The case for customer acquisition

Every now and then it’s good to throw a brick at accepted wisdom. I think it’s time to throw a brick at the sanctity of customer retention. Everyone that ever reported to a sales or marketing job has heard the mantra: Customer acquisition is ten times more expensive than customer retention. I’ll save the background, because it’s well-travelled ground.

I see an opportunity for customer acquisition, and if you look through this prism you’ll see some companies that apparently agree. Conventional wisdom be damned, here’s my case for making customer retention priority number two:

The economic opportunity: Seems to me that companies are quickly falling into two categories: customer advocates and survivors. Look at GM and Nissan. Look at Citigroup and Wells Fargo and Microsoft and Apple. In an era when chapter 11 and government bailouts becomes an alternative, getting after the competition’s customers is a good short term play. Apple is the best example. It has positioned itself for new to the market customers through innovative retail and aggressive ads. Ford has also done well, playing up its image as the only “non-bailout” domestic alternative.

Online ROI: When McKinsey and the rest of the academic crew came up with their customer retention algorithms, media costs were much higher. If a company wanted to acquire a customer it relied on trade events, non-interactive media, telemarketing, and direct mail. The internet levels the playing field. Companies such as Century 21, Avon and Orbitz have moved all or a large percentage of their budgets to online display and search for lead generation and customer acquisition because they can get in front of the right customer and be there at the crucial moment of truth.

Changing competitive strategy: Successful companies in this downturn have sharpened their spikes. Google is all about innovation and customer experience, but ask someone at Yahoo if it’s a tough competitor. WalMart is, well WalMart. Starbucks has taken the high road in reaction to the challenge from Dunkin’ Donuts and McCafe challenge and McDonald’s has responded with gift cards. I’d like to see Starbucks win, but McD’s understands customer acquisition is a necessary and sometimes nasty game.

I’m not suggesting that companies ignore retention. I am suggesting they pump up their efforts to add new customers before the economy becomes flush again. Go get ‘em; then retain ‘em.

The customer-shaped hole in marketing

Been reading a lot about marketing cutbacks lately. Many analyst firms want to talk about how to maximize dollars in recessionary times, and about cool things like social media as a good investment. But there’s a huge hole in this conversation. That hole is in the shape of a customer.

Let’s call out two examples: Regardless of whether or not 50% of the 114 interactive marketers using social media that Forrester surveyed plan to increase social technology spending this year, and regardless of how little investment that takes, its customer metrics that will matter at the end of the day. Same for the IDC's marketing barometer study, which looked at b-to-b marketing trends for the first quarter of 2009, and found spending down 10% on average. Spending on marketing automation, it concluded, will remain stable. But until companies identify the results of marketing automation, all this recessionary strategy talk is bluster.

Marketing activity should result in stronger customer relationships. If a company can capitalize on a recession to build stronger relationships, that‘s a good strategy. If marketing is used as a budget cutting placeholder until good times return, it might as well throw that money away. Right now anyway, stronger customer relationships from social media are tough to prove. Yes, they’re cheap to execute. But if my company gets you as a follower or friend, that’s not enough. I need to know if you are going to be a new customer, a more valuable one, and/or one that will evangelize my company and its products.

There are some efforts that recognize budget constraints and keep the customer first. I like what Nissan has done with its campaign for the “mobile hub.” It gives owners and potential owners a reason to engage with the product and the brand. It uses new technology and it does so to enrich the customer experience. And it can be measured in terms of views, downloads, and unique visitors. Starbucks, even with their somewhat weak new positioning, has done a great job with “Starbucks ideas.” That website allows customers to suggest everything from more caffeine free ices drinks to more clocks in the store. Once again, it engages customers, and it’s measurable.

And both of them are a hell of a lot cheaper than a 30 second prime time TV spot. If you have thoughts or more customer-centric examples, I’d love to hear about them.

Starbucks comes up short on new campaign

Starbucks has arrived at an important crossroads. Dunkin’ Donuts made a dent in its market share, Wall Street turned up its nose, and now McDonald’s is gunning for more of its business. The company has responded with a new internet, print and in-store campaign that it says will be a long-term story of its values and social conscience.

At a basic level Starbucks gets credit for playing its strong cards and for creating a set of messages that enable customers to feel good about their continued allegiance when their wallet is straining. It is admitting that customers are being wooed by a powerful competitor. But as an overall customer strategy it lacks the power necessary to meet such a huge challenge at such a tough time. Here’s why:

Retention: This is not an effective retention strategy for Starbucks. The reason current customers might defect to McCafe for their coffee is because it’s cheaper and more conveniently located. If the company used its social media community and email subscriber list to remind current customers of its current locations, new openings (though there aren’t many of those) and even their non-coffee inventory, that might serve as a retention strategy. Appealing to values in a tough economy should be bolstered by a straight competitive response.

