Effective Relationship Marketing : Part 2 of 3 2

Effective Relationship Marketing : Part 2 of 3 2

Contents Effective Relationship Marketing This best practice overview is part two of a three-part series highlighting the process of effective relationship marketing enabled by Enterprise Marketing Management.To receive Part 1: Nurture and Part 3: Retain, visit www.vtrenz.com and subscribe to our relationship marketing newsletter. 1. Introduction Customer Loyalty...........................................p.4 2. The Loyalty Ladder Moving Customers to Advocates................................p.5 3. Principles of Customer Development Growing Customer Value...................................p.6-7 4. Marketing Tactics A Plan for Growing Customer Value...........................p.8-9 5. Marketing Scorecard Measuring Your Results...................................p.10-11 6. Enterprise Marketing Management The Role of EMM in Your Business..........................p.12-13 7. imarketing Automation, an Integrated Solution Marketing Execution in 10 Easy Steps...........................p.14 8. Customer Marketing Audit Give Yourself a Score.......................................p.15 Effective Relationship Marketing : Part 2 of 3 3

Introduction: Customer Loyalty Relationship Marketing - a marketing method in which businesses consistently maintain two-way communication with their prospective, current and inactive customers in order to gain a deeper understanding of their needs while delivering personal and compelling marketing throughout their lifecycle. Enterprise Marketing Management - software solutions designed to enable more effective and efficient marketing through the automation of marketing activities including data management and analytics, creative development and file sharing, and operational execution. Relationship Marketing Methodology: Marketing as a Process Nurture - the process of identifying potential customers, initiating the exchange of information and moving consumers or businesses through the buying cycle toward a purchase. Grow - the process of building more profitable, long-term relationships by encouraging repeat purchases of active customers. Retain - the process of identifying and winning-back inactive and quit customers by reengaging them with your company, products and services. Customer loyalty can be defined in a variety of ways: a positive attitude or allegiance toward a company, the tendency to choose one product or service over another, or even the process of building a long-term committed relationship. Ultimately, customer loyalty is about driving repeat purchases or customer referrals. In an attempt to understand customer loyalty, many marketers have studied the Customer Loyalty Ladder (Christopher, Payne and Ballantyne, 1991). Although different variations of the ladder can be found today, the basic ladder concept provides a sequential set of goals for growing the lifetime value of customers, and thus attaining their maximum value. Using the ladder analogy, the obvious desired result is moving customers from one rung to the next, until they ultimately reach the top rung. Best practices today show that this can be done by implementing and processizing a relationship marketing strategy that is enabled by Enterprise Marketing Management (EMM). Part 1 Nurture of the Effective Relationship Marketing white paper series explored key strategies for generating qualified leads and acquiring new customers. These critical concepts for moving suspects to prospects and prospects to customers addressed the first two rungs of the loyalty ladder. This white paper explores the second of the three stages of relationship marketing Grow and addresses the remaining rungs of the loyalty ladder by helping businesses define the process of maximizing the value of their existing customer relationships though a clear set of relationship marketing principals, tactics and related metric. Before looking at these principals, tactics and metrics for growing customer value, we will first take a closer look at the loyalty ladder itself. Then, we will explore how EMM solutions can help to facilitate growth. And, finally, we recommend an audit plan for scoring your current customer marketing strategies. NURTURE Prospects GROW Customer Value RETAIN Customers Although Parts 1 and 2 of the Effective Relationship Marketing whitepaper series provide best practices for all rungs of the loyalty ladder (which is where most resources today are currently allocated), we have not yet addressed the critical concept of customer retention as it applies to inactive or lost customers. Part 3 of the series Retain will explore the value of win-back initiatives in such instances. Effective Relationship Marketing : Part 2 of 3 4

