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Market Data / Supplier Selection / Event Presentations / User Experience Benchmarking / Best Practice/ Template Files / Trends & Innovation Achieving Digital Balance Principles for Digital Strategy & Budgeting

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Market Data / Supplier Selection / Event Presentations / User Experience Benchmarking / Best Practice/

Template Files / Trends & Innovation

Achieving Digital Balance

Principles for Digital Strategy & Budgeting

Achieving Digital Balance Principles for Digital Strategy & Budgeting

Published June 2010

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without prior permission in writing from the publisher. Copyright © Econsultancy.com Ltd 2010

EconsultancyNew York 41 East 11th St., 11th Floor New York, NY 10003 United States Telephone: +1 212 699 3626 http://econsultancy.com [email protected]

Econsultancy London 2nd Floor, 85 Clerkenwell Road London EC1R 5AR United Kingdom Telephone: +44 (0) 20 7681 4052

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Contents

Contents ................................................................................ 3  

About Econsultancy ...............................................................5  Special Thanks.......................................................................................5  

1.   Executive Summary ......................................................... 6  

1.1.   Key lessons....................................................................................6  1.2.   Trends ........................................................................................... 7  1.3.   The threats to balance ..................................................................8  1.4.   Research Aims ..............................................................................9  1.5.   Methodology ............................................................................... 10  

1.5.1.   Survey Demographics............................................................. 11  

1.6.   Who is this report for?................................................................ 14  1.7.   What’s new in this report? ......................................................... 14  

2.   Strategy / Reality ............................................................ 15  2.1.   What is a digital marketing strategy? ........................................ 15  2.2.   Why is a coherent digital channel strategy essential? ............... 16  2.3.   Barriers to digital strategy integration....................................... 18  2.4.   Success factors in digital strategy integration ........................... 21  2.5.   Scope and structure of digital marketing strategy.....................23  2.6.   How digital marketing strategy is different ...............................24  2.7.   A digital marketing strategy creation process ...........................26  2.8.   Techniques for achieving strategic buy-in .................................29  

3.   Traditional / Digital Budgets ........................................ 33  

3.1.   Digital budget allocation ............................................................35  3.2.   Art or science? Traditional vs. digital budgeting ...................... 40  3.3.   Key digital budget components.................................................. 41  3.4.   Barriers to increased online spending .......................................43  3.5.   Determining the “right” digital budget figure............................44  3.6.   Market growth opportunities in 2010/2011 ..............................46  3.7.   Digital and offline tactics............................................................47  3.8.   Digital tactics A - Z .....................................................................48  

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3.8.1.   Affiliates................................................................................. 48  3.8.2.   Display ................................................................................... 49  3.8.3.   Email – acquisition ................................................................51  3.8.4.   Email – house........................................................................ 52  3.8.5.   Mobile .................................................................................... 54  3.8.6.   Paid Search .............................................................................55  3.8.7.   SEO ........................................................................................ 56  3.8.8.   Social.......................................................................................57  3.8.9.   If they had it to spend…......................................................... 60  

4.   Acquisition / Retention ..................................................61  4.1.   Acquisition..................................................................................62  4.2.   Retention ....................................................................................64  

4.2.1.   The role of email.................................................................... 66  4.2.2.   The role of CRM .................................................................... 67  4.2.3.   The voice of the customer ..................................................... 69  4.2.4.   Customer engagement and activation ...................................73  

5.   Innovation / Opportunity Cost ......................................76  

5.1.   What drives experimentation? ................................................... 77  5.2.   Trends in digital innovation.......................................................79  5.3.   If they had it to spend................................................................ 80  

6.   Inside / Outside ..............................................................81  6.1.   Skills for a balanced team........................................................... 81  6.2.   Getting more from internal teams .............................................83  6.3.   Managing the interface with IT..................................................85  6.4.   Agile systems development methods ........................................ 88  6.5.   Being a better client.................................................................... 91  

References and further reading .......................................... 94  

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About Econsultancy Econsultancy is a digital publishing and training group that is used by more than 200,000 internet professionals every month.

The company publishes practical and timesaving research to help marketers make better decisions about the digital environment, build business cases, find the best suppliers, look smart in meetings and accelerate their careers.

Econsultancy has offices in New York and London, and hosts more than 100 events every year in the US and UK. Many of the world's most famous brands use Econsultancy to educate and train their staff.

Some of Econsultancy’s members include: Google, Yahoo, Dell, BBC, BT, Shell, Vodafone, Virgin Atlantic, Barclays, Deloitte, T-Mobile and Estée Lauder.

Join Econsultancy today to learn what’s happening in digital marketing – and what works.

Call us to find out more on +44 (0)20 7269 1450 (London) or +1 212 699 3626 (New York). You can also contact us online.

Special Thanks Dr. Dave Chaffey, author of the Econsultancy Managing Digital Channels report and the book Internet Marketing: Strategy, Implemenation and practice. Dave is CEO of Smart Insights who advise companies on refining their digital marketing strategy and getting the most value from their analytics.

Tom Cuniff, VP Director of Interactive Communications and Associate Creative Director, Combe Incorporated

Steve Ennen, Managing Director, Wharton Interactive Media Initiative & Wharton Lab for Innovation in Publishing

Roman Godzich , Director Emarketing, American Management Association

Linus Gregoriadis, Research Director (UK), Econsultancy

Jake Hird, Senior Research Analyst Econsultancy

Rebecca Lieb, VP Econsultancy

Pauline Ores, social media expert

Aliya Zaidi, Senior Research Analyst, Econsultancy

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1. Executive Summary Since the mid 1990s, marketers have been confronted by a proliferation of new channels, opportunities and technologies that have simultaneously fragmented the audiences they’re trying to reach.

Many organizations are unsure of how to contend with these shifts and appropriately budget for the management and integration of digital channels. This report is designed to help marketers achieve balance in their approach to five key areas affected by the growth in digital marketing.

Strategy – the assumptions, objectives and plans that guide marketing are especially essential in periods of rapid change

Budgeting – how money is allocated is a key factor in whether strategy becomes reality

Retention – the goal of keeping customers has grown in importance as it plays an increasing role in socially – driven acquisition

Experimentation – determining whether new channels and technologies are a good fit is an important exercise in learning and time management

People – internal and external teams need to constantly learn and evolve to master the new elements of marketing

For a full explanation of the goals of this report, see Section 1.4, Research Aims.

Any survey of the digital marketing ecosystem will reveal one unavoidable truth – there is no one right answer to the big questions, and no benchmarks that apply across the entire spectrum of companies. That’s why this report includes a mix of data sources, including a large number of quotes from experienced marketing interviewed during the research process. Their wisdom may prove more useful than aggregated survey responses.

1.1. Key lessons The rate of change has outpaced the yearly review. Organizations committed to

listening to the voice of the consumer are constantly receiving feedback that can be used to tune tactics and inform strategy. At the same time, marketers are dealing with audience fragmentation, new media adoption and variance in channel performance. Taken together, these factors make it difficult to apply annual thinking to a dynamic situation.

Execution trumps channel or campaign. What a marketer does matters. How well they do it matters more. Given the array of media and technology choices available, success is less tied to placing the right bet on media or platform than it is to the efficient execution of the program. The opportunity in digital media to measure and optimize mid-stream is significant and still under-utilized.

Math is the new black. Successful marketing uses data to truly understand its environment, gauge success and optimize for improvement. The skill sets of the balanced team still require creativity and a mastery of the language, but have expanded to include statistics, web analytics and optimization science.

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Training is mandatory. Rapid change means marketers must keep learning. Ongoing training has a number of beneficial effects for a marketing team and its members. For the former, this includes increased performance, longer retention and potentially, greater redundancy. For the individual, it means greater knowledge, renewed creativity and overall job satisfaction.

In a mobile world, user experience is everything. Someone sitting at a computer is probably willing to take a few extra clicks to find what they’re looking for, or to fill out a form that asks too many questions, but that’s not the case on a mobile device. The art and science of user experience will become even more important than it is today as a greater share of people access business content through mobile devices. Although the age of mobile marketing may not have quite arrived, the age of mobile connectivity definitely has, and that means another adaptation is required of marketing; to fully embrace the capabilities, nuances and limitations of mobile platforms and an absolute commitment to good user experience.

1.2. Trends Among the many hats worn by today’s marketer is that of researcher, because it’s their job to sift through industry chatter, competing studies and anecdotal evidence to determine what’s really important to their organization. A variety of trends and topics came up in our research and conversations with marketers, some of which are broadly applicable.

Marketers in our survey agreed that ‘interruption marketing is dead’ and while the reality isn’t so simple, the trend is apparent. Never before have consumers and business-lever buyers been so well equipped to filter out marketing “noise” in favor of their own preferences. The ability to instantaneously search for product information from any digital platform means that marketing organizations have to evolve beyond clever messaging to offering potential customers exactly what they want and what’s useful to them. The creative aspects of marketing aren’t becoming less relevant, but they will shift toward finding those aspects of the brand and product that serve the consumer by informing, entertaining or rewarding them.

The mass audience isn’t dead either, but its days are numbered. Industry experts see another 5-10 years where TV will still look (mostly) familiar. But with it will go the last vestiges of the easily aggregated audience. The trend in every household and every office is toward personalization of media and a proliferation of devices. There are a variety of attempts to aggregate online media for brand effectiveness, but the Internet favors individual choice. It seems likely that methods of targeting consumers one to one will be more effective than efforts to cast a wide net.

It’s easy to talk about customer-centricity, but companies will find that a real commitment to the voice of the customer requires fundamental change. The vast majority of companies are built to promote themselves from the inside out. But social listening means accepting change from the outside-in. Structures and systems will have to be reengineered to take in this feedback, filter out what’s not useful, pass what remains to the appropriate part of the organization and ultimately use that information to maximum effect.

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1.3. The threats to balance Flying blind – the time invested in a coherent strategy is saved many times over by

avoiding missteps. At its best, a good strategy can inform every decision, big and small, that confronts marketers. Too many organizations treat strategy as a yearly thought exercise, and not as a dynamic decision-making tool. (Section 2.1)

Investing in tomorrow at the expense of today – as important as it is to understand and invest in new opportunities, some organizations do so before having developed true mastery of the channels that have already proven themselves. (Section 2.4)

Misattribution – the practice of ‘first click’ and ‘last click’ attribution tends to under-value important tactics that contribute to product awareness and research, such as email and SEO. (Section 3.5)

Failing fast without learning – the advantages of easy experimentation are lost if it isn’t aligned with strategy. That’s doesn’t mean overcomplicating every good idea, but simply ensuring that the experiment will contribute to the understanding of important issues, regardless of success. (Section 5.1)

Knowledge is located in individuals, not the institution – although organizations try to implement redundancy and cross-education, the reality is that key areas of knowledge reside with individuals on the team. The focus on retention should include the marketing team itself. (Section 6.2)

We buy technology, but don’t staff it with enough humans – a consistent complaint from vendors and front line client – side staff is that companies place more emphasis on the purchase of new support technologies such as web analytics without putting the internal pieces in place to take advantage. In the long run, everyone loses. (Section 6.5)

Everybody is different – research into and experience with customer behavior remind us that we can’t characterize every customer as having the same research and buying patterns. Keeping this diversity in mind can inform everything from content creation to site design. (Section 4.2.4)

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1.4. Research Aims The Digital Balance Report was written to accomplish the following three goals;

1. Identify common issues and challenges faced by managers responsible for digital marketing, particularly in medium to large organizations.

2. Provide best practice recommendations on improving digital marketing capabilities to overcome some of the main challenges.

3. Provide guidance and recommendations on approaches to developing digital marketing strategy that apply across all organizations.

More specifically, the aims of Digital Balance are to explore and offer answers around key questions that were identified at the beginning of the research process. These questions are arranged in the five areas of balance outlined below. Each area begins with the premise of the research inquiry.

Strategy / Reality – at many organizations, everyday challenges overwhelm marketers and prevent the creation of and adherence to a coherent strategy for digital. But the application of strategy is the only way to avoid a disorganized rush to the latest, greatest tactic that may or may not fit an organization’s long-term needs.

1. What is a digital marketing strategy? (Section 2.1)

2. How do you approach building a strategy? (Section 2.7)

3. What are the barriers to strategy integration? (Section 2.3)

4. How do you get buy-in from key stakeholders? (Section 2.8)

Traditional / Digital – new tactical choices and a rapidly changing landscape make budgeting increasingly complex. The experience of the marketplace in spending on and utilizing digital tactics can help individual marketers make smart decisions.

1. What are companies devoting to digital marketing budgets? (Section 3.1)

2. What are the factors that most affect the adoption of digital marketing? (Section 3.3)

3. How does the digital budget currently break down? (Section 3.2)

4. How should marketers be aligning their budgets for the future? (Section 3.4)

5. Where do marketers see their growth opportunities? (Section 3.5)

Acquisition / Retention – social effects are blurring the lines between brands and their customers. Retaining current customers gains new importance as they become as key channel to new customers.

1. How are companies allocating budgets to retention vs. acquisition? (Section 4.1)

2. How are companies transitioning to a customer as advocate model? (Section 4.3)

3. Which investments in retention create a return in acquisition? (Section 4.1)

4. What are the best practices for energizing customer advocates to extend and enhance paid marketing resources? (Section 4.3)

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5. What technologies are going to be central to this evolving model? (Sections 4.2.1, 4.2.2 and 4.2.3)

Innovation / Opportunity Cost – marketers are beset with new channels, technologies and models. How they approach experimentation and learning is a significant variable in the formula for success.

1. What formal allocation, if any, are companies making to experimentation with new marketing tactics? (Section 5.1)

2. What new areas are marketers experimenting with? (Sections 5.2, 5.3)

3. Where are resources are best spent? (Section 5.1)

4. What trends can inform companies about areas for learning and experimentation? (Section 5.2)

Inside / Outside – one of marketing’s eternal questions is whether to do a given job internally or use a vendor/agency. There’s no one right answer, but organizations can optimize for success in either case.

1. What are the skills that a well-balanced team needs to excel in digital marketing? (Section 6.1)

2. What are the techniques for managing in-house teams to best effect? (Sections 6.2, 6.3)

3. How does marketing get the most from technology teams? (Sections 6.3, 6.4)

4. How can companies become ‘better clients’ and get more from their vendor relationships? (Section 6.5)

1.5. Methodology The research includes four sources of information, two primary and two secondary, brought together in three phases.

Phase 1 was concerned with identifying primary topics for the report. It involved a careful reading of its predecessor, "Managing Digital Channels," by Dr. Dave Chaffey and the integration and reworking of pieces of that report into a new format and structure. This phase also included a general literature review.

Phase 2 was designed to explore the issues raised in Phase 1 using the first of two primary research tools – over 50 interviews with digital marketers in the US and Canada. Their demographic profile can be found immediately following this Methodology description.

Phase 3 of the research involved an online survey of US organizations. Respondents were recruited personally via email as well as through general invitation to the Econsultancy newsletter list.

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Summary of research methodology

Research phase Purpose

Specific literature review

Excerpts from Managing Digital Channels by Dr. Dave Chaffey were adapted and edited to form the basic structure of this report. Several relevant data points were also added from Econsultancy’s Marketing Budgets 2010: Effectiveness, Measurement and Allocation Report.

General literature review

Existing literature was reviewed to identify issues and trends associated with new technology and new marketing or management approaches. A listing of referenced works can be found at the end of this report.

Qualitative research: In-depth interviews

Interviews were conducted with over 50 client-side and agency marketers to add context and perspective to the data.

Online survey The survey was designed to assess the prevalence of the challenges identified earlier in the study. It also sought to establish several essential benchmarks for organizations with significant digital spending.

Research report Learnings from the four research instruments were combined to detail common responses and best practices.

1.5.1. Survey Demographics Three criteria were used to determine which responses would be included in the final dataset;

1. Knowledge of marketing strategy and budgeting – respondents had to self-report as having direct knowledge of marketing budgets and organizational strategy.

2. Size of marketing spend – organizations with less than $500,000 were eliminated from the sample.

3. Marketing sophistication – using self-reported attributes such as use of marketing automation or advanced analytics, organizations had to qualify on at least two points to be included. The thinking was that organizations still at the rudimentary level of digital marketing are not yet in a position to offer insight into best practices or the future of how digital budgets can and should work.

4. Geographic location – only responses identified by IP address as being from North America were included.

Once all of these filters were applied, the final dataset was comprised of 119 responses.

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Figure 1: What is your organization’s total annual marketing spend?

Number of respondents: 119

Figure 2: What is your highest level of interaction with marketing strategy and budgeting?

Number of respondents: 119

16%

29%

16%

10%

0% 5% 10% 15% 20% 25% 30% 35%

$500,001 to $1,000,000

$1,000,001 to $10,000,000

$10,000,001 to $100,000,000

Over $100,000,000

53% 39%

7% 2%

Managing strategy and budgeting oversight Contributing to strategy and budgeting Operational knowledge of strategy and budgeting Operational involvement with marketing programs

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Figure 3: What is your organization’s primary target market?

Number of respondents: 119

Figure 4: Which of the following apply to your organization?

Number of respondents: 119

32%

31%

24%

13%

Consumers Large businesses Small and medium sized businesses (SMBs) A balanced mix of businesses and consumers

22%

25%

31%

39%

55%

71%

0% 20% 40% 60% 80%

None of the above

We have an active social listening program internally or through a vendor

We use marketing automation software

We use an attribution model to assign appropriate credit to digital initiatives

We have assigned technology resources directly to digital marketing

We collect and use web analytics data from an enterprise analytics provider such as

Omniture, Coremetrics or Webtrends

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1.6. Who is this report for? This is primarily a report by client-side marketers for client-side marketers, specifically at medium sized and large organizations. However, many findings and takeaways apply across company size and target markets.

We hope this report will help digital marketing specialists assess their organization’s balance and priorities in key areas, as well as provide best practice recommendations to help them refine their approach.

The report is also intended to inform non-digital marketing specialists such as senior managers who must understand the management issues and success factors involved in successfully integrating digital into an organization.

In addition, the report will help agencies understand their clients' challenges and thought processes and assist them as they design future services and refine their current ones.

1.7. What’s new in this report? This report is the direct descendant of two prior works, both by Dr. David Chaffey for Econsultancy.

