Part 6: Campaigns Versus Access

This is the fourth part of a series on Sustainable Marketing. In this installment we continue the comparison of Traditional Marketing (Price) versus Sustainable Marketing (Value). Click here to link to the beginning (Part 1) of the series.

The Internet and mobile communications have increased their share of marketing’s attention, and the reason is clear. As discussed in an earlier section, the customer now routinely determines where, when, and how he or she will interact with a company.

Broadcast media have declined in importance, as they have become fragmented into hundreds of specialized channels. Addressable media like direct mail and telemarketing have become more expensive and more highly regulated. The challenge to marketing is to manage customer access points, not just execute campaigns. “Customer experience,” has become a concept that spans all channels.

Marketers are no longer only brand managers executing campaigns. Increasingly, they are customer managers guiding customers to the most appropriate interaction channel and insuring that every channel knows what to do with each customer.

Failing to synchronize marketing, sales, and support channels is a violation of any company’s brand strategy. Any inconsistency in messages, prices, and policies diminishes the company’s hard-won position in the market. Every dropped communication, reentry of data, or perceived confusion chips away at long-standing customer relationships.

Synchronizing customer access points is a major challenge. Many companies have a sophisticated distribution strategy that incorporates everything from retail stores to indirect channels, as the figure below illustrates.

Each of these channels has a different dynamic and cost structure. The cost of interacting with customers is typically a function of both the sophistication of the product and the complexity of the sales process. Packaged products such as books, DVDs, and clothing can easily be sold through cost-effective retail, catalog, and electronic commerce channels. The cost of customer interaction for these products and these channels is typically low (a few dollars per interaction).

More sophisticated products that require configuration or customization or that are created to the customer’s specification typically mandate a more expensive distribution model through a direct sales force or specialized channel. A direct sales call can cost hundreds or thousands of dollars. When products are sold through channels, much of the transaction cost can be offloaded to the partner. However, since the discount structure for indirect sales is much higher than direct sales (and the revenue per transaction is shared), the ultimate cost per customer interaction is still quite high.

Obviously every company wishes to sell its products through the most cost-effective mix of channels. As e-commerce has matured, more sophisticated products are being sold online. Regardless of their access point, the customer experience must be consistent. Lack of synchronization creates additional costs when a sales or support person must call on the customer to correct errors or misconceptions.

Part 5: People vs. Process

This is the fifth part of a series on Sustainable Marketing. In this installment we continue the comparison of Traditional Marketing (People) versus Sustainable Marketing (Process). Click here to link to the beginning (Part 1) of the series .

In many small companies, lead volume is tracked by Mary. Cost per lead is determined by Bob. Someone “on the fifth floor” consolidates the pipeline report. In larger companies, these forenames are simply replaced by department names. Marketing communications tracks leads. Sales operations develops the forecast.

Companies frequently have well-defined processes and workflows in manufacturing, customer support, and finance, but too often the same cannot be said of marketing. Processes that are well documented are candidates for continuous measurement, automation, and improvement. Here marketing is often well behind other disciplines.

The lack of standard processes in marketing makes sustainable progress difficult. What cannot be defined cannot be measured and improved. One thing that rapidly becomes apparent from this discussion is that sustainable marketing involves phased investments managed consistently over time. “Sustainable marketing” describes a process, not a discrete event or achievable state.

We have written about the value of continual improvement for more than a decade. This concept is well known, primarily on the supply side of the corporate value chain and most notably in process control and quality assurance. The approach became popular in the 1980s and 1990s as part of a major restructuring of business in many countries as a response to gains made by the Japanese automobile and electronics industries. The overall approach is older, dating to the 1930s and 1940s.

The Deming-Shewhart Cycle of Continual Improvement is the result of work done by Dr. W. Edwards Deming and Dr. Walter Shewhart. The four-step process (PDSA) is simple, but compelling in practice:

• Plan: Determine the scope of the test as well as the planned interval of iteration

• Do: Try out the test on a small scale

• Study: Gather empirical evidence and study the results (involve the customer if possible)

• Act: Take action to improve the process based on what was learned from the test

This model is part of a large body of statistical work on improving quality. It has spawned a host of “quality circles” and “six sigma” initiatives. Six Sigma uses a modified version summarized by the acronym DMAIC: Define, Measure, Analyze, Improve, and Control.

