View Customer Relations in Terms of Service, Not Marketing

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The difference between advertising and service is relevance, according to David Pottruk, president of Charles Schwab. And how right Pottruk was when he offered that observation at a recent conference in San Francisco.

When CDNow sends an e-mail to notify me of a new, digitally remastered, three-disc collector's edition of Louis Armstrong's greatest hits, I do not consider it an advertisement or a solicitation. I consider it a wonderful service. And I will pay $45 for it -- no discounts, incentives or bribes necessary.

Or when Wegmans Food Markets sends its Princeton, NJ, customers e-mail notifying them that there is perfectly ripe brie available at the local Wegmans store today -- not yesterday, not tomorrow, but today -- the customers are thrilled that Wegmans is looking out for them.

Of course, I told CDNow that Louis Armstrong is a favorite artist, and people in Princeton tell Wegmans that they love cheese. And both CDNow and Wegmans listen.

On the other end of the spectrum, I really hate it when United Airlines sends me those envelopes that look like my monthly statement, yet contain solicitations. Every time I open one of them thinking it will be my monthly Premier frequent-flier account statement, and instead find a "camouflaged" offer from MCI to earn a few thousand points if I choose it as my long-distance carrier, I get annoyed with MCI. But more important, I get really annoyed with United for trying to trick me. It causes me not to see the company as a brand I can trust, but rather as a brand that is trying to make a quick buck on my name.

And I'm a good United customer. No, I'm a great customer. I have more than 1 million miles in my frequent-flier account. I flew more than 120,000 miles last year alone. How much is it worth to United to bother me with MCI solicitations, over and over again? Enough to risk losing me as a customer because I am becoming more and more annoyed with the way it is practically cutting down little forests to manufacture all the paper it needs to send me these useless solicitations? I don't think so. United is practicing plain, old advertising in an envelope. If what it sends me is at all relevant, it is purely coincidental. And I don't really need the miles it is trying to give me, either.

Nobody wants to have a marketing relationship with a company. In fact, what is a "marketing relationship"? An oxymoron, perhaps? What most of us want, if we want to have a relationship with a company at all, are "service relationships." We want the companies we do business with to pay attention to us as individuals, and we want them to do so based on listening (asking) and learning (observing).

So what is the difference between marketing and service? It is not clear that there is one, and therein lies a conundrum. The marketing function is changing, and there are some important reasons why.

In relative terms, I am pretty new to this whole direct marketing thing. And when I first started looking at the industry six years ago, I found some pretty counterintuitive stuff going on.

For example, take a look at the language I have encountered: People would use words like "lists, campaigns and relationships" all in the same sentence. They would run a "relationship marketing campaign to their house list." I don't think of my relationships in terms of lists or campaigns. I think of them in terms of dialogue and learning. I think of them as ongoing and not a discreet set of events. And although I do make value assessments and look at the returns I get for investing in a relationship, I do not do so based on every interaction with the people or companies with which I have relationships. Yet with these direct marketing campaigns, I kept hearing about the importance of return on investment analysis for each campaign. I heard about how important it was to segment the list in order to increase the ROI. So maybe that is what a marketing relationship is. Every time you interact, you measure the returns.

There is a fundamental problem between the concept of managing customer relationships and the practice of running marketing campaigns like United does. And it is more than a philosophical problem between the old direct and database marketing crowd and the believers in one-to-one relationship marketing. It is an economic problem. That is the bad news.

The good news is that there is a possible solution. The solution is to move customer communication and marketing from the realm of atoms to the realm of bits, and the Internet has been making that possible.

The problem with atoms is that they inhabit physical space, and that costs money. Paper is made of atoms, and there is a cost associated with every piece of paper. In other words, if you send 100,000 pieces of mail through the U.S. Postal Service, it may cost you $50,000 dollars (in paper cost, printing cost and postage). If you double that and send 200,000 pieces of mail, the cost (more or less) doubles too. The reason is that there is a cost (50 cents is my assumption in this example) associated with every contact, and there is a linear relationship between the number of contacts and the total contact cost. This is a big problem, because it means I cannot contact you unless I can measure a return, and ROI, on each contact. It just gets too expensive.

The Internet is all about moving bits around, and bits do not take up any space, they do not weigh anything, and they can be personalized to each recipient. Therefore, the cost of contacting 100,000 people versus 200,000 people using the Internet is virtually identical. Sending 100,000 e-mails or sending 200,000 e-mails is the same. This is revolutionary! But not in the way some people seem to think. It does not make building customer relationships cheaper, because there is still a significant cost associated with building the systems that will deliver all those personalized bits. It does make it a lot more effective, though.

As the Internet has caused the incremental cost of contact to move to zero, people have had two responses. The first response is, "Great, now I can send millions of e-mails to people for a fraction of the cost of doing a traditional direct marketing campaign." This tactical "better, faster, cheaper" thinking generally leads to ineffective, promotional marketing programs at best and e-mail junk mail (spam) and privacy violations at worst.

The strategic thinkers, on the other hand, look at the new bit-economics differently. They see a new opportunity to view their communication with prospects and customers not as a function of how much each contact costs, but rather as a function of how to build contact strategies focused on servicing the customer. Their goal is to increase the value of their customer relationships, not to generate a return from every contact.

When CDNow notifies me by e-mail that Van Morrison is coming to San Francisco (where I live) on a concert tour, it is not making any money on that communication. When Palm sends me weekly e-mails with tips and tricks on how to get the most from my hand-held computer, it is not trying to get me to buy something. What they both have realized is that information and updates that I have asked for cause me to see them as trusted advisers. CDNow is not just an online music store; it keeps me informed about music releases and events I care about. Palm is not just a computer device manufacturer; it is a company that helps me organize and access personal information.

Unless Palm and CDNow were shipping "free bits" around, they could not afford to contact me. It would cost them at least a few dollars if a person were to contact me by phone to keep me up to date. Or if they wanted to drop a note in the mail, not only would it cost them lots of money, it probably would arrive late. In short, once Palm is communicating with its customers, selling, informing and amusing them, it does not cost it any more to contact each customer once every week than it costs to contact them multiple times per week.

Sending your customers relevant and personalized bits is a service that you should be prepared to perform as often as they want. And while quality bits will not be cheaper than what you have done in the past with atoms, the relevance of the bits versus the atoms will cause the returns to be significantly higher. Fully embrace bit-economics, and you may even be able to introduce the word "relationship" into your marketing (service) initiatives and not feel insincere when you do so.


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