A Data-Driven Way to Win Customers Hearts and Grow Customer Lifetime Value
Digital sales and marketing channels continue to grow in importance in the 21st Century Commercial Model. Most customer engagement happens in these channels. These channels are attractive because they give marketers scale, high degrees of precision, data about customers, and accountability. But despite their increasing importance, managers need to find better ways to use these channels to build long term relationships if they want to maximize their returns on these investments, and differentiate their customer experience.
Nearly one third of all consumer product sales are now online. This number has doubled since the start of the pandemic. At the same time, over 80% of the purchase cycle for complex business products and services happens online. If buyers under the age of 40 had their way – human sellers would not exist.
“Digital marketing and sales channels have to command the lion’s share the growth investment mix, according to Chris Hummel, the author of the book Revenue Operations. “Digital media spending continues to take share from traditional media,” says Hummel. “And operating budgets for owned and earned digital selling channels now exceed paid digital media budgets in the modern marketing mix.”
Equally important, customer data and the digital customer experience are among the most important assets in your business. The first party customer and prospect data your digital channels create is one of the most valuable business assets in the company. And the digital customer experience has become the basis of competitive advantage in a market where most buyers cannot see the difference between the digital experiences of the companies they buy from.
This is not lost on growth leaders. They have learned that delivering a superior digital customer experience and maximizing customer lifetime value of customers’ needs to be the primary goal of the selling system.
The problem is our management and measurement systems are not always consistent with those goals. According to Neil Hoyne, the author of the new book Converted: The Data-Driven Way to Win Customers’ Hearts, there is a fundamental problem with the way most brands are targeting and engaging customers – one that risks destroying more customer value than it creates. In particular:
- The metrics we use to measure the performance of these digital channels is leading people to focus on the wrong objectives;
- The focus of the digital marketing programs and campaigns we run over these channels on short term clicks and conversions can actually hurt long term customer relationships;
- The allocation of investment and effort we put into digital channels does not align very well with the lifetime value and profit potential of the customers and prospects we target.
Hoyne has spent the last ten years as a digital marketing and measurement strategist at Google. He’s a world class expert in marketing analytics, accountability, and measurement who has evaluated over 2,500 digital marketing programs over the past decade.
“Just because your digital sales are growing and marketing campaigns are generating measurable clicks, engagement and conversion rates does not mean these channels, programs and investments are adding to firm value and financial performance,” says Hoyne. “In fact, the way most organizations measure and manage their digital media and marketing programs can actually be degrading your most valuable asset – customer relationships. This will limit your overall ability to grow and create value across all of your channels.”
According to Hoyne, the disconnect stems from the strategically sound objectives of reducing risk in the spirit of finding immediate returns. “The pressure from leaders to demonstrate the return on digital spend and the zeal to be accountable, data-driven, and measurable is strategically sound,” says Hoyne. “The problems happen when digital marketing teams try to take the easy way out to reach those objectives by overemphasizing short term response rates as a goal.”
Hoyne points out what is intuitively obvious but operationally difficult – the primary focus of digital marketing needs to be on building relationships not converting transactions. “The goal of digital sales and marketing programs needs to be about building relationship and customer lifetime value – rather than clicks, conversions and attributed revenues,” says Hoyne.
“The problem is building relationships online is not easy for organizations that are used to getting short-term, immediate results – despite the opportunity for long-term growth across the business,” continues Hoyne. “This is really more of an organizational incentive and alignment challenge than a data integration one. This is ultimately going to force managers to evolve the way they measure and manage their digital media, program, and channel investments.” In his book, Hoyne provides a field guide for building relationships in digital channels based on his extensive experience. He advocates that managers need to change the focus of digital selling efforts from clicks and conversions to people and conversations. To help them to do this, he proposes better ways of measuring campaign and program performance, better financial criteria for funding and allocating resources to digital channels, and better design standards for the conversations that occur online. Building better online relationships will also require operational changes like taking a more coordinated approach to managing customer data and building trust.
Recent research by Professors Raghu Iyengar and Eric Bradlow at the Wharton School of Business reinforce Hoyne’s message. According to their research, there are three primary challenges of omnichannel selling that must be solved if sellers are going to build deeper relationships with customers online. 1 – Getting access to customer identity and preferences in a world of privacy, 2- managing that customer data in a unified manner, and 3 – creating better attribution models for measuring how well you are developing relationships with them.
