EBP 3073: DIGITAL MARKETING

LU 6: RELATIONSHIP MARKETING USING DIGITAL

PLATFORMS

Learning objectives
Assess the relevance and alternative approaches for

using digital platforms for customer relationship

management
Evaluate the potential of the Internet to support oneto-one marketing, and the range of techniques and
systems available to support dialogue with the
customer through digital media
Assess how to integrate social and mobile interactions
to develop social CRM capabilities

Questions for marketers

How can the digital platforms be used to increase the

value of customers through the customer lifecycle?

How do I implement permission marketing with
multiple mobile, social and messaging applications?
How can I apply personalisation and mass
customisation cost effectively in my marketing and
how should I apply them in my marketing?

Zappos core values put the customer at the heart of the business
(www.zappos.com)
Figure 6.1

E-CRM
Using digital communications technologies to

maximise sales to existing customers and encourage

continued usage of online services through techniques
including database, personalised web messages,
customer services, email and social media marketing

E-CRM
Include
Using website and online social presence for customer development from

generating leads through to conversion to an online or offline sale using

email & web based content to encourage purchase
Managing customer profile information and email list quality
Managing customer contact options through mobile, email and social
networks to support up sell and cross-sell
Data mining to improve targeting
Providing mass customization / online personalisation facilities to
automatically recommend the next-based product
Providing online customer service facilities (e.g. FAQs, call back and chat
support)
Managing online service quality to ensure that first time buyers have a
great customer experience that encourages them to buy again
Managing the multichannel customer experience as they use different
media as part of the buying process and customer lifecycle

Social CRM
The process of managing customer-to-customer

conversations to engage existing customers, prospects

and other stakeholders with a brand and so enhance
customer-relationship management
Newly develop as one of the marketing approach
The scope as in Figure 6.2

Figure 6.2

The scope of Social CRM across business functions.

Source: Altimeter (2010)

The Challenge of Customer Engagement

Customer engagement long term ability of a brand to

gain customers attention on an ongoing basis whether

the engagement could occur either:
on site,
in third party social networks,
in email, or
traditional direct communication

Commercial aim to maximise customer value

through using customer interactions to lead to more

profitable relationships

The Challenge of Customer Engagement

Four (4) parts of engagement which can be measured

online & offline (Forrester 2007)

Involvement- website visits, time spent, pages viewed;
2. Interactions comments on blogs, frequency of
written reviews and online comments, comments
expressed in customer service;
3. Intimacy tracking on 3rd party sites including blogs
and reviews, as well as opinions expressed in customer
service calls;
4. Influence indicated by measures as likehood to
recommend, brand affinity, content forwarded to
friends, etc.,
1.

Benefits of using E-CRM to Support

Customer Engagement
Targeting more cost-effectively
Mass customisation of the marketing messages
Increase depth and breadth of information and improve
the nature of relationship through content marketing
4. Deeper customer understanding and more relevant
communications can be delivered through a sense and
respond approach
1.
2.
3.

5.

E.g. tools summarise products purchased online and the

searching behaviuor that occurred before these products we
bought (i.e. online feedback forms, questions asked online,
free information request, etc.,)

Lower Cost email vs. snail mail communication

Benefits of using E-CRM to Support

Customer Engagement
6.

Delivering loyalty programmes. Tesco, airlines and hotel chain often used
E-CRM for the purpose:
Initial bonus points for sign-up to online services or initial registration
Points for customer development or extension more points awarded to
encourage second or third online purchase
Additional points to encourage reactivation of online services

a.
b.
c.

7.

8.

Popular products are offered for a relatively low number of points to

encourage repeat purchase
Opportunity for gamification
Gamification involve applying game-based thinking to a brand, business or
organisation to engage and develop loyalty - simulates the human brain
Key concepts of gamifications

o
o
o
o

Creative and concept to engage

Game mechanics to encourage play ( points, badges, level, interaction)
Game dynamics can be altered to reward and even penalise
Game currencies to provide the motivation can be financial, status, need for doing
good, pleasure and influence

Figure 6.3

Chiquita Rio film campaign applies gamification

Source: http://www.bunchball.com/chiquita

Differences between relational and

transactional marketing
Transactional paradigm Relational paradigm
Market segment
Transaction duration

Individual customer
Lifetime

Margin
Market share

Lifetime value
Most valued customers and
customer share

Mass market broadcast

Dialogue and tailored

communications
Empowered clients

Passive consumers

Marketing applications of CRM

1.
2.

3.
4.
5.