Quality has become an objective, a philosophy, way of life, and a major organizing principle in manufacturing organizations worldwide. In corporate IT departments, the idea has gained significant traction, as much from experience as from theory. Long, serial development processes have given way to continual prototyping with phased deliverables.

Most IT professionals have emotional (if not physical) scars from the big bang approach to systems development. The approach has not, however, found its way easily into the demand side of the value chain. Sales and marketing executives are driven by quarterly results. They live on the front lines, and their tenure can be short. The notion of a long journey of continual improvement resonates only with the few.

In an age of sustainable marketing, this must change. Companies simply cannot risk big surprises and large failures. They require the ability to plan big and start small as a way to contain risk. To be more sustainable, marketing organizations must focus on implementing and improving processes by creating a culture of quality.

Extraprise Sustainable Marketing Webinar, Thursday July 16th at 2 PM Eastern Time

To continue the dialogue regarding Sustaible Marketing, and make it more of an interactive discussion than our blog series and whitepaper, we'll be conducting a webinar on the topic July 16th at 2 PM Eastern. Please join in, we'd love to get some feedback as we develop this topic. Register here, and we'll look forward to discussing the topic with you. We'll also be posting the webinar on our website next week.

Sustainable Marketing - Part 4: Price vs. Value

This is the fourth part of a series on Sustainable Marketing. In this installment we continue the comparison of Traditional Marketing (Price) versus Sustainable Marketing (Value). Click here to link to the beginning (Part 1) of the series.

It is difficult to have an intelligent conversation about price and value without quoting Oscar Wilde. A cynic, he wrote, “knows the price of everything and the value of nothing.” In our context, value is often understood by those who make and use products. Price is better understood by those who are involved a transaction: sales, finance, contracts, purchasing, and too often, marketing.

Price is what a customer pays. Value is what they perceive or receive in return. Value-based pricing defines selling prices based on the perceived value to the customer, rather than on traditional measures like cost, competitive pricing, or the historical price.

A key insight in this approach is that pricing may be customized for each customer segment based on the value delivered. Many metrics determine value, such as time, features, discount level, and many other firmographic and demographic factors.

Like most sustainable aspects of marketing, value-based pricing requires a significant level of analysis and customer understanding. It is imperative to know how customers measure value, through evaluation of customer interactions, feedback in surveys, focus groups, and other marketing instruments.

The van Westendorp Price Sensitivity Meter (PSM) is a well-known segmentation process for understanding customer price preferences. The basic assumption is that all customers are capable of envisioning broad pricing schemes and can define their preferences based on a quantifiable measure of value to them. Customers or prospects are asked four price-related questions:

• At what price would you consider the product to be so inexpensive that you would have doubts about its quality? (too inexpensive)
• At what price would you still feel the product was inexpensive yet have no doubts as to its quality? (inexpensive)
• At what price would you begin to feel this product is expensive but still worth buying? (expensive)
• At what price would you feel that the product is so expensive that regardless of its quality it is not worth buying? (too expensive)

Graphing the resulting values from each question helps the marketer identify the range of acceptable prices. In most such exercises, the optimal price band falls between the point of marginal cheapness (the intersection of inexpensive and too inexpensive) and the point of marginal expensiveness (the intersection of expensive and too expensive).

An allied approach, Conjoint Analysis, requires participants to make a set of predefined trade-offs in features, packaging, and price. Attendees are typically asked to rank a series of options or choose their preferences from a list of alternatives. Initial segmentation is important; participants must be grouped according to their identified demographics, objectives, and anticipated values. Analyzing these judgments can reveal the relative importance of the underlying components of value. Other approaches like Gabor Granger and Brand Price Trade Off offer useful additions to these basic themes.

Research in value-optimized pricing supports the assumption that this approach leads to increased revenue and margins. Assuming that costs are fixed, customers who perceive greater value will pay more for the same product and be more profitable. Customers who perceive less value may be targets for increased marketing spend to change their perception. At the other end, customers who perceive the lowest value may not be appropriate targets for the next marketing initiative. They may be incented to move to lower cost sales and support channels like the Internet.

