Technology for Marketing

Today I paused from daily project estimation to look further ahead.

The over-riding theme of the new media gurus is the racing pace of opportunity, the relentless surge of ever faster processing and ever bigger databases. Goodbye to the old snail's pace of Moore's law - doubling every 18 months. While the number of worldwide web users grows even faster, the network also becomes even more of a collaborative medium, so the number of content suppliers is growing faster still. And that content becomes ever richer with information. Within a few years, some believe that the volume of captured measurable usable information will be doubling every few days.

Meanwhile, in another strand of technology for marketing, we need more and more powerful algorithms to analyse all this data. All the ancient laws of CRM are being re-written. An oft-quoted ideal is to go back to the personal relationship of the local corner shop but with ultimate choice and flexibility. All that personal data, we just need to learn to use it in the way that best satisfies the customer.

So far so predictable.

But there is a parallel development, something that is not so welcome to the marketer. Something that is just glossed over by the futurologists. It is true that we are getting more types of information, but at the same time we are getting more careful about how it is used. Thanks to the legacy of the junk mailers and spammers and ID fraudsters, the customer is understandably cautious about leaving identifiable data. Marketing did jump ahead on the coat-tails of speeding technology, but legislators are catching up.

Meanwhile the organisations that are collecting the data are changing all the time - every year there seems to be a new social networking site of the moment. So the sources of data are becoming more fragmented too.

This still means that there is new opportunity. But it is a different sort of challenge. We need to be more sophisticated in our marketing. More careful with use and audit of data. Where we do not have all the personal information that we would like, we need to make greater use of probabilities and control groups and statistical models. It needs a new type of marketing. Maybe a new type of marketer.

The curious incident ...

Before yesterday's diversion around the super bowl, I was discussing the impact of technology, how this was creating an environment where many commodities were becoming "free". This still allows profit if you can find ways to create generative value, a strong concept that is broadly a re-branding of our "old" individualised marketing principles.

Unsurprisingly, the Economist seems to think these principles are pervasive and persuasive, global and inevitable. The magazine does not publish the names of individual journalists on articles, but a certain undercover economist is a strong suspect. Anyway, the article argues that despite the current credit crunch and fears of western recession, the people of the world have never had it so good.

Three main reasons were given, primarily affecting the emerging markets: social changes, globalisation, reduced wars. And the three were somewhat tied together by two factors: technology and free markets. The article admitted, even highlighted, the rise in economic inequality also associated with those two factors.

I particularly liked one phrase mentioned in passing. The title of this post. Countries like Nepal have dropped out of the news. The article notes this as a good thing.

But in the midst of the positive news, there were a few glaring exceptions - countries and regions that were failing badly. The article did not bark out a link between them. Tomorrow I will turn it completely around to demonstrate one ...

Everything is free - profit from it

I have been involved with Interactive Consumer Marketing and Customer Relationship Management since long before those terms existed, at least in common usage. I could write books about this subject, if you add up my writing around this area over the years then I already have.

Of course I am still looking for ways to enhance, refine and develop these concepts, to push it to its boundaries. And I was pointed towards an article that does just that.

Kevin Kelly is the author of New Rules for the New Economy. He started by looking at the proliferation of websites that were virtually (or literally) giving away their products. You know there are thousands of examples today, from Sun to Google, but as a business model it almost turned traditional micro-economic models upside down.

The proposition relies on the older concept of economies of scale and also on the newer concept of network growth effects, where pushing your product into the market has a substantial positive value on the value of your products that are already in the market. That is evident not just in the obvious world of compatible software solutions, but even in physical products such as mobile phones - again the value of the individual item to the consumer increases with the number of compatible products also out there.

Now he has pushed the envelope. He has suggested that basic price of everything is moving towards zero, everything is becoming free. If a product or service is to be worth paying for, then it must have "generative value".

A generative value is a quality or attribute that must be generated, grown, cultivated, nurtured. A generative thing can not be copied, cloned, faked, replicated, counterfeited, or reproduced. It is generated uniquely, in place, over time.

