AARHUS     UNIVERSITYE-CRM: THE CONVERSION FUNNELJacob L. Orquin, Ph.D.Department of Business AdministrationAarhus Univers...
AARHUS  UNIVERSITYOVERVIEW               The talk will cover three areas of e-CRM:               1. Acquisition           ...
AARHUS          UNIVERSITYTHE (E)CRM CYCLE“What is e-CRM? Customer Relations Management with an ´e´? Ultimately, E-CRM can...
AARHUS      UNIVERSITYPART 1: ACQUISITIONAcquire web site traffic› Cost Per Click (CPC)› Search Engine Optimization (SEO)A...
AARHUS       UNIVERSITYBUDGETING FOR ACQUISITIONBorrowed from Hoffman & Novak (2000) note that there are no budgetallocati...
AARHUS          UNIVERSITYACQUISITIONAn overview of traffic sources.Chaffey (2007)                                  ASB AU...
AARHUS         UNIVERSITYCOST PER CLICKAdvertisers pay only per click/visitor.                                          AS...
AARHUS        UNIVERSITYSEARCH ENGINE OPTIMIZATIONAdvertisers seek to optimizie their ”organic” position on specificsearch...
AARHUS        UNIVERSITYCOST PER ACTION/ACQUISITIONAdvertisers pay per action or conversion only                          ...
AARHUS           UNIVERSITY COST PER ACTION/ACQUISITION Advertisers pay only per action or conversionChaffey & Smith (2008...
AARHUS       UNIVERSITYCOST PER MILLEAdvertisers pay per 1000 impressions                                       ASB AU    ...
AARHUS        UNIVERSITYCOST PER MILLEThe impact of interactive advertising; the click-through has gone from 7 % in 1996to...
AARHUS       UNIVERSITYVIRAL MARKETINGAdvertisers are guaranteed a minimum amount of impressions. If theviral spread is ob...
AARHUS       UNIVERSITYTRAFFIC SOURCESWeb site traffic is almost always distributed on several sources, e.g.CPC, SEO, CPA,...
AARHUS       UNIVERSITYPART 2: CONVERSIONConversion rateThe ration of web site visitors whocomplies with a desired action,...
AARHUS       UNIVERSITYTHE CONVERSION RATEFunnel conversion rateThe image shows a funnel conversionrate on a typical websh...
AARHUS            UNIVERSITYATTRITIONReasons for attrition                     frequencies   Self-reported reasons forUnex...
AARHUS       UNIVERSITYOPTIMIZING CONVERSION RATEOptimizing the conversion rate is often a question of designing theuser e...
AARHUS        UNIVERSITYWHAT TO OPTIMIZEwww.conversion-rate-experts.com/articles/101-google-website-optimizer-tips/   ASB ...
AARHUS       UNIVERSITYONLINE MARKETING ROIThe ROI on online marketing activities depends to a large extent onthe conversi...
AARHUS   UNIVERSITYPART 3: LOYALTY & RETENTION                              ASB AU                                MAPP
AARHUS        UNIVERSITYSATISFACTION AND LOYALTYSatisfaction is a strong predictor of customer loyalty both offline and on...
AARHUS       UNIVERSITYCOGNITIVE/BEHAVIORAL LOYALTYDel Giudice (2005) found that cognitive and behavioral loyalty is affec...
AARHUS   UNIVERSITYRETENTION IS (VERY) PROFITABLE!                    A 10 % change in repeat customer conversion         ...
AARHUS       UNIVERSITYAN ANALYSIS OF RETENTION AND ROI Retention activity                   Hours per month   Relevance t...
AARHUS            UNIVERSITYAN ANALYSIS OF RETENTION AND ROIRetention rate: 20 %Retention costs: 606.60010 % increase in t...
AARHUS     UNIVERSITYAN ANALYSIS OF RETENTION AND ROI10 % increase in the retention rate: 1500 more sales per year.Value o...
AARHUS        UNIVERSITYAN ANALYSIS OF RETENTION AND ROINet present value:Where:t - the time of the cash flowi - the disco...
AARHUS     UNIVERSITYAN ANALYSIS OF RETENTION AND ROI10 % increase costs: 303.300,-10 % increase leads to: 450.000,-Discou...
AARHUS     UNIVERSITYAN ANALYSIS OF RETENTION AND ROIConclusion: A 10 % increase in retention rate could lead to a10 % inc...
