Exploring Direct &
Customer Relationship
Marketing

Second Edition
Martin Evans, Lisa O'Malley
and Maurice Patterson
ISBN: 1861529015

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comments on this book.

Chapter Overviews

Chapter 1 | Chapter 2 | Chapter 3 | Chapter 4 | Chapter 5 | Chapter 6 | Chapter 7 | Chapter 8 | Chapter 9 | Chapter 10 | Chapter 11 | Chapter 12 | Chapter 13 | Chapter 14

Chapter 1 – The growth and nature of direct relational marketing

• This opening chapter has shown how direct marketing and the relational marketing concept have evolved from a variety of origins and via a number of drivers. Direct marketing has its own origins and applications in distribution and marketing communications.
• Databased marketing saw the rise of computer power and had its impact upon data-driven campaigns. Along the way, we saw how the marketing concept itself recognised the importance of being orientated to relationship building rather than just transactions.
• The ‘service’ dimension is of importance within this, as are lessons transferred from the relational interaction evident in B2B markets. New interactive media have come along to facilitate direct relational marketing.
• Subsequent chapters explore the importance of ‘data’, affective understanding, the sharing of knowledge across function and partners, and media for implementing direct relational marketing. We also explore approaches to the acquisition of new customers, the retention of existing ones and how loyalty can be encouraged. We draw from the behavioural sciences to suggest how organisations can develop relational messages for customers and we set the above issues within the broader contexts of relational planning which itself is within the wider social environment, with all its concerns over data privacy and legislation.
• The first area we explore concerns the data and informational drivers of direct relational marketing: data sources, data metrics, testing and research and technological targeting.

• This chapter has explored a range of data sources for the interactive relational marketer. These include data on the organisation’s own customers in the form of their transactional behaviour and other profile characteristics. We will see in the next chapter that this is very useful for identifying those customers who are worth most to the organisation.
• Then there is a range of additional profiling data from outside of the organisation. The availability of Census-derived geodemographic systems was a major catalyst in the UK. The 1981 Census was the first to be commercially available and perhaps can be described as a quantum leap from the profiling of (anonymised) samples of around 1000 that were
• profiled on the basis of age, gender and social grade, to a database of all UK households that enables profiling of 60 or more variables.
• This began an industry of personalised data. The next development was the lifestyle survey which is far removed from a more traditional (anonymised) form of lifestyle research that we explore in Chapter 6 because the version described in the current chapter requires respondents’ names as well as personal details and interests, in order to compile lists.
• Our coverage moved on to a number of other data sources, including that derived from various syndicated consortia, such as from panels that record direct mailings and form consortia that share marketing data. We introduced a number of ethical questions that could be asked concerning the collection of very personal data.
• Having explored data sources, we now turn to what can be done with all this data. The database is the tool and the next chapter is concerned with data mining and analysis.

• Technological change is facilitating database development and, as we discussed in Chapter 1, there is demand for a more individualised marketing approach. The database provides a vehicle for understanding and analysing markets and customers and the merging of data sources explored in Chapter 2 and leads to the development of biographies.
• Databases provide relational marketing with one of its main reasons for claiming to be more measurable and accountable than more traditional forms of marketing. The calculation – and strategic use – of lifetime values and allowable costs are examples.
• There are often questions concerning the accuracy of data held on marketing databases, so although this chapter has explored a range of methods of fusing and mining data and indeed cleaning it and keeping it up to date, in practice these are not always implemented. Abbott et al. (2001), for example, have researched this area and found that clean and accurate data are key to successful segmentation and targeting of markets.
• Segmentation and targeting strategies are the theme of Chapter 6, but we turn next to more metrics, involved with procedures needed to ‘test’ different targeting approaches. This is then followed by Chapter 5, which explores the value of traditional market research to add further insight to what can be gleaned from these tests.
• It is interesting, though, to remember a prediction from Shubik (1967): ‘the computer and modern data processing provide the refinement – the means to treat individuals as individuals rather than parts of a large aggregate . . . the treatment of an individual as an individual will not be an unmixed blessing. Problems concerning the protection of privacy will be large.’ This is not a misprint – it was 1967.

