Smart Marketing

When retailer John Wannamaker said, "Half of every dollar I spend on advertising is wasted. The problem is, I don’t know which half," he was skewering giant ad budgets. But when Tom Gaither uses the adage, he’s talking about a solution. Gaither is vice president of customer development at iMarket Inc., and his company will automate the way you process sales leads, judge potential markets, even plan and execute entire campaigns. If you want to know how your marketing strategy will work, and which part of it works best, Gaither believes technology can take the guesswork – and waste – out of your effort.

Just a few months ago, tools like the ones we’ll be discussing in this article were "radical." But it’s clear now that marketing automation is here to stay. Industry analysts expect the marketing automation field to grow 35 percent a year, and the most optimistic predict a multi-billion dollar business in a few years, up from almost nothing a few years ago.

Yes, that most mystical and mysterious of sciences -- the creation of an effective marketing campaign -- has come down to Earth with the value-added efficiency of computer technology. And there’s a good reason you should pay attention to the trend. Marketing automation will do more than spur innovation or cut costs – it can also create new revenue streams and reach individual customers in ways that were never before possible.

Did we say "radical?" You may soon call it "survival."

"Marketing is under pressure to become more effective," says Pete Tierney, CEO of MarketFirst Software. Traditional campaigns have been built around consumer products, he says, but the Internet and other new technology is beginning to change that. As consumers gain more control of the messages they see, marketers must become more nimble in the way they present their goods and services. Marketing automation tools can help companies identify their most profitable customers, tailor messages based on individual preferences, and shorten the marketing cycle in response to ever more fickle consumer tastes. "A key element in this technology is that it enables one-to-one marketing," says Tierney. "Companies are able to understand whom they are marketing to, and what their preferences are as they go through the marketing cycle."

Just as one day you woke up and discovered the rest of the world was conducting business via email, marketers today are discovering that other marketers are reaching customers with ever more precise campaigns. Marketing automation can make your message relevant to an individual. Until recently, companies were marketing the same way they were 50 years ago, says Ron Friedman, president of Group 1 Software. But as companies develop more sophisticated databases, and as information technology advances by leaps and bounds, marketers are gaining the tools they need to become truly customer-centric businesses. "The fear is," Friedman says, "if companies don’t use the technology, their customer base will become vulnerable. And secondarily, if their marketing costs remain at traditional levels, it could put them at a severe disadvantage to the people using these systems."

Friedman calls marketing automation "the third leg of a three-legged stool." It supports the other two automated services he says are "hot": sales force automation and customer service automation. The bottom line, he says, is that smart marketing tools can actually reach the right potential customers. " Ninety-eight-point-six is an acceptable temperature," Friedman says, "but it is no longer an acceptable non-response rate to direct marketing campaigns."

Sounds good, you say. But can marketing automation really reach an individual?

A common misconception about one-to-one marketing is that because it stretches down to the granular level of every single customer, every single customer must receive a uniquely different offer or message. That is a worthy goal, but what "one-to-one" marketing really means is simply treating different customers differently, in a way that is meaningful to the individual customers themselves. This sort of tailoring can only be done cost-efficiently by using a "mass customization" methodology – creating a variety of highly specific products out of pre-existing components, or modules. Twelve "A" modules, when combined with 25 "B" modules, 16 "C" modules and 13 "D" modules, are enough to generate more than 60,000 possible products. Note that only 66 modules are actually involved in configuring this vast assortment of different products. That’s how mass customization works.

Marketing automation can use this same leverage to make messages relevant to each consumer. In a true one-to-one marketing campaign, a customer tells the marketer something providing insight into how the customer can best be served. Then the marketer uses the customer’s feedback in shaping some aspect of how that customer is treated. This creates a vested interest on the customer’s part in the relationship, predisposing the customer to remain loyal. After all, to generate an equivalent level of service from some other firm, the customer would first have to re-teach the other firm what it has already taught the original marketer. New, IT-based technologies, including interactive media and digitized product configuration, make this possible and increasingly cost-efficient, even if you have millions of customers. But a company doesn’t have to have millions of product configurations to participate in this type of marketing. If you tell me what you want and then I change my behavior to meet your needs, then we’re engaged in a type of one-to-one marketing relationship, whether I have the capability to generate more than a million product configurations, or just a few.

