Recently, everyone has noticed Wall Street’s shift in attitude toward “gaining market share, but losing money” excuses — Reel.com, Petsmart and CDNow being just some of the latest “unprofitable” examples. Now that many traditional retail businesses are moving online, what can second-mover companies learn from their unprofitable predecessors in order to be successful?
After reviewing each company’s “going out of business” press releases and financial statements, there seems to be one commonality that the next wave of online businesses can address before spending millions of dollars on advertising, marketing and branding: high customer acquisition costs.
The initial wave of Internet warriors has learned an important lesson: The Internet channel may be new, but tried-and-true business fundamentals still apply — it’s all about acquiring and retaining customers in a profitable fashion. So what is causing these acquisition costs to reach new heights, thus leading to unhappy investors and jobless employees? Simple — ease of information from the Internet makes it more expensive to vie for initial customer attention. Companies then neglect to implement customer-retention-focused programs to improve their profitability and protect that investment.
Marketing e-businesses on television was in vogue last year. To compete for surfers’ attention, glitzy and sometimes incomprehensible e-business campaigns clogged television screens, making their grandest efforts during the Super Bowl dot-com advertising showcase. All this expense was just to get people to a Web site with the hope of gaining customers. This repeat investment got quite expensive without any return for a bevy of new online businesses.
These online businesses are popping up everywhere. IDC, Framingham, MA, recently stated that the Internet is growing by 2 million pages a day, and it expects that number to hit 8 billion pages in 2002, thus exceeding the world’s population. This influx of companies on the Web, and the limited number of online customers worldwide, mean that supply eclipses demand (i.e., companies exceed potential customers). Therefore, the value of every customer is becoming very high, so companies need to refocus some of their marketing budgets to keep their extremely valuable existing customers rather than investing all their marketing dollars to acquire new ones.
Perhaps these failing companies neglected to remember this existing customer base. These customers offer highly profitable returns. Companies must initiate a customer-retention-based marketing plan, in addition to a customer acquisition plan, to maintain profitability.
Focus on the real prize, these existing customers, in the most cost-effective manner possible — e-mail marketing — to become more profitable. Catering to this interested and loyal customer base, in addition to generating new customers, is a great way to generate more cost-effective repeat sales.
Earlier this year, Forrester Research, Cambridge, MA, reported that the average cost per sale using direct mail for customer acquisition is $71 (using e-mail it is $286). However, the average cost per sale to existing customers (customer retention focus) using e-mail marketing is only $2. Also, a Harvard Business Review report by W. Earl Sasser Jr., a consultant and Harvard Business School professor, and Frederick F. Reicheld, a director at Bain & Co., a strategy consulting firm, asserted that a 5 percent increase in customer retention can result in profit increases of 25 percent to 85 percent, depending on the industry.
While most companies realize marketing via e-mail is the killer app for customer retention, most still do not understand where to begin or how to start. Building a successful customer-retention-focused e-marketing program is like building a house. The process usually starts with a brand-new idea or as an adaptation from somewhere else, then the design, followed by building the foundation and so forth.
To some newcomers, building a customer-retention-based e-marketing program seems difficult, but the same process applies — form a new idea about what you want to do or adapt one to your needs, design your e-marketing road map, build the foundation, then see the results of your plan.
Most companies usually neglect the “foundation” step of the e-marketing process — they now have many creative promotional ideas for e-marketing campaigns and promotional efforts, but they neglect the e-marketing process and thus fail in their e-marketing initiatives.
If you pay attention to the fundamentals and follow the simple process, you will have e-marketing success:
• Form an e-marketing idea. Let your creativity run wild — everything under the sun is accomplishable. Use your vision to create a new idea, or borrow a similar idea and adapt it to your needs. Be sure you take the time to think this through to obtain the highest long-term results.
• Design the program or adapt an idea from another. Come up with an e-marketing action plan with long-term and short-term goals, project responsibilities, time of execution, duration, purpose, program overview, activities, comments, responsibilities and timelines. Laying out the entire project into bite-size pieces is much easier for implementation people to handle and digest.
• Build the foundation. This is the part that most companies neglect. By far, this is the most important part to build the foundation of a successful e-marketing program.
So what’s a sound e-marketing foundation, and how can you build one? All e-marketing campaigns are built on the database, so the database is the place to start. Why do you think renting e-mail lists is so expensive? E-mail databases are now considered one of the most valuable company assets, so building your own e-mail database can be extremely profitable. Make sure you use every channel possible to grow it to new heights.
Take advantage of every communication channel possible to gather e-mail addresses and more information about your customers, then keep this valuable information in one centralized database for maximum security and efficiency. Depending on your business, gathering e-mail addresses can be easier than you think.
Collect addresses in your stores, with your sales staff, within billing statements, on the Web site, even create new promotional programs to migrate offline users online. Then use that information to provide a timely, valuable and personal e-mail to each customer.
By paying attention to the fundamentals and following this simple process, you will have higher customer retention success and will succeed where many companies fail — refocusing on the “real” prize.
• Stuart Hanson is marketing and corporate communications manager at touchMarketing.com, Seattle. Reach him at [email protected].