Sales force automation

Customer service management
Managing the sales process
Customer communications management
Analysis

CRM technologies & data

Database technologies is the heart of delivering CRM applications
Accessible through intranet website or extranet providing an

interface onto the entire CRM system

Three (3) main types of customer data in customer database:
1.

2.

3.

Personal and profile data

Contact details
Preferences
Transaction data
Sales history
Communications data
Campaign history
Research / Feedback / Support queries
Contact reports (B2B)

Customer Life Cycle Management

Customer lifecycle- the stages each customer will pass

through in a long term relationship through acquisition,

retention and extension Figure 6.4
Customer selection identifying key customers segments

and targeting them for relationship building

Customer acquisition strategies and techniques used to
gain new customers
Customer retention techniques to maintain relationships
with existing customers
Customer extension techniques to encourage customers
to increase their involvement with an organistaion

The four classic marketing activities of customer relationship

management
Figure 6.4

Customer Life Cycle Management

Customer extension technique that are particularly important to

online retailers:
Re-sell- selling similar products to existing customers
particularly important in B2B contexts as rebuys or modified
rebuys
Cross-sell selling additional products which may be closely
related to the original purchase, but not necessarily
Up-sell a subset of cross selling , but in this case selling more
expensive products
Reactivationcustomers who have not purchased for some
time, or have lapsed can be encouraged to purchase again
Referrals generating sales from recommendations from
existing customers e.g. Member-get-member deals

Customer Retention

Customer Extension

Involve keeping the most

Developing customers to try a

valuable customers by
selecting relevant customers
for retention, understanding
their loyalty factors that keep
them buying and then
developing strategies that
encourage loyalty and cement
the relationship

broader range of products to

convert the most grow able
customers into the most
valuable customers

5Is to achieve the goals (Peppers & Rogers,

1997)
1. Identification can the customer be recognised for

2.
3.

4.
5.

different channel contacts?

Individualisation can communications and
products be tailored?
Interaction are communications two-way?
Integration is there a 360 degree view of the
customer through all parts of the company?
Integrity is the relationship built on trust?

Permission marketing (Godin, 1999)

Permission marketing customers agree (opt-in) to be
involved in an organisations marketing activities,
usually as a result of an incentive
Key concepts
Not interruption marketing
Not SPAM
Requires opt-in (online to e-mail)
Opt-out
Learning about the customer
Initial and continued relationship is based on
incentives

A summary of an effective process of permission-based online relationship

building
Figure 6.5

Permission marketing
Stages in permission based online relationship

building to support engagement through the

different stages of customer life cycle
Stage 1: Attract new customers to online presence

Stage 2a: Incentive Visitors to action e.g. lead generation

offers and sales generation offers

Stage 2b: Capture customer information to maintain
relationship. Important factors to customers include
through opt-in customer profiling form - Figure 6.6:
branding, privacy, KISS, WIFM, validation, etc., & Figure 6.7
review all possible methods in capturing e-mail address and
other profile information
To Improve
Stage 3: Maintain dialogue using online communication Customer
Information
Stage 4: Maintain dialogue using offline communication Quality

Opt-in
customer profiling
form
Figure 6.6

Matrix of customer touch points for collecting and updating customer

e-mail contact and other profile information
Figure 6.7

Permission Marketing & Online Social

Network
With the advent of social media marketing,
permission marketing concepts has been applied to

social networks
Opt-in involve liking a brand on Facebook or following

company Twitter, LinkedIn or Google+

Mini Case study 6.3

Figure 6.8

Princess Cruises campaign Facebook Page

Right Touching
Manage & control communication
Contact strategy :
Frequency e.g. minimum once per quarter , max once per

month
Interval e.g. there must be a gap of at least one week or one
month between communication
Content and offers limit or achieve certain number of prize
draws or information-led offers
Links between online communications and offline
communications
A control strategy a mechanism to make sure these
guidelines are adhered to, e..g. using single focal point for
checking all communications before creation dispatch

The extent to which different types of segmentation variables tend to

be predictive of response
Figure 6.9

Profiling Customers
Personalisation involves delivering customised
content for the individual, through web pages, -mail
or push technology
Mass customisation the creation of tailored
marketing messages or products for individual
customers or groups of customers typically using
technology to retain the economies of scale and the
capacity of mass marketing or production
Collaborative filtering profiling of customer
interest coupled with delivery of specific information
and offers, often based on the interests of similar
customers

