Download Customer Acquisition and Inbound vs Outbound Marketing

Session G5:
Customer Relationship Management/ Sales Track
How outbound marketing increases
asymmetry and inbound marketing
reduces it: An empirical investigation
How outbound marketing increases
asymmetry and inbound marketing
reduces it: An empirical investigation
Presented on February 27, 2016
AMA Winter Educators Conference – Las
Vegas
Kashef Majid
College of Business
University of Mary Washington
[email protected]
Andrew Crecelius
Trulaske College of Business
University of Missouri
[email protected]
Customer Relationship Management
(CRM)
•
The strength of a firm’s customer relationship
management is its ability to acquire
additional customers and retain those
customers (Gupta, Lehman, and Stuart
2003).
•
It is consistently acknowledged that work on
customer acquisition is scarce (Reinartz,
Thomas, and Kumar 2006; Thomas 2001;
Blattberg and Deighton 1996).
Customer Acquisition
•
New customers cost more to acquire than existing
customers cost the firm to retain (Thomas 2001).
•
In a study of professional memberships, Thomas
(2001) found that the organization spent $26.94 to
acquire a customer versus $2.15 to retain the
customer.
•
The majority of work on customer acquisition has
focused on balancing acquisition versus retention
and how much to spend but not where to spend the
money to increase acquisition.
Customer Acquisition
•
The gap that exists is to inform firms where to
spend their resources to increase their
acquisition while reducing the cost of
acquisition.
•
We hope to address this gap by exploring
the marketing methods that firms use to
reach customers.
Inbound vs. Outbound Marketing
•
Firms may be able to screen customers based on the type of
marketing that brought them to the firm.
•
Inbound marketing techniques refer to a collection of
marketing strategies and techniques that pull relevant
prospects and customers towards the business (Steenburgh,
Avery, and Dahod 2011). This can include search engine
optimization and word of mouth (Trusov, Bucklin, and Pauwels
2009).
•
Outbound marketing is described as a form of marketing that
is pushed on to consumers who neither desire nor absorb most
of the content (Steenburgh et al. 2011). Traditional forms of
advertising such as direct mail and signage are classified as
forms of inbound marketing (Trusov et al. 2009).
Inbound marketing
•
Inbound marketing is engaging, accessible
to those most likely to purchase from the
firm, and interactive. (Steenburgh et al.
2011).
Inbound marketing
•
The customer actively seeks the form of inbound
marketing which by bypasses their persuasion
defenses.
•
The marketing communication is engaging which
indicates that the message will have a higher
probability of being absorbed.
•
Interactivity allows for two way communication.
•
We classify word-of-mouth, review forum, and search
engine optimization as inbound marketing.
•
We argue that the elements that create inbound
marketing will reduce asymmetry for those customers
which increases the probability that consumers will
choose a good firm.
Outbound marketing
•
The message is pushed on to consumers and is
controlled by the firm.
•
Traditional methods such as signage or direct
mail are good at creating awareness but they
often evoke a consumer’s defenses against
persuasion.
•
We classified direct mail and vehicle signage as
outbound marketing because these are pushed
on to consumers and do not allow for two way
communication.
Research Context
•
Markets for services are conceptualized by
market asymmetry and “lemons” where
both good firms exist along with lower
quality firms.
•
Asymmetry is also high for the firm, they risk
pursuing “bad” customers when they should
focus on “good” customers.
Two Studies
•
Study 1
•
Research context is the multi-billion dollar home
improvement sector
•
Between 2009 and 2011 over $359 billion was spent
on home improvement services (U.S Census)
•
The focus of our study is cosmetic improvements
that consumers make to their homes
•
Study 2
•
Mid-Western auto insurance context
•
330,083 quotes by 1,000+ company agents over 11month period; grouped into 14,209 agent-months
Study 1 - Empirical Testing
•
Our sample is based on the customers of a midsized home improvement firm located in a large
metropolitan area in the Eastern United States.
•
The firm offers interior services such as panting,
cabinetry, remodeling and flooring.
•
The firm is rated highly in online review forums
such as Angie’s List and Yelp, it also has an A+
rating from the Better Business Bureau.