The return on investment of marketing automation programs may surprise you. ROI is typically measured in higher response rates, better-quality leads, increased conversions into sales, and lower marketing costs. According to the Prime Response Group, a UK-based provider of campaign management software, marketing automation can triple the response rate for a "typical" direct-mail campaign. The company estimates the ROI on a 250,000-piece mailing based on its software is likely to be more than 200%.

Consider the case of electronics giant Panasonic. For its videoconferencing systems business, Panasonic recently decided to re-allocate its marketing resources, in order to concentrate on generating more business from a narrower, more focused base of customers. When the company won a bid to provide videoconferencing services to 78 courthouses in New Hampshire, it decided to automate a marketing campaign to reach customers with similar needs around the United States. Panasonic enlisted a campaign management tool from iMarket to create a direct mail campaign, carefully tailoring messages and measuring responses via an 800 number. The iMarket system identified 2,200 prospects and automated the processing of sales leads. The result: Panasonic sent 2,200 pieces instead of the originally anticipated 10,000, and the mailing had a 21% response rate. Altogether, Panasonic was able to generate some $5.5 million in new business at a marketing cost that was $78,000 lower than they thought would be necessary.

Marketing automation tools all fall under the umbrella of Customer Relationship Management, or "CRM" – a term used to describe a whole collection of "front office" applications for tracking and managing individual customer relationships, with the objectives of boosting customer loyalty, reducing sales and marketing expenses, and protecting unit margins. Probably the most advanced type of marketing automation tool will be true marketing simulation, in which a population of customers is analyzed, different campaigns are dropped into a virtual model of this population, and outcomes are modeled. The technology is almost here, even when dealing with this creative art.

Steve Blank, cofounder and vice president of Epiphany, notes that accounting, inventory management, and other "back office" functions are relatively easy to automate because they are well-understood, numerically precise processes. Sales force functions are simple to automate because they, too, represent a well-ordered process: pushing prospects through a pipeline, and managing sales activities at various stages along this pipeline. But, he argues, what does it really mean to "automate" marketing? Marketing is a creative process, not a sequential series of steps.

The marketing professional sits down at her desk with a clean slate and wants to know what to do about declining sales in the Midwest. Let’s see, we could run a two-for-one promotion, we could launch an ad campaign, we could send out a direct-mail offer… True marketing automation, Blank says, must be thought of as something like a design tool – a device for empowering the marketer’s creativity in the same way that an engineer might use a design tool for designing microprocessors, or pneumatic valves, or skyscrapers. As a design tool, real marketing automation is all about the simulation of potential future marketing initiatives, based on the most accurate data available currently – data that, at most firms today, is extremely difficult and cumbersome to assemble at all.

"What marketers have always wanted to do is the ‘what if?’ scenario," says Brenda Rhodes, director of marketing for IC Systems in St. Paul, Minnesota. "Technology has finally gotten to the point where the tools are easy for marketers to use." IC Systems offers a campaign management tool called SmartMarket, which helps marketers predict the success of a campaign based on information already stored in a company’s database. "Marketing is still an assumptive science," Rhodes says. "But now you can test your assumptions."

Here’s a primer of marketing automation tools that can give you a competitive edge:

Marketing encyclopedias – These libraries of sales and marketing information put the data you need at your fingertips. Holland, Michigan-based EnCyc Inc. offers a Marketing Encyclopedia that allows marketing professionals to create PowerPoint presentations automatically by pulling the right slides from an organized database. The same tool can be used to publish information directly to customers over the Web.

Database management – Your real computer problem may be that the most valuable customer data you have is buried somewhere in a legacy system. Too often sales leads, detailed customer information, and even the history of marketing successes and failures become hidden by neglect or inadequate planning. Companies such as Oracle and Epiphany mine legacy data systems and extract the information to put it to use where it is most needed – in the hands of marketing and sales professionals. Epiphany, for instance, has built its reputation on its ability to streamline data flow throughout all channels of an organization to give customers exactly what they need, in the shortest possible time. This process allows marketing professionals to obtain a complete picture of their relationships with customers, via a browser-based, point-and-click tool that literally requires zero training to use, and mere weeks to implement.