Acquisition: Starbucks has an acquisition problem. It’s closing stores, it’s fighting a huge competitor, and it’s expensive. What kind of customer is going to start going to Starbucks and buying its coffee? It has to wonder whether it has reached a critical mass with customers. This campaign is a decent shot at appealing to potential customers, but it doesn’t address the overall acquisition strategy void at Starbucks. The company needs to come up with some new offers for its current customers, and become creative with new offers to attract new ones.

Loyalty: It has always done well with loyalty programs. Starbucks has blended incremental spending, with free goods with a social option (donate purchase percentage to charity). I like the fact that it has chosen this crossroads and this campaign to pop its social concerns. It appeals to the emotional aspect of customer loyalty, which is a favorite topic of analysts and academics but rarely executed. But it could have added some caffeine to its loyalty program at the same time. It comes back again to a more creative and aggressive set of offers. A new loyalty offering does not have to be anti-thetical to the values campaign.

Engagement: Big ups for engagement strategy here. As it was first defined a few years ago, engagement was meant to be the intersection of media and customer strategy. Starbucks is playing very effectively on the reason people paid more for their product in the first place, and it’s playing on the good vibe it creates socially. If this campaign succeeds in holding McCafe at bay it will be because customers stayed engaged with the values of Starbucks.

Metrics: Here’s the big problem. Starbucks customer impact will be tough to measure. It is foregoing customer satisfaction measurements and increases because the campaign isn’t aimed at that. It’s also not aimed at sparking new business. I have a hard time figuring out how new tools such as real-time purchase data and customer interactions will validate this effort.

I have to admit I’m rooting for Starbucks. But they need to bring the big guns right now, and I don’t think this is enough. Your thoughts?

Davenport fires a shot across Twitter’s bow

Arguably no one has laid out a more compelling case for customer data and its resulting analytics than Tom Davenport. In fact, I challenge you to name a more influential business book over the past five years. He does not consider his words lightly, so for him to take a serious shot at Twitter deserves consideration.

Here’s what Davenport said on his April 9 Harvard Business Review blog. “Do serious marketers spend a lot of time and energy on Twitter campaigns? I doubt it. Sure, go ahead and play around with it — it doesn't cost much. But I defy you to do serious brand management in 140-character messages. I defy you to prove that Twitter users are your typical customer — unless you sell bubble tea or something similar — or that their tweets are a true reflection of their relationship with your company…..Let's face it — Twitter is a fad. It has all the attributes of a fad, including the one that people like me don't get its appeal. It has risen quickly and it will fall quickly. It's this year's Second Life — which, you may have noticed, nobody is talking much about anymore.”

Tweet on that for a while. I don’t think Twitter is a fad. It is a community that allows people to get on and off very quickly. It is the circulation department for personal brands. Over the past few weeks analysts have become very brave about pointing out its limitations. At the risk of piling on, I’d like to add one more voice to that, one that takes Davenport’s concerns a little further.

Twitter is not customer-centric and will not produce any meaningful data in its current form. It shrinks self-promotional messaging into its simplest bites. Just because a brand Tweets on its most recent ad campaign, and just because I click on it, or even decide to be a follower, doesn’t show a lot of engagement. It’s a bit of a lark. You can follow Madonna. You can follow Harley Davidson. But it doesn’t necessarily mean you’re a customer, and it doesn’t provide any more metrics for by the extent of my interest, purchase intent, or even what my behavior might be after I Tweet out.

As I mentioned I think Tweeter is the new circulation department and for that is a publishing force to be reckoned with. I don’t have to follow Fox Sports, but I can follow Tim McCarver. There I’m saying I’m not as interested in the overall brand as I am in reading the opinions of a respected sports analyst. In fact, while Davenport took some healthy haymakers at Twitter, it’s not so tough to find him there. He wants readers, he wants attention, but he won’t sell a lot of books there.

As Davenport suggests, I don’t think marketers should invest heavily on Twitter, because it’s lightweight marketing. Customer retention, acquisition, purchase data – these are essential for recovery. But if you have compelling characters that can command an audience, get’ em out there. Just don’t expect much more than some cute anecdotes.

