Mks cracking the code on winning e-marketing organizaiton

60-Minute Marketing

Cracking the Code on Winning

E-Marketing Organizations

McKinseyMarketing Practice

Overview

E-business is swiftly evolving from the novel to the norm. To ensurelong-term competitive success, you must transform marketing into afleet-footed, highly focused organization leveraging multi-channelassets to deliver a superior consumer experience. What sets apart successful e-businesses is a different approach to marketing structure,process, and skills. To attain a winning e-business position:

Establish networked, customer-centric structures. ■ Organize marketing functions around the customer lifecycle,

and separate acquisition and retention efforts.

■ Assign segment and lifecycle managers who manage migration and loyalty across segments.

■ Establish an independent e-business with its own e-marketing unit;include staff members who act as liaisons to other channels.

Implement 60-minute marketing campaigns based on customer ROI. ■ In the absence of data to measure customer-level ROI, use proxies

such as customer-acquisition costs and profitability.

■ Set explicit priorities, use formal criteria to evaluate success, andswiftly terminate underperforming ventures.

■ Adopt a “rapid rollout” approach to campaigns that skips pre-launch tests and makes necessary adjustments later.

Develop new marketing skill sets. ■ Build a team with specialist skills, and be flexible about who and

where you recruit talent.

■ Recruit from the “bottom up” instead of filling senior positions first.

■ Be sure the CMO acts as the customer’s advocate and ensures that the customer is central to all business decisions.

The business press has recently devoted a great deal of attention

to dot-com failures. But even as this shakeout claimed its

victims, a new breed of Internet winners was quietly emerging.

This group includes both pure plays and online units within

established firms, in both B2C and B2B arenas. What do they

do differently? And what can we learn from them?

Over the past few months, working with Tom Eisenmann and JohnDeighton, professors at the Harvard Business School, we surveyed seniormarketing managers of 65 North American e-businesses culled from thetop 300 Web sites. We assessed company performance using an indexcomprised of several objective measures including sales and profitability,Media Metrix traffic data, and external Web site ratings. Finally, we analyzed these results by comparing high and low performers and fleshedout the differences through more than 30 in-depth interviews.

While most of the companies we studied had sound business models,the performance gap between actual winners and losers was significant.What set the winners apart – and best predicted success – was thatthey approached marketing differently in terms of structure, process,and skills. These high performers:

■ use networked, customer-centric structures and customer lifecyclemanagers to better focus their organization and optimize marketinginvestments;

■ maintain a long-term strategic vision for the business, but use veryshort marketing cycles and optimize their marketing campaigns (at times, every hour) based on customer-level ROI; and

■ use the Chief Marketing Officer (CMO) as a broad powerful advocate of the customer in all decisions, ranging from IT prioritiesto partner selection and negotiation, while quickly building a teamof e-marketing specialists.

McKinsey Marketing Solutions 1


When combined, these elements can lead to e-business success.Applying that formula correctly requires looking at your organizationin an entirely new way.

Establish Networked, Customer-Centric Structures

Most of the winning companies organized their marketing functionsaround the customer lifecycle. They shifted their focus from solely concentrating on customer acquisition to the pursuit of deeper relation-ships with customers (see Table 1). In addition, the high performersseparated acquisition from retention activities. An acquisition teamfocused on bringing in the most profitable customers at the lowest possible cost, bringing to bear branding expertise, and making the righttrade-offs on media and message decisions. The retention team workedtoward getting customers to return, extend the length of their visits,and make repeat purchases, thereby moving along the lifecycle. Withinthe retention group, winners went one step further by establishing segment and lifecycle managers who, together, were responsible formanaging customer migration and loyalty across segments.

Many low-performing e-businesses did not have this organizationalfocus on customer acquisition or retention. Instead they often werechannel-centric rather than customer-centric and organized theirmarketing functions into online and offline groups, based on themedia employed. As a result they risked overspending on customeracquisition because they were less able than the high performers tocontinuously optimize their marketing spend against the lowest-costacquisition vehicles, and they were unable to effectively review thetotal spend on acquisition versus retention activities.


