The Ad Man Answers #26

Thursday + Gregory Huffstutter = The Ad Man Answers

Q: What is relationship marketing?

A:   The Relationship marketing – sometimes called CRM, for Customer Relationship Marketing – is rooted in the hypothesis that businesses should focus on retaining existing customers as much as attracting new customers.

This could be in the form of loyalty programs (like a supermarket club card or frequent flyer program), business-to-business account service (like a paper supplier calling on a law office), or any outreach (newsletters, e-mail blasts) to your current customers.

CRM, at its best, is a mutually-beneficial exchange.  The consumer receives ongoing communication about your goods and services, might receive special offers or pricing not generally available, and doesn’t feel ‘taken for granted.’  The manufacturer, in turn, reaps the financial reward of having a long-term pool of ‘brand enthusiasts’ who can be counted on to purchase future products and recommend them to friends.

In the auto industry, CRM begins by having a current database of not just everyone who’s purchased one of your vehicles, but anyone who’s recently shown the slightest inclination towards your brand (filling out a raffle entry at an auto show, visiting a car display at the mall, etc.).  This could include people who are prospective buyers in your vehicle segment – like SUVs or compact trucks – but have yet to settle on a preferred model.

This database will then track these individuals through their ‘buying lifecycle.’  If they own one of your cars, when is their next service appointment?  If their lease is coming up, what would be their next logical vehicle purchase?  If they called to complain, how was the matter resolved?  Did they buy factory-installed add ons?  Do they have children?  What is their annual household income?

Having an actionable, updated database allows you to customize your communication back to the customer.  So when you do direct mail programs or e-mail blasts to ‘hand-raisers’ (people who have ‘opted in’ to receive information about your product), you can send unique offers based on how close the customer is to making a purchase decision. 

CRM efforts often intensify during new vehicle launches.  You can invite current owners to special events, like a preview party or advance test drives.  You can offer $1,000 ‘owner loyalty’ cash-back on new models.  You can mine your owner’s relationship with your service department (“Free oil change if you take a test drive this month!”).

According to our friends at Wikipedia, the increased profitability associated with customer retention efforts occurs because of several factors that occur once you’ve established a relationship with a customer:

• The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost.
• Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).
• Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.
• Long-term customers may initiate free word of mouth promotions and referrals.
• Long-term customers are more likely to purchase ancillary products and high margin supplemental products.
• Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share.
• Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement.
• Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle.

In my previous life working on a large fast food account – that may or may not have involved ‘Golden Arches’ – we tinkered with a loyalty program that almost went nation-wide. 

It involved a thermal card that would’ve automatically updated itself each time someone visited the restaurant.  This card not only rewarded customers with ‘points’ and ‘prizes,’ but it would’ve carried enough personal information that the cashier could’ve said:  “Welcome back, Mr. Huffstutter.  Would you like your usual order of a Big Mac, no onions, medium combo meal with a Diet Coke?”

A little Big Brother?  Sure.  But it did allow a more personalized relationship with the customers.  The program ultimately didn’t flourish because of logistical reasons, but it was nearly CRM on a massive scale.

So how do these relationship-marketing principles apply to authors marketing their next book?  Stay tuned to the next “Ad Man Answers” and we’ll discuss (‘cause we’d never take you readers for granted).

 

Gregory Huffstutter has been punching Ad Agency timecards for the past decade, working on accounts like McDonald's, KIA Motors, and the San Diego Padres. He recently finished his first mystery, KATZ CRADLE. The first 100 pages of his novel are linked here. For general advertising questions, leave a comment or send e-mail to katz @ gregoryhuffstutter dot com with 'Ask The Ad Man' in the subject line.

Comments

[Katrina Stonoff]

Would it be pushing it to call it CRM when a blogger makes a point of responding to comments?

Not that I'm fishing here! Just wondering if I'm truly understanding the applications of CRM.

[gregory huffstutter]

If a blogger -- say Tess Gerritsen -- has a backlist on the shelves and new releases every year, then responding to posts *is* a way of reaching out to her audience.

However, to maximise CRM, Tess would then capture the name of everyone who's ever made a comment and include that into her 'customer database.'

But we'll get into that more in the next Ad Man column on 1/30.

[Katrina Stonoff]

Hmm. I'm nowhere near Tess Gerritsen, but it might be worth capturing e-mail address. I do keep a database, but I didn't think of adding e-mails when people just comment on the blog.

Duh!

Thanks!

[Katrina Stonoff]

Hmm. I'm nowhere near Tess Gerritsen, but it might be worth capturing e-mail address. I do keep a database, but I didn't think of adding e-mails when people just comment on the blog.

Duh!

Thanks!