Things Amazon Has NOT Done

Amazon is fast replacing WalMart for the poster boy of competing in the downturn. Last week it racked up an 18 percent increase for Q1 over the same period in 2008, and while the accolades still focus around the things it does well, it’s time to look at some things Amazon has not done at all.

Loyalty programs, customer recommendations, reliable shipping, incredible analytics – these are the strong cards for Amazon. But the way I see it Amazon has deftly avoided four things that get in the way of consistent profit and strong customer relationships for a lot of companies, especially online retailers. They are:

Deep Discounts: It certainly has snipped around the edges with free shipping and discounted shipping, and has consistently been way off list price for books. But Amazon has largely avoided trading product pricing for loyalty in some other major categories. Take electronics. Its price in PlayStation 3 is $399, more than $90 above other online merchants such as Tech For Less. For Samsung’s mid-level BluRay player, it checks in at $279, $30 ahead of Crutchfield. The Canon EOS digital camera is $509 at Amazon. It’s easily found at $430 on other sites. Consumers shop Amazon for consistency and reliability for electronics. It prices accordingly. This strategy will prove to be even more effective as it continues to manager customer price expectation for the Kindle.

Irrelevant communications: I have never received and have never heard of anyone receiving an Amazon email that was completely off the mark. The effect of that on customer retention and loyalty is almost impossible to measure.

Overextension: Nothing drains a company of cash, focus and customer relationships like extending into other brands. EBay made a shrewd move, for example, buying PayPal. But I doubt it would have purchased Skype again. Amazon’s brand extensions have been minimal. It has effectively partnered with other retailers and their main extension, the Kindle, may yet serve to be its iPod. And let’s not forget, Bezos has never taken the bait on offline retail. It could have been one of those moved that stock analysts loved at the time, but it would have taken it down in a miasma of bad real estate deals very quickly.

Redesign: A lot of marketing people see site design and rebranding as their raison d’etre. I don’t see it. Google has never had a site overhaul, it seems to do just fine. WalMart and Target haven’t done much with the insides of its stores or their brand image and they do quite well, thanks. Amazon has stuck with the same basic look and feel. By avoiding flash it keeps a laser focus on the products and the customer experience. I think customers like familiarity online and in tough times they like predictability.

All this from a company whose CEO wants to fund private space travel. Go figure.

Death of Customer Segmentation Has Been Greatly Exaggerated

Customer segmentation dead? If you read Wednesday’s AdAge column by DraftFCB exec VP Michael Fassbinder you might think so. However, Fassbinder’s arguments show a weak understanding of segmentation strategies and the new technologies that can make it go. Customer segmentation is most definitely alive. Let’s get into his arguments to disprove it.

Fassnacht’s first argument against segmentation is that the “static definition of consumer segments is becoming less reliable in our extremely volatile society, especially in today's economic climate.” True. But it’s also the best reason for companies to segment customers, and then devise different strategies for each. As he points out there are more customer segments now than there were a year ago because economic conditions have created more of them and ever-changing cultural conditions create them. He neglects to point out however that segments are opportunities. The more the better. Customer segments by their nature are subsets of the larger customer base, defined by demographics and behavior. They are never static. They never were. If for example, a consumer electronics company sees its customer base falling in high-end purchase activity, and gaining in low-priced products. That is not an argument against segmentation. It’s a signal that operations and marketing need to define that segment and treat differently than it did a year ago.

Second, Fassnacht argues that because consumers are never just part of one segment, they feel, rightfully, that they belong to a multitude of segments. Once again a true statement. Consumers do belong to several segments, sometimes for the same company. Example: A Bank of America customer may belong to the segments of active debit card user, retirement account planner, and second mortgage holder. B of A then knows that this customer is a good candidate for share of wallet efforts and customized card accounts. It is not a good target for mortgage based lines of credit. Maybe from a mass media advertising point of view he’s right. But from an internet marketing and customer retention strategy, the diverse segments even for one customer are a key to growing that customer.

Finally, Fassbinder says consumers are gaining more control of any marketing activity, and therefore want to choose their marketing message anytime and anywhere. This is an excellent point and certainly makes a segmentation strategy more difficult to execute. If that B of A customer loses his job on a Tuesday, marketing relevance for that customer changes immediately. So while this point is well taken it also argues for real-time customer data updates. Real-time updates, and the automated messaging that it enables are necessary to make any segmentation effort effective in the crucible of today’s economy.

Hopefully, Fassbinder’s column puts the customer segmentation argument back on the table. It’s a worthy discussion, but should never lead to the conclusion that it is dead as a strategy, or even tired.