CRM Strategy
The New, New Web
I was in a brainstorming meeting with a client, where we’ve been given an amazing opportunity: to completely blow up and re-create from scratch, a massive, highly-trafficked, news and content oriented Web site. Halfway through our definition of new features and functionality, I suddenly realized the true meaning of the word “inertia”.
See, progress always comes in the face of massive amounts of pushback. Sometimes, that pushback is almost implicit. We don’t tend to realize what we don’t know, so we try to find comfort in imagining the change of something familiar, in order to create something new. Usually, this works fine, but what’s one to do when the original that one imagines from is so flawed, that some of its fundamental paradigms must be questioned? Ah, therein lies the rub of true innovation...to admit that we’ve been sorely wrong.
If you read that last pargraph and are still scratching your head, let me explain.
The Web was originally created as a stateless method of exchanging information using a standard client. It was designed primarily for the text-based hyperlinking of files and details within a scientific community. As it became a vehicle of more general communication and information sharing in the general masses, we tried to force-fit several new features into a limited design concept. We added the ability to use images and color. We wanted prettier layouts than was originally designed, so we added the concept of laying out content in tables. We needed the browser to remember what it had been doing, we we created a way to remember sessions using “cookies.”
But then, we realized that the nature of the Web required that interactivity be not just designed by the content provider, but also by the user. So, we added personalization, and the limited ability of the user to enhance his or her own experience. People started self-expressing using personal home pages, and the volume of information that ensued required the advent of robust search engines.
The Web had evolved, and it had become clear that the fuzzy outline of a new paradigm that was visible in some locations needed to be clearly defined. We needed to document the characterstics of exciting new applications that were making their way into mainstream media. Thus began the official definition of Web 2.0, a term that came out of a closed-door brainstorming session between O’Reilly and MediaLive International.
Web 2.0 is what’s called a meme—a unit of cultural information that represents a basic idea that can be transferred from one individual to another, and subjected to mutation, crossover, and adaptation. There’s also a lot of backlash about the term being more of a marketing buzzword. But in the end, if it allows to collate and make sense of a certain systemic change in the way business needs to be conducted and human-centered applications need to be built, then marketing buzzword or not, I see a lot of value in the usage of the term.
While there still is a lot of discussion around what Web 2.0 really is, what can really hit home, is to show by a few examples, the evolution of Web 1.0 to Web 2.0.
A prime example is photo sharing. In Web 1.0, sites like Kodak Gallery provided the basic ability to organize and share photos. In Web 2.0, applications like Flickr creates a true collaborative environment for public and private photo galleries.
Another example could be reference encyclopedias. In Web 1.0, researcher-driven resources like Brittanica Online allowed for the anywhere-anytime searchable access to volumes of data previously only accessible through massively heavy books. In Web 2.0, Wikipedia is a globally accessible, volunteer-written-and-reviewed collection of articles that forms an encyclopedia that almost anyone can contribute to.
And those aren’t all. Evite.com has given way to Upcoming.org. Personal Web pages have been abandoned for blogs. Editorial “directories” have made way for “folksonomy”, or tagging. On the visual side, the use of CSS and standards-compliant browsers have created the ability to design beautiful and managable Web sites where information display can be controlled by the user. Play around here, and see how easy it is to manipulate screens to fit exactly what you want. Corporate entities such as AT&T and MSN have also jumped on that same Web 2.0 bandwagon.
Such a list can go on forever, as discovered by the O’Reilly brainstorming session. An in-depth technical discussion of Web 2.0 principles is beyond the scope of this blog, and there are people far more qualified than I who can teach and inform about its nature. What I’m interested in summarizing, however, is the marketing impact of this shift to the Web as a platform for user-controlled information.
As marketers, we’re trained to push information to the right people in the right place, at the right time. We spend hundreds of millions of dollars in analytics that are supposed to help us narrow down prospect lists by attitudes, propensities, and desires. We spend millions on TV commercials and full-page ads with murky measures like “reach” and “frequency.” We’re pan-handlers of information whether we like it or not, and while it worked well in the past, there are just too many voices in the atmosphere for our impact to be the same as it once was.