The Loyalty Ladder: Moving from Customer to Advocate Advocate: A customer that provides unpaid promotion for your organization, product or services Customer: A business or individual that has on one or more occasion purchased from your organization Prospect: A business or individual who has been qualified with intention to purchase from or donate to your organization Suspect: A business or individual who has direct or indirect contact with your organization, products or services purchased from or donated to your organization The basic loyalty ladder has four rungs: Suspect, Prospect, Customer and Advocate. Identifying where your customers currently stand on the ladder can be done by establishing qualification criteria, tracking transactions that have occurred, and knowing which customers are providing value above and beyond transactional value. Although the basic loyalty ladder provides a good overview for increasing lifetime customer value and makes it appear conceptually easy to move customers to the highest rung on the ladder, the actual distance between customer and advocate requires identifying some additional increments. The process of moving customers to advocates can be further broken down as follows: First Time Buyer - The first time buyer is identified as a customer that has participated in a single transaction with your organization. Initial Adoption - Having made the first purchase, the next goal is to encourage adoption or consumption of the product or service in order to drive repeat transactions. The earlier the adoption, the sooner additional transactions are likely to occur. Repeat Buyer - Once initial adoption begins, cross-sell, up-sell, or restocking sales opportunities should be pursued. Repeat Consumption - In addition to driving additional transactions, marketing should support recurrent consumption or further engagement in order to solidify long-term value in the mind of the customer. Loyal Buyer - Stickiness or switching costs should be introduced to ensure that the buyer is not only satisfied and prefers your product or service, but is also locked in exclusively to your product or service for tangible or intangible reasons. Supporter - As a customer climbs the loyalty ladder, they may naturally become a supporter or someone who will passively provide positive promotion to your product, service or philanthropy if asked. Evangelist - Ultimately, the goal is for customers to proactively advocate the product, service or philanthropy resulting in referral business. Although the ultimate goal is to move each customer up to the top of the ladder, it is important to note that not all customers are equal. Even customers within a single rung of the ladder may have vastly different value and profitability depending on the recency, frequency and profitability of their total purchase history. Effective Relationship Marketing : Part 2 of 3 5

Principles of Customer Marketing: Growing Customer Value Nine Principles for Growing Customer Value 1. Reduce Buyer Remorse 2. Reinforce Value Proposition 3. Encourage Adoption 4. Increase Satisfaction 5. Develop Stickiness 6. Position as Trusted Advisor 7. Understand Needs 8. Qualify for Repurchase 9. Gain Referrals Today, more resources and greater executive mindshare are focused on marketing to, and growing the value of, existing customers than ever before. While stats vary, there is a clear consensus that it is much more expensive to acquire new customers than it is to grow and cultivate the value of existing customers. But below the surface of existing customer initiatives, few businesses have identified the principles necessary to align their existing customer tactics with the loyalty ladder and effectively drive customers to the top rung. The following nine principles can be applied to existing customer marketing initiatives in order to maximize results. Reduce Buyer Remorse After a purchase, buyer remorse, or an uncomfortable feeling, can occur, and if not resolved it can have a negative impact on the lifetime value of a customer. In some instances, buyer remorse may even result in the return of a product or service which can be quite costly to your company. The chance that buyer remorse will occur increases as the size or impact of the purchase increases. Because buyer remorse is common, steps both prior to the purchase, such as setting realistic expectations, as well as immediately following the purchase, such as reinforcing the decision, should be taken to reduce its occurrence. Reinforce Value Proposition At some point in the sales process, a value proposition was likely established. This occurs when a customer is offered the promise of a benefit or multiple benefits once a product or service is purchased. In many instances, a value proposition is not realized with the purchase alone, but may require training and implementation. Therefore, in addition to restating the benefits through communications post purchase, complementary services may be needed to ensure the realization of the anticipated benefits. Encourage Adoption Some may wonder why companies concern themselves with whether or not a customer actually consumes a product or service once it's purchased. If looked at as an isolated incident, it may actually be more profitable if the person doesn't ever consume the product or service, especially in a service industry. However, consumption is key to demonstrating the value of a product or service and growing the lifetime value of a customer; only once the product or service is used will it need to be replenished, thus creating more sales. Therefore, marketing initiatives should be in place to engage customers early after the purchase and identify consumption status. Lack of consumption may require a company to invest additional time or resources, thus driving down short term profitability in return for long term profitability. Lack of consumption may also provide for an up-sell or cross-sell opportunity. Effective Relationship Marketing : Part 2 of 3 6