In 2005, Econsultancy produced Managing an e-commerce team: Integrating Internet Marketing into your organization:

http://www.e-consultancy.com/publications/managing-ecommerce-team

The report was well received, and the demand for an update referencing more recent challenges and approaches to digital strategy development led to the publishing of Managing Digital Channels Best Practice Guide in 2008.

This report borrows from the Digital Channels book, but does not attempt to include the same depth of process analysis and description. Its focus is somewhat different, expanding beyond e-commerce and attempting to offer learnings that will be useful to a wide array of digital marketing organizations.

The main features in this report are:

1. A new approach to the question of how digital marketing fits with strategy, based on the key questions set out in section 1.4 and benefiting from the experience of over 150 client-side marketers.

2. An exploration of important current trends that may have an effect on the emerging digital strategies of many organizations.

3. An analysis of key digital budget components, with specific benchmarks.

4. Recommendations for budget allocations by channel.

5. A chapter addressing the important issue of balancing the need for marketing innovation and learning with the opportunity costs of doing so without aligning these efforts with strategic interests.

6. Some of the key features retained from Managing Digital Channels;

• Methods for developing and implementing a digital marketing strategy.

• Advice on how to develop strategic agility and introduce agile development methods.

• Lessons for the management of internal and external teams.

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2. Strategy / Reality “There’s what we know we ought to do, what we’re able to do, and what we’re willing to do. Unfortunately, those don’t always match up.”

VP Marketing, membership organization

“Strategy is still built around traditional; digital is ad hoc.” CMO, CPG company

Most organizations have their version of a strategy review, and it goes something like this: a rush of meetings culminates with a presentation and perhaps a white paper laying out the plan for the coming year. Some people are excited while others would prefer to get back to the 100 unread emails demanding their attention. Depending on a variety of factors, that plan will either fade in the face of the grind or become a tangible force that helps guide decisions up and down the ladder.

Before exploring the specific nature of digital marketing strategy, it’s worth considering the role of a plan for marketing in general. A marketing strategy covers the macro-topics of brand identity, target markets, attitudes toward the customer and the competitive landscape as well as near and mid-term priorities. Most will also drill down to the specific plans to address the needs and opportunities in each of these areas. At its best, this set of principals gives anyone in the organization the tools they need to evaluate risks, opportunities and market changes.

“Everyone in the company has a thousand choices to make – who to partner with, what technology to explore, who to hire – and the strategy ought to make it easier for them, because every decision goes back to the goals it lays out.”

CEO, medical lead generation

2.1. What is a digital marketing strategy? The term “digital marketing strategy” is often used loosely when talking about future plans, but what exactly is it and what should be its scope?

Chaffey et al. (2008) suggest that digital marketing strategy formulation has many similarities to the typical aims of traditional marketing strategies, but focused on managing the specific issues of digital strategies. A digital strategy should:

Provide a future direction to Internet marketing activities – a long-term roadmap of web services and functionality is needed.

Involve analysis of the organization’s external environment (specifically the online marketplace), internal resources and capabilities to inform strategy.

Articulate goals for digital channels that support marketing objectives.

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Involve selection of strategic options to achieve goals for digital channels and create sustainable differential competitive advantage.

Include strategy formulation to include typical marketing strategy options such as target markets, positioning and specification of the marketing mix.

Decide which strategies NOT to pursue and which functionality is not suitable to implement.

Specify how resources will be deployed and the organization will be structured to achieve the strategy.

For better and worse, ‘digital’ is an agent of change at most organizations, so we might add another aim to this list;

Identify ways in which digital marketing can assist or add value to other parts of the organization. For example, social ‘listening’ can be leveraged to provide direct customer feedback to product designers.

We need to remember that an Internet marketing strategy is largely a channel marketing strategy which means businesses should set channel-specific objectives and develop a differential channel-proposition and channel-specific communications consistent with the characteristics of the channel and consumer usage of it. Without recognition and communication of the channel strategy, destructive channel conflicts are inevitable.

Such conflicts typically develop between digital and traditional channels, but can also occur between multiple digital channels. For example, unfettered affiliates using brand terms to generate traffic can be competing with the retailer’s paid search efforts. An interview with a financial services marketer included an example where the website was redesigned to answer questions that had been an excellent source of inside sales calls, without a strategy for how to use the site to make the same connection.

2.2. Why is a coherent digital channel strategy essential? For those early in their digital evolution, it is best to create a separate e-marketing plan to provide focus, but for more mature organizations, digital marketing activities should be integrated into annual – or more frequent – planning.

We have observed the following 10 typical problems in organizations where detailed plans for digital marketing have not been created or the plans do not have clearly defined ownership.

These are essential risks that can be managed by having a strategy defined in a digital channel plan:

1. Customer demand for online services will be underestimated if this has not been analyzed, which leads to under-allocation of budget to digital channels.

2. Existing and start-up competitors will gain market share if insufficient resources are devoted to e-marketing and evaluation of the market impact of the Internet.

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3. Lack of clear objectives and performance management systems to track and improve results from digital channels.

4. Duplication of resources and investment will occur, for example, different parts of the marketing organization purchasing different tools for analysis of web site performance, email marketing broadcasting tools, or negotiating with specialist agencies for the best price on search or affiliate marketing.

5. Lack of integration of online marketing activities into marketing strategy and campaign activities. A digital planning document acts as a focus to educate and co-ordinate online marketing activities across different groups.

6. Lack of specialist e-marketing skills will make it difficult to manage agencies and respond to competitive threats effectively.

7. Poor quality of customer insight. Online customer data profiling and customer research is lacking and what data there is isn’t integrated well with existing systems. E-mail targeting is difficult without specific targets for list size and quality.

8. Efficiencies available through online marketing will be missed. For example, lower communications costs and enhanced conversion rates in customer acquisition and retention campaigns. Some online activities will have poor quality control if standards are not set and managed centrally.

9. Missed opportunities for applying digital media channels such as search marketing or email marketing will be missed or the execution may be inefficient if the wrong resources are used or marketers don’t have the right tools.

10. Poorly prioritized IT and business applications required to support online channel. New applications, infrastructure or changes required to internal IT systems by different groups will not be prioritized accordingly. There will also likely be issues with the process for implementing agreed suggestions.

To this list can be added another pitfall that was mentioned repeatedly by marketers contending with emerging media;

11. Haphazard approach to emerging technologies, media opportunities and important trends. In some cases this has meant that companies missed the ‘next big thing’ but just as often it has meant an unnecessary or ill-spent investment into an emerging tactic without a true plan for learning and integration.

All of these are common threats, but several were of particular interest.

Lack of customer insight – at no point in corporate evolution has customer insight been as accessible or more important. Social media both enables and emphasizes the interaction of consumers directly with brands. Companies that don’t effectively stay in touch with and learn from their customers will be at a disadvantage to their competitors who do so. (see Section 4.2.3 on methods of customer research)

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Poorly prioritized IT and business application support – technology and marketing are becoming increasingly synonymous. The ability to access technology resources in a timely manner is a common quality to the more digitally forward companies in our research. (see Section 6.3 on ways to manage the interface with IT)

Loss of market share to digitally savvy competitors and start-ups – businesses that have been built around legacy products and systems can be challenged by fundamental market shifts. They have a tendency to underestimate the impact of trends early on, and then over-correct when that trend causes a loss in revenue or market position. The development of a comprehensive digital strategy in alignment with overall business needs is one route to logical, effective adaptation.

Haphazard approach – the rapid pace of digital marketing evolution makes it easy to fall into the trap of the “new and shiny.” Lacking an overarching strategy which can help determine direction and methodology for expanding programs, companies are left to move from one failed experiment to another. (see Section 5.1 on approaches to evaluating new tactics)

2.3. Barriers to digital strategy integration

Figure 5: What are the barriers that keep clients from successfully integrating digital marketing and strategy?

Number of respondents: 119

When we asked consultants and agency personnel about the obstacles they saw at client companies, their answers began with an industry problem, but ran quickly to company level issues. The top answer by far was predictable, if ironic – that the ROI of digital marketing isn’t clear. This is ironic because most aspects of digital marketing are far more measurable

4%

10%

12%

12%

15%

29%

54%

58%

79%

0% 30% 60% 90%

Difficulty recruiting new staff

Difficulty training existing staff

Lack of time

Organizational structure

Threat of digital to existing revenue streams

Lack of management support

Short term pressures outweighing long term planning

Company culture

Lack of clear understanding of the return on investment

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that any channel that came before them. But, with the exception of paid search, most tactics aren’t measured and evaluated in way that resonates with marketers. Banner advertising, for example, is still judged by how well it generates clicks, even though it's truly a branding mechanism.

After the concern with ROI, respondents focused on barriers to digital adoption that are among the most difficult to define and address; company culture and short-term demands overwhelming long term planning. The former is as unique as every company that responded to our survey or took part in an interview. But while we can’t define culture without knowing a given organization, there are cues from those that have been able to adapt to and define the new era in marketing;

Involvement in social engagement at every level of the marketing organization to maintain focus on gathering and acting on information produced by and important to the customer.

Cross-education across disciplines strengthens team members’ understanding of each other’s roles, fosters greater assistance and idea sharing, and lessens the negative impact of staff departures.

Ongoing training in directly and indirectly related subjects is key to maximizing employee output, fostering innovation and growing talent in-house. People who move up the chain have the benefit of knowing the company and its products.

The third most popular answer was ‘short-term pressures outweighing long-term planning,” roughly synonymous with simply suffering from a ‘lack of time.’ In either case, it’s a Catch-22 because the lack of a coherent strategy is a sure route to wasted resources. Said one marketer,“I know it’s dumb, but we don’t take the time to figure out how we ought to be spending our time.” Below are some of the practical tips offered by the marketers we interviewed;

“Prior to our strategy sessions, I’ll identify places where we can cut back to save time – that way I can offer some help at the same time as we’re deciding on adding something new.”

“Get off-site and leave the Blackberries at home. But don’t make it feel like a field trip or team building exercise. Rent a conference room, get the food brought in and plan a meal together for the end of the day, but make it clear that the reason you’re offsite is to focus. People tend to treat strategy sessions like a day off, especially if they’re not that senior. Single them out with questions early in the day. It’ll scare them but it will also get them involved.”

“We know that Fridays (especially in summer) are more relaxed than the rest of the week, so we’ll take two or three in a row to do our bi-annual review.”

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One of the most basic obstacles to any sort of change is the position of management. In Figures 6 it appears that most marketers give their management passing grades. Over half think that executives at their organizations possess a ‘good’ or ‘excellent’ understanding of the potential of digital channels implications to their businesses.

Figure 6: How would you describe the understanding of your company’s senior executives or senior directors about the potential of digital channels (email, search,

social media, etc.) to help grow your business?

Number of respondents: 1,167

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When asked the same question about their clients, agency respondents are somewhat less complimentary. Per Figure 7, 68% describe their clients as having only an “okay” or even a “poor” understanding of the implications of digital. In this divide lies another reason to engage in a vigorous strategy process (with an agency or on one’s own) – a comprehensive review will reveal assumptions and areas of knowledge that need work (and help manage those dissatisfied agencies.)

Figure 7: Typically, how would you describe client understanding about the potential of digital channels (email, search, social media, etc.) to help grow their business?

Number of respondents: 1,167

2.4. Success factors in digital strategy integration Perhaps the most important lesson of our conversations with marketers on this topic is that there is no one right answer. The success or failure of a marketing strategy (or a program or campaign) is unlikely to depend on whether the central idea is perfectly correct. Rather, the question is whether the strategy and the documents defining it are built in such a way as to be helpful in focussing the day-to-day efforts of the marketing department around its central themes.

Some of the factors that can contribute to, or reduce the effectiveness of a plan;

Once strategy is outlined, tactical approaches follow. All too often, these tactics aren’t given the patience they need. All things digital are rapidly evolving, and this means the learning curve is getting extended. A frequently cited example of programs going fallow had to do with social media, specifically Facebook pages that were a ‘must have’ at inception becoming afterthoughts within months.

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One way to help guard against this phenomenon is to include tangible learning objectives in addition to business goals. For example, a social media projects shouldn’t be abandoned before the team is able to answer set questions. These might include;

– What are our Facebook fans looking for when they join our group or "like" our brand?

– What kinds of content generate the most response/discussion?

– What activities led to bursts in social activity/growth?

– What are we good at/bad at when it comes to generating activity and discussion?

– What are competitors or brands we respect doing that we aren’t? Are these things working or not, and why?

Alignment – companies have pre-existing skill sets, resources and areas of core competence. Good strategic plans will identify these and seek to expand programs in such a way as to take advantage of what the organization already excels at. At the same time, gaps in skills and knowledge should be addressed. This can be accomplished by formal training, experimentation, or by utilizing an agency.

Companies can also approach areas of need through collaboration. Managing Director of the Wharton Interactive Media Initiative & Wharton Lab for Innovation in Publishing Steve Ennen offers this advice “[a key trend]…is greater collaboration afoot – nobody has their isolated domains. One partner’s core competence may be content creation, while another’s is distribution. Old position was having unique technologies to differentiate) but now we see they’re working hard at integrating.”

The tyranny of SOP – “standard operating procedure” isn’t necessarily a negative. Companies need established processes and ways of doing things to move forward. However, there are two areas in which marketers should be wary.

First, just because an approach is established doesn’t mean it’s the most efficient. Occasional process reviews by people outside the day-to-day can be invaluable in highlighting opportunities. That objective view is a principal value that consultants bring to the table.

Second, it’s important to be aware of how quickly SOP can develop. This is especially dangerous in the changeable world of digital. Given every marketer’s primary complaint – there’s never enough time – it’s easy to jump into a new program or process and simply “start doing.” The assumption is that we’ll learn through experience and optimize the process along the way. The reality is that we are very likely to do tomorrow what we did yesterday, because we’re comfortable with a known quantity. Evaluating the process early and often is just as important as reviewing the program itself.

Timing – some of the most frequent complaints we heard were about how often to circle back to strategy. The most common issue was that departments are engaged only for the duration of the planning process and don’t benefit from it. On the other hand, there are a minority of organizations that find themselves over-burdened by too frequent meetings and the changes in direction these can often mean.

It may be that the yearly strategy review should be re-evaluated, along with the yearly budget review (see Chapter 2). A number of companies have moved to bi-annual reviews to match the rapidity with which business is changing.

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2.5. Scope and structure of digital marketing strategy Structuring a digital marketing strategy is challenging because, as several interviewees mentioned, at any one time there will be hundreds of requirements or change requests in progress. A strategy must provide a high-level overview of key initiatives so the strategic priorities can be explained to others in the organization and controlled more readily.

The table below outlines the main aspects of managing digital channels that should be included within a digital strategy.

The main types of strategic initiatives for digital marketing and e-commerce

Type of digital marketing strategy initiative

Commentary Examples of strategy implementation

1. New customer proposition (Product, Place and Pricing) for new or existing markets

New site features or other online communications directly related to offering new products or services, potentially from new locations that will generate revenue.

Bank – introduce new product requiring different quotes Portal – introduce comparison service Service company– introduce new functionality acquired through takeover of company Content service offering new pricing options See also channel integration initiatives

2. Branding-related and campaign communications initiatives

Creation of new content to support key branding initiatives.

Creation of separate microsites or sub-site to support ongoing brand campaigns Implementation of social initiatives to enhance customer awareness and viral spread

3. Customer acquisition strategic initiatives Offsite communications

Strategic projects to enhance a site’s capability to deliver new prospects on a continuous basis through different online marketing techniques.

SEO PPC Affiliate marketing Aggregators

(Continued) 3. Customer acquisition strategic initiatives

They may involve investment in the site itself (e.g. SEO) or the back-end, such as integrating with affiliates.

Enhance page type (to help increase conversion rate), e.g. category or product landing pages

4. Customer conversion, customer experience (general site journey and sales optimization) and customer retention strategic initiatives

Investments in new customer features on the site. These will be based on a business case of increased conversion rate and average order value. May include major new functionality such as that for a new online store or more specific functionality integrated into existing site functionality. Many strategic initiatives are aimed at improving the customers’ experience of a brand.

Implement online store / secure payment Introduce customer reviews and ratings Merchandising capability to offer tailored promotions Interactive tools to help product selection Refine on-site search engine Buyers guides consisting of in-depth content about products or rich media (e.g. videos showcasing products) Customer service including inbound email, chat and call-back processes

5. Customer development and growth strategic initiatives

Investments to improve the experience and delivery of offers to existing customers.

Personalized recommendations for existing customers Development of welcome strategy for new online customers delivered through personalized web and email messages and traditional direct communications. Introduce blogs or RSS feeds to encourage return visitors Introduce more participation through customer communities

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Type of digital marketing strategy initiative

Commentary Examples of strategy implementation

6. Channel integration initiatives

These may reference any of the strategies above.

Offline retailer launches “Click and Reserve” service Digital facilities introduced in-store Dynamic load-based click-to-call or click-to-quote Integration of mobile marketing into direct mail or email campaigns

7. Enhance marketing capabilities through site infrastructure improvements

These typically involve (“back-end or back-office features”) which won’t be evident to users of the site, but will help in the management or administration of the site. Will often involve improving customer insight capabilities.

CRM or personalization Content management system Performance improvement – improve management information, web analytics systems including systems for multivariate and A/B testing. Improve customer feedback or other customer survey facilities Update development approach for introducing new functionality Development & coding (different levels – strategic, tactical (3-6 months), business-as-usual optimization Information architecture

8. Governance, resourcing and process / implementation

Plans for modifying team structure, integration with other parts of company. Selection of new agencies or review of working relationships with existing relationships. Changes needed to roles and remuneration to improve capability. Changes to process for delivering service.

Team structure Define new roles and modify remuneration Agency review Change management process Testing process

2.6. How digital marketing strategy is different It is evident from that digital strategy blends elements of marketing strategy and IT strategy. In common with marketing strategy, internet marketing strategy must determine the best value propositions to offer to online customers and how these integrate with other channels.

But in common with IT strategy, many of the decisions of internet marketing strategy involve selection of the most appropriate investments in software or functionality and hardware technology and resources to provide an improved customer experience and to provide an infrastructure to gain better results from digital channels.

Internet marketing strategy also differs from marketing strategy in that media selection becomes a more strategic decision. In traditional marketing, media are generally selected as suitable for each campaign. For Internet marketing, many media investments or techniques used to attract visitors to a web site are continuous activities that must continue year round to connect online searchers with a company’s offerings.

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For many online companies, search engine optimization (SEO), pay per click (PPC) marketing, affiliates, aggregators, and for existing customers, email marketing are continuous activities.

