White paper: Targeting customer strategies, by Macon director

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by John Hymas, business deveopment director of Macon Consulting
Segmentation and targeted customer strategies for the web

I have no argument with the leading-edge technology employed by the dot.com and clicks-and-bricks organisations. In many cases the technological environment developed has been most impressive.

Whilst recognising the fact the electronic interactive channels might facilitate new opportunities and potentially enhance the efficiency of the customer management process, it is vital to remember that they are, fundamentally, only another channel.

As channels they must be co-ordinated, managed, and prove their worth to the organisation (and to the consumer) in he same way as any other – be it a field sales force, retail chain, telephone or traditional direct mail.

Taking technology as a given hygiene factor, this paper sets out to give a practical view of customer relationship management (CRM) implementation for dot.coms and clicks-and-bricks organisations.

This view is based on the best practice marketing principles of delivering carefully tested and evaluated propositions to well researched, clearly defined segments of the market.

In this sense, the recommended approach for the virtual world mirrors exactly the real world best practice developed and implemented by Macon Consulting for its clients.

A look at the background
In the relatively short time that this appear has been in the writing, e-commerce organisations have changed from being the darlings to the pariah of the stock market and venture capitalists.

So what has changed to bring this about?
There is a correction process going one. It was always hard to see how the business models of the many dot-coms ever justified the faith placed in them.

This, coupled with the fact that too many of them including many of the so-called market leaders, have failed to grasp even the basics of ‘best practice’ CRM always meant that the bubble was bound to deflate, if not burst altogether.

Nevertheless, it is my view that e-commerce will re-emerge as a significant business sector. The new companies that develop, and the current ones that survive, will have learnt the lesson that the technology alone is not the proposition and will have business models that put the customer at the heart of the strategy.

Understanding the customer and the market
The starting point, in line with best marketing practice, is an approach to the understanding of the target customer.

Segmentation of the market, based on a fusion of qualitative and quantitative research and analysis, will identify those consumers that will form the primary and secondary target audiences, and is key for the development of the appropriate product and service propositions.

There are two key dimensions to developing an actionable, and beneficial segmentation of the market:
• potential value of the segment to your particular market sector
• comparative attractiveness of the channel to the customer.

A typical outcome of this type of segmentation analysis begins to flesh out the nature and scale of the opportunity presented. A relatively large segment, although very attracted to te channel, is of little or no value to the market sector. It is likely that this type of customer constitutes a large proportion of most dot.com ‘customer’ bases today – and goes some way to explaining why they have not been able to leverage the apparent relationship into a profitable one.

The other extreme
At the other extreme is a segment which is both very large and of great value to the market – however, it is least likely to find the channel proposition of interest.

The organisation for whom this segmentation analysis has been carried out would be well advised to focus on the two segments which represent a good balance of size, channel propensity and likelihood to consume.

Clicks-and-bricks organisations might also decided that the segment which contains a large group of low-value consumers should be offered the channel as a way of reducing the cost of the relationship.

Provided that the segmentation project has been well defined and executed, a specific deliverable will be segment of consumers described using characteristics that facilitate the development of the marketing propositions most likely to appeal to each specific group.

Marketing propositions
As most service providers have implemented roughly comparable systems and process solutions, it is almost impossible for suppliers to differentiate themselves using these alone.

Sustaining differentiating positions can only be reached if they are focused on satisfying a unique bundle of real and perceived consumer needs. It is not within the scope of this paper to define what these propositions are, and in any case generic propositions, without context, would be meaningless.

Take a minute
However, it’s worth spending a few minutes examining the dynamics of the consumer market that could well help shape such propositions in the client organisation.

• Consumer expectations are changing, and this is influencing what they expect from service providers.

• Generally consumers are better educated and informed than ever before, leading to an eagerness to take more control of, or at least be an equal partner in those decisions which affect them.

• The Internet, with its 24/7 access to worldwide data, is perfectly positioned to feed this growing demand for information and self-determination. We read of doctors complaining that many patients seem to know more about their illness and the latest treatments, than they do. What’s more, they are demanding these treatments during consultations.

This self-determination is, in turn, leading to a general fall in the level of blind trust that consumers are willing to place in the traditional bastions of society; Government, the Church and the bank manager are all subject to increasingly critical examination.

• In some instances, particularly those of state support and provision, the demographic changes in society also under line the fact that we can no longer expect others to look after us in the future.

• But self-determination comes at a price, the more we anticipate taking charge of our own lives, the less time we have. We are, in work and leisure, being constantly bombarded with decisions and every opportunity to exercise choice. As a result more and more consumers are ‘cash rich, ‘time poor’.

Satisfying consumer needs
The informed consumer understands at the conceptual level, if not in detail, the value of their business and expects a benefit in return for their perceived investment in the relationship. Furthermore, they are more willing and able to move on if this reward is not forthcoming.

This represents the consumer perception of the utility cost / benefit trade-off, which includes monetary and non-monetary elements.

