As 2009 progressed we saw Digital Marketing outstrip “traditional” approaches to marketing.
Why has Digital Marketing grown?
Digital marketing is an advertising strategy where brands are marketed using digital Medias such as the internet, televisions, and phones. However, digital marketing becomes interactive if the customers are able to communicate with the sellers through a platform where responses are expected. Interactive media is a two-way process in contrast to the traditional approaches where brands were advertised one way and a response was never expected1.
In digital marketing, the producers communicate directly with their customers through a media platform. Companies nowadays prefer digital marketing since it allows companies to reach market segments that traditional media was not able to reach. Digital marketing involves the use of the internet as a platform for communication between the company and the customer. On the occasion that a customer wants a product from the company, after viewing it on the internet he can just place an order through a phone call and the product is delivered. The success of digital marketing is attributed to several factors with the most recognized being the fact that it saves time.
The customer is able to peruse through the products on offer while at the comfort of his or her house, and then just place the order and the goods are delivered. The customers do not have to make the physical movement from home to the company’s stores to buy the product. This gives the customers the freedom to buy at any time and at any place. Digital marketing also creates a personalized relationship between the company and the customer because the customer is able to communicate directly with the company. If the customer has complaints, he can communicate directly to the company.
The growth of digital marketing has been attributed to the fact that the internet and digital media have given consumers more power in deciding what to buy and what not to buy. As a result of this, companies have been forced to adopt customer-centered approaches if they are to attract new customers and retain the old customers which it already possesses.
Digitized marketing also enables communication between the involved stakeholders to be conducted in an interactive manner. The customers and the producers are able to communicate giving feedbacks on the efforts at hand. As a result, a strong relationship is built between the two parties. Digitized marketing also creates awareness and enlightenment in a crowded environment. As people go around their normal business for example when using the internet, the user can see link advertising about certain company products. The unsuspecting user clicks on the link and learns more about the product. After reading the information he or she then decides to go and purchase the product, he will have done so because of the information which he never knew before but after being enlightened he now finds it useful.
Changing lifestyles has also been another factor that has been attributed to the growth of direct marketing. As more people (especially women) become educated and gain different skills, the number of women working outside their homes increased and as a result, the time allocated for physical shopping reduced. Given the less time available, women have found it more convenient and time-saving to be going through the merchandise at their homes as they do their other household chores and thus the growth of direct marketing. The internet gave the women an opportunity to look for products while in the comfort of their homes.
Since personal sales calls tend to be expensive, more companies are now opting for direct marketing. With direct marketing, such costs are completely eliminated making personal selling, even more, cost-effective. The increased rate of acceptance by consumers of the telephone as a means of placing orders from the manufacturers has also been a leading cause of the growth of direct marketing. Internet and phones have made the placing of orders without delays and the convenience of it all has led to the success of direct marketing.
Discuss how adopting a direct and interactive marketing approach can help companies to maintain their profitability in spite of the poor economic conditions in the short and long-term.
The speed at which technology is changing as of late has been increasing across many industries. With new products and processes being introduced daily, the efforts of reaching the consumer on time are becoming more complex than expected. The lookout for the specific marketing niches has thus grown more complex. As a result, this means the companies must develop their products and processes rapidly and also market them on time. Producers are now able to respond directly to the request by a customer, the company is able to produce only what is required reducing the chances of overproduction which can lead to incurring losses during periods of economic hardships.
The other characteristic which makes direct and interactive marketing more profitable is a simple fact that the whole marketing process involves a reaction mechanism. The whole process gives consumers an opportunity to respond directly to an advertisement thereby making a purchase. When one compares the traditional media where interaction was minimal and used to be a one-way form of communication, direct and interactive media is more accurate and can be measured. For example how long it takes for a specific customer to make an order to the next order. The ability to measure the frequency between different orders helps marketers and producers in a company to estimate their production rate to the extent of the products which shall be needed, reducing the chances of overproduction.
The strategy also works to the advantage of the consumer since the costs involved are minimized. The customers are able to purchase the products comfortably without incurring extra costs. They do not have to travel to a store and find the products are now expensive and thus not affordable and then go back having incurred the transport costs. With both parties saving on the costs involved, the company is able to make huge returns even during periods of economic hardship.
