Download Roberts_IM3e_IM_ch04 - Dr. Robert Davis (Ph.D) FCIM (UK)

Chapter 4
The Direct Response and Database Foundations of Internet Marketing
Learning Objectives:
By the time students complete this chapter, they should be able to:
 Explain the ways in which the Internet is a direct-response medium.
 Distinguish between acquisition, conversion, and retention strategies.
 Identify the elements of a direct response marketing strategy.
 Explain the concepts of offer, customer lifetime value, and testing.
 Explain the role of a customer database in the development and execution of Internet
marketing programs.
 Describe a data warehouse and how it is used by marketers.
 Define data mining and explain why it is important in making marketing decisions.
 Describe how strategies can become more customer focused by using information-driven
marketing.
Chapter Perspective
Most students have grown up on a steady diet of mass media and, by implication, brand-image
advertising. They are likely to have little exposure to the specialized techniques of direct
marketing. This chapter presents the essentials of direct-response strategy and techniques. Even
more important, it seeks to help students begin to understand that direct-response and branding
programs each have their place on the Internet. The ecommerce part of Internet marketing, in
particular, cannot be successful without a working knowledge of direct marketing techniques.
The Internet as a Direct-Response Medium
In what ways is it not a direct-response channel (using channel generically either as a
communications channel or transactional one)? As is the case with mass media such as
television when they are used in a direct-response mode, the marketer sets up a learning dialog
with the prospective customer. The reply to the marketer’s offer may be as curt as “Didn’t
Reply,” but the skilled marketer captures that response and learns from it, allowing the continual
refinement and improvement direct-response programs. The Internet provides more data than
this as will discussed in detail in chapters to come, but the principal is the same.
The practitioner issue is that marketers have to recognize it as such. While that was not the case
during the early days of the Internet, it seems to be the case today. However, many traditional
mass media marketers still do not know how to use the techniques of direct marketing well. That
is the focus of this chapter.
It might also be worth pointing out early on that the essential back end is something that direct
marketers (the catalog companies are good examples; so are the book and record clubs) know
how to operate skillfully. The back end was the difference between success and failure in some
of the early Internet ventures. The failure of eToys, discussed in Chapter 3, can also be
attributed to their inability to fulfill customer orders for a seasonal product in a timely fashion.
See “The Last e-Store on the Block,” Fortune, September 18, 2000, pp. 214-220 that
characterizes eToys as “well-run” but describes the fulfillment debacle of their 1999 Christmas
season. They had a great website, but overall were not “well run.” As a result of unfulfilled
orders experienced in the previous season, customers did not come in for the 2000 Christmas
season, and the company folded early in 2001. The principle continues to hold true, as
evidenced by the affiliation of Toys ‘R’ Us with Amazon. The WayBack Machine of the Internet
Archive site has captures of the eToys home page. The last one was December 2001
http://web.archive.org/web/200012051651/http://www.etoys.com/html/welcome.shtml?etys=wel
come. The images have been taken down but the structure of the page is clear and it is obvious
that eToys had a well-done site, especially for 2001. Their inability to control costs and to
fulfill—not strategy but execution—was their downfall. The WaybackMachine site is a great
resource for helping students see how sites, large and small, have changed over the years.
So the answer is that a knowledge of direct response techniques matters greatly, both on the
front-end where data capture and testing are essential, and on the back end where fulfillment and
customer service make the difference between satisfied customers and those who will not return.
Good Internet marketing has the ability to be:
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Interactive. Interactive activities like purchasing goods and services or games on the
Internet may help students understand the power of interactivity. From the marketer’s
point of view it is the ability of offer information or products for sale and to document
each stage of the prospective customer’s reaction—and then to follow that newlyacquired customer through the time that he remains a customer, attempting to increase
customer value over time.
Information-driven. None of the marketing techniques that characterize direct-response
marketing are possible without thoughtful data capture and use. For databases of
significant size, add analytics to the list of necessities.