Increase Satisfaction A number of studies have directly linked customer satisfaction with business profitability and success. According to the Harvard Business Review, a 1% increase in customer satisfaction can produce a 3% increase in market capitalization. Although many companies have gotten into the habit of executing customer satisfaction surveys, few have made the commitment to take what they learn and use that information in driving business decisions throughout all levels of the organization to create more satisfied customers. DevelopSwitching Costs Just as customer satisfaction is a critical driver, customer loyalty is equally important and is considered by some to be even more important. Loyalty, in this instance, can be defined as the state of being bound to a product or service for emotional or tangible reasons. Although someone might be very satisfied by your product or service, they may be equally or more satisfied by a competitor. Therefore switching costs or stickiness must be developed in order to keep customers committed to using your products or services in addition to keeping them satisfied. Extend Position as Trusted Advisor Establishing you and your organization as a trusted advisor provides a sustainable long-term competitive advantage. Earning trust is something that occurs over time and can be lost easily. Therefore, it is necessary to continue to build trust beyond an initial purchase. This can be done by listening to customers to understand their needs, by being honest with them, and by collaborating with them to build a win-win situation. But trust must also be supported by credibility and reliability. Customers want to know that they are making a smart decision; organizations can foster this by ensuring that the products and services they provide are supported by experts in the industry. Increase Understanding of Customer Needs You don't need to understand Maslow's Hierarchy of Needs to realize that people are motivated by their needs. The greater understanding you have of a customer's needs, the greater chance you have at delivering products or services to meet those needs. But it is also important to keep in mind that needs change. Staying in touch with a customer's current needs requires constant monitoring via two-way dialogues between you and the customer. Ask questions and listen carefully, but avoid stopping there. People aren't always able to communicate their needs, so it may also be useful to closely monitor and observe customer behaviors in order to paint an even more accurate picture of the their needs. To gain an edge, realize too that the most successful companies not only understand their customer's current needs, but can also anticipate their future needs. Effective Relationship Marketing : Part 2 of 3 7

Qualify for Repurchase Opportunities For most industries, there is a significantly greater chance of selling a product or service to an active customer than to a prospective customer. By maintaining ongoing contact with your existing customers, asking for their feedback and gaining a greater understanding of their needs, you can identify up-sell, cross-sell and restocking opportunities. As is done with prospect marketing, develop and utilize a standard set of qualifying questions to segment existing customer leads and make sure qualified leads receive immediate attention by the sales team. Gain Customer Referrals Referrals are one of the most powerful forms of marketing and frequently the least expensive. While many good sales professionals ask their customers for referrals, the best referrals aren't the ones you ask for; they're the ones that happen in absence of a request. Customer referrals are earned by delivering products and services that exceed your customer's expectations and that are delivered in a way that not only meets their needs, but anticipates their needs as well. Effective Relationship Marketing : Part 2 of 3 8

Marketing Tactics: A Plan for Growing Customer Value Growth Tactics 1. Welcome Campaign 2. Recent Purchase Survey 3. Newsletters 4. Customer Satisfaction Survey 5. Cross-sell/Up-sell Promotions 6. Relational Campaigns With growing competition and an increasing cost of customer acquisition, it's critical for today's businesses to maximize the power of their existing customer base and to work at longer customer retention. A small decline in customer attrition can have a large impact on profitability and business growth. There are six critical marketing tactics to consider in growing the value of your customer base. Welcome Campaign Triggered after or at the same time as an initial purchase, welcome campaigns can serve many functions including thanking customers for their purchase, reinforcing the value proposition, reducing buyers remorse, encouraging adoption, providing contact information for customer service, delivering training or resource tools, requesting warranty registration, providing reorder instructions, or even serving up cross-sell or up-sell information. Welcome campaigns should illustrate that you are excited about the newly established relationship and that you are committed to their success, not just their pocket-book. Personalize the welcome campaign to demonstrate that you understand your customer's needs at an individual level. Recent Purchase Survey A Recent Purchase Survey sometimes called a Deployment or Implementation Survey can provide valuable feedback about the sales process and the customer's initial experience with the product or service. Delivered shortly after the purchase (timeframe depending on the product or service), the survey can also help in gauging the customer's adoption or usage of the product or service in order to identify early indicators that intervention may be necessary for long-term retention. Periodic Newsletters Newsletters can help to reinforce your position as a trusted advisor, and allow you to contact customers in a non-intrusive manner. They can take the form of a short communication that simply includes the tip-of-the-week, or they can be a series of more lengthy, in-depth articles sent monthly. To increase interest in the newsletter, make it interactive with short surveys or polls. This also lets you learn more about your prospects by turning what is traditionally a one-way communication into a twoway communication tool. Effective Relationship Marketing : Part 2 of 3 9