Figure 6.10

Internet

Options for mass customisation and personalisation using the

Options Of Personalisation & Mass

Customisation
A. Little information is available & not integrated
with website

No mass customisation

B. Limited tailoring to group of customers

Necessary to have basic profiling information e.g. age,

gender, social group, product category interest or role of
buying unit (B2B)
The information must be contained in a database system
that is directly linked to the system used to display
website content

C. More detailed information about specific interest

e.g. from a purchase history

Figure 6.11

Factors affecting customer satisfaction and loyalty

Customer Loyalty & Value

Customer Loyalty: the desire on the part of the customer to

continue to do business with a given supplier over time

(Sargeant & West, 2001)
Emotional Loyalty: loyalty to brand demonstrated by
favourable perceptions, opinions and recommendations
ii. Behavioural Loyalty: loyalty to brand demonstrated by
repeat sales and response to marketing campaigns.
i.

Figure 6.12 behavioural measures which show how customers

interact with brands online are often recorded through web

analytics systems

Car manufacturer use loyalty-based segmentation:

Current situation
Repurchase loyalty
Current value
Future potential

Figure 6.12

Alternative methods for reviewing customer feedback.

Source: Foresee Results (2011), Annual Ebusiness Report, published 19 July 2011, edited by Larry Freed.

Measuring Online Voice (VoC)

Onlive Voice of Customer: Qualitative asessments of the

effectiveness of digital presence based on direct customer

feedback
They answer who and why questions about how customers

interact with brands online

Net Promoter Score (NPS): a key VoC measure (Reichheld,

2006). Specific approaches to help manage NPS online:

Facilitating Online advocacy;
2. Managing Online detractors
Charles Tyrwhitt, a shirt retailer, an example of a company
that seek feedbacks from customers and makes this
feedback available to all customers (Figure 6.13)
1.

Independent feedback for Charles Tyrwhitt (www.ctshirts.co.uk),

a shirts retailer
Figure 6.13

Figure 6.14

Activity segmentation of a site requiring registration

Differentiating Customers by Value &

Engagement
A key part of CRM strategy is to define measures that
indicate activity levels and then develop tactics to
increase activity levels through more frequent use
Objective and corresponding tactics can be set for:
Increasing number of new users per month and

annually through online services to drive visitors to

the website;
Increasing the percentage of active users;
Decreasing the percentage of dormant users;
Decreasing the percentage of inactive users.

Retention Metric (Agrawal et al., 2001)

The main retention metric that influence profitability:
Repeat-customer base - the proportion of the
customer base that has made repeat purchase
Number of transactions per repeat customer

indicate the stage of development of the customer in

the relationship
Revenue per transactions of repeat customers a
proxy for lifetime value since it gives average dollar
value

Figure 6.15

Categorising customers according to value

Differentiating Customers by Value &

Engagement
Three groups of customers with corresponding
communication strategy (Peppers & Rogers, 2002-

Figure 6.15)
i. Most-Valuable Customers (MVCs) contribute most

profit
ii. Most-growable customers (MGCs) potential to
become MVCs
iii. Below-Zero customers (BZCs)- unprofitable customers

Lifetime Value Modelling

Lifetime Value (LTV) the
total net benefit that a
customer or group of

customer will provide a

company over their total
relationship with a company
A key theory and practice of

CRM
Calculation of LTV is not straight
forward
Different degrees of LTV
calculation sophisticationFigure 6.16

Different representations of
lifetime value calculation

Figure 6.16

Lifetime Value Modelling

LTV analysis enables marketers to:
Plan and measure investment in customer acquisition

programmes;
Identify and compare critical target segments;
Measure the effectiveness of alternative customer retention
strategies
Establish the true value of companys customer base;
Make decision about products and offers;
Make decisions about the value of introducing new E-CRM
technologies

Figure 6.17

An example of an LTV-based segmentation plan

Lifetime Value Modelling

Figure 6.17- examples of how LTV can be used to
develop a CRM strategy for different customer groups

Based on current and future value bronze, silver, gold,

platinum
Distinct customer group (circle) are identified according to
their current value (indicated by current value) and future
value as indicated by LTV calculations
Each of the groups will have customer profile used for
customer selection
Different strategies developed for different customer
groups

Lifetime Value Modelling

Group

Development

Profitability

A&B
(Bronze)