Although the mix will probably be refined annually, your Internet marketing strategy should define the level of investment in these media compared to traditional media (based on targets for visitor or sales volume and cost-per-acquisition (CPA) in order that these can be resourced through internal and agency resources managing these digital media channels).

At a more fundamental level, digital marketing strategy may require a more dynamic approach than the traditional once per year evaluation and revision. A number of marketers in described having to align marketing strategy with the reality of the day, creating an ongoing process where new opportunities and challenges are viewed through the light of overall strategy and simultaneously help it to evolve. The danger in this approach is that marketing departments can become bogged down in strategy revisions.

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2.7. A digital marketing strategy creation process To assist in developing strategy, a framework of the steps to create strategy is valuable. A strategy process model provides this framework, which gives a logical sequence to follow to ensure inclusion of all key activities of strategy development and implementation.

In a marketing context, these strategy development and implementation activities are coordinated through a marketing plan, and the process of creating this is known as ‘marketing planning.’

Econsultancy recommends the SOSTAC® approach for digital marketing strategy developments since this has a logical sequence, is memorable and covers the main areas you need to consider.

SOSTAC® stands for Situation, Objectives and Strategy, Tactics, Action and Control.

Chaffey and Smith (2008) apply PR Smith’s SOSTAC® framework to digital marketing as shown below.

SOSTAC® marketing planning framework applied to digital marketing.

Source: Chaffey and Smith (2008)

Note that each stage is not discrete. Rather, there is overlap during each stage of planning – previous stages must be revisited and refined, as indicated by the reverse arrows.

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The elements of SOSTAC® planning in the context of digital marketing strategy are:

1. Situation Analysis means ‘where are we now?’ Planning activities involved as this stage include performing a digital-specific SWOT analysis reviewing the different aspects of the micro-environment including customers, competitors and intermediaries forming the online marketplace. Situation analysis also involves review of the external SLEPT factors forming the macro-environment. SLEPT stands for Social, Legal, Economic, Political and Technology. For digital marketing, review of the potential adoption of the latest technological is the most important SLEPT factor to consider. Changes to privacy law (and privacy perception) are also significant for digital marketing.

2. Objectives means ‘where do we want to be?’ This can include a vision for digital channels and also specific numerical objectives for the digital channels such as projections of sales volumes and cost savings. The 5Ss used here is a simple mnemonic for the range of objectives that should be considered.

3. Strategy means ‘how do we get there?’ Strategy summarizes how to achieve the objectives for the different decision points explained in this chapter including segmentation, targeting, proposition development (including the elements of the marketing mix described in more detail and E-CRM described).

4. Tactics defines the usage of tactical digital communications tools. This includes specific details of the marketing mix, E-CRM and digital communications.

5. Actions refers to action plans, change management and project management skills. We refer to the issues of modifications to organizational roles and structures later in this report.

6. Control looks at the use of Management Information including web analytics to assess whether strategic and tactical objectives are achieved and how improvements can be made to enhance results further. This is closely related to goal setting as described.

Strategic agility

In a classic prescriptive strategy development approach, the main elements of strategy: strategic analysis; strategic development and strategy implementation, are linked together sequentially. This has the benefits of a structured approach to strategy development, but has the disadvantage that the organization may be unresponsive to market opportunities and competitive pressures.

With digital strategy it is particularly important to be responsive to marketplace dynamics, since the competitive benefits of innovation may be short-lived. A more responsive strategy development approach is described as an emergent strategy approach where strategic analysis, strategic development and strategy implementation are interrelated and occur on a more continuous basis.

To help create a more emergent approach to strategy we recommend consideration of the approaches described below for digital channel development. This collects the approaches used by the companies interviewed during this research program to enable an agile, emergent strategy.

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Aspect of emergent strategy Approaches used to support emergent digital strategy Strategic analysis Staff in different parts of organization encouraged to monitor introduction of new

approaches by competitors in-sector or out of sector Third-party benchmarking services report monthly or quarterly on new functionality introduced by competitors Ad-hoc customer panel used to suggest or review new ideas for site features. Quarterly longitudinal testing of usability to complete key tasks (a time-intensive activity used by one large multinational direct retailer) Subscription to audience panel data (comScore, Nielsen, Hitwise) reviews changes in popularity of online services Social listening employed to mine sentiment and specific ideas, trends and opinions

Strategy formulation and selection Budget flexible to reassign priorities Dedicated IT budget up-to-agreed limits to reduce protracted review cycles. Digital strategy group meets monthly empowered to make decisions about which new web functionality to implement

Strategy implementation Use of agile development methodologies enable rapid development Area of site used to showcase new tools currently under trial (for example Google Labs (http://labs.google.com). Customer feedback through standard services such as Opinion Labs or regular satisfaction surveys. Should also promote listening to new ideas, e.g. Dell Ideastorm, Starbucks and McDonalds online customer feedback initiatives.

This emergent approach is best able to develop responses to sudden environmental changes that can open ‘strategic windows’. Strategic windows may occur through changes such as introduction of new technology (different Web 2.0 applications such as feeds, mash-ups and widgets are an obvious example here!); changes in regulation of an industry, changes to distribution channels in the industry, development of a new segment or redefinitions of markets (an example is the growth in leisure and health clubs during the 1990s).

The capacity to respond to these marketplace opportunities and threats is commonly referred to as strategic agility. Professor Donald N. Sull, an associate professor of management practice on the Strategy and International Management faculty at the London Business School, asserts that traditional management models of creating a long-term vision are flawed since our knowledge of the future is always imperfect and marketplace conditions are changing continuously.

Rather than being the captain of a ship surveying the far horizon, analogous with the top-down model of strategy, the reality for managers is that their situation is more like a drive on a foggy day, constantly looking to take the right decisions based on the mass of information about surroundings coming through the fog. The professor believes that having a clear long-term vision, particularly where it isn’t based on environment analysis isn’t practical in most industries. Instead, Sull says that companies should “Keep vision fuzzy but current priorities clear.” He provides the example of Microsoft's failure to respond sufficiently quickly to the growth of the Internet.

From here, he explains the basis for strategic agility. All knowledge of the future is based on uncertainty, but managers must act now, so they need to put in place reconnaissance missions as an army would in order to make their battle plans. Sull gives the example of Dell, explaining how they spend relatively little in research and development, but are instead constantly probing the marketplace, trialling new ideas with multiple probes into the approach.

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He stresses the importance of finding anomalies in the marketplace where it doesn’t appear as expected and these may represent learnings or opportunities. Detailed customer insights and business performance measurement are necessary to identify these anomalies. Finally, he points out the need to act rapidly to have scalability to “swarm the gap in the defences of the enemy” where there is a strong opportunity.

In the context of digital marketing strategy development, Chaffey et al. (2008) summarize strategic agility as requiring these characteristics and requirements for an organization to be successful in its strategy development:

1. Efficient collection, dissemination and evaluation of different information sources about the micro and macro-environment.

2. Effective process for generating and reviewing the relevance of new strategies based on creating new value for customers.

3. Efficient research into potential customer value against the business value generated.

4. Efficient implementation of prototypes to review new functionality to deliver customer value

5. Efficient measurement and review of results from prototypes to revise further to improve proposition or to end trial.

In reality, most organizational strategy development and planning processes have elements of prescriptive and emergent strategy reflecting different planning and strategic review timescales.

Many interviews mentioned the blending of the prescriptive elements, which are the structured annual or six monthly budgeting processes together with a longer-term 3 or 5 year rolling marketing planning process. But on a shorter-timescale, organizations naturally also need an emergent process to be enable strategic agility and the ability to rapidly respond to marketplace dynamics.

It can be suggested the emergent strategy approach is an essential part of any digital business strategy to enable response in a highly dynamic technology environment.

Finally, despite the need for strategic we should caution against “rushing to the new” where companies get diverted from fundamental aspects of digital marketing such as search engine marketing (acquisition), usability and customer experience (conversion) or email marketing (retention and growth) to experiment with new technologies.

For example, the benefits of implementing a CEO blog, Facebook apps or Twitter feeds may be limited and distracting compared to focusing on core digital success factors.

2.8. Techniques for achieving strategic buy-in The ideas in this section generally apply equally well to the budgeting process as they do to aligning management with changes in digital/marketing strategy.

1. Identify a single senior sponsor, ideally the CEO. This is one element of a classical approach to change management for different types of organizational change, but it was

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mentioned by all of the leading companies reviewed. This is very difficult for the e-commerce manager to influence, unless they can influence the appointment of new directors. Several mentioned the e-strategy was kick-started by a new director-level member of staff who believed in digital channels. Others mentioned the e-commerce initiative had been marginalized by the transfer of a senior sponsor. Others felt today their goal is to have buy-in from every senior manager, and if there's only a single major sponsor it's a problem.

2. Involvement of senior management in objective setting and strategy. More capable organizations have specific objectives agreed between the e-commerce managers and senior management team or marketing. For example, one company instigated a quarterly e-business forum to manage e-commerce-related change; this involved the CEO, marketing director, finance director, IT director and e-commerce manager. Targets for online channel contribution agreed at board/senior management level are then cascaded down the organization including e-commerce and marketing and included in the personal performance targets of staff in these areas.

3. For international organizations, defined responsibilities for improvement are needed at different levels in the organization. For example a strategy and responsibility for each is required at “dot-com level,” country level and business unit or brand-level. A further challenge is that these strategies must be aligned with the overall organizational strategy.

4. Aligning digital initiatives with current commercial strategies. The connection between digital initiatives and commercial strategies must be clearly demonstrated. One respondent said, "show e-commerce investments are a commercial imperative.”

5. Not constraining budget by annual budget allocation, but profitability of acquisition activity in each accounting period. In one case, online and offline specialists agreed at least once a month on the appropriate communications to meet business objectives, using arbitrators where required.

6. Measurement and financial modeling in order to prove cost reductions and return on investment, particularly relative to competitors in sector. One e-retailer had a commercial analysis seconded from finance to help prove the ROI case.

7. Independent research on media consumption, customer online product selection/purchase preferences and competitor activities from independent analysts or data sources (Forrester and Hitwise were mentioned frequently), but this information must be specific to sector.

8. Strategic review of e-commerce. An independent assessment by marketing as part of a group-wide evaluation of channel strategy either by marketing / senior management team, independent consultants or agency. Best if not completed by e-commerce management.

Several respondents mentioned a success factor in working with senior managers and other operational teams was a regular weekly, monthly or quarterly “digital channel performance and improvement review”.

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Techniques for managing the marketing/business interface

Many respondents implied that the success factor was about finding techniques for increased collaboration - certainly at annual planning stage, but in more advanced organizations through weekly or monthly reviews and collaboration as required. One participant mentioned the need to over-communicate! For example, to engage with company decision makers on a daily, weekly, and monthly basis. Another participant mentioned the need to individually discuss the potential and implications of the digital marketing plan before presentation to colleagues.

Specific techniques mentioned include:

1. Collaborative objective setting – this must be an iterative, collaborative process: targets for online channel contribution set at board/senior management level and then cascaded down organization including e-commerce and marketing. Digital targets are part of personal performance appraisal.

2. 'Shared budget responsibilities' – several interviewees in large organizations mentioned a more flexible approach of having “two separate pots” or budgets for digital marketing activities such as search engine marketing. These budgets are drawn from the digital marketing budget and the traditional marketing budget. The digital specialist and marketing manager work together to establish overall priorities which determine how much of each they apportion into new media.

Flexibility is possible since the e-commerce manager can allocate their digital spend to support the businesses or products that are judged to be lagging behind their targets for online contribution. These respondents felt this approach seemed to work better than all the media spend being allocated from marketing. Piggyback increased digital spend on other organizational initiatives such as branding or cost-reduction drives to get buy-in.

3. Co-locating staff – including marketing staff in the digital team or e-commerce staff in the marketing team was mentioned, but seemed to be the exception rather than the rule. One company co-located their digital marketing specialists within the marketing organization of some e-retailer clients.

A client on a different project commented: “I’ve discovered you need to co-locate with agency (we prefer their offices) since using video or teleconferencing wasn’t good enough. Work in bursts of 2-3 days to work together especially in early stages of requirements specification. This may seem obvious, but doesn’t always happen. Agree this when selecting agency.”

4. Job-swapping – a slightly different approach, which also involves co-location, was noted as effective.

5. Interim collaborative teams (SWAT teams) – a temporary multi-disciplinary team (for example, teams from e-commerce, marketing and technology) is formed to drive a particular initiative or performance improvement, e.g. home page improvement, web analytics or supporting customer journeys between channels. This approach reportedly used by Amazon.

6. Creation of a central Center of Excellence for Digital Marketing can provide a clear resource which marketing staff can turn to for advice and best-practice documentation. Members of this team can also be involved in proactively spreading the word through involvement in training or operational campaign planning.

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7. Online annual survey of the contribution and performance of the e-business team within the organization. This was mainly useful to geographically distributed teams. One such survey involved respondents assessing the e-commerce team for different roles from 1 to 5 and then assessing the organizational value of this role. The roles included: consistency, setting standards, leadership and direction, development of tools, training, advice and consultancy. Others in teams in a single country felt this approach was unnecessary since they worked closely with marketing.

8. Combined planning sessions. Rather than the digital team developing a plan and then discussing with the marketing team who may then incorporate it into their plan, a more collaborative approach is used with both working on creating an integrated plan.

9. Producing an annual road map for digital activities showing how they integrate with marketing activities.

10. When offline spend is predominant, marketers are naturally protective of their budget and may not believe in the effectiveness of offline communications. Senior management arbitration is required to change this behavior and this had been achieved in the more advanced organizations.

11. Online standards, procedures and checklist published on intranet. Particularly important in global organizations. Analysis suggests this information is most likely to be used if required by procedures.

12. A measurement / performance improvement system which integrates online channel reporting with offline channel reporting and can be used to refine approach.

13. More advanced adopters have staff with specific responsibilities for digital marketing working in the marketing or corporate communications team. Roles referred to include web or site marketing managers who manage all aspects of digital marketing within their area and act as a translator between the business and the organization. The other responsibility commonly seen is a content owner or manager. Their production is usually limited to web site and email content, rather than customer acquisition and retention through e-communications. In one case this had been taken to perhaps its logical conclusion, where all print management for brochures and offline newsletters were managed to give a single source of information. We can expect to see more combined management of online and offline customer information resources in the future.

Achieving Digital Balance Principles for Digital Strategy & Budgeting Page 33

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3. Traditional / Digital Budgets “It’s going to be a long time before our traditional/online ratio shifts dramatically. We’ll continue to trim costs from the first, and add to the second.”

VP, Sales & Marketing, services company

The question of how to approach digital marketing rapidly becomes one of how to fund it. Because digital marketing is still in its infancy (except perhaps in the cases of search and email), attitudes and budgets vary wildly. Of course, “digital” is not a monolithic term; it includes dozens of established and emerging channels, media and technologies, each of which demand separate consideration and potentially budget.

The Digital Balance survey and interview process yielded some general observations on budgeting;

Too often, companies are operating blind or worse, by a misguided vision. Although many companies use data analytics for short-term learning, only a small percentage use a test/analyze/test framework to look at long-term questions. This divide became obvious in the answers to the question “what is holding back the growth of digital marketing at your organization.” Companies with advanced, supported analytics and the infrastructure to use them gave very specific answers, while those without these resources tended to blame larger, industry level issues, such as audience fatigue with marketing, privacy concerns and media fragmentation.

Worse than operating without data is basing decisions on bad data, because there’s mistaken confidence built on a foundation of inaccurate numbers. It seems to be in our nature to trust numbers, even when we know at some level that the source isn’t reliable. Companies will base whole strategies on customer surveys conducted without statistical rigor, or invest in a new direction indicated by a single test or case study.

Putting numbers behind an idea is the marketing equivalent of inviting a vampire into the house; good luck trying to get rid of it. Wise marketers should keep that in mind when first experimenting with new tactics and approaches. Low early numbers that are meaningless in theory can kill and idea in reality, just as meaningless high numbers will unnecessarily inflate expectations and affect strategy.

Digital expenditures are action-oriented; not part of a strategy. This topic is covered extensively in Chapter 2. Once action is taken and a budget line has been established, no one wants to give it up. This is always true in any context, it’s the nature of how people and departments collect power and expand their job roles. However, in a marketplace of new ideas, it’s dangerous for set percentages to set in.

Some tactics are a natural fit for certain types of brands. The adoption and investment in new tactics should be the result of a methodical process of experimentation and learning, but there are enough anecdotes to suggest where companies might start;

– B2B companies are excelling at the use of social media to tell complex stories and establish credibility. Beyond that, they depend on paid search, house email and content creation.

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– Brand-centric companies that don’t sell online invest heavily in targeted and remnant display placements. They also spend on paid search and have been at the forefront of mobile marketing and app development.

– Lead generation companies can spend upwards of 70% of their budgets on paid search. They’re also at the top end of the spectrum in content creation – the honey that baits the paid search trap.

– E-commerce has largely been about paid search, but smart marketers understand the need to avoid being locked into a contest with competitors where only Google wins. They’re investing heavily in the kinds of tools that keep people coming back – house email, better user experience and social customer service – so that they don’t have to pay to get that customer back.

– Publishing companies have a content advantage for search engine optimization, and the good ones spend the money to take advantage of that, because it’s far less than remaining competitive through paid search.

The graphic below lays out many of the important elements in digital marketing. Most budgets contain many of these elements, while only a small percentage includes them all. Later in this chapter we’ll examine specific allocations, but it’s important to remember that benchmarks are more useful as a starting point for discussion than as an accurate measure of how your organization should be spending.

Brand  &  Educate  

Display  adver-sing  Sponsorship  Content  marke-ng  Social  networking  Online  PR  Viral  marke-ng  

Acquire  

SEM  Email  marke-ng  

Affiliates  Co-­‐registra-on  Partnerships  

Retain  &  Grow  

Customer  service  Email  marke-ng  Loyalty  programs  Dynamic  pricing  Personaliza-on  Community    Referrals  

Convert  

Usability  &  accessibility  Landing  page  op-miza-on  

Promo-ons  &  merchandizing  Personaliza-on  &  targe-ng  

Email  marke-ng  Payment  op-ons  

Site  search  

Measure  &  Op:mize  

Web  analy-cs  Site  performance  Benchmarking  Online  panels  Online  surveys  

Usability  

Achieving Digital Balance Principles for Digital Strategy & Budgeting Page 35

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Most budgets focus the bulk of their money and time above the line – on branding and acquisition tactics. What may differentiate the companies that are successful in the long term is the degree to which they master conversion and retention, as well as the measurement and optimization skills that bind them all together.

