If companies consider viral marketing and customer satisfaction when identifying loyal customers, they can reduce customer acquisition costs by 27% and can increase average order sizes by up to 60%, according to new research by internet and new technology analysis and measurement company, Jupiter Media Metrix.
The research reveals that most companies define customer loyalty too narrowly and are overlooking key measures of their customers' behaviour. According to the Jupiter Consumer Survey, 45% of online shoppers choose e-commerce Web sites based on word-of-mouth recommendations, yet only seven percent of companies are implementing tools that allow them to identify 'viral influencers' through e-mail pass along rates.
Not tracking customers
According to David Daniels, analyst at Jupiter Media Metrix, "Most companies are not tracking their customers' behaviour adequately enough to understand customer loyalty. Businesses need to identify what influences their customers purchasing decisions and they should start by building a broader view of consumer behaviour. While no single CRM application currently offers a comprehensive view of a company's customers, some wise businesses have devised methods to do so and have experienced a drastic reduction in acquisition costs and significant increases in average order sizes"
Key findings and analysis
Most companies place too much emphasis on only the monetary value when identifying loyal customers, ignoring other softer measures like, for example, customer satisfaction. According to a Jupiter Executive survey, 63 percent
of businesses define loyal customer segments and the value they place on those relationships by customers' spending habits and order values, while just 13% of companies incorporate customer-satisfaction scores. This means that many satisfied and loyal customers whose spending is not in the high-dollar category can be missed altogether. This incomplete approach neglects the potential advantages of viral behaviour and alienates valuable, lower-spending clients who, by their advocacy, could well provide a low-cost pool of new customers that could be tapped.
Under-utilising data
According to Jupiter analysts, most companies are under-utilizing data that they have collected on their customers and are instead using third-party data. A Jupiter survey showed that 60% of companies purchase third-party data to analyse and segment their customers. Many confirmed that they would use third-party data if their budget allowed, while less than one executive in five recognized that they already had enough data collected about their customers.
Jupiter analysts believe that e-mail will dramatically enhance the ability of companies to measure viral behaviour. Since HTML-based e-mail messages can contain links to files remote from a user's desktop, companies can track and measure the pass-along rate of these messages and will soon be able to develop loyalty and retention campaigns that target viral influencers directly.
Identify viral influencers
"To improve their understanding of customer loyalty, companies must implement tools that allow them to identify 'viral influencers' and build a consolidated customer view," Daniels said. "Improved e-mail tracking capabilities and click stream analysis tools are creating greater opportunities for companies to better learn their customers' behaviours. While most CRM vendors only address one or two pieces of the customer data puzzle, companies must rely on multiple vendors. For this reason, businesses should avoid vendors that build their solutions on expensive proprietary data schemes and should instead invest in those built on an Internet architecture."
For an explanation of the methodology of the report, visit www.jmm.com
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