Click here to continue to Part 5 of the Sustainable Marketing Series.

Sustainable Marketing - Part 3: Products versus Customers

This is the third part of a series on Sustainable Marketing. In this installment we beging the comparison of Traditional Marketing (Product-centric) versus Sustainable Marketing (Customer-centric). Click here to link to the beginning (Part 1) of the series .

There has been much discussion over the last decade about the necessity of moving from a product-centric to a customer-centric approach to business. In the mid-90’s, technology caught up with the concept. Companies like Siebel Systems were launched to capture and share customer interaction data across marketing, sales, call centers, customer support, and a variety of channels.

With the rapid rise of the World Wide Web, customer centricity became an imperative. Marketers quickly lost control of their distribution strategies. Customers had instant access to competitive information like features, packaging, pricing, and discounts. For the first time, they gained the ability to manage their relationships with companies. Customers determined when, where, how, and through which channel they would interact with companies and, as a result, marketers scrambled to define a set of preferred interaction models for each customer segment based on its value to the company.

Despite this flurry of activity, most marketing organizations remain product centric. Companies still organize around product lines and marketing budgets too often follow the corporate organization chart. Developing a customer-centric focus is a journey not a destination. In fact, we typically see companies going through three distinct phases to make this transition, as the following chart illustrates: (note: you may click on the chart to link to a larger version)

From My Pictures

Click here to continue to Part 4 of the Series.

Sustainable Marketing - Part 2: Sustainable Versus Traditional Marketing

This is the second part of the series on Sustainable Marketing. In this installment we compare traditional versus sustainable marketing. Click here to link to the beginning (Part 1) of the series.

What is, and what isn’t sustainable about marketing? The following ten criteria summarize the differences between the traditional and sustainable approaches:

Traditional.......Sustainable Products............................Customers Price...................................Value People................................Process Campaigns.........................Access Leads..................................Sales Analysis.............................Insight Data................................Information Budget...............................Baseline Sometime..........................Real time Manage.............................Measure

The key distinctions captured in these criteria are the rapid movement to measuring realtime information to create immediate insights, and selling value-based solutions to customers. These are certainly not new insights. However, the two key clauses (converting real-time information into insights and moving from selling products to markets to selling solutions to customers) do not often appear together. Pursuing them as part of a single initiative with the other concepts outlined above, is a significant step towards sustainability.

Click here for Part 3 of the Series

Sustainable Marketing - Part 1: Introduction

Sustainability has crept into the corporate parlance quietly over the last decade. And it's mutated from something that seemed a bit like a PR attempt to appease the activitist tree huggers; into something strategic, real, and core. Of course, by usage "Sustainability" has come to apply primarily to environmental issues, but in the broadest sense, it is the "capacity to endure," and implicitly the term recognizes that resources are limited and must be utilized judiciously or literally imperil survival.

So as we see the corporation promoting sustainability as part of its social responsibility obligation (whether it be for PR purposes or a true belief in the underlying value); we are seeing more and more messaging around the term. And, in general, it is the marketing department that is responsible for creating this Sustainability messaging. In order for Marketing to avoid being deemed hypocritical, and in order for it maintain its own "capacity to endure," Extraprise espouses an objective we call "Sustainable Marketing," over the next few weeks, Extraprise EVP Bill Blundon will build a case for "Sustainable Marketing" over Traditional Marketing.

In these current turbulent times where marketing budgets are being sheared; customer expectations and demands are increasing; marketing technology is becoming more complex; social media is burgeoning while traditional media seems to be going the way of the dodo bird; and the C-level suite is looking at marketing with ever increaseing scrutiny; Bill lays out in report format an approach that will indeed foster marketing's "capacity to endure."

INTRODUCTION

Many discussions about business are politicized and, as a result, easily become polarized. Somewhere between “Workers of the World Unite” and the “The Business of America is Business” common ground can sometimes be found. One such area involves reducing the volatility of the business cycle, or failing that, limiting its impact. Whether it is John Maynard Keynes or Joseph Alois Schumpeter, economists may differ fundamentally on means but they often overlap on ends: Growth is good; sustainable growth is better.