“It comes down to the fundamental question – are you treating people as individual transactions or relationships?” says Hoyne. “What is intuitive in ‘analog’ offline interactions between humans is hard to quantify and program into an online digital interaction,” he continues. “A transactional model used by most digital marketers to generate demand would not work in the real world.”
Put another way (and the risk of being trite) if a digital marketer walked into a bar and used the same tactics to meet people in the real world that they practice professionally in the online world – they’re more likely to get odd looks than build lasting relationships. It’s like a man or a woman walking into a bar and asking 100 different random people to go out on a date without spending any time to get to know them. The law of large numbers suggests that someone may say yes, and by the scorecard being used by many digital marketing teams, that would be a success. But a lot of relationship damage was done along the way. That approach puts 99 other long term relationships at jeopardy because some of them will be offended, more of them will question his sincerity, and most of them will likely avoid a second encounter.
To address the problem, Hoyne advocates business leaders do several things:
1. Make long term value creation the goal of marketing efforts – Hoyne suggests managers make customer lifetime value the scorecard for success. Today, managers do not place much emphasis on customer retention and lifetime value marketing metrics at all (less than 10% emphasize these metrics) according to the most recent CMO survey by the Fuqua School of Business. This means changing the focus of digital selling efforts from short term clicks and conversions to long term conversions with your most valuable customers. This involves experimenting with more nuanced measurement models that factor in relationship health and opportunity potential. This is possible because one of the big advantages of digital channels is their ability to target individual customer needs with bespoke messages and channel touch points. But it also requires applying the 80-20 rule that field sales reps use when they allocate their effort to different customers, accounts and segments. Hoyne suggests marketers should explore the economics of concentrating your effort on fewer targets with higher potential instead of spreading marketing spend evenly across a broader audience to generate reach.
2. Start with people – know your customers names. Hoyne emphasizes the importance of having an integrated customer ID that ties digital activity to a name and contact information as a primary currency for relationship building. As part of that equation, he advises taking a thoughtful approach to acquiring the personally identifiable information (PII) from visitors that is essential to having personalized and contextual conversations. He also suggests managers refocus their analytics teams on teasing out signals of customer intent, readiness to buy, preference and opportunity potential – rather than visits, downloads, and click through. Here he advises organizations to renegotiate the terms of the online relationship with customers. He suggests a good place to start is by earning trust with customers, and only then finding the appropriate exchange of value for PII. Most customers will share information with businesses they trust in exchange for a value added relationship. This will also require businesses to make a bigger effort to aggregate customer engagement data from different functional departments and systems and organize it more around the customer.
3. Establish metrics and messaging that support the entire digital revenue cycle. The lines have blurred between demand generation, buyer engagement, and relationship expansion as and half of businesses move to a recurring revenue model. This has revenue teams creating messaging and communication cadences that span the entire revenue lifecycle. Hoyne encourages managers to change the messaging, content and focus of digital selling efforts from generating anonymous conversions and engagement at any point in the revenue cycle to sustaining conversions with people throughout the revenue cycle. “It’s important to remember that the act of purchasing is just a step in the journey,” asserts Hoyne. “It should be just a part of an ongoing stream of engagement – a conversation that spans many touch points and stages in the relationship. Your messages have to factor in where people are on the relationship continuum and whether they are exploring new solutions or a happy and satisfied customer ready to buy more.” Chris Hummel, author of the book Revenue Operations, reinforces the importance of developing campaigns and measures that span the entire revenue cycle. “Business leaders are focusing on aligning marketing, sales and customer success teams – and the operations, systems and processes that support them – around the customer to help them get control over the entire revenue cycle,” says Hummel. “CEOs want someone to be accountable for the customer experience across the entire customer journey. That’s a big reason why 75% of growth businesses are adopting Revenue Operations.”
4. Emphasize building owned digital marketing channels and data sets. The digital marketing industry is going through significant upheaval as brands and media partners wrestle with privacy, branding, and fraud concerns and the elimination of cookie based tracking from the digital targeting equation. Hoyne recommends leaders allocate capital to scaling up their direct-to-customer selling efforts by building their proprietary owned digital selling infrastructure–web, social, mobile, blog and email channels. This channel infrastructure will help you capture first party data about prospects and customers and allow them to choose how they engage with your business. “You are seeing organizations across industries – from apparel, automobiles, appliances and construction equipment and pet food taking control of their own digital demand chain,” says Hoyne. “They are emphasizing control over the quality of the engagement, message, offerings, and experiences over the tradeoffs in areas like shipping, supply chain and loss of third party market coverage.”