But now, with the Web as a platform, we have the ability to supplement our marketing programs with high-impact tactics that use the participatory and “pull” nature of the Internet. Search engine marketing is the single largest driver of eCommerce economics today. Over 60% of Top 100 eCommerce traffic comes from paid search placements around specific keywords and phrases. With RSS, we can syndicate our content and advertising proposition to locations that our target customers are more likely to be. Mobile techology allows for instant customer gratification of news and information. The Cluetrain Manifesto was right. Markets are conversations. The new Web allows us, as marketers, to get right in there with all those loud, gossiping folk, and amidst the rapid exchange of popcorn and soda, find a way to sell a bunch of stuff.
Which brings me back to inertia. Corporate entities that have previously relegated the development of their Web platforms and applications to IT departments will do well to re-consider that notion. The responsibility for Web strategy should be brought into the marketing department, preferably as a core component of the overall marketing mix. If techies are the only ones singing praises of the new Web, its possible that you’ve been ignoring that particular water-cooler suggestion. Don’t. Listen carefully, because it is, in fact, the voice of the future.
Ameniti Revisited: United’s “Vapor Service”
I was looking at my referrer listWeb pages from where people
clicked through to my site. for this site today, and have an interesting statistic for you: 25% of my search engine traffic comes from the search results for the word “Ameniti.” A few months ago, I had written a tiny article about the launch of the Ameniti Club by United Airlines, and some of the features it provided. I had, without reading the fine print, suggested that it was a good deal, and that it was worth considering.
Well, I was wrong.
Ameniti is essentially a simple, prevalent marketing scam, run by hundreds of companies around the world. It relies on three things to make its numbers and insane amounts of profit: 1) Annuity revenue. 2) Breakage. 3) Slick, beautiful brand marketing. They are purported by large, solid companies, and are considered standard business practice. They prey upon two things: one, a consumer’s tendency to overestimate product usage, and two, his inability to decipher fine print in the face of a glossy, beautiful brochure or Web site.
It hurts me to say this, because I am responsible for some of those slick, beautiful brand marketing messages. However, I have a simple theory around service offerings that don’t add value: great marketing for a bad product will just put you out of business faster.
Think of it in terms of a simple graph. On the X-axis is Adds Market Value. On the Y-axis is Gains Market Share. If a business adds a ton of market value, but doesn’t gain much market share, then it is ripe for a great marketing idea, and has unrealized revenue potential. On the other hand, if a business gains tremendous market share but doesn’t add much market value, at some point, the inflated value will correct itself—very suddenly, and very quickly. I call this a “vapor” service or product. The ideal situation is for an offering to add market value while incrementally gaining market share. No company better epitomizes this strategy, in my mind, than Google. One of the reasons for their explosive growth is that they continue to find ways to add market value while they gain market share in search. They do this by continually adding services that extend their brand proposition of bringing the world’s information to your fingertips.
So, why is Ameniti a scam?
Because it doesn’t work.
Let’s break it down. You start by paying a $295 fee per year, which is pre-paid. For that amount, Ameniti claims to provide several luxury travel services. The highlighted ones are:
- A free companion ticket every time you buy a ticket on United Airlines. (I know, that sounds fantastic.)
- Automatic membership in Starwood’s Preferred Guest Program at the Gold level.
- 25,000 bonus miles per cabin every time you book a cruise on select lines.
- 24/7 access to a “Global Concierge” service.
- Free membership in Hertz’s Gold Club.
They have a few other benefits, but for the sake of our analysis, these main ones will do. Let’s start with the one they highlight as the hero—a free companion ticket every time you buy a full fare ticket on United Airlines (economy and up for North American travel, business and first for international.) Now, at first glance, this seems like a fantastic deal. The marketing positions the proposition brilliantly, namely, taking your spouse or significant other on a business trip with you. This makes sense, since 90% of personal travel purchases within the United States are done using discount airfares; however, companies tend to sometimes allow the purchase of full fare tickets.
This is where the fine print comes in. Turns out that even on full fare tickets in Economy, you still need to make sure that your ticket is not under United’s E,M,U,H,Q,V,W,S or T Class. Which doesn’t mean much, right? So, I ran a little experiment tonight. I checked online fares on ual.com for a round-trip from Chicago to New York for this coming weekend. I got a price of $485 per ticket, on a W class ticket. I then called Ameniti and asked them what a full fare ticket would cost me on the same routing. The price was $1392. Finally, I asked my corporate travel agent what a full fare would cost me on the flight. She came back with $755.
