Online Insights: Search Engine Marketing

Growth of Paid Search Puts Spotlight on Technology

The huge growth of the paid search marketing industry in recent years has spawned a raft of technology companies pledging to help their customers use their budgets more efficiently by optimizing pay-per-click campaigns.

As budgets have become more significant and the stakes have become higher, the number of advertisers paying for bid management and related search marketing technology has increased accordingly.

Data from the SEMPO State of Search Engine Marketing Report, published by Econsultancy earlier this year, revealed that the North American search marketing industry was worth $14.6 billion in 2009 and is expected to grow by 14 percent in 2010 to reach a value of $16.6 billion.

Photograph by Hemera/Thinkstock

Are You Using Third-Party Solutions?
Even if the bid management technology industry is conservatively estimated at 1 percent of the overall market value, this is still huge business and represents considerable investment for many companies. Beyond the direct costs of these services, the more considerable number may well be the net gain that results from improved campaign performance or the opportunity cost if that is not achieved.

However, despite the proliferation of companies offering third-party software and services to improve pay-per-click marketing, the SEMPO study found that the majority of companies (53 percent) conducting search engine marketing are not using a third-party technology for paid search marketing, either themselves or via their agencies (see chart).

Instead, most companies rely on the tools provided by search engines themselves and non-specialized software such as Microsoft Excel.

These organizations tend to be smaller advertisers with modest budgets whose managers have not been persuaded that the additional expense of licensing a bid management technology is worthwhile.

Yet, although there are exceptions, most of the largest companies and agencies managing tens of thousands of keywords and phrases regard specialist technology as essential rather than a luxury.

New types of ad format and ways of targeting have made the picture even more complex and increased the reliance on specialist tools such as Dart Search, Efficient Frontier, Marin Software and SearchIgnite.

Another consideration is the need to look at paid-search management as part of the bigger picture of a company’s marketing activity and overall business plan. Technology plays an important role here, and it is no surprise that companies with a heritage in web analytics such as Omniture and WebTrends offer bid management technology as part of their broader portfolios.

Advertisers are also increasingly reliant on technology to make sure that their advertising accurately reflects what they have in stock, and that the copy in the advertisement is flexible enough to reflect differences across thousands of products.

Research by Econsultancy has found that “ease of tracking” and “integration with analytics” are two of the three most important factors for companies selecting a paid search bid management technology platform.

For those investing in technology, one of the main priorities is to get maximum value. The value derived from tools can often be seriously diminished if those operating the technology don’t properly understand how it works.

An inexperienced campaign manager will fail to maximize the optimization opportunities offered by the technology, no matter how powerful the tool.

So a key question for advertisers is whether they carry out paid search marketing in-house or rely on their agency. The arguments for and against agencies are well rehearsed.

Agencies can be more adept at maximizing return on investment from search technology (especially when it is their own), and many adopt a technology-agnostic approach so that they use the best tools for the job in hand.

But an organization can reap the benefits if it keeps its knowledge in-house and develops its own employees to make the most of its search marketing activity.

Simply, the savings relating to in-house paid search management need to be weighed against the possible increased ROI that an agency might be able to extract.

Many companies cite the need for internal understanding and expertise in SEM as a prerequisite for maximizing the benefits of an agency relationship. So, the key requirement for organizations is to invest in their staff and ensure that they are kept up-to-date with search marketing developments and technology, irrespective of whether they are managing search in-house or outsourcing to an agency.

Stefan Tornquist is research director (U.S.) at Econsultancy. Contact Tornquist at sktornquist@gmail.com. For more information about the SEMPO study, go to http://econsultancy.com/reports/state-of-search.

July 2010 – Online Strategies: Online Insights

Social Media and SEM: Friends or Foes?

The explosion of social media and the steep growth trajectories of sites such as Twitter, Facebook and, more recently, FourSquare, have created huge opportunities and challenges for marketers in equal measure. According to the SEMPO “State of Search Report 2010,” based on a global survey of nearly 1,500 digital marketers, 59 percent of client-side respondents said social media budgets will increase over the next year compared to only 4 percent who said budgets will be less. Agencies are even more bullish, with 85 percent saying they expect increased client-spend this year.

Although social media marketing budgets are still modest compared to those for search engine optimization and paid search, many companies are starting to take this relatively new channel very seriously.

Social Media’s Impact
Effective social media marketing can help drive website visitors by giving companies and brands more visibility on search engines and social media sites. A good social media strategy can have SEOs licking their lips at the prospect of new links and opportunities for visibility on social media-friendly search engines. Three quarters of agencies surveyed (74 percent) for the SEMPO survey, carried out by Econsultancy, say the rise of social media has had an impact on their clients’ search engine marketing activity.

It should be noted that while social media marketing can help search efforts, the main objectives of social media marketing, and the skill-sets required, are often very different from search.

Although the research found that the primary objectives for search marketing are most likely to be “selling products” (for paid search – see Figure 1) and “generating leads” (for SEO – see Figure 2), the primary objective for social media marketing is most commonly increasing brand awareness and enhancing reputation (see Figure 3).

The skills required for social media marketing, where creativity is paramount, are not the same for paid search marketing, which generally speaking, requires deeper analysis and left-brain thinking. Similarly, the metrics used to measure success are very different.

The primary skills required for a staff member managing SEM, search advertising campaigns include: the ability to stay on top of the latest campaign management and analytics tools, the ability to convert campaign performance data into action plans and the ability to execute exact and different campaign best practices based on the advertising channel.

By contrast, the core skills required for a new staff member to develop and execute effective social media campaigns include: be adept at listening and understanding what your target audience is saying about your company’s product; be able to work with the appropriate social media tracking tools to effectively monitor dialogue and answer questions; know how to drive community conversation; and recognize that successful social media marketing takes time as you work to expand your customer base.

Where SEO and paid search success can be worked out on a more tangible return-on-investment basis, measuring the success of social media campaigns often requires more intricate analysis. The metrics will likely vary based on the objectives.

These differences don’t mean that the same agencies and same people cannot be well equipped to help a company with both search engine and social media marketing. But what should be clear is that social media marketing should be seen as something more than just a search-marketing tactic.

Linus Gregoriadis is research director at Econsultancy, which carried out and published the SEMPO “State of Search Report 2010.” Contact Gregoriadis at linus.gregoriadis@econsultancy.com.

July 2010 – Online Strategies: Brand Protection

What You Should Know to Safeguard Brands in an Online Advertising World

BY FREDERICK FELMAN

Search advertising is a fast-growing marketing channel for brand advertisers and is only getting larger in 2010. According to the Search Engine Marketing Professional Organiz-ation’s annual “State of the Market Survey,” search-marketing spending will grow from $14.6 billion to $16.6 billion in 2010. The lion’s share of this spending will go to pay-per-click advertising campaigns, staff and software solutions. Unfortunately for brand advertisers, there are thousands of online scammers who leech traffic and new customers from legitimate e-commerce brand campaigns.

