1 © arvind rangaswamy, 2005 (all rights reserved) february 3, 2005 arvind rangaswamy penn state...

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© Arvind Rangaswamy, 2005 (All Rights Reserved)

February 3, 2005

Arvind RangaswamyPenn State University

Multichannel MarketingOnline Advertising

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Multichannel MarketingDefinition

Multichannel marketing is a capability that helps firms to build lasting customer relationships by simultaneously offering their customers and prospects information, products, services, and support (or any combination of these) through two or more synchronized channels.

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Traditional Multiple-Channel Marketing

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Communications Channels

Service Channels

Transaction Channels

Advertising/PR

e-mail

Web Site

Telephone

Store

Kiosk

Sales Force

Store

Servicepeople

Telephone

Web Site

Ful

fill

men

tSalesForce

Web Site

Catalog

Store

Telephone

A New Kind of Shopping Behavior is Emerging

CoachWalMart

Sears

HPDell

National SemiconductorDow Chemical

AutobyTelAuto companies

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MultiChannel Marketing

Corporate

Marketing Product

Divisions

Customers

Store/

Retailers Catalog

SalesForce

CallCenter

WebSiteTh

ird P

arty

Logistics

Pro

vid

ers

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The Business Case for Multichannel Marketing

What is the business case for Multichannel Marketing? Efficiency rationale

Effectiveness rationale

Strategic rationale

The Efficiency Rationale forMulti-channel Marketing

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The Dilemma in ReachingHeterogeneous Customers

Sales callsLive seminarsAccess to KB/ key contactsSamplesCall centerOnline seminarsWebsiteSmart agentsNewslettersEmail alertsPR/Advertising C

ost-

Eff

ecti

ve T

ouch

poin

ts

20% ofcustomers

Customers

80% Profits

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Low-ValueCustomers

AppropriateLower-level

Offerings/services

High ValueCustomers

AppropriateHigher-level Offerings/services

Balancing value provided to a customer with the value/price received from the customer.

Value from….Value to Value from….Value to

Offerin

gs

Services Service

s

Offerings

The Challenge of Balancing Offerings with Customer Value

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Differential Costs of Servicing

Phone 62%, email 19%, web 12% and chat 3% of all interactions in 2002-2003.

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Experience at a Small Software Company(Before and After Web-Based Self-Help)

Before After Phone (No. of calls per month ) 80,000 25,000 Chat/E-mail 8,000 70,000 Self-help - 330,000 Average Support Duration 5 Minutes 1 Minute Support costs $850,000 $310,000 Contacts per month 88,000 425,000 Cost per contact $7.50 73 cents

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Your Best Customers Could Get the Worst Outcomes!

The Effectiveness Rationale for Multi-channel Marketing

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Multichannel Customers Couldbe a More Attractive Segment to Target

Shopped in One Channel

Shopped in Two Channels

Shopped in Three Channels

Shopped in Four Channels

Revenue ($) 193,274 69,865 322,149 1,682,853

Share of wallet 0.20 0.32 0.48 0.72

Past customer value ($) 152,502 97,798 690,514 3,428,024

Likelihood of staying Active 0.11 0.15 0.38 0.67

Source: Kumar and Venkatesan, Journal of Interactive Marketing (forthcoming)

Note: Within a row, cells of the same color are not statistically different from each other. The analysis is based on data from 3,721 B2B customers for the period 1998-2002. Data is from a computer hardware and software company.

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Internet Influences Traditional Channels by Separating Choice from Purchase

As a result of multichannel shopping, the current deployment of resources across channels could be misaligned.

11%

19%

6%

5% 16%

43%

Browse Buy

Catalog

Retail Store

Source: Doubleclick, 2003

Internet

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Alternative Channels for Customer Acquisition

Type of Insurance

Channel Car HousingHealth care Other Total

TV/Radio 7 3 56 2 15

Print 3 1 1 23 3

Direct Mail 13 13 16 25 14

Outbound 1 1 2 2 1

Magazine 1 2 1 1 1

Website 3 5 7 7 5

Word-of-Mouth 39 23 3 22 26

Co-Insurance 33 52 14 17 35

Total 100% 100% 100% 100% 100%

Notes: Study of 3,317 customers of a Dutch Insurance company. From: Verhoef and Donkers, Journal of Interactive Marketing (forthcoming).

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Relative Effects of Acquisition Channels on Retention and Cross Buying

All customers are not acquired equal – retention and cross-buying rates are different for customers acquired through different channels.

Overall, customers acquired through co-insurance and outbound calls were the most loyal, followed by those acquired through magazines and web site.

