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Since speaking at last year's Online Marketing Masterclass, cScape's Customer Engagement Director Richard Sedley has been rather busy writing a book: “Winners and Losers in a Troubled Economy: How to use online customer engagement to gain a competitive advantage."
Here, we ask him to explain his views on why the internet may be a safe(r) haven for marketers during recessionary times...
Some people argue that a downturn or recession could be a good thing for the digital marketing industry because of the strong ROI and ability to measure performance. Do you agree with this?
In a downturn, when budgets are tighter and companies more nervous, digital is definitely the best place to be if you’re a marketer.
The qualities that allow us to use digital to target, reach, interact, measure and personalise set it apart as a marketing channel to be valued and utilised. Having said that, I would still recommend a multi-channel approach if you want to maximise your effectiveness.
However, while digital marketing as an industry might be a winner in hard times that doesn’t mean that just by using digital your business will be. You can still get your marketing wrong.
I’m a firm believer in dialogue rather than monologue when it comes to marketing which is why I emphasise customer engagement.
cScape has done a lot to promote the importance of customer engagement. What exactly do you mean by online customer engagement and why is this especially important during tougher economic times?
We define customer engagement as '"repeated interactions that strengthen the emotional, psychological and physical investment a customer has in a brand (product or service)".
Online customer engagement is the process required to develop a bond between a customer and a brand and ultimately gain retention, loyalty and advocacy.
Engagement places conversions - the ultimate goal of marketing - into a longer-term, more strategic context. It’s premised on the understanding that a simple focus on maximising conversions can, in some circumstances, decrease the likelihood of repeat conversions.
There are some great examples of organisations engaging their audiences and we’ve included a number in the book.
The trust and emotional attachment that accompanies an engaged relationship can protect revenue and, probably more importantly, ensure the survival of the customer / business relationship post downturn.
Indeed, some of the best customer relationships are established through helping people through their difficult situations. In this context a troubled economy might even be viewed as an opportunity.
Is an added focus on digital media and marketing the way forward during a downturn or recession?
It’s the way forward period. During a downturn marketing can be one of the most important activities a business can undertake.
During the three recessions between the 1973 and 1991 companies that increased their marketing had almost the same profitability (return on capital employed - ROCE) as those that severely cut back on marketing. However in the immediate recovery period, they experienced an average 4.3% ROCE compared to -0.8% for those that cut marketing.
Even two years after a recession those companies that invested in marketing were experiencing ROCE rates almost three times greater than those that cut back.
What digital offers us today is far beyond what was available in past recessions. This should allow us to both reach wider and focus more to ensure that our marketing is more effective.
For example social media allows us to connect with audiences and understand their problems and interests faster than any other research tool.
At a practical level, what can digital marketers do in order to insulate themselves from suffering the effects of a downturn?
In the book we provide a number of short tips as well as indentifying some of the trends that you need to embrace. You won’t be able to totally insulate yourself from a hardening economy, but you can weather a storm and indeed emerge in a very strong position.
If I was to recommend one practical thing it would be to emphasise the quality of your product or service in your marketing.
Research conducted in 2003 indicated that improving how your customers perceive the quality of your offering compared to your competitors is one of the best activities you can undertake during a downturn.
Obviously you have to be able to back this up with a sound proposition but past recessions indicate this is an emphasis that pays substantial dividends.
In summary, who do you think the winners and losers will be during a downturn or recession?
The biggest winners are nearly always those businesses that have contrarian strategies. If everyone in your competitors are pulling back from a channel - perhaps mobile - because it has a lower ROI, then this is might be the time to get in.
When businesses feel uncertain about the economic future they are usually less inclined to invest in backend projects like eCRM integration.
A downturn is exactly the right time to invest. You can probably get lower project costs and the advantages the project would provide as the economy softens can be immense. This is exactly what Dell did with their purchasing and fulfilment system in the ’90s, and they went on to reap massive rewards.
The losers will be those that understand digital media and marketing as a cost rather than capital investment.
Those that fail to engage and develop relationships with their audiences will fall prey to the next business who can offer a cheaper product or service at the same quality.
How does the balance between acquisition and retention change during a harder economic period?
Well, acquisition tends to slow as a result of customer caution – not always but usually. As a result businesses then want to emphasise retention as a source of revenue but if you’re not currently doing that you might already be screwed.
The other day I saw the UK described as the world’s "customer defection capital of the west". Defection rates are up 15% on 2005 to 22%. Retail banking, often assumed to have one of the strongest retention levels, sees one in five European customers defect (compared to one in four in the US).
Retention isn’t something you can just turn on. It needs to be created through a process of delivering value and fostering engagement.
But it is worth the effort. An increase of just 5% in customer retention rates can deliver increased profits of 25-95% .
How should the approach differ between different sectors / industries?
The first thing I need to stress in answering this question is that there isn’t definitely going to be a recession this year like in 2000, 1991 or 1981.
Things are much more uneven this time around with some business sectors and geographical markets, like housing, financial services and the US and UK tightening more than other countries and industries.
Having said this I do think that a general emphasis on customer engagement is productive across all sectors but it will reap greater rewards in some compared to others.
On a practical note across all sectors your communications should focus on relevance, customisation and frequency. And while there will be differences depending upon size of organisation there are certain things you should emphasise depending on sector. For example:
- Retail needs to emphasise: selection, value and customer service.
- Finance needs to emphasise: switching costs, location, free benefits and reputation.
- B2B needs to emphasise: reliability, payment flexibility and long-term opportunities and short-term support structures.
Any tips on how to persuade a finance director to invest in digital marketing initiatives when sales are slow?
We interviewed a number of Marketing and IT Directors on their experiences with CFOs and we’ve included a little section in the book specifically on this tricky task. A couple of tips that I thought were particularly strong are:
1. Build a wall of benefits.
There is a tendency to rely on communicating the three killer benefits of any project you’re trying to get funded (or not get cut). Instead, build a wall of benefits around your activity. See if you can identify 101 benefits.
For example, what will be saved through decommissioning old projects or technology? What will your project mean for staff retention? How will you competitors be forced to react to your project? Your CFO might dismiss 50 benefits but you still have 51 left to convince with.
2. Get the CFO and MD to meet customers.
Often it can be difficult to understand or imagine the value that engagement promises to long-term profitability unless you can see it in the customers’ eyes. Invite the CFO and MD to focus groups of test sessions.
"Economic problems are not deterministic" … what do you mean by this?
It’s pretty simple really. Responses to economic downturns are not pre-determined. Don’t try and second-guess how your customers will react to any downturn.
There is always a tendency to assume that every customer action and purchase is solely informed by a belt tighten outlook. This just isn’t the case.
How customers experience economic pressure is mediated through many different attitudes and contexts. The trick is to identify how the pressure is mediated and to market ourselves and our products around that.
For example, the importance of family is intensified in many customers’ minds at times of economic hardening.
This could just as easily lead to the purchase of a new wide-screen TV for the living room as the decision to put off buying one.
The one thing that we’ll definitely see a continuation of is the bifurcation of most markets with customers trading-down in some categories and up in others.
Just because someone buys a £2 chicken at Tesco doesn’t mean that you should assume that they won’t take tea at the Ritz on their birthday.
Winners and Losers in Troubled Economy: How to engage customers online to gain competitive advantage is available as a free pre-publication download from www.winners-and-losers-in-a-troubled-economy.com. Go get it if you fancy.
E-consultancy's newsletter readers are also invited to the free launch event on 11 March, where the authors will be providing case studies and tips drawn from the book.
To register for the event please email Sarah Woodbridge at firstname.lastname@example.org