Illegitimate pay-per-click advertising activities range from click fraud (the practice of a person or computer program clicking on an advertisement for the sole purpose of generating a charge per click) to pay-per-click scams. A pay-per-click scam occurs when a brand name and its derivations are used in such a way that traffic is diverted away from the actual site belonging to the brand, often infringing on the brand’s trademarks. In some cases, these scams even drive traffic to sites that sell counterfeit products. What’s the bottom line? The scammer is driving traffic to his or her own site so he or she can profit at the expense of the legitimate brand.

A variant of this practice occurs when an affiliate uses a branded search term to drive traffic to its own site. While an affiliate grabbing traffic from a brand is not a scam, it adds cost to the brand’s pay-per-click advertising campaigns and often results in the brand paying the affiliate for traffic that the brand itself generated!

According to the recent SEMPO “State of the Market Survey,” the value of the North American search engine marketing industry is projected to increase $2 billion from $14.6 billion to $16.6 billion in 2010.

Scale of the Problem
The amount of traffic diverted from branded pay-per-click advertising campaigns is staggering. In the U.S. alone, there are 4.2 billion brand-based searches on major search engines every day. One in seven of these searches lures searchers to a destination other than the brand’s site. As a result, over 600 million searches are hijacked every month. This affects brands in several ways, beginning with diminished traffic and lower ad campaign ROI. In addition, scammers can bid up the costs on branded keywords. Last but not least, a brand can suffer by being falsely associated with a counterfeit site.

The leading search engines all have programs in place to provide pay-per-click advertisers options for dealing with intentional click fraud or pay-per-click scams. However, it is incumbent on the brand’s ad campaign managers to be proactive in monitoring and reporting problems to the search engines.

It is also notable that not every pay-per-click scam occurs with the use of a branded term. A good example to illustrate this point is the term: “designer handbags.” In a recent survey of 20 popular online product searches, this item stood out. A startling 32 percent of paid search ads that appeared on a search of this term led to sites appearing to sell counterfeit handbags. The misleading ads worked in several different ways. Some ads would inappropriately use branded terms, while some used generic terms. But in every case, counterfeiters are taking advantage of paid search–and brand names–to intercept traffic and profits. Legitimate brands are faced with the reality that they are competing every day with those who would divert traffic from their sites to illegitimate destinations.

How to Fight Back
To fight scammers, ad campaign managers have two options: build an in-house monitoring and detection team with dedicated staff, or outsource to specialized vendors that provide automated detection, auditing and reporting solutions. For large global brand companies, in-house solutions can be extremely labor intensive to implement and manage. In contrast, products from third-party solutions providers are continually updated to address the latest manifestations of pay-per-click advertising scams, are able to prioritize offenses based on the brand’s criteria and can provide automated reporting methods tailored to the brand’s needs.

Remember that pay-per-click scams are borne of and reliant on technology, so they can be prevented and fought through technological means as well. Highly effective automated solutions can be highly adept at detecting search-advertising abuse, and most will prioritize for the worst offenders and immediately take action. Any e-tail brand wishing to maximize its ROI should consider initiating these strategies and making them a top priority.

Some Important Tips
Given the seriousness of pay-per-click scams and the solutions available, brand advertising professionals should consider implementing the following:

Conduct an informal, qualitative audit to assess if your company is a potential victim of pay-per-click advertising scams. A simple way to start is to search for your branded terms on one of the leading search engines and follow the ads that are presented.

If your company sells house-brand goods, your supply chain may also be contributing to a related facet of the problem–counterfeit goods. As part of your informal audit, examine business-to-business exchange sites to see if your house-branded goods are being sold in bulk. A variety of offshore suppliers often make use of these B2B exchanges to sell overruns and ‘name brand’ goods, which could be counterfeit.

Research the third-party software solution providers that can help your company address pay-per-click advertising fraud and scams. Look for the solutions that can help to address the full range of abuse that your company’s brand is experiencing.

Finally, as pay-per-click advertising budgets increase, there are a growing number of educational webinars and e-commerce conference panels to assist brand-advertising managers with addressing these problems. Great places to monitor how pay-per-click advertising problems evolve and how to manage them include e-commerce association blogs and publications, LinkedIn groups comprised of thousands of pay-per-click professionals at www.linkedin.com/in/ppcmarketing and conferences and training events that specialize in pay-per-click and search advertising.

Frederick Felman is the CMO at MarkMonitor, a leader in enterprise brand protection, where he is responsible for promoting the company’s brand protection products. Contact Felman at (415) 278-8400.

June 2010 – Online Insights: Retail

Conquering Amazon

Third-party sellers currently account for approximately 30 percent of Amazon’s sales. Having reported growth of 68 percent in the first quarter of 2010, Amazon is definitely a rising star to which smart retailers are hitching their wagons.

With a marketplace like Amazon, there are certain tricks to the trade that can help online retailers get their piece of Amazon’s 95 million-plus active buyers. Read on to find out the five hurdles that online retailers run into when selling on Amazon–and the best way to overcome these obstacles and maximize Amazon sales.

Hurdle 1: Adding New Products to Amazon in Bulk
When retailers add new products to Amazon, they are required to provide a considerable amount of product information, including image, gender, item dimensions and much more. Now, imagine you have 20,000 new products that you need to add at one time–the task becomes daunting to say the least.

Luckily, there are several ways to go. Amazon provides retailers the option to list each product individually using either Amazon’s Seller Central or Amazon Desktop. Both solutions provide a variety of screens and questions to ensure that the retailer provides all the required and recommended information about the product. Retailers must include as much product information as possible within the recommended fields to increase their visibility and indexing.

For retailers with a slew of products to upload, there are category-specific spreadsheets that can be uploaded in a single operation. Also, time-pressed retailers can send their inventory list to a third-party solution provider who will manipulate the data and upload it to Amazon.

Hurdle 2: Understanding Which Products are Live, Which are Not–and Why

After providing your inventory information to Amazon, it is always possible that some products will not list for a variety of reasons, which may be as simple as a mistake in data entry. With large inventories, finding those products, identifying what’s wrong and fixing the error is not easy.

Assuming you used an inventory spreadsheet to upload a large quantity of data to Amazon, any products that cannot be listed will be identified in the processing report in Seller Central. Each product will be listed with an error code and error reason. Retailers can group these errors and then manually work through them. Once the errors are corrected, you will need to re-upload the inventory information and re-check for errors.