Lead management – This type of product also falls under the sales-force automation category, but it can be vital to a successful marketing campaign. "The pain in marketing automation is the interface between sales and marketing," says Gaither of iMarket. He suggests that since marketers and salespeople have different agendas, they often don’t trust leads generated by the other side of the team. Lead management tools, such as those developed by MarketSoft in Lexington, Mass., help companies process and act on leads more quickly and dependably.

Channel management – These tools manage interactions with customers. Specific contact management applications, such as programs by Pivotal and GoldMine, can record every encounter with a customer. Broader channel management programs tie all forms of communication – Web, mail, call center, sales calls – into a unified, coherent strategy. Pivotal’s most recent product release, eRelationship, is capable of tying sales-based or point-of-purchase contacts with customers directly together with Internet-based contacts, to provide in one place a seamless picture of a customer’s entire record of interacting.

Campaign management – The kings of automation, these systems help you act on the knowledge gained about customers in your database. A good campaign management tool analyzes a marketing campaign across all channels, collecting information at every stage, and facilitating detailed analysis at various "drill down" levels. A common mistake is to invest money in a system that provides an acceptable point solution, but can’t be leveraged across different parts of your organization. Rather, marketers should center their campaigns around the customers – realizing that each individual touches your organization across multiple points, and your communication with that individual must be personalized and relevant at each contact to be most effective. The UK insurer Standard Life, for example, used campaign management systems by Prime Response to tailor marketing messages based on individual needs. The insurer lowered its customer defection rates by 15 percent, and boosted the average amount spent per customer from $990 to $1,320.

What does all this cost? Marketing automation tools range in price from a few hundred dollars (including desktop tools like iMarket’s prospect management software, MarketPlace) to hundreds of thousands of dollars. Costs fall into three areas, according to Scott Nelson, vice president of strategic marketing services for Prime Response: software and the related costs; hardware; and professional services such as CRM consulting. In his experience, Nelson says most firms spend about 5 percent of their marketing budget to develop an automation system. Companies that sell marketing automation tools point to stellar examples of ROI, but perhaps the best advice is to check out their client rosters. Look for major players, says Chris Fletcher, an analyst at the Aberdeen Group – but also don’t be afraid to lead the pack. "Larger partners will eventually legitimize this area," Fletcher says, "by optimizing start-up operations."

No matter how good the tool, however, it is still only as valuable as your underlying assumptions. Automating a bad strategy will give you, well, a bad automated strategy. And new technology will inevitably create new complexities in training and implementation. Any system that puts the customer at the center of your strategy is likely to create internal pressures, as sales professionals and marketers often work from different agendas. But a smart marketer will greet such conflict as an opportunity for growth.

Just as a marketing automation system might illuminate the fact that 70% of your supply-chain expenses result from oversupply and inaccurate demand forecasts, the same system may tell you that customers are being treated inconsistently by your organization. Epiphany’s Blank says most firms today would even have a hard time correlating two sets of data points as obvious as customer defections and unresolved complaints. We recall a friend who paid her credit card bill completely on time for years, only to receive a deadbeat letter when the Post Office waylaid her check one month. Uncovering such problems, which are usually based on the simple inaccessibility of data, will make any company stronger.

Learn what each customer wants, and you can give individual customers the right offer at the right time, every time. You will be treating different customers differently, which is the way they want to be treated. And remember: the real focus of any marketer should be the customer. All else is cost.

DON PEPPERS and MARTHA ROGERS, Ph.D. are co-authors of the best-selling Enterprise One to One and The One to One Future. Their newest book, The One to One Fieldbook, co-authored with Bob Dorf, was released in January 1999. Their consulting firm, Peppers and Rogers Group, is based in Stamford, Connecticut, and has done consulting work for three of the firms mentioned in this article: Oracle, Epiphany, and Pivotal.