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Outsourcing your Soul: Your Brand
Online Marketing today takes many shapes and forms: search marketing, affiliate marketing, advertising network buys, or hiring “interactive” agencies. One thing holds true in online marketing for retailers – we all live and die according to how successfully one establishes a lifetime relationship with the customer.
Traditionally, the cost of acquiring a customer could be justified by the lifetime value that customer would bring to a retailer over time in the form of repeat purchases and the profit dollars contained therein. However, the retail landscape and the marketing battle for good customers who provide the online retailer a return over time has been turned upside down.
The online marketer today is unknowingly trading the long term lifetime value of new customers for short term gain. New loyalty sites and comparison shopping sites have rapidly arrived on the scene in an attempt to insert themselves between the retailer and the customer. Many have gained a successful toehold and some have taken over even a larger piece of the relationship. Online retail marketers: beware who you establish partnerships with – the site driving a large percentage of your business today could easily become your competitor of tomorrow.
The Internet excels at extracting the information costs from a system. Information costs could include knowing where to find the best price on the latest Digital Camera from Canon or where to find the esoteric accessory for your 1964 Shelby Cobra. The risk here is the frontal attack on a retailer’s brand and the commoditization of the wares the retailer sells. No longer is geography an insurmountable obstacle for customers, an advantage historically afforded to the retailer. It has been made a neutral factor in the retailer-customer relationship. I can be online in California and buy that newest digital camera from a store I never heard of in Sioux City, Iowa. In addition to geography, retailers have historically been able to rely on brand strength. Brand loyalty was once earned, renewed over repeated interactions, and optimally, kept for life. This is becoming less the case as consumers become loyal to price.
With the commoditization of information and new platforms being introduced everyday (making it easy for consumers not only to cross-compare specific product models but also compare prices inclusive of shipping charges and applicable sales taxes) – the game has changed. Customers are now presented with a conundrum – where do I start my online shopping? Do I go to my favorite loyalty site, Upromise, where a percentage of every dollar I spend goes to my 2-years old’s 529 college savings plan or do I go to Shopping.com to see who has the cheapest new Canon A75? The question that should be at the forefront of the online marketers mind is that if I partner with loyalty site U, am I building my brand or Site U’s? In other words, is the loyalty site building loyalty to them or to me, the retailer?
I posit that the new marketing vehicles cropping up online are savvy marketers who are building their brand on the back of their online retail “partners” brands and are therefore diluting the brand loyalty of customer to a retailer and shifting that brand loyalty to themselves. The value that these loyalty sites provides comes in the aggregation of Merchants and their product catalogs bundled with the “discount” provided by the loyalty sites. Often these “discounts” are funded directly and/or indirectly by the Merchants. The irony is that Merchants pay fixed fees and added placement fees on top of private offer rev shares to do business with these loyalty sites. Merchants are selling short the future value of their total lifetime customer value.
Should the online marketer enable these sites by establishing a revenue sharing or cost-per-click relationship with companies like the ones listed above? This is a tough decision for online marketers – a Upromise or Shopping.com can drive full percentages of an online retailer’s total site sales, even in some cases reaching up to the low double digits from a single source. The question then must be asked – who is beholden to whom?
Additionally, sites like Upromise and Shopping.com take a recurring slice of the revenue from the same customer – thus fundamentally eroding the sacrosanct lifetime value of the customer to the retailer. In order to establish a profitable relationship with a customer over time a retailer must increase the repeat purchase rate of the customer. Many of the world’s best retailers know that keeping a customer active and getting them to repeat often is a critical lever in the long term success of their retail enterprise. I argue that partnering with a Upromise or a Shopping.com should be seriously contemplated by the online retailer. Effectively, the online retailer is installing a recurring tax into their business model and paying for the acquisition of the same customer time and time again.
Look at how manufacturers are now able to sell direct. Retailers traditionally provided value to both consumers and manufacturers with distribution, multiple manufacturer selection, and customer service – but now the days are numbered for retailers who do not add value to the retail chain. The last two bastions for a retailer to distinguish themselves lie in selection and service. Retailers continue to contribute value by providing the venue and the opportunity for a customer to “touch and feel” – however look at the advent of the manufacturer direct stores like Dell, Bose, Apple, or Samsung. Manufacturers are cutting out the retailers and selling direct. Can a retail establishment survive and thrive on selection and service alone? This is the pressing question that will occupy retailers in the coming years.
Two major dynamics are in play: Customer Loyalty and Brand Affinity. These two concepts are inextricably linked and exist in a symbiotic relationship. However in today’s online retail and marketing environment the rules have changed and today’s marketer should really think twice about where to spend their customer acquisition dollars. Is advertising with a certain loyalty site or comparison shopping site because “my competitors are there” or because “everyone else is there” worth the long term impact to the lifetime value of my customer(s) and the brand loyalty of my existing and new customer(s)? It’s a question every online marketer should ask and a tough call to make especially with the shifting sands underneath their feet.
Categorised in: Brand
This post was written by DEP Ecommerce Consultants
