Analysis: Can digital shops take the lead?

Underwired, the only pureplay digital agency focusing on eCRM, is to expand the eCRM, email marketing and online campaign areas of its business as part of an overall restructure.

Industry heavyweight Tony Bond has been brought in as the financial director to steer the company through an aggressive expansion, and further eCRM specialist planner hires will follow.

The agency's strategic focus shift towards eCRM, which already accounts for 50 per cent of Underwired's business, is good news for the agency's key eCRM clients, which include Nickelodeon, Peugeot and Virgin Megastores. Peugeot has already seen impressive results - the latest email sent out by Underwired on Peugeot's behalf was the most successful that the brand has ever sent, achieving 42 per cent click-through rates.

More broadly, this development invites the industry to confront whether eCRM is the domain of pureplay digital or DM agencies and whether this distinction is truly relevant.

Felix Velarde, managing director, Underwired, has strong opinions on how relationship marketing will shape the industry of the future.

"In ten years time, pure direct marketing agencies won't exist. In five years time, digital agencies will be the lead agencies," he claims.

"Relationship marketing was developed by the DM industry," he explains. "In the past 15 years, it has made it a very serious, productive and efficient discipline. But it's been driven by an agency model based on the old advertising model, which has a very rigid account-management structure."

Essentially, Velarde believes that new media, with its continually updated media lists, requires a more flexible structure. Account managers in DM are more likely to be focused on a particular channel, with a less generalist outlook. To clarify, eCRM is digitally delivered relationship marketing for customers. It ranges from pure email to microsites and online promotions that generate data. (Mobile and interactive television are other, less used, channels.) Agencies can manipulate and exploit this data, using segmentation methods to target the right customers.

Direct marketing agencies are generally focused around very specific sets of media, usually around three or four media channels (direct mail, television and press). Digital agencies often offer expertise in areas including search, email, interactive television, mobile and social networking. According to Velarde, they tend to be set up around at least six channels, paving the way for greater flexibility and an approach that can adapt to the changing digital marketing landscape.

Planning

"Having said that, DM planners are second to none," says Velarde. "Either DM agencies need to become very good at digital, or digital agencies need to acquire the planning discipline that DM agencies have. It seems to me that it's much easier for digital agency to acquire a great planner than for DM agencies to acquire flexibility."

The other striking aspect of digital customer relationship management is its return on investment. Digital channels are extremely cheap, generally instant and very responsive. Sending one mail pack to one person can cost around 45p; sending one email, including creative and production, can cost just 1.5p - a staggering difference.

Does this mean that traditional DM as we know it will die out? Major brands still use traditional CRM channels, and will continue to. After all, there's nothing quite akin to the experience of flicking through a glossy brochure. There will always be a place for DM agencies, and other specialities such as advertising, sales promotions and PR. Velarde says that their aspiration to be lead agency has had its time, being headed off by digital pureplays, as digital becomes ever more important.

Ultimately, marketers want the best return on investment possible, and will choose the channels that achieve this most efficiently. In terms of choosing a lead agency in the supply mix, it makes sense to go with the one that delivers highest return on investment.

"Provided that digital agencies can acquire the DM communications strategy and planning brains, inevitably they will become the lead marketing agency," says Velarde, justifying investment into this part of Underwired's business.

There is already a shift in focus in the industry. The DMA announced last month that email marketing had overtaken direct mail for the first time.

Full-service agencies

What is the role and position of the full-service DM agency in this context? At WWAV Rapp Collins, the offer is all about using DM to improve customer relationships with brands. The agency has been doing email campaigns for about six years now, and counts Adobe (a pan-European account) among its CRM clients. This covers both online and offline channels.

Alex Stoneham, digital communications director, says: "We would never dictate what channel a client should use. That's down to the customer."

Stoneham believes that DM agencies need to remember what they're really good at - understanding customer behaviour. While they should always be cognisant of new and emerging technologies and media, it's less about being "magpies drawn to shiny new things" and more about engaging with customers, she says.

"Our role is coming up with contact strategies that best represent the individual, their relationship with the brand and what they want from any communication," she explains.

Beyond excellent planners, what can DM agencies offer to eCRM clients as compared to digital agencies? The answer, in a word, is data. Stoneham says that they are actually better equipped to manage eCRM programmes because they have data-driven marketing at their core.

Creativity

"Digital agencies haven't grown with that same philosophy. Their focus is on creativity and engagement, while they lack experience with data," says Stoneham.