Study 1 - Empirical Testing
•
Accelerated hazard model
•
We used the date that the estimate was first
given as the start of time period j for person i
•
We used the date that the estimate was
accepted as the end of time period j for
person i
•
If a person did not accept the estimate in
time period they were right censored
Study 1 - Empirical Testing
•
We used the date that the estimate was first
given as the start of time period j for person i
•
We used the date that the estimate was
accepted as the end of time period j for
person i
•
If a person did not accept the estimate in
time period j they were right censored
Parameter
Estimates Std Error Chi-Square Pr > Chi-Square
(IM = Inbound Marketing)
Intercept
6.555
.268
596.58
<.001
Word of Mouth (IM)
-1.097
.099
120.85
<.001
Review Forum (IM)
-.507
.183
7.64
<.01
Search Engine (IM)
-.639
.167
14.56
<.001
Direct Mail
.316
.242
1.23
.267
Billboard/ Signage
.247
.222
1.71
.192
0.401
0.075
28.42
<.001
Log Contract Amount
Scale
1
Lagrange multiplier, Chi-Square = 2134.663, p < .001
Study 1 - Acquisition based on
Inbound Marketing
Parameter
Days
Contract Probability
Amount (Percentage
(IM = Inbound Marketing)
Word of Mouth (IM)
60
1000
7.39
Review Forum (IM)
60
1000
4.16
Search Engine (IM)
60
1000
4.74
Word of Mouth (IM)
90
1000
10.88
Review Forum (IM)
90
1000
6.18
Search Engine (IM)
90
1000
7.02
Results
•
We found that word-of-mouth increased the
probability over referral forum or search
engine optimization (Chi-Square = 3.681, p <
.05)
•
We also found that all forms of inbound
marketing increased the probability over
both forms of outbound marketing (p <
0.001 for all comparisons)
Study 2
•
Study 1, marketing methods can increase consumer acquisition
but are they likely to be higher revenue customers that will stay
over time?
•
Do inbound marketing methods attract higher quality
customers? Customers that are more likely to provide revenue
over time. In Study 2 we explored this question.
•
Auto insurance, customers are classified into higher tier
customers.
•
Conversion of quote into sale  Customer acquisition
•
Mixed-effects Weibull Accelerated Failure Time model
Study 2 – Focal covariates
Quote level:
Agent-month level:
• High tier (dummy):
29% of quotes
• Driving record,
credit history,
etc.  higher
future retention
if acquired
•
•
Outbound marketing
• Mass media (billboard, radio,
etc.)
Inbound marketing
• Interactive media (presence
of agent; sponsorships,
tangible items, etc.)
Study 2 – Results
Parameter
Estimate
P
High tier
Outbound marketing
0.401
-0. 0000526
< 0.001
0.020
Inbound marketing
Outbound * High tier
-0.0000905
-0.00000183
0.435
0.932
Inbound * High tier
-0.000346
0.002
Controls
Intercept
Ln(Scale parameter)
5.34
-1.25
All significant
< 0.001
< 0.001
Negative coefficient  shorter time to conversion (greater ‘hazard’)
Study 2 – Takeaways
• Effectiveness of outbound marketing:
•
Small and not contingent on prospect quality
• Effectiveness of inbound marketing :
•
Much more effective than outbound for high-quality
prospects
•
Ineffective for low-quality prospects
• High-quality prospects generally more difficult to acquire
•
Inbound marketing makes it easier
What does this mean?
•
Blattberg and Deighton (1996) introduced the
following equation to determine a firm’s optimal
level of acquisition spending
•
𝑎 = 𝑐𝑒𝑖𝑙𝑖𝑛𝑔 𝑟𝑎𝑡𝑒 × [1 − exp(−𝑘1 × $A)]
•
Where a is the rate of acquisition, $A is the
acquisition expenditure per prospect, ceiling
rate is the maximum acquisition rate
•
The cost of many forms of IM is quite low, any
slight increase can have an exponential impact
on customer retention
Contribution
•
Firms that incur a great deal of cost to
acquire a customer may be wise to invest in
less costly forms of inbound marketing,
especially to acquire high-quality customers
•
Advertising may attract bad customers and
ultimately cost the firm more than it benefits
the firm
For Discussion
•
The conceptualization of inbound and
outbound is fairly novel and primarily found
in the practitioner literature.
•
Interaction differentiates inbound vs.
outbound marketing, are the marketing
methods we examine simply methods that
involve interaction and those that do not?
Thank you!
Questions/ Comments
Kashef Majid – [email protected]
Andrew Crecelius - [email protected]