The analysis is sound and the insight is excellent. Broadly speaking it is the same message that proponents of CRM have been pushing for years, but as I stated at the start, he has pushed the envelope. In fact, the article appeared to have a focus on suppliers of software and services, but to me exactly the same principles apply to any commodity product. Wait long enough, other people will be able to build it cheaper than you. You need to make your product unique.

However there was one point that was glossed over. The article clearly refers only to products that can be copied, although Kelly's optimistic tone seemed to generalise that to everything. He talks of a world where not just manufactured products but even food and other essentials are free and unlimited. That is not true. For those basic commodities, for unpolluted water, for personal space, for that genuine experience of nature and history that ties us to our past, there is only a limited supply. The marginal cost for these items does not tend to zero. But it should.

Consumer driven sales Ikea style

An article in today's Financial Times connected the new consumer driven internet with a big blue and yellow Swedish furniture store. As the thing that connected them was alleged to be web 2.0 and the new world of consumer driven marketing, and as that is the core of my work, and as I despise the Ikea sales model, this note was inevitable.

Ikea is great at marketing. The vision that they sell is one that the FT suggested was like the consumer driven web because they provide a user-defined flexibility and customisation that is very different from the old model of the store. They make the buyer do the work in order to provide a richer more flexible more tailored shopping experience.

But the reality is not so great. Ikea does make customers do much of the "sales" work, that much is true, but they actually sell very narrowly defined visions. They are encouraging particular designs, colour schemes and combinations - as the show rooms that line the tortuous paths through the store will demonstrate to anyone. The store is the antithesis of Google, it is deliberately slow and awkward to find a specific product quickly. Even the catalogues promote particular cohesive styles - selected sofas, shelves, rugs etc together form a specific "dream" to which specific target groups will aspire - they do not give quick answers to consumer questions.

I'd suggest that small niche suppliers (or even Argos) are closer to the pure web 2.0 business model and are much closer to the Peppers ideals for consumer driven marketing. The new world was supposed to provide more choice, more vision, more speed and more convenience than the old world. Ikea makes decisions easy for those who lack imagination while complicating the sale for those who lack time.

But the Ikea marketing sells the dream not the reality. I hate it. But it is genius.

Retain or conquer

If we keep a record of the person who makes a sale, then as a retailer it should not be very difficult to determine a "conquest" rate. Now of course all wise marketers must know exactly how this is calculated, that is how they can confidently make blanket statements such as "Acquiring a customer costs 5 to 10 times more than retaining one".

Obviously client confidentiality rules so I will never publish any practically used rules here, let alone any actual results. However, there are general issues that are known to everybody in the marketing world. So let us assume that we are selling sofas from manufacturer X.

We could define a sofa conquest as a sale to someone who has never bought one from X before. But what if they have earlier bought armchairs from X. Footstools? Table lamps? OK, so we could record as conquest anyone with any relationship with X.

Some buyers collect sofas then sell them on, so at any time they have a few extra in the warehouse, how would we treat them differently to people who always dispose of a sofa before picking up the new one?

Equally, there are people who regularly buy from X, but who also buy from Y and Z, maybe more often. However they are still loyal to X aren't they?

And it gets more interesting if, whenever we record a sofa sale, we keep a separate record of the person choosing the sofa, the name on the credit card, the person who will be signing for delivery … so which of these people do we include when determining conquest rates? Do we have separate rates for all of the different permutations?

Perhaps it would help if the government kept a record of everybody buying a sofa. Then all we would need to do is to get hold of the government data and match up our purchase records with government records. So surely ID cards will solve everything…

It's a kind of magic

I like magic. Depending upon the scale of the illusion, a good magician is a good actor or a good director.

The actual mechanics of tricks are usually fairly obvious to anyone who thinks through them like an engineer. They rely on science and common sense. I am not going to explode the Magic Circle if I say that various combinations of sleight of hand, drapes, mirrors and misdirection account for most illusions. But we do not need to dissect every one in detail, because instead we can just enjoy the show.

Those who claim that their magic is powered by supernatural or paranormal ability are not magicians. They are cheats, liars, fraudsters, and worse. Those who claim to communicate individually with your dead relatives are not only liars but evil vultures.