Customer Satisfaction Survey Customer satisfaction surveys not only provide a litmus test for organizations to determine if they are on the right track, they identify criteria that can be used to drive business improvements. The surveys should measure customers' perceptions of the organization's critical success factors or key business drivers. Some success factors might include courtesy of staff, understanding of customers' problems, responsiveness, breadth of product features, and overall product or service value. Each success factor should be benchmarked and the benchmarks should then be a focus for continued improvement. Remember that customer satisfaction is a measure of a customer's perception at a point in time and doesn't equate to loyalty. And don't forget to factor in lost customers or inactive customers when gauging customer satisfaction or you might be missing some of the critical customer satisfaction concerns that are impacting your business the most. Cross-sell/Up-sell Promotions Although most marketers know that it costs less to up-sell or cross-sell to an existing client than to acquire a new one, and that the more a customer buys from an organization, the less likely they will switch, many marketers forget to put cross-sell, up-sell promotions into their marketing plan. Encouraging customers to spend more can have a dramatic impact on your revenues, and can demonstrate that you are interested in them and that you understand their needs. Avoid blanket cross-sell, upsell by segmenting customers by like-attributes such as products owned, and then personalizing the message based on information you know about the customers and customers like them. Relational Campaigns Adding occasional "feel good" or "thank you for your business" type communications into your marketing plan can help drive good will and demonstrate that you appreciate the relationships you have with your customers. To provide an even greater sense of appreciation, include a reward based on their customer value to your business offering bigger rewards to higher value customers than lower value customers. Effective Relationship Marketing : Part 2 of 3 10

Marketing Scorecard: Measuring Your Results Key Customer Marketing Metrics 1. Number of Customer Adds Per Month 2. Percentage of Customers Actively Purchasing 3. Customer Satisfaction 4. Existing Customer Revenue 5. Average Customer Lifetime Value A scorecard can be very useful in monitoring the effectiveness of your customer marketing. While every organization might choose to include specific metrics depending on their business, here are five worthwhile customer metrics to consider: Number of New Customers Added Per Month Growing the customer base is critical to gaining market share and growing most businesses. Businesses can use the number of new customers added per month as one indicator of business growth. However, just because you are adding new customers, doesn't mean that your customer base itself is growing. New customers added, should be reported along side the number of customers lost. Percentage of Customers Actively Purchasing Customer count alone doesn't tell you a lot. But, measuring how many customers are actively buying can highlight many opportunities that you may be missing. Once you've determined an average or reasonable timeframe for repeat purchasing, identify what percentage of customers has purchased within that time period, and which have not. Work to increase the percentage of customers actively purchasing by understanding why customers have stopped buying or have delayed additional purchases. Customer Satisfaction Overall customer satisfaction scores as well as a breakout of the critical success factors should also be included on your customer scorecard. To identify both positive and negative trends, benchmark and compare scores over time, and then use the information to drive improvements throughout the organization. Existing Customer Revenue If you aren't sure how much revenue is coming from your existing customer base compared to new customer sales, you might be surprised. While you don't want the number of new customer sales to drop in exchange for existing customer sales, once you've measured your existing customer revenue you'll likely follow a natural progression toward identifying how to grow that revenue stream. Average Customer Lifetime Value The average lifetime value of a customer can be defined as the amount of sales revenue the average customer contributes over the life of the relationship, minus the cost of acquiring and retaining that customer. Ranging from very simple to highly complicated, there are a variety of formulas available for determining average customer lifetime value. By including this metric on your scorecard, you can monitor the value of your most critical asset your customers and make better decisions about the cost to acquire and retain them. Effective Relationship Marketing : Part 2 of 3 11