Immediate. We discussed in Chapter 1 the ability of the Internet to meet many customer
needs in real time. From the marketer’s perspective, immediacy is also important. It
allows the marketer to respond to individual customers while their interest is strong and
to get a quicker reading on the success of programs so they can be expanded, revised, or
dropped to enhance profitability. It also follows the direct marketing rule which says to
get a prospect to take action immediately (through a powerful offer), because action
deferred is most often action not taken.
Involving. Using the concept of passive media like television versus active media in
which a person has a sense of participation, the Internet is certainly an active medium. In
fact, you might say that from a marketing perspective, nothing happens until a customer
clicks his mouse.
Proctor and Gamble is an excellent example of a traditional marketer that has embraced the
power of direct response. As the text points out, they actually had a head start from what they
learned in the marketing of their highly-targeted product, Cheer Free. It is worth going live to
the website, letting students select a few brands, and looking at their microsites. What they will
see is coupon and other offers and information but little if any of the brand-image advertising
they see for these products in broadcast and print. They have brand email newsletters, and they
post videos and mass media ads on the brand microsites.
Generic Direct Marketing Strategies
This leads directly to the generic strategies of direct marketing:
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Acquisition. Customer acquisition is clearly the first step. In some instances it means
that the customer actually makes a purchase. In other cases, (sales lead generation
programs, whether B2C or B2B), acquisition can be defined as acquiring the name and
(email) address of the prospective customer for follow-up. This is a good opportunity for
discussion; ask the class if anyone is aware that of name and email address being
captured from a website visit and used for subsequent marketing efforts. The activities of
automobile manufacturers and dealers in their sales lead generation efforts are a good
example.
Conversion. If the program is a multiple-step sales lead effort, conversion may require
moving the customer through several stages of increasing commitment, often using
increasingly valuable incentives. If it is a sales program, conversion can refer to efforts
to make the sale and retain the customer. Incentives that decrease in value are sometimes
used in a multiple-step conversion activity. It may be worth reminding students,
however, that all of this effort is for naught if the customer is not satisfied with the
product or the service and support needed to make it perform properly.
Retention. Retention is the stage in which customers are not only retained but also in
which marketers can engage in important activities to increase CLV primarily increasing
volume, cross-selling, and up-selling.
Critical strategy elements are:
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
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The offer—the complete proposition made by the marketer to the prospective customer.
It includes two of the marketing 4 Ps—product and price. It also includes branding and
positioning as well as any other marketing activity that affects tangible attributes or
product image.
The list. The mailing and telephone list business is a well-established part of the direct
marketing industry. List rental firms now offer email lists. It is important that marketers
carefully investigate the background of any rental list they consider to ensure that it has
no evidence of “spam.” Opt-in lists will be discussed in several contexts in the chapters
that follow. Good opt-in lists are expensive. If the list is cheap, assume it has not been
collected with due respect for customer privacy.
The media. The text makes the point that any medium can be a direct-response medium
if the relevant direct-response techniques are used. One of the keys is a clear call to
action. Students can think about television infomercials, which have all the
characteristics of direct response. On the other hand, if you can find a B2B ad in a trade
or general news magazine that has a 1-800 number and a website URL but no clear call to
action, that makes an interesting comparison. Most direct marketers would not classify a
broadcast or a print ad as direct-response if it had only a 1-800 number and/or a URL
with no request that the prospect call or no indication what benefits the prospect would
derive from calling.
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The creative execution. Direct marketers have always downplayed the importance of
creative execution, attributing only about 10% of the pulling power of a direct-response
promotion to the creative. As we learn more about the Internet, creative execution may
become a higher art form because of the ability to use rich media and other interactive
elements.
The service and support. Direct marketers have also long recognized the essential role of
customer service and support in generating customer satisfaction in their non-personal
environment. Consequently, mail and catalog marketers have learned to do it well and
have transferred it onto the web rather smoothly.