An example is the Hewlett- Packard Company. The company has a direct marketing organization with over 800 telephone numbers with an estimate of 100 phones being estimated to hold at least 6000 presales calls each day. In the past, the company used a paper-based system. While at the beginning the system used to work, with an increased number of customers the system became inefficient due to the time taken and the costs involved. To distribute the needed information efficiently and to reduce the costs involved, the paper version was replaced with an electronic system. With most of the company customers preferring online stores where they can be able to compare products of one company to the other both on cost and features aspect, the company has been able to save more than 350000US$ leading to the company’s successful growth.
Increasingly in the UK the traditional split between above and below the line marketing spend is being replaced with the US practice of drawing the line vertically between Acquisition and Retention‟. Derek Holder.
What advantages does this change of focus bring? What business issues should be considered when setting acquisition objectives?
When it comes to marketing and advertising, below the line and above-the-line terms are used to describe marketing strategies that companies use. The above the line strategy differentiates between the money or the expenses which are incurred by a company while it is trying to build while the below the line term is used when referring to the expenses which are incurred by the company in a specific event such as buying of a particular product or raw material.
If a company operates online such as amazon.com and ASOS.com, there will be a tendency to invest in the below the line strategy since the expenses spent are easily measurable but if the company operates a company which is an offline company, it might be hard to assess and accurately estimate what sales have been made due to the advertisement on the internet and which have not.
Advertising and branding of company products have been undergoing for quite a very long time. However, brand equity has only emerged in recent years in the UK. The country was still concentrating on the below the line and above the line strategies. The American strategy of acquisition and retention of customers lies on the foundation that for any business to succeed, customers are needed for survival.
That is the reason why companies advertise their products, both on the televisions and on the internet. All these efforts are aimed at creating a positive image for the company and its products. As a matter of fact, it is important that it is every company’s goal to increase its market share and therefore acquire new customers from the market. However, the problem arises when it comes to retaining the customers most of the companies or businesses do not succeed in this. The reasons which have been put behind why most companies fail have been attributed to the management. Maybe the company leaders do not see the necessity of retaining the customers.
Acquisition of customers is usually the way of attracting and gaining customers into your market pool through various methods. The sole goal of acquiring customers is to make them permanent and thus reduce the costs of attracting new customers to your pool. Most successful business leaders describe it as the most difficult stage for most businesses. With the increased competition rates around the market and with every rival trying to woo customers into their baskets, customers are left with many choices to choose from, and thus for a company to acquire new customers, it really has to offer something extra in order to capture the interest of the customers.
Acquisitions of new customers are usually very important as businesses can only grow with acquisitions of new customers. The advantages of shifting mode to acquisition and retention of customers are several. Starting with the major advantage of the acquisition lies in the importance of increasing the market pool and thus leading to huge gains in revenue when their customers have stabilized and what now remains is the strategy to retain these customers. The advantages of customers’ retention on the other hand are several and they include:
After a company has acquired customers, during retention, there are usually no acquisition costs which the company can claim to have incurred. It is important to note that the money need to acquire customers varies depending on the customers and the size of the business. Some customers are more worthy to be retained by a business than others due to the profits they bring to the company. While the costs might vary from few cents to a thousand dollars is not an issue the most important fact to understand is that the company does not incur any extra cent nor does it waste its precious time trying to attract customers.
The advantage of retentions arises with the simple fact that businesses or companies are not established to search for customers but to serve the customers. Thus, as long as the company can be able to retain the customers, they are there to serve not to look for them meaning business continues for the company as usual. The company shall not invest extra time looking for customers while it already has them in their pool
When all that remains is the retention of customers, the company is able to concentrate on doing what they do best. It is a well-known fact that acquiring new leaders of a company ensure they employ every available strategy to retain the customers they have, all that time spent on setting a strategy and observing how the customers will respond to it will not be necessary. Instead of focusing on acquiring new customers, if the company can work on retaining the ones they have, this would help very much in ensuring there is enough time for the company to think of other innovations or improvements it can be made to retain the customers it has and continue making profits.
