Category Archives: DataBase Marketing

Proactive versus Reactive Customer Experience Management

Analytical Culture, DataBase Marketing

The data-based business model was customer-centric long before this idea became a buzz phrase. When you have detailed data on your customers and your operations, you understand a lot more about how the customer experience directly affects profits. This means you can quantify the value of reducing process defects before they impact the customer.

For example, in catalog (and a few great web retailers) you know what it costs to process a return on both the business side and the customer side (customer value / LifeCycle issues) and you do everything you can to prevent that return from happening – up front. This means before you launch a new product:

* Fulfillment reviews it to make sure it is shippable and the packaging is going to protect the product in transit

* Customer service reviews the product to make sure the packaging and any instructions are clear to the customer and won’t generate costly calls to customer service or usability problems. If the packing is incomplete, it is either rejected, modified with an insert, or at the very least, discovering this defect generates a training class for the reps who are going to take the calls.

* Marketing reviews it to make sure that the item and usage fits the brand image of the company, and that the purchase history of customers purchasing similar items / categories does not raise red flags (defection rate, LifeCycle).

This is what I would call a Proactive stance on customer service and experience management. The Proactive stance understands “value” is a two-sided equation and that to maximize customer value to the company, you must maximize company value to the customer – including the removal of process errors that whack people off (you don’t want to make people Cranky). It strikes me that most offline retailers and many online retailers are Reactive; they wait for crap to hit the fan and then they do something.  That doesn’t mean that some or even many don’t provide great service when stuff hits the fan.

But it seems to me many of these folks don’t work nearly as hard to prevent it from hitting the fan in the first place as the folks who really know the costs / customer value destruction surrounding defective product selection.  Or for that matter, any defective operational process directly affecting the customer. Responding to complaints is much more expensive than preventing them, and the folks who feed on customer data know this. The data enables a proactive analytical culture that can support the additional care / expense required up front before a product is even available for sale, because the downstream negative affects are quantifiable.

Top flight customer service / experience management would mean that there is significant effort to prevent problems from happening in the first place, not responding to them after they happen, no matter how good the response is. How much effort would it take to make sure packaging, instructions, fulfillment, web site copy, and so forth don’t create problems that would have to be solved later? That’s a base requirement, in my opinion. Better, how about taking the same touchpoints and actually making them work harder to deliver a positive experience?

I suspect most so-called “empathy” for the customer / experience takes place on a generic level; it’s a “standards” kind of thing for treating customers. Listen to the complaint. Empathize with the customer. Respond in a calm voice. Etc. This is reactive empathy and in today’s world, the baseline expectation of the customer. If you really want to make it to “surprise and delight“, you need to engage in Proactive Empathy.

There is a great deal of difference between a culture of reactive customer empathy and a culture of proactive customer empathy; and there is a big financial difference between “I’m sorry” and no complaint in the first place.

Marketers interested in direct contribution to profitability and increasing Marketing Productivity will seek out their peers in the operational silos and start creating and managing proactive empathy for the customer through each process of the business. And the smartest of them will be able to actually prove how much incremental profit embracing a proactive empathy for the customer culture generates for the company.

Lab Store: Background & ROMI Formula

DataBase Marketing, Lab Store

Many of you in the blog audience might not know I have been writing about both offline and online Marketing Productivity since late 2000 on my web site through articles, an e-mail newsletter with about 7,500 double opt-in subscribers, and a blog-like database marketing article review section. Anyway, back in 2000 it was pretty hard to get people to listen to Marketing Productivity ideas because there was just too much money sloshing around. Who?cares about Productivity when you have unlimited budgets?

So to prove out some of the concepts I was talking about, I started my own online store for under $1,000, all costs in. Those of you who have seen me speak at Search Engine Strategies or the eMetrics Summit on customer retention know this web site as the”Lab Store“, which has turned into a large enough business on that same $1,000 infrastructure my wife now runs it as her full time job. The Lab Store is a great resource for online marketing research and testing because I control everything (unlike most client situations) and perhaps more importantly, I don’t have to ask permission to release results. So from time to time, I pull analysis out of the store operation I think will be interesting to other people and provide it for your review.

That said, I’m not linking to the Lab Store site because I’m not fond of the idea that our competitors might use this blog to improve their business. Lab Store Analysis Examples will link back to this post to provide context for new subscribers.

ROMI – Return on Marketing Investment

When we execute different tactics designed to increase customer value in the Lab Store, we measure the results using an incremental flow-through model I call ROMI (to differentiate from the extremely lightweight ROAS). We define ROMI in online retail this way:

Sales – Cost of Product = Gross Margin
Gross Margin – Variable Overhead Cost = Gross Profit
(Gross Profit – Marketing Cost)/ Marketing Cost = ROMI

where Variable Overhead Cost is basically the cost to process, pick, pack, ship, and service the incremental orders generated by the marketing, service, or operational initiatives. ROMI answers the question, “For every $1 I spend on a marketing, service, or operational effort, how much cash flows through to cover fixed costs? What do I get back, after all variable costs, including the cost of the effort?

Examples of how this works with efforts other than Advertising:

New Customer Kits
Managing Customer Experience

Overview of Lab Store stats and metrics can be found here. Pics here.

I’m not clear on the Chief Customer Officer concept…

DataBase Marketing, Marketing / Tech Interface

I don’t have any problem with the direction Jeanne Bliss provides regarding how to become the “customer champion” in your company, especially the idea of aligning with the CFO and CIO.

What I’m trying to figure out is why this is not Marketing’s job; seems to me the CMO should be the Chief Customer Officer, complete with the ultimate responsibility for Customer Service.  Otherwise, it seems like this CCO position is just an excuse for people keeping their heads in their own silos and letting somebody else worry about cross-functional processes, customer experience, and defects.

In other words, do we really need a unique exec to be able to create / enforce / enable cross-silo functionality on the “soft” side (marketing, service, some fulfillment) of the business?  After all, the CIO and CFO operate across all the silos, why can’t the CMO?  As Ron said in his excellent piece What Marketers Should Learn From IT, the CMO now needs to get involved in the whole business and act cross-functionally to be successful, as the folks in IT have learned.

I guess the answer is probably that “Marketing” has been redefined over the years and has somehow lost the strategic seat at the table, morphing downward into “MarCom”.  This has not happened at all companies – I can tell you at most truly data-driven companies, the CMO is the Chief Customer Officer, because these folks / the company understand how the totality of the customer experience affects Marketing Productivity.

Perhaps the answer to Kevin’s question on what happens to the Marketing folks in the catalog business as the web takes over is this: they become Chief Customer Officers or consultants to them like Jeanne Bliss, formerly of Lands’ End.  After all, they already know how to do the Chief Customer Officer job.