Ecommerce is relatively young, but it’s maturing fast. Increasingly there are few businesses that don’t / can’t exploit the online channel as a route to market.
Many have used online marketing to great effect, and there are plenty with experience and success in areas such as email marketing, SEO, paid search and affiliate marketing.
Of course, the great thing about these methods is that they can be measured and spend can be justified with the success that it brings. However, all too often these channels are viewed in isolation and success is sometimes simply measured by the number of transactions that can be directly attributed to the relevant email, affiliate or search campaign.
It’s clear to me however that to measure success, online marketing investments must be viewed in their context of the overall marketing strategy.
Getting back to basics - what is marketing?
Marketing is concerned with creating value for customers and extracting value from customers.
Long term value creation is based on sustainable competitive advantage, which is derived from the ability to provide superior value for customers and provides the reason why customers consistently buy from one company rather than another.
In ecommerce the value we can provide for customers is based on a number of different factors, including, but not limited to...
- Price
- Choice
- Filter and choice selection tools
- Ease of purchase and payment
- Brand reassurance (if the site is well known)
- Personalisation
- Reviews / advice from other customers
- Delivery and shipping
- Customer service
When we spend money on marketing activity to communicate our proposition to our customers and our potential customers, we are doing three things...
- Bring new customers (acquisition)
- Generate repeat purchases from existing customers (retention)
- Generate more revenue per customer (development)
Given the above I think it really helps to understand WHY you are investing in SEO / PPC / Affiliates / Email etc. A good starting point is to think about customer value and then think about how much a customer is worth to you over their lifetime.
I’ve been a customer at Amazon.co.uk for about 10 years now. I may well be a customer there for another 30 years if they don’t screw up. Clearly, whatever activity they did 10 years ago to get me on board worked, but importantly, it must be measured not against my initial purchase but on the total lifetime customer value.
Over 10 years, I have purchased 190 items. I just checked, on my account history, it’s all there! Plus I rented DVDs on a subscription for 3 years. I am probably worth to Amazon about £4,000 over the 10 year period. PLUS – being a fan I’ve recommended many people over the years.
My first order was Steve Redgrave’s book of rowing, £16. Great book. I don’t know how much Amazon had to spend to acquire me as a customer, but I know for sure that if they had measured their marketing investment on my first purchase only, they would have got it completely wrong.
How to calculate a lifetime customer ROI...
CUSTOMER VALUE
[Price] x [Annual Volume] x [Customer Years]
+ Referral Value
+ Promotional Value
= Total Customer Lifetime Value
VALUE CREATION COSTS
(Cost of Acquisition)
+ (Cost of Retention)
+ (Cost of Development)
+ (Special Requirements)
+ (Marketing Overhead)
= Total Value Creation Costs
TOTAL VALUE = (CUSTOMER VALUE - VALUE CREATION COSTS)
On a really simple level, to gain a sustainable competitive advantage any business needs to provide
- the best customer value (however the customer judges value)
- and the best return on marketing investment over the full customer lifecycle
To help put this into perspective, I find the following model useful.
It shows the key stages in “owning” a customer and for each stage; specific promotional goals are required to achieve the customer response. For a company to be truly successful they need to draw potential customers through all stages.
These stages are the steps by which customers receive and use information in reaching decisions about what actions they will take. From not knowing about your product/service to recommending it to others, there are 7 steps to heaven.
The highest marketing costs are usually for the first stages, on the left. The biggest returns come from the stages on the right.
Now to the crux of what this article addresses...
Where do all of the “online marketing” methods fit on the model above? By understanding this, you have a framework to better present your marketing spend in its proper context.
Awareness: Does the customer know that the product/service exists?
- Online PR, social media marketing
- Finding a link to the product when doing a Google search on a relevant keyword (PPC / SEO)
- Finding the site on a search from their mobile phone
- Clicking on a banner advertisement
- Seeing a reference from a known company (contra deals / competitions)
Interest: Does the customer think that product might meet their needs?
- If the customer does not know what they are looking for: inspiration is needed, ideas and suggestions
- Special offers can drive interest for price-sensitive customers
- SEO/PPC must match on specific keywords used and tailor the ad copy to that interest
Evaluation: Does the customer have enough information to make a decision?
- Build great content. Photos, maps, specifications, availability
- Peer reviews and expert reviews, the community can provide the content
- Provide booking services that allow customers to compare and contrast options. Search and filter tools are needed to narrow down choices
- Create a shortlist, share with friends (collaborative decision making)
Preference: Does the customer choose your product to purchase?
- If the customer already knows that they want a specific product and they search by product name, be sure your PPC / SEO / affiliates takes them directly to the product
- Have the product in stock
- Ease of purchase (payment methods)
1st purchase: Can the customer make a purchase easily?
- Always available, real time, 24/7
- On all places where the customer might be (as many websites as possible – affiliates, plus own website)
- SMS / email confirmations. Delivery and shipping instructions.
Repeat purchase: Can you easily communicate with existing customers and maintain a relationship with them?
- Make it easy for your site/product to be found again through search
- Maintain a customer database
- Email marketing
- Segmentation / personalisation of messages
Advocacy: Is the customer so impressed by the service that they tell others and generate even more business?
- Customer satisfaction emails
- Customer reviews
- Guest recognition and personalisation
- Case studies and customer-based PR stories, distribute online
I find that looking at online marketing as part of the overall marketing strategy helps to provide a better understanding of how to calculate a meaningful return-on-investment beyond the immediate gratification offered by same-session conversion metrics.
What’s obvious to me from the above is that not only is online marketing core to the success of an ecommerce business, but that website product management is also clearly a marketing activity. Often there’s confusion about who owns the website functionality. To me it’s clear; it’s part of the overall customer experience, and forms part of the marketing mix.
One important final note; as we are all different as individuals, so are companies and products. There are some products that do not lend themselves to a lifetime customer value view as much as others. Products or services that are bought infrequently need to mainly address customer acquisition, whereas products or services that are bought frequently or repeatedly required much more emphasis on retention and development.
I’d love to hear comments on how the above list could be expanded. If you have any thoughts about what should / shouldn’t sit on the 7 steps to heaven, let me know!