Before the advent of the Internet the direct response offer had to carry the marketing burden
because many direct marketers had no retail store. That is not true today in this era of
multichannel marketing. However, the importance of selecting the appropriate programmatic
objective for the direct marketer’s specific purpose and executing communications strategies
effectively cannot be overstated. Many items can be sold directly. Dell is a good example of
expensive, complex products that can, indeed, be sold directly to consumers and small
businesses. Other products require a multi-step, lead generation approach. This is true of many
B2B products and services. On the consumer side, Porsche has long used direct-marketing
techniques to locate and qualify prospective buyers. They successfully did so when they
launched an SUV, which would seem to be akin to looking for the proverbial needle in the
proverbial haystack—a perfect application for direct-response marketing. Conversion may be
done by direct-response or, as in the case of the Porsche SUV, may require other techniques like
personal selling.
A promotion is only direct response if it has a clear call to action. That call to action can be:


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To encourage the visitor to remain on the site longer (site stickiness)
To cause them to make an inquiry for more information; today that often takes the form
of downloading the information
Making the sale
The three ads in Figure 4.4 give an opportunity to look at offers and the response marketers are
looking for. You might want to add a slide that captures an ad, follows the click through to a
landing page, and to the inquiry or the transaction opportunity. It is even more fun to do that live,
but the changes of finding a specific ad on a given page at a given time are low. However, you
can count on portals like Yahoo to have interesting ads up at any given time that will allow you
to illustrate the process live.
This is a good time to point out the importance of the brand in whether the viewer clicks through
and whether she does anything when she reaches the site. Trust in a brand is a key factor.
It is important for students to be comfortable with the terms “front end” and “back end.” It is
hard to find a formal definition, but drawing a line at the point at which the sale is made captures
the meaning. Marketing activities represent the front end. All of the after-sale activities—order
processing, fulfillment, service and support—make up the back end. This is another opportunity
to emphasize that doing the back end well is essential to Internet marketing success. You can
make a nice clip art slide with something like a TV set or cash register on one side, the sale in the
center, and a warehouse or a delivery service on the other. That gets the point across visually.
The Amazon fulfillment center video is a customer acquisition activity that is clear on what
fulfillment is and does. The video of the Harvard professor who went through customer training
at the Ritz Carleton is a delight and can get students thinking about the importance of exceptional
customer service early in the course.
The Role and Importance of Customer Lifetime Value
Another thing that is essential to Internet marketing success is Customer Lifetime Value—
understanding it, calculating it, and using it to drive Internet marketing strategies and programs.
CLV is the metric of choice for both customer acquisition and retention programs. It is also the
segmentation variable of choice for many marketing applications.
If you wish to leave CLV at the conceptual level, you can emphasize the basic model as stated in
the text:
Net customer revenues
- Cost of goods sold
Gross margin
- Cost of servicing
Customer revenue
× Cost of capital
Net present value of customer revenue stream
Figure 4.5 is a detailed conceptual model that emphasizes both customer and supplier factors that
contribute to the frequency—and I would add the amount—of sales revenue. From that they take
“marketing costs,” a loose term that includes both cost of goods and sales and marketing costs.
That leaves us with total profit per customer which is then discounted to net present value. The
great value of this model is that it goes on to present a model for allocating marketing resources,
given the profitability of the customer. That is the essence of CLV-based strategy.
Tables 4.1 thorough 4.3 take students through a first-year CLV calculation and show three-year
CLV and the result of targeted programs using CLV. I have found that it is useful to go through
the tables line by line. It is important for students to understand the inner workings of the CLV
calculations.
There’s a trick to these numbers. Even if you don’t work through it in class, a student may try to
work it out and say the sales number is wrong. Not wrong, just an assumption that the author
didn’t put in his article, and I didn’t know until I asked. Grocers use a 50-week (not 52) year on
the assumption that people take 2 weeks vacation and don’t buy groceries at home for those 2
weeks. With that understanding, the figures work out this way:
0.64 visits × 50 weeks
× $33 sales/visit
× 5,000 first year customers
32 visits/year
$1,056 per customer per year
0.83 × $5,280,000 direct costs
0.11 × $5,280,000 labor and benefits
$16 × 5000 customers on loyalty card
0.02 × $5,280,000 advertising
Total costs
Gross profit
First Year Discount Rate
NPV of First Year Revenue
/ 5,000 for CLV at end of first year
$5, 280,000
$4,382,400
$ 580,800
$ 80,000
$ 105,600
$5,148,800
$ 131,200
1.0
$ 131,200
$
26.24
And so it goes, if you want to do all the calculations for Years 2 and 3. I find that working it out
for one year is enough to make the point. Students can be encouraged to work through it down
to Gross Profit on their own to make sure they understand it.