• It is clear that the large datasets that are now available to marketers mean that statistically rigorous tests of different approaches can be conducted and this chapter has explored some of the statistical and testing methodology involved.
• One issue, however, is that as marketing moves more and more towards direct and data-based approaches there is a real danger that more affective research will be displaced by experimentation. This in turn relies on behavioural response rather than attitudinal measures.
• Much database data, such as transactional and profiling data, provides valuable information on who is buying what, when, how and where, but it is market research that can get beneath the surface even further and discover reasons ‘why’ behaviour is as it is. The following chapter explores the contribution of more traditional market research.

Chapter 5 - Marketing research for customer insight

• This chapter has provided a framework for designing and implementing marketing research programmes. Both quantitative and qualitative research have been discussed and the authors contend that both have a strong role to play in relational marketing.
• Conventional marketing researchers would be surprised that this statement needs to be made at all, but with the growth of the database in marketing, there are suggestions that that is all that’s needed. However, as we have shown, qualitative research can help marketers to discover how the ‘direct’ approach makes the customer feel (Phillips and Miller 1997).
• At the same time, however, what is clear is that the database has changed marketing research forever. It allows marketers to study actual buying patterns via analysis of transactional data and to evaluate the actual effects of different relational marketing campaigns in terms of response rates. Both camps will move towards each other and learn through a mutual synergy. As Dunn suggests, ‘some purist market researchers are sticking their heads in the sand . . . database marketing isn’t going to go away’ (Dunn and Summers 1995).
• Relational marketing has raised some issues, however, because marketing research has long prided itself on the ethic of not using research to sell products. The database is used to store data about specific individuals and the resulting lists of names and addresses used to target those individuals. This issue has been well addressed by Fletcher and Peters (1996). The Market Research Society itself has redrawn its Code of Conduct and this provides differently for what would be classed as traditional market research and what is clearly database-driven.
• The amalgam of data sources, data mining and research and testing paves the way for the identification of market segments to be targeted in appropriate and relevant ways. This is the theme of the next chapter, in which some additional insight from the behavioural sciences should enhance our understanding of such segments if we are to implement relational interaction with them.

Chapter 6 – Technological targeting

• In this chapter we have discussed a number of important concepts and issues that form the theoretical basis for direct relational marketing. The potential benefits of pursuing an RM strategy by contemporary organisations were discussed.
• Increased loyalty and retention of customers can be effected through the creation of relationships and the strengthening of relational bonds. This also enhances new product development and reduces the opportunity for competitors to encourage switching behaviour.
• Customers enjoy improved interaction experiences as a result of relationship participation. They receive better, perhaps even customised products and services, and they gain from confidence and social benefits as well.
• In attempting to understand commercial relationships in greater detail, attention was paid to identifying relationship success variables and describing their likely impact on those relationships. Here we identified and discussed the role of trust, commitment, mutuality, social bonds, structural bonds, satisfaction, adaptation and attraction.
• Although significant benefits may be derived from successful RM, we cautioned that close, long-term relationships are not always viable or Chapter 7 Relational interaction  desirable with all customers (or from the customer’s perspective, with all organisations). To this end, the transactional–relational continuum highlights that a diverse range of relationships can exist, each with very individual characteristics.
• Furthermore, we explored different types of relationships and articulated the level at which relationships exist. This leads us to explore relationships that extend beyond the organisation–customer level and include alliances and data sharing across organisational functions and across organisations themselves.

Chapter 8 – Knowledge management

• The networked economy has important implications for relational marketing. We are in the era of the networked organisation and one in which relational contact is increasingly moving towards real-time and nonfunction-based interaction. The traditional organisation based on time and function ‘silos’ is moving to a more ‘connected’ model, in real time, and also from organisation-based focus on transactions to greater customer focus via relational interaction (Howard 2000). The interrelationships between various components and trends are shown in Exhibit 8.12 below.
  

