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

1. AARHUS
UNIVERSITY
E-CRM: THE CONVERSION FUNNEL
Jacob L. Orquin, Ph.D.
Department of Business Administration
Aarhus University
ASB AU
MAPP

2. AARHUS
UNIVERSITY
OVERVIEW
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. AARHUS
UNIVERSITY
THE (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 staff
responsible for E-CRM”
Smith & Chaffey (2005)
ASB AU
MAPP

4. AARHUS
UNIVERSITY
PART 1: ACQUISITION
Acquire 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. AARHUS
UNIVERSITY
BUDGETING FOR ACQUISITION
Borrowed from Hoffman & Novak (2000) note that there are no budget
allocation for SEM, that would be quite unusual in 2009.
ASB AU
MAPP

6. AARHUS
UNIVERSITY
ACQUISITION
An overview of traffic sources.
Chaffey (2007)
ASB AU
MAPP

7. AARHUS
UNIVERSITY
COST PER CLICK
Advertisers pay only per click/visitor.
ASB AU
MAPP

8. AARHUS
UNIVERSITY
SEARCH ENGINE OPTIMIZATION
Advertisers seek to optimizie their ”organic” position on specific
search words.
ASB AU
MAPP

9. AARHUS
UNIVERSITY
COST PER ACTION/ACQUISITION
Advertisers pay per action or conversion only
ASB AU
MAPP

10. AARHUS
UNIVERSITY
COST PER ACTION/ACQUISITION
Advertisers pay only per action or conversion
Chaffey & Smith (2008)
ASB AU
MAPP

11. AARHUS
UNIVERSITY
COST PER MILLE
Advertisers pay per 1000 impressions
ASB AU
MAPP

12. AARHUS
UNIVERSITY
COST PER MILLE
The impact of interactive advertising; the click-through has gone from 7 % in 1996
to 0.7 % in 2002. (Drèze & Husherr 2003)
ASB AU
MAPP

13. AARHUS
UNIVERSITY
VIRAL MARKETING
Advertisers are guaranteed a minimum amount of impressions. If the
viral spread is obtained there will be an extra ”free” exposure.
ASB AU
MAPP

14. AARHUS
UNIVERSITY
TRAFFIC SOURCES
Web site traffic is almost always distributed on several sources, e.g.
CPC, SEO, CPA, CPM etc.
ASB AU
MAPP

15. AARHUS
UNIVERSITY
PART 2: CONVERSION
Conversion rate
The ration of web site visitors who
complies with a desired action, e.g.
submitting an order.
Example:
A webshop has 256 customers and
12.300 unique visitors during one month.
This results in the following conversion
rate; 256/12.300 = 2,08 %
ASB AU
MAPP

16. AARHUS
UNIVERSITY
THE CONVERSION RATE
Funnel conversion rate
The image shows a funnel conversion
rate on a typical webshop. The
conversion rate depends on price,
assortment depth, and web site
parameters like usability and credibility.
ASB AU
MAPP

17. AARHUS
UNIVERSITY
ATTRITION
Reasons for attrition frequencies Self-reported reasons for
Unexpected higher price 32 abandoning the website after
Usability issues 28 having reached the shopping
Other people’s opinions 23 cart. (N = 125)
Lacking service options 22
Low trust 21
Delivery time 17 69 % had visited the same
Uncertainty about transaction security 15 website posterior to abandoning
Limited assortment 15 the cart.
Unclear business and transaction terms 14
Negative experiences 11
Uncertainty about foreign websites 6
Lacking e-mærke (trust seal) 4
Difficulties in buying the goods online 4
Total 212
ASB AU
MAPP

18. AARHUS
UNIVERSITY
OPTIMIZING CONVERSION RATE
Optimizing the conversion rate is often a question of designing the
user experience.
ASB AU
MAPP

19. AARHUS
UNIVERSITY
WHAT TO OPTIMIZE
www.conversion-rate-experts.com/articles/101-google-website-optimizer-tips/ ASB AU
MAPP

20. AARHUS
UNIVERSITY
ONLINE MARKETING ROI
The ROI on online marketing activities depends to a large extent on
the conversion rate.
Example for e-commerce:
ROI = (X * R * av.val) / (X * mkt.cost)
X being the number of visitors
R being the conversion rate
av.value being the average value of a conversion
mkt.cost being the average cost per visitor
ASB AU
MAPP

21. AARHUS
UNIVERSITY
PART 3: LOYALTY & RETENTION
ASB AU
MAPP

22. AARHUS
UNIVERSITY
SATISFACTION AND LOYALTY
Satisfaction is a strong predictor of customer loyalty both offline and online.
ASB AU
MAPP

23. AARHUS
UNIVERSITY
COGNITIVE/BEHAVIORAL LOYALTY
Del Giudice (2005) found that cognitive and behavioral loyalty is affected
by website performance and functions as a positive switching cost.
ASB AU
MAPP