One final aspect worth noting; although there is overlap where a tactic may be applicable in more than one of the areas above, there is often a best fit. In the case of social media, for example, although some companies are using it with varying success for lead generation, there’s no question about its usefulness as a tool for branding and education.

3.1. Digital budget allocation

Figure 8: How does your organization budget for digital; as part of unified or separate budgets?

Number of respondents: 119

Surveyed organizations were roughly split in terms of using an integrated budget or separating it out from offline spending. There’s no tangible advantage to using a separate budgeting scheme for digital, but many companies choose this approach, especially in the early going. Experienced companies may use a variety of budget devices, such as creating silos by goal (acquisition, conversion and branding).

51% 49%

Separate digital and traditional budgets Unified budget

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Figure 9: Percentage of total marketing spend devoted to digital

Number of respondents: 119

Regardless of how it’s structured, most organizations can describe how the digital budget component relates to offline. The average ratio is 23% but that number is misleading in a number of ways. First, that average is pulled upward by the sample itself. Companies available for surveys and interviews about digital marketing are, by definition, more likely to be invested in digital marketing from both a budgetary and attitudinal standpoint. Many companies, small and even some large, have not made significant moves toward digital marketing. Because of how the sample was recruited, these companies are not represented.

Another value that may be more helpful is the most commonly occurring response – the mode. It shows 10%, a much lower digital budget investment.

Another issue with the gross average is that it includes organizations that focus almost entirely on digital marketing. These companies tend to be SMBs, but that’s not always the case; some have annual marketing budgets in excess of $100MM, although they tend to be companies that evolved with or because of the Internet. When those who are spending two-thirds or more of their budgets online are removed, the average drops to 11%, in line with other industry estimates.

A similar drop occurs when size of budget is taken into account. Typically, larger companies that invest in offline brand advertising report devoting a relatively small percentage of overall spend to digital. Using an adjusted average, those with marketing budgets over $10MM spend just over 15% of it on digital.

A more important question than the percentage most companies are spending on digital is whether it’s the right percentage. Many analysts have written about the “digital divide” in

23%

10% 11%

15%

0%

5%

10%

15%

20%

25%

Average Mode Companies with over 65% digital budget allocation removed

Budgets over $10,000,000

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budgeting – that the amount of time consumers and business people spend online has grown much faster than online spending. For a more detailed inquiry, see Section 3.5.

Figure 10: How would you describe your clients’ budget allocations?

Number of respondents: 107

When we asked agencies and consultants about their clients’ budgets, we received a broad range of responses. Nearly half believe them to be overbalanced to traditional, but 21% see the reverse as true. Less than one-third believe the balance to be appropriate.

For the near to mid term, online marketing is clearly in a growth mode. Internationally, consumers and business people are using the Internet more, and in different ways with each passing year. The rise in the mobile internet and mobile applications will only serve to increase the share of time people at every income level spend “online,” although that term will mean less and less as all media increasingly flow through a set of common devices instead of the current, dedicated technology model.

However, most shopping will continue to take place offline. Although digital information contributes to over 50% of all purchases, those purchases are happening in the brick and mortar world. That’s going to keep most marketing dollars offline for the foreseeable future, and it should. We spoke to a number of marketers about their television advertising, and while they all feel the effects of fragmentation, every one reports that television is still the best, and really only, method of reliably generating brand awareness and store traffic on a large scale.

13%

33%

29%

8%

13%

0%

5%

10%

15%

20%

25%

30%

35%

Very overbalanced to

traditional

Somewhat overbalanced to

traditional

Good balance Somewhat overbalanced to

digital

Very overbalanced to

digital

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Figure 11: How much are you going to increase your digital marketing budget by in 2010?

Number of respondents: 119

Globally, online advertising is expected to grow between 10-20% in 2010/2011. Companies already investing in digital may trend higher, as the sample above shows, although most (52%) fall in that range or below.

At the beginning of the online boom, the unique ability of digital to combine measurability with targeting was expected to send advertisers running from the expensive and arcane world of offline advertising. But the truth was that both of these qualities have done as much to hinder the growth of online as to help it.

The downside of measurability is that when we can measure something, we do, and once we start measuring something, we rarely stop. This has given some metrics far more weight than they deserve, and led us to view some digital tactics inaccurately. For example, click rates for banner ads in the mid to late 1990’s were often 3% or higher. This owed to the newness of the medium, but when rates settled into their current malaise (average CTR on a non-rich media ad is generally below one-tenth of one percent) the industry was still addicted to the clickthrough rate.

To this day, no campaign reporting omits the CTR rate as a measure, even though it’s a direct response metric being applied to a branding mechanism. Studies have shown the ability of online ads to do what all other ads do…raise awareness, purchase intent, etc…based on factors like placement, size of ad and frequency. Variations on this theme are true in other areas of online marketing, such as the email open rate.

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Targeting raises its own issues. The most basic for many marketers is that online targeting takes small audiences and makes them even smaller. So, while you may in fact be able to put banners up on sites when diabetic Cadillac owners are visiting, the returns can be minimal for the work involved.

Meanwhile, there is some debate as to the effectiveness of certain types of targeting – does knowing someone came from a golf site always mean you should show them golf ads?

Finally, there’s the growing concern with digital privacy among consumers. The details of how online advertising works are extremely arcane, so the debate is framed by the media and advocates on both sides, rather than the specific concerns of the public.

When asked if one is concerned about being “tracked across the Internet so that you can be targeted as a consumer” one is likely to say ‘yes.’ But if the question were asked “to keep this site free, can we show you ads based on what you’re reading?” the answer might be very different.

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3.2. Art or science? Traditional vs. digital budgeting

Figure 12: How would you describe the way your company allocates digital marketing investment?

Number of respondents: 1,167

Marketers describing their internal processes generate a Bell curve of sorts, with roughly equal numbers describing their budgeting as scientific versus artful and the bulk falling neatly in between. However, their view tends to conflict with that of the agencies and consultants serving them.

That group sees companies using their guts to budget for online; 45% describe their clients’ budgeting as more artful than scientific. In many cases this can be the result of internal conditions or the complexity presented by having access to so much data. Interview respondents represented the full gamut, from those who describe digital as measurable, optimizable, and easy to budget for, to those who don’t rely on any of the numbers because there are numbers everywhere.

An ongoing barrier to appropriate budgeting is the practice of attribution; assigning credit among tactics for contribution to a sale. The attribution schemes at many organizations are overly simplified, giving all or most credit by first or last click. This tends to over-value paid search, for example, which is often the ‘last click,’ because that’s often a navigational click after the decision has already been made. It tends to undervalue tactics that contribute to awareness and research, such as email and SEO. See Section 3.5 for more on attribution.

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Offline budgets are predictably less scientific, with 41% falling on the artful end of the spectrum. However, the measurability of digital media has put offline tactics under significant pressure to prove their ROI. The most basic example might be the use of personalized URLs in conjunction with direct mail.

Figure 13: How would you describe the way your company allocates traditional (offline) marketing investment?

Number of respondents: 1,167

3.3. Key digital budget components Every budget is unique, which makes the identification and use of benchmarks difficult. To help marketers understand how their peers are building their budgets, we’ve started by breaking down the digital budget into its major components (Figure 14), but not every piece falls into a ‘digital budget’ even if there is one. However, in terms of funding, the following pieces generally come from the marketing budget or a proxy, such as ‘lead generation’ or ‘communications.’ For the chart that follows, the sample was limited to those who keep a distinct digital budget.

Website – the term ‘website’ means different things to different organizations – in some cases marketing is responsible for all aspects of website costs, even the technical ones. In others, only those activities which are related to its outward appearance, SEO and visitor-related technology are put against the marketing spend. The range is tremendous, from 2% to 70% in our sample. The average, however, is approximately one-third of the digital budget. The most common allocation (the mode) is 30%.

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Tactics – all of the spending on specific digital activities falls into this bucket, except for the use of outside vendors/agencies and the production of content. Paid search and digital display are the largest expenditures (see Section 3.8 for a detailed look by tactic) globally, accounting for 70% or more of all spending. This is the largest portion of most digital budgets, averaging around 45%, while the most common share is 60%. Smaller orgs tend to spend less on tactics in relation to staff.

Staff – the people responsible for digital marketing, though this designation gets blurrier with each passing year. Orgs spend roughly one-quarter of their budgets on staff.

Vendors – this category includes creative agencies as well as technology providers and other marketing – related vendors. Some organizations rely heavily on outside help, and spend as much as 40% of their budgets here, but the average is closer to 20%.

Content – the smallest budget component for most companies is the creation of content. This is a line item that didn’t exist at most organizations until fairly recently, when the dynamics of selling online conspired to make everyone a “publisher.” For many, the costs of content creation are mixed with those for vendors and agencies.

Figure 14: How does your organization distribute digital budget?

Number of respondents: 119

0% 25% 50% 75%

Content

2% 17% Avg. 8%

Mode 5%

3%

Vendors

Staff

Tactics

Website

40%

42%

68%

70%

12%

5%

2%

Avg. 18%

Mode 10%

Avg. 22%

Avg. 45%

Mode 60%

Avg. 33%

Mode 25%

Mode 30%

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3.4. Barriers to increased online spending The digital divide in spending results from a variety of concerns and conditions. Figure 15 compares how agency personnel and marketers view some of the challenges. In general, marketers are more likely to see macro-level issues as the problem, while their agencies give more weight to the basic problems. The top three answers for marketers speak to the nature of media and the consumer experience – marketing is overwhelming, media is fragmented and privacy is compromised.

Agencies (and more sophisticated digital marketers) are more likely to see the big issues being the conflict between digital and traditional (cannibalization – 41%) and the perennial difficulty in proving digital ad effectiveness. For brand marketers, the top concern may well be the inability of digital to effectively build large audiences. Although the amount of time we spend online is growing regularly and rapidly, it’s divided among so many properties that large, TV-like audiences appear to be unobtainable.

Figure 15: What factors are holding back increased online spending?

Number of respondents: 119

24%

26%

40%

41%

30%

28%

36%

29%

31%

31%

33%

35%

42%

50%

0% 10% 20% 30% 40% 50% 60%

Inability to agree on measurement standards

Inability to aggregate large audiences

Inability to prove brand impact of online ads

Fear of cannibalization of traditional revenue streams

Privacy concerns and regulation

Use of multiple media by target audiences

Audience fatigue with marketing in general

Marketers Agencies

Achieving Digital Balance Principles for Digital Strategy & Budgeting Page 44

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3.5. Determining the “right” digital budget figure Digital marketing allows marketers to do just about anything, and that’s confusing. Where and how to invest become ad hoc decisions. For companies trying to determine whether they’ve budgeted enough for digital, or are just starting out, one approach is the use of knowledge goals in addition, or prior to, standard business objectives.

Knowledge goals have several advantages in that they;

Inform key elements of the strategy moving forward with real learning instead of partial or conflicting data that can come from initial campaigns, tests, etc.

Allow tangible goals to be set before a new program gets launched, in contrast with revenue goals set early that may prove unrealistic.

Set time estimates on learning as there would be on revenue.

Using this approach, seasoned organizations can approach new programs while those new to digital may use this to guide initial budgeting.

Sample knowledge goals for companies establishing a digital budget:

1. What is the competitive landscape for companies/products like ours?

How are people researching/buying companies and products like ours?

How are they finding our company/products online?

Are their habits changing with increased mobile adoption?

What are primary competitors doing? Does it seem to be working?

2. What percentage of our target market(s) can we reach online?

How do the costs of reaching this percentage compare with other media?

What percentage of the total can we reach cheaply online vs. offline?

Is the CLV of the online-accessible share equal to/lower/higher than via traditional?

Are there new markets that may be available through online channels?

3. Where can we find cost savings? [Cost savings]

Where can cheaper digital channels take over for more expensive offline ones?

How would that digital shift affect awareness/market share?

Are there ways in which digital can cut time or expense from customer service or fulfillment?

4. What are the measures and metrics of success?

What are the metrics that will be used by marketing for each channel, audience growth, engagement, etc?

What are the measures that will be used to show business level performance outside to the C-suite?

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5. What digital tactics are a natural fit with our culture, skill set and/or markets?

What digital tactics are a good fit for our existing marketing team?

What would be useful to our target market(s)? Are there channels or programs that are a natural fit?

What skills do the team have/lack that should be utilized for digital marketing?

Should holes in staffing/skills be filled by outsourcing, training in-house or hiring of new staff?

For companies with established digital programs, an ongoing issue for budgeting is attribution. Attribution is the practice of determining and assigning credit to the various touch points in a customer’s purchase process. In a very straightforward example, this process might simply be a keyword search and a click on the first organic link followed by the purchase. In this case, attribution of 100% to SEO is accurate. But that’s not what online purchases usually look like.

A more typical string of interactions might be: product level keyword search / organic link / time passes / email subscription / first email received / direct to site visit / time passes / branded keyword search / affiliate PPC ad clicked / affiliate pass-along / purchase.

In this case the affiliate gets paid for the sale, but how much credit do they deserve? Should that first organic click get 50% along with the last click? Should it be spread evenly among all of the contributing tactics? Clearly it’s a complicated question, and for many organizations, the solution has been the path of least resistance; to assign most or all of the credit to the “last click,” with the first click getting whatever credit remains. Unfortunately, this method doesn’t accurately reflect the nuances of the research process and undervalues the intervening tactics. This often negatively affects nurturing efforts such as email while over-rewarding paid search.

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3.6. Market growth opportunities in 2010/2011 As most industries begin to emerge from the economic downturn that defined 2008 and 2009, it’s worth examining where organizations see their growth opportunities. Acquisition took a back seat to retention at many companies during the downturn, but this shift appears to be readjusting somewhat (for a more detailed look at the balance between acquisition and retention, see Chapter 4).

The ranking of ‘cost cutting and efficiency’ is a promising response for marketing in general. Whereas in 2009 one might have expected this category to be the highest rated, most companies have done what cutting they could do, and are now looking at true growth drivers.

Expanding into new geographies was a higher priority for many companies in recent years than it is now, owing in part to the strength of non-dollar currencies. However, it’s still an important opportunity for more than one-third of respondents.

Figure 16: Where are your organization’s priorities for growth in the coming year?

Number of respondents: 119

17%

32%

37%

53%

61%

32%

41%

23%

35%

35%

51%

27%

40%

12%

4%

0% 20% 40% 60% 80% 100%

Expanding into new demographics

Cost cutting and efficiency

Expanding into new geographies

Up-selling current customers

Expanding within target customer base

High priority Medium priority Low priority

Achieving Digital Balance Principles for Digital Strategy & Budgeting Page 47

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3.7. Digital and offline tactics Budget changes for some of the digital marketing tactics available are explored in Figure 17. More companies are planning on increasing their spend on social media than any other tactic. That’s hardly surprising given the attention paid to social by every size and type of organization and relatively low spending so far. That gulf between attention and real spending is also true in mobile. The question isn’t whether mobile spending will go up (it will - at most organizations there’s nowhere to go but up), but whether that spending will go beyond the experimentation stage.

Underlying the numbers around specific tactics is the general truth that few companies are reducing their online budgets. Even in the most expensive areas – PPC and display – the ratio of those investing more is 5 to 1 to those reducing their spend. That said, these numbers only indicated the share of organizations, not dollars, being invested, and that can be misleading. In 2008/2009, display media saw the largest advertisers pull back sharply.

The most common approach to the balance between digital and traditional was this; use the downturn to justify shaking up the traditional budget lines…reducing costs from brand activities like TV and radio, pocketing most of the difference and bolstering the digital budget with the rest of the savings. There are flaws in this approach, but it’s the reality for many companies.

Figure 17: Is your company planning to spend more or less budget on the following digital marketing channels in 2010?

Number of respondents: 1,167

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3.8. Digital tactics A - Z

3.8.1. Affiliates Used by: Predominantly consumer-facing companies, with some exceptions in the business products and publishing worlds. It's very common for retailers to use affiliates, somewhat less so for most other business types. Companies that do well with affiliates have tangible, trackable conversions with a relatively short sales cycle. Otherwise, calculation of transaction value (or lead quality as the case may be) is difficult for the marketer.

Typical budget allotment: For retailers, affiliates may act as the search-marketing arm of their teams, or simply be an ancillary revenue stream. For larger companies with active programs, affiliates might make up 9-20% of new customer revenue. In general, marketers report spending less than 10% of their digital budgets on affiliates – often much less.

Pros:

Affiliate marketing is a cost effective way to extend one’s brand and products to new in-market customers.

Effective affiliates can add value by creating product specific content. Sites ‘reviewing’ products are often affiliates.

For companies that don’t have the budget or sophistication for a strong paid search program, affiliates can offload that “burden.” Many affiliates are skilled search marketers, which can be an issue for brands that find themselves competing with their own affiliates over search terms, but is invaluable for orgs without a paid search presence.

Cons:

A corollary of the last point, having skilled search marketing affiliates can lead to conflicts, especially if an organization doesn’t keep tight control over its branded and trademarked terms. Companies can find themselves competing with and bidding against their own affiliates.

The vast majority of affiliates will produce little or no results – the 80/20 doesn’t go far enough in describing the real ratio, which might be that 1% of affiliates produce the lion’s share of revenue. But, unless marketers are diligent about scrubbing their lists, those underperforming affiliates are still out there representing the brand, taking marketing time, receiving direct mail, getting educational materials, etc.

Affiliates are singularly dedicated to making money, from you. It is a cutthroat part of the online marketing industry – that’s where it finds its edge. However, marketers need to monitor the communications coming from their affiliates, or risk damage to their brand.

Marketer comments Don’t trust them. Get the contract to be on net and your data. We were burned heavily and just getting back into it. Without a great stats team on your side, you’re going to get burned.”

Online marketing director, consumer publishing

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3.8.2. Display Used by: Brand advertisers, large and small. The vast majority of display ads are bought from a relatively small pool of publishers. Ad networks offer a low-cost alternative to premium space, and advertisers/agencies use data suppliers to target and add value to this equation. Although rich media and Flash have invigorated the creative side of display advertising, the vast majority of banners are still built in HTML, and deliver a simple, static message.

