Category Archives: Marketing thru Operations

Relationship Marketing in Manufacturing

The following is from the February 2009 Drilling Down Newsletter.  Got a question about Customer Measurement, Management, Valuation, Retention, Loyalty, Defection?  Just ask your question.  Also, feel free to leave a comment. 

Want to see the answers to previous questions?  Here’s the blog archive; the pre-blog newsletter archives are here.

Q:  Do the principals in the Drilling Down book apply to manufacturing?  I was first introduced to Relationship Marketing in an MBA course years ago.  I have been looking for an opportunity to test these ideas and now find that chance in this job (I was and still am a foot soldier, but now have more responsibility in these areas).  

Manufacturers typically look at the highest revenue-producing customer, then pull out the manufacturing directory and start calling every company in the same business.  Not really marketing.  Can CRM be used to mine the data we need to be predictive and focused on the value of customers and retention?

ASure, same core issues and metrics apply:

1. Retention: Identify best customers, determine order cycles, set up a report that tells you who “should have” ordered but did not based past on past history, either market to them or send this info to sales, depending on the value of the customer.

2. Recapture / Defection: Identify best customers who have stopped purchasing and find out why, take action aligned with the value of the customer.  You may not get these customers back, but you will learn critically valuable information that will help you retain customers in the future – is there reason in common why these customers left you?  Was there a common Salesperson?  A common Product line?  A common type of Machine used?  A common Material?  Take these findings back into Operations and find out if the issue can be corrected.

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Off the Marketing Richter Scale

Man, what a month in Marketing land.

First, you have one of the largest Ad Agencies in the world admitting their business model is broken, because agencies are not in charge of the fundamentals of Branding – service, innovation, engagement, and execution.  I would add the same thing could often be said of the client side; MarCom people spend way too much time on “Com” and not enough on “Mar” – is it time for a realignment?

Then, in an even more spectacularly unexpected move, you have C-Level folks at 2 gargantuan Advertising Agencies (though both part of WPP) co-writing an article declaring that Brand and Response are the Same.  Here’s the opener: “the value that brands bring to a company’s total business value is exaggerated.”

Holy Branding Batman, that’s one heck of a thing to say for an Ad Agency, know what I mean?  But they are absolutely right, the nature of a Brand has changed, this ain’t the 1960’s.

This is how they get to “the singularity”:

“What was once sales is now enhancing the brand expe­rience, because through direct marketing technology and strategies, a brand can reinforce its ability to listen, customize and learn from the consumer. This is not just direct marketing, its direct engagement with every potential customer, sometimes at the moment they’re introduced to the brand.  In fact, in a world of compressed consumer decision-making, direct response is now a potent form of brand­ing.”

I love it when you talk that way.

Let’s be clear on this.

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Best Seller Gone Bad

Electronic keyboards were expensive in the 80’s and early 90’s, especially good ones.  Then came Casio, and the whole business changed.  At HSN, we loved the electronic keyboard business.

The category was made for TV shopping – the demonstrations were killer, and with all the new-fangled automation on board, “anybody can play the keyboard”.  In HSN language, “keyboards screamed” and you always got a call center “whoosh” – the sound you hear when inbound calls ramp from 100 to 1000 in 30 seconds.

So I’m talking with the keys merchant, and he says they’re having a supply disruption, and there will be challenges keeping the keys in stock because they sell so well.  This is a problem for me, because I’m publishing the monthly customer (offline) magazine and we’ve got some layouts and articles on the product.

I ask for a simple merchandising run on the SKUs to get a feeling for product in pipeline, to see if maybe I have to kill the spread.  We’ve sold 45,000 of the little beggars, which is pretty good for (what was then) a $500+ item.  It averages about $1,000 a minute in Margin, which is great versus network overhead cost of $300 per minute.

Problem is, we’ve only ever purchased 17,000 of them.

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SEO for Cable TV

Riffing off a great post by George on marketing measurement, here’s a very specific example of how Marketers have to think differently when they are dealing with interactive environments, from my days at HSN.

We spent about 5 years and $100 million dollars trying to prove offline media would drive new customer acquisition and sales.  We tried everything.  Billboards.  TV.  Radio.  Newspapers.  TV Guides – local, national, and cable.  Flyers,  Shoppers, FSI’s.  Spot cable.  All of it, in just about every combination you can think of.

Each time we did these tests, we set up control markets and looked for Incremental sales in the media markets versus those with no media, based on revenue per household.  We found incremental sales in just about every case. 

The problem was this: even though the media created incremental sales, these sales were never enough to pay back the media on a net basis, meaning (roughly) (Gross Margin – Campaign Cost) – Variable Overhead was negative – even when you took into account the LifeTime Value of a new customer.  Even when you looked at the test markets versus control 3 months, 6 months, and 12 months later, for those who might be thinking about “Brand” or “Awareness”.