You may want to calculate the discount rate for Years 2 and 3, using the formula on page 92,
with them to make sure they understand. Then work through the NPV for Years 2 and 3, the
Cumulative NPV, and the Lifetime Value for Years 2 and 3. There is another potential mistake
here—a big one. Be careful to divide by 5,000 each year—the original cohort, not the number of
remaining customers. It’s not clear to me that there is a logical reason for using the original
acquired cohort all the way through, but that’s the way it is done and students should realize that,
even if you don’t do a line by line explanation of all the calculations.
If you think they are at all perplexed by NPV, point out that the actual value of the profits for the
three years is $907,287. The comparison between actual profit flows and NPV usually makes
the point clear.
Table 4.3 summarizes the example and gives the instructor the opportunity to talk about the
strategy, not just the numbers. It shows the results when a targeted marketing program increases
retention rate, number of visits per week, and the average amount sold per visit. Note that
advertising has decreased to 1% of sales and the other 1% has been shifted to the targeted
programs. In this case, costs neither increased nor decreased; they were just redistributed to
achieve greater revenues. CLV has been increased substantially with no overall increase in
costs. That is an important take-away from this example; being more effective without
committing more resources.
The CLV calculator tool in Interactive Exercise 4.2 is interesting. It can be used in the classroom
or it would make a good follow on assignment. Carry out a calculation even if it is based on
assumptions about costs, explain the meaning of the CLV result, and give specific options about
how this information might be used in developing (or testing) new brand strategies. There are
other tools on various corporate sites, but this one seems solid.
It’s important to note that the graphic in Figure 4.6 is not a true CLV calculation because it
doesn’t have an NPV calculation. The value is twofold:
1. Illustrate the importance of understanding the value of customers acquired by specific
channels. Everyone wants to understand the value of a Facebook customer at present.
This lawsuit, which values a Twitter follower at $2.50, has gotten a lot of press. The
video is worth considering for class use; http://mashable.com/2011/12/26/twitter-courtfollowers.
2. Point to the importance of referrals, which aren’t often included in examples. Earned
media—product reviews, blog posts, etc.—will be discussed in detail in Chapter 9.
Testing Direct Response Programs
Testing is essential to the success of marketing programs. Until the Internet, it was the province
of direct marketers only. Now all marketers who have a meaningful web presence can do it, but
even now relatively few test effectively. That makes this an important section.
It is also a chance for me to mount my soapbox about the relationship of marketing research
(secondary) and testing (primary) in the Internet environment. It is a provocative perspective for
students http://diy-marketing.blogspot.com/2008/07/testing-critical-to-internet-marketing.html
because it goes against what they’ve been taught, implicitly or explicitly, in earlier marketing
courses.
For several years I’ve used a product tour of the Adobe Test and Target product in class to
illustrate testing because it explains the process in a very lucid way:
http://www.omniture.com/en/products/conversion/test-and-target. This is where we ran into
another permissions issue. Adobe, now the owner, was preparing a new product tour as the text
was being finalized. They wouldn’t give permission to use anything from the old tour, but they
did provide an excellent testing example and back story, for which we are grateful. You can
expect that this link will go down sometime in the near future. You may be able to find the new
one on the Test and Target product page. We will post the new link on the Google+ page when
we find it. I’d encourage both presentation of the static Adobe test and playing the product tour
in the classroom. Students don’t understand testing. They have a hard time separating it from
marketing research and the more emphasis you place on the nature and importance of testing, the
better as far as I’m concerned.
I have used an in-class exercise that helps them to understand. If you have the time, it can go
something like this:
Design a Test for a Promotional Email
Your task is to create a design for a one-time test on a single email piece.
1. Quickly invest an email promotion. Specify its objectives, target market, and a rough
idea of content—obviously you do not have time to write copy.