AARHUS           UNIVERSITYAN ANALYSIS OF RETENTION AND ROISo what should you do about retention then? …. As always, thatd...
AARHUS         UNIVERSITYFACTORS AFFECTING LOYALTYReibstein (2002).           ASB AU                              MAPP
AARHUS   UNIVERSITYLIFE TIME VALUE                  ASB AU                    MAPP
AARHUS        UNIVERSITYCUSTOMER ACTIVITYCustomers can be segmented into:•   New users (registered within 60 days)•   Acti...
AARHUS        UNIVERSITYSERVICE QUALITYThere are three major steps in improving service quality:•   Understand expectation...
AARHUS        UNIVERSITYSEGMENTATION                                                                      Purchased Active...
AARHUS   UNIVERSITYSENSE AND RESPOND                Sense » Respond » Adjust                •   Monitor customer actions  ...
AARHUS       UNIVERSITYRFM ANALYSISCustomers are segmented into:•   Recency - when was the last purchase made?•   Frequenc...
AARHUS      UNIVERSITYE-MAIL MARKETING AND LOYALTYE-mail marketing as loyalty strategy:                                   ...
AARHUS          UNIVERSITYE-MAIL MARKETING AND LOYALTYResponse rates in e-mail marketingChaffey & Smith (2008)            ...
AARHUS       UNIVERSITYECONOMIC INCENTIVES AND LOYALTYFree music has (had) a positive effect on churn:                    ...
AARHUS      UNIVERSITYSOCIAL MEDIA AS LOYALTY STRATEGYEngaged visitors are loyal customers:                               ...
AARHUS       UNIVERSITYRETENTION AND ROIRetaining customers has a high ROI. CPA is lower, conversionrate is higher and the...
AARHUS       UNIVERSITYNEW VS. RETURNING VISITORSProfit = (aX * R * av.val – aX * mkt.cost)      + (bX * R * av.val – bX *...
AARHUS       UNIVERSITYVISITOR SEGMENTATIONThe distribution of new vs.                  CPAreturning visitors is important...
AARHUS   UNIVERSITYNEW VS. RETURNING VISITORS        Profit = (0,426X * 0,0307 * av.val – 0,426X * mkt.cost)              ...
AARHUS   UNIVERSITYNEW VS. RETURNING VISITORS                Profit = (0,426X * 0,0307 * 754,50 – 0,426X * mkt.cost)      ...
AARHUS         UNIVERSITYESTIMATING MKT.COSTSEstimating mkt.costs for new and returning visitors can be a mess. We estimat...
AARHUS      UNIVERSITYESTIMATING MKT.COSTSEstimated mkt.costs for returning visitors ≈ 0,7 DKKEstimated mkt.costs for new ...
AARHUS        UNIVERSITYROI ON NEW VS. RETURNING VISITORSProfit = (0,426X * 0,0307 * 754,50 – 0,426X * 5,4)     + (0,574X ...
AARHUS      UNIVERSITYCONTACTJacob L Orquin, Ph.D.Department of Business AdministrationAarhus UniversityE-mail: jalo@asb.d...
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e-CRM: The Conversion Funnel

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Learn how the conversion funnel works and how you acquire traffic to your website, converts traffic to customers and retain customers for maximum profitability.