If you’re thinking perhaps the campaigns were weak or light on exposure, I offer you this: when the campaigns included coupons, the redemptions were absolutely huge.  That’s good, right?

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Good Time for Marketing (Re)Alignment

What’s Marketing Alignment?  Search Google for this phrase and you will find a lot of discussion on aligning Marketing with Sales, the old B2B chestnut.  I’m not going in that direction.

I’m talking about making sure all the Operational interfaces to the customer have Marketing input, that the messaging and interactions with customers reflect the Marketing Strategy.

Marketing Alignment is making sure Marketing as a discipline is always facilitating Demand Fulfillment across the entire enterprise.  If Management is looking for a “big idea” during these times of change, a new way to approach the business as opposed to simply cutting budgets, Marketing Alignment just might be the ticket.

This Marketing Alignment issue can be a particularly important for growth companies.  When you started out, it was all about the customer – when there was less than 10 of them.  Now that you have 1,000 or 100,000 customers, you have probably created processes, procedures, and goals that unintentionally create barriers to closing new customers and fostering repeat business.

Here’s the basic argument for the Marketing Alignment idea:

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Relationship Marketing Economics

Just opened up a carton from a manufacturer we use in the Lab Store.  Every unit inside looks like this:

Bad nozzle

Here’s your challenge:

Would anybody in your business recognize this as a problem?  Or would they just shrug and transfer the item to the picking racks?

In other words, finding this, would you or an employee:

1.  Ship to the customer as is, let the customer figure it out

2.  Cut the nozzle off so customer doesn’t have to even think about it, doesn’t have to send you e-mail or call asking about it

Your answer to this question depends on:

1.  How customer-centric you / your org really is

2.  How much you understand about the financials of your business

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Lab Store: Year End Analysis

Some stats from the Lab Store (Background) for the year:

Processed 10,172 orders, up 3% from last year, despite a logistical problem in the business model we did not have control over (breeding of animals).  Fixed that, so should not be an issue going forward.  Merchandise Return Rate of .3% on dollars, which is quite low.

Returns cost money to process, imply negative Social feedback, and increase customer defection by creating poor experience.  We do everything we can up front to keep returns and other negative experiences from happening in the first place by screening products and actually taking action on customer feedback and analysis.  Often, we modify packaging, create our own instructions, or assemble products we know people will have trouble with.  More on this idea here: Marketing through Operations and Panic Pack!.

We retained between 75% – 87% of our best buyers depending on what time frame you use, and further improvement in these stats is pending test results.  More on this idea here: Frequent Buyer Analysis.

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Operations is Operating Just Fine

99.99% Up time and No Broken Links – What Else Do You Want?

Do you remember web sites when the web was ruled by engineers?  Before Marketing-oriented folks  forced issues like analytics, usability, and testing into the mix?

Just because systems are Operating within Operational guidelines doesn’t mean they’re Optimized for Marketing / Experience.  Yet often these systems are responsible for customer touch point execution in one way or another, directly or indirectly, and have measurable effects on customer value.  Call center screens and scripts.  VRU’s.  Invoices and Packing Slips.  These are the obvious ones. 

Here’s some others:  Contact Reason Codes.  Payment processing.  Inventory management.  Mail room and Address Correction.  Depending on your business model, there are probably dozens.

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Onliners Return to Start

With thoughts on what this means for offline media and planning

I wonder how many of today’s online marketers, and particularly the evangelists in Social, have read Permission Marketing by Seth Godin (1999) or The Engaged Customer by Hans Peter Brondmo (2002).  Why?  Because these two books tell you why Interactive is different, explain how it is different, and provide the background you need to be successful at it.  For example, they explain how Social works before Social even existed in its current form.

How could these books predict the current climate?  Because “Social” – the Interactive behavior and psychology that drives it – is what happens when you create Interactivity.  These ideas are fundamental to Interactivity, they exist regardless of the tools to enable them.

Social, the tools and applications, are simply software iterations around these fundamentals.  Software continues to morph and evolve.  But the emotions and behavior driving today’s Social activity are fundamentally no different from the emotions and behavior that drove the proper use of interactivity for Marketing in CompuServe or discussion boards or e-mail discussion lists.  Community.  Sharing.  The rules and etiquette of good Interactive relationships.

What I’ve come to realize after a lot of discussions and thought is this:

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Social for Business

Sam Decker of BazaarVoice has posted a cogent, well-supported argument on the business benefits of social applications.  Many of the themes will be familiar to readers of this blog, including the substantial cross-functional reduction of Friction that can take place when you have this kind of data, and some of the cultural issues surrounding adoption of the data-driven culture.

Here’s what I don’t get though.  Many of these goals could be accomplished though customer service analysis and other data the company already has.  In fact, you could argue in many cases, the data you get from internal sources would be better since you could work some of the bias out of it and correlate with actual behavior.

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