Ashley - interesting post and hopefully it will stimulate some good response.

In my experience it very much depends on the market sector and the type of product or service a user is looking for. Let’s take buying flight tickets for example, this is very competitive market place and one where the small player can compete online very effectively with the ’big boys’, especially in terms of online marketing.

A lot of users who use the Internet to look for flight tickets are driven by price (this is basically a commodity product with little room for differentiation), in marketing terms these buyers are classed as switchers and they are not particularly brand loyal so will go where they smell the cheapest price. However, there are plenty of consumers out there who are lazy (or loyal) who will often continue to use the same supplier either because they can’t be bothered to look elsewhere or because they enjoy the quality of service they receive.

Researching the prices of tickets before the Internet came along was a pretty strenuous task, that either involved physically walking in to travel agents to get quotes or flicking through the yellow pages and calling up various travel agents. Now all one has to do is go to a search engine and type in ’cheap flight to Bangkok’ and immediately we are presented with providers who say they can offer us a cheap flight to Bangkok. This opportunity immediately opens up new doors to small, independent travel agents who might not have UK wide high street coverage, so the Internet has given them the opportunity to tap into this larger market. So lets say a user eventually goes with some small outfit, they get the business, because they offered the best price and were friendly.

Now the question is, would that customer be classed as a quality customer? Some would argue straight away yes, we got the sale and made a profit from that customer as it cost us very little (we used PPC) or nothing to acquire that customer (they found us in the natural search listings.) Now value can be measured in so many ways: the immediate value to the business, i.e. helping with cash flow, meeting sales targets and of course lifetime value - i.e. will the customer come back to buy more tickets from us, how many friends will he tell about us. Repeat business is easy enough to measure but measuring the number of recommendations a customer has made can be hard, unless they do this via your website using your ’recommend a friend’ form.

Now is there anything these businesses can do to encourage repeat business from lazy or loyal customers and get their customers to recommend them to friends - of course there is. They can send out targeted special (opt-in) e-mail promotions to customers, and that could stimulate a response. If it doesn’t it will at least raise their awareness again so that the customer doesn’t forget about them in a hurry - the goal is to try and get top of the mind awareness so that when they do come to buy a flight ticket again, they start with their previous supplier first. Offering friend get friend incentive schemes can also work wonders and we have seen this form of viral marketing work well on the Web, particularly if the offer is a strong and targeted one.

I think a lot of the time, online marketers use these tools in isolation where in effect they should all be interwoven. I have seen their performance increase and offer better ROI when they have been used as part of an integrated campaign. Also it’s important that online marketers focus on making sure that their actual website is performing well too. There is no point driving high quality visitors to your site, if your site is going to let you down, because of its poor design, content and navigation. I have seen this happen with many businesses, they want to drive more traffic to their site because they aren’t getting enough enquiries coming through - sometimes it’s not the driving targeted traffic that’s the problem, it’s the website, so get your house in order first before you open the door to guests is my advice and that will help increase ROI.

Also understanding latency and identifying what stage in the buying process a prospect is in, and whether it’s an impulse, a simple-considered purchase or a complex-considered purchase is also key. For example a client of our sells cottage holidays, users initially go on to their site to request a brochure and it may take that prospect up to 3 months to decide which tour operator to book their holiday with. In this case we also worked with our client to help then implement a simple opt-in email campaign that reminded those prospects who requested a brochure of the benefits of booking with them. This helped increase their conversion rate and is a great example of campaign integration.

Bit long winded I know but there is a great deal to talk about with this post and I feel we have only just touched the tip of the iceberg.

Damon
http://www.sitevisibility.co.uk

On 17:32:57 10 June 2004 Ashley wrote:

From those we talk to it seems there is an increasing swing towards measuring ROI from online marketing in terms of the quality of customer delivered rather than the quantities. That’s quality in terms of the customer value in the long term.

This is not really that surprising as the market becomes more saturated, more competitive and more sophisticated. Initial interest in traffic volumes turns to an interest in conversion metrics which turns to an interest in retention and customer (life time) value metrics.

As the costs of customer acquisition go up it becomes increasingly important to get the right (valuable) customers, not just any old ones - the infamous ’rate tarts’ within financial services being the most talked about. Of course, the internet makes it potentially easy to acquire customers but it is unfortunately often just as easy for them to desert you.

