Tuesday, July 17, 2001

Identifying Loyal Customers Could Increase Order Sizes

Jupiter Media Metrix, a global leader in Internet and new technology analysis and measurement, today reports that companies considering viral marketing and customers' satisfaction when identsifying loyal customers can reduce customer acquisition costs by 27 percent and increase average order sizes by up to 60 percent. New Jupiter customer relationship management (CRM) research reveals that most companies define customer loyalty too narrowly and are overlooking key measures of their customers' behavior. According to a Jupiter Consumer Survey, 45 percent of online shoppers choose e-commerce Web sites based on word-of-mouth recommendations, yet only seven percent of companies are implementing tools that allow them to identify 'viral influencers' through e-mail pass-along rates.

"Most companies are not tracking their customers' behavior adequately enough to understand customer loyalty," said David Daniels, analyst, Jupiter Media Metrix. "Businesses need to identify what influences their customers purchasing decisions and they should start by building a broader view of consumers' behavior. While no single CRM application currently offers a comprehensive view of a company's customers, some wise businesses have devised methods to do so and have experienced a drastic reduction in acquisition costs and significant increases in average order sizes."

Key findings and forward-looking analysis from the latest Jupiter CRM research—which will be discussed in further detail August 22 and 23 during the "Customer-Centric Operations" showcase at the four-day Jupiter CRM Forum in Las Vegas—include the following:

- Most companies do not look beyond monetary metrics when identifying loyal customers. According to a Jupiter Executive Survey, 63 percent of businesses define loyal customer segments and the value they place on those relationships by customers' spending habits and order values, while just 13 percent of companies incorporate customer-satisfaction scores. Jupiter CRM analysts have found that customers tend to be loyal to merchants that win their trust over time via a series of positive events, and many satisfied and loyal customers whose spending is not in the high-dollar category can evade a company's radar screen altogether. The incomplete approach companies currently use to identify loyal customers alienates valuable, lower-spending clients who may provide a low-cost means of customer acquisition when they make recommendations to others.

- Companies are not using customer data effectively and are allocating their customer and marketing analysis dollars incorrectly. According to Jupiter analysts, most companies are underutilizing data that they have collected on their customers and are instead using third-party data. According to a Jupiter Executive Survey, 60 percent of companies purchase third-party data to analyze and segment their customers. Furthermore, 58 percent would use third-party data if their budget allowed, while just 17 percent of executives said they recognized that they already have enough data collected about their customers.

- Jupiter analysts believe that e-mail will dramatically enhance the ability of companies to measure viral behavior. Since HTML-based e-mail messages can contain links to files remote from a user's desktop, companies can track and measure the pass-along rate of these messages (60 percent of online individuals have the ability to read and accept HTML-based e-mail) and will soon be able to develop loyalty and retention campaigns that target viral influencers directly.

"To improve their understanding of customer loyalty, companies must implement tools that allow them to identify 'viral influencers' and build a consolidated customer view," Daniels said. "Improved e-mail tracking capabilities and clickstream analysis tools are creating greater opportunities for companies to better learn their customers' behaviors. While most CRM vendors only address one or two pieces of the customer data puzzle, companies must rely on multiple vendors. For this reason, businesses should avoid vendors that build their solutions on expensive proprietary data schemes and should instead invest in those built on an Internet architecture."