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e-CRM: The Conversion Funnel

  1. 1. AARHUS UNIVERSITYE-CRM: THE CONVERSION FUNNELJacob L. Orquin, Ph.D.Department of Business AdministrationAarhus University ASB AU MAPP
  2. 2. AARHUS UNIVERSITYOVERVIEW The talk will cover three areas of e-CRM: 1. Acquisition How to acquire traffic/visitors 2. Conversion How to convert visitors to customers 3. Retention How to retain customers ASB AU MAPP
  3. 3. AARHUS UNIVERSITYTHE (E)CRM CYCLE“What is e-CRM? Customer Relations Management with an ´e´? Ultimately, E-CRM cannot be separated from CRM,it needs to be integrated and seamlessly. However, many organisations do have specific E-CRM initiatives or staffresponsible for E-CRM”Smith & Chaffey (2005) ASB AU MAPP
  4. 4. AARHUS UNIVERSITYPART 1: ACQUISITIONAcquire web site traffic› Cost Per Click (CPC)› Search Engine Optimization (SEO)Acquire customers› Cost Per Action/Acquisition (CPA)Create brand awareness› Cost Per Mile (CPM)› Viral marketing ASB AU MAPP
  5. 5. AARHUS UNIVERSITYBUDGETING FOR ACQUISITIONBorrowed from Hoffman & Novak (2000) note that there are no budgetallocation for SEM, that would be quite unusual in 2009. ASB AU MAPP
  6. 6. AARHUS UNIVERSITYACQUISITIONAn overview of traffic sources.Chaffey (2007) ASB AU MAPP
  7. 7. AARHUS UNIVERSITYCOST PER CLICKAdvertisers pay only per click/visitor. ASB AU MAPP
  8. 8. AARHUS UNIVERSITYSEARCH ENGINE OPTIMIZATIONAdvertisers seek to optimizie their ”organic” position on specificsearch words. ASB AU MAPP
  9. 9. AARHUS UNIVERSITYCOST PER ACTION/ACQUISITIONAdvertisers pay per action or conversion only ASB AU MAPP
  10. 10. AARHUS UNIVERSITY COST PER ACTION/ACQUISITION Advertisers pay only per action or conversionChaffey & Smith (2008) ASB AU MAPP
  11. 11. AARHUS UNIVERSITYCOST PER MILLEAdvertisers pay per 1000 impressions ASB AU MAPP
  12. 12. AARHUS UNIVERSITYCOST PER MILLEThe impact of interactive advertising; the click-through has gone from 7 % in 1996to 0.7 % in 2002. (Drèze & Husherr 2003) ASB AU MAPP
  13. 13. AARHUS UNIVERSITYVIRAL MARKETINGAdvertisers are guaranteed a minimum amount of impressions. If theviral spread is obtained there will be an extra ”free” exposure. ASB AU MAPP
  14. 14. AARHUS UNIVERSITYTRAFFIC SOURCESWeb site traffic is almost always distributed on several sources, e.g.CPC, SEO, CPA, CPM etc. ASB AU MAPP
  15. 15. AARHUS UNIVERSITYPART 2: CONVERSIONConversion rateThe ration of web site visitors whocomplies with a desired action, e.g.submitting an order.Example:A webshop has 256 customers and12.300 unique visitors during one month.This results in the following conversionrate; 256/12.300 = 2,08 % ASB AU MAPP
  16. 16. AARHUS UNIVERSITYTHE CONVERSION RATEFunnel conversion rateThe image shows a funnel conversionrate on a typical webshop. Theconversion rate depends on price,assortment depth, and web siteparameters like usability and credibility. ASB AU MAPP
  17. 17. AARHUS UNIVERSITYATTRITIONReasons for attrition frequencies Self-reported reasons forUnexpected higher price 32 abandoning the website afterUsability issues 28 having reached the shoppingOther people’s opinions 23 cart. (N = 125)Lacking service options 22Low trust 21Delivery time 17 69 % had visited the sameUncertainty about transaction security 15 website posterior to abandoningLimited assortment 15 the cart.Unclear business and transaction terms 14Negative experiences 11Uncertainty about foreign websites 6Lacking e-mærke (trust seal) 4Difficulties in buying the goods online 4Total 212 ASB AU MAPP
  18. 18. AARHUS UNIVERSITYOPTIMIZING CONVERSION RATEOptimizing the conversion rate is often a question of designing theuser experience. ASB AU MAPP