2. Design a test of your email piece based on the concept of experimentation presented in
the text. You should specify:
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The marketing variable(s) to be tested and why you have chosen them over others
that could have been tested.
How the test will be conducted.
What data is needed to determine the outcome of the test and how it will be
captured.
How the results of the test will be used to improve the email marketing program.
And do all of this in 20 – 30 minutes!
I do this in groups of 2 or 3 students; perhaps using the groups already formed for the semester
project on the assumption that they have become somewhat comfortable working together. I
usually have to give them 30 minutes, so it takes up all of a day class or half of a once-a-week
night class, assuming that each group makes a brief informal presentation of the test they have
designed.
MBA students tend to come up with reasonably credible tests. Undergraduate students tend not
to be able to get past the concepts of survey marketing research. Both groups come away with a
sobering look at how little they really know about this important topic.
The problem with this exercise is that it completely ignores the statistical issues of sampling and
determining which differences are statistically significant, which are essential to the correct
reading of tests. The importance of the statistical issues should be emphasized. The chapter
referenced in the Roberts and Berger direct marketing text covers these issues in rather
excruciating detail. You may find it a useful reference.
The example of a more complex test in Figure 4.8 helps illustrate the power of testing even
though a detailed discussion of complex experimental designs in beyond the scope of this course.
You will find more good examples in the Marketing Experiments online journal
http://www.marketingexperiments.com if you wish.
Another approach is given in Interactive Exercise 4.3. Showing the video for Google Website
Optimizer gives another insight into how testing is done.
The Database Imperative
We usually appear to assume that when marketers refer to “the database” they are talking about
the customer/prospect database, and they often are. There are many databases, on both the
customer-facing and the back ends of the business, that are necessary to execute specific
programs, integrate and automate systems, and conduct certain kinds of analytics. Figure 4.9
presents a conceptual approach. It probably is not necessary for students to be able to remember
the entire set, but recognizing the four categories they fall into is helpful.
It is also helpful for students to understand that marketers and information technology experts
have different “views” of what a customer database system looks like or what it does. The two
graphics in Figure 4.10 are excellent illustrations. There is more good material in the original
www.terry.uga.edu/~hwatson/Harrahs.doc.
Customer profiling, segmentation analysis, and predictive modeling can be done using data from
marketing research. The database, however, provides a richer, constantly expanding source of
data for these activities. It also comes much closer to providing data on all customers, not just a
sample. Finally, the program can be executed from the same database on which the analytics
were conducted. The results of the analytics can, therefore, be matched to operational data with
a degree of precision that is not possible with marketing research data. In fact, with only
marketing research data, it is not possible to execute targeted, individualized marketing
programs.
One-to-one marketing is a clear benefit from having (and using effectively) a customer database.
It is not, however, the ultimate benefit of the customer database. In the end, its best and most
profitable use is to increase customer lifetime value. The Harrah’s story is well documented and
it provides a compelling example. It can be discussed against the background of the Harrah’s
home page, which suggests some of the database elements, especially the importance of their
Total Rewards program, either http://www.caesars.com/index.shtml or any of the specific resort
pages. At the time of this writing, their Total Rewards page opens on a catchy video
http://www.totalrewards.com/brands/harrahs/hotel-casinos/harrahs-brand.shtml.
The alert student will recognize that a program like Harrah’s can quickly collect a large amount
of data. The volume of data quickly exceeds the capacity of conventional marketing research
analytics; hence, the need for data mining.
Data mining refers loosely to the set of tools that can be used to extract meaning from large data
sets. It includes some of the tools that students are familiar with, at a conceptual level at least,
like regression. It also includes some that are available in the major commercial statistical
packages like AID and CHAID. It may require the use of tools of which students are only
vaguely aware. Neural networks are the topic du jour, with strong opponents and proponents.
An in-depth discussion of the statistical and mathematical tools that make up data mining is
probably best left for an elective course in research, modeling, or data mining. The Harrah’s data
provides one perspective on the value of data mining. The NBA case history is a studentfriendly way to give students practical understanding of the potential of data mining without
emphasizing the complex statistical issues. Figure 4.12 also highlights the segmentation
possibilities and the granular nature of the marketing programs that can be developed as a result.
