Accelerate Your 1-to-1 Marketing Capabilities

Why has 1-to-1 marketing improved so little over the years?

The biggest driver of 1-to-1 marketing success is the relevance of the message to your customer. You can have a great offer, but if the product is of no interest to the consumer, the message will most likely be ignored. This is widely known and accepted, yet most companies still fail to match the content of the message to an individual customer’s product preferences and interest areas. Why is this?

In the ’80s and ’90s, the lack of progress could be blamed on the available technology. It simply was not possible to deliver highly personalized, relevant messages cost-effectively. However, as we have progressed through the first decade of the new millennium, e-mail and campaign-management software has improved, Web personalization technologies have gotten better and digital print-on-demand has evolved.

Now, it is not only very feasible to deliver highly personalized communications, but it is increasingly cost-effective. Yet we see surprisingly little high-quality 1-to-1 marketing.

“The in-house model is not conducive to fostering the innovation that will be required to advance 1-to-1 marketing.”

On the surface, this seems puzzling, but a closer examination of organizations and how they execute 1-to-1 marketing programs reveals some basic flaws that are preventing companies from advancing their 1-to-1 capabilities.

What is preventing service providers and their clients from improving their 1-to-1 marketing?

There are two basic business models at play: an in-house agency model and an outsourced model. Each model has a serious flaw that leads to lackluster 1-to-1 marketing—and there is a third flaw that is common to both models.

In the first model, the company is trying to do most of its marketing in-house. The in-house model is usually implemented for cost-containment reasons, and though it might achieve some savings (this is debatable), it certainly is not conducive to fostering the innovation that will be required to advance 1-to-1 marketing.

For example, three years ago, we helped a retail client create breakthrough 1-to-1 marketing programs with highly personalized product offers that were generating double-digit response rates. Then, agency services were brought in-house to reduce marketing expense. Today, the level of personalization used is negligible, and program success rates have declined to the low single digits.

The sad fact is that when the management of the highly personalized programs was turned over to the internal agency, there was nobody on the team who knew (or was motivated to learn) how to manage the required level of complexity. As a result, the internal team simplified the programs to what could be successfully managed without external help, and program performance just about died.

In the second business model, where the client relies heavily on a service provider, the quality of 1-to-1 marketing is likely to be better, but there remains a serious flaw that inhibits 1-to-1 marketing innovation: Service providers and their clients have misaligned economic objectives.

  • The clients want to maximize their return on marketing investment.
  • The service providers want to maximize their own revenue and have the revenue be guaranteed via a retainer.

Maximizing guaranteed revenue is a perfectly rational objective for service providers, but it pushes us into behaviors that don’t necessarily achieve the clients’ objective.

A retainer model achieves the service providers’ objective but does not help clients advance their 1-to-1 marketing, as there is a disincentive for the agency to deliver more innovative marketing recommendations.

“Service providers and their clients have misaligned economic objectives.”

Innovative programs take more time and money to develop, increasing costs for the service providers. Higher costs with fixed revenues is not a business model that agency management is going to support for very long.

Finally, there is a flaw that is common to both in-house and outsourced models: independent management of the various 1-to-1 marketing channels. One person is in charge of e-mail and social media, another manages inbound Web traffic and yet another handles direct mail. In this situation, each manager is trying to drive the maximum amount of revenue in his or her own channel.

This results in overpaying to reach the same customer in different ways, instead of leveraging a customer-centric model and using the various channels in symphony with one another. Not only is this “over-marketing” wasteful, but it is also destructive to the customer relationship—creating the impression that the company does not care enough about its customers to send coordinated messages. In other words, it doesn’t feel like true 1-to-1 marketing to them.

So what can be done to fix these business-model flaws so that 1-to-1 marketing can improve at our company?

If your company has the in-house agency model, you have a tough path ahead. Essentially, you will need to make the case to senior management that this model might appear to save money, but it is reducing revenues via poorly performing programs.

Since it is unlikely that senior management will want to jettison the in-house model completely, you might try a hybrid model. This is fairly straightforward and need not be too expensive—simply identify the weak spots in the current model and use a third party to shore them up.

Here are a few areas where you are likely to need some outside help:

  1. Designing the 1-to-1 marketing vehicle to include personalized content
  2. Managing the individual-level data
  3. Overseeing the correct matching of content to individual

The extra expense of getting this outside help will be more than offset by the increase in revenue generated by more effective programs.

If your company outsources the bulk of the 1-to-1 marketing, a reexamination of the service provider’s compensation model might be in order. The idea is to bring the primary economic objectives of the client and service provider into alignment so that they both win when return on marketing investment increases.

One way to do this is to pay the service provider the way you would a salesperson. Think about the potential shift in focus if the service provider was paid a lower “base salary” (retainer), with “commissions” (bonus payments) earned based on marketing performance, as opposed to a full retainer. It would lead to more innovative 1-to-1 programs, because the more effective they are, the more the service provider gets paid.

Finally, if you are managing your channels independently, you need to find out which combinations of channels and message sequencing are most effective with customers. By approaching it like you are trying to have a conversation with the customer, you will start off on the right foot.