The Brave New World of Relationship Marketing

In the old days — about two years ago — there was a well-defined line between customer acquisition (or direct marketing) and customer retention (or relationship marketing — sometimes known as loyalty marketing). The process of acquiring a customer through traditional direct media such as direct mail, telemarketing and magazine inserts was by and large discrete from the process of turning that customer into a regular through some kind of relationship-building bonus program.

But, like almost everything else in the world of marketing, the Internet has changed all that, turning what was once two discrete steps into a single, continuous lifecycle with multiple points of entry. This new scenario presents direct marketers with a whole new set of challenges and possibilities.

Online, we're burning the candle on both ends. First, customer acquisition cycles have sped up. As industry analysts have found, direct marketing campaigns that take weeks or months to execute offline can be accomplished online in a matter of days even hours. As never before, direct marketers — freed from the constraints of ink, paper, printing and postage — can take advantage of sudden opportunities in a timely manner.

At the same time, direct sellers have never had such a golden opportunity. Given the advent of one-click shopping and increasingly, personalized Web user interfaces, the move from direct offer to sale is an increasingly fluid one — as opposed to the multi-step cycles of yore. In fact, it's now possible to consummate a sale without ever leaving a direct marketing message. For instance, some banners bars and rich media e-mail can securely process an order.

Already, we can see that the synapse between message and action has been shortened. But it's important to take the analysis one step further, into the world of relationship management. This is where things really change. In the physical world, the cost of maintaining a relationship is not insignificant. Every consumer who signs up for a frequent flyer program or in-store rewards program, for instance, has to be supported with periodic statements and call center support.

Direct marketing aimed at those program members has a real cost associated with it (between $1 and $2 per message, after ink, paper, printing and postage, according to the DMA). All these costs go right to the bottom line — which means that it generally only pays to enroll active customers in a loyalty or relationship management program.

Of course, it pays off as well, as your most loyal customers tend to buy far more over time than your browsers. But what if you enrolled everyone with whom you came into contact — your multiple buyers, your first time buyers, the consumers who walk into your store, the consumers who window show and the consumers who simply see your ads in the local newspaper or as they drive along the highway. Given the high fixed cost of a typical offline relationship management program, you would probably say that enrolling everyone without regard to purchase behavior is financial suicide. And you'd be right.

But now, take that same question and apply it to the online world. The answer is quite different. Setting aside infrastructure cost for a moment, there is close to zero marginal cost to adding a consumer to your online relationship management program. It's just a few more bits and bytes. Account management is Web-based and fully automated. Likewise, support and outreach done by e-mail is virtually free and highly effective, assuming it is permission-based.

Thus, online marketers can be much more aggressive in their attempts to enroll site visitors into relationship programs that open up an electronic channel of communication with that user, even if that user is not a customer — yet. In fact, given the amount of money spent to drive traffic these days, it's almost criminal not to try to capture as much of it as possible in some kind of relationship program.

There are of course varying approaches to relationship-building online. The best approach is, I believe, through some kind of rewards program (just as you might expect to hear from a company that builds them.). But any exchange of value might suffice to get an e-mail address and permission to send (witness the advent of sweepstakes online). Still, Web users are a particularly savvy lot when it comes to giving out private information.

Not savvy in the sense that they don't want to give it out, but that they don't want to give it out for free. They are looking for a fair exchange. Some kind of one-time special offer can work to get people to opt in. But a rewards program is a much better method to start a relationship. It forces users to opt in with accurate information, and there is a flexible value proposition to get users to share more data on sign-up and over time. It also puts the prize off into the future, keeping users engaged beyond the initial contact. And, most importantly, it gives the marketer permission to reach out to them via direct and — more importantly — targeted e-mail.

The point to take home here is that where once it would have been too costly to funnel all your traffic into a loyalty program, online, it's not just possible but desirable, as it opens up viable new channels of communication. This means consumers can actually become members of your loyalty program even before they become regular buyers. The channels give marketers the ability to develop more loyal customers ahead of the buying curve, as customers self-select for special treatment and incentives.

As noted, the one fixed cost is the infrastructure to manage an online relationship program. But even here, a Web seller can find a cost-effective solution. There are myriad technology providers out there willing to partner with a Web site for the opportunity to advertise into the site's user base. Such relationships effectively provide Web sellers with a subsidy through the partner's ancillary ad-driven revenue streams. You'd be surprised what kind of powerful, loyalty-building technology you can take advantage of this way.

Free Web-based e-mail, for instance. Free customized news. Even a free online rewards program (our own offering), in which the loyalty provider delivers some form of online ads to users enrolled in the rewards program. In exchange, the partner gets a bank of points to distribute — for anything from response to a “hard” offer to softer relationship-building acts, like registering for a newsletter or making your site a home page. At the same time, all these programs give you three more important things-data on users gleaned through registration (so they are no longer just anonymous visitors), the user's e-mail address and, most importantly, permission to contact them. Now, you're on your way.

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