A Monograph on Dialogue Marketing


Submitted to
ICFAI Marketing Mastermind

By
Dr. Kumuda Tripathy
M.A., Ph.D.
Faculty Member
ICFAI Business School
Pune, Aundh-411 007
 


Introduction

A latest development in relationship marketing creates a continuous dialogue with customers, allowing them to hear just what they need to know, just when they need to know. Promotional messages don't work if customers aren't receptive to them. To boost the odds of being greeted by eager eyes and hungry ears, marketers ask question that targets their audiences, who should receive the message? What should the content of the message be? How should we deliver the message?

The one question they rarely ask is, when should we deliver the message? Yet in marketing, timing is arguably the most important variable of all. Promotions are like weather reports and news bulletins- people need them when they need them. Too early, and they are forgotten. Too late, they are ignored.

Most people don't want to hear from most companies most of the time, and in an era of marketing overload characterized by irrelevance as well as volume unsolicited communication can provoke apathy or even worse, resentment. The business press has lately described a chaos scenario in which traditional media (television and print) and established formats (the 30 second spot) are in decline but new, more effective media and formats are still evolving. In the messy interim, advertisers find their message not being absorbed or even noticed, let alone acted on.

However, there are moments in a customer's relationship with a business when they truly want even need to communicate with that business. Their life has changed. Their desires have changed. Their perception of the business has changed. If companies contact them with the right message in the right format at just that moment, their chances of a warm reception rise. But few companies sync communications to milestones or transitions in their customers' lives.

The question "when?" -  Like most marketing questions can be answered by technology: specifically, by a new computer based model called "Dialogue Marketing". Dialogue marketing is, to date, the highest rung on the evolutionary ladder that ascends from database marketing to relationship marketing to one-to-one marketing. Its principal advantage over those older approaches is that it is completely interactive, exploits many communications channels, and is "relationship aware": that is, it continuously tracks every nuance of the customer's interaction with the business. Consequently, dialogue marketing responds to each transition in that relationship as it occurs at the moment the customer requires a particular type of attention. Dialogue marketing is getting good results in several industries, including retail, hospitality, travel, financial services, media, packaged goods, and telecommunications.

Modern Marketing Doctrine

Modern Marketing Doctrine is founded on the primacy of databases, which allow companies to segment customers into demographic and psychographic clusters. In basic database marketing, analysts query database at marketers' behest and produce lists of customers in various subgroups. The marketers then use batch communications to send members of those subgroups nearly identical messages at infrequent intervals, according to the company's schedule. Most of those messages are designed to sell products.

In the 1980s, database marketing spawned relationship marketing, which shifted the emphasis to retaining and nurturing clients. Data segmentation grew more sophisticated as marketers studied differences in customers' profitability and calculated their lifetime value. A decade later, one-to-one marketing sought to exploit the web's powerful assertion, "I know who you are", by creating personalized messages for individual customers. But one-to-one marketing rarely strays beyond the borders of the internet. And while it addresses the question, "what should the content of this message be?" that is necessary not a sufficient improvement.

The Dialogue Model

The Dialogue Model is a product of database technology and personalization philosophy marching forward in tandem. While dialogue marketing has the body of a software system, it possesses the soul of a sales person. Great salespeople understand that customer relationships are built, maintained, and expanded through dialogues, which take place one after another over time. A dialogue is, very simply, a series of outreaches and responses between a company and a customer ideally leading to some action on the part of the customer. The person or software conducting a dialogue "listens" to the customer's needs and choose the content and channel of communications based on what the customer says and does.

So, for example, a dialogue might begin when a company's system sends an e-mail inviting the customers to visit a web site for information. When a week passes without the customer clicking on the embedded links, his silence triggers the next step in the dialogue an alert to a sales person to make a call. The system waits another week after that human contact and then shoots the customer clicks through to the site, and his choices there automatically queue new interactions.

That step-by-step, wait-and-respond approach distinguishes dialogue marketing from its forebears. But the model's most distinctive characteristic may be its attention to the temporal dimension of customer relationships. Time, literally, is its essence. Dialogue marketing systems are very sensitive to the interval between purchases, movement along loyalty curves, and increasing and decreasing frequency of physical and online visits. Such data registers in these systems as transition or events and each time one occurs, the software automatically commences an appropriate dialogue with the customers. Transition may be positive (indicating an increase in business or loyalty) or negative (indicating a decrease in business or loyalty). All transitions present opportunities to engage the customer anew.