I wanted to give the club the benefit of the doubt, and thought that perhaps it would be better for international travel booking. And so I went to UAL.com and checked on tickets from Chicago to London, starting September 6th. The price was $707. The same seat, full fare, would cost me $2495 to avail the Ameniti benefit.
Why do companies do this?
The economics of the vapor service are simple. Let’s say the acquisition cost per customer is $50. Revenue from the customer is $300 (rounded). Since the cost of running the club is limited to the personnel that need to service the customer and general G&A, the club has a relatively fixed (or scaling) cost structure. So, at 50,000 members, revenues just from subscriptions are now at $15,000,000. The cost structure to service this base is surprisingly small—less than $50 per customer per year. How? By outsourcing the call center to a professional concierge and call management company, and keeping a lean management team. That means, after $2,500,000 for customer acquisition, an additional $1,000,000 for general marketing, and $2,500,000 for servicing and G&A, the initiative makes an amazing profit of around $9MM per year. That’s a PBT of over 50%! This number only goes with up more customers signing up.
Also keep in mind that the consortium companies like United end up making higher margin sales as a result, because they encourage members to buy full fare tickets to take advantage of their membership. Other participating companies like Starwood have a steady stream of members into their SPG program, where they’ve proven to increase revenues by auto-granting certain members Gold and Platinum status.
Mass-funded services like Ameniti can, in fact, work. For instance, American Express’ Platinum card is an excellent example of a set of services for an annual cost that, if used well, can pay back massive dividends to customers. Of course, they run the same free companion ticket scam as well, but their additional benefits more than makes up for that treachery. The trick, as a consumer, is to make sure you sit down and do the math. Even if Ameniti’s airline costs gave you a small discount from buying two separate tickets, you still need to figure in the sunk cost of $295, plus the additional costs involved with using the service. For example, if you’re flying to London, and want to use Arrivals by United (essentially a tiny bathroom with showers, and ironing services,) does their “nominal” fee of $50 make sense? Instead, you should consider using that money for a nice meal, or use it go shopping. Now, if you’re really hell-bent on trying out Ameniti, use this link to a 3-month trial for $10. Please remember to cancel before the 3 months are up, or else you’ll get billed for the full $295.
Do they think you’re stupid?
In fact, they do.
Ameniti, in the end, is a marketer’s nightmare. It is ridiculously easy to sell that kind of stuff, because, you (dear consumer) are gullible as hell. You take marketing bait without thinking twice, and we count on you doing that. But when the product has no chance of living up to expectations that marketing sets forth, angst is sure to abound.
Like I said, great marketing is the fastest way for a bad concept to go out of business.
Culture Points: A New Parameter in Customer Intimacy
Two months ago, I was a 30-something educated Indian male living in Lincoln Park, working in marketing, with subscriptions to Esquire and Cargo, on the Giorgio Armani mailing list, who received the Hold Everything and Red Envelope catalogs.
Two months later, the majority of my demographics remain the same, as do my subscriptions and other attitudinal measures.
However, I’ll be damned if you could now sell me 10% of the things I would have used my disposable income for without a second thought, back in April.
Know what changed? I got married.
As marketers, we’re not unfamiliar with the concept of using life events to trigger marketing campaigns or offers. We have successfully used graduations, weddings and births as surfboards for new products and services. But in the context of true relationship marketing, I don’t think we have really considered how much really changes in an individual’s life around these life stages. We don’t use them as ongoing platforms—instead, we typically use them as peaks for our own messaging. In fact, if your relationship marketing engine monitors these life stages and makes attitudinal adjustments in the calculation of LTV and other CRM measures, I want to know about it—it would be the first time I’ve encountered such a practice.
So how have things really changed? Let’s dig a bit deeper.
Two months ago, these are the things I would have done that I absolutely would not (or am not allowed to) do now:
- Buy a $2,000 Giorgio Armani Black label suit.
- Take a weekend gambling trip to Vegas with the boys at a moment’s notice.
- Spend $180 on a Steven Alan cotton shirt to wear around the house, thinking it was cool just because Apartment Number 9 sells it.
- Decide on what condiment must be best in the grocery aisle based on how expensive it is.
- Buy new underwear because I hadn’t done enough laundry.
- Eat out just about every night.
- Add randomly to my TV show DVD collection by buying large quantities at a time, and sometimes ending up with doubles.