But an honest magician is just putting on an act. And the good magician, like the good actor, can make you briefly forget about reality … or make you think that the marketing message was really targeted just for you.

Patent 1863-326

So now, as this blog is holistic, time to bring the last few notes together.

Pepper's Ghost is an illusion. According to the specifics of the patent, it documents the precise angle of semi-reflective surface needed to create the false image for various customer locations, although the term later developed a more generic usage. I had thought that it was a commonplace expression now, but I suppose that not everybody reads books about the history of magic and deception.

So in marketing, I refer to Pepper's Ghost as the illusion of 1 to 1 communication. It is a derivation of the original CRM vision, so it honours the creator, but the personal relationship required for message customisation does not exist - except in the mind of the customer. The personalisation is only an illusion. The customer only needs to "believe" that the marketing has been tailored to her.

To achieve this effect, we are back at the intersection of science, technology, psychology and statistics. That is the core of this site. And that is how mass marketing must work in the real world of incomplete information.

The Peters Principle

To explain any ghost story, you need a little diversion into real life.

It is strange to think that only fifteen years ago there was no such thing as customer relationship marketing as we know it today. CRM was only practiced by the local grocer who genuinely knew each customer individually. Like all great ideas, and also maybe some of the ideas here, the advantages are blatantly obvious in retrospect. It just needed the technological and social environment to catch up. And it needed a champion.

I was very impressed when I met Don Peppers. As a real business leader, in search of excellence in terms of vision, commitment and eloquence, I can only compare him to Tom Peters. His ideas immediately seemed common sense to me - the measurability and statistics, the information requirements and rules engines, the technology and the simplicity, the implicit feedback loops and control theory - it fit me well.

So for the last decade of my working life, I have been explaining these principles to senior business managers, and also making them work in real world systems. I have not seen many people who seem to understand both the core message and also the IT enablers.

And in at least one little area, in terms of explaining and implementing the CRM vision, I think that I go further than those original 1 to 1 manuals. I needed a new phrase to summarise this idea, I called it Pepper's Ghost ...

Pepper's Ghost

I said that I would relate a classic stage illusion to modern individualised marketing. Can I also bring in musical perfection?

My musical epiphany was noted earlier. However that band split up soon after, and nobody else could quite replicate that magic sound. Then, many years later, by a miraculous turn of fate, original drummer Michael Pointer met the keyboard genius Clive Nolan who had carried the torch in Pendragon for so many years...

The resulting supergroup was called Arena. Their latest studio album is genuinely called Pepper's Ghost.

And tomorrow I really will evoke Don Pepper's ghost in current marketing strategy.

Supermagic

We went to the theatre today. Not just the local theatre but a proper full-on Cameron Mackintosh West End production. I had not bought the tickets myself - I would not have chosen either this particular show or this particular date. But as it was a heartfelt family present I was happy to go.

So I did not have high expectations. But I confess, it was truly magical. That is not the gushing sycophantic praise of professional critics who long to get quoted on billboards and invited for celebrity interviews. I mean it was magical like a magic show. Things were appearing and disappearing and time-shifting and flying around as though they were CGI effects. Amazing. Songs and music were ok too.

Now the difficult bit - next I will relate a classic stage magic trick to modern individualised marketing.

Variable Marketing Offers

You see something advertised as so many pounds or dollars or per cent off the original price. Does that fact make any difference whatsoever to your decision to purchase it?

Unless you are a complete alien to that shopping environment then the answer is clearly no. The offer should make bugger-all difference to your decision to purchase. When you are shopping then the two main factors are "I have this much time and money to spend" and "I have this much value to obtain". The third factor of "this is how much I have 'saved' versus some totally notional figure made up by the retailer" is completely irrelevant.

Nobody has the complete information of free market economic theory. But we generally have enough information to decide whether something is worth buying.

I know the things stated here are sometimes very obvious. But then I look around and see people who really do seem to choose on the basis of what they think they are saving instead of what they think they are buying. When describing a purchase some people really do glory in how much they have "saved".

There is no absolute line, we all take many factors into account. But some are just lunatic.