Creating profitable relationships from the internet and ecommerce

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Creating profitable relationships from the
internet and e-commerce

• Mungo Dunnett
• Moneyfacts Conference, 8 November 2005

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The rise of e-marketing
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Important new information purchase channel

• The UK is now the fastest growing broadband
  market in Europe with 50,000 people joining up
  every week
• The sectors seeing the largest gains are retail,
  manufacturing and financial services
• The internet has been seen as an answer to
  distribution problems and the intriguing
  correlation between internet users and high net
  worth customers

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E-commerce and the 2005 customer

• The Internet has changed the way customers think
  forever
• Customers can now make remote and immediate
  comparisons between prices and products
• They can orientate themselves and find
  information on the Internet, before they decide
  where to buy or even engage with the company
  directly
• As a result, customers are more selective, but
  also better informed and more assertive
• The FS sector has invested heavily but with
  design and interaction flaws

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Speed is essential get to the point quickly
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You only get one chance
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Simple and attractive functionality
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carried out consistently
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And corporate consistency
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across corporate divisions
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The profit problem
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The impact of increased competition and churn

• The net interest margin of the retail FS sector
  has declined precipitately in the last 10 years
• Repeated entrance of new market-share-chasing
  players
• The larger players are partially protected by
  issues of brand and cross-holdings
• Margin decline on this scale is usually a sign of
  an oversupplied and/or struggling sector
• The impact is causing strategic tactical change
• Management information is now key customer focus
• Acquisition no longer covers all ills
• Relationship management is being (re-)improved
• Distribution channels remain of huge importance

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The problem with e-marketing

• It would appear to offer all the right things
• Low-cost distribution channel
• Without dependence on others
• With the opportunity to partner easily
• And access to the disappearing HNW customers
• But the result has been consistently
  disappointing
• Acquisition volumes are closely tied to best-buy
  status
• Processing issues are expensive and troublesome
• But most of all customers do not generate
  projected profits
• Primary issue lack of engagement with customers

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The main problem that FS customers have

• Emerging repeatedly from research studies
• Customers have little idea how to identify value
  in the financial services market
• This is not the customers fault it never is!
• In the Retailing world, this sort of customer
  confusion is considered fatal
• The pervasive problem with mainstream FS
  e-marketing is that it simply is not conveying
  value only a commoditised convenience

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Making the real comparisons with Retailing

• Commoditisation is the value-destroying enemy
• Where the only reason to buy is price
• But consider, by comparison, your own FS brand
• Who is your target customer?
• What does your brand stand for?
• What is the single thing that makes this clear to
  your customers?
• How does that remain consistent across your
  various touchpoints with your customers?
• E-marketing tends to exist in an organisational
  silo short on insight and cross-divisional
  interactions

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Engaging with e-customers
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Customers are not what they used to be

• Demise of traditional forms of values and
  consumption who or what do we learn from?
• Customer learning a critical challenge
• Implication where do future generations learn
  about your organisation?
• And who do customers now trust?
• Tesco more than the government, the police or
  the Church
• I have had a longer relationship with my
  toothpaste brand than I have had with a person

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Typical flaw in customer management

• Two critical components affecting all contact
  channels
• Lack of recognition
• You dont even know who I am. Im a valuable
  customer, but you dont treat me like one.
• Lack of communication
• You dont even bother to take the time to
  contact me properly. To you, Im just a number
  and youre only interested in me when you want to
  sell me something.

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Build around profitable customers

• A simple concept not all customers are the ones
  you want
• Its not possible to make money out of all
  customers
• Key implication for e-marketing are you simply
  targeting customers whose only interest is rate?
• Or is this the default customer being acquired
  because rate is the only language you use?
• It is strategically essential to identify other
  value generators that are feasible and
  profitable
• Your e-marketing will not create value otherwise

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This requires initial strategic rigour not IT

• Retail financial services does not have a strong
  track record of applied consumer insight
• Systematic search for consumer feedback
  especially from other peoples customers is
  largely absent
• Major organisations have relatively little
  understanding of their own customers experience
• And often become bogged down in customer
  profiling and segmentation without real
  commercial application
• It is essential that you understand what
  effective e-marketing should entail, for your
  target customers

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Price and convenience are not enough

• Many organisations have discovered that high
  levels of service efficiency are insufficient
• Customers will simply take this for granted
• Efficiency is a hygiene item a necessary cost of
  being in the game
• But price is no guarantor of profit
• It will generally guarantee customer traffic
  and even sales volumes
• And competitive pricing is also a necessary
  condition
• But margins are under resultant pressure
• And cross-sales tend not to result unless with
  equally low-margin offerings

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This channel has its own particular dynamics

• At the heart of retail FS difficulties the loss
  of the personal touch
• Competitive pricing and efficient service are
  necessary
• But there needs to be a stronger customer
  connection
• The key factors emerging
• 1) Organisational coherence e-marketing not a
  contact silo
• 2) Intelligent usage of customer profiling both
  elicited and predicted
• 3) Retailing impact anecdotal value experience
• Depends on a properly informed contact strategy
• Radically different from traditional customer
  management

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Summary some themes to consider

• E-marketing strategy is dependent on robust
  insight and evaluation
• The rigour of other necessarily customer-focused
  sectors is vital for FS but particularly in
  the e-channel
• Must identify the key targets for resource focus
• Must understand what makes these customers tick
• As the industry compresses, the dynamics around
  sales volume and market share are changing
• Sustainable e-profit now depends on
  cost-effective targeting of specific customers,
  through defined contact processes, with
  specific messages
• Cannot be done with generic or poorly focused
  offerings

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Mungo Dunnett Associates 11 Polstead Road, Oxford
OX2 6TW Tel [phone] Email
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