Customer lifecycle managementE-marketing winners have figured out that the key to managing profitsis to understand the different segments represented in their customerbases, identify and market to the segments with the greatest potentialto increase spending, and manage the customers as they move throughthe lifecycle from first-time visitors to “loyalists.” Thus, high performerswere more likely than others to seize the Web’s new opportunities to offer personalized products and services to strengthen customer relationships. In our survey, 57 percent of high performers used customer profiles to tailor their offers, compared to 14 percent of lowperformers (see Table 2). They also aggressively used cross-functionalcustomer lifecycle managers to monitor which customers were spend-ing more (or less) and which were most likely to move up (or drop off)the lifecycle track. This organization difference proved the most significant predictor of high performance.

For example, a pure online player organized its customers into five segments: 1) visitors to the site, 2) “hand raisers” who had requestedinformation, 3) first-time buyers, 4) repeat buyers, and 5) high-worthbuyers. This young company had the foresight to install a dedicated

Table 1 Winners Create Customer-Centric Marketing Organizations

0.25

0.31

0.39

0.44Appoint customer

lifecycle manager(s)

Use personalizedoffers

Statisticallysignificant

Use cost ofcustomer acquisition

as a key metric

Correlation with performance, r2


segment manager to handle its relationship with high-worth buyers,and a lifecycle manager who focused on migrating members of theother segments up the lifecycle to more profitable relationships. Asthe company grows, each remaining segment may grow large enoughto merit its own manager.1

Coordinated multi-channel marketingOrganizing around the customer becomes more complex in the multi-channel environment in which most companies now operate.Companies are struggling to find a solid organizational model, and thetraditional options – either a completely separate or an integratedapproach – may not meet e-business demands.

We found that the higher performers used a coordinated model thatestablished an independent e-business with its own e-marketing unit,and included staff members whose primary function was to act asliaisons to the other channels. At Staples.com, for example, members

Table 2 High Performers Offer Personalization and a One-to-One Relationship with Their Customers

None

Level of personalization

Niche only(e.g., geographic)

14 14

57

14

71

29

Tailored offers based on

basic profiles

Top quartilePercent Bottom quartile


of the customer-acquisition group coordinate with the offline marketingdepartment and review their campaigns for online customer-acquisitioneffectiveness. Naturally, not all the companies we surveyed did preciselythe same things, but four key success factors were evident. For themost part, winners had:

■ an e-marketing organization dedicated to the Internet business, physically separated from the offline marketing group;

■ an e-marketing team recruited mostly from outside the organization;

■ a specific group within e-marketing that served as the liaison to marketers managing offline channels, using clear processes and regular communication so that each channel could leverage theknowledge of the other; and

■ strong processes, incentives (e.g., dot-com stock options for bricks-and-mortar store and catalog marketers) and cultural norms(reinforced by social events) that encouraged cross-channel cooperation.

JCPenney used this approach to successfully leverage its offline assetswhile moving online relatively quickly. It created a separate onlineorganization (including marketing), but ensured cooperation betweenthe Web and catalog businesses by having them share a database, IT,and logistics. This way, the online-business liaison could inform thecatalog business of slower- and faster-moving items, and the catalogchannel could adjust its promotional offerings accordingly.

Of course, this networked customer-centric organization intuitivelyseems complex and slow. But, in our research, the reverse proved true:because this model required such single-minded focus, marketers coulddrill down through the complexities and operate more swiftly and efficiently than before.


Implement 60-Minute Marketing CampaignsBased on Customer ROI

The concept of “return on investment” (ROI) has long been a keymetric to allocate marketing resources in direct marketing. Our winning companies also used ROI metrics for their campaigns, but differed in both the discipline of their processes and the speed withwhich they revised their programs.

When winners lacked the data to measure customer-level ROI, they looked for good proxies. To find the most profitable customers,their CMOs were more likely to cite key marketing metrics of cus-tomer acquisition costs (39 percent) and profitability (26 percent)than their counterparts in bottom-quartile performers (17 and 10 per-cent, respectively). To select and prioritize ventures, 88 percent oftop-quartile companies used formal criteria or review processes, whileonly 40 percent of bottom-quartile performers did so. Similarly, 92percent of winners (but just half of poor performers) used a formalevaluation process to terminate failures (see Table 3).

Winning e-marketing organizations also tracked cross-functional performance. Staples.com, for instance, closely tracked the quality ofcustomer experience in tandem with customer service, using a mix ofquantitative and qualitative metrics: call-center measures, clickstreamdata, direct feedback from on-site viewing rooms and focus groups,and vendor and third-party assessments.