• The importance of marketing’s role in managing knowledge, it is suggested, might be ‘pushed closer to being an agent of the customer as opposed to the agent of the firm (Achrol and Kotler 1999). Their model reflects’ ‘layers’ of networks: cross-functional teams, suppliers and other partners, linked via company databases. In this way, the analysis of the preceding chapters is synergised here.
• As Deshpache (1999) highlights, there is a need to take wider perspectives by using cross-cultural and cross-functional teams in order to focus on the ‘customer centricity’ needed for true relational marketing. Indeed, this reinforces Drucker’s (1954) original perspective that ‘marketing is the whole business seen from the customer’s point of view’.

• The future cash flow of a firm is generated by purchases from existing customers and purchases from new customers. ‘Hence, if a firm makes sound investments in acquiring only the right customers and in developing existing customers, it should over time, continually enhance its value’ (Hansotia 1997). This chapter has shown that both acquisition and retention are important for survival, and that marketers who focus only on the former are ignoring exciting opportunities and essential information. . Although the customer battle in the early 2000s may be raging in the area of customer retention, acquisition remains the lifeblood of all organisations. As a result, organisations must develop differentiated strategies to deal with existing customers and new prospects.
• This chapter outlined the basics of the customer acquisition process. It then discussed the importance of retaining customers, and outlined the elements of successful retention strategies. Given the proliferation of customer loyalty programmes within the UK at the present time, the objectives, problems and future direction of such programmes were discussed.
• An important lesson from this chapter is that marketing alone cannot engender loyalty. As Frederick Reichheld said, ‘marketing – acting alone – cannot create sustainable loyalty. Customers remain loyal, not because of promotions and marketing programmes, but because of the value they receive. Value is driven by a full array of features, such as product quality, service, sales support and availability’ (Reichheld 1988). We explored this in Chapters 1 and 7.

• In view of the tremendous success experienced so far by the industry, one would clearly expect growth to continue. The trend is already moving away from direct marketing as a stand-alone tactical element of the promotions mix. ‘Indeed the vision of these media (telephone, mail, door-to-door) as being the “core” media of direct marketing, able to operate on their own and deliver results, is one of the past, rather than the present and the future’ (Henley Centre 1995).
• The move towards direct response has dual benefits: it will facilitate more accurate targeting as a result of requests from consumers, thereby reducing ‘junk’ mailings, and it will allow marketers to move from prospecting to relationship building, an approach will require a totally integrated marketing and communications mix.
• Integrated marketing communications and direct response mechanisms simply that marketers will continue to bear the costs of traditional above-theline approaches (although perhaps at reduced rates due to the choice of off-peak slots). But at the same time we see more personalised media such as the Internet, telephony and mail continuing strong growth.
• Companies will continue to demand further improvements in targeting capabilities, a demand which should continue to be met by technological advances, as we saw in Chapter 6. However, consumers are already exhibiting concerns over how parts of the industry operate. In particular, they are concerned with intrusions of their privacy, sale of their data, and some segments of the population (ABs, over-35s and the grey market) are already experiencing ‘clutter’ via the volumes of direct targeting they experience (Evans et al. 1995). These issues will clearly need to be addressed in the future and we explore some of these in Chapter 13.