- Buy the “locker and laundry” option at my gym so that my clothes were fresh every time I went back.
Now, here’s the important bit: These changes I’ve listed aren’t happening just because I’m now married. True, my demographics have altered because there’s a check-box against the “married” question now. And its also true that marital status is an important demographic differentiator. But the real reason these changes are happening because I’m married to a specific woman with specific values, specific demographics and attitudinal factors. The list above might be completely different were I married to someone else. Meaning, lifestage triggers and resulting CRM value calculations can’t be made on a single customer record just based on a change in his or her specific lifestage; every individual’s information within the relationship equation must be considered. In my case, my wife’s attitudes and psychographic information plays a huge role in my ongoing consumer habits. As, by the way, does my cultural background.
Hang on, you might say. Cultural background? That sounds a bit hokey.
See, being Indian, there are very specific values we ascribe to a marital relationship. Those dynamics would be completely different were we two busy New York attorneys who grew up in Manhattan and the Hamptons. As they would be different if we were high school sweethearts from Sioux Falls, South Dakota. Our cultural idiosyncrasies surface most when we go through a life change that triggers a deep-seated value. Don’t believe me? Think about the Indian kids you see in your kids’ schools. Think about their parents. Think about how they behave, and what they seem to hold dear. Compare that to another culture, perhaps your own. Don’t you see a difference? Obviously, this is not a right or wrong, goor or bad comparison. But as marketers, we have to start considering what these changes actually signify, and how our customers’ lives will be different as a result of them.
For example, here’s what I would now do that I wouldn’t have even considered two months ago:
- Buy organizing furniture from Target.
- Buy vacation airline tickets two months in advance.
- Buy groceries for $1,000 every month.
- Look for a florist that was on my drive home from work.
- Buy things because they “smell nice.”
- Send birthday cards to everyone I know.
- Keep a watch on every major store sale, both online and offline.
So, this is my hypothesis: I believe that every consumer goes through what I’m going to call “Culture Points.” Culture Points are events in a consumer’s life that drastically change their buying attitudes and purchase propensities. Culture Point value calculations and measurements will require a new analytical methodology that merges multiple customers’ attitudinal and demographic data along with cultural parameters that are unique to the consumers involved. To start with, Culture Points could be integrated very easily into marketing data by proactive pop-up surveys on Web sites, or by simple survey questions at the end of a catalog purchase call. Eventually, I’d like to see Culture Points as standard marketing tools that are used to adjust personalized offers and more importantly, customer LTVs within a CRM environment.
Ooh, I got something right!
I have this habit of sending ideas to senior executives in companies where I see a specific marketing opportunity, and over the years, have started collecting and organizing them into a specific folder, tagged with the company name and area of marketing that I was focused on. I browsed through the folder last night, and found a couple of interesting coincidences:
In December of 2001, I wrote this email to Douglas Hacker, then the President of United Airlines Loyalty Services.
Dear Mr. Hacker,
I’m a marketing strategist, but more importantly, have spent more than $162,000 with United Airlines this year. I’ve flown over 180,000 miles with you in the past eleven months, and it looks like I’m well on my way to making the 1K loyalty tier.
The problem, Mr. Hacker, is that you’re going to treat me exactly the same as someone who bought 100 short-segment tickets for $200 each, for a total of $20,000. You’re going to do that because the miles-based system has a major flaw in it. It doesn’t take into account that the same miles can be purchased for very different prices.
Of course, creating a new tier based on more miles is not going to solve that issue. What is going to make me feel special is if you were to treat me and others like me, who fly the miles and spend the bucks a bit differently. Let me explain:
What if you were to mine your Mileage Plus data, and pull out a list of the top 10,000 individual revenue generating customers per year, based on ticket prices paid. Then, what if you created an invitation-only club for these customers that gave them all the benefits of 100K flyer, plus a lot more. Here are some potential benefits:
- Dedicated 800 line, accessible globally. No wait time, period.
- Free upgrades, priority placement.
- Booking privileges on overbooked flights.
- Instant Star Alliance Gold Status.
- Full-fare business purchase on international flights auto-upgraded to first, based on availability.
- Partnerships with other exclusive clubs (like American Express’ Centurion.)
- Heavily subsidized membership into the Red Carpet Club.
- Partner-flying coupons.
