Move Customers Up the Value Chain

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E-businesses need to rethink their approaches to creating and fostering customer relationships. The grand goal for both online and offline players is the conversion of browsers to buyers and, ultimately, into loyal customers. To achieve this goal, many online businesses can benefit from a better understanding of the customer life cycle as it relates to their business models. This involves discovering ways to serve the customer in a more individualized manner and, at the same time, to develop the relationship to generate ongoing value for your business. Let's look at two key types of e-businesses -- portals and commerce sites -- and examine how each can benefit from deeper, ongoing customer relationships.

Portals are experiencing a strategic shift in business focus as they move from the unique user model to a registered and loyal member model. In the past, portals were ranked and valued on the market by how many unique users they could bring through their Web sites. Portals derived their primary monetization from the number of unique users and page views -- the amount of sellable banner inventory, which equates to the value of the portal.

Under this perception, marketing efforts were geared to drawing as many eyeballs as possible to a site. Hip awareness campaigns were directed at all potential site visitors, and expensive, cross-promotional campaigns attempted to attract new users and increase the unique user rate. Once e-businesses saw a decline in the seemingly ever-expanding audience of Internet newbies, the valuation based on Web page hits began to change. Suddenly, as the novelty faded, slick advertising campaigns could neither sustain growth nor stave off the inevitable churn rate of users.

To compensate for this change in user behavior and interest, portals now are focused on driving additional revenue from each user. Portals can tap into three methods that lead to a more loyal customer base:

o Portals can start charging higher cost-per-thousand rates on the banner inventory for various reasons, which include getting users to register, gathering in-depth profile information, and being able to target banner views more precisely.

o With a better understanding of their registered members, portals can drive more advantageous cross-promotional deals.

o By understanding services such as e-mail that current members belong to or use, portals can cross-pollinate members among various services -- thus enabling more page views and targeted banner views from those members.

Even more important is getting these registered members to start executing transactions within the site. In this context, transactions can be defined as any activity that generates direct revenue for the portal. For example, two ways that a registered member can transact and bring revenue to a site might be purchasing through an affiliate merchant or subscribing to a higher class of service.

As portals understand which members generate the highest value transactions and in which areas they are most likely to transact, they can generate more targeted communications to those members to get them to shop more frequently or have them shop at similar affiliate stores.

For example, a member who has bought a CD through an affiliate merchant might be in the market to purchase a portable CD player through another affiliate. The key driver here is that the portal is in a unique position to understand what a member is doing across the site and throughout affiliate networks. This unique perspective can help the portal target communications and specific promotions to drive multiple transactions from the increasingly valuable member.

So, a healthy cycle in the context of portals looks pretty simple. The member receives targeted promotions and communications driving valuable transactions, which enable the portal to further tailor the promotions and communication to that member, leading to additional transactions. Once the member is hooked into this cycle, the portal simply reinforces the cycle with continual targeting and communication, increasing the average ticket size of the offering and potentially increasing the frequency of transaction.

The next step is viral marketing at its finest. When a member has this kind of healthy relationship with a portal, it's relatively easy to get a happy member to tell his friends about the portal and to get those friends engaged. The original member then climbs up the steps of this loyalty ladder. It's important to note that evidence suggests that this level of evangelism will not come from all members but only from the top 20 percent of loyal members.

In contrast to portals, e-commerce sites are inverting this loyalty chain right now, persuading their shoppers to perform other types of transactions, each of which helps increase revenue.

A successful e-commerce site has a clear vision of its target market and commerce offering and how to get consumers to buy its goods. These same companies also are under the gun to derive more and more revenue from these valuable shoppers. They are starting to monetize their customer base through ad sales, cross-promotional bartering, or outright selling of member lists. Throughout this process, clear communication and targeted promotions are key to cross-selling frequent shoppers to perform other types of transactions.

Some marketers have found loyalty points programs to be effective in helping to motivate customers to share this valuable profile information. Building profiles is integral to the process. If a member values the reward that these loyalty programs promise, she may exchange her demographic and psychographic data to gain these points.

The next challenge in this process is to track purchasing and behavioral habits from consumers across multiple Web sites. By integrating a loyalty points system with a variety of network partners, the points system itself works as the tracking mechanism across these various sites. Many consumers may become loyal along the way, thus completing the cycle.

The bottom line is that in the new economy, one of the oldest ingredients of successful relationship building fuels the customer engine as customers are propelled up the value chain -- trust. Trust ultimately cements the relationship with the customer in this cycle.

•David McKay is vice president of corporate marketing at Netcentives Inc., San Francisco, an outsourced provider of loyalty and direct marketing solutions. Reach him at

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