  19. 19. AARHUS UNIVERSITYWHAT TO OPTIMIZEwww.conversion-rate-experts.com/articles/101-google-website-optimizer-tips/ ASB AU MAPP
  20. 20. AARHUS UNIVERSITYONLINE MARKETING ROIThe ROI on online marketing activities depends to a large extent onthe conversion rate.Example for e-commerce:ROI = (X * R * av.val) / (X * mkt.cost)X being the number of visitorsR being the conversion rateav.value being the average value of a conversionmkt.cost being the average cost per visitor ASB AU MAPP
  21. 21. AARHUS UNIVERSITYPART 3: LOYALTY & RETENTION ASB AU MAPP
  22. 22. AARHUS UNIVERSITYSATISFACTION AND LOYALTYSatisfaction is a strong predictor of customer loyalty both offline and online. ASB AU MAPP
  23. 23. AARHUS UNIVERSITYCOGNITIVE/BEHAVIORAL LOYALTYDel Giudice (2005) found that cognitive and behavioral loyalty is affectedby website performance and functions as a positive switching cost. ASB AU MAPP
  24. 24. AARHUS UNIVERSITYRETENTION IS (VERY) PROFITABLE! A 10 % change in repeat customer conversion leads to a 10 % change in net present value according to Agrawal et al (2001) E- performance ASB AU MAPP
  25. 25. AARHUS UNIVERSITYAN ANALYSIS OF RETENTION AND ROI Retention activity Hours per month Relevance to retention Cost E-mail newsletter 16 100 % 4.000 Customer support on orders 15 50 % 3.750 Support on phone 125 50 % 15.625 Support on e-mail 75 50 % 9.375 Read and reply to customer reviews 4 80 % 800 Updating website 100 70 % 12.500 Correcting errors in orders 3 100 % 750 Copy writing for website 50 30 % 3.750 Total per month 50.550 Total annual retention costs 606.600 ASB AU MAPP
  26. 26. AARHUS UNIVERSITYAN ANALYSIS OF RETENTION AND ROIRetention rate: 20 %Retention costs: 606.60010 % increase in the retention rate costs1:(606.600/20)*10 = 303.300 ,-1 assuming a simple linear relation between retention costs and retention rate ASB AU MAPP
  27. 27. AARHUS UNIVERSITYAN ANALYSIS OF RETENTION AND ROI10 % increase in the retention rate: 1500 more sales per year.Value of repeat purchases: 750,-Profit margin: 40 %Increase in turnover with a 10 % increase in retention rate:(1500*750)*0.40 = 450.000,- ASB AU MAPP
  28. 28. AARHUS UNIVERSITYAN ANALYSIS OF RETENTION AND ROINet present value:Where:t - the time of the cash flowi - the discount rateRt - the net cash flow at time t ASB AU MAPP
  29. 29. AARHUS UNIVERSITYAN ANALYSIS OF RETENTION AND ROI10 % increase costs: 303.300,-10 % increase leads to: 450.000,-Discount rate: 5 %Annual turnover: 1.100.000,-NPV with 10 % increase:(450.000 – 303.300) / (1 + 0.05) ^1 = 139.714,-Increase in NPV: 139.714/1.100.000 = 12,7 % ASB AU MAPP
  30. 30. AARHUS UNIVERSITYAN ANALYSIS OF RETENTION AND ROIConclusion: A 10 % increase in retention rate could lead to a10 % increase in NPV.But … the ROI on the investment is only:(450.000 – 303.300) / 303.300 = 48 % ASB AU MAPP
  31. 31. AARHUS UNIVERSITYAN ANALYSIS OF RETENTION AND ROISo what should you do about retention then? …. As always, thatdepends:(anderson & mittal, 2000) ASB AU MAPP
  32. 32. AARHUS UNIVERSITYFACTORS AFFECTING LOYALTYReibstein (2002). ASB AU MAPP
  33. 33. AARHUS UNIVERSITYLIFE TIME VALUE ASB AU MAPP
  34. 34. AARHUS UNIVERSITYCUSTOMER ACTIVITYCustomers can be segmented into:• New users (registered within 60 days)• Active users (has visited within 60 days)• Dormant users (has not visited within 60 days)• Inactive users (registered but not used) ASB AU MAPP
  35. 35. AARHUS UNIVERSITYSERVICE QUALITYThere are three major steps in improving service quality:• Understand expectations• Setting and communicating the service promise• Delivering the service promiseTouchpoint mapping is a nice and easy wayTo get a feel of customer experiences andservice deliverfy. ASB AU MAPP