Overall, customers acquired through outbound calls and magazine ads had the highest cross-buying rate, followed by those acquired through the web site.

Channel-based behavioral differences largely disappear after a customer is with the company for more than a year.

The Strategic Rationale forMulti-channel Marketing

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What Are Leaders Doing in Multichannel Marketing?

They view multichannel marketing not just as a strategic necessity, but as a new capability they need to build strategic advantage.

They are guided by well-defined strategies for building and reinforcing customer relationships by offering their customers compelling brand and shopping experiences across channels.

They are building “path dependence” among customers to cement relationships.

They are using multichannel marketing to make it easier than ever for their customers and prospects to do business with them, than with their competitors (e.g., more convenience, superior value associated with the brand).

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The Strategic Approach toMultichannel Marketing

Create “path dependence.”

Offer deep-linking to the best customers.

Re-organize the company around customers (We called this Customerization).

Deploy integrated, IT-supported customer relationship management systems.

Institute appropriate organizational structure, management incentives, and measurement metrics

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Account executives Analog University Bob Pease seminars Knowledge base PR releases Events, tradeshows “National Edge” New product documents

Online, email and telephone support

Private sites Design communities/ Discussion forum

Distributors Evaluation boards Order status Real time Price and

availability Obsolete items Samples

New Design Process

Explore new design options

Select components

Make purchases

Get support

Develop designs

Application briefs Application diagrams and notes Webench online design tools Software/simulation tools Tech support (Online, email

and telephone) Prototype kit (shipped next day)

Product tree Product descriptions

and options System diagrams

Source: Adapted from www.national.com (National Semiconductor)

Example of Using Multiple Offerings and Channels to Create Path Dependence

http://www.national.com/

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Deep Linking: Building Deeper Relationships with the Best Customers

Customer Access Points: Tele-Web Interface

Firm/ Distributor

Supplier 1 Supplier 2

Information

Transactions

Knowhow

Support

Control

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The Evolution of Customer Relationship Management

The future?

Leading-edgepractice

Current mainstream

practice

4. Anytime, channel-agnostic processes

3. Customerize the organization

2. Personalize interactions and offerings

1. Integrate/deploy customer information

Incr

easi

ng c

onve

nien

ce a

nd

cont

rol f

or c

usto

mer

s

1998 2001 2004 2007

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Challenges in ImplementingMultichannel Marketing

Most organizations are not structured for providing an integrated brand experience across channels for multichannel customers:

Separate divisions/marketing groups for different channels. Lack of coordination among divisions/groups – no one is really

“in charge” of multichannel management. Lack of proper incentives and policies

Most vendors do not offer integrated cross-channel services (e.g., separate vendors for advertising, campaign management, catalog printing, web design, etc.)

Lack of integration between inventory and order management systems (Aberdeen group report, June 2004).

Customer fragmentation makes it difficult to have integrated databases.

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CRM systems have been bolted on to legacy IT systems, without changing the underlying processes.

Technology, rather than strategic rationale, is driving customer experiences across channels.

Lack of understanding & respecting of today’s customer preferences.

Dominant sales channels fear cannibalization, resulting in channel conflicts/lack of flexibility.

Content spend across the organization is not visible – so it is not managed for consistency and responsiveness.

Challenges in ImplementingMultichannel Marketing

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Brand Consistency Across ChannelsVictoria’s Secret

Store Catalog

Web site

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Multi-channel Promotions atVictoria’s Secret

Stores URL on shopping bags Catalogs in stores Brand ads include URLs

Catalogs Callouts for web site Scent strip for Victoria’s Secret Beauty

Web site Sign up for catalog online e-mail to customers for store-specific promotions Order from catalog online Store locator

Source: Anne Marie Blaire, Victoria’s Secret, June 2000

Note: Products purchased at the web site cannot be returned at a store and vice versa.

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Some Key Decisions to Make in Implementing Multichannel Marketing

Should we offer the same products across different channels (superset versus subset in some channels)?

Should web presence be a separate entity, or should it be the integrating channel (Distinct versus integrated)?

Should we provide a common brand experience across channels (Channel versus Brand emphasis). Example: Should you offer the same price across channels?

How should we deploy resources across channels commensurate with the value of each targeted segment? (Common versus separate P&L).