All of which got me thinking - do different forms of online marketing typically deliver different values of customer (rather than volumes)? I’d say the perception currenlty would be:

• Search Engine Marketing - can deliver volume and value. Value will depend on the quality of your keyword targeting, timing, choice of search engines etc. Little evidence that I’m aware of as to whether PPC vs. Organic Results referred customers are likely to be any more or less valuable.
• Affiliate Marketing - perception, rightly or wrongly, that the quality of customers delivered is lower in terms of long term value. However, the volume of conversions can be very high.
• E-mail Marketing - this really depends a lot on the quality of the list, the quality of the offer, the timing, the brand etc. Over the last year or so I’d say that e-mail is increasingly seen as less effective in delivering volumes of NEW customers and even the value of those is dropping. It is very effective, however, for converting existing registered users or repeat selling to existing customers.  
• Interactive Advertising - if we exclude PPC search advertising then the move here seems to be towards ROI justification more on brand metrics. As click through rates drop, both the volume and value of resulting conversions has been dropping.
• Viral Marketing - volumes can be very high (or next to nothing), but the value of those customers...? Conversion rates tend to be low but of those few who convert I guess it’s a pot pourri of valuable customers and not-so-valuable ones.
• Price Comparison Sites - there seems to be some agreement here that these sites certainly deliver volumes of sales but those customers tend to be the least valuable. Stands to reason as they may well have been searching for the best deal in the first place. Interesting to hear John Lewis Direct are moving away from this technique to focus on lower quantities of more valuable customers (according to Alison Lancaster, Head of Marketing and Catalogue in a recent Revolution article).

Most businesses, and managers with targets to hit, need a mixture of volume of sales and value of customers so, as ever, it’ll be ’horses for courses’ and a ’marketing mix’ in terms of which of the above to use, how and when.

I’d be interested in hearing from others about their perceptions and experiences of the above? Anyone out there, for example, who can show that organic search refers more valuable customers than PPC? Or that affilaite marketing actually delivers their most valuable customers? Or that banner ads deliver low clicks but the most amazingly loyal and wealthy customers...?

Ashley 

Spot on Dave!

It's that word profitability again. Its been long established that it costs more to find and sell to new customers than to sell to existing customers. The web not only provides methods to keep your brand in the mind of the customer such targeted opt-in email but also allows you to understand more of their interests than just the raw information of what they purchased through their browsing behaviour. This allows you to time the message at a point when the visitor is actively thinking of a purchase. A business with a high proportion of sales through loyal customers will always be more secure than one dependent on continually pulling in those who promiscuously hop from deal to deal.

Understanding and crediting the initial source of the customer with ongoing sales value from repeat purchases allows a clearer view to be developed over time of which sources deliver the best quality. In this way you can segment your customer base and target messages based on the nature of the customers profile whilst at the same time developing strategies based on knowledge of where to look for your new loyal customers.

It's easy to get carried away with the success (or otherwise) of PPC but the less showy longer term initiatives have at least as important a part to play in the marketing mix.

Colin Cooper

On 12:14:10 12 June 2004 Dave Chaffey wrote:
>Great post - I noticed that article in Revolution too and
>it matched what I am hearing from a lot of more
>sophisticated e-marketers such as online financial
>services who have the ROI models to support this.
>
>This post puts this in context, and at the bottom gives an
>example of how one company do this...
>
>Traffic quality referred from different communications
>tools such as search, affiliates, e-mail, etc has
>traditionally been assessed by web marketers in order of
>increasing sophistication:
>
>1. Volume, Number of visitors
>
>2. Quality, Conversion rates to action such as lead, sale
>or subscription
>
>3. Cost, Cost of visitor acquisition or combined with
>conversion above, cost of customer acquistion.
>
>4. Sales-based return-on-investment (ROI), by asessing
>sales value or profitability compared to cost of campaign
>or cost of click.
>
>As marketers and agencies experience and use of
>measurement tools has increased, there is now much more
>attention on:
>
>5. Life-time value-based ROI. Here the value of gaining
>the customer is not just-based on the initial purchase,
>but the lifetime value (and costs) associated with the
>customer. This requires more sophisticated models which
>can be most readily developed for online retailers and
>online financial services providers. At a recent online
>financial services forum I attended Martin Aylward of More
>Than explained that they use such an approach for selling
>insurance online.
>
>More Th>n http://www.morethan.com use a Present net
>value model which looks at the value over 10 years but
>main focus is on 5 year result and takes into account:
>
>- acquisition cost
>
>- retention rates
>
>- claims
>
>- expenses
>
>It helps give them a realistic "allowable cost per
>sale" which is needed to get return over 5 years.
>They track this in utmost detail knowing for example, they
>will know the ROI of a Google Adwords key phrase against
>an E-spotting key phrase and will then select key phrase
>and bid strategies accordingly.
>
>Dave Chaffey
>============
>Internet Marketing trainer, consultant and author
>eResources and Books: www.marketing-online.co.uk
>Blog: www.davechaffey.com