Anyone who has been a marketer for just a decade has lived through the inflation of an Internet bubble, the bursting of same, a post-9/11 crash, a gradual recovery, a major global advance, and an international economic meltdown. Marketing strategies, budgets, tactics, and measurements changed in response to these events, but at an even more rapid rate.

Investments in marketing are often cyclical depending on the season, the economic climate, competitive forces, and new product launches. During periods of economic stress, marketing investments are viewed as (in that terrifying phrase) “discretionary spending.” Marketing organizations are expected to make cuts and they often make them reflexively – “cut ten percent across the board!” More sophisticated organizations borrow from finance and IT and take a portfolio management approach to their cost-cutting. They consider the impact of specific disinvestments in terms of business objectives, revenue, margin, market share, and other imperatives.

Still, too many marketers lurch from peak to valley without a long-range plan.

As the definition of marketing has evolved over the years and begun to value left brain over right brain thinking, analytical skills are more highly prized. Too often, however, these skills are applied only to tactical issues like customer segmentation, list selection, and media placement. Those who take an analytical approach to marketing strategy are a rare breed.

Amid currency fluctuations and bailouts, one concept has remained highly valued: It’s the customer, stupid! Increasingly, the product-focused Four P’s of Marketing (product, price, promote, place) are evolving to the more customer-focused SIVA (solution, information, value, access). This new trend, or ancient verity, depending on your point of view, is part of a more general approach to creating a sustainable notion of marketing.

This report considers some of the changes required to focus marketing not just on today, this quarter, and this fiscal year. To find its way out of the boom/bust cycle of investments, marketing must find a more sustainable way of operations.

Click here for Part 2 of the Series

Targeting investments in a recession

Last month, Extraprise and Oracle co-hosted a dinner where analyst John Neeson, the co-founder and managing director of analyst firm Sirius Decisions, led a conversation about areas on which to focus in 2009 to enable your organization to survive and thrive in this economy.

The round table dinner was for Bay Area B2B Marketing and IT executives, and focused on the potential for optimizing and integrating the sales and marketing functions. John addressed both the downturn and positioning yourself for an agile rebound upon economic recovery. He noted that he’s working with many companies to support re-budgeting marketing, and in the process has to contend with companies making knee-jerk reactions on how to reduce budget. He highlighted one CFO's direction, which was to look at the 40 programs that were ongoing and cut them all except for the top 1 or 2 results-producing programs.

John’s position reaffirmed what other analysts are saying, which is that even as all unnecessary costs should be trimmed, results must still be achieved. And in general, doing the same things (or more accurately, less of the same things) is unlikely to have the desired effect on retaining sales and revenue. The key is to introduce new paradigm shifting capabilities into the organization. To do this, what’s working well should be retained, but for less effective efforts, funds should be reallocated to focus on promising new initiatives.

In terms of the potential for both using new tools and ensuring “best practice” use of the tools available, John highlighted that the average company required 16 leads to generate 1 sale, whereas best practices companies required only 7 leads. Though John didn’t extend this to extra dollars spent by the average versus best practice company, at an estimated cost of $5-6 thousand per lead, “average” companies are spending an extra $45-54 thousand per sale. Obviously increasing conversion efficiency could yield the cost savings that the CFO and CEO are looking for while still maintaining sales and profitability.

John outlined 10 of the most important opportunities for enabling the most efficient companies to blow away the competition.