The Nature of Changes

No two companies collect identical data, and so each will define the specific transitions that trigger customer dialogues. In general, transitions reflect a change either in the customers' life or in his relationship with the business. They are particularly valuable in the creation and operation of complex loyalty programs. A company might set dialogues to launch when a customer,

  • Makes a purchase in a new category
  • Buys a brand so frequently that he qualifies as a zealot;
  • Exceeds a certain monetary value in a year and thus qualifies as a VIP
  • Crosses a threshold in a loyalty program
  • Request a change of address, indicating a household move;
  • Purchase an item that indicates a major life change such as an infant car seat, or a large project such as a sink or cabinets. (Dialogue system can also incorporate data from third party vendors that track the issuance of new mortgages, opening of college savings accounts, and other commercially available data.)

Once a transition triggers a dialogue, that dialogue often moves the customer to another transition, at which point a new dialogue with a different goal kicks in. for example, a major regional grocery chain identified a tipping point: people who ordered from its website more than four times were very likely to become regular customers. The company's technology staff programmed its dialogue-marketing system to respond to new customers via e-mail, using steep store-financed discounts to push them aggressively through those first four purchases. After purchase number four, the system automatically begins generating less expensive treatments, for example, offering only trade promotions financed by consumer goods manufacturers.

Other transitions represent not an opportunity but rather a threat usually, that a customer will defect. For example we will take a airline industry, which is offering to a high end customer. Now the company is practicing dialogue marketing, the system detects the customer's failure to book a flight for several months and sends a message to a service representative asking him to call and try to rectify the problem. If the customer complains of poor service, the representative logs the details into the system, triggering the creation of written apology signed by an executive and including an incentive to return automatic upgrades or frequent fliers miles, for example. If the accounts remain inactive, then the next month the system sends another note with a reminder about the incentive. If yet another month passes, he gets a call from a senior customer-service manager. When he finally buys a ticket, the system launches a dialogue for a special treatment of saved customers.

As this example illustrates, dialogue marketing considers not just when to communicate but also how to communicate: dialogues play out across multiple channels depending on the content of the message and the urgency of the situation. Some customer actions will trigger the system to respond immediately, with a personalized e-mail, a personalized piece of direct mail, or an alert to a salesperson to make a call. Other responses will lay the ground work for future interactions. The system might store a personalized message at the point of sale to be delivered when the customer next visits, or send the message to a call center representative to be used when the customer phones or might place customer-specific content on a web site in preparation for a virtual visit.

Customer value is another major consideration in channel choice. Before launching its resource-intensive retention dialogue, the airline's system would establish that the customer in question is top tier, based on their previous and predicted purchasing. If the customer qualified as only medium value, the system might mail them a message, either electronically or by placing their contact information on a direct mail list together with personalized content for the message. A low-value customer might receive an e-mail or nothing at all if he is not profitable or not online. This portfolio of approaches is another way in which dialogue marketing improves on most one-to-one initiatives.

A Dialogue for every Season

Customer relationships are rich in transitions and events. At different times, companies will need to talk people into a commitment or out of a defection, over a conceptual hurdle or through a complex process. Working with their technology departments, marketers can design repositories or houses of dialogues that manage every category of customer interaction. Once the software engine is rolled out, marketers can gradually phase in those dialogues, monitoring their effectiveness and optimizing them until they achieve their desired ROI.

Every company's house should eventually contains four types of dialogue that scale upward in sophistication and ambition.

1. Foundation Dialogue

As their name suggests, foundation dialogues manage the fundamentals of the customer life cycle: the marketing version of Shakespeare's seven ages of man. These dialogues require only basic data, such as a customer's name and contact information. They do not demand significant process changes or cross functional coordination. Examples include:

I. Acquisitions- Acquisition dialogues aim to bring in new customers. They start out in batch fashion with a targeted audience and grow more specialized as prospects respond.

II. Service Follow-ups- Follow-ups might begin with a thanks-for-your-recent-purchase message, a notification that an item is ready for pick-up, or a simple satisfaction check. They then unfurl into additional offers of help.

III. Win-Backs- Win-backs dialogue launch in response to defections: when a customer asks to terminate her cell-phone-service plan or cancels a magazine subscription, for example.

2. Level I dialogues

Each of these product or event centric dialogues is named for the type message that starts the

exchange. More sophisticated than foundation dialogues, they leverage customer purchase data that may include such information as price or deal sensitivity. Integration with inventory and other systems requires greater IT participation. Examples include:

I. Event Notification: Notification dialogues draw on geographic data and purchase histories to invite select customers to marketing events.