See Stafford’s full presentation http://www.slideshare.net/jrstafford/ncdm-datamining-casestudy-2010-3563095.
The Hierarchy of Interactive Strategies
The hierarchy in Figure 4.13 is based on the theory that “you must walk before you can run,” but
it is not deterministic. Information-driven marketing is a major undertaking and it is wise to
implement it a module at a time. Data  Information as implied in the bottom layer is a
required foundation for all information-driven programs. Beyond that steps should be selected
and implemented based on the needs and objectives of the enterprise. However, the progression
suggested, Information  Interaction  Transaction  Personalization  Customization,
makes sense in terms of increasing intensity in the requirements for data, analytics, marketing
expertise, and sophisticated deployment systems. The NikeID site www.nikeid.com is
wonderfully interactive and it is fun to design a pair of shoes in class. This is the type of dynamic
page that we could not get permission to use in the text.
The summary emphasizes the interactivity of the Internet; you may wish to re-emphasize all four
of the Is. It points out the generic strategies of acquisition, conversion and retention and
programmatic objectives of sales, sales leads, and site stickiness. It reiterates the importance of
CLV and information-driven programs that have the ultimate aim of increasing CLV. Well-done
targeted marketing is the greatest ‘marketing win-win’ of all—programs are improved and costs
are reduced at the same time. Customers are not only more responsive, they should be happier,
because they are getting only offers that are genuinely relevant to their needs and interests.
Discussion Questions
1. Why is it important for the marketer to distinguish between customer acquisition,
conversion, and retention when developing marketing strategies?
2. How does “the offer” differ from “the product” of traditional mass media marketing?
The offer is a more inclusive concept. It includes both the product and its price as well as the
positioning and other image-building aspects of the marketer’s activities—the “complete
proposition” or package that the marketer offers to the potential customer.
3. In addition to the offer, what are the elements of a direct marketing strategy?
4. How do direct marketers distinguish between the “front end” and the “back end” of a
transaction? Why is this important?
5. Explain the customer lifetime value (CLV) concept. Thinking about a specific firm, how
could it use the concept of CLV to increase the overall profitability of its customer
base?
If students can boil it down to a rather brief phrase, they understand the concept. The desirable
phrase is “the NPV of customer gross margin, less costs of servicing the customer.”
The example used in the text was Safeway and its loyalty and targeted marketing program.
Students could build on this by using other retail examples; department stores and restaurants
both have a large stake in encouraging their customers to buy more, more often. What about
product categories in which the purchase cycle is much longer—cars and real estate, for
example? In both cases, sales people go to great lengths (a personal gift at the time of purchase,
for example), Christmas cards, postcard notifications that they have just sold a house in the
neighborhood to remind customers of their existence in the hope they will return when it is time
for another purchase. Another good example is GM and its credit card, which provides a strong
incentive to buy another GM vehicle.
6. How is testing different from marketing research?
Testing is essentially an experiment. It can take many forms:
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Is the new email format better (on what metric?) than the old?
Does Banner Ad A or Banner Ad B receive more click-throughs?
Which of two incentives leads to more sales?
A test is performed as part of the normal marketing activity of an organization.
Marketing research involves the collection of primary or secondary data in qualitative or
quantitative forms by a process familiar to all marketing students.
As suggested earlier in the notes for this chapter, testing identifies “what works;” marketing
research can investigate “why.” Testing and marketing research are completely different in
concept and execution. Both can play an important role in developing and executing marketing
programs.
Bringing students to the point where they genuinely understand what testing is and why it is
different from marketing research is one of the great challenges in teaching this chapter.
7. Why and how does testing offer opportunities to Internet marketers?
It is difficult to judge the effectiveness of traditional mass media promotional programs. If they
are well measured, it invariably involves marketing research, which takes both time and money.
Only then can empirically-supported changes be made to the promotional approach. And even
then, it is often a case of trying something else, not doing something else that has a high
likelihood of improving the program.