The company should become aware of what its loyal customers like and what they dislike. During this time the profits are usually low since the company is giving much time to the customers. However after this period matures and the company earns trust from the customers, all these efforts are saved and the company can now concentrate on increasing investments as the number of customers increase and the revenues made by the company also increase.
With the existing customers, the company does not require too much investment much in advertising as the customers already have a good image of the company. It is also very important to note that the already acquired customers are hard to lose even when the prices of the products go high since they already trust the product and the advantage with them is that they can also refer other customers to the company products due to the benefits they have been deriving from the products. The long relationship which they have been together with the company reduces their price sensitivity.
Finally, by the time you are retaining the customers, you have already recovered the costs you incurred during the acquisition period. The company can now make more profits since it does not have to incur extra costs which are usually associated with the acquisition of new customers. The same thing cannot be expected when dealing with new customers, since it would take time for the company to prove its worth to the customers which it is trying to attract. On the other hand, it would also take time before the company can really ascertain that they were worth the expenses the company went through during their acquisition.
An example of customer acquisition and retention can illustrate by the case of United Electricity plc which is the largest electricity supplier in the United Kingdom. Since the early 1990s, the power market has undergone several changes in the country, and companies are now allowed to sell power to residents out of their geographic location. As a result, the electricity company faced stiff competition within the territories they used to brag as theirs while at the same time it had the opportunity of marketing its products to customers who were hard to access earlier. The United Electricity, therefore, sought strategies to attract new customers as well as retain the existing customers.
They divided the market into several segments depending on their customers’ behaviors and wherein the social ladder these customers occupied. The important information which was to be used in issues dealing with customers’ acquisition was then collected. The information about the existing customers was also collected since the company realized that retaining old customers was also an important ad for acquiring new customers.
The company then estimated the profits it would make per customer and the money which the company would incur trying to retain customers was also estimated. Different levels of retention according to the different segments were estimated. To enable compare how much each segment would use as acquisition costs; the expected profitability per each segment was calculated. As a result of employing these different strategies, the company was able to retain its old customers and also acquire new customers since their services were more customer-centered compared to what the rivals were offering(Christopher, Payne, Ballantyne, 2002)
The purpose of a retention strategy is not just keeping customers – it is to maximize their value during the lifetime of the relationship.‟ Brian Thomas.
Explain what you understand by „retention strategy‟ and discuss some of the different ways in which customer value might be maximized:
For any business that wants to succeed, the customers are very highly valued and in fact, they are the most valuable intangible asset that a company can brag about. As a result, this has led to world recognition of the importance of customers. In a bid to create profitable customers and also to retain them, businesses are nowadays maximizing the value of their customers. A major driver towards this desired retention has been the use of different retention strategies that different companies use and the relationship they create between themselves and the customers.
The most important thing companies should understand is the fact that not all customers are worthy to be retained. As a matter of fact, some customers have valued more than others due to the rate of profitability they bring into the business.
However, despite the low or high profitability that these customers bring to a particular company, the more the company is able to retain its customers the more value it derives from the customers thus, the time period in which a customer stays in a relationship with a specific company is very important for the company in determining the profitability. If a company observes that the customers are likely to stay with a company for a long period, it is important for the company to maintain a comfortable relationship so as to be able to make profits and increase its value in the future.
In the past, research has also shown that companies retain their customers due to the simple fact continuing or permanent customers have lower price sensitivity and thus they are able to adjust to the increase or decrease in prices without necessarily migrating. They also have greater receptive of any new company products compared to other types of customers outside there. Apart from contributing to the growth and addition of value to these companies, a customer retaining strategy reduces the costs which would be incurred if the customers were new. Long term customers also refer friends and colleagues to the company goods and services, and thus increased the productivity of the company.
With competitors always on the lookout to grab the customers from the other rival group and with many customers looking for better places where they feel their needs are being satisfied, companies have been forced to seek all strategies available which can help them in retaining their customers without the threat of migration. In some forms of businesses, the exit barriers are high thus migration of customers from one company to the other is usually minimal (such examples include banks and insurance firms).
In companies such as in the telecommunication industry such as in the mobile phone market, customer migration is easier and faster since it implies changing only the SIM card and continues enjoying the services. As a result, more companies have been concentrating on acquiring rather than on the retention of customers. The customers are always encouraged to migrate as long as the next provider can offer the same services better and cheaply.