You should make it clear to the invitees that this is because they have not only flown a lot with United, but spent a ton of money with you, and that this exclusive membership lasts just one year. You should have special cards for them (I like American Express’ Black Card concept) and a special name for the club, like the Global Services Club or United Elite.I promise you, the numbers will work out—they have to. I can’t imagine I’m the only one who spends as much with you. We’re out there, and you should find us.
Warmly,
--krish menon
At the end of 2002, United Airlines sent private invitations to 25,000 high-revenue customers, inviting them to a new club that they called Global Services. The New York Times published an article about it this year, where they talk about United’s bid to create a black card concept like American Express’ Centurion card.
I never heard back from Mr. Hacker, but it’s nice to know that he had similar thoughts.
A Simple Life
5:00AM - my alarm goes off. I reach down below my bed, grab my laptop fresh-charged with overnight electricity, tremble involuntarily at the speedy progress bar that flickers through a silver screen screaming static saying softly, “Resuming Windows."
I check my RSS feeds, catch up on the latest in my blog reading list, trundle over to the Bit Torrent sites that have the latest episodes of international TV shows that Comcast Digital Cable doesn’t get, and while they download, open the secure web page that controls several of my household appliances, and turn on the coffee maker. Using the same appliance control center, I turn off my night-lights, and turn on the A/C, because the weather section of my personalized Google home page tells me that its going to be a hot one.
I make the bed, grab my coffee, and turn on the TV while I make myself some instant oatmeal. The phone rings in the middle of an interesting bit of news, so I use my TiVo remote to pause the story, and I press “talk” on the Bluetooth speaker phone system that’s centrally hooked into my apartment, with receivers and mikes that let me talk freely from just about anywhere, while noise-supressors weed out anything that’s not in the general range of my voice, so the person on the other end can clearly hear what I’m saying.
It’s United Airlines calling to tell me (using an automated voice that I’ve come to know as Sheila) that my flight this morning to Frankfurt has been cancelled due to mechanical difficulties, but that I’ve been rebooked on a codeshare Lufthansa flight an hour later, and that my upgrade has been confirmed on this flight as well. Immediately after she hangs up, Wildfire, my electronic assistant, calls to tell me that because my flight has been moved, she has re-scheduled Boston Coach’s pickup at the Frankfurt airport.
I continue with my news story, finish my oatmeal and coffee, and make my way over to my bathroom. There, the TV has a message which says that my Xbox has finished downloading the latest DivX of Julian Sanders, my current favorite British show, from Bit Torrent. I debate watching it, but decide that I’ll get to the airport early and get some work done in the lounge. I shave, and when I place my Remington shaver back in its dock, it lights up with a cleaning message, and proceeds to clean the blades and razor instantly.
Before leaving the house, I use the desktop computer to check in on my S430’s status, because I haven’t driven it in a few days. The system tells me that the rear passenger tire needs air. I set the car to expect me as the next driver, and make my way to the garage.
At the airport, I check in electronically using a United Kiosk, and make my way through security check and down to the Red Carpet Club in Terminal B. My keychain instantly buzzes once I’m inside, indicating that a friendly wireless network has been found, and that I can log on. I swipe my Global Services card through the reader by the front desk, which has been Web-set up to SMS me when boarding is announced for my flight. I settle down into a leather chair across from the TV, open up my laptop, and continue reading through news and my email. I notice that the TV is stuck on a horrible channel, and really want CNN. I use my remote-control watch to surreptitiously scan for the TV’s band, and when it finds it, keep changing channels until I’m on CNN, much to the astonishment of a man absently staring at the screen.
Ninety minutes later, I’m on the flight, and I pull out my airplane charging adapter from my briefcase, and the USB charger for my cell phone. Once airborne, I plug my laptop into the charging console, and plug my phone into the USB port of the computer. I use Lufthansa’s FlyNet to connect to the Internet, and when I’m online, decide that its time to send my wife a message in India. It’s almost bed-time for her, and while I don’t want to spend $10 per minute on a satellite phone call, I do want to wish her goodnight. So, I open up Yahoo! Messenger, and use the Net-to-Mobile feature to send an instant message directly to my wife’s cellular phone, using SMS. “Sweet dreams, honey,” I say. “My world isn’t the same without you in it. Come home soon.”
I might as well have written that message to technology.