1. Channel and sales enablement. Provide sales (direct and channel) the tools that will give them access to the knowledge assets that support in-process sales pursuits. Foster sharing of information on a two-way basis as information learned in the field can be used to tune, refresh, and continuously improve the knowledge base. As one dinner attendee reported, great leaps and bounds were made just by focusing on “searchability and findability” of information.
2. Building a digital relationship. Demand generation consumes from 40-60 percent of a company’s marketing budget. Ensuring the right individualized message gets to each opportunity regardless of where it is in the sales cycle is critical, and automating this process is essential if it can be done economically.
3. Propensity modeling. Maintaining predictive models of outcomes based on attributes and behavior is essential in terms of being able to prioritize, optimize, and provide the right messaging and timing to those in the sales and nurture cycles based on calculated analysis rather than guesses or hunches.
4. Data quality. B2B data decays rapidly, and needs to be cleaned, appended, and verified on a consistent basis. There is measurable value in this process, but it often omitted because it can be a challenging and time consuming process. In terms of driving towards best practices, efforts applied against inaccurate data are wasted. Another aspect of data quality is that marketing should focus on improving data quality through the entire marketing and sales process. (Side note: A recent B2B article focuses on the importance on focusing on internal lists in a recession.)
5. Focus on the lead to close ratio. This ratio encompasses the key transition from marketing to sales. As noted above, companies should drive towards best practices of 7 to 1 versus the industry average of 16 to 1.
6. Business process reengineering. Optimizing processes rather than activities enables overall improvements in bottom line results rather than in somewhat less meaningful intermediary results. The importance of change management is to foster the cultural, personal, technological, and other changes that are required to achieve optimal results.
7. Persona-based marketing. As a counter to one-size-fits-all campaigning which leverages a bland corporate message to nudge people through the sales process, identifying personas of the most prevalent or most ideal customers allows messaging to be targeted to specific problems and needs and fosters acceleration of the sales cycle. Furthermore, codifying attributes of target customers enables digitization of the process.
8. Live event marketing. This type of marketing is of added importance in an economic environment where people are more discerning in their investments, require more personal attention, and require additional assurances against risk. One element that should be recognized is that the live event is the icing, and the journey that leads up to the event is key. It’s all about building up to a live event.
9. Better understanding the lead development cycle. Creating a taxonomy can support improved measurement and better analysis. Since the cost of a lead is typically in the $5-6 thousand range, and goes up to $15 thousand for the sales person to qualify lead, better understanding where an opportunity is in the cycle will be required in order to prioritize and estimate costs of developing a pipeline. Furthermore, in processes where there is a transition from one organization to another (i.e., marketing to sales), ensuring that all parties are speaking the same language goes a long way in reducing
10. Inclusion of localization of marketing. Even as corporations seek to ensure consistency of brand and messaging, focus on the customer dictates that the message be synthesized into forms that engage individuals from different cultures, geographies, and current local conditions. One method recommended to achieve this goal is to develop regional demand generation centers of excellence which take the corporate message and optimize for regions and location and then provide the technology, specialized skills, and best practices to enable efficient delivery of marketing programs.

For those not willing to accept the risks and exhaustion that accompany “white knuckling” it through the downturn, targeting investments in priority areas provides the best opportunity for achieving sustainable improvements. Although John didn’t provide a generalized workplan to get from average to excellent, he did reinforce that two things specifically won’t work: doing nothing or simply slashing programs and costs across the board. In fact the real opportunity is not in optimizing any one activity, but in looking at the entire lead generation to sales process to improve overall efficiency.

PDF version available

If you've liked our last series about managing CRM in difficult times, we have the entire series in one convenient PDF document for you to download. Click here to download the PDF. If you have further questions about the material presented in the series, please do not hesitate to contact Eric Robbins at eric [dot] robbins [at] extraprise [dot] com or call 617-880-4000.

Managing Customer Relationships in Uncertain Times 13 of 13

The Bottom Line

The world economy has experienced many shocks over history. Some aspects of today’s economic environment are unique and create a level of uncertainly not seen since the 1970’s. Today, the global economy is more tightly integrated. Capital flows relatively freely across borders. Trade is an increasing percentage of nearly every company and country. Still, the threat of terrorism and other disruptions may become a continuous process.

Customer relationships, especially existing ones, have never been more precious. In an attempt to manage cost and hedge risks, companies must not neglect their customers. Fortunately, as our discussions have shown, investments in improving customer relationships often yield cost savings. Pick two or three areas of sales and marketing that show short-term promise and make sensible investments.

Integrating and standardizing customer data as the foundation for better decision-making are an obvious investment that can yield rapid results. Clear customer processes that span channels enable companies to move any phase of the customer life-cycle to the most efficient channel. Conversely, there are tremendous opportunities to harvest revenue from existing customers if the relationship is strong and data is transformed into actionable information.

This too shall pass. Companies that invest intelligently during this difficult period will have the best chance to ride the next wave.