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1 to 1 Marketing

Published
  • April 01 1998, 1:00am EST

When marketing approaches IT about a relationship marketing solution in the next few quarters--and they will--why should IT listen? Answer: Of all the projects on IT's to-do list for 1998, few have the potential to benefit IT's standing as much as relationship marketing, or one-to-one marketing. One-to-one marketing improves business competitiveness, frees IT to focus on visible projects by empowering marketing to perform its own analyses, and quickly can become mission critical, increasing the influence of IT in the enterprise.

What is One-to-One Marketing?

One-to-one marketing, also known as micromarketing or "marketing to an audience of one," involves marketing to individuals rather than groups, based on those individuals' behavior rather than simply demographics. With ready access to complete customer histories, as well as easy-to-use tools for query, analysis, data mining and campaign management, companies can offer individualized treatment at every point of customer interaction: mail, call center, Web, store or branch.

One-to-one marketing represents the most advanced phase in the evolution of marketing from impersonal to personal. With mass marketing, the least personalized and least effective form of marketing, every customer or prospect receives exactly the same information. Segment marketing is slightly more personalized and effective, in that groups of people with similar characteristics receive more tailored marketing messages. With one-to-one marketing, every customer is his or her own segment.

Impact on IT Infrastructure

The following example illustrates how one-to-one marketing affects IT infrastructure requirements. Consider a typical retail bank. In the mid-eighties, it conducted mass marketing campaigns. The marketing group ran two or three campaigns a year, such as enclosing fliers in every customers' statement for the product du jour: home-equity loans, car loans, IRAs or running a telemarketing campaign for a specific product. The demands on the IT infrastructure were nominal.

In the early nineties, the bank may have segmented its customer base into 5 to 15 groups: young singles, older singles, married without kids, retirees on fixed income, and so on. The marketing group directed tailored marketing campaigns to each segment--for example, printing a special phrase on their statements, such as, "Need to supplement retirement income? Ask about our reverse mortgages." With perhaps ten simultaneous campaigns each quarter, demands on the IT infrastructure soared.

Now, in the late nineties, that same bank may be embracing one-to-one marketing to foster customer loyalty and increase cross-selling. If a long-time customer with good credit is bouncing checks, the statement might read, "Insufficient funds? Ask about our Balance Plus service." Another customer, recently approved for a small-business loan, might receive a brochure about SEP-IRAs and Keoughs. Now, the IT infrastructure must accommodate one campaign per customer per quarter.

Why now? Dramatically lower costs for technology have finally made one-to-one marketing cost effective. In the eighties, building the IT infrastructure to support one-to-one marketing simply would have been too expensive. In the late nineties, not adopting one-to-one marketing will be too costly in terms of lost marketing opportunities. Customer loyalty requires this type of personalized communications--the most sought-after customers are beginning to expect it.

Increased Revenues and Profits

Not only does one-to-one marketing deliver quantifiable benefits, it is fast becoming a requirement for survival--especially for businesses that market to end consumers or small businesses and depend on customer loyalty. Consider airlines, which are expanding their loyalty programs to include hotels and car rental companies. By entering into strategic partnership with other travel companies and related services companies, airlines gain the potential to learn more about their common customers. Grocery stores, too, are implementing frequent-shopper programs. By gathering detailed data on individual consumers' buying habits--where, when and what--stores gain the ability to target the right customers with the right offers to ensure loyalty.

Industry analysts agree that one-to-one marketing is becoming a mandate. The Patricia Seybold Group recently published a report entitled, "How to Architect a Customer Relationship Management Solution." In it, Wayne Eckerson says, "Customer relationship management is more than the latest management trend. It's an honest attempt to refocus corporations on the true source of their revenues and profits: their customers. With high-yield revenue sources fading and competition increasing, companies are recognizing that they can gain a competitive advantage by better understanding and caring for their best customers."

Behind the popularity of one-to-one marketing are three distinct advantages. First, it enables the company to exploit its single most powerful source of strategic competitive advantage: customer information. This asset resides nowhere else because no one else has the customer behavior data. Therefore, if the marketing group can discover how to use and analyze this private intelligence, it can gain strategic advantage in retaining existing customers and attracting new ones. A telecommunications company, for example, can use the data mining tools in a one-to-one marketing solution to profile its customers and calling patterns, predict when they might leave and identify offers that might induce them to stay. The company can also identify opportunities to cross-sell new services, extending the relationship and further reducing the chance of attrition.