Online Advertising

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Broadcast versus Internet

One-way

Dedicated bandwidth

Temporal multiplexing

Content and Ad generally separated

Consumers reactive

Weak link between advertising and response measurement -- Recall, Attitudes, Intentions

Static ads

Two-way

Shared bandwidth

Spatial multiplexing

Content and Ad generally co-mingled

Consumers proactive

Stronger link between ad and response measurement --Impressions, Clickthroughs

Adaptive ads

BroadcastBroadcast InternetInternet

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Broadcast -- Temporal Multiplexing

time

100%

BandwidthOutputInput

Co

nte

nt

Ad

vert

isin

g

TemporalMultiplexing

Source: Prof. Xavier Dreze

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Internet -- Spatial Multiplexing

time

100%

Co

nte

nt

Ad

vert

isin

g

SpatialMultiplexing

BandwidthOutputInput

Source: Prof. Xavier Dreze

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Potential of Online Advertising/Promotion

Can communicate longer, more content-rich information

Quicker and less costly to change ad information Interactive, engaging, and can be persuasive Segment-of-one customization of ad views Integrates advertising with selling Can collect info about who views ads to gauge

impact (Advertising and ad research co-mingled).

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Sample Banner Units

Full Banner: 468x60

Skyscrapers

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The First Banner Ad

This is the first banner ad. Inserted by IBM at Hotwired.com in October 1994. It got a clickthrough rate of 30%.

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Interstitial (POP-Ups/POP-Unders)

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Contextual Advertising

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Role of Search Engines

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Example of Sponsorship

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Cost Comparisons for Media Alternatives

$20-$50ImpressionsSearch Engine

Free-$40ImpressionsEmail

$1-?ImpressionsBanners

$45-$80ImpressionsContent Sponsorship

$20-$75ImpressionsPortals

$35-$70Circulation/readersMagazine

$30-$100Household viewersTV-Targeted

$12-$20Household viewersTV–All

Rough CPMMeasureMedium

Source: Compiled from several sources

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Advertising Metrics

Impressions or Exposures

The number of times a page containing the ad is viewed.

Measured as the number of times the ad rotates through or pops-up on a web site.

Cost-per-thousand (CPM)

The cost of gaining 1,000 impressions/exposures. For example, if a banner ad has 30,000 impressions at a web site at a CPM of $5, the total cost of the ad is $150.

Click-through-rate (CTR)

The number of visitors delivered to a site by a particular advertisement or the percentage of people who click on a web banner and visit a site.

Considered to be a more accurate measure of the results of an advertising campaign because it measures responses to the ad rather than exposures.

An ad that generates only 1000 exposures, but gets 40 responses is far more efficient than one that generates 10,000 exposures but only generates 100 responses.

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Advertising Metrics

Cost-per-visitor (CPV)

The cost of a given ad divided by the number of responses obtained from it.

It combines CPM and CTR to evaluate effectiveness of ad placements

On a website with a CPM of $20 and a CTR of 2%, it costs you $1 per visitor; a website with a $40 CPM and a CTR of 10% costs you $.40 per visitor. The higher CPM ad actually has greater value to you.

Cost-per-sale (CSO)

Cost of a given ad divided by the number of orders received through that ad.

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Ad Impact -- ROI of Targeted vs. Untargeted Banner Ads

Impressions CPM CTR CPV CPS

Targeted 40,000 $25 0.25% $9.80 $143

Untargeted 200,000 5 0.46 1.18 500

NotesExample based on actual data for a company that sells a high-end service that sells in the $1,000 - $2,500 price range.

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Breakdown of Ad Effectiveness on the Net

Exposure 100% Aided Ad Recall 30% Aided Brand Recall 19% Unaided Brand Recall 11.5% Increased Brand Awareness 2.8% Clickthroughs 0.1%

Source: Experimental study by Prof. Xavier Dreze with French Telecom

As a point of comparison, response rates to direct mail solicitations by credit card companies is about 0.35%.

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Product CPM

Media CPM

Delivery CPM

Total CPM

CTR

Conversion

CPS

$462

$118

$270

$850

n/a

1.20%

$71

n/a

$15

$1

$16

0.80%

2.00%

$100

n/a

$200

n/a*

$200

3.50%

2.00%

$286

$462

n/a

$270

$686

n/a

3.90%

$18

n/a

n/a

$5

$5

10.00%

2.50%

$2

Customer AcquisitionDM

(rented list)Banner

adE-mail

(rented list)DM

(house list) E-mail(house list)

Customer Retention

Sources: Forrester Research (banner costs, response rates); Direct Marketing Association Statistical FactBook (direct mail costs and response rates). DM=Direct mail; CPM=Cost per thousand; CTR=Click through rate; CPS=cost per sale. *Delivery costs are incorporated into list media cost.

Analysis of Alternative OnlineAdvertising Options

1 © arvind rangaswamy, 2005 (all rights reserved) february 3, 2005 arvind rangaswamy penn state...

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