Testing allows the marketer to test a program against a benchmark—an industry-standard
response rate, for example. Even better, it allows the marketer to test a change (experimental
treatment) against a program with a known metric (control), say a click-through rate. Or it
allows the marketer to test two competing approaches to see which works best, given some preselected metric, say response rate. Direct marketers have long used this type of testing. The
Internet adds email to the equation. Email provides the opportunity to read tests quickly and
make revisions on the fly.
8. What are some types of analytics that are supported by the customer database?
It is probably better to focus students on the strategic uses, not specific statistical or modeling
applications. Segmentation analysis can be more precise when done from a database instead of
from marketing research data. Customer profiles can be created and attached to specific
individuals in the database, not simply created at the segment level. Predictive modeling is
generally more successful with the larger samples and more robust data available from a
database. If students are having trouble with the concept of predictive modeling, they may find
credit scoring models an understandable concept. They will also probably relate to the “you
have been preapproved” offers for credit cards that flood the mails and that are one familiar use
of these models.
9. Distinguish between the concepts of customer profiles, market segments and predictive
modeling.
10. Explain the related concepts of data warehousing and data mining.
The major purpose of a data warehouse is to bring separate databases together into a central
repository. Data warehouses also include query and reporting applications that allow managers
to query the database and get responses without programming intervention. Once you bring all
this data of many different types together, it is available for conventional statistical analysis or
mathematical modeling. However, the sheer size of the databases also calls for other types of
analytics. The most-discussed is pattern recognition algorithms, of which neural networks seem
to be the most common, which search for patterns in the data instead of using traditional
statistical approaches.
11.
What do you think the future is for customized products? Think of an example of a
product that could reasonably be customized and explain why the target customer
would find value in the customization.
Pundits have been predicting a bright future for customized products for quite some time. Still,
there is little real customization. The Nike example in the chapter is generally as close as we
come. Really, it is selecting various components from an existing set and being able to put your
initials on the shoe. Whether that is meaningful customization is in the eyes of the beholder.
Land’s End seems to be slowly expanding its line of customized garments, so it must be finding
them successful. Few firms, however, seem willing to experiment with customized products.
Internet Exercises
1. Internet Career Builder Exercise.
2. Register at a B2C website—one of those you chose to track for the semester if one is
appropriate. If not, choose another site for this exercise.
a. Carefully consider the potential value of the data captured on the registration form.
If the option is presented, you may want to configure a personal page, especially if you
have not done so before. Then spend a few minutes getting acquainted with the site.
What other customer data of value could the site have added to its database as a result
of the time you spent there? Would you have been willing to provide that data?
This is an experiential exercise, so all students’ answers may be somewhat different. You may
want to ask them to print out the registration page they filled out and walk through the data
requested with a few of them. Registration pages that require more versus less data should get
them thinking about why marketers are asking for this data and what they are going to do with it.
The same is true of the personalization process. Personalization requires data that clearly implies
personal likes and interests. The clickstream data that is created by moving around a website
implies the interests of the visitor. It can be captured and stored for marketing analysis and use.
As the person returns, the size of the database increases. When she does something like make a
purchase, another important type of data is added. Sites often use the addition of new features as
an opportunity to contact their users directly, often asking for more data in the process. Two
things are essential in this process. The first is that with each contact, the database captures more
potentially useful data. The second is that marketing uses this data to better understand
customers and to provide targeted content and promotions.
b. Keep a log of contacts that result from this registration. Bear in mind that contacts
may come from the sponsor of the site itself and others may come from marketers with
whom the site shares its lists, depending on options you choose in the registration
process.
This portion of the exercise will take place over time, so if you assign it, you will need to return
to it from time to time. It is easy to keep track of contacts from the site itself. It is not as easy to
track rental or sharing of the list. Sometimes it is identified, “You are receiving this as a
subscriber to. . .,” and other times it is not. Students should be warned to just look for an
increase in related communications and to think about whether they could be a result of list
sharing. Tracking this kind of marketing activity is more difficult in Internet space than it is in
the physical world where mailing labels often give big hints about where the marketer got the
name and address. Students should, however, learn to pay attention to what happens when they
establish a relationship with a marketer. A later exercise requires them to read a privacy policy
to help them understand these issues.
c. Consider the four I’s shown in Figure 4.1. Locate a site that makes good use of one,
some, or all of the I’s. How do these characteristics affect customer experience on the
site?
