Wednesday 28 March 2007

The beginning, the end and the opps

Everyone is interested in the beginning, trying so very hard to answer the question, Why will people buy? And a few are interested in the end, when the question becomes, Why didn’t people buy?

But none are interested in getting the work done. In getting the labels printed, the IDs cleaned, in taking daily tele-calling reports. That’s supposed to be logistical nightmares or obvious but tedious opps, which should be hived off to the utterly brainless. Some are under the impression that the machines have taken over and everything is already automated and automatic!

Strange, books and sites scrupulously avoid the ‘dirty work’ as well. No wonder nothing happens. Would anyone know of sources for standard procedures or best practices for the middle?

1/3 of subscribers leave… boo hoo

One hears this horrifying statistic often enough: A third of mobile companies’ subscribers leave by the end of the year. So they have to grow at 33% just to stay in place. Err… is it really such a bad thing?

The back-of-envelope-calculation goes like this: 33% lost a year is about 3% leaving every month, i.e., one out of every 33 customers you had at the beginning of the month will leave you by the end of the month. Not bad at all.

(The calculation assumes a constant rate of leaving, which is absurd. Which is much the real problem. Nobody discusses the details, only big figures, which mean nothing.)

Let’s bring in the decreasing base into the ‘calculation’, just for the heck of it (this phrase has been around quite some time now, so we suppose it’s ok to use it). Say, you start with a 100 customers on 1 January, 3 of who leave every month. That means you’d start (the worst month) December with 67 subscribers and end it with 64: a 4.5% loss. 1 in 22.

Is that very dreadful?

Is a gift voucher better than a gift as a promotional or DM offer?

There are at least two things in favour of gift vouchers (‘coupons’, if you like):
1. It leaves the choosing to the customer
2. It allows you to stretch your budget because everyone won’t redeem. Let’s say your budget is Rs 500 per conversion, and experience or testing tells you that only half of coupons will get redeemed. That means you can offer gift vouchers of Rs 1,000 face value (not Rs 500), yet stay within budget. For every two conversions you’d have a single redemption, so the fulfilment cost per conversion will be Rs 1000 ¸ 2 = Rs 500.

Had you offered a gift, you’d have to fulfil for everyone, and restrict yourself to something that cost Rs 500 – actually less, because the fulfilment cost would have to come from the same budget. Besides you’d have to take on the fulfilment headache.

This cannot, of course, be a ‘rule of the thumb’. Any comments?

Tuesday 13 March 2007

Difference between loyalty and CRM

CRM, Loyalty, Database marketing, so on and so forth are most confusing to me. For one you have proponents of CRM saying it's beyond Loyalty; and the ones still 'left behind' in Loyalty explaining why it's so much more than Database Marketing.

After reading a few books though you start making simple classifications. If it puts you to sleep after the first two paragraphs, it's CRM; if it's full of morality tales, it's Loyalty; and if has interesting tables and graphs then it must be Database Marketing.

That gets the frustration out of the way. I suppose a useful way to look at CRM and Loyalty is as cause and effect, respectively.

CRM, to my mind, and the customers' perspective, is the things you do to make life better for your good customers, and difficult for your worse customers. (The latter is hardly ever spoken of or written about. It certainly merits more attention. All initial gains are likely to come from getting rid of bad apples.) That includes, of course, database marketing (the right offer to the right prospect) but may, indeed must, include facilities extended, exceptions made, discounts offered, SLAs (service level agreements), and so on.

It's common for database marketing companies and experts to extend themselves into advising and implementing CRM. I don’t understand why. The first demands a certain ruthlessness and devotion to numbers that may be counterproductive in CRM.

Second, CRM looks at, as I just said, a far bigger picture – at many more things – at the sum of the customers' interactions (an MBA word I hate with a vengeance) that constitute their 'relationships' (another MBA word that elevates buying coffee to keeping a mistress) with their companies.

Database marketing looks deep at what works and what doesn't in getting the cash register ringing. It needn't do more, though inputs and insights from the CRM's customer information are certainly welcome (97% of the customers who complained to sweet Mona responded to an offer within a month of doing so; while only 79% of those who complained to rude Tona did so).

Loyalty is the effect, the result, of CRM. And it is a misnomer.

Loyalty is the sum of what the customer does for the company (just as CRM is the sum of what the company does for the customer). It doesn’t stop at not buying from competitors (being loyal). It also includes other good behaviour, like not bargaining, paying your bills on time, recommending you to others, buying from more and more divisions of your company, and the rest.

Why do we do all three on our visiting card? Beats me. Probably I'm wrong, and they are indeed different things, instead of being parts of a whole. Or we don't want to take chances.

For example, when a person asks, “Do you do loyalty programmes?” He may mean (a) “Do you have the cards and computers which I desperately need to launch a programme by next quarter and tell my boss, 'Yes, we're doing customer delight too'?” (The loyalty solutions guy)

Or he may mean (b) “Can you become my database marketing consultant, so that we get some discipline in our marketing, and some numbers to aid our thinking, instead of being entirely dependent on gut feel?” (The database marketing guy)

Or he could mean (c) “I want to know exactly what my customers are doing: do their choices follow a pattern, what sort of facilities do they use, do their complains follow patterns (Group A complains amour xyz, but never about abc...). And the data you generate through the programme will help me do all that.” (The CRM guy)

Or he may mean anything in between these.Why take chances?