  36. 36. AARHUS UNIVERSITYSEGMENTATION Purchased Active : 7 E-responsiveSegmentation into customer Purchasedlifecycle groups allows for targeted 6 Inactivecommunications for each level. Purchased 5 Once or nTimes Registered 4 Visitor Newly 3 registered visitor Return 2 visitor First-time 1 visitor Chaffey (2009) ASB AU MAPP
  37. 37. AARHUS UNIVERSITYSENSE AND RESPOND Sense » Respond » Adjust • Monitor customer actions • Reacting with appropriate messages or offers to encourage desired actions • Monitor responses and adjust messages Did they click? Savvy e-mail marketers track user behavior and adjusts messages for different groups of users (1-to-1). ASB AU MAPP
  38. 38. AARHUS UNIVERSITYRFM ANALYSISCustomers are segmented into:• Recency - when was the last purchase made?• Frequency - how often were purchases made?• Monetary value - what was the amount of the purchase? http://renditionx.com/mastering/2007/06/recency_frequency_monetary_val.html ASB AU MAPP
  39. 39. AARHUS UNIVERSITYE-MAIL MARKETING AND LOYALTYE-mail marketing as loyalty strategy: ASB AU MAPP
  40. 40. AARHUS UNIVERSITYE-MAIL MARKETING AND LOYALTYResponse rates in e-mail marketingChaffey & Smith (2008) ASB AU MAPP
  41. 41. AARHUS UNIVERSITYECONOMIC INCENTIVES AND LOYALTYFree music has (had) a positive effect on churn: ASB AU MAPP
  42. 42. AARHUS UNIVERSITYSOCIAL MEDIA AS LOYALTY STRATEGYEngaged visitors are loyal customers: ASB AU MAPP
  43. 43. AARHUS UNIVERSITYRETENTION AND ROIRetaining customers has a high ROI. CPA is lower, conversionrate is higher and the average value is also often higher forreturning customers.ROI = (X * ↑R * ↑av.val) / (X * ↓mkt.cost)X being the number of visitorsR being the conversion rateav.value being the average value of a conversionmkt.cost being the average cost per visitor ASB AU MAPP
  44. 44. AARHUS UNIVERSITYNEW VS. RETURNING VISITORSProfit = (aX * R * av.val – aX * mkt.cost) + (bX * R * av.val – bX * mkt.cost)a being the percentage of new visitorsb being the percentage of returning visitorsX being the number of visitorsR being the conversion rateav.value being the average value of a conversionmkt.cost being the average cost per visitor ASB AU MAPP
  45. 45. AARHUS UNIVERSITYVISITOR SEGMENTATIONThe distribution of new vs. CPAreturning visitors is importantfor the profitability of thecompany. New visitors Av.val Returning visitorsCPA = 100/R * mkt.cost ASB AU MAPP
  46. 46. AARHUS UNIVERSITYNEW VS. RETURNING VISITORS Profit = (0,426X * 0,0307 * av.val – 0,426X * mkt.cost) + (0,574X * 0,0134 * av.val – 0,574X * mkt.cost) ASB AU MAPP
  47. 47. AARHUS UNIVERSITYNEW VS. RETURNING VISITORS Profit = (0,426X * 0,0307 * 754,50 – 0,426X * mkt.cost) + (0,574X * 0,0134 * 727,23 – 0,574X * mkt.cost) ASB AU MAPP
  48. 48. AARHUS UNIVERSITYESTIMATING MKT.COSTSEstimating mkt.costs for new and returning visitors can be a mess. We estimatethat 42 % of source 2, 50 % of source 3, and 100 % of sources 1 and 6 arereturning visitors ≈ 57,4 % of total visitors. SEO SEO CPC SEO CPM Mail CPC CPA CPC SEO ASB AU MAPP
  49. 49. AARHUS UNIVERSITYESTIMATING MKT.COSTSEstimated mkt.costs for returning visitors ≈ 0,7 DKKEstimated mkt.costs for new visitors ≈ 5,4 DKK Source Est. mkt.cost SEO 0,5 SEO 0,5 CPC 5,3 SEO 0,5 CPM 4,8 Mail 1,6 CPC 6,4 CPA 110,5 CPC 5,5 SEO 0,5 ASB AU MAPP
  50. 50. AARHUS UNIVERSITYROI ON NEW VS. RETURNING VISITORSProfit = (0,426X * 0,0307 * 754,50 – 0,426X * 5,4) + (0,574X * 0,0134 * 727,23 – 0,574X * 0,7) → (333.499 – 184.858) + (1.068.029 – 32.276) = 148.641 + 1.035.753ROI on returning visitors: 3209 %ROI on new visitors: 80 % ASB AU MAPP
  51. 51. AARHUS UNIVERSITYCONTACTJacob L Orquin, Ph.D.Department of Business AdministrationAarhus UniversityE-mail: jalo@asb.dkCheck out my company:www.userpilot.dk ASB AU MAPP

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