Second, one-to-one marketing solutions improve the quality of customer interaction. With detailed information about the customer's habits at the point of contact--call center, Web, stores--the customer service representative or service application can provide individualized interaction. For example, the grocery stores are already issuing coupons at the check-out line that are selected especially for the customer. Or, a retail Web site for books can display titles matching the individual consumer's preferences. With such personalized attention during every interaction, customers perceive more value from their relationship with the company. The result: a stronger, potentially more profitable relationship.

Third, companies with one-to-one marketing infrastructures can extend their data warehouse to customers, differentiating their service. For example, telecommunications companies are enabling purchasing departments to use a browser to review billing by location, person or duration of call.

A Customer-Centric Data Warehouse

Like the enterprise itself, most IT infrastructures are organized around products or processes. That is, customer data is tightly linked to product-specific or functional-specific applications. The problem: customers often span multiple products and processes but no single database provides a view of the whole customer.

The key to a successful one-to-one marketing solution is a customer-centric data warehouse. Not only does a central data warehouse provide a whole view of the customer, it reduces IT's workload by creating a more flexible query and reporting environment. With the data warehouse based on an industry-standard database, IT can empower marketing, sales and customer support personnel with readily available tools and applications for query, reporting and data mining.

Therefore, when evaluating customer relationship marketing applications, the first question IT should ask is, "Are the data and application separate?" If they are not separate, IT's end users will be constrained in the ways they can use the data. This may be acceptable in the near term, but--like death and taxes--new requirements are certain to surface. Usually, the new requirements involve analyzing or reporting on the data.

The optimum data warehouse for one-to-one marketing meets three criteria: scalability, extensibility and reliability. Scalability ensures that as the business, customer base, number of transactions and number of queries and reports grows, IT can accommodate the extra load. Scalability is especially critical for one-to-one marketing because the data warehouse may be accessed by dramatically more users as the company extends access to consumers via the Web. Extensibility enables IT to service multiple applications with the same data warehouse, even if the data warehouse initially serves only one application. Reliability is paramount because the marketing group will become increasingly dependent on the data warehouse, and customers may be accessing it around the clock.

IT can manage the data warehouse in one of two ways. Some IT groups restrict access to the data warehouse to technology people--primarily to avoid the possibility of a hapless user generating the "query from hell." In this environment, IT accepts requests and develops SQL queries and reports themselves.

The better approach is for IT to give end users the ability to generate reports themselves, with user-friendly tools that prevent hellish queries. Today's knowledge management tools are easy to use for non-technical managers and include safeguards to prevent users from damaging data integrity. This approach optimizes the benefits of one-to-one marketing for IT. It is good for the business because it allows managers to react faster to changes in the environment. In addition, it helps the data warehouse to become a mission-critical application, which increases the value of the IT organization.

Three Crucial Planning Steps

To implement a one-to-one marketing solution, IT must first understand the corporate strategy regarding customers (which may extend beyond marketing), the current business processes of the marketing organization and how the marketing group wants the processes to evolve. It is imperative that IT and marketing work as a team during this step.

Second, IT must define an architecture that supports both the current and planned marketing processes. To ensure flexibility as requirements change, the architecture should incorporate emerging standards, such as CORBA- or DCOM-compliant applications modules.

Third, IT must develop or purchase logical data models that correspond to the business process. This step is critical: if it isn't done right the first time, it will have to be repeated, a costly and time-consuming process. A key criterion for the logical data models is extensibility from one application to another. A data warehouse used for a point application, for example, might eventually be useful for a data mining or database marketing application, so the data model should support both.

The Best Advice

One-to-one marketing benefits the IT department in three ways. First, it improves competitive advantage, and what's good for the business is good for IT. Second, it empowers the marketing group to perform its own query, reporting, analysis and data mining, which frees IT resources. And third, one-to-one marketing programs quickly become mission-critical. By sponsoring such a solution, IT increases its influence even as intranets are decentralizing information.

The best advice: If you don't have the internal expertise, choose a partner with experience in deploying one-to-one marketing solutions. The shorter implementation time, assured extensibility and avoidance of common mistakes will more than compensate for the costs. The rewards for IT are better competitive positioning for the company at large, deployment of IT resources on strategic projects rather than report generation and a mission-critical application whose value is felt throughout the enterprise.

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