Do not have
development potential

Unprofitable

Reduce communication costs

C (Bronze)

potential growth

Potential
profitable

Extend their potential

Silver

High growth potential profitable

Customer extension offer

Gold

Little growth
potential

profitable

Extend where possible offer,

communication

Very
profitable

Understand communication
preferences do not over
communicate

Platinum

Strategy / Aim

Lifetime Value Modelling

Kumar et al., (2007) - Capability of a customer to generate value

is divided into:
Lifetime value of purchase (CLV) and
Customer referral value (CRV)

matrix plotting:

average CLV after one year

Not a clear correlation between CLV & CRV

Four groupings of customer presented in a customer value
Affluent

Champions

29% of customers
CLV= $1219
CRV = $49

21% of customers
CLV= $371
CRV = $590

Misers

Advocates

21% of customers
CLV= $130
CRV = $64

29% of customers
CLV= $180
CRV = $670

average CRV at one year

Recency Frequency Monetory Value

(RFM)Analysis
Refer to Mini Case Study 6.6
RFM Analysis Concept:
Frequency: no# of time an action is completed in a period of a customer

action, e.g. purchase, visit, e-mail response;

Online application analysis: combining with recency for RF targeting
Recency: recency of a customer action, e.g. purchase, visit, e-mail
response, account access
Online application analysis: monitoring through time to identify
vulnerable customers, and scoring customers to preferentially target
more responsive customer for cost savings
Monetary Value: The monetary value of purchase(s) can be measuref in
different ways, e.g. average order value of 50, total annual purchase
value of 5000;

Customer with higher monetary values tend to have a higher loyalty and
potential future value since they have purchased more items historically

Recency Frequency Monetory Value

(RFM)Analysis
Other related Analysis Concept:
Latency: average length of time that different customers types takes

between different activities e.g. log-ins, paying bills, first and second
purchase,

Powerful concept, closely related to frequency

Email, phone calls or direct mail could be used to target this person with relevant
offers according to what they were searching for

Hurdle Rate: percentage of customers in a group (segment or list)who

have completed an action

Useful concept to compare the engagement of different groups or to set targets

to increase engagement with online channels, e.g.

20% of customers have visited in the past 6 months

5% of customers have made three or more purchase this year
60% of registrants have logged on to system this year
30% have clicked through an email this year

Grouping Customers into Different RFM

Two (2)techniques for grouping customers:
1. Statistical RFM Analysis

Placing an equal number in each RFM category using quintiles of 20%

Figure 6.18

One application of RFM with a view to using communication channels more

effectively:

Lower cost communication to correspond with customers who services more

frequently
More expensive offline communication can be used for customers who seem to
prefer traditional channel

RFM
analysis

Figure 6.18

Grouping Customers into Different RFM

Two (2)techniques for grouping customers:
2. Arbitary Divisions of customer database

marketers can set threshold of value relevant to their understanding

of their customers

E.g. RFM analysis can be applied for targeting using e-mail according
to how a customer interacts with an e-commerce site. Values can be
assigned

Figure 6.19
Recency:
1- Over 12 months
2- Within last 12 month
3- Within last 6 months
4-Within last 3 months
5- Within last 1 months

Frequency:
1- More than every 6 months
2- Every 6 month
3- Every 3 months
4- Every 2 months
5- Monthly

Monetary Value:
1- Less than 10
2- 10 - 50
3- 50 - 100
4- 100 - 200
5- More than 200

Figure 6.19

Example of RF analysis

Source: Patron (2004). Reprinted permission of Macmillan Publishers Ltd: Interactive Marketing, Mark Patron, Case Study: Applying RFM Segmentation to the SilverMinds
Catalogue, vol. 5, issue 3, 9 January, 2004, published by Palgrave Macmillan. (The new name of this journal is Journal of Direct Data and Digital Marketing Practice.)

Virtual Communities and Social Networks

for CRM
Virtual community- an internet based forum for special- interest groups to

communicate
Provide opportunities for companies to develop relationships with
customers
Power of virtual communities predicted by Hagel (1997) now a reality
Create community through
1.
2.

Social networks social media platform (through other sites),

e.g. Facebook, Twitter, LinkedIn, Google+, Youtube
Creating own presence provide community facilities on own site (owned
media), depending upon types of community:

Purpose people who are going through the same process or trying to
achieve a particular objective e.g. autotrader.co.uk, www.bizrate.co.uk;

Position people who are in a certain circumstances, e.g. teenage chat site
Habbo Hotel (www.habbohtel.com), MumsNet (www.mumsnet.com);

Interest people who share interest pr passion e.g. sport

(www.thefottballforum.net), music (www.pepsi.com) or leisure
(www.ukclimbing.com);

Profession important for companies promoting B2B services

CIPD forums a forum operated by a company to keep closer to

its customers
Figure 6.20