Typical budget allotment: Most SMBs spend little or nothing on mainstream display advertising. They may trade or barter with specific sites or run small, one-off buys with content appropriate sites. For larger companies, or those that are lead-gen focused and can make the numbers work, display advertising is often larger than, or second only to, paid search as a digital line item. Large brand marketers may spend an average of 20%-40% of their tactical budgets on display.

Pros:

Display advertising is a branding mechanism, pure and simple. Although there’s the direct response component of clicks, the incidence is so low (average CTR about 0.15%) that monitoring clicks as a success metrics clouds real campaign effectiveness, which should be measured in brand lift, awareness, etc.

Vast amounts of innovation and technology are being brought to bear on display advertising, giving marketers the ability to target, segment, dynamically generate ads and enjoy creative freedom through rich media.

A variety of networks and network variations offer low cost display advertising and can be coupled with data providers to target ads. The value of these behavioral and demographic data sets is still being determined.

Cons:

For consumer products companies, digital audiences may simply be too fragmented to be able to move large numbers to a store or site. Awareness for new products or brand changes is also a tall order for display.

The creative limitations on most types of digital ad are significant. With the exception of video and rich media (both of which are significantly more expensive than standard buys), online ads rarely communicate much more than the brand and the simplest of messages, even if they try to do more.

The online ad ecosystem is exceedingly complicated (see the great IAB infographic on the next page, mapping the circuitous journey of online ad dollars) and may not be economically viable as it stands. 80 to 90 cents of every dollar is spent on the data, the network, ad serving, etc., while only a few cents go to the publisher in most cases.

Marketer comments “Behavioral experience has been interesting – juice isn’t worth the squeeze – work harder to reach smaller amounts of people – boy, if you could get this right, because we’re niche, it ought to work – but it didn’t for us."

VP Digital Marketing, CPG

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Source: Interactive Advertising Bureau, available at: http://www.clickz.com/_imgs/graphics/050710-virzi-lg.jpg

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3.8.3. Email – acquisition Used by: Acquisition email is used by all sorts of companies, regardless of target market or product offering. However, its use in general and specifically in legitimate consumer marketing has dropped radically in the last 5 years as results declined. It’s considered to be more viable in B2B where lists are of somewhat higher quality and response is higher, if significantly lower than it used to be.

Typical budget allotment: For most companies, the acquisition email budget is zero. It’s a tactic that is falling out of favor, although the economic downturn injected some dollars into the list rental business as desperate companies looked for lower cost leads. That said, a relatively stable 10% of the market has found acquisition email to be an efficient mechanism. For these companies, it can make up 50% or more of the digital budget. For most, however, list rental is a much smaller or non-existent line item.

Pros:

Everyone has an email address, so there’s theoretically no audience too niche.

It’s a way to jump start a campaign or project, because you don’t need to build a list – someone else has done that for you.

For marketers with the patience and skills to make it work, list rental can work.

A wide selection of selects is usually available, and can inform effective targeting.

Significantly better results (and higher costs) in quality B2B mailings.

Cons:

List rental companies require significant vetting, testing and monitoring. The image of a fast, turnkey solution that will garner strong response is increasingly inaccurate.

The price flexibility in the market results from declining response.

Acquisition email in the consumer space may negatively affect brand perception. This is somewhat less likely in B2B, at least in association with reputable vendors.

Initial tests may be thrown off by over-sampling by the list provider.

Acquisition email is often a tactic that marketers experiment with only once.

Marketer comments “Acquisition email barely working…most lists don’t work…prices are so low that we can make it work - sort of…cold lists/high costs…but there’s more price flexibility than there used to be.”

Director of Digital Marketing, training organization

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3.8.4. Email – house Used by: Virtually all sizes and types of marketing organization. House email is the most widely adopted digital tactic, surpassing even search engine optimization. Companies fall into two camps, the first characterized by sending the same messages to their entire database (batch and blast) and the second by more advanced segmentation and messaging strategy. Response rates for the first group have steadily declined while the second group typically reports house email has the highest ROI of any tactic, offline or digital. As a nurturing and retention tactic, email doesn’t get the same level of attribution for revenue, but many believe that a large measure of email’s impact goes uncounted and uncredited.

Typical budget allotment: House email, like SEO, is a tactic for which costs are underestimated and under-budgeted. Most marketers report spending less than 5% of their tactical budget on email, but that number generally underestimates internal resources. Companies with more advanced programs are more likely to utilize an email service provider that offers technology and possibly email strategy and execution, which raises costs, but contributes to a far higher per name value from the list.

Pros:

Email offers a direct, customizable channel to people who are good prospects, whether because they’ve opted into communications voluntarily, or made a purchase.

House email is comparatively inexpensive, even if done well.

Email best practices are well established and easy to find. Companies committed to improving their lists and their email programs have a clear path on how to do so.

In many instances, the “From” name in a commercial email is the recipient’s most frequent brand impression.

Cons:

Email response rates have ebbed slowly but steadily. Current open rates hover in the 10%- 20% range and CTR is generally between 5%-9%.

Email’s use for interpersonal communications has been eroded by the rise in social network use, which may have a long-term effect on the validity of the medium. However in the near term, consumers and business people express a strong preference for email as a conduit for commercially related materials.

The ‘open rate’ is highly inaccurate because the way in which it’s measured is blocked when images aren’t shown. Consumer and business email clients that block images by default have become the standard.

Deliverability refers to whether emails are arriving at their intended locations. Modern email filtering is beginning to use the relevance of the communications sent by an emailer to determine deliverability, which can impact some mailers. The bright side to this method is that it rewards responsible and responsive email programs while punishing the ‘batch and blast’ mailers who fill consumer inboxes with irrelevant, too frequent messages.

Young people show a marked decline in their use of email. However, studies suggest that as people age and enter the workforce, their media habits expand to include email for commercial purposes, if not for interpersonal communication.

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Keys to success:

Segmentation and personalization of content. Identification of segments that behave differently is essential.

Frequency testing to assign appropriate levels to the various key segments.

Design variations to differentiate the emails over time, and to compensate for image blocking and preview pane use.

Spending enough to ensure that content is fresh and entertaining; B2B newsletters are especially vulnerable to becoming a rote exercise.

List cleansing to eliminate inactive email addresses after a set period and implementing a program to reclaim their interest.

Marketer comments “Email coupled with CRM is a cash cow for us. Before it was ‘one size fits all’ and then we moved to a welcome program (3 touchpoints in the first month) and a semi-personalized program. Now, it prints money and we lose fewer people.”

SVP Sales & Marketing, tangible business products

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3.8.5. Mobile Used by: Thus far, mobile marketing has been used successfully by some consumer companies as a branding and DM tool. Success has not been uniform. Mobile is commanding high CPMs as an ad platform. The growth in mobile adoption has generated a high degree of interest across business types, but relatively little experimentation outside of telecom, device manufacturers, mobile-related services, consumer publishing and larger consumer-focused companies.

Typical budget allotment: It’s too early to determine an average budget allotment for mobile marketing. At this stage, organizations that are a good fit for mobile should allot sufficient budget to develop mobile content, test existing web presence for mobile compatibility, educate staff and experiment with the options.

Pros:

Mobile is the growth platform for the foreseeable future, expected to surpass PC access by 2015 (Meeker, 2010) and to be the primary method for getting online for many millions of new users internationally.

Mobile gives advertisers the ability to be with their customers as they move through the offline world. Services and marketing can be customized by location, whether through user self-designations or geo-targeting technology.

Mobile applications give marketers the ability to create or leverage truly interactive experiences that can be entertaining or useful.

Cons:

Mobile has been an exciting ‘new’ marketing channel for nearly a decade, without really panning out in the mainstream.

Applications are flooding the market, so marketers need to be realistic about adoption if they create their own apps. Viral adoption is unlikely without significant marketing support using direct and branding channels. Use of specific apps tends to wane over time unless they provide a valuable and specific utility.

Mobile ad creative is inherently limited by the size of the device (iPads and tablets notwithstanding) and its capability to show more than static ads. Rich media mobile ad networks are in the offing.

Mobile metrics have yet to be agreed upon.

Marketer comments “Just now getting to the point of true learning of mobile. Just barely getting there.”

VP Global Marketing, CPG "We know that 25 percent of the world is online now, but the next 75 percent will mostly get online via mobile -- and mostly in [developing and emerging] markets. This partnership will offer us the ability to work within what we believe will be the future of the mobile internet -- Apps."

Babs Rangaiah, Unilever's Vice President Global Communications Planning, referring to Unilever’s pilot campaign on the iPad

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3.8.6. Paid Search Used by: Virtually everyone. Paid search is second only to (lower cost) house email marketing and SEO in its prevalence, and is far and away the most popular customer acquisition tool available to marketers.

Typical budget allotment: Paid search makes up an average of 40% of tactical budgets on the digital side. However, this is a deceptive average because some companies rely so heavily on PPC that it drags the average upwards.

Pros:

Paid search offers ads to people who are in the process of looking for relevant content, products and services. Response rates are high as a result.

Paid search campaigns can be mounted by individual business people or multinational corporations. Paid search can be started with a tiny budget, and is simple enough to learn that it’s accessible to all levels of sophistication.

As an established discipline, there has been a wealth of knowledge accumulated about PPC. Best practices and insights are readily available.

A wide variety of high-quality, free and paid technologies exist to help manage, track, test and optimize paid search campaigns.

Cons:

Google dominates paid search, and prices have risen as a result. Marketers report good ROI on Bing and other competing properties, but volume of searches presents a problem on most.

As with most marketing practices, PPC requires testing and optimization to remain cost effective.

Some paid search dollars are spent on what are essentially ‘navigational’ searches – where the person would likely have found site anyway, but clicked on a paid link.

Key to success: Paid search has an easily measured ROI, at least for most companies. This means that budgeting appropriately will have more to do with volume of traffic, efficiencies and cash flow than on total budget numbers. Search budgets should be flexible enough to be extended when ROI is high and adjusted when it recedes.

Marketer comments A large number of our interviewees relayed essentially the same message;

“Paid search is reliable but expensive. We are prioritizing the development of our site(s) to try and claim as much of that paid traffic with SEO as we can, and to reduce our paid spending.”

(Paraphrased from multiple interviews)

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3.8.7. SEO Used by: All companies with a web presence, whether they know it or not. Search engines are crawling and categorizing content all the time, but whether companies design their websites and content to be found is another story. Typically, companies that excel at SEO also excel at content development. Although there are a myriad of ways in which people try to game the system, the only reliable way to rank well in the search engines is to produce compelling, relevant content that people link to.

Typical budget allotment: The costs of SEO for organizations that are doing the work in-house are difficult to determine, because the work is technical and tends to involve more time than specific costs. As a very rough rule of thumb, organizations spend approximately 7-10% of their paid search budgets on SEO.

Pros:

SEO is a low cost way of attracting the most relevant possible audience – those people who searched for what you’re talking about (and presumably selling).

Strong search performance is available regardless of budget and company size. Niche content experts who work to stay on top of their topic also tend to stay on top of the search rankings.

Strong organic search performance equates to a more trustworthy brand. Searchers understand that Google et al determine the relevance of a site, even if they don’t understand how – this endorsement carries significant weight.

Cons:

High search rankings are a boon, and highly sought after. There’s competition, both legitimate and ‘black hat’ for every piece of prime real estate.

The methods used by Google and the other search engines to determine page rankings change regularly, to prevent unscrupulous marketers from gaming the system, and to improve relevance. This means everyone has to endure shifts in their rankings, and stay on top of the arcane workings of search optimization.

Key to success:

The most exciting shift in search may be the move to identify, tag and integrate multiple forms of content. Google’s ‘universal’ search includes images, maps, social content, video and will expand to include various ‘augmentations’ to original content. This proliferation creates an opportunity for marketers to expand beyond the web page and take advantage of their ability to create compelling, multi-media content.

Marketer comments “SEO always generates the best leads. Paid is when it’s time to buy – organic is for finding.”

Director Marketing, Financial Svcs.

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3.8.8. Social Social media marketing is a set of tactics that are generally linked by the participation of the customer in the process. Here we’ve included social network marketing, which is simply a variation of display advertising using social space.

On-site social content includes blogs, open comment sections, ratings and reviews and potentially walled content or social spaces only available to certain customers/prospects.

What most think of as social media is off-site social content: Facebook groups and pages, Twitter posts, YouTube channels, etc.

Social network marketing is the traditional approach to the new places where people are gathering. Ads on Facebook, sponsored tweets and in-video ads on YouTube all follow the traditional media-buying model.

Used by: Every type of organization is trying to find its way in social media. Consumer companies have had success in building awareness and other branding techniques while B2B companies find social an route for PR and thought leadership. For the majority of both, the path to return on investment is winding. It’s been estimated that half of all social efforts will fail (Sarner, 2008). That may be an underestimate. Companies that have placed ads across social networks report results that are mediocre or worse from untargeted buys, but see solid returns from targeted ad placements.

Some organizations that have found immediate, practical benefit fit into one or more of the following categories;

Brands with a compelling story – it’s easy to get people to talk about their love of Harley’s or a favorite television show. But brands that discount themselves may be making a mistake. There are aficionados of nearly every product and service offered, just as there are people fascinated by industrial processes or the chemistry of fertilizer. Certainly, some social conversations are non-starters; marketers can’t force people to discuss something that doesn’t interest them. But they can entice through rewards, or approach these topics in smart, related ways that do touch on points of interest.

Thought leaders – social media lends itself to dispersing ideas, and that’s been a boon to consultants and business people with something to say that’s worth hearing. A few companies have been able to achieve the status of thought leaders in the very niche they serve.

Business technology provider Hubspot is a good example; they’ve built a large following by distributing high quality educational content and using social channels, ultimately becoming synonymous with the term ‘inbound marketing,’ which they champion. This serves to validate the company and publicize it to their target market – the same SMB marketers who look to their content for expert advice.

Agile customer service organizations – companies like Zappos and Virgin Atlantic address problems and engender loyalty by monitoring feeds and social sites for customer complaints and comments.

Companies that can take advantage of listening – it can be argued that the most powerful aspect of social media is the opportunity to listen. This practice can have

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profound short and long-term effects on an organization, from identifying issues today to defining the nature of a product offering tomorrow. But listening is the easy part. The challenge for organizations of any size is to analyze, interpret and benefit from what is being said.

Typical budget allotment: Surveys show that the majority of organizations are spending more on social media year over year, but given the starting point for most (the cost of a few hours per week of someone’s time) that doesn’t yet equate to a high dollar amount. Principal costs for social media at most organizations are time spent and content creation. More sophisticated companies may employ social listening or buzz monitoring, social analytics and contracting with social media experts.

Those trying to assign a number to their social media efforts should do so as part of building a social media strategy (see Chapter 2 for more on building marketing strategy in general). Rather than picking social channels and estimating their cost in time and content creation, it’s best to start with goals for social media, and learning objectives. From there, it will be easier to determine the resources required.

Pros:

At its best, social media is an instant and potentially viral, digital version of word of mouth. It can quickly spread information that’s viewed as trustworthy.

Social monitoring provides immediate, unfiltered information about what your customers think of your company, your products and their needs.

Social media activities can help create and support customer advocates – those people who are passionate about a brand and want to talk about it.

“Customer-centric” is a term that many organizations apply to themselves, but not all achieve. At a fundamental level, participation in social activities puts a company in play with its customers.

Cons:

It remains to be seen whether social media will solve the many problems it’s being used to address. Early evidence casts doubt on the value of influencers to business and suggests that traditional lead generation may be more effective than social means.

Competition in some social niches is intense. The number of tweets and posts on many topics is far too high for any one voice to stand out.

Social efforts require maintenance. The vast majority of blogs go fallow after an initial burst of activity. Companies that wade into social media programs without a plan for learning and regular content creation are at risk of wasting their time.

As with many digital channels, there are few accepted standards for the measurement of social activity and measuring hard ROI.

Key to success:

Priming your organization to utilize socially-generated feedback and inspiration is highly rewarding, but challenging because it means involving people from outside of marketing and at every level of the organization. It also requires educating the organization about the nature and power of this information. Using the success of some early adopting companies can be helpful.

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Don’t try to fake the system. As a quick check at TripAdvisor will demonstrate, you can spot the review written by the hotel every time. Authenticity is the power of social media and is tough to simulate.

Don’t let negative comments or worries about them derail the effort.

1. Complaints aren’t nearly as common as positive comments; marketers concerns with them are outsized.

2. Complaints provide useful feedback. Social comments tend to include the ‘why’ of a complaint, rather than slamming the brand.

3. Companies can turn negatives to their advantage using the same social channel, by responding quickly and showing that the complaint is taken seriously.

The key to getting buy-in is to pick one step and focus limited resources there to show success and upgrade the program.

Take advantage of the instantaneous nature of social commentary. For example, the success of fashion or trend-based product companies depends on having a feel for the market and having the manufacturing response to modify and ship in weeks rather than months. Social media provides real-time, unfiltered feedback faster than even retail data.

Social media isn’t a campaign-to-campaign media, so it shouldn’t be funded quarter to quarter. Look to establish a long-term view coupled with long-term budget.

Marketer comments “Social is not just another channel – that misses the true value. It’s a whole new way of connecting to customers and getting guidance in pretty much all aspects of your business” “Don’t get stuck with volume-based measures of success. It’s just like email lists – it doesn’t matter how many names you have or friends or fans…what’s they’re doing or not doing is all that matters.”

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3.8.9. If they had it to spend… We asked marketers an open-ended question about how they would spend new budget on existing programs. Their answers focused on a surprisingly limited number of options.

Most popular:

Paid search – many marketers are frustrated by having clear cut opportunity as shown by the success of limited paid search efforts, but not having the budget to expand. Others can see the potential for PPC to augment their organic search efforts, but are also limited by funding.

Targeted, segmented email – although virtually everyone has some form of house email, a small proportion of marketers are satisfied with their capabilities, or their ability to take advantage of the capabilities they have. With customer retention a hot topic, organizations would like to refine their ability to identify email subscribers and deliver relevant content based on demographic, behavioral and status variables.

More tech – marketers at companies of every size are starving for more technical resources. Marketing is increasingly interwoven with the technical ability to put it into practice and very few organizations have dedicated resources. Those that do, enjoy an edge in sophistication that aids success in their programs.

A similar question focusing on emerging/experimental tactics is addressed in Section 5.3.

