The last 15 years have seen enormous strides made toward greater marketing measurability. But consumer protection laws and changes in company’s needs have altered expectations for return on investment.
A few years ago, database analysis was mistakenly seen as a substitute for market research, partly as a result of market research companies’ paranoia, and partly because of the overblown claims of lifestyle database owners. Experience has now shown the two techniques to be entirely complementary. Database analysis gives insights into behavior—who buys what products, when and how often. Market research, on the other hand, is concerned about why people make the purchases that they do.
Especially when introducing new product lines, both techniques are required for effective sales success. Market research indicates which types of people will buy. Database analysis helps find them and test those market research insights. The latest development here is the ability to rapidly analyze responses to Phase 1 of a campaign, to adjust the parameters of which people receive Phase 2 and beyond. Being able to do this rapidly and automatically has been proved in many examples to increase response and conversion rates substantially.
The balance between profitability and critical volumes is also now better understood. The ability to identify profitable customers brings with it a temptation to focus all attention on this attractive subgroup and ignore the wider customer base. Shareholders and markets have encouraged this crude policy by demanding constant improvements in profitability. However, it is often the mass of less profitable (even down to zero) customers that is critical to maintaining a company’s fixed overheads and scale of operations. Business managers, therefore, recognize that part of their return-on-investment model is to maintain critical mass in the customer base and suppress customer defection rates.
Two further recent developments have radically affected the ROI expectations and calculations. External intelligence on customers and prospects—in the form of lists that a company can buy on the open market—are becoming more scarce. Recent research from Lloyd James Group indicates a 5 percent to 10 percent drop in available data on the market. And opt-out rates from the Electoral Register (a major prospecting resource for marketers) now stand at 27 percent.
This has caused a small but significant shift of marketing investment away from new customer acquisition and toward existing customer development. Research from Pitney Bowes indicates that by the end of this year, 51 percent of marketing investment will go into customer marketing and 49 percent into prospect marketing.
We always used to be told that the cost of a sale to an existing customer was far less than recruiting a new customer. Actually, things are not quite so simple. Existing customers expect communications from a company that they already patronize to be highly targeted and intelligent. The mantra of the “customer relationship” has raised people’s expectations hugely. This means that the company has to invest in collecting information on its customers and targeting marketing communications to them very accurately.
Luckily for our ROI model, there is good news in terms of the cost of speaking to customers. Although legislation such as the EU Directive on Privacy and Electronic Communications has severely limited the extent to which email and phone can be used in marketing, technology has recently opened up existing customer communications (statements, customers service letters, bills, etc.) to the possibility of carrying marketing messages.
Our research among top 1,000 companies has revealed response rates from such piggy-back marketing to be close to the typical result of a stand-alone direct marketing push—at an absolute fraction of the cost. This helps to make up for the disappointments regarding e-marketing, now seen to be not so much of a free lunch as originally thought. Abuse of email marketing has meant that response levels have fallen through the floor. And, because marketers have recognized the need to understand customer behavior across all channels, they have had to invest in capturing customers’ postal addresses (on top of email) as the common identifier in the database.
Marketing ROI is increasingly measurable, but the balance of expectation has recently changed. Information on the customer or prospect, along with the ability to speak to people through certain channels, has become more restricted. And customers increasingly expect personalized, relevant communications from companies they already do business with. So marketers are having to pump investment into data gathering and campaign targeting. On the other hand, new developments have improved some areas: Response modelling has increased in sophistication, and existing communications with customers are now being harnessed for marketing purposes.