• The exponential growth and global acceptance of the Internet as a source of  information and a business communication tool has presented marketers with a unique and powerful marketing communications platform. Indeed, the Internet and World Wide Web would seem to be a promising medium for building relationships online. This might be due to the degree of interactivity and dialogue which is facilitated through such online communications.
• Organisations are also likely to benefit from decreased costs in building relationships online. Conversely, the convenience of communication and (potentially) product or service-based transactions may provide benefits to the consumer.
• While both parties in a relationship are likely to benefit in some way through using the medium, a number of issues and limitations which currently exist may limit the success of building relationships online.
• Privacy and trust in combination with security issues are likely to be the main concerns of consumers in relationships, though from an organisational viewpoint, the existence of Internet service providers and telecommunication companies, and the use of more than one e-mail address with possible aliases, may make the building and maintenance of relationships online more difficult then one might first have thought.
• While both parties may, through an online relationship, increase their knowledge of the other, the power of the consumer may be increased compared to conventional retail relationships as the Internet and Web provide a knowledge base and forums which would not normally be available to the average consumer.
• In the context of globalisation, the Internet and Web brings the consumer closer to a company, but language, culture, attitudinal differences – and the existing technology in place – may limit their use in relationship building across borders.
• New e-commerce business models have emerged, for example from B2C to C2C. The dramatic change in terms of how consumers interact with each other and potentially engage with marketers is epitomised by a change in the level of perceived control, with a shift towards consumer-controlled interaction.
• In addition, though, through the MCB and United Biscuits cases, we have illustrated the potential for corporate websites to communicate all aspects of the marketing mix and to allow a seamless link between the customer and the product and/or with other relevant partners.

• The main emphasis of the marketing concept is on customer orientation, satisfying and anticipating the customers’ needs and wants. Thus, understanding customers’ needs, feelings, drives and emotions can provide the interactive relational marketer with valuable clues to how the creative strategy should be structured.
• People are not always aware of the real needs determining their behaviour and more subtle and indirect creative may appeal to unconscious needs.
• This chapter has also used a sequential model of customer responses to marketing actions to suggest the application of behavioural concepts to interactive relational marketing messages.
• Furthermore, we have outlined different strategies depending on whether we are appealing to the target audience’s moral principles, emotions or sense of logic.

• We have explored consumer reactions to direct and personalised marketing and several issues emerged. There are concerns over privacy and this is an area we analysed in some depth. We proposed a model of privacy. A major contributor, we believe, to more successful relational marketing is to shift control over the process to consumers.
• There are wider social implications, as well, for marketers and we explored many of these, ranging from the use of personalised marketing data by the state to potential criminal use of this personal data. While marketing ethics must not be overlooked, the judgement of whether a decision proves to be unethical or ethical lies more or less with the individual concerned. In making ethical decisions, individuals must first be aware of the moral dimension of a particular situation. As such, there may be much to be gained by discussing social responsibility as this should go some way towards identifying the moral dimensions of particular situations.
• We have reviewed a number of possible solutions to these concerns, including voluntary and legislative regulation and increased education of consumers about the nature of the relational marketing industry.
• Permission marketing also appears to be worth exploring because it can redress the control balance between organisation and customer and this can be a major factor in achieving mutuality in relational marketing.
• We argue for relational marketers not only to recognise the letter of the law but even to exceed its spirit, otherwise claims of ‘relationship’ can all too often be seen cynically as mere rhetoric.

• This chapter has provided a review of the relational planning process and this has been shown to be iterative. The process builds upon our previous coverage through this book and serves as an integrating framework for much of that earlier material
• Our website is home to a great deal of additional material, including a fully worked relational marketing plan. The sequence of that plan is summarised below (Exhibit 14.11); the context was that of a loyalty programme for BMW.
  
  Exhibit 14.12 BMW loyalty programme summary of components and report mission statement
  Market definition
  Situation analysis
  Environmental analysis
  Internal analysis
  Market analysis
  Customer analysis
  SWOT
  Identification and selection of target market
  Key assumption
  Direct marketing objectives
  Strategy
  Action plan
  BMW card positioning & benefits
  BMW card technology
  Direct marketing communications strategy
  Database structure
  Budget
  Monitoring and control
  
  Appendices
  Appendix 1 - Situation analysis
  Appencix 2 - BMW bank status
  Appendix 3 - Lifetime value calculations
  Appendix 4 - The BMW card range
  Appendix 5 - Loyalty card summary
  Appendix 6 - Credit card interest rate summary
  Appendix 7 - Smart card applications
  Appendix 8 - BMW card sample statement
  Appendix 9 - Database strategic applications
  Appendix 10 - Building loyalty & the BMW card
  Appendix 11 - A day in the life of a BMW card holder
  Appendix 12 - BMW customer profile data