As the number of customers a company is likely to have reached the optimal levels, mobile service providers have been looking for alternative ways of reinventing themselves so as to make sure they retain their customers. A good example is the case of Orange a European mobile provider. While other companies in the mobile phone industry have been complaining of a high rate of customers churning2 the orange company has been an exception. To achieve such a feat, the company has always emphasized the need to provide quality services to their customers discovering this as the only factor which can make the customers differentiate it from the other players in the industry.
As a result, Orange Company knowing the challenges which could arise with number portability3 has been able to offer its customers world-class services thereby reducing the chances of migration. To ensure that it preserves its reputation as a leader in the telecom industry and as well reduce the number of customers migrating away from its network, the company introduced a customer-centricity strategy. The employees were trained on communication skills and responsiveness to customers’ queries as well as improvement of their knowledge, after training they were then placed under supervision to ensure that all the taught skills had been acquired.
If an issue was ever noted in the company, customized coaching was delivered to ensure that the company provided the best services in Europe. Externally, the company built a model that helped in predicting the likely rates of churning (migrating). The customers at risk of migration were identified on time and the company reached them through the internet and phone calls. As a result of the company’s effort to retain its customers, the retention strategy has brought several benefits to the company.
These benefits include the fact that more than three-quarters of the customers who had been predicted at risk of migrating were accurate and therefore their retention serves to the advantage of the company. The customers at risk were identified within 24 hours rather than in the previous where they were detected after days. As a result, the company was able to employ the best strategies at retaining customers, and that the reason why the company remains a leader in the mobile phone industry across Europe (Fluss, 2011).
In 2007 Google overtook ITV in terms of advertising revenue. What are the implications for direct marketing on the growth of digital marketing and media? What benefits can Direct Marketing skills bring to the management of digital marketing activity?
It is important to understand that direct marketing will continue to grow as digital marketing develops. The reason behind this is the fact that digital marketing provides a platform through which direct marketing is carried out. Digital marketing involves little costs and yet it possesses a high potential of reaching a high number of customers. As digital marketing grows, direct marketing will grow and the revenues received from this form of marketing will also increase.
As companies such as Google continue making huge revenue from digital marketing, they are likely to reduce the costs involved when advertising through the internet. More companies will be encouraged to advertise and if the customers continue responding positively to the advertisements, direct marketing will grow to even greater heights.
If digital Media are used to the best of their utility, they can deliver to the customer all the information he needs about the product: as a result creating a personal relationship between the customer and the company. With the marketer being able to create a one on one relationship (for example through emails) with the intention of making the customer part of the business, the relationship between the two will improve and so will be direct marketing made easier.
With evidence showing that digital marketing is more cost-saving than the traditional forms of direct marketing, more and more people will embrace digital marketing and direct marketing will grow in volumes. A good example is that of Sainsbury a leading food retailer. The company has seen its revenue increase as a result of the growth in digital marketing. Through the use of the internet, the company has been able to create a personal relationship with its customers and as a result, they know what their customers need. They also understand how to fulfill their customers’ demands. As a result, the company’s revenue from the direct market has increased five more times than it was two years ago. Digital marketing has enabled direct marketing in Sainsbury to increase making several million pounds a year4.
Why is cost-per-order so vital to budgeting in an acquisition program?
The cost per order is derived after dividing the costs which a company incurs in its advertising activities by the number of orders which customers place as a result5. The cost per order is the cost a company incurs to acquire an extra customer. It is, therefore, vital to know the cost per order since it helps the organization in planning for its budget well. Integrating and coordinating all the activities in a planned manner such that there will be no surprise expenses which the company had not planned for but had to cater for. The company is usually able to allocate its budget depending on the number of customers it wants to acquire.
Another importance of knowing the real cost per order is the fact that it gives the organization an overview of the likely number of customers the company is approaching and how much the customers are likely to yield after they have been acquired. By budgeting for the costs per order the company is likely to incur, it becomes very easy for the company to plan for its expenses. If the expenses go beyond the budget, then the company is able to control its budget in order of priority.