Hurdle 3: Matching Products to the “Best” Listing

In many cases, products (typically soft goods) will have multiple product detail pages on Amazon, each with slightly different information. As a retailer, it may seem advantageous to be the only retailer on a page. However, a “better” listing will direct more traffic to that product and thus increase your sales.

The difficult part for retailers is determining which listing is the best listing. To confirm that your products are listing to the product detail pages you want, review the title, image and product attribute data supplied by Amazon’s catalog. Select the product page that best defines your product and the search terms that a shopper would use to find your product.

Hurdle 4: Helping Buyers Find Your Products by Optimizing Search

Amazon’s search system, accessed from any page on Amazon, is the primary method buyers use to locate products. Buyers typically search for words that they think of as related to the product they want to find. The Amazon system will return relevant products based on those words in a page of search results.

Retailers can drive traffic to their product listings with strategic search terms. Each product can be associated with 250 characters of search terms broken down into five lines of 50 characters each. More than five individual search terms can be submitted; each term is separated by a space.

For example, a product titled “Intelligent Air Pressure Leg & Arm Massager” might include search terms such as “therapeutic pressure point,” “massage spa relaxation,” or “back body heating.”

When you are thinking about search terms for your products, there are some key points to remember. First, Amazon already searches the words in some of your product information, so you do not need to repeat the following:

• Title;
• Brand;
• Designer;
• Manufacturer;
• Manufacturer part number; and
• Standard product ID (UPC, EAN, GTIN).

Next, the system does not search within your bullet points and descriptions, so those are often words to consider. Here are a few additional hints:

• Utilize all the search terms you can for every product;
• When entering several words as a search term, put them in the most logical order;
• Do not re-use words in the search term fields;
• Use detailed product names;
• Minimize use of abbreviations;
• Use legitimate alternate spellings and synonyms;
• Do not use misspellings as search terms. Amazon’s search engine compensates for common customer misspellings and also offers corrective suggestions;
• Do not use quotation marks in search terms; and
• Use only relevant search terms.

Hurdle 5: Winning the Buy Box

Location, location, location. The Buy Box increases retailers’ sales exponentially. Being selected to own the Buy Box requires competitive pricing and meeting a variety of conditions.

Factors in winning the Buy Box include: low price (including shipping), consistent availability, high volume, low refund rates, good customer feedback and low returns (A-to-Z claims). When a retailer meets or exceeds all these conditions vis-a-vis their competitors, they are granted the prime real estate. Retailers should pay close attention to product availability and how their prices compare to the competition’s to help improve their Buy Box chances.

Other factors that have been linked to increasing retailers’ Buy Box opportunities include participating in the Fulfillment by Amazon (FBA) program, through which all your inventory is packaged and shipped by Amazon. Because Amazon can control the delivery time, that is factored into the algorithm for choosing Buy Box winners.

ChannelAdvisor’s customers have seen 75 percent growth on Amazon to date. These results are within reach for retailers selling on Amazon, provided they take the appropriate steps and clear the hurdles.

Scot Wingo is CEO of ChannelAdvisor, a leading provider of online channel management solutions and services. He can be reached at media@channeladvisor.com.

June 2010 – Online Insights: Online Video

Will 2010 Be The Year of 3D?

By Caleb Hill

With all the talk about how the likes of HD video, Twitter and dynamic content will change online advertising, my darkhorse for the real game-changer in 2010 is three-dimensional content–3D for short. (A quick technical note: the z-axis is what makes content 3D versus 2D. As anyone who has seen James Cameron’s Avatar can attest, the z-axis can make quite a difference in how we experience content–and how content can be monetized. Yet for content developers–cinema, TV or interactive–it is exactly this additional axis point that has made 3D content oft-admired but largely ignored as part of the creative arsenal beyond the status of loss-leader or curiosity.)

Cost, plain and simple, explains why we were stuck in the “dark days of 2D” for the majority of the “naughties.” 3D content tended to be very custom, requiring advanced software packages using intensive rendering processes–not to mention that it challenged decades of institutional expertise as agencies and studios focused only on 2D content execution. As a case in point, at Unicast, we ushered in 3D advertising on AOL nearly eight years ago by using the proprietary rendering engine for the AOL client. However, the content required a 3D browser plug-in that was not widely distributed outside of AOL, so agencies balked at the high production costs for such narrow distribution. And let there be no doubt, these hurdles for 3D acceptance in the market remain today; however, due to key technology innovations and growing demand for 3D content from consumers, 3D promises to capture more and more content budgets.

Evolving Technology and Consumer Acceptance
First, technology has changed–both from the perspective of content authoring and content consumption. Avatar’s grand success required new cameras, new design perspectives, greater rendering capacity and incremental upgrades to cinemas, projectors and viewing glasses. In television, ESPN has announced its 3D play with a new 3D content channel, to be consumed on the new 3D televisions launching from the entire spectrum of manufacturers. These 3D set-top boxes and new 3D-viewing laptops dominated segments of CES this year–even Project Natal from Microsoft employs 3D effects. Between the film industry, television, game consoles and computers, we have an established 3D movement.

Second, greater consumer acceptance of the 3D experience has followed the massive technological investment. Past 3D experiences in the cinema tended to be hokey and produce cheap thrills. Avatar immersed audiences in its world, arguably engaging people to an extent never before seen. To wit, the media picked up stories across the globe of “post-viewing depression,” as people returned to their own lives after spending two hours in Cameron’s. In England, pubs are promoting soccer and rugby matches in 3D, which will bring hordes of new admirers to the 3D mainstream. The question will be how quickly consumers will adopt the new technology in their homes, but Microsoft will drive a fair amount of adoption with Project Natal and X-box.

Advertising Implications
So where does that leave 3D within the online advertising sphere? First, let’s distinguish stereoscopic 3D–such as Avatar which requires special viewing glasses among other things–and real-time interactive 3D, such as a cube that users can rotate with their mouse (as opposed to the non-real-time “2.5D” or “3D-2D” pre-rendered video that enables the sit-and-spin advertising you commonly see).

The former type of 3D is still in its infancy, though as noted, 3D laptops are slated to hit the market in the coming months. This makes stereoscopic 3D for the Internet a play for 2011 and beyond. That said, the time is now for real-time interactive 3D and it is within this realm that we’re seeing rapid development.

The beacon on the hill for real-time interactive 3D advertising is MSN. In fact, this past December, Fox and MSN launched a global homepage takeover for Avatar across dozens of markets using a new 3D ad format that I’ve now seen used by other advertisers. And again, during the Olympics, BMW and MSN launched an interactive 3D “flip” format that integrates with the MSN homepage design using 3D effects to make content pop and engage in ways that no amount of social media advertising can come close to providing. And MSN now has launched a variant of this 3D flip format across their Windows Live environment (i.e., Messenger, MSN Today and Hotmail).

