Mass marketing is clearly at a crossroads, as companies recoil from the inefficiencies they perceive in conventional media spending. Magazine advertising pages declined by 11.7 percent last year, the steepest plunge in a quarter century. Merrill Lynch is predicting a 4 percent decline in U.S. television advertising spending this year, following a similar fall last year.
These actions are not simply a reflection of a weak economic cycle. They're the result of a new demand for greater accountability and increased returns from marketing spending. This is driving corporate investment in customer relationship management (CRM) systems. Analysts predict that global spending on CRM will total between $20 billion and $45 billion in 2002.
But marketing executives are beginning to discover that CRM system implementation--in which simple database consolidation can run from $20 million to $30 million--is not an easy fix to the problem of communicating to, wooing and retaining customers. The problem stems from a lack of connection between companies and customers that no information technology system alone can solve. The automotive industry is a classic example of this disconnect. On average, interaction between an auto company and a customer occurs 1.2 times per year. That simply does not provide enough data to answer such crucial questions as, Which people should get what offer on which product at what time?
Embraceable CRM starts with a simple premise: The most important part of the database isn't the base; it's the data.
First, they cannot wait until the first purchase is consummated to begin to understand consumer interests, concerns, desires and habits. The key to unlocking value is to recognize that different customers follow different purchase paths. Effective CRM systems must dive deep into the purchase decision before the purchase is made. Call this purchase-cycle intimacy.
Second, because different customers follow different ownership paths, effective CRM systems must link deeply and broadly to the individual's ownership experience--the consumer's relationship with the car throughout the ownership cycle.
Interactive kiosks in dealerships--or in alternative sales venues, such as malls--are proving to be excellent tools to begin to engage consumers in dialogue.
Acting on these two principles requires companies to bring otherwise separate technology programs together in complementary ways. For example, Internet-enabled communication systems make it increasingly possible to capture valuable insights about consumers in the middle of the purchase process. Interactive kiosks in dealerships--or in alternative sales venues, such as malls--are proving to be excellent tools to begin to engage consumers in dialogue. Online activity at home or in the office represents another vital opportunity to achieve purchase-cycle intimacy. The bursting of the e-commerce bubble should not obscure the fact that some 70 percent of consumers in the United States use the Internet at some point during the automotive purchase process.
Now consider what happens to a company's ability to achieve and use purchase-cycle intimacy when these tailored consumer-engagements move from the Internet into home entertainment centers. With digital video recorders (DVRs) like TiVo being built into set-top boxes, assisted sales processes will occur in the lean-back comfort of the family-room sofa. Although DVR penetration today is low--about 280,000 TiVos have been sold in the past two years--Forrester Research predicts more than half of U.S. households will have interactive TV capability by 2005.
Even with privacy protections in place, the data flowing back to manufacturers and dealers will enable them to tailor follow-up campaigns that effectively bridge the gap between marketing and sales. The ability to develop incentive packages tailored to the way different sets of customers go through the purchase cycle and to get customized packages in front of receptive audiences is vastly preferable to slapping a $2,000 incentive on a vehicle and offering that same package to everybody.
Telematics applications like General Motors' OnStar system return vehicle and customer data to companies, which enable them to shape concierge and maintenance services for individual customers.
DVRs are not the only new communications technology automotive executives must explore. Other technologies are equally important, including peer-to-peer (P2P) and instant messaging (IM). P2P systems such as Napster, LimeWire, and Morpheus are not passing fads, and America Online's instant messaging service is not going away soon. Kids spend hours using these services everyday, kids who are tomorrow's automotive customers.
Rise of telematics
Post-purchase, another interactive technology--vehicle-based telematics--can help automotive marketers comprehend the intricacies of the ownership experience. Telematics are the wireless devices that seamlessly capture and communicate vehicle data, enabling the automotive marketer to understand the driver's usage requirements, influence downstream services, and facilitate remarketing. Telematics, which is growing in use, allow vehicle relationship management to buttress customer relationship management.
Already, the OnStar system and ?black box? programs innovated by companies like General Motors and Peugeot are returning vehicle and customer data to companies, which enable them, in turn, to shape concierge services and maintenance programs for individual customers. A Booz Allen Hamilton analysis projects telematics revenue of $20 billion to $40 billion within the next 10 years.
Adapting to telematics will not be easy for automakers. There is the ongoing difficulty of shifting from marketing that is built on the concept of mass advertising to marketing that is premised on intimate customer understanding. Auto companies also need to overcome their historical ?slow follower? habits relative to technology. And the strategic plays around telematics can be complex, requiring both defensive postures, to protect existing business territory, and offensive maneuvering, to create value beyond the existing business.
The greatest challenge for the manufacturers and the dealers is to partner around this intimate customer information, so that the data can flow seamlessly up and down the chain. Only through such partnerships will the average salesperson be able to craft plans relevant to consumers walking into the dealership, offering each potential buyer excitement shaped by the right value proposition.
That, indeed, is the essence of embraceable CRM--for companies to offer value to individual customers, and to receive leveragable value in return.
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Reprinted with permission from strategy+business, a quarterly management magazine published by Booz Allen Hamilton.