Enterprise Marketing Management: The Role of EMM in Your Business Many of today's forward-looking organizations are finding Enterprise Marketing Management (EMM) solutions to be indispensable tools for putting the concepts outlined above into practice. EMM software solutions are designed to enable more effective and efficient marketing by automating such marketing activities as data management and analytics, creative development and file sharing, and operational execution. NURTURE Prospects GROW Customer Value RETAIN Customers Because EMM solutions are designed from the marketers perspective, they are designed to enable marketers to nurture prospects to generate more qualified leads, grow customers to generate more profitable relationships and win-back or retain Brand Consistency Integrated Personalization customers who may have become inactive or were considering an competitor's solution. In addition, a comprehensive EMM solution will address the business challenges that marketers face every day in their marketing execution including: Interactive Accountability Security Creating Brand Consistency While demands on marketing teams increase, centralized marketing resources within Compliance Value companies are decreasing. EMM systems help ensure brand consistency by allowing marketing teams to manage and control marketing assets centrally, while offering others throughout the company the ability to access those assets for easy execution. Building an Integrated Approach Integration of data as well as integration in marketing strategy is important to keeping a 360º view of the customer and building synergies across marketing tactics. EMM systems are designed to pull all of your individual marketing tactics together and tie them into a single approach irrespective of communication medium. As well, by connecting them to your CRM system, you can ensure your marketing execution is tied closely to your sales and service view of the customer. Delivering Personalized Communication Collecting customer data is fairly easy. Using customer data in order to deliver highly relevant and personalized communications is more challenging. EMM systems can help marketers execute highly personalized communications based on customer needs and attributes at an individual level. Effective Relationship Marketing : Part 2 of 3 12

Leveraging Interactive Tools Interactive mediums provide marketers the ability to create efficiencies as well as twoway communication channels not possible with traditional mediums. EMM systems are designed to help maximize those efficiencies by providing tools for easily managing email marketing, websites, electronic surveys, microsites and more. Demonstrating Accountability With challenging economic conditions and flat to only slightly increasing marketing budgets, marketing professionals are being asked to justify their marketing budgets and being held accountable by top executives for results. EMM solutions can help marketers access quantifiable results in order to better understand the return on marketing investments (ROMI). Ensuring Security No matter what your industry is today, customers have a zero tolerance for security breaches of their customer information. EMM systems can not only help you build strong privacy practices, but can also help to protect your customer data through the use of the latest security technology. Complying with Regulation In recent years, marketing regulation has become something a marketer can't avoid. Marketers are forced to comply with state and federal regulations relating to email marketing (CAN SPAM Act), privacy policies (California Online Privacy Policy Protection Act), and fax transmissions (Telephone Consumer Protection Act) just to name a few. Many EMM solutions are designed to help reduce your business risk through the automation of processes such as guaranteed opt-outs and built-in compliance measures. Creating Customer Value In today's competitive environment, competing on price and product features alone can be dangerous. Therefore you need to build a relationship that gives you a competitive advantage in serving your customers needs. By using an EMM system to manage your marketing activities, you can demonstrate an understanding of your customers needs and create a relationship that has greater value than your products or services alone provide. Effective Relationship Marketing : Part 2 of 3 13