Why care about MSN’s investment in 3D online advertising? If I’ve learned no other lesson during my 10 years building products in this space, it is this: as the portals go, so everyone else will go. Not only do MSN, Yahoo and AOL reach the largest audiences online, they also signal when user acceptance reaches critical mass for new technologies. This means we can assume their research has determined that audiences want this type of experience–if not “want,” then at least “accept”–and that bigger and faster machines have mitigated broadband and CPU concerns for 3D file size requirements. It also means that industry regulation and trade bodies, such as the IAB and OPA, will be taking notice, which should lead to broader adoption via clearer specifications, and eventually mass production.

Despite the positive 3D movement in interactive advertising, mass production remains a hurdle. Production costs especially increase for custom executions, like automobiles. In fact, the new ubiquitous Flash-based 3D technology still has enough deficiencies around rendering large 3D content to prevent large-scale projects from truly taking off.

Lastly, Flash designers still have a lot of road to cover before they fully grasp 3D design principles, which will continue to impact the cost and effectiveness of executions. Robust, customizable 3D templates are the answer to all of these mass execution and design concerns, and the 3D rendering engines supported by Flash are upgrading to accommodate large-scale projects. I would expect templates for mass adoption to start hitting the market soon as MSN and other publishers scale their new 3D formats.

Hurdles aside, thanks to multi-platform convergence around 3D content consumption, in 2010 I think you’ll see more traffic along that z-axis than you might have expected.

Caleb Hill is SVP of product at Unicast, a leading rich media and video ad server and service provider. He can be reached at chill@unicast.com.

June 2010 – Cover Story: Leveraging the Long Tail

Channeling Invisible Crowds Could be the Key to Profitable Long-Tail Sales

By Jack Jia

I often ask e-commerce executives to identify who can do the best job selling their products. Their best salespeople? Their best customer? A group of customers? Interestingly, most people know intuitively that the right answer is “C.” Yet, surprisingly few put their innate belief in the wisdom of crowds into practice. We are so trained and comfortable trusting the few: merchandisers, sales geniuses, content editors and a few other experts.

This is particularly important within e-commerce environments that depend on the long tail. Propelled into the popular lexicon more than five years ago by Chris Anderson of WIRED, the “long tail” refers to the concept of selling fewer units of many different special-interest products, as opposed to selling large quantities of a select group of popular products, such as an iPhone or the latest Harry Potter book. It’s incredibly important to help customers find the products they desire the most, even if it’s not popular among a high percentage of the population.

The concept also is applied to online marketing strategies in order to target more relevant content to site visitors. NASA’s website is a good example of one that manages the long tail well. NASA attracts a broad assortment of visitors with varied needs—from students to researchers and space enthusiasts. Yes, a space shuttle launch is an important topic to cover by NASA.gov, but you can get the same information on CNN as well. The real long-tail reason for people to visit NASA sites is to find that unique deep-space picture by Hubble that nobody else has.

In the e-commerce realm, the long tail has led retailers to expand their inventories to incorporate more niche products with higher sale margins and ultimately, to increase overall revenues. Despite this movement, many online retail marketers still push the most popular items on their site visitors because “that’s what users want.” This is a fundamentally flawed way of thinking that causes e-commerce companies to miss out on an opportunity to sell higher margin products–and ones that the customers were actually looking for in the first place.

With this in mind, the key question for any online marketer looking to capitalize on the long tail is, “How do you drive customers to highly specialized and profitable products?”

Said a bit differently, how do you sell a lot more of what you’ve rarely sold before?

Simply offering an expanded array of products may sound like a tempting strategy, but it’s not that easy. Matching the right product to the right shopper is profoundly difficult when you may be dealing with hundreds, if not thousands or even millions of product segments. To compound the situation, these products may be changing at a rapid pace depending on your particular site and inventories, and research indicates that shoppers feel overwhelmed and are less likely to make a purchase when confronted with too many decisions.

The key is to target a smaller set of long-tail products to the right people at precisely the right time. But how? It’s time to start listening to your site’s invisible crowds.

Let the Invisible Crowds Lead the Way
Merchandisers may know company inventory better than anyone else, but the reality is that applying business rules to meet forever-changing long-tail needs is a losing battle. You simply cannot scale to the infinite permutations of product assortments. No matter how good a merchandiser is, he or she will lose their magic touch beyond the top one to five percent of the most popular products, leaving the vast long-tail products hanging high and dry. In response, leading retailers are letting their invisible site visitors self-define the various long-tail product segments and determine what that smaller set of products targeted to each customer should be. By tapping into the wisdom of invisible crowds, retailers can have their customers effectively recommend products to one another; these crowds become their most powerful sales tools.

For example, a major electronics and appliance e-commerce site tapped into the implicit behaviors of its site visitors to discover that they were engaging with red-colored washers and dryers. Sales for these products were low at the time, but they followed the advice of their customers and began promoting the red washers and dryers as “most popular products.” A few months later, these same products indeed became best sellers. In contrast, Best Buy didn’t realize this trend until nine months later by using traditional business intelligence data such as purchase volume.

Compared to solely offline merchants, e-commerce companies are extremely well situated to tap into the long tail because they can uncover the unique, previously hidden desires of their customer base. In this model, retailers are leveraging the implicit, emergent behaviors of visitors who are anonymous and unknown to each other. By understanding these visitors and their interests, retailers can instantly identify the thousands of micro-segments of shoppers who come to their websites, and ultimately match each one with the best and most profitable products available. In doing so, they can deliver a truly adaptive customer experience in the midst of consumers’ increasingly insatiable demand for instant gratification online.

Context Followed by Content
Remember, your visitors are telling you exactly how to grab their attention–if you watch closely enough. Let’s use another example: search. A visitor doesn’t just come to your site out of the ether. Maybe they searched on a particular keyword. Maybe they clicked through on a targeted e-mail.

With this kind of insight about their current state of mind, you can deliver relevant landing pages for each visitor based on what other customers like them searched for in the past.

For example, a customer may use the search phrase “fix a leaky faucet” on Google and land on the Lowe’s Home Improvement site. Her intent is not to look for leaky faucets, of course. Showing her wrenches together with a do-it-yourself book will go a long way to serve her needs. By better understanding user intent, merchants can connect customers to the specific products that like-minded peers found useful. This completely eliminates the need to create custom landing pages for every possible natural or paid keyword–an impossible feat, to say the least. Instead, merchants armed with an intimate knowledge of their site’s invisible crowds can use this collective wisdom to create dynamic recommendations on every page known to convert visitors who have come in through the same query. By doing so, merchants make their sites infinitely more “sticky” and increase sales.