Budgeting is also important since it helps in evaluating the company’s performance. How much money it costs to acquire one customer should respond directly to an increase in the revenues earned by the company but if the cost per order is higher than the expected results, the company should then just reevaluate the plan and concentrate on something else.
How does the lifetime value of a customer influence acquisition planning? Illustrate your answer with examples from campaigns with which you are familiar
After evaluating the cost per order which the company has to incur in acquiring one extra customer, the question that now comes to the minds of most business persons is whether the lifetime value of that customer is less or is greater than the average cost per order. While it is a fact that for any business to acquire that extra customer there is always a price to pay, if during the retention period of that customer the customer will not have covered the costs the company incurred during acquisition, then the business should not put efforts in acquiring the customer.
If the customers’ lifetime value is greater than the cost per order, the business is likely to invest more in a bid to maximize the benefits it can derive from the customer. However, if the cost per order is greater than the lifetime value, it means that the customer will not have any positive results and thus there is no need to acquire the new customer.
A good example is that of Sigma Marketing Company which in New York City. In their loyalty metric, the company assessed its true value of their customers in order to know how they could increase loyalty and sales up. The company an automotive dealer realized that it would increase its revenues if it could know the real true lifetime value of its customers. After an analysis was conducted, the company discovered that its customers were worth millions due to their lifetime value. It also discovered that some of its customers were more valuable than the other. For example, the top 10% of customers providing a value of about 89%.
The company noted that the difference between the most valued customers and the lowest valued customers was only due to their purchasing power. As a result, the company developed retention programs for their high valued customers. It also took cost-effective measures on the customers who were likely to defect, the company also manufactured extra vehicles for the medium value customers and this turned them into high valued customers. As a result, the company earned more since they had the real information on the customers who were worth acquisition and retention and those who were not (Obermire, 2008).
Assess the role of marketing research in guiding direct marketing decision making.
Marketing research helps the decision-makers in understanding the nature of the existing market giving them a chance to conduct a successful business. It gives the company a chance to know the characteristics of the target market as well as the best marketing mix which gives the decision-makers a chance of being proactive rather than being reactive to the unfolding events. Marketing research allows the decision-makers to anticipate what is likely to occur, and the changes likely to arise in the market as well as the customers’ needs and desires.
Marketing research is also opportunistic in away. By conducting marketing research, the decision-makers are able to discover the new opportunities which originally were not on the plan but which if ventured into could lead to increased profits for the company. As a result, the decision-makers can decide on whether to increase their investments towards the opportunity or just move along with the original idea. Marketing research also plays a diagnostic role in business decision making. It gives the decision-makers to analyze their current program and depending on the results from the marketing research, they can decide to change some of the processes in order to achieve the required end result.
Will direct marketing, with its dependence on customer databases, ever replace conventional research techniques?
Conventional research techniques are time-consuming and costly to undertake. Businesses need to allocate huge budgets towards these research techniques when compared to an occasion if the company was to access the customer information through their databases. It is hard to accurately estimate the number of customers who will buy the company products when using conventional research techniques as some of the customers might decide to give wrong information. The increased importance of relying on databases lies in the fact, the information provided by databases is accurate and has been accumulated over a long period of time and when the company uses this information, it is able to compare and also predict how the customers are likely to behave.
Reference List
Christopher, M., Payne, A. and Ballantyne, D. ‘Relationship marketing: creating shareholder value’. 2nd Edition, Butterworth-Heinemann, 2002. Oxford, United Kingdom.
Fluss, D. ‘Customer Retention is a Priority for Mobile Phone Providers’. 2011. Web.
Obermire, S. ‘Marketing Case Study: Customer Lifetime Value Important to Automotive Industry’. 2008. Web.
Rowan, W. ‘Digital marketing: using new technologies to get closer to your customers’. Kogan Page Publishers, 2002. London.
Sainsbury: “Sainsbury’s: SAS® drives increased profit from direct marketing”.2003. Web.
Footnotes
- Rowan Willy,2002.
- migrating from one network to the other.
- Number portability is a regulation requiring that customers be allowed to keep their phone numbers when changing telecom providers).
- Sainsbury (2003) Sainsbury’s: SAS® drives increased profit from direct marketing.
- Media spending is usually the numerator while the orders acquired is the denominator.