As noted at the beginning of the manual, students tend to come up with some interesting sites
that instructors never knew existed. It can be interesting to look at some of them, to think about
their use of interactivity, information, immediacy and involvement. Some do a great job and
probably each of us has our favorites. Check out the Exploratorium, a science museum in San
Francisco. You might want to locate a B2B site that is just the opposite of interactive an
involving. Unfortunately, there are many of them.
3. Choose a website that permits personalization—portals or large content sites are a good
choice. Personalize your own page on the site. Think about the kinds of customer data
that are produced as you use your personalized page on this site. How can the site use
this data to engage in targeted marketing? Also think about the benefits to you, the
user, of having a personalized page on the site you have chosen.
This is a variant of the first exercise, and you probably want to assign one or the other. I am
always surprised when I ask a group of students how many of them have a personalized page,
because relatively few have one. Just finding out how it works is useful. I often show the Yahoo
home page in class and then sign onto my personalized page, which has a much different look as
well as my chosen content. It is a great example of the customer being in control and it is an
experience I think Internet marketing students should have.
Customization opportunities are somewhat limited at present but they are likely to increase as the
Internet and its technology mature. Continuing with Yahoo, I can show a simple example of
choosing a e-card and personalizing it. Is that personalization or customization, and does the
distinction matter a great deal? To be customized, does it have to be produced from the ground
up, exactly to your specifications—a Dell computer for example or a pair of custom shoes or a
custom bicycle. The exact line between personalization and customization seems a little blurry
and worth some discussion. In the end, all the so-called customized products are made from an
array of component products assembled to meet the customer’s specifications.
4. Visit a website that you patronize frequently, one from which you have purchased
something, if possible. Identify two marketing elements that could usefully be tested.
How would you go about setting up one of these tests?
Here again, the answers will be as many and as varied as the students themselves. Try to get
them, first to think in terms of the 4 Ps. What are the basic marketing elements we are working
within a given situation? Value enhancers like incentives are often a good thing to test. Then try
to get the students to think about what is really worth the time and effort of testing. Does a blue
instead of a green header on the email really make much difference? On the other hand, could a
slightly higher price have little effect on demand (as compared to the existing price, perhaps) and
bring in significantly more revenue? That would make a difference—and that is how marketers
need to think about it.
Key Terms
A/B split presenting one offer, creative execution, etc. to one group of customers or prospects
and another version of the same offer, creative execution, and so on to another group of
customers.
back end activities that are required to satisfy the customer after a sale is made, including
fulfillment and customer service.
CLV (customer lifetime value) the net present value of a future stream of net revenue from an
identified customer.
customer service solving customer problems.
customization process of producing a product, service, or communication to the exact
specifications/desires of the purchaser or recipient.
data mining analytic process and specialized analytic tools used to extract meaning from very
large data sets.
database set of files (data, video, images, etc.) organized in a way that permits a computer
program to quickly select any desired piece of content.
front end all the marketing and promotional activities that occur before a sale is made.
fulfillment the business processes necessary to receive, process, package, and ship orders to
customers.
information data that have been processed into more useful forms using techniques that range
from simple summary formats to complex statistical routines.
Interactive presenting choices to or allowing input from the user.
NPV (net present value) current value of a discounted stream of future revenues.
personalization process of preparing an individualized communication such as a newsletter or
web page for a specific person based on stated or implied preferences.
predictive model relevant variables and associated response factors or probabilities are used to
estimate the likelihood of occurrence of a specific behavior, given the existence of a given level
of the specified variables.
profile summary of the distinctive features or characteristics of a person, business, or other
entity.
sales promotion a marketing communication that encourages the customer to take specific
action.
testing statistical process by which alternative marketing approaches are compared and the best
is selected.