Loyalty programmes there and here

I’ve been reading and thinking about loyalty programmes for a while now, especially since we decided to go the programme way, and comparing the situation in White Men’s Lands to that here. Three things stand out in retail:

1. LARGE BUDGETS: Before loyalty programmes came, retailers there spend a great deal of money on non-targeted communication. They’d send out flyers every week, issue press ads all the time, and advertise heavily on TV during festivals. The marketing departments had substantial budgets. The first task of the loyalty programmes was ensuring these budgets were spent better.

Retailers in our country don’t come anywhere near in ad spends. So the programme funds come out of profits instead of existing budgets. This is a huge problem.

2. LARGE NUMBERS: There is not one FMCG (e.g., groceries, medicines, video rental) retail chain in India whose number of stores runs into triple figures. Only a few reach double figures, though none cross 50. (Brands like Bata and Titan have large numbers of stores, but few of these are big. They are not into fast moving items either.) In WML, many chains have many stores. The programmes’ fixed costs are sort of spread out.

Also, with millions of members, and tens of millions of transactions, involving thousands of SKUs (even our Food Bazaars don’t seem to have a thousand SKUs) they can slice and dice data in many meaningful ways. We can’t. The segments we get are so small that almost all observations are unreliable. (That is not to say that the data collected here isn’t an enormous improvement over flying blind.)

Thirdly, retailers there can combine their customers’ data with (demographic and credit rating) data from other sources to enrich their databases. We can’t.

Fourth, they can do nationwide tie-ups with other national chains. Manufacturers are eager to be useful too, because each deal takes care of tons of sales.

3. LARGE TEAMS: In all the cases I’ve read about, programmes there are largely managed and maintained by large in-house teams. External agencies are involved as consultants and for creative. Here we have only a CRM or DM manager, if that.

Consumer habits there may be poles apart from ours, but that’s not apparent in the material with me.

What do you think?

Three fatal letters

There are 3 types of marketers in developed markets: the commodity sellers, the brand makers, and the mail order types.

The first fulfil needs. The second sell mass dreams fuelled by a mass propaganda called advertising. The third make their living from exploiting addictions.

The addicts don’t snort cocaine or inject LSD. They collect books they never read; clothes they never wear; courses they never study; carpets, knickknacks, whatnot.

But most of all, deals. Deals that even the most naïve child will see through.

Seen in this light a lot of DM techniques and rules sound most sinister. Like, “It’s costs 6 times more to create an addict (customer) than to sell to an existing addict.”

Or, “Your best bet are the addicts who buy from you regularly (house list).”

Or, “Success depends 40% on the addicts’ craving for that particular drug (the list); 40% on how far we can sweeten the ransom the addicts pays to their addiction (the offer); and 20% on how well we can depict the high round the corner (the creative).”

Or, “Hopeless junkies (20%) account for most (80%) of the sales and all of the profits.”

Yet, all things considered, it’s ok. Deal peddlers never made anyone poor. And they make a living, even a decent one.

But they get no respect. No journalist interviews them. No management course teaches their techniques. No triple degree marketing maharishi writes impenetrable tomes analysing the tricks of their trade.

So they lick their wounds and dream of the wrath of numbers striking down the dream makers, a.k.a., the MBAs.

In the last two decades of the 20th century, their dreams are answered, thanks to two technological breakthroughs, cheap computing and e-commerce. At last, direct marketing met mainstream: The results were predictably disastrous.

Why predictably? Because the underlying business fundamentals and target markets (not that they target different people; rather, they target two very different aspects of people’s personalities) are so vastly different that these two worlds cannot combine. At least, not yet.

Two deformed twins were produced from this unfortunate union, born 10 years apart. The first was a premature baby, loyalty programme; the second was an overdeveloped giant, CRM.

Why do I say the loyalty programme was born premature? Because at its birth we probably didn’t have the IT prowess to crunch the enormous amounts of data the cards captured. So points-based programmes started off as continuous sales promotions.

Unfortunately, their initial reception was rather warm, especially in airlines and hotels, the two categories where the MBA has a good time on other people’s money. So the baby wasn’t put into intensive care, but allowed to grow in size though not in mind. (This is the ugliest simile I’ve ever used, but it’s too late.)

This guaranteed two things about the loyalty programme:
1. Many marketers tried and rejected a fundamentally sound idea because it was inadequately executed and exploited; and

2. Most consumers decided these stupid pieces of plastic aren’t worth carrying around, especially when they got you too little, too late in a market submerged with conventional sales promotions that give 25% off to the loyalty programmes’ 2.5%.

But how can one say CRM is an oversize monster? Because the logic behind its birth constituted of series of gigantic extrapolations that leap beyond all bounds of logic.

