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Closed-loop marketing is a marketing approach that combines analytical and operative components of customer relationships in a customer relationship management system and provides the company with strategic added value through this regulatory framework. Closed-loop approaches are aimed at long-term customer loyalty and an increase in return-on-investment of any marketing activities, which are continuously adapted to market requirements and customer requirements based on customer data. Intelligent customer relationship systems, ERP systems, and business intelligence are part of an approach which refers to whole value-added chains and data management (data warehouse, big data) in companies.
The customer relationship management collects customer data in daily operations and prepares it for the responsible persons. However, companies and customers interact with one another in a variety of ways, for example through a website, social media, email, telephone, regular mail or call center. The CRM is intended to bundle these customer contacts and to generate as much information about the customers as possible. This is referred to as the operational part of CRM. The analysis and evaluation of customer information is carried out in the analytical part of the CRM.
- Operative CRM: data collection
- Analytical CRM: data analysis
Most CRMs, however, do not provide feedback and therefore the information collected from the customer contacts at the operational level is not being utilized sensibly – it is not passed on. “Closing the Loop” describes the filling of this gap, which results from the unilateral use of the customer data. Closed-loop marketing is characterized by a cycle consisting of data collection, analysis, and preparation on the one hand, and feedback loops on the other, whereby findings are returned to the operative area. This creates a closed loop with advantages for different areas of the company, including marketing, sales, service, and production.
How it works
Closed-loop marketing requires a user-centric approach and the willingness of the company to adapt to customer needs. This condition becomes evident when data circulation is considered. Each customer contact results in relevant information collected by the operative component. This includes, for example, name, age, address, contact details, and interests, as well as transactions and products that customers have acquired through different channels. The analytical component bundles the data and prepares it so that it can be used by the company. As a rule, this is done with an IT infrastructure and with software solutions which are predestined for these tasks.
The information is linked to relevant business processes in the system because it can be used in different business departments, always with regard to the quantitative results of the respective department. But only once this information is reintroduced into the operative business as recommendations for action will they be utilized strategically and for the long term. The success of closed-loop marketing is essentially dependent on the synthesis between business objectives and customer requirements as well as the design of this cycle in an IT infrastructure.
Important aspects of closed-loop marketing
The tasks, objectives, and possibilities of closed-loop marketing are extremely diverse:
- Customer relationship: The relationship with customers is at the forefront of all activities. The better it is, the higher the average revenue per customer value for the company. Critical factors are customer acquisition, the development of the customer base, and customer behavior, for example.
- Customer life cycle: Since it is intended to bind customers to a company and its services as long as possible, the customer’s entire life cycle must be observed. The optimization of customer lifetime values can be achieved by designing this cycle.
- Customer segments: Customers have different interests, preferences, and desires. Different types of customers can be divided into segments to support purchasing and decision-making processes and to increase the relevance of marketing activities for specific target groups. For example, branding and user personas can be customized using customer feedback.
- Multichannel marketing: Customer interaction with a company can be very diverse. Target group-relevant channels and multichannel approaches can guide the communication behavior so that customers select the preferred channel themselves. An integrated approach ensures a coherent communication along the entire customer funnel.
- Touchpoints: Both digital channels and offline interactions are the contact points of customers and companies. The customer brand experience can be actively shaped so that different contact moments correspond to predefined goals (such as brand awareness, up- and cross-selling, retargeting).
- Customer journey: Before customers make a purchase decision, they take different paths and go through different phases. Channels, touchpoints, and customer contact can be arranged in such a way that the customer journey is accompanied by the company.
A potential customer reaches a website which installs a cookie. The cookie provides information on the medium with which the customer has become aware of the offer (referral source). The user searches the website for specific offers or products, leaving traces. The cookie registers the actions that the customer performs. The user is now offered incentives (for example a coupon) to collect their contact data for an email marketing campaign and to win them permanently as a customer. The user completes a form and is listed as a lead in the system. Now the behavior of the user can be evaluated using tracking to send them tailor-made offers or optimize the lead campaign in case of a failure.
Relevance to online marketing
Closed loop marketing takes advantage of the analysis of all marketing activities (see Data Driven Marketing). Companies obtain robust data on customer and buying behavior and can make corrections in many different areas based on it. For example, individual channels, touchpoints or the approach can be adapted if customers do not react as expected or hoped for by the company. The first point of contact can be the focus. How did the users get the offer? The more information a company can collect, the greater the added value for tactical and strategic decisions. But before making such decisions, it is useful to first get to know the target group. Because the return on investment should be subordinate to the customer relationship. The closed loop is about the customer, not the company. At the same time, marketing or sales targets are unavoidable, as metrics can be developed on this basis, which reveal the effective use of individual campaigns and optimization potentials.
- How Closed-Loop Marketing Works blog.hubspot.com. Retrieved on 09/16/2016
- The Basics of Closed-Loop Reporting newbreedmarketing.com. Retrieved on 09/16/2016