Costs might include:
• time invested
• personal information invested in return for a bespoke service
• price paid for the product / service
• absolute
• relative to competitor set

Benefits include such factors as:
• time savings
• the quality of the service received
• absolute
• relative to competitor set
• the halo effect from being associated with brand

How the consumer positions the product or service will be influenced by their dynamic experience of the brand and awareness of alternatives.

Opportunities to deliver ‘the bargain’
Speed of delivery and cost-efficiencies down at the ‘segment of one’ level have long been sought in below-the-line marketing which, for the first time, appear to be in the marketer’s grasp.

Perceived benefit to the consumer will come from satisfying the types of needs identified above, The benefit of web-based technology for the service provider is that it allows them for the first time, to deliver these benefits cost effectively in a one-to-one environment.

To exploit the opportunity, the service provider must look at the customer base at a more granular level – to identify the individual customer dynamics that inform the timing and nature of tactical testing and deployment, for example:

• What is he best alternative for the customer/supplier relationship?
• When should it be offered/
• How should it be offered/

If follows that the successful service provider needs to excel in the following:
• Appropriate levels of data collection, analysis and management
• Hypothesis generation
• Test design and campaign management
• Robust evaluation
• Knowledge sharing

To do so requires them to have at their disposal these key skills, the core competencies of e-CRM, namely:
• Qualitative and quantitative customer understanding
• Synergy of research and database
• Current and potential customer value
• Increasingly granular segmentation

• Appropriate support and delivery technology
• Analysis (off-line and real-time)
• Robust testing framework and feedback look to decision making
• Single customer view
• Integrated contact management

• Acquisition and development of customers through understanding their intentions
• Proactive and interactive retention
• Trigger and event-based marketing

• Delivery of a motivational customer proposition
• Product features and benefits
• Mass customisation

• The ability to develop and execute real time campaigns supported by the necessary, equally real time, analysis and evaluation techniques.

Channel co-ordination
It would be naive for a service provider to believe that the Internet will be the preferred touch point for every customer all the time, or some customers any of the time.

Consumers are living in a multi-channel environment. At any time, the most appropriate channel is the one which optimises the impact on customer value based on a number of inter-related factors:
• what customer wants at any given time
• organisational strengths
• organisational / communication objectives
costs / benefit
• complexity of message
• current and potential value of customer.

A logical conclusion of this is that the most appropriate channel is dynamic, and that channels should be seen as complementary rather than substitutional.

Research supports this view, and recently published findings from Jupiter Research (US) show that multi-channel users spend 30% more than single channel users. (Although the study does not explain if this is a causal link or a simple descriptive fact.)

Clearly it is the decision of each provider as o whether or not they make alternative channels available to the consumer, . We have seen some, previously pure cot.coms, looking to establish high street networks (solely or via joint ventures), and in the same way bricks-and-mortar organisations have developed to become clicks-and-bricks.

The key is to make these decisions on the basis of sound economic cost / benefit and not dogma.

Disintermediation of the market is often described as a consequence, and a cost advantage, of e-commerce. However, the complementary channel argument offers an alternative proposition in favour of a new ‘intermediation’ whereby each component of the customer management chain supports other links and itself delivers that which it is best equipped to add value.

For example, the central e-CRM unit might support he end customer by providing:
• 24/7 access
• General ‘advice’, information and news
• Web-based tools, e.g.
• Calculators
• What-if scenario testing, etc.
• Data collection
• Lifestyle and future plans
• Hard demographic
Support Service
• Details of face to face channel availability (with click-through capabilities)
Regular updates via outbound e-mail.

At the same time supporting the intermediated channels with:
• Customer marketing material and logistical support (for example exploiting trigger and event-based opportunities) automated and distributed on behalf of the retail network or field sales force.
• Advice for the intermediary on building a ‘best practice’ web presence
• Macro market information and micro-prospects list
• Customer and prospect data
• Segmentation overviews
• Research data
• Unified client view – portfolio and potential
• Product transacting and account management facilities
• Interface with other channels / help lines

Allowing the intermediary to provide for the end customer:
• Long-term relationship building
• Portfolio management
• Independent advice
• Recommendation of a customer-centric portfolio of products from a pre-defined range
• Personal knowledge of the individual client
• Knowledge of local market conditions

Summary
Despite the current turmoil in the markets, the Internet and e-commerce will continue to develop as a significant communication and distribution channel

The best practice marketing and analysis techniques required to inform and support sustainable business performance are well established outside of the e-commerce environment and can be successfully adapted and adopted to suit the real needs of the sector.

The long-term winners will be those organisations that become truly customer-centric and exploit technological capabilities only to the extent that they are required to satisfy the changing needs of their target markets.

John Hymas started his career with the Burton Group, becoming director of marketing with Fine Art Development. In 1991 he became direct marketing manager with the Leeds Permanent Building Society, then worked with the Halifax as manager of targeted marketing and analysis. Since 2000 he has been director of business development with Macon Marketing and Analysis Consultancy.

Macon is an independent database marketing and analysis consultancy founded in 1992, which has complementary strategic alliances with KPMG and NOP

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