NONE: ONLINE-ADS>> AdTech Coverage: Jason Olim, CDNow / Rpt #4
ONLINE-ADS>> AdTech Coverage: Jason Olim, CDNow / Rpt #4
rhoy_at_o-a.com
Mon, 19 Jan 1998 14:02:05 -0600 (CST)
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AdTech: West Coverage - Session Synopsis: Jason Olim, CDNow, Rpt #4
"Case History: Customer Loyalty is the Name of the Game"
January 19, 1998
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This is the fourth in a series of 10 reports from Richard Hoy, who is
covered the AdTech: West conference in Los Angeles last week. You
will receive these reports in addition to your normal Online Ads
posts/digests.
These reports are archived at: http://www.o-a.com/adtech-archive.html
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This conference coverage is generously underwritten by:
Match.com
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we'll play matchmaker with your product and a half-million affluent
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(like your site, for instance). They are people who are comfortable
with an online commerce environment. In fact 50,000 of them log on to
meet each other every day. That means better targetability for you. We
target your banner based on demographic data supplied to us by each of
our subscribers. That's how we deliver your ad to the individuals you
want to reach. That's how we can offer you exceptional reporting as
well. This Valentine's Day, Match.Com will be a leading online
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Jason Olim, CDNow
"Case History: Customer Loyalty is the Name of the Game"
Reported by Cliff Kurtzman
Jason's central thesis was that loyal customers build companies, and in
this session he provided an excellent lesson on what it takes to build
loyalty among online customers. He also discussed how the web provides
mechanisms and opportunities for creating loyalty that do not exist offline.
Jason explained that it is cheaper to retain an existing customer than
acquire a new customer, and that their data shows that experienced online
shoppers spend 1.5 times as much as newcomers do on their site. In
addition, loyal customers refer new customers and generate greater profits.
Loyal customers also create a positive feedback loop, because the more cash
a company can generate from a customer, the more cash a company can put
towards the customer.
Jason outlined what he believes are the four key drivers of customer
loyalty on the web:
1) an ability to provide a better shopping experience than available elsewhere
2) an efficient and user friendly site design
3) valuable programs and offers available to the shopper
4) meaningful followup and continued dialog
CDNow strives to offer a better music store on the web. They are able to
offer ten times the number of products of a traditional store, along with
services such as 24 hour shopping, music reviews, sound samples, central
customer service, recommendations and reminders.
Jason believes that customer service through an online store like his can
and should be superior to shopping in a retail store. Their goal is to
turn their customers into "raving fans." In an effort to provide superior
customer service, CDNow has implemented a number of policies including
providing web pages and staff fluent in 9 different languages; providing
personal replies to customer questions with quick turnaround; and accepting
returns for any reason.
Jason also emphasized that you need to look at everything you do in terms
of creating merchandising opportunities and closing the sale whenever
possible. Things like reviews and feature articles, having music artists
pick their favorite titles, and annual rankings all create merchandising
opportunities with their customers.
In addition, CDNow has defined a spectrum of incentive programs to build
loyalty among customers. This includes promotions, contests, and rewards
for those that evangalize the site through a site linking program. CDnow
also has developed a system that provide personalized recommendations to
each customer based on their chosen preferences and purchase history.
In addition to communicating with customer's based on their specified
preferences and past behavior, CDNow also follows up with its customers by
providing rewards to its best customers, along with initiatives that
attempt to reactivate lapsed accounts. In the process of doing this,
however, it is important to realize that customers care about their privacy
and will give out personal information only when they see a benefit. All
communications must therefore be relevant to the specific customer and all
requests for personal information must have a perceived benefit to the
customer.
Jason emphasized that every point of contact with customers is critical to
building loyalty, and that cobranded promotions can create additional value
to your customers. However, Jason also noted that sending customers off of
your site compromises customer value and that losing control of the
customer relationship is something you should avoid at all costs.
Regarding the use of advertising to acquire customers, Jason indicated that
they felt that online advertising is very expensive. However, CDNow does
see that advertising can be a viable method of bringing in customers when
the customer value exceeds the advertising cost, amortizied over the
customer's lifetime.
As an example of how this can work, Jason worked through the numbers from a
report by Hambrecht & Quist (these numbers are not necessarily
representative of CDNow's costs of acquiring customers and servicing them):
Given a banner purchase at a $30 cpm ($0.03 per impression) and a 3%
clickthrough rate, the net cost to the advertising web site is $1.00 per
visitor. If they achieve a 3% purchase rate, then the cost per customer is
$33.33.
If the average customer makes a $100 initial purchase with a 20% profit
margin, there is an average profit of $20 on that sale. Projecting that
40% of your customers will return and reorder $150 worth of goods at a
later date, another $12 of profit will be realized. If 10% of your
customers go on to order another $150, then an additional $3 of profit is
realized. A smaller portion of your customers will go on to order even
greater amounts. The net result is that your gross profit margin per
customer approaches $40. If your cost of advertising is $33.33, then you
net better than $6 per customer and can earn a profit.
But Jason also pointed out that there are a lot of assumptions built in to
coming up with these numbers. For example, if you have a 1.5%
click-through rate on your banners, then your cost per customer is $66.66,
and you will lose $26.66 per customer if the other assumptions hold up.
Jason also indicated that CDNow has started advertising offline in venues
such as Howard Sterne's radio show, and based on results so far they plan
to continue such offline advertising in the future.
Related Links:
-------------
CDNow
http://www.cdnow.com/
Online Music Retailer CDnow Hopes IPO Will Generate $60M
Web Week
http://www.webweek.com/1997/12/08/news/19971208-music.html
Web Week
http://www.webweek.com/97May5/undercon/creation.html
Yahoo, CDnow strike a deal
News.com
http://www.news.com/News/Item/0,4,13715,00.html
This ends the fourht report of AdTech: West. Stay tuned for more
post-floor reports, and detailed session synopses in the days
immediately following the conference.
----------------------------------------------------------------------
----------------------------------------------------------------------
This conference coverage is generously underwritten by:
Match.com
Matchmaker, matchmaker, make me a match. Advertise on Match.Com and
we'll play matchmaker with your product and a half-million affluent
singles. Our subscribers are people that are open to new adventures
(like your site, for instance). They are people who are comfortable
with an online commerce environment. In fact 50,000 of them log on to
meet each other every day. That means better targetability for you. We
target your banner based on demographic data supplied to us by each of
our subscribers. That's how we deliver your ad to the individuals you
want to reach. That's how we can offer you exceptional reporting as
well. This Valentine's Day, Match.Com will be a leading online
destination for thousands of singles. We can make that true for your
site, too.
Try Match.Com now and we'll give you three months for the price of
two. To find out more, visit us at:
http://www.match.com/advertising/
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