This committee member of the newly formed Wireless Marketing Council expresses concern over what he heard at a CTIA event recently.

Mark