This is unlike recommendations based on “people who bought this also bought that,” because the invisible crowds take into consideration what site visitors need here and now, and what other site visitors like them have actually engaged with, not just purchased. On Amazon.com, for instance, cross-product recommendations have seen plenty of misfires outside of book suggestions. The reason is simple: A book recommendation is most often within the context of the consumer’s individual book preferences. But to always recommend a stroller to an individual who made a past purchase for a friend’s baby shower will almost certainly miss the mark.

This same “context first” methodology is also being applied outside of e-commerce environments at increasing rates, with a range of companies–from telecommunications to high tech to media–all capitalizing on their visitors’ current intent to deliver the most relevant content on their sites, much like the NASA sample given above.

Predicting Future Trends
Leading industry analysts at Gartner and Forrester have been paying attention to this concept. Forrester calls it “customer intelligence” and Gartner has dubbed it “pattern-based strategy.”

According to Gartner, a pattern-based strategy “provides a framework to proactively seek, model and adapt to leading indicators, often termed ‘weak’ signals that form patterns in the marketplace.”

However, most retailers are still looking in the rear-view mirror to determine what products are poised for financial success in the future and should be prominently merchandised on their sites. This is largely because so-called “predictive” applications tend to prioritize the wrong set of indicators, often identifying consumer trends months too late. The reality is that e-commerce transactions actually lag other more relevant indicators about engagement–such as online comparison shopping and mouse hovers–by as much as 90 days.

This is a huge problem, particularly if you are a site with a dynamic inventory. Take an apparel site, for instance. If you are recommending coats in February because that’s what you sold last month, when people are dreaming about spring break on a beach in Bora Bora, you’re going to miss out on all the swimsuits and sunglasses that you could be selling right at that minute. Outside of pure merchandising logic, your site visitors and the invisible crowds could have told you that in real-time. Don’t fixate on transactional data. You have to use the weak signals and collective wisdom of your site visitors to look ahead and effectively market the products on your site for the future.

By observing what products truly give value to customers, e-commerce companies gain an in-depth understanding of community preferences and the thousands of micro-segments that emerge around products and categories without the risk of being misinformed by survey bias or misleading click-based data-gathering systems. With this approach, the silent majority of site visitors are represented instead of ignored. In addition, merchants can better understand how these communities self-organize into like-minded peer groups and better serve these micro-segments with more unique products, making the long tail longer than ever before.

Two years ago, the CEO of USAppliance.com was able to use a “Product Gap” report–which identifies products that are not being promoted to their full potential–to add HDTV and other electronics by following the crowds, completely changing the site’s product mix. By coincidence, the change reduced the impact of the negative appliance growth due to the U.S. real estate downfall. For UrbanOutffiters.com, the emerging Gladiator shoes were prominently promoted due to heavy customer engagements before the actual product sales started to ramp up.

Tapping Into Your Long Tail
The main benefit of leveraging your invisible crowds comes in the form of dynamic product recommendations that have the power to lift conversion rates by 20 to as much as 300 percent. When shoppers arrive at your site, it is possible to instantly determine their intent and display highly targeted product recommendations. The recommendations feel natural because they are drawn from the collective preferences of shoppers that share a similar mindset. Also, the invisible crowd is inherently aware of seasonality and other trends, and naturally promotes those products that are becoming more valuable to your visitors while demoting those that are losing a bit of their sheen.

Today’s online marketers are operating under a different set of rules than those of yesteryear, and those looking to capitalize on the long tail have to be all the more sensitive to the dynamics of marketing and selling niche products. By understanding long-tail economics and harnessing the wisdom of invisible crowds to deliver a more personal and relevant user experience, e-commerce companies can stay competitive and increase visitor-to-buyer conversion rates in ways they could never have imagined before.

Jack Jia is a founder and executive chairman of Baynote, Inc. He is a frequent speaker at major conferences, an in-demand author and has appeared on television programs in several countries. He can be reached at jack@baynote.com.

May 2010 – Online Insights: Customer Centricity

Personalization and Segmentation: Keys to Customer-Centric Retail

According to eMarketer’s Jeffrey Grau, author of the report Multichannel Retailing: A Competitive Differentiator, “Demanding consumers expect retailers to provide more convenience, flexibility and personalization by leveraging the synergies that come from multiple sales channels.”

It’s a common challenge for retailers. Thousands–potentially even millions–of customers visit a retailer’s store, call its call center or click its website…and all of them are treated identically. They’re presented the same promotions, shown the same products and receive little to no personalized information. Within this homogenized marketing environment, it’s little wonder so many retailers struggle to build a loyal customer base.

It hasn’t always been this way. The roots of retail are in the old corner drug and hardware stores, where individual proprietors focused on building one-on-one relationships with their most frequent and valuable customers. But with the rise of big-box retailing, the quality of customer relationships began to take a back seat to the quantity of store square footage and the number of SKUs inventoried. The new slogan, “We have every product you could possibly want” replaced the older, now seemingly antiquated, “We’re happy to help you find the product best suited to your needs.” At the same time, increasing labor needs and margin pressures encouraged retailers to hire associates with less experience and expertise.

Interestingly, the rise of e-commerce during the past 15 years has both contributed to the impersonal feel of the modern retail experience, while simultaneously offering hope that technology can be leveraged to bring a sense of personalization back to retail. On one hand, pure-play “dot-coms” and “clicks and mortar” websites remove the customer from the physical store environment, limiting opportunities for true face-to-face interactions with store personnel and like-minded customers. But on the other hand, advanced segmentation engines and community features offer the potential for digitally enabled retailers to create a seamlessly personalized experience across all their sales channels.

Zooming in to the Individual
Two decades of rapidly advancing technology has led to major shifts in customer expectations. Amazon was an early pioneer in capturing web-based customer information and using that data to feed a powerful product recommendation engine based on an individual customer’s shopping habits. Because nearly every interaction with the Amazon brand occurs on its website, the company can capture a near-perfect record of everything its customers have searched for, looked at, or purchased over the lifetime of their relationship. Personalization capabilities are then combined with Amazon’s constantly evolving community features, including ratings and reviews, lists and tags, to give each customer both the comfort that they’re never shopping alone, and the security that rich data–personalized to the products they’re interested in–is always available.

Many e-commerce-focused solution companies have developed similar capabilities to offer to other online retailers. These include analytics companies such as Omniture and Coremetrics–which leverage their behavioral tracking engines to provide personalized product recommendations–as well as dedicated personalization vendors such as Kefta, MyBuys and Certona. Other vendors–such as Bazaarvoice, PowerReviews and Pluck–offer community-oriented tools like ratings and reviews, moderated discussions and shared customer lists.