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4. Acquisition / Retention “Our long term growth really depends on our best customers – getting more dollars from them, and using them as a bridge to new customers like them.”

Director, Lead Generation, business services

The economic downturn has reminded companies that they ignore existing customers at their peril. Meanwhile, the rise of social media and the ‘democratized’ brand has led to an evolution in the industry’s perception of retention – it’s increasingly seen as a method for the activation and encouragement of customer advocates that assist in acquisition.

Most ‘marketing science’ deals with the activities of attracting new or returning customers, getting them to buy and keeping them engaged/buying over time. The nature of each has changed radically with the digital revolution and many argue that the age of acquisition marketing has come to an end, supplanted by a two-way relationship characterized by a vocal customer, current customers as a source of new ones and customer service as an acquisition and up-selling tool.

The reality is that acquisition will continue to be a primary function of marketing, but organizations that approach the chain of acquiring customers, converting them and bringing them back for further business from a holistic point of view will enjoy greater success at each step. Currently, most marketing budgets aren’t designed with this view in mind, and few organizations are built to optimize customer transit from one stage to the next, let alone a cross-disciplinary approach where learning from each area inform the strategy and tactics of the others.

The average budget is weighted roughly two-thirds to acquisition, one-third to retention, as seen in Figure 18 below. So few organizations have a split-out for conversion optimization that it’s not included here.

Figure 18: How is your budget divided between acquisition and retention activities?

Number of respondents: 119

65%

35% Acquisition

Retention

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We asked marketers whether they were shifting budget in these areas and found only 20% plan to shift budget toward retention. (Figure 19) The majority are maintaining the status quo. This is somewhat in conflict with how many organizations view their opportunities for growth and the high priority placed on retention, as noted in Figure 16 in Chapter 3; a priority is only as good as the funding put behind it.

Figure 19: Is your organization changing its budget allotment in regards to acquisition or retention marketing?

Number of respondents: 119

4.1. Acquisition In a digital context, customer acquisition has several meanings.

Use of the Web to acquire new customers

Use of digital channels to encourage repeat sales (overlap with retention)

Movement of existing customers from offline to online buying

Here, we’ll focus on the first objective, and how it relates ultimately to converting, then retaining that new customer. In a typical approach, the success of acquisition programs is judged based on the two axes of volume and quality.

Volume is straightforward enough, but quality is somewhat complicated. In a B2B context, quality is measured by some number of variables that describe ‘good’ prospects and how they match up to the lead. In the consumer world, quality is not always germane due to the nature of the sales process. When it is examined, it’s often viewed through the lens of customer lifetime value – the estimate of how much money different types of customer will spend over the course of the relationship.

66%

20%

14%

No - staying about the same Yes - shifting to retention Yes - shifting to acquisition

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What’s often overlooked is how the acquisition process will affect retention. The marketing and sales techniques and programs that bring in a new customer may have a positive or negative effect on the long-term viability of the customer.

For example, Apple’s iPhone is famously only available through AT&T for the first five years of its existence. The carrier has gained millions of subscribers as a result. But these customers were acquired on the back of their partner’s product, not by “earning” them. From the outset, the relationship was strained because it wasn’t the result of a real consumer choice. The opportunity exists for AT&T to compensate by rewarding customers and practicing good retention techniques, and it remains to be seen whether the company will be successful in doing so. The point is that acquisition and retention aren’t independent.

Another common example is when customers are brought in at a promotional price that is so low that they’re shocked when the price rises into the normal range. Marketers on the acquisition side will argue that the offer was clear about the price increases, but it’s the retention team that is forced to pick up the pieces.

From the opposite end of the process, Scott Brinker, president and CTO of Ion Interactive, tells the story of how Register.com alienated him as a customer through an attempt at retention. When trying to re-register several domains, he encountered a process that included high prices, implications of savings that weren’t there, unnecessary fees, and the inability to access discounts available to new users.

One option is that marketers judge their acquisition processes with an added, third variable – likelihood of retention. This value, or metric, can be generated simply by soliciting the opinion of the people charged with retention, or through hard data. It should express the expected impact of an acquisition program on long-term retention.

For example:

Likely to contribute to customer advocacy +2

Likely to contribute to customer retention +1

No significant effect (average) 0

Likely to reduce customer retention -1

Likely to create negative advocacy -2

The primary goal is not the generation of yet another metric, but to ensure that this important question (how will an acquisition method affect retention?) gets the attention it deserves. Over time, this process should include more historical data and less conjecture, but this depends on several factors and teams, working together. Information exchange – just as it’s a good idea for Sales to pass lead information back to marketing to make program refinements, so too the retention team should provide feedback to the acquisition and conversion teams on how their programs affect retention.

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Established values for retention – in today’s data-driven world, a value is only as good as the hard number backing it up. Marketers should work toward placing a value on retained customers that goes beyond whether or not they match or surpass a standard CLV. On an individual level, that value might contain some or all of these variables:

Length of relationship – how long a person has been a customer

Dollar value of relationship – how much they’ve spent

Advocacy level – how much do they talk to their networks about your product (requires social monitoring and social CRM)

Related customers – how many new customers were referred (requires pass-along codes or some other tracking mechanism)

Engagement with customer base – if applicable, how much interaction does this person have with other customers and prospects, possibly inside forums, public or private social sites or conversation-enabled site pages.

Internal rewards – few organizations have sophisticated plans for how to reward marketers (and arguably CS staff) based on retention. However, if it’s a priority, it’s essential that systems are put in place to reward retention and the level of customer advocacy.

4.2. Retention Customer retention received unusual attention during the high water mark of the economic downturn in 2008 and 2009. Many companies found themselves unable to attract new customers and found their viability dependent on their existing customers. During roughly the same period, analysis of social media effects led academics and marketing thought leaders to consider the role of existing customers in attracting new ones.

As the economy regains some equilibrium, many companies are returning to acquisition, but some (20% of our sample) are devoting larger budget allocations to retention. We asked them to rank the ways in which that additional budget was going to be spent.

More marketing programs for existing customers 1

Customer loyalty rewards and/or discounts 2

Greater analysis of customer needs 3

Analysis of buying patterns and non-returning customers 4

Improve customer service (handling or technology) 5

Internal rewards for increased retention 6

Analysis of customer lifetime value by segment or behavior 7

The simplest approach to increased retention and up-selling is simply to mount more marketing programs to customers. However this may miss the mark as a mechanism of creating customer advocacy.

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Certainly, greater rewards and discounts can engender loyalty and have the potential to get spread virally, but an approach that acknowledges the democratic brand is to wade into customer needs. This exploration can be accomplished in any number of ways (see section 4.2.3 in this chapter), but one that can lead to surprising results is to analyze commonalities in non-returning customers. It’s disappointing to see improving customer service fall so low on the list; hopefully that’s simply a reflection of how budgets are constructed, implying that money taken from one side of marketing wouldn’t be applied to CS. Rounding out the list are creating internal rewards – an undervalued approach – and analysis of CLV, which may be superfluous to companies already committed to retention.

For those thinking about retention, Figure 20 is a helpful survey of the factors that contribute, or diminish customer satisfaction.

Figure 20: Enablers of Customer Satisfaction

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4.2.1. The role of email In the rush to understand social media and its effects, it’s easy to overlook the primary retention tactic: email to house lists. This practice has suffered at the hands of spam and inbox overload for years, but is still a reliable and cost-effective way of bringing value to customers and offering it to prospects. There are a number of factors that affect email’s contribution to retention;

Are people on the email list targets or members? The most common fault with email programs is that they simply don’t treat their subscribers very well. They offer little in the way benefits that are unique to email subscribers, lack relevant content and mail too frequently. In study after study, consumers have been clear that offering definable value makes email programs more appealing; discounts that are unique to subscribers, early-bird product viewing and always-free shipping are some of the standards.

To simply bombard list recipients with sales materials fails to take advantage of email’s best quality – the ability to connect people with your brand through relevant communication and tangible benefits. It can be helpful to think of email subscribers as if they were the regulars at a restaurant. Regulars get special treatment; they skip lines, enjoy a drink on the house and a good table. Email subscribers usually get treated like the tourists who get seated near the kitchen because the host knows they’ll never be back. This despite the likelihood that email recipients are very likely to be among a company’s best customers, online and off.

Cusomizability is easy with email. A simple preference center can provide the user with some measure of choice, and convey important information to the marketer. Instead of the circuitous route of analyzing and optimizing content based on behavior, a preference center helps them help you to deliver what’s relevant.

In addition to explicit instructions from subscribers, there are various ways in which to segment lists to improve response. Some of the most successful include recency, product associations, activity levels (low and high) and lifecycle related activities.

Marketers frequently ask what frequency is right for their list members. Unfortunately, there’s no one answer that can apply to an entire list. Good customers generally like the emails they are getting, and can often stand to receive a relatively high frequency. Other groups might respond better if they were mailed less often. A/B testing against segments will identify these rates.

The weekly or monthly grind of producing email content can be difficult. Before long, the content can get into a rut, especially as it is often created for a set template that isn’t updated often. For the recipient, this may be dull or fail to catch their interest. One way to combat this problem is by working to provide content that is varied in length, voice, format, and media type. Changing authors from time to time can also keep an email newsletter fresh, although there’s a danger in losing control of the ‘voice’ of the newsletter.

Transactional messaging is a powerful, under-utilized element of email marketing. These messages, which are the least likely aspect of email to be poached by another channel, are typically the most opened and read types of message. Within broad limits set by the CAN-SPAM law, marketers can take advantage of these communications to include relevant sales communication.

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4.2.2. The role of CRM Customer relationship management has a number of definitions and can be extended to include almost any part of a business, but for some time, we have considered CRM to include the following;

1. Managing the online customer experience

– Supporting different customer personas and customer journeys through usability evaluation and web site design. This includes facilitating multi-channel customer journeys involving switching between digital and traditional media.

– Interactive dialogue to support inquiries and sales using techniques such as online sales support, call-back systems (click to call), live chat (click to chat) and co-browsing.

– Providing self-service resources and giving access to a knowledgebase and customer support applications.

– Customization and personalization to provide recommendations at individual and customer segment level.

2. Customer insight

Managing the quality and usage of our knowledge of customers including their…

– Characteristics (who are they?) including managing profiles, segments and email lists.

– Behavior (what they do and when?) including response and purchase behavior.

– Opinions (how do they rate your brand, online services and experiences compared to competitor?).

– Value (how much are they worth?) including loyalty and customer lifetime value measures.

– Attitudes (what do they think?) including surveying/exploring perceptions, satisfaction and loyalty drivers.

3. Email and mobile messaging as part of integrated customer communications strategies

– Outbound – to support initial and especially repeat sales through campaigns and e-newsletters to a house-list. Includes integration with other outbound communications including voice, direct mail and SMS.

– Inbound – answering customer enquiries from emails and web-based enquiry forms (relates closely to online service mentioned as part of online customer experience). Customer Insight

We can add a fourth to reflect the emerging area of social CRM, although it overlaps with some of the functions already mentioned;

4. The collection and analysis of the customer’s relationship with the brand and brand network

In this context, we define ‘brand network’ as the customers, prospects and third parties with

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whom the customer interacts specifically in relation to their status as a current, past or potential customer.

Advocacy level – a measure of a customer’s participation in activities that promote the brand.

Influence level – the customer’s weight as an influencer, which can be described by their rating as a measure of quality (power user for example) and quantity (number of posts, comments, etc.), and may be external or internal to a proprietary social network/forum.

Interaction/engagement – what the customer does, whether in direct or indirect relationship to a product or brand. Do they engage in user discussion groups, tweet about the brand, participate in beta programs, etc. Standard measures of engagement (pages viewed, product features used, etc.) can also be applied.

Sentiment – really a subset of attitudes, sentiment is the result of including automated textual analysis of a customer’s generated content on (and possibly off) site. It can be very powerful to see a significant percentage of active customers move from positive or neutral to negative in response to a change in policy.

Propagation of learning – the lessons of these measures have to be communicated in an efficient manner to relevant parts of the organization to be able to circle back and respond.

As the social components of the customer relationship come to be better understood we’ll see more efforts like the one pictured below, from SAP. The semi-private customer site solicits suggestions for existing products and encourages ideas for products that don’t exist yet. Mixing the fun and creative with the practical and utilitarian is new to many types of business. But if brand relationships are going to attempt to resemble real-world associations, they need to be varied to stay interesting.

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4.2.3. The voice of the customer Most of the ways in which businesses get customer feedback have been in use for decades or longer. But as the customer conversation is increasingly online and part of a group discussion, companies have a new opportunity to listen and learn from their customers, prospects and people who are, from a business perspective, complete strangers.

Insight type Description Sample suppliers Voice of customer / Social listening

Customer perceptions of online and multichannel experience including advocacy. Online reputation (buzz) management tools and tools using semantic analysis to define sentiment, directionality, etc.

www.iperceptions.com www.opinionlab.com www.radian6.com www.bazaarvoice.com

Customer profile data Characteristics of customers in line with segments.

Internal databases

Purchase behavior Transaction history including product category, recency, frequency and monetary value.

Internal databases

Visitor behavior from web analytics

Customer journeys on site and referral sources. Popularity of landing pages, content and products.

www.google.com/analytics www.omniture.com www.clicktracks.com

Audience panel data Audience volume/reach and profile on third party sites.

www.hitwise.com www.comscore.com www.netratings.com

Competitive benchmarking Independent review of web site functionality and features from independent review team or customers (mystery shoppers).

www.globalreviews.com www.psyma.com www.edigitalresearch.com

Campaign response Combination of digital media touchpoints leading to website visits and conversion. Ad network behavioral targeting. Detailed keyphrase analysis

www.atlassolutions.com www.doubleclick.com www.lynchpin.com www.davechaffey.com/seo-keyword-tools

Experimentation A/B and multivariate testing. On-site behavioral targeting. On-site merchandising solutions.

www.optimost.com www.offermatica.com www.omniture.com www.atg.com

The primary difference between the older methods of getting customer feedback and the emerging and artful science of social listening is that the basic premise is reversed. In the old model, companies asked customers questions they wanted answered. In the new model, customers tell companies (or each other) what’s on their mind. In time, it may well turn out that this new way of getting direct, unfiltered customer communication proves to be the true and enduring value of social media.

What is social listening? It’s the use of technology (or the human brain) to listen in on customer conversations and comments occurring in the environment. In the case of marketing, that environment usually consists of on-site locations like a discussion group, comment and feedback fields and blogs, as well as off-site in places like Twitter, public forums and publicly available user-generated content on other websites, like the reviews on Amazon or eBay.

How is it accomplished? At the most basic level, every business can practice social listening, simply by monitoring as many lines of communication as possible. These might include Twitter, Facebook pages, forums and discussion groups as well as review sites, and

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other places where consumers gather to talk, albeit virtually. Manual listening has the advantage of bringing employees into direct contact with customer comments, but isn’t a scalable solution for larger brands and those that engender vigorous discussion. These companies can look to automated solutions that use a variety of approaches to analyze and categorize comments.

What is it good for? Listening provides insight into how people are feeling, what they’re thinking, and what’s important to them. It can provide a take on general sentiment or snare specific suggestions for product design, service changes, etc. In contrast with traditional means (ex: focus groups) that can take months to provide customer feedback, listening provides virtually instant feedback.

What isn’t it good for? By definition, social listening can’t be effective if there’s no conversation. This may be because it simply hasn’t happened yet (an opportunity) or because the people involved don’t talk. For example, sales people aren’t going to share their thoughts on what’s working if they think competitors are listening. Another case is when the target demographic isn’t social, as in the case of CEOs.

But in general, the drawbacks to listening have more to do with the listener than the techniques involved. People are prone to “hear” things that they agree with. It’s also easy to draw far-reaching conclusions from a small set of statements on the assumption that they represent the masses. It’s not what’s being said as much as how companies hear it that determines whether the voice of the customer is an oracle showing the future or a siren beckoning from the rocks.

Why is social listening important? If one accepts the premise that the nature of marketing has changed to reflect customer participation in defining and evolving corporate brands, then social listening is at the heart of that change. If brands are truly in a two-way relationship with their customers, listening is the only way to ‘let them talk.’

The principal challenge for organizations won’t be listening, it will be structuring themselves to take advantage. Most companies aren’t set up to take unstructured information from multiple outside sources, interpret it and disseminate to where it can be helpful inside the company. The implications of the customer conversation go far beyond marketing – into product development, innovation, customer service, etc. – so it’s very difficult for this type of information to jump the wall between silos.

Many online businesses now harness customer viewpoints or innovation through their own programs. Well-known consumer focused examples include:

Dell Ideastorm (www.ideastorm.com)

MyStarbucks Idea (http://mystarbucksidea.com)

BBC Backstage (http://backstage.bbc.co.uk)

Lego MindStorm (http://mindstorms.lego.com/community/default.aspx)

Examples from B2B are less common, but that’s changing.

HSBC Small Business Network (http://network.hsbc.co.uk/index.jspa)

IBM DeveloperWorks (http://www.ibm.com/developerworks)

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SAP Developer Network (http://www.sdn.sap.com/irj/sdn)

Sam Decker, former e-commerce manager at Dell who helped develop the customer-centric strategy for Dell's $8 billion US consumer business, has stressed the importance of this activity by referring to customer oxygen. In Econsultancy (2008) He says:

“Your company needs to breathe ‘customer oxygen.’ The word ‘oxygen’ is important, because it reflects the idea that the customer’s perspective should infuse just about every business decision you make each day. This oxygen should flow from the CEO and beyond, as a customer-centric culture affects every division, department and function.”

He believes this is an ongoing activity rather than the sporadic customer insights collected by many organizations. He says:

“Occasional research insights are important to guide the corporate ship like a compass, but not enough to sustain its course.”

Instead he advises:

“For a corporate system to digest the perspective of the customer, a program needs to integrate into processes, reporting, performance plans and other methods of day-to-day work and accountability. It becomes a program that people in the company can continuously improve, which is something employees are good at doing. Your managers, colleagues and employees can feed on daily customer-focused tactics and metrics that can be part of their job and performance; weaving it into the overall fabric of your company.”

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Will people keep talking? Some marketers express a concern that social involvement with brands is a side effect of the huge upswing in social networking, and that it may ebb as people become more used to the activity. Based on the continued creation of customer reviews, this seems unlikely. However, we explored one angle of this question with consumer in a recent study – asking them whether they had recently chosen to ‘friend’ or ‘follow’ a brand. Responses were then split by the length of time respondents had been on their favored social site.