Once they identified the best metrics, the discipline and speed thatcharacterized winners was exceptional: they set explicit priorities, ruth-lessly (and swiftly) terminated underperforming ventures, and ensuredthat marketers managed the innovation process so that new venturesand features were “customer driven,” rather than “technology led.”

For example, one gift site had a quarterly cycle of innovation in whichits marketing group winnowed approximately 30 ideas to 10 possibilities.Senior management reviewed those 10 options at weekly meetings,and then dedicated teams developed a business plan and looked forpartners. Typically, just 3 months separated idea generation from the


appearance of new gifts on the site. The company reviewed each offering’s performance at the next major sales cycle (e.g., Mother’sDay) and quickly terminated unsuccessful launches.

Many companies hardwired a “rapid rollout” approach to their cam-paigns, skipping time-consuming prelaunch tests and instead makingany necessary adjustments once the programs were up and running.

High performers’ cycles were generally far shorter than those of theirlow-performing counterparts, but a number of companies took theconcept to the highest level: they built organizations that could trackresults by the hour and respond to consumer reaction immediately. Forexample, Staples.com refines marketing campaigns several times a daybased on customer response to offers, volume of repeat call-center traffic,and overall customer profitability. It manages vendors daily based ontraffic or campaign impact and shifts its marketing budgets weekly.

Table 3 Winners Manage Pace Through a Disciplined Innovation Approach

14

43More slowly

As quickly

More quickly

43

6488

92

50

40

729

Top quartile

Bottomquartile

Formal criteria/review process

Evaluationprocess

Selection andprioritization ofnew ventures

Speed from newventure idea tolaunch vs. competitor

Venture termination procedure

Percent Top quartile Bottom quartile


Develop New Marketing Skill Sets

E-business success demands marketing skills that exploit the Internet’sunique capabilities to provide real-time feedback and customer intimacy.At the same time we all know how difficult it is to find experienced e-marketers, given the newness of the field and the highly competitivewar for talent.

What differentiated the top performers’ approach to organizationbuilding was their ability to more quickly and successfully build a marketing team that was customer-centric and had the right set ofspecialist skills to succeed in the e-world.

First, they appeared more flexible than the other companies. Theyadjusted their structure to reflect the talent pool they could attractand constantly adjusted roles and structure as they further enrichedtheir team. Instead of waiting for a “super-CMO” who might nevermaterialize, one company settled for two marketing directors who hadcomplementary skills and responsibilities and worked as a close-knitteam. Rather than recruiting for the most senior positions first, winners often recruited “bottom up,” which allowed them to build a talent pool more quickly and gain a competitive edge.

This flexibility was also reflected in where they looked for the skills theirteam required, drawing people without online experience from industrieswhere data availability drove a customer-centric focus. For example, theylooked for CRM specialists in the airline, magazine, credit-card, andtelecommunications industries instead of relying solely on catalogers.

Secondly, CMOs at these top performers played a much broader andmore influential role than we observed in other companies, acting asthe customer’s advocate and ensuring that the customer was truly cen-tral to all business decisions. These CMOs actively influenced decisionsabout IT priorities, potential alliance partners, and key metrics formeasuring partner performance, rather than ceding these decisions toIT or business development. Although the IT and business developmentfunctions did not report to the CMO, the daily interaction among


these functions made them a tightly knit team, and deep knowledge of the consumer had earned the CMO the right to influence decisionsoutside of his or her functional area.

We’re confident that customer centricity, short-cycle marketinginvestment management, and a new integrated marketing skill set will continue to apply as e-business evolves from novel to the norm.Take steps now to transform marketing into a fleet-footed, highlyfocused organization that is able to leverage multi-channel assets todeliver a superior consumer experience. In this way, you will createappreciable value for your company while helping to ensure its long-term competitive success.

1 For a more in-depth discussion of customer migration, retention, and loyalty, please see “The New Physics ofCustomer Loyalty” (McKinsey Marketing Solutions, May 2000). More information on e-CRM/personalization strate-gies can be found in “Online Customer Management” (McKinsey Marketing Solutions, November 2000).

– Nora Aufreiter is a Principal, and Teri Lawver, Pierre-Yves Ouillet, andMary Kate Scott are Associate Principals in McKinsey’s Marketing Practice

For additional information or copies, please call (203) 977-6800 or e-mail [email protected]

12/2000

http://marketing.mckinsey.com

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Mks cracking the code on winning e-marketing organizaiton

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