Each of these service providers can provide case studies evidencing the financial value of creating a rich, personalized online experience, through some combination of higher conversion rates, average order values, increased customer satisfaction and higher lifetime value.

A Moving Target
Although competition has spurred technological advances in online personalization and community tools, many of the service providers in this area are focused exclusively on the online channel (usually via a combination of web and e-mail). While a growing number of customers leverage the web to research their major purchases, the vast majority of retail purchases still occur in stores. Most customers calling into the call center have also researched products through the website, and many of those may be browsing the website while speaking with a call center associate. For this reason, customers are something of a moving target, shifting between online and offline channels–and few of the available tools empower retailers to track and respond to their customers’ cross-channel behaviors. For example, a recent article written by Forrester Research notes that “only 29 percent of retail executives surveyed believe their company presents a consistent customer experience across channels.”

In a truly optimized cross-channel environment, there are several steps to a customer-centric approach to retail:

• Customer data is captured in real-time across all potential touch-points–in stores, online, over the phone and through mobile devices and kiosks;
• Customers receive personalized content and alerts via e-mail, SMS and targeted web, call center and point-of-sale promotions based on their unique shopping behaviors;
• Product and cross-merchandising recommendations are consistently personalized across channels, leveraging data generated by other customers with similar tastes, preferences and experiences; and
• Beyond the initial transaction, customers are encouraged to share the brand experience through a combination of personalized loyalty programs, engaging community features, in-store and virtual product demonstrations and recommendations for product use and accessorization.

Cross Over to a True Cross-Channel Retail Experience
As consumers adopt more complex cross-channel shopping behaviors, retailers must evolve their tactics for tracking and leveraging those behaviors. Today, many retailers’ organization structures and technological platforms remain siloed. This limits opportunities for a holistic, collaborative approach to customer marketing. However, new technologies are available now that can bridge the existing gaps and help retailers build a more loyal customer base through cross-channel personalization.

Kevin Moffitt is vice president of strategy and customer experience at CrossView, a retail consulting and technology company and IBM Premier Business Partner. He brings over 12 years of Internet business and creative experience to help CrossView’s clients build and optimize their cross-channel businesses. He can be reached at Kevin at kmoffitt@crossview.com.

May 2010 – Online Insights: Online Video

Making the Match: Integrating Online Video With Social Media

If cybersurfers can’t seamlessly access your online videos from sites like Facebook and Twitter and vice-versa, then you’re missing out on a big chunk of Internet exposure that’s relatively easy to develop. “The audience using social networks is the same one that’s viewing online videos,” says Scott Fox, a Los Angeles-based online marketing advisor and author of eRiches 2.0. “The two marketing approaches complement each other very well.”

That’s because many social networking engines are driven not by text, but by the sharing of photos, videos, audio files and other graphical elements. Users send and post millions of these dynamic messages to one another through Facebook, MySpace, LinkedIn and Twitter every day. The viral nature of those activities provides the perfect backdrop for a company looking to blend online video with social media.

“On social networks, videos spread very easily because people are already grouped by affinity and interest,” says Fox. “They’ll spread your message for you.”

Making the connection between online video and social networking isn’t difficult, but it does require a focused strategy that starts before that first tweet or video is uploaded to the Internet. “A lot of companies produce video just to get it ‘out there’ without fully considering whether anyone really wants to watch it or share it,” says Eric Guerin, founder and principal designer at Sutton, Mass.-based online marketing firm Adelie Studios.

A better approach is to produce online video that your audience wants to see, be it humorous, informational or helpful. Come up with concepts that engage your audience for those two or three minutes, and that make them say, “Hey, my Tweeps [what Twitter's users call their followers] would learn a lot from this clip.”

Also take attention span into consideration, realizing that this is not the place to try to publish a 30-minute corporate video. Imagine that you have just 10 seconds to engage the viewer, and then hope that he or she stays for the duration of the video and likes it enough to pass it along. “If you haven’t grabbed their attention in 10 seconds,” says Guerin, “they’ll go somewhere else.”

Give The People What They Want
The immediacy of social media makes it easy enough to figure out what your audience wants. Not only can you listen in on what others are saying, but you can also post short messages asking whether anyone would actually find your content useful. The fitness equipment marketer, for example, can use Twitter or Facebook to listen to what consumers are complaining about (“Wow, I really gained weight over the holidays,” for example), and then develop online videos that help soothe those pain points.

Social media also gives marketers a way to create a built-in audience for their videos. Unlike the clip that’s posted on a website in hopes that someone will come view it, the video that’s uploaded to a pre-determined group of recipients stands a better chance of being viewed and shared. “These are people who are already interested in what you’re doing, and who are connected to your firm through social media,” says Guerin. “When they see an amazing video, they’ll want to send it to their friends and post it on Facebook.”

Creating the cyber links between your online video and social media is fairly simple, and available via built-in tools on video-sharing sites like YouTube. Simply upload your video and then hit the “Upload to Twitter” or “Upload to Facebook” button and your videos will be uploaded to the designated social networking site. For videos posted on corporate websites, you can use a utility like AddThis, which enables sharing across various platforms, including Twitter, Facebook and MySpace.

Expect to see more companies integrating online video and social networking–a strategy that’s proven valuable for companies of all sizes and across various industries. “Companies are realizing that throwing their video up on corporate websites isn’t as effective as social media, where you can reach a much broader, interactive audience,” says Guerin.

Tips For Implementation
If you’re ready to start maximizing your own online video and social media ROI, Fox offers these success tips:

Create short videos that mix information and entertainment. Today, this is easier to do than ever before. Just use a webcam or an inexpensive “point-and-click” Flip camcorder.

Post those videos using the free TubeMogul.com service. This will allow you to upload your videos just once, but automatically have them posted out to YouTube, Daily Motion, Metacafe and many other online video sites with just a few clicks. It’s a great time-saver.

Be sure to prominently include your marketing campaign’s keywords, phrases and URL in the video title, description and your company profile. This will help search engines find and categorize your video correctly and bring you more free traffic from web surfers looking for information on your topics.

Use the embed codes from YouTube to re-post your videos on your own website, company blog and Facebook pages. It’s a simple process–and it’s free.

Monitor and respond to the comments that your video attracts. This last part is the key to successful integration of video and social media: you must be social. The more you publicly respond to comments on YouTube, Facebook and other social sites, the more comments (and free customer attention) you will attract.

Tim Hawthorne is founder, chairman and executive creative director of Hawthorne Direct, a full-service DR and new media ad agency.

May 2010 – Feature: Don’t Hang Up on the Phone!

Re-Engage on the Telephone With Call Tracking

By Bradley E. Reynolds

Is your fully automated, completely optimized website leaving money on the table? If you rely solely on web contact forms, electronic shopping carts and frequently asked questions pages to service customers, the answer is almost certainly “yes.”