II. Repurchase Reminders: Repurchase reminders are gentle nudges to purchase of consumable products such as laser printer cartridges, paper, sneakers, drill bits, oil, and light bulbs that it is time to buy again. Dialogues marketing systems can be programmed to correlate an individual customer's purchase of such a product with the known life span of that product.

III. Inventory and Price Alerts: Inventory alerts announce new arrivals and promotional items of presumed interest. For example, a shipment of Celtic folk CDs to a music retailer would automatically trigger messages to customers whose purchasing histories are Rife Clanned and the Chieftains. Loyal customers can receive advance notice of price changes, having first crack at a markdown or sale.

IV. Overstock Outreaches:  These dialogues launch when overstocked items are about to be marked down. Before prices are slashed, the system seeks customers who have bought such items before and might do so again, perhaps because they are approaching the next level of a loyalty program or because the last such item they purchased is due to expire.

3. Level II Dialogue

These dialogues draw on individual customer's purchasing patterns or on predictive modeling to influence the progression of the relationship with that customer. They require a sophisticated understanding of a customer's history with the company and considerable cross-functional coordination as everyone from corporate buyers to executives gets involved. Examples include.

I. Defection Interventions: Defection dialogues are triggered when the system detects early warnings signs, such as a decline in purchasing frequency. They rely on predicting modeling and so are distinct from win-back dialogues, which launch after a customer has already been lost.

II. Life Cycle Progressions: These dialogues move customers through states of increasing loyalty. For example, when a customer approaches the highest tier of the company's loyalty program, life cycle dialogues automatically contact them with a message such as, "you are only one to visit away from our total diamond reward level"

III. Category RFM Transitions: These dialogues allow category managers, merchandise managers, buyers, and product managers to respond to changes in customer's individual RFM scores within their categories.

IV. Brand RFM Transitions: These dialogues allow brand managers to respond to changes in customers' individual RFM scores within their brands.

4. Level III Dialogues

Level III adds a physical element to dialogues. These on-site interactions-although just feasible now-will likely be common in the future, when customers carry RFID cards into stores or key their identities into smart shopping carts. As they shop, customers will receive personalized messages on their cell phones or PDAs, or on screens scattered around the store. Those messages will draw on the same data other dialogue-marketing applications use. So a book buyer passing the cooking section might receive an alert that only $20 separates him from the store's Chef's Club and its 25% discount.

That final, futuristic category of dialogue is especially appealing because it reaches even beyond "when" to answer the question of "where"- drilling down to the very aisle a customer is passing. For now, through, marketers must focus in timing as they seek to bind customers more closely.

CONCLUSION

The technology to conduct dialogue marketing exists today, and will only get better. Marketing organizations will need to collaborate with their IT departments to develop or install these systems, but once they are in place the demands on IT will decline significantly as dialogues fire off automatically, without any need for additional database queries. Ultimately, such systems will prove far less expensive than trying to field a service staff large enough to handle the many complex circumstances and evolving states that customer relationships present.

Turning a traditional marketing strategy into a dialogue marketing program is a straight forward matter. Begin by identifying the communications you make with customers in a batch fashion, and then ask yourself what events could trigger those communications to make them more timely. Add a question or call to action to each message, and prepare a different treatment or response for each possible answer. Finally, create a series a increasingly urgent calls to action that kick in if the question or call to action goes unanswered.

Companies that blast frequent, irrelevant messages dilute their brand equity. What customers want is great service and a consequently excellent experience across all channels. For those reasons, we believe that many elements of dialogue marketing will be ubiquitous in five years. Companies that adopt the dialogue model early can rise above today's unwelcome din and become not just the voice that customers hear but also the one they listen for.

References

www.dialmkg.com
www.alliancedatasystems.com/oursolutions/ loyaltymarketing /dialogmarketing.html - 20k
www.strandconsult.dk/products/p08.html - 13k
www.maritzloyalty.com/loyalty-dialogue.html - 9k
www.it-director.com/article.php?articleid=12815 - 33k
www.inwardconsulting.com/ dialogue_mktg.html - 17k
 


Dr. Kumuda Tripathy
M.A., Ph.D.
Faculty Member
ICFAI Business School
Pune, Aundh-411 007
 

Source: E-mail June 21, 2006

     

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