These extrapolations start from mail order lists. As every direct marketer knows, these are actually peculiar people fulfilling peculiar cravings in peculiar ways, and there’s little you can do about it… except (a) revere lists unquestioningly, and (b) keep mark-ups so high that even a 1-2% response rate is adequate. (It bears repeating that I’m not talking of totally weird people here, but the of the weird behaviour of otherwise normal people. The list records and exploits these abnormalities.)

Indeed one of the mail order rules was that you must mark up at least 3 times. (Not surprisingly Amazon and eBay deal with similar mark-ups. The book trade has always had huge margins to compensate for its inherent uncertainty. On the auction site, individuals get rid of stuff they don’t use, and companies of stuff they can’t sell. The mark up, in both cases, is huge. Because sitting in sellers’ lofts and warehouses these items give neither joy nor money.)

Direct marketers, while recognising the enormous importance of their lists, don’t try to investigate or interpret too much. As Danny Hatch once said, “Direct marketing needn’t make sense; it only needs to make money.”

Not so the MBA. He can’t leave other people’s gods alone. He must dig, dissect, and decipher everything into useless generalisations.

So when he picked up a few direct marketing home truths - like the 80:20 rule, and that it costs 6 times more to sell to a prospect than to an existing customer – he just had to twist them into some catastrophic conclusions.

The worst thing he did was to reword a line about peculiarities I mentioned a few paragraphs ago. He decided to transplant it into brand-space and rewrote it as, “Particular buyers have particular ways of fulfilling particular needs and we can do a lot about this.”

Do what? The answer lay in the ‘emotional benefit’ that was supposed to be the true differentiator between brands.

What happened when you projected this ‘emotional benefit’ into the entire lives of your consumers? You got something that looked like ‘psychological well-being’.

Commonsense dictates that consumers look upon themselves to take care of their psychological well-being. We don’t expect brands to take the trouble. All we really want brands to do is improve the service component of the sale. But how can this simple thing get into the head of a manager who’s got where he is by creating speech bubbles with gas!

So the MBA went ahead and announced a breakthrough. And because one 3-letter acronym, MBA, launched you, you coined another to make your fortune.
You announced CRM. The hop, skip and jump of intellectual extrapolations were now complete.

The new commandment from atop MBA Mount is, “Take over their lives, 1to1.” Since there lies a little big brother in every brand manager, this advice to become consumer bhagya vidhata is lapped up, never mind how adolescent and arrogant it may sounds.

What have been the results? 7 out of 10 CRM initiatives fail so miserably that their architects have to publicly admit failure; the other 3 lock themselves up to become skeletons in the cupboard.

The real victim of this wholly avoidable tragedy begot by MBA greed and pride is direct mail’s legitimate inheritor, database marketing.

Instead of this fruitless hullabaloo instigated by the MBA, had the techniques of direct mail combined with the technology of database marketing and the reach of the Internet and cable TV, deal addicts (ok, consumers) and deal peddlers (ok, entrepreneurs) across the world would’ve benefited.

I like to believe this is happening, but very silently.

PS: A sure test of whether a theory is worth investigating or not to ask a simple question, “What happens if what this chap is saying isn’t right?” If the answer is, “Nothing much,” then we can come back to that idea only when we have lots of free time on our hands. But if the answer is, “We can make a lot of money,” or “We can lose a lot of money,” we should probe without delay.

Monday 12 March 2007

Get the Tourists Back

Here is very simple plan that can do much for tourism in any country, including ours.

No country, save peculiarities like Annadora, Lichtenstein and Luxembourg, can be truly explored in one visit Yet few – none to my knowledge - bother to invite visitors back. This when they know the visitors' contact details from his visa, and may even have a fair idea of where he's been to.

The simplest thing to do will be to ask for feedback once the visitor is back home (It's quite possible that the tourist won't return directly, but after seeing a few other places, so a reasonable gap may be allowed to lapse before this feedback communication is sent.)

This will be followed up, regardless of response, with a proper invitation to come back (the feedback would also include the invitation), with an offer for all sorts of brochures, CDs, and web links.

Perhaps they can make some offer on the visas, either waiving or discounting processing charges, or reducing the paperwork, or both. Our guess is that the gesture, if made with some genuineness, will do most the selling.

Not everyone will want to go back: You have one life and so many malls across the world. But there may be enough to make this worthwhile. The costs are minuscule, compared to advertising, PR and events. You're talking to people who have already sampled... not only raised their hands by voted with bums on aeroplane seats.

And countries can always swap lists. 'If you like Uzbekistan, you'll love Kyrgyzstan.'

Who is 'they'? They are the tourism boards of various countries, working with their embassies.

Any takers?

Hello...

...and welcome to our little place on the Net. We're a direct marketing couple in Bombay India. Nabanita Chaudhuri (the wife) does database marketing for the Taj, while Pabitra A. Chatterjee (the husband) works for UCP (www.ucpdirect.com) besides freelancing. Between the two of us, we've spent 14 years in this business.

With this blog we want to make business friends with people interested in direct marketing (database marketing, 121, loyalty, CRM, whatever-whatever) in our country, and elsewhere.

We'll start putting in articles soon. Do write back. You can post comments on the site, or write to us at nchaudhuri@rediffmail.com or pachatterjee@rediffmail.com