Of course, it’s true that the success and measurability of contact forms and electronic shopping carts along with online check-out processes are industry standards for online profitability. But the fact remains that customers still desire human contact.

If you don’t have a way for web visitors to contact you via the phone, research suggests you may be losing the opportunity to do business with a surprisingly large number of people who still like to buy things the old-fashioned way: over the telephone.

According to an August 2009 survey conducted by Harris Interactive for human-assisted shopping site IMshopping, 77 percent of U.S. Internet users who made an online purchase in the past six months would be interested in help from a real person before buying things on the web.

The survey went on further to note that though a majority of online shoppers reported a desire for help at least some of the time, 82 percent of respondents said they had not been able to get that assistance in the past. And more than half of that group said this had affected their purchase decisions negatively–at least some of the time. Additionally, a 2009 survey by TMP Directional Marketing and comScore found that 46 percent of local online searchers contacted a business by telephone after web research.

All of this research demonstrates the dilemma online marketers face: How can you most effectively optimize your website to service the needs of every potential customer, including those who want to do business over the phone? And furthermore: How can you measure the impact of those phone calls?

Until now, measuring the impact of phone calls has been inconsistent at best. Perhaps that’s the reason many online marketers have neglected to engage and promote phone calls as a legitimate and powerful way to complement and improve online sales. Fortunately, with the advent of today’s comprehensive call-tracking solutions, marketers now can quantify the offline impact of their online presence at a granular level.

Background: The Road to Automated E-commerce
Part of the rationale for the move to online-only communication has been the growing desire for traceability and measurement. Companies want to know which marketing effort brought visitors to their site and subsequently, they want to tie that marketing effort back to a specific action such as filling out a web form or placing an order.

The prevailing opinion among online marketers has been that if a website visitor picks up the telephone, the connectivity back to the original referring source is lost–along with the ability to measure the overall success of the marketing campaign. This myth is debunked with the powerful tools today’s call-tracking solutions provide.

Another factor which influences the migration away from telephone calls is perceived cost savings. It is much simpler and more cost-effective to create and publish a series of frequently asked questions on a website and encourage visitors to use this information. Only if visitors can’t find answers to their questions are they offered a web form submission.

While publishing FAQs is a good thing and may be effective in resolving many minor customer issues, the solution clearly won’t resolve all questions. And when offered only a web form for contact–with an unknown response time–customers often become frustrated and dissatisfied. Dissatisfied customers are more likely to look elsewhere the next time they are in need of a specific product or service. Often, by the time your company’s customer service representative responds to the web form, the customer has found a competitor who provided immediate service over the phone.

There is a Solution
By publishing a prominent, easy-to-find local or toll-free telephone number on your website, visitors can simply call for information to help complete the sale. Imagine the unfortunate alternative: Customers surf their way through your online check-out process only to become confused in the middle of filling out their information. Do they abandon the transaction? Do they browse through confusing FAQ pages only to return a short time later to discover their check-out process has expired? Or do they just go to your competitor to make their purchase.

When you make a telephone number available, that same customer can easily pick up the phone, connect with your knowledgeable representatives and get the answers they need from a friendly person who is there to help them. They may even choose to complete the transaction over the phone.

By clearly publishing contact phone numbers on your websites, you provide a proven form of communication to both current and potential customers. Sales wisdom reveals it’s far easier to address a concern over the phone than via the inherently delayed nature of web forms and e-mail responses. Although some customers may prefer to complete online forms, research shows the majority want to use the telephone to make purchases. How much business are you leaving on the table by not providing the most preferred communication option–the telephone?

Measuring the Results
As noted above, savvy online marketers often have been skeptical about using telephone numbers for website advertising campaigns. It’s understandable. Until recently, call tracking was limited to revealing how many callers came through on a particular phone number. Measurement just wasn’t possible.

However, today’s comprehensive call-tracking solutions can provide a treasure trove of data which paints a complete picture of how online marketing (pay-per-click, SEO, e-mail, banner ads, affiliates) drives phone calls. In simpler terms, marketers now can quantify the offline impact of their online presence at a granular level by identifying which keywords are driving phone calls.

Even if five to 10 percent of your conversions happen over the phone, call tracking is imperative for maximizing return on investment. Call-tracking data provides users with intelligence about which campaigns, keywords and marketing tactics are driving calls and, more importantly, whether those calls are generating revenue.

The Specifics: How Call Tracking Works
It is much more than simply recording the number of calls received. Call-tracking software is part of a sophisticated marketing methodology that ties results directly to costs and gives clients accurate, real-time campaign effectiveness figures.

Call tracking allocates a discrete phone number–local or toll-free–for each unique source you want to track. These sources can be keywords, affiliate IDs, search engines or any other identifier. When a visitor arrives at your site, the software conducts a dynamic look-up to determine which phone number is associated with the visitor’s origin page. That phone number is allocated and then cookied within the visitor’s browser.

As a result, call tracking gives clients actionable data which allows them to optimize PPC campaigns, SEO and other offline marketing efforts. Instead of associating a phone number with a particular campaign, ad group or keyword, call tracking assigns a tracking number to each unique visitor session. By tracking each unique visitor, clients are able to see granular data associated with the call.

Call data is then logged into a central database system which can also export the collected data directly into many popular web analytics programs. Additionally, reports can be exported into a spreadsheet or XML feed. Clients looking for even more granular data can integrate call tracking directly into their CRM database using the API feature. Some popular analytics packages which complement call tracking include Google Analytics, Webtrends, Omniture and Coremetrics.

Bradley E. Reynolds is founder and CEO of Mongoose Metrics, an enterprise-level call-tracking solutions provider. He can be reached at mktg@mongoosemetrics.com or at 877-784-0496.

May 2010 – Cover Story: Fighting the Good Fight

Merchants’ Battle Against Friendly Fraud Will Be A Protracted One–Across Two Fronts

By Bob Botelle

The 2009 LexisNexis True Cost of Fraud study contains a wealth of merchant-reported experience in the war against fraud in commerce. A common cause for concern among those experiences? Friendly fraud accounts for more than one-third of the total fraud for online-accepting merchants–or, according to the study, .4 percent of total annual revenue. More than one in five merchants are experiencing increases in friendly fraud. It’s the greatest source of fraud for online-only merchants, representing over one-third of their total fraud losses–and about 24 percent of total fraud losses for the largest e-commerce merchants.

Of all threats to merchants, friendly fraud is perhaps the most insidious. It’s not a function of global competition, margin pressure, customer satisfaction or criminal activity. It’s an ongoing source of fraud loss for merchants in card-not-present/customer-not-present industries, particularly those in e-commerce and direct response. Unlike other forms of fraud, friendly fraud is very difficult to detect at the front-end of a transaction and–as a result–hard to stop before it happens.