Figure 21: Have you become a “friend,” “follower” or “fan” of a company or brand name in the last 30 days?

Number of respondents: 1,440

The first surprise was the average response – 37% said they had begun to follow at least one brand in the past month. More surprising was how that broke out by social network experience. It might have been expected that people new to the form, who were still in the early, frenetic stages of developing their networks, would be most active in this regard as well. Instead, it was the established social network users who were far more likely to have made a brand connection.

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4.2.4. Customer engagement and activation As our understanding of the customer-brand relationship has evolved in the social era, the concept of customer engagement has emerged as a key challenge with which digital marketers are increasingly concerned.

Richard Sedley of cScape describes customer engagement as:

“Repeated interactions that strengthen the emotional, psychological or physical investment a customer has in a brand”

…while for Haven (2007) customer engagement is:

“the level of involvement, interaction, intimacy, and influence that an individual has with a brand over time.”

It's this increased connection with the digital customer over time that's the greatest challenge. To take a simple example of this challenge, research by RedEye suggests that over 60% of members of an opt-in, customer email list are typically “emotionally unsubscribed” and do not open or click on emails from a brand within a six month period.

Today, proactively managing consumer participation and conversations that occur through social networks such as MySpace and Facebook, video postings and comments on YouTube and myriad blogs and forums is essential because when a positive sentiment is expressed by a real person independent from a company it confers credibility.

Equally, negative sentiments must be managed. For example, on a site (www.haveyoursay.com), the buyer of a particular car model was critical of its manufacturer, yet for several years the manufacturer did nothing to manage this. The negative comments were visible within Google for anyone searching for that brand. Another example is the post written by marketing guru Joseph Jaffe about an experience with Delta Airlines. His thoughtful but highly critical post from 2008 is still the first response on Google to the query “Delta business class platinum.”

The importance of online customer conversations was well expressed in the ground-breaking Cluetrain Manifesto (www.cluetrain.net, Levine et al., 2000) which remain equally or even more valid as we approach 2020. The book suggests marketers shouldn’t conceive the Internet as an impassive network of hardware and software, but as a means of creating global conversations within markets – a new dynamic dialogue.

These conversations take the form of discussion of the merits or products or brands in social networks or forums, blog comments or ratings on retailer sites.

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We asked marketers to grade their customer base on its level of engagement – a subjective view to be sure – and found only 37% see their customers as somewhat or very engaged.

Figure 22: How would you grade the level of brand involvement of your customer base?

Number of respondents: 119

The question then becomes what to do to increase customer engagement, and to encourage the creation of the customer “advocate” who will discuss a brand (and therefore promote it)? We spoke to a number of marketers about this question and their responses fit into several general categories:

1. Although brand advertising is out of favor because of its cost and relative lack of measurability, it’s still the primary way in which people hear of a brand or new product. It’s also one of the ways in which interest is generated. Even in the Social Media Age, marketers use display advertising of all types to energize consumers.

2. To get people talking, start by listening. This simple message was repeated so often that it’s worth mentioning. The themes that resonate with customers are probably already floating out there in the social ether, whether they’re talking about your brand, competitors or the product category in general.

3. Participation leads to activation. Brands that have team members interacting with customers in forums, social networks, and on Twitter see a higher level of brand advocacy. In part that’s because of the messages being conveyed in these interactions, but it’s also a reflection of the positive brand association that’s conferred on companies that are obviously listening to what their customers have to say, and doing something with that information.

15%

22%

32%

18%

13%

0%

5%

10%

15%

20%

25%

30%

35%

A - very involved customer base

B - somewhat involved

customer base

C - about average

D - somewhat uninvolved

customer base

F - very uninvolved

customer base

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4. Surprise and entertainment count for a lot. Social media is at its best when it mimics life, and that means that the stories that get relayed are one that are funny, unusual or have some practical benefit to the teller and listener. Elements which bring entertainment to the brand experience tend to increase interaction while improving perception. For example, the internal social network of a major soft drink line asks people to align themselves with specific flavors, creating characters based on product characteristics. Not only do customers feel more attached to the brand and spend time interacting with it, but they also convey information about their product preferences.

5. Put brand advocates on the inside track by giving them access to information that isn’t otherwise available. First looks at products, early releases and other proprietary information can give brand advocates content to disseminate to their networks and the feeling of being special to the brand, which they should be.

6. One of the trickier approaches to customer activation is to formally reward brand advocacy with prizes, airline miles or other loyalty arrangements. This seems to belie the authentic nature of true brand advocacy, but some analysts predict the need to systematize the ways in which advocates are rewarded. One way of doing so that won’t raise questions of propriety is to give advocates public acknowledgement on a site or social stream. A little bit of attention can go a long way.

7. At each stage of customer engagement, keep in mind that everyone is different and their motivations and perceptions vary. This is well illustrated by how people engage with ecommerce site navigation. Some prefer to use the site search function, others the menu and still others prefer to use image-driven navigation or a path defined by customer type. Persona design and usability testing coupled with social network observation can help marketers keep these disparate views in mind.

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5. Innovation / Opportunity Cost “When you’re experimenting, you’re experimenting with your brand. Brand presence can be hurt so it’s most advantageous is to approach it within the context of your overall strategy.”

Steve Ennen, Wharton

The rapid evolution of marketing puts marketers under pressure to understand and evaluate emergent opportunities. Digital technologies allow us ‘fail (or succeed) faster’ and learn quickly, often from experiments with little or no hard costs. However, every experiment has an opportunity cost that’s often ignored or underestimated. Opportunity cost is when we can’t do something because we’re doing something else. In marketing, it’s a real threat because time is the most precious resource.

This chapter looks at how companies are approaching experimentation, and the best practices for evaluating which experiments will yield the great results, justifying the time and trouble.

Most companies understand the need for experimentation, but only about 20% have a formal set-aside in their budgets (Figure 23). Nearly 30% will find budget as needed. More than half are either unwilling or unable to do more than the occasional test. Even among those that have experimental line items, it is often the first to be cut.

Figure 23: Which statement best describes how your organization budgets for experimentation with new

Number of respondents: 119

This picture may understate the case at some companies, because they define experimentation as only those tests that involve new or emerging tactics. Tests that seek to refine or augment existing programs aren’t included in their calculation.

20%

28%

40%

12%

0%

15%

30%

45%

Budget line for experiments

Ad hoc budgeting for experiments

Ad hoc, but little budget available

Stick to established tactics

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The percentage devoted to experimentation with new tactics tends to be very small, especially as a share of the large, brand-focused budgets where this line item is likely to be found in the first place. The largest reported share was 5% of the total marketing spend by an entertainment marketing company specializing in music and events. This company serves a young, highly mobile audience and feels the need to stay ahead of the curve. For them, understanding something like Foursquare might be critical to success.

5.1. What drives experimentation? For most companies, there’s a tension between the need to know what’s coming and the fear of committing to an unknown that will end up being a flash in the pan. Digital marketing is littered with good ideas (and bad ones) that fizzled. Companies take different approaches in deciding what tests to pursue, as shown in Figure 24, but themes emerge from the companies that appear to excel at targeting experiments that ultimately contribute.

Figure 24: What are the drivers of experimentation in your organization?

Number of respondents: 119

What should drive experimentation?

1. The top answer among marketers at 52% was that alignment with strategy was a key characteristic in evaluating a potential experiment. Every forward thinking organization we spoke with backed that up. If a new tactic or opportunity appears to fit with strategy, it’s more likely to yield results, but even a failed experiment is valuable, because the learnings apply to an important area of knowledge.

For example, a financial services company we spoke with ran a beta test of an internal user community, which fit with their long-term vision for user-generated customer service. The network was a flop, because its theme was getting better financial results, a

24%

26%

26%

38%

40%

45%

52%

0% 10% 20% 30% 40% 50% 60%

General press coverage

Management pet theories

Social media buzz

Aligned with existing core competence

Analyst recommendations

Competitor efforts

Aligned with long term strategy

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topic members weren’t comfortable talking about. This led to a second trial of a simple user forum focused on how to use product features, which became popular and effective in cutting down CS contacts.

2. Alignment with existing competencies is also an important indicator of success, although it didn’t rank among the top considerations for marketers. The reason is simple; the more familiar the organization is with the terrain, the better it can apply a new technique or technology. If a company has built widgets and understands the principals of atomization of content, it’s more likely to get a mobile phone application right on its first try.

3. In many business scenarios, following a competitor is a good way to stay in second place. But in terms of fielding new technologies, companies can benefit by watching and waiting. If you’re not going to be the first to market, be the best. Calibrate experiments using the public response to your competitor’s efforts, and improve on them.

4. Analyst recommendations are a good way to take advantage of the broad view that an independent third party has of a market space. However, unless they’re very familiar with your company in particular, be wary of points one and two in this list.

What shouldn’t drive experimentation?

1. Fervor and attention don’t necessarily equate to a sound business case. Using buzz in social media or industry press as a guide has led to more failed experiments and wasted time than successes. The frenzy to create Facebook pages by small businesses owes to the coverage that practice has received in all types of media. But for many companies, their Facebook page is sitting quietly, waiting for a conversation that’s never going to happen.

2. Finally, we arrive at the worst reason to mount an experiment, and the one that marketers most enjoyed discussing in our interviews: the dreaded C-level whim. Whether it starts when a child is seen using a previously unknown “hot” website, or in response to a golf partner asking about iPhone apps, experiments that are generated outside of marketing tend to be failures. It’s not always the case, especially when senior management has been with the company from the start, and understands the brand as well as anyone.

Additional Tips:

“Launch and learn” – in theory one of the principal benefits of online marketing is the ability to conduct experiments cheaply and quickly. This should enable learning and optimization. In practice, the rapid pace of most marketing departments leads to an emphasis on launching a project and moving on to the next. This can lead to the ‘launch and leave’ syndrome, which doesn’t take real advantage of the medium and our ability to improve digital content and processes on the fly.

Couple experimentation with training – when starting to work and experiment with a new tactic or channel, organizations can increase their chances for success by supplementing what they’re learning on the job with formal training. This offers best

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practices, inspiration and often a sounding board from experienced, objective professionals.

Patience – the approach of many companies to innovation is missing the key variable of patience. Despite the case studies showing huge results from campaigns that appear to take little time to bring to the market, in reality, success is a slow, iterative process. New programs should have a long runway, with time set aside to learn, answer questions, review and optimize before being scuttled.

5.2. Trends in digital innovation The “latest and greatest” shouldn’t drive company direction or experimentation, but it’s important to know what the industry believes to be a trend or a fad. Their opinions may be helpful in assessing the near and mid-term future.

Figure 25: Rate the following statements from 1 to 10, where 1 = fluff and 10 = game changing truth

'top 3' vote %

Interruption marketing doesn't work - providing value and utility does 62%

We're all publishers - "Content is King" 51%

Social marketing is a necessity, not a tactic 48%

Being the 'voice of the customer' makes marketing more important in the organization 46%

Successful marketing is data-driven 45%

Brands have lost control to the "voice of the customer" 38%

Retention is more important than acquisition 34%

The age of mobile marketing has arrived 33%

Demographics is fading in favor of newer types of targeting 32%

Number of respondents: 119

The top trend in the eyes of respondents was the move away from classic, interruption marketing toward the new model of providing value and emphasizing the usefulness and service around products. This fits with the second highest vote getter, the important role of content in marketing, as it does with the role of social media – the two-way channel for the customer conversation.

At the other end of the spectrum, marketers aren’t convinced that retention trumps acquisition. Nor do they all accept the premise that mobile is pertinent to them…yet. A little less than a third agree with the statement that demographics are giving way to behavioral and other types of targeting.

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5.3. If they had it to spend... In the spirit of inspiration, we also asked survey respondents an open-ended question about the areas of innovation and experimentation their organization would explore if they had the budget to do so. Below are quotes from respondents about some of the most often mentioned areas.

“There’s so much we don’t know. I would kill to have a real infrastructure for measurement and listening. More than analytics – a real listening platform.”

“Content, content, content…did I mention social media content?”

“Multi-media is a huge opportunity that we’re not taking. People are different and they like to consume different types of content – people want videos, podcasts, infographics, slideshows…and all we have are more white papers.”

“We have to find the money for a new content management system – something that lets us channel content the way our site visitors want to see it, and makes it easy to share across the web.”

“Looking to develop content appropriate to each medium instead of repurposing content across platforms. I guess it is called transmedia rather than cross-platform.”

“Ensure social media channels have internal capacity to implement, engage and maintain 'conversations' -conduct experiments with media types, commit to six months minimum, and evaluate growth patterns, insights gained, net promoters created?”

“Let’s kill the campaign end date.”

“Training the whole organization on social media –convert all the employees to marketers”

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6. Inside / Outside “Whether you choose to do something in-house or outsource is rarely a point of differentiation in the short run. But really building an expertise in-house can define a marketing organization over the long haul.”

Director, Lead Generation B2B technology

Marketing organizations have a tendency to oscillate between the poles of internal and outsourced functions. In response to the downturn, some companies pulled funds out of agency commitments and retrenched with house staff, but the primary trend was to cut internal teams, and look to fill the gaps with contract labor and expanded agency relationships (albeit not in the higher cost areas of media buying, making TV ads, etc.) Today, as many departments are starting to expand, the trend is minimize permanent placements with contractors, often the people who were originally laid off.

In this section we’ll present insights from marketers and agency pros to help plan for and optimize the internal and external relationships that can mean the difference between success and failure.

6.1. Skills for a balanced team

“An English degree doesn’t cut it anymore. Now I need some people who can count and write, and some that can just count.”

Director, agency

As more organizations take up the data-driven marketing mantra, the skill sets required are expanding and evolving. Three of the biggest shifts concern the intersection of marketing with data and technology, the increased demand for content creation and management and the need for improved user experience. We asked marketers about the skills they need to succeed in this changing world, and for tips on how to manage them most effectively.

Focus on data and technology

Web analytics is something every organization does, but not all do well. A true understanding of what is happening and why is invaluable and integral to a variety of marketing activities. At issue for many is a disciplined approach to analytics. A focus on learning begins with a schedule for reports, a quarterly or bi-annual review of the information being collected and a process for team members to suggest new areas of inquiry and important questions.

One mistake that was raised by several marketers is the implementation of advanced analytics without the personnel in place to truly take advantage. A rule of thumb

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(admittedly offered by a web analytics guru) is to assume that 20% of the web analytics line item should be spent on technology and 80% on the people to put it through its paces.

A/B testing is simple and effective for a wide range of marketing purposes. A team should have people comfortable with executing A/B testing, and sufficient understanding of how multi-variable testing works to be able to manage an outside contractor or use an ASP tool.

Paid and organic search are so important to most organizations that this is where they tend to have the highest level of technical marketing skills. The companies that are getting the most from their outsourced programs are those who have experienced search marketers on staff.

Display advertising is a significant component of brand-focused companies and one of the most complex of the new digital channels. Even if it’s managed through an agency, the in-house team should be conversant in the wide variety of ancillary technologies that are a part of the display ecosystem, including data providers, measurement services, authentication providers, ad servers and rich media companies.

Finally, teams will benefit from having one or more people who are comfortable with statistics in a general capacity. In addition to many ways in which statistics are integral to database marketing, this skill is invaluable in seeing through flimsy arguments from vendors and analysts alike.

Focus on content creation and management

Marketing is shifting from the campaign model to an “always-on” set of conversations and content interactions. To a degree, this also shifts creative efforts away from the “big idea” toward a collection of small ideas and executions that should be tested and optimized. A well-rounded team will have skill sets that include the following;

The cost-benefit ratio for having landing page expertise is among the most favorable in marketing. Landing page design best practices coupled with the ability to run basic statistical analyses of A/B tests gives marketing departments a powerful way to affect conversion. More than once we heard from marketers that having enough expertise in their department to implement, test and optimize landing pages made them remarkably independent of the technology group.

Even as social media commands the attention of the industry, email marketing is the primary conduit to customers. The understanding of email list segmentation and deliverability are too often lacking.

Social media and PR have merged in many respects. The technical aspects are relatively simple, but quite varied. The skills necessary include familiarity with distribution services, writing press releases with search engines in mind and enough web analytics to be able to track results. Of course, the most important assets in these efforts are a good ear for the needs of the customer and an authentic voice that can articulate what the company is doing to satisfy them.

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Focus on user experience

User experience is a term that is sometimes used synonymously with usability, although the latter is really a sub-discipline. In addition to usability, user experience design can bring together elements of psychology, programming and design, among others. At its root is the goal of improving a person’s interaction with a product, tool, site or system.

User experience is a subjective term, because while you can define specific elements within it (how long it takes to accomplish task A, for example), user experience is a set of feelings brought on by the interaction. For example, the aesthetic components of Apple’s product line contribute to the user experience, although their effect is impossible to quantify.

Usability testing is among the most accessible tests available to marketers. It’s inexpensive and can be carried out quickly. It’s also highly educational and very likely to point out aspects and issues of the tested material that have been missed by the designers. It’s also one of the best ways to foster communication between technical and marketing staffers. Watching someone fumble through a process that was thought to be simple is a better motivator than a sheaf of notes from a product manager.

With the cacophony of individual voices talking about a brand in the social sphere, persona development is an effective and simple way to help marketing organize its understanding of the customer base. By creating a manageable number of distinct personas that represent major customer types, the team can think about how their decisions, technology choices and campaigns will be received.

Listening is a key to a new kind of marketing. The industry is moving away from the inside-out model that has dominated for decades. Understanding the needs of customers depends on hearing what they’re saying, understanding what they’re implying and noticing what they’re not saying.

6.2. Getting more from internal teams

“Constantly teach internally – that’s a differentiator for companies that ‘get it.”

Director, Online Marketing, CPG “Training is powerful for organizations in challenging economic times when people who were wearing two hats now wear seven.”

Ecommerce Manager, consumer electronics website

The skills required for digital marketing are specialized and data-dependent. This means that vital and unique knowledge can rest with a specific individual. When these people, leave, it can have a significant negative impact, especially for mid-sized organizations. The solution is two-fold, including cross-education and old-fashioned retention. Not surprisingly, the factors that contribute to longevity are also those that enable and motivate a highly productive team.

Ownership and involvement in decision-making. Get executives in acquisition or experience to feed into strategy, give their views on how the marketplace is developing.