24. AARHUS
UNIVERSITY
RETENTION 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. AARHUS
UNIVERSITY
AN 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. AARHUS
UNIVERSITY
AN ANALYSIS OF RETENTION AND ROI
Retention rate: 20 %
Retention costs: 606.600
10 % 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. AARHUS
UNIVERSITY
AN ANALYSIS OF RETENTION AND ROI
10 % 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. AARHUS
UNIVERSITY
AN ANALYSIS OF RETENTION AND ROI
Net present value:
Where:
t - the time of the cash flow
i - the discount rate
Rt - the net cash flow at time t
ASB AU
MAPP

29. AARHUS
UNIVERSITY
AN ANALYSIS OF RETENTION AND ROI
10 % 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. AARHUS
UNIVERSITY
AN ANALYSIS OF RETENTION AND ROI
Conclusion: A 10 % increase in retention rate could lead to a
10 % increase in NPV.
But … the ROI on the investment is only:
(450.000 – 303.300) / 303.300 = 48 %
ASB AU
MAPP

31. AARHUS
UNIVERSITY
AN ANALYSIS OF RETENTION AND ROI
So what should you do about retention then? …. As always, that
depends:
(anderson & mittal, 2000) ASB AU
MAPP

32. AARHUS
UNIVERSITY
FACTORS AFFECTING LOYALTY
Reibstein (2002). ASB AU
MAPP

33. AARHUS
UNIVERSITY
LIFE TIME VALUE
ASB AU
MAPP

34. AARHUS
UNIVERSITY
CUSTOMER ACTIVITY
Customers 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. AARHUS
UNIVERSITY
SERVICE QUALITY
There are three major steps in improving service quality:
• Understand expectations
• Setting and communicating the service promise
• Delivering the service promise
Touchpoint mapping is a nice and easy way
To get a feel of customer experiences and
service deliverfy.
ASB AU
MAPP

36. AARHUS
UNIVERSITY
SEGMENTATION
Purchased Active :
7 E-responsive
Segmentation into customer
Purchased
lifecycle groups allows for targeted 6 Inactive
communications 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. AARHUS
UNIVERSITY
SENSE 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. AARHUS
UNIVERSITY
RFM ANALYSIS
Customers 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. AARHUS
UNIVERSITY
E-MAIL MARKETING AND LOYALTY
E-mail marketing as loyalty strategy:
ASB AU
MAPP

40. AARHUS
UNIVERSITY
E-MAIL MARKETING AND LOYALTY
Response rates in e-mail marketing
Chaffey & Smith (2008)
ASB AU
MAPP

41. AARHUS
UNIVERSITY
ECONOMIC INCENTIVES AND LOYALTY
Free music has (had) a positive effect on churn:
ASB AU
MAPP

42. AARHUS
UNIVERSITY
SOCIAL MEDIA AS LOYALTY STRATEGY
Engaged visitors are loyal customers:
ASB AU
MAPP

43. AARHUS
UNIVERSITY
RETENTION AND ROI
Retaining customers has a high ROI. CPA is lower, conversion
rate is higher and the average value is also often higher for
returning customers.
ROI = (X * ↑R * ↑av.val) / (X * ↓mkt.cost)
X being the number of visitors
R being the conversion rate
av.value being the average value of a conversion
mkt.cost being the average cost per visitor
ASB AU
MAPP

44. AARHUS
UNIVERSITY
NEW VS. RETURNING VISITORS
Profit = (aX * R * av.val – aX * mkt.cost)
+ (bX * R * av.val – bX * mkt.cost)
a being the percentage of new visitors
b being the percentage of returning visitors
X being the number of visitors
R being the conversion rate
av.value being the average value of a conversion
mkt.cost being the average cost per visitor
ASB AU
MAPP

45. AARHUS
UNIVERSITY
VISITOR SEGMENTATION
The distribution of new vs. CPA
returning visitors is important
for the profitability of the
company.
New
visitors
Av.val
Returning
visitors
CPA = 100/R * mkt.cost
ASB AU
MAPP

46. AARHUS
UNIVERSITY
NEW 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. AARHUS
UNIVERSITY
NEW 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. AARHUS
UNIVERSITY
ESTIMATING MKT.COSTS
Estimating mkt.costs for new and returning visitors can be a mess. We estimate
that 42 % of source 2, 50 % of source 3, and 100 % of sources 1 and 6 are
returning visitors ≈ 57,4 % of total visitors.
SEO
SEO
CPC
SEO
CPM
Mail
CPC
CPA
CPC
SEO
ASB AU
MAPP

49. AARHUS
UNIVERSITY
ESTIMATING MKT.COSTS
Estimated mkt.costs for returning visitors ≈ 0,7 DKK
Estimated 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. AARHUS
UNIVERSITY
ROI ON NEW VS. RETURNING VISITORS
Profit = (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 + 1.035.753
ROI on returning visitors: 3209 %
ROI on new visitors: 80 %
ASB AU
MAPP

51. AARHUS
UNIVERSITY
CONTACT
Jacob L Orquin, Ph.D.
Department of Business Administration
Aarhus University
E-mail: jalo@asb.dk
Check out my company:
www.userpilot.dk
ASB AU
MAPP