Increasingly, many merchants and providers alike view tacit acceptance of friendly fraud as tantamount to decriminalizing theft. There is even growing clamor to create global databases of bad customers.

While there is certainly room for improvement in the prevention and recovery processes that support merchants–particularly within the systems designed to resolve transactional conflict (e.g., the charge-back process)–the potential brand-damaging implications of returning friendly fraud’s volley with a “friendly fire” approach is questionable. More about that shortly.

Getting Around Friendly Fraud
While the term “friendly fraud” means different things to different merchants, its broadest, and perhaps best, definition is this: any transaction, contested by a customer, where the merchant suspects that the customer or a personal associate (child, spouse) legitimately authorized the transaction in question.

Stepping back even further, many merchants will tell you that there’s little distinction between friendly fraud defined as a cardholder who knows they’re responsible for a purchase while refusing to pay for it, and other forms of fraud, particularly return fraud. Ultimately, the merchant faces not only the lost revenue, but also the costs associated with recovery.

Despite the value of many fraud-prevention and screening tools available across the payments industry, there is no magic bullet for tackling friendly fraud. Certainly, the basic, ubiquitous and proprietary solutions for matching card and cardholder, verifying address, etc., still apply. The biggest decision for most merchants is choosing the “front” on which they will battle friendly fraud and the amount and type of investment they will devote to the fight.

War on Friendly Fraud: Two Fronts
The two clear fronts on which friendly fraud can be fought are prevention and recovery. On the prevention battle line–and despite the plethora of fraud-detection and screening tools available today–the reality is that friendly fraud remains largely a challenge of managing the problem versus eliminating it. Prevention methods–such as advanced order scoring and manual order review, as well as high-hold handling–are still a function of the type and ticket value of the good or service that a merchant sells. After all, advanced scoring can kill good orders, and high-hold handling can get quite expensive. Recovery, driven in part through the established charge-back/re-presentment process, is also a balancing act of investment versus return.

Mitigating friendly fraud on either front becomes a function of the people, processes and tools in which merchants invest.

On the prevention front, the people element is comprised of your call center and customer-service staff. Process here is predicated upon the merchant’s risk model, driven by, among other things, choices in customer service training and improvements, velocity-checking management and high-ticket/high-touch policies and procedures. Tools on the prevention front include IP geo-location, device fingerprinting and negative customer lists.

On the recovery front, people investments include those made in legal teams, collection agencies, delivery providers and attorneys general. Process is largely driven by policy or the dollar value of the goods and services sold. Tools include regulations and reporting (the collection of data/proof points used in the chargeback and/or legal process).

Remedies for Success–Education and Persistence
One of the best defenses that any merchant, retailer or service provider can leverage to combat friendly fraud is systemic supplier education. It sounds simple, maybe even trite to some, but think about it in the context of these next questions: Have you ever ordered something from a catalog or a website? Was there ever a time when a call center representative “forgot” to ask you for a card identification number? Was there ever a time when your web purchase did not include a specific box at checkout to include that same card identification number? If you’re a frequent customer-not-present consumer in the card-not-present world, chances are you answered “yes” to one or both of those questions.

This is a first-gate failure of one of the simplest fixes–identify and screen data that indicates a card is in the hands of its rightful owner. Identify and screen matches for address. Collect all that is yours to collect to give you the comfort that the somebody buying is the somebody who’ll be getting.

Pushing education through an entire retail provider chain is critical. What’s more, it’s one of those not-so-conventional areas in which the suppliers themselves can take arms on the merchant’s behalf. Payments partners in their role as the ultimate transaction processor can play a major role in working with a merchant’s chain-of-order management, fulfillment, web sales and marketing and call center providers.

Truly, this remedy supports the prevention side of the battle best, but indoctrinated best-practice behavior comes with the side benefit of extraordinary documentation that can be used, when the time is right, on the recovery front.

Survey most merchants and they’ll tell you that this approach is still not allowing them to prevail in the fight. Yet calls for more controversial approaches are not only likely to be ineffective–they’re likely to be downright damaging to your bottom line.

Negative Lists and the Bad Customer
For years, merchants have used their own, so-called “negative customer” lists to screen orders from customers whose negative order, refund and/or chargeback histories raise flags. This is a sensible and worthy mechanism allowing a brand to weigh its experience with an individual consumer against that same consumer’s lifetime value to the brand. For most merchants, this approach to both customer relationship and brand management has been an asset and not a liability.

Increasingly, however, merchants’ frustration and the lack of a true industry agenda against friendly fraud has helped promulgate a new form of the negative list: the global bad customer list or database.

However, a global database as a new truth-seeking shield shared broadly across, between and among merchants, stands to do more damage to brands and their relationships with consumers than it thwarts friendly fraud.

In fact, these global lists could potentially create a friendly firestorm on the field of commerce. Potential ramifications include consumer alienation, customer loss and–ultimately–damaged reputation. Merchants and consumers routinely have justifiable disputes; most resolve themselves adequately, and the consumers certainly don’t want to be labeled as “bad” because of a negative experience with one transaction or one merchant. Consumers appearing on such lists may have had only one dispute with one merchant. Yet the potential exists for such lists to brand those consumers as bad across a global band of merchants. This ultimately is in no one’s interest–particularly not the merchants’. The rapid evolution of Internet-driven, word-of-mouth consumerism can create brand damage in a fraction of the time required just a few years ago.

Driving a Friendly Fraud Agenda for Merchants
Let it be said in the event that it is not obvious: there is no commerce without merchants with goods and services to sell. And there is no commerce without all of us as consumers to buy these goods and services. But, unfortunately, friendly fraud liability drops squarely in the laps of merchants.

Solutions are not likely to be found in promoting antagonism in commerce: seller battling buyer. This is the principal reason that bad-customer approaches will ultimately be ineffective.

The solution is much more likely to be found in a systemic education process benefiting all fronts on which merchants fight friendly fraud. Solutions should also be found in a stakeholder-inclusive, industry-wide agenda. It will take payment processor, order and fulfillment management systems, call center voices, acquirers, issuers and merchants to promote the educational and programmatic agenda that will help stem–and hopefully reverse–the significant operating costs and revenue losses associated with the enemy known as friendly fraud. It is likely to include the efforts of these same parties to improve systemic dispute resolution processes in cases of suspected friendly fraud.

Bob Botelle brings more than 20 years of direct marketing, customer service and operations experience to Litle & Co. As executive vice president, merchant services, Botelle leads the front-line organization responsible for delivering Litle’s pledge of best-in-class customer service to card-not-present merchants. Botelle can be reached at bbotelle@litle.com.