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Ask each team managers to translate strategy into what this means for their activities. One respondent said: “if you give staff enough ownership, they won’t look elsewhere, but if you don’t they will”.

Skills development. Many staff in digital will look for new opportunities if they are not developing. There's the boredom factor and fear of falling behind in the job market. Arguing for sufficient budget for training or giving staff time to learn online through following blogs and forums are common approaches.

One respondent said: “Generalist experience is a weak way to develop people – so they never get good at one thing. People like to be called experts, so we have developed centers of expertise in areas such as search, usability, email marketing, etc.”

That quote makes sense, but the concepts aren’t mutually exclusive. It’s possible (and maybe advisable) to encourage generalist knowledge, which can disparate team members understand the demands and context in which others operate, as well as the capabilities/limitations of the various disciplines.

Invigorate and share. Described by one respondent as “taking people to a different place, less about training each individual person, but looking at inspiring and involving them in industry developments”. They run 6 monthly workshops with strategic partners, e.g. search and ad agency, who discuss best practice from a range of sectors. It's not simply training, but inspiration.

Participation in digital industry. Digital team leaders should be encouraged to attend conferences and trade shows, get involved in online communities, and involve their staff as appropriate. It’s exciting for people to be mentioned in the press and speak professionally. Companies that encourage this for their employee’s benefit enjoy a

Environment. Making the working environment encourage sharing of ideas, for example through post-project reviews.

In one organization we spoke with, there’s an order from the top to include everyone on the team in all work related topics. Although that might seem to create unnecessary clutter for the people not directly involved in a given project, the results say otherwise; The practice actually reduces overall email volume, because people are naturally respectful of the time that can be wasted. They’re also aware of the scrutiny of the team, so emails are succinct and well thought-out. Finally, it keeps everyone informed and involved, and in a position to offer suggestions or help. Said this CMO, “It’s easy for people to put themselves in each other’s shoes, and because they know about the work the other is doing. I see them helping each other out and really recognizing the contributions of others.”

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6.3. Managing the interface with IT

“We have global tech function…get in line with everybody else, first come first served…unless you’re at global, and then jump the line.” “IT is a brick wall. IT always has opinions on design and usability although they have limited experience of the web environment.”

The availability of tech resources is a significant issue at almost every company. Beyond that, some marketers feel a tension with the IT group (here the term is used loosely to simply mean all technology) and its ability to affect the timing and execution of marketing programs.

There are also horror stories about delays resulting from technology decision making. In one organization, a CMS with specific functionality for managing personalized form interactions had taken 12 months and was still unresolved. It was felt this could have been resolved earlier if signoff from multiple people had not been required, or if the matter could have been escalated in the organization.

Some companies had developed proprietary systems for their businesses. This could prove a constraint since they then become dependent on in-house resource for enhancements. In-house solutions linking to legacy systems are described as "clunky."

Challenges mentioned included:

Inadequate time-to-market for new initiatives.

Achieving response on applications development requirements.

Achieving signoff from multiple signatories.

Achieving share of IT resource.

Agreement on responsibilities of e-commerce and IT.

Defining the business requirements precisely.

Successful companies have achieved adequate response and resource from IT for developing site services. They have a clear process for sign-off and prioritization of new projects and project management.

Less mature organizations have insufficient IT resources or skills to implement strategic e-commerce initiatives without the option to outsource. Possible solutions are listed below.

These include managing some of the development (particularly web interface development and scripting) within the web team and outsourcing some development to agencies.

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The following techniques were mentioned:

Form a digital marketing steering group incorporating the CEO and some senior managers if it fits with the size and culture of the organization. The group will develop and control strategy and will also prioritize and authorize the business case for new applications development or infrastructure projects.

e-Commerce groups own the digital marketing related projects – they write a short business case and manage process. This ideally needs to be a collaborative process, with e-commerce staff and marketing/business staff working together. One company defined a short two-page business case template to make this process more efficient.

Another alternative is to have an e-commerce project or change management role to manage the interface between the business or e-commerce and IT. They have a support role, but the business has to make the business case.

Complete project closedown reviews and project debriefs. These are a classical part of the Systems Development Lifecycle, but often time is not made for these. These summarize variance to budget and timescale targets, what worked well, what worked less well and most importantly recommendations for improvements in future. Several of the respondents explained that these could be a fairly lightweight process (short meeting plus a write-up) and they could be presented as PowerPoints to the senior management team or marketing team to help emphasize the need for process improvements on future projects.

One company has a separate change management team, but this was not seen to help in terms of resourcing. Rather it increases the overhead of managing since they don't understand issues associated with digital marketing projects.

Clear prioritization of change with authorization. One organization has a three level prioritization based on the urgency of the requirement and total task effort: Priority 1 – resolve immediately; Priority 2 – less than 3 days development effort; Priority 3 - larger change - greater than 3 days, which requires a business case with success measures. Changes were prioritized by a weekly web steering group. Use of such a group reduces the problem on providing resource for the business manager who shouts the loudest.

Another manager described a similar approach to prioritization, this time based on task duration. The e-commerce and IT managers work closely together across the desk. This enables them to rapidly review changes required. For example, if an opportunity to improve the customer experience and so conversion efficiency is identified through web analytics, if the change would take less than three days in duration, perhaps involving several team members, then this change is agreed upon immediately with no business case or paperwork. If a change is required between three and 10 days duration, a small team is brought together to solve the problem or exploit the opportunity. This involves a one-page business case and one page specification with design, implementation and testing, all occurring within a 10-day period. For a duration of more than 10 days a detailed business case and review is required.

Co-locating staff – Several interviewees mentioned the benefit of physically locating staff from IT or other teams such as marketing within the e-commerce team or vice

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versa. This is often a temporary arrangement during a specific initiative. In terms of organizational structure, these staff may have a dotted line to the e-commerce manager.

Identification of business case and prioritization of e-commerce functionality are a challenge for many companies interviewed and surveyed. But over half of respondents feel there is an effective process for case identification and selection.

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6.4. Agile systems development methods

“Never enough tech – epidemic. Even at leading firms.”

CMO, association of enterprise businesses

Although many respondents mentioned the challenge of delivering timely web functionality, problems in delivering IT systems projects to meet requirements, budget and time constraints is a challenge common to all IT systems. Prototyping of functionality has seen some success compared to monolithic projects based on the waterfall systems development model, which run for months and years and in some cases never deliver. Recent years have seen online businesses such as Amazon, eBay and Google adopt more responsive agile development approaches successfully adopted. These development approaches enable companies to introduce new functionality more rapidly than competitors and deliver a superior experience or at least trial new approaches.

Although software agile development is the preserve of the IT specialist, we believe digital marketing and e-commerce managers can gain by understanding its principles. They can then adopt or encourage their IT colleagues to adopt some of the principle of agile development or to the select system integrators / suppliers which follow these principles, which we present below.

The essence of agile development methodologies compared to traditional approaches:

.

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Source: Adapted from Shore and Warden (2008)2

The goal of agile development is to create stable releases more frequently than traditional development methodologies, i.e. new functionality will be introduced through several releases each month rather than a more significant release every few weeks, months or even years! “Release Early and Release Often” is the mantra of agile. The approach is sometimes known as "permanent beta."

Examples of an agile approach to marketing digital channels include the introduction and review of Web 2.0 functionality by companies included in this research such as FT.com, Simply Switch and Tui. Functionality that is less popular with customers or less effective in meeting business goals can be also be de-prioritized in the customer journey or switched off more readily with an agile approach! Some elements of approaches from the interviewees that exemplify the approach include:

“We use a light business case for specific functionality– we don’t want to bureaucratize. But do we have very clear high-level business objectives which the new functionality must support”.

“Agile helps us to encourage business and technology teams to work together. It also helps prioritize our functionality and reduces changes to requirements.”

“Systematic development and testing environments are crucial using approaches such as automated testing and regression testing to identify potential problems.”

“We have a very strong QA function, a separate operations unit which includes customer support, project management and user acceptance testing.” [Agile best practice suggests that everyone on the team is involved in testing and QA]

Another difference with agile development is the emphasis on face-to-face communication to define requirements rather than detailed requirements specifications and documentation.

The principles of agile development are encapsulated in the Agile Manifesto (http://agilemanifesto.org) which was agreed upon in 2001 by proponents of previous rapid development methodologies including the Dynamic Systems Development Methodology and Extreme Programming (XP).

The Agile Manifesto is useful in illustrating the principles of agile development since it contrasts with traditional approaches. The text of the manifesto is:

“We are uncovering better ways of developing software by doing it and helping others do it.

“Through this work we have come to value:

• Individuals and interactions over processes and tools

• Working software over comprehensive documentation

• Customer collaboration over contract negotiation

• Responding to change over following a plan

For detailed, practical guidelines on introducing and managing Agile development we

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recommend “The Art of Agile Development” by James Shore and Shane Warden which favors the principles of XP. The main elements of the Agile approach in this book are:

Creation of an Agile team promoting regular face-to-face collaboration between a project manager to manage the overall process, product manager, effectively a customer, representing vision for the development of new functionality; domain experts which in a web context might include customer analysts, accessibility, usability or persuasion marketing experts and the technical team members including designers, information architects, paired developers and database administrators.

Articulation of a clear vision for the product or project deliverables articulating what the project should accomplish, why it is valuable and how the deliverable will be judged against success criteria.

Iterative development occurring in timeboxes of one to three week in XP with a full cycle from planning to release (but longer in other methodologies, e.g. 90 days within prototyping). The aim is limit requirements slippage, to encourage regular review to identify early review of problems and to incrementally add functionality to a system without the need wait for periodic major releases (for example Google continually adds new features to its AdWords advertising system). Best practice is for each team to focus on a single timeframe since multitasking is more inefficient.

Stories (sometimes known as use cases) are used to articulate detailed functions of a system such as completing part of a web form or search functionality. Each timeframe will include several stories that will be reviewed and implemented during the timeframe and discarded if the functionality or implementation is not effective or complete. Stories should represent customer value (not implementation details) and should have clear completion criteria. Stories are owned by the product manager.

Quality development practices are encouraged through minimization of technical debt, which are quick fixes that have a poor design or are insufficiently tested.

Scrum is a related agile development methodology that supports agile software development. Scrum involves these stakeholders including the Scrum Master who is effectively a project manager, the Product Owner who represents the stakeholders such as the business owners and customers and the Scrum Team that includes the developers.

Scrum is based on focused sprints of a 15-30 day period where the team creates an increment of potentially releasable software. Potential functionality for each sprint is agreed at a sprint planning meeting from the product backlog, a prioritized set of high level requirements.

The sprint planning meeting is itself iterative with the Product Owner stating their requirements from the product backlog and the technical team then determining how much of this they can commit to complete during the forthcoming sprint. The term ‘scrum’ refers to a daily project status meeting during the sprint.

For an overview of the process see this download: http://www.softhouse.se/Uploades/Scrum_eng_webb.pdf.

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6.5. Being a better client

“It’s the old story – the agency guys know how to do each little thing better than we do, but they don’t get the brand and the big picture. We’re a mid-sized company, so we don’t get their top guys in the room.” “The best advice is to learn how to do it first, then get an agency when volume requires it. We have over 25,000 keywords, but we know how to manage the agency because we did it first.”

This final section lets agency and vendor representative speak in their own voices, asked what they would tell their clients if they could, to get more from the relationship. In many of the responses, several key themes emerge;

1. Real buy-in from management is absolutely essential.

2. From vendors; support products with people.

3. Let us do the job you hired us to do, unmolested.

Smart, effective clients know they can't possibly be an expert in everything. They put the needs of the business first: they hire people with expertise and listen carefully and respectfully to their advice. Dumb, ineffective clients place the needs of their egos first: they micromanage and keep their agencies in a state of fear.

Make sure your agency makes money from their relationship with you. Your job is to negotiate a fair deal, not to squeeze the agency so tight that they can't breathe. When your agency makes money, they value your business. Their focus is on giving you their best possible thinking. When the agency struggles to make money, their focus becomes about finding ways to give you less to make the account profitable.

Give your agency honest feedback about what's working and not working. When the agency does something you value, tell them right away and be specific. When the agency gets you out of a tough jam, thank them. Agencies are only human: they are as hungry for positive feedback as anyone on your staff. Similarly, when your agency fails tell them right away and be specific. If they're at risk of losing the business, let them know early and give them a chance to course-correct. Don't stew about things and then suddenly lash out.

Bottom line: respect, honesty, loyalty and a spirit of partnership are what makes a client great. Good agency relationships are **relationships**, not contracts.

I also firmly believe these investments are worth their weight in gold when you as a client hit the inevitable rough patch: a smart agency will move mountains for a client who has treated them right in the past.

"If you hire us to help you because we know and understand things that you don't, please help us do our jobs by not second guessing or changing everything we suggest. Certainly ask questions and strive for understanding, but at some point trust that you hired us to help you and that we really want to do that."

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Sounds obvious but I cant tell you how many times a client has gone from in house buying (this is for search specifically) to hiring an agency and the client simply cannot let go of the day to day management of search. These clients tend to want to keep their log ins, change bids or copy (without telling anyone) etc. More often than not this ends badly for both the client and the agency.

Tell me up front if price is the *only* driver, and I can save us both a lot of time. If you send me an RFP, I assume you're interested in details because you're asking for a lot of information. If in the end all you care about is price, don't make me jump through hoops--I don't make any money unless you buy from me, and I sell Cadillacs, not VWs.

Be fair about how you measure results. If you're only looking at click through rates, you haven't given me a fair shake. Talk to me about ROI, a lift in traffic, extension of your brand, conversion rates, etc. Oh, and if you're looking for direct response, don't make me use creative that's not aligned with that goal.

Yes, my wholesale fees go to an "expense" line, but there's also a "revenue generated" line on that same budget. If you cut the "expense" you also cut the "revenue generated" and when the latter eclipses the former, you're still making a lot of money! Duh!

All the best relationships I've had were entirely a function of good communications, often.

I once had a client who was only available from 7:30-8am most mornings -- but he was always there and ready to discuss, direct and approve things. When I've been the Client, I insist on short "standing meetings" a couple days per week for 30 minutes.

Start the business relationship out on mutual ground and sustain it that way, always considering it a two-way street. If your agency falls down in this regard, say so, directly to them. There is no danger in frank, honest, direct dialog on this.

If you are resigning another agency to retain a new one, constructively but surely share your past concerns, issues and hot buttons in detail with the incoming agency. Do this whether they ask you to or not.

If you have a scenario where you expect cross-agency collaboration, multiple agencies working together, do everything in your power to create a healthy, efficient and productive forum for that. This could include sharing during discovery, quarterly all-agency meetings, and any number of other things that foster collaboration to the benefit of your business. Do this whether anyone asks for it or not.

Share as much past legitimate campaign or program level learning as possible at the front-end.

Do a reality check internally as you engage with the agency to make sure your metrics are solid and truly flow from your business context and marketing objectives.

Don't read too many agency bashing articles. Have your own experience and treat it like the business relationship that it is, assuming they will do the same. And when they don't, say so, without waiting too long to do so.

Based on those crystal clear objectives and metrics, make sure the measurement & analysis scenario proposed works for you and the way you report internally. The agency should be setting you up for success internally for reporting on performance. So, the

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measurement construct, reporting frequency, analysis depth and style and all associated stuff should be discussed up front so everyone is on the same page.

Make sure the right person or people on the client side are the ones in fact working with the agency. Don't be afraid to switch or adjust teams to get the most out of the engagement. As you know, the agency will exercise this same prerogative. So, make sure it's the right situation on your side, as well, to get the most out of the engagement.

COLLABORATIVELY DEVELOP GOALS AND FACILITATE ORGANIZATIONAL ALIGNMENT Ideally, project/program goals are developed collaboratively based on business objectives and pragmatism -- to do this, client/agency teams must plan well in advance together. In other words, don't ask your agency for an annual forecast for a marketing program just days before it's due.

Help make sure key stakeholders in your organization are consistently aligned on program KPIs and success measures. The agency can help communicate within your organization (a key value-add), but too often agencies are held accountable for performance standards differing from the ones discussed with day-to-day client contacts.

BALANCE ACCOUNTABILITY AND EFFICIENCY Hold your agency accountable (e.g., review invoices regularly, request reporting, etc.) but not to the point where it notably degrades efficiency and/or the relationship. In other words, don't be an absentee client and don't "haunt your agency's house" every day.

RESPECT YOUR TEAM Treat your team with respect and they will most likely move mountains when a "rabbit out of a hat" is required. Treat your team like indentured servants and they will most likely become cynical and suffer motivation degradation. There is no doubt that clients that respect their agency team members and treat them as partners get higher quality work and deliver when you really need it.

BUDGET FOR UNFORESEEN OPPORTUNITIES (e.g., emerging media) If possible, reserve a small budget to test new media (or twists on new media) -- clients often want their agency to be "forward thinking" but do not plan the resources to test new opportunities agency partners bring them.

BUDGET FOR CONSUMER RESEARCH Reserve some budget for consumer research -- insights are key for your agency to perform for you. It's mind boggling how many "world class" organizations short shrift (or ignore) researching their consumers -- don't be one of those companies.

SHARE INFORMATION Withholding information from your agency is usually self-defeating.

Finally, as a reward for making it to the end of this report, head to YouTube for this hilarious (and insightful) take on the agency/client relationship. It’s decidedly from the agency perspective. We look forward to the client response.

http://www.youtube.com/watch?v=R2a8TRSgzZY

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References and further reading

Brinker, S. (2010) When Marketing Optimization Feels Like Extortion. ChiefMartec, http://www.chiefmartec.com/2010/06/when-marketing-optimization-feels-like-extortion.html

Chaffey, D. with Lake, C. and Freidlein, A. (2008) Managing Digital Channels Best Practice Guide. Econsultancy (UK).

Chaffey, D. Elllis-Chadwick, F., Johnston, K., Mayer, R. (2009) Internet Marketing: Strategy, Development and Practice, 4th edition, Financial Times-Prentice Hall, Harlow, UK.

Chaffey, D. and Smith, P.R. (2008) Emarketing Excellence: Planning and optimising your digital marketing, 3rd edition, Butterworth Heinemann, Oxford UK.

Econsultancy (2008) Breathing customer oxygen: How to build a customer-centric-retail organization. Sam Decker, March 2008, Econsultancy blog, http://www.e-consultancy.com/news-blog/365253/breathing-customer-oxygen-how-to-build-a-customer--centric-retail-organization.html

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