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Dr. Scott Neslin PH.D

Big data is revolutionizing marketing. We now can monitor and measure almost anything in our increasingly interconnected society. Most importantly, we can track the customer’s journey and generate longitudinal data at the most granular level.

This has led me to a provocative question: The customer's journey to what?

Typically, researchers have focused on the customer’s journey as a single purchase. True, there is a segment of customers who are primarily concerned with simple, discrete purchases. But, there is a large a segment of customers who can be enticed to pursue the journey to a long-term relationship with the retailer. When nurtured, these relationship seekers become loyal customers and as a result more profitable.

My research, conducted with several colleagues, suggests two strategies for creating long-term, high-value customers in a multichannel environment. First, to initiate the relationship with an engaging purchase at the bricks and mortar store. Second, to use marketing as a source to create long-term multichannel customers.

Strategy 1: Finally, good news for bricks and mortar:

Some companies view their bricks and mortar channel as an albatross. Instead, my research shows that bricks and mortar stores can play a crucial role in creating high-value customers. This follows from two empirically supported principles:

1. It is easier to create long-term relationships if the customer initially visits a brick and mortar store.
2. It is easier to create long-term relationships if customers initially purchase “fit products.”

 First, a visit to the physical store allows the opportunity to create a satisfying, personal experience. For example, the customer interacts with a sales representative who provides crucial information that engenders trust. This is especially important for newly acquired customers, who are at the juncture of either forming a long-term relationship with the firm or moving on to another retailer.

Second, this experience is most engaging if the customer purchases a fit product. Fit products require physical inspection and the advice of sales personnel in order to ensure customers have found the right product. Think bicycles, footwear or rock climbing gear. In fact, rock climbing gear is the perfect example of a “fit” product. When a novice climber is looking to purchase his first set of gear, he most likely won’t shop around for just any rope, shoes or harness online. He is going to enter a climbing store and ask for an expert’s opinion. This is because, in climbing, the difference between a great time and serious injury (or worse) is dependent on the quality of the gear and how comfortable you are with those products.

These two principles suggest the following strategy: Encourage customers to purchase fit products from the retail store, especially early in their relationship. This is based on a study we conducted with a large national retailer chain that sells outdoor recreation gear, sporting goods and clothing in 140 retail stores as well as online. Our research captured 50,000 customers’ purchase decisions over the course of 2.5 years. Results confirmed that it is easiest to establish long-term customer value when customers purchase fit products from the physical store.
fig1
Sales personnel play an essential role in this strategy. They ensure in-store purchases of fit products highly satisfy the customer. It is noteworthy that after years of being accused of treating sales associates poorly, Walmart is now investing millions of dollars to increase pay and train sales associates. This suggests Walmart realizes the role employees play in nursing the customer through difficult decisions regarding fit products, and engendering the trust that creates long-term relationships.

Strategy 2: Multichannel spells high-value customers

Recently, Amazon has opened physical stores to complement its traditional web based offerings. This provides the previously exclusive online retailer with the opportunity to create multichannel customers. In fact, one of the maxims of multichannel marketing is - the more channels a customer uses, the more profitable the customer relationship.

We conducted a field experiment with a nationwide bookseller in Italy to see if this insight could be made actionable. This retailer sold primarily through three channels – stores, phone and Internet. We used four
distinct marketing campaigns in an attempt to induce customers to become multichannel.

The marketing campaigns differed in their message and use of financial incentive. The message could be either to reinforce the retailer’s value proposition (wide assortment, sales personnel, etc.) or extol the virtues of multichannel shopping. The incentive could entail either price discount coupons or no financial incentive. Images of the communications used in the resulting four campaigns can be seen in Figure 2.
fig2
Campaign A used the multichannel message, and provided three coupons good for a discount in each of the three channels. Campaign B devoted its efforts entirely to the multichannel message, and didn’t include a financial incentive. Campaign C focused on the value proposition message and provided three discount coupons. Campaign D focused on the retailer’s value proposition, but did not provide a financial incentive.

Our findings demonstrate that one of the four campaigns were especially successful at producing profitable, multichannel customers. Can you predict which one? Let’s review the evidence.

We conducted a one-year field experiment with 30,000 customers. We randomly assigned one of the four campaigns to four randomly selected “treatment groups” of newly acquired customers. A fifth group was held out as a control. One treatment group was notably more successful at producing multichannel customers. Figure 3 takes this further and compares profit per customer for each of the four campaigns compared to the control group. Clearly one campaign separates itself from the pack.

Figure 3: Difference in cumulative profits per customer. Four treatment groups compared to the control group (each bar represents one of the four campaigns).

Figure 3
fig3
So, which campaign is the black bar in Figure 3?

It’s the multichannel message/no financial incentive campaign.

Why did this campaign work? It emphasized the objective of the strategy – create multichannel customers by portraying the benefits of multichannel shopping. Importantly, it treated customers as reasonable people. It didn’t manipulate them into becoming multichannel.

We found that the multichannel message/no financial incentive campaign produced the least customer “reactance”. Reactance is a psychological phenomenon whereby customers who feel they are being
manipulated resent the marketing communication and may therefore resist complying with it. For example, a recent study showed that retail bank customers develop reactance to messages that either force customers to use e-banking or punish them for not doing it. The lesson for the multichannel strategy is simple: If your marketing pushes too hard, customers resent it and may resist, even if it isn’t in their best interest.

 The upshot

 We’ve discussed two strategies for producing high value customers in a multichannel environment:encourage in-store purchases of fit products early in the customer relationship, or create multichannel customers. Which strategy you undertake depends on your particular strengths and abilities, and of course both strategies can be pursued.

The physical store/fit product strategy works if you can create an engaging in-store experience in purchase a fit product. Email and direct marketing campaigns can be used to acquire new customers and guide them to making that first purchase in-store. Note, however, the strategy is based on the assumption that your in-store experience indeed is engaging and your sales personnel are well-trained and available. As discussed above, Walmart realized it was not satisfying this requirement and has invested hundreds of million dollars to correct this shortcoming.

The multichannel shopper strategy also works if you can convince customers to shop multichannel. This is easier said than done due to the potential for customer reactance – if you force-feed multichannel customers, they’ll resist. The lesson is to treat your customers as mature adults who will make reasonable choices if presented with cogent arguments.

As you can see, both strategies rely on treating customers well – whether via sales personnel or carefully reasoned communications campaigns. Following this simple maxim will embark customers on a journey
that engages them, engenders trust and ultimately, creates long-term high value relationships.

 

Fostering Long-term Customer Relationships in a Multichannel World