imarketing Automation, an Integrated Solution Execution in 10 Easy Steps 1. Build Your Database 2. Segment Your List 3. Design Your Communication 4. Build Your Microsite 5. Include a Survey 6. Schedule & Send Your Campaign 7. Follow-up on Leads 8. Nurture Prospects 9. Analyze Campaign Results 10. Repeat the Process imarketing Automation an EMM solution developed by Vtrenz can help your organization centralize control over the entire marketing process. With imarketing Automation, your organization can benefit from reduced marketing and customeracquisition costs, increased revenue per customer and improved customer retention. imarketing Automation makes executing Relationship Marketing quick and easy: 1. Build Your Database Databases are already set up with standard fields. You simply need to create custom fields specific to your business and import the data you currently store in your accounting, CRM, Microsoft Excel or other solution. 2. Segment Your List imarketing Automation allows you to narrowly target campaigns and communications based on criteria you define. Build static lists or dynamic lists depending on your marketing needs. 3. Design Your Communication Upload your marketing assets including graphics, documents or rich media files for easy access and brand consistency. Then build your own templates and campaigns in imarketing Automation with an easy-to-use content editor. 4. Build Your Microsite To ensure customers are guided through the campaign process and content is served up specific to the campaign, microsites including pre-populated response forms can be built and published online. 5. Include a Survey Gather additional information about those who respond and qualify them by incorporating surveys into your campaigns. Include them directly in an email, or add them to a microsite for leads coming from search engines or direct mail campaigns. 6. Schedule and Send Your Campaign You don't even have to be in the office to get a campaign out the door. Your campaign tactics as well as your actual communication drop can be executed using the calendar planning features of imarketing Automation. 7. Follow-Up on Leads Although imarketing Automation helps you drive more qualified leads, you still need to close the loop with your sales team. Leads can be dynamically routed via email alerts directly from the response form to your sales team for follow-up and integrated into your CRM or contact management system. 8. Nurture Prospects Not Ready and Close Sales for Those That Are Some prospects will be ready to buy quickly, while others have a longer sales cycle. imarketing Automation helps you stay in contact with contacts at all stages of the buying cycle and can be used to increase retention and satisfaction of customers once they buy. 9. Analyze Campaign Results Understanding your results is key to justifying future marketing expenses. imarketing Automation takes the manual work out of compiling campaign statistics. Review your results and then implement changes based on analysis in your next campaign. 10. Repeat the Process By repeating this process over and over using imarketing Automation, you can ensure that you are maximizing your marketing results by driving more qualified leads, developing more profits from your existing customers, and reengaging customers that have become inactive. Effective Relationship Marketing : Part 2 of 3 14

Score Customer Marketing Audit Review this checklist to see how well your organization is applying the Relationship Marketing principles outlined in this document. A "No" answer to one or more of the questions below may indicate that you're missing out on vital opportunities to nurture prospects to a purchase and increase sales through effective relationship marketing. 1. Do you currently balance prospect marketing activities with existing customer marketing activities? YES NO 2. Do you have marketing initiatives in place to move customers to advocates? YES NO 3. Do the customer marketing activities you are currently doing address the nine principles of customer marketing? YES NO 4. Does your marketing plan include a welcome campaign for new customers? YES NO 5. Does your company currently execute a customer satisfaction survey on a regular basis and use that customer satisfaction survey to drive organizational improvements? YES NO 6. Are you sending out a newsletter to your customers at least once a quarter? YES NO 7. Are you executing cross-sell, up-sell promotions that are segmented based on customer attributes such as the products owned and personalized based on customer information? YES NO 8. Do you currently have a customer scorecard for measuring and tracking key performance indicators? YES NO 9. Are you maximizing your marketing efficiency using a single marketing management solution? YES NO 10. Have you evaluated how imarketing Automation can help you reduce marketing and customer acquisition costs, increase revenue per customer and improve customer retention? YES NO Effective Relationship Marketing : Part 2 of 3 15

Vtrenz Company Overview Vtrenz is a marketing application solutions provider (ASP) focused on helping companies manage their relationship marketing process. Utilizing a talented team of designers, internet specialists, programmers, project managers and marketing strategists, Vtrenz helps clients develop and implement innovative marketing programs utilizing technology solutions. Our creativity and marketing knowledge, coupled with our technical expertise, allows us to provide leading-edge marketing solutions including websites, e-commerce, and marketing automation. Vtrenz is the developer of imarketing Automation, an Enterprise Marketing Management solution that allows businesses to execute relationship-marketing strategies by easily building marketing assets, executing marketing plans and continuously measuring and improving results. To learn more about our Relationship Marketing Methodology and Enterprise Marketing Management Solution, imarketing Automation, visit our website at www.vtrenz.com, email marketing@vtrenz.com or call us toll free at 877-484-7704. 2004 Vtrenz, Inc. All rights reserved. Effective Relationship Marketing : Part 2 of 3 16