While digital specialists are necessary to help brands understand the interactive components of digital media, they do not always manage data on their clients' behalf. "DM agencies have the edge because they get customer behaviour - it's at their heart," she adds.

WWAV Rapp Collins, with DM at its core, has developed its email-marketing offer in line with its technology. The agency has moved from blasting scheduled emails, towards letting customers take more control of communication. It now uses sophisticated propensity modelling to understand which channel will get the best return on investment.

The focus is on ensuring that all communications reach a benchmark investment figure, so that that dictates whether email or other is delivered to each individual.

Stoneham explains that propensity modelling is nothing new (it's an old DM agency method), but may be too sophisticated for digital agencies, which think more in terms of creativity, to command. Because traditional agencies can apply propensity modelling in digital channels, this may give them the edge, she explains.

TMW was one of the first DM agencies to recognise the importance of digital in 2000, and has been nurturing digital-tmw as an agency within the agency ever since. Digitaltmw is an example of a DM-founded digital agency that is able to draw on its deeper-rooted delivery and planning capability, while drawing in new-media creative talent. Key clients now include eBay, Guinness, Coca-Cola and Royal Mail.

Managing director, Ross Taylor, believes that DM agencies are absolutely the right type of agency to deliver eCRM.

He says: "ECRM is more than just a set of acronyms. For direct marketing shops, and particularly TMW, it is the way that we think. We work with clients and aim to deliver improved customer lifetime value through a series of strategically focused communications.

"To do this, an agency needs to have strong planning, strong data and strong business understanding - core to the most successful DM agencies. The challenge is to find a DM agency that has been able to translate this culture and approach into a strong and capable digital capability," he says.

Critical thinking

Another viewpoint is that the direct marketing versus digital agency concept is irrelevant.

Robert Keitch, director of media channel development, DMA, believes that any discussion about process should come after significant critical and outcome thinking.

"More appropriate than channel is to think which touch points fit with customers' lives most effectively," he says.

Virgin Games, the online gaming firm, has chosen to keep its entire CRM programme in-house, and it has invested significantly in developing relationships with its players.

Ross Sleight, strategy director, Virgin Games, is not keen on the industry's love of definitions. Rather than think of CRM and eCRM as distinct, he takes the view that it's ultimately about building customer relationships. This involves getting new customers, keeping old ones, extracting more value from the relationship and offering customers more.

Sleight believes that there are both technical and emotional hurdles to overcome to get this relationship right. "No agency has cracked that properly yet," he says.

Virgin Games focuses more heavily on retention than acquisition. Sleight says that retention work is so important that it has to come from within the company rather than an agency.

"If I was going out to an agency now, I would be looking for basic templates, pointers on user journeys and which points of contact to use," Sleight explains. "With that advice and basic template, we'll implement and run eCRM in-house. Whether they are called DM or digital, no agency fits our needs."

Sleight also believes many agencies make good money from running very simple email campaigns, while making little or no use of data their clients may hold. He cites Underwired as one of the few that offers real value in eCRM. As clients become more savvy, they may realise that taking eCRM in-house can work out much cheaper.

Successful eCRM should be woven into campaigns, beyond email and even into social marketing strategy. Facebook groups, for example, can be effective CRM contact points. Virgin Games set up a poker group on the site, which attracted 400 people within a couple of days. Digital agencies may have the advantage in proving to clients that they have knowledge and experience in translating eCRM into these channels.

Data capture

What sits at the heart of any good CRM is capturing data and being able to analyse that data and use it to good effect. In the digital arena there is far more opportunity to make good use of data via digital messaging. The question is: which agencies make the best offer? This becomes increasingly baffling when agencies claim specialisms, but the best agency must be the one that sits closest to the client. Traditionally, that has been the advertising agency.

"In the next couple of years, we will see lots of mergers - DM agencies without digital won't survive. Digital and DM agencies both need to take on each other's roles," says Sleight.

The major advertising groups, such as WPP and Interpublic, were based on advertising agencies that became big enough to set up or buy other specialist marketing arms, including digital agencies.

As the industry evolves, it may be becoming less acceptable for the digital agencies that want to be lead agency (as seen recently with Agency.com winning Ikea) to be then controlled by an advertising agency that doesn't necessarily understand their business.

Velarde hopes that the next major advertising network will be based around a digital agency that buys other specialists (advertising, direect marketing, sales promotions). This would give a slightly different configuration of agency networks, with the most flexible and biggest deliverer of return on investment at the top.

"The sooner this happens, the better," he says.

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