This past holiday season was brutal for almost all retailers. Still, Amazon.com was one company that rose above the carnage and stood out with its positive performance, growing fourth quarter sales by 18 percent and profits by nine percent. Amazon.com’s share of traffic compared to the top 10 discount retailers and department stores hit 39 percent in December, up 18 percent from a year ago. In contrast, Overstock.com and CircuitCity.com (since liquidated) saw their share of visits plummet 35 percent and 44 percent, respectively.
What is the secret of Amazon.com’s success? As always, there is no single silver bullet. Amazon.com certainly provides a great customer experience. The success of Amazon Prime, its free shipping program, is cited as a factor. However, Amazon.com has long distinguished itself among online retailers by the power of its recommendation engine, which tracks the behavior of shoppers, reminds them of what they have looked at and makes also makes recommendations based on past behavior of a shopper as well as the behavior of other shoppers who have displayed similar behavior.
It is no accident that Amazon.com and Netflix—another company that focuses on customer behavior, preferences and taste and provides a wonderful customer experience—consistently score the highest on the annual Top 40 Online Retail Satisfaction Index.
The popular saying that “necessity is the mother of innovation” led me to hope that current hard times might actually spur innovation, or at least lead marketers to emulate these success stories. Particularly since these methods that optimize the customer experience and maximize cross sell when the customer is already engaged, are cost effective. Alas, I have not found that to be the case among many of the large companies whom we serve.
What I have found, instead, are senior managers who seem paralyzed by fear. They are reducing their staff—often mandated by top management—and are unwilling to risk trying anything that is new, even if it holds the promise of delivering better ROI.
Senior managers were unwilling to re-allocate people and resources to programs that potentially had a much higher ROI and also offered a more relevant and rewarding customer experience.
For companies that spend a lot on outbound direct marketing, it makes sense to shift some of this money to smarter inbound marketing or trigger based programs, where a specific customer action triggers an offer or a communication. However, any such shift requires some learning and experimentation, to see what works within each customer segment. It may also require some investments, to make your systems more nimble and responsive.
In the case of two of our major financial services clients, both of whom have been hit hard by the current turmoil, the investments in these programs are tiny compared to their current spending on direct mail or outbound email. These direct marketing programs have become much less effective than they traditionally were. However, there are large groups of people whose jobs, literally, depend on these programs. Senior managers were unwilling to re-allocate people and resources to programs that potentially had a much higher ROI and also offered a more relevant and rewarding customer experience. In effect, they were saying, “If we don’t use our budget the way it is supposed to be used, we will lose it.”
The pervasive fear within marketing departments seems to be dampening, rather than spurring, change and innovation. This is confirmed by a recent Forrester Research survey of senior direct marketing executives, which found that marketers continue to shift marketing dollars from offline to online media, but the focus is mostly on outbound marketing efforts such as email, not when the customer comes in and is engaged in a call center, IVR system or website.
One of our clients, a regional bank, has had great success shifting focus to in-bound marketing. As a small bank, they have been prudent in their lending and do not share the problems that big banks have had with their portfolios. However, they have had trouble raising deposits in this market. A few months ago they started actively participating in a program with Money Aisle, where depositors can have banks bid for their deposits. These are customers who have a very definite purpose and are actively searching for a bank. Our client found this to be a very efficient channel to raise deposits and acquire new customers, albeit at a premium. By keeping their rates competitive and through a well designed rewards program, they have been able to retain these customers and get them to roll over their deposits when they mature.
How did they fund this shift? By reducing their outbound direct marketing expenditures.
Break Out of the Doom Loop
My initial optimism about the potential positive side of the downturn is being tempered by the realization that for most managers, conserving their jobs is priority No. 1. Fear seems to be holding them back rather than motivating them to try something new. To these managers, my message is this: Wake up!
Will you be that marketer who leads your company to greater customer loyalty and revenue growth by being nimble and responsive when your competitors are trying to do more of the same?
Hunkering down may delay the reckoning, but does not necessarily save you in the long run. If the economy continues to slide or even stabilize at these low levels, the pressure to cut will continue and be relentless. The best way to get ahead of this train and avoid it running over you is to:
- Proactively suggest cuts in expensive programs that may have outlived their usefulness, even if they had good ROI historically.
- Go ahead and shift money into inbound marketing programs tailored to what you know about each customer.
- Be disciplined about measuring lift and ROI.
- Make sure you set the programs up to learn what works and what does not.
- Be ruthless about eliminating programs that do not payoff and be aggressive about doubling up on programs that do.
Soon, you’ll have success stories to tell in this age of doom and gloom. Success breeds confidence. You might be pleasantly surprised at the reaction of your management to this.
Times like this create new heroes, even within risk averse corporations. Are you going to be the one manager to buck the trend? Will you be that marketer who leads your company to greater customer loyalty and revenue growth by being nimble and responsive when your competitors are trying to do more of the same?
If you’re already innovating, please share your experience. It is time for us all to share success stories that help lift our collective spirits up!