However, a startling number of advertisers and agencies alike are still not practising segmentation or targeted communications.

So why, in an enlightened, insight driven industry, are we ignoring the mountains of research, consumer feedback, trends, market forces? Is it the ‘elephant in the room’ syndrome – it’s staring us in the face but we choose to ignore it? Or are we just guilty of defaulting to the path of least resistance, or not really understanding the subject, so that the ‘hype’ is just a sales pitch with no substance?

If it ain’t broke...

A common justification for not doing something is the old adage, ‘if it ain’t broke, don’t fix it’, driven either by a real (although sometimes flawed) belief that this is the best way and it can’t be improved, or by sheer laziness or plain reluctance to deal with something that feels ‘too complicated’ and outside the comfort zone.

I once read an article by a respected practitioner in direct marketing who stated that keeping things simple was what it was all about. This is fine to a degree; over-complication is not a good thing, but they claimed that we seemed to be moving into an era of ever more complex ‘scientific marketing’ – analytics, modelling and segmentation – which is ‘over-complicating’ things. That’s like burying your head in the sand: ‘I don’t want to deal with it because it’s difficult.’ Well, whether we care to recognise it or not, the devil is (definitely) in the detail.

Thankfully, their views do not reflect the trend across the whole industry, but the subject of segmentation is still quite a broad church and open to a variety of interpretations and methodologies.

The challenges of segmentation

The problem is, there is very little discussion about how and what segmentation should be used, just that segmentation is important and that advertisers should segment their customers. Add to this that most brands aren’t fortunate enough to have a robust, comprehensive customer database that has a significant volume and depth of consistent data to apply a workable segmentation model without breaking into a sweat.

The challenges are many and varied, and there has to be a real belief that the work required will deliver something that is not only effective, but executable. There really is no point in demonstrating something that looks amazing but cannot actually be applied to a communications or customer relationship management (CRM) programme. Having a model that helps all concerned identify and describe the consumer is fine, but not being able to do anything meaningful with it makes the process pointless.

Direct marketers were early adopters of segmentation, simply because the whole principle of direct marketing is about targeting and relevance. Direct marketers are also in the best position to be able to practise and execute segmentation, since DM relies on data – customer-related data, that can identify anything from demographics (what customers look like) to behaviour (what they buy, how frequently, how much they spend, and so on).

Looking to the DM sector helps us to understand the value and the effectiveness of segmentation. The problem is that most companies find it a challenge to gather consumer data at the level of granularity required both to create and execute a realistic, workable segmentation.

Take the FMCGs (packaged goods) sector. Gathering customer data is a real challenge here since consumer purchasing is made through a retailer, usually a supermarket and, until recently, most retailers gathered only till information and transactional data that weren’t attached to any customer information. Retailers like Tesco created initiatives to address this challenge through loyalty cards, for example, Tesco’s Clubcard, while other retailers quickly followed suit with their own loyalty cards; but the challenge still exists for FMCGs to create their own customer segmentation models in order to influence category and brand purchasing behaviour.

Even where segmentation exists, the design and construction of these models can be questionable. Add to this a lack of understanding of what segmentation represents and it is clear the whole area is fraught with challenges.

Breaking into segments

The point of segmentation is to group consumers into identifiable and manageable groups – groups that display characteristics in common, whether that be demographics, channel preferences, behaviour, values, attitudes or motivations.

Far too often, though, client and agency marketers fail to remember that segments are just broad groups – groups about which we still make generalisations, albeit more targeted generalisations. Segments are not absolutes, they are not groups of consumers who are exactly alike – they are just more similar in certain attributes than if they weren’t grouped together. An example might be a demographic value, where a segment could be typified as families, with four kids, living in London and the south-east. These values are not going to occur consistently for every consumer in the segment: it just means that the segment has a greater likelihood of comprising households with those values. So, for instance, the segment might also contain some households with two kids instead of four. It just means that the segment will be ‘more likely’ than the average (whether the population, the customer base, and so on) to contain households with those traits and values. This depends how precisely the segment has been defined: if ‘4+ kids’, for example, is specified as a key variable, it ought to mean exactly that.

Originally, segmentation was designed around demographics, because what consumers looked like was the main criterion for grouping them together. It was also a fair bet that if you belonged to a group of consumers that were, for example, a middle-income household with two children, both adults earning, living in the South East, you’d behave much the same as the next household with the same profile. The use of ACORN classifications (still in use, but now largely superseded by MOSAIC, both being geo-demographic classifications of residential neighbourhoods, placing groups of households together based on their similarities at postcode level) to broadly describe an audience based on their similar life-stage profiles was, and still is, widely used for broadcast and ‘above the line’ media planning, where awareness activity has traditionally relied on mass-marketing techniques to reach broad groups of consumers.

But broad segmentation descriptions of an audience, like ‘ABC1’ consumers, while appropriate in certain circumstances for media planning and the like, tend to be overused and are increasingly inappropriate these days for describing groups of consumers who need to be targeted using integrated activity. After all, ‘ABC1’ broadly describes the majority of UK households earning a decent income. Not very targeted or specific, yet it’s an audience description that still appears, albeit less frequently, in client briefs to agencies where integrated or relationship marketing techniques are required.

The challenge for the agency planner is then to drill down, to gain greater understanding of the audience groups in order to provide those ‘real’ motivational insights that inspire great ideas and creative. At Underwired our challenge is to find a way for our clients, strategically and creatively in a digital space, to break down barriers and find a way into consumers’ hearts and minds. How to achieve this is the most powerful insight that we can find, the insight that helps us understand what makes a consumer tick. The ‘thing’ that makes a person engage with a brand, consume a brand message, and then take action; it enables us to connect the strategy to the creative, helps us find that big idea that can break down the barriers to brand engagement, and gets consumers to open their wallets.

The output, the manifestation of the idea, is the single-minded proposition. Focusing on one single-minded proposition for a broad audience is all very well for a long-term brand or awareness campaign played in an offline, above-the-line space, but consumers are more savvy and selective than ever – and so single-minded propositions to an audience of one large group can frequently alienate more people than they engage.

The concept of single-minded propositions still works. But now, thanks to segmentation and ever-more-targeted communication channels, different ‘single-minded propositions’ can be targeted to different audiences. So now the single-minded proposition becomes relevant to consumers in each segment, which means that more people are engaged, yielding better response, less wastage, and greater cost effectiveness. The result? Improved ROI. Do this on a regular basis and it becomes a ‘relevant’ dialogue with the consumer – a relationship (so now we’re talking eCRM). The result? Improved CLTV (Customer Lifetime Value).

In an ideal world...

So what is the ideal? What is the most effective way to segment consumers into groups so that communications can appear as relevant and specific to each individual as possible?

The ideal will differ, depending on circumstances – the business and marketing objectives, the marketplace, the brand, the customers, communications channels, available data and research, available resource and budget. But, in my experience, segmentation works best if the main discriminator is the most significant factor that has an impact on response and purchase – and whether this factor can be used as a means to define and group customers into clusters of similar traits.

Rather than demographics, it’s preferable to group consumers into attitudinal and behavioural groups. These are more predictive factors, dynamic components that have a more direct correlation to a response or an action. For example, if a barrier to a product is a perceptual one, then the most significant way to segment the audience could be by attitudinal type – in other words, ‘I only buy products I trust...’

In addition to segmentation, brands should still strive to reach consumers with some real data-driven, one-to-one communication in order to optimise the consumer’s relationship with the brand: but segmentation does provide a cost-effective means to target a group of customers with a message that is common to them, and therefore relevant. Used as a filter, segmentation can be even more effective as a means to isolate a group of customers – in order to then target further within the group, pointing even more relevant messages to sub-sets of customers within the segment. By using attitudinal and behavioural data as the main criteria for identifying segments, the most dynamic components are being used, ensuring that the targeted message takes into account all customers in a group that have common motivations and behaviour.

Hearts and minds informing communications

By including attitudinal data in the mix, a strategy for communication and investment can be made, potentially a brand retention route for the high-spending segment, and possibly a couple of routes to test for the other. One may be to test communications with testimonials from similarly profiled consumers, or to further identify specific ‘barriers’ through a customer survey for this segment, and communicate appropriate messages accordingly.

Using traditional profiling and demographic segmentation techniques, the second segment could have appeared potentially as valuable as the first. The problem is that if the attitudinal barrier is an absolute factor in determining behaviour that can’t easily be broken down or changed over time, then the level of investment in this segment is not going to be very robust.

Finally, it is worth remembering that, just because customers fall into segments, it does not necessarily mean that they will always be in that segment – behaviour can change and alter over time, so segmentation should be dynamic; and just because a segment exists, it does not mean it should. Just like profiling, segmentation can sometimes identify customers that should not be there, that actually cost money to keep and may never move up through the value chain.

One thing’s for sure, good segmentation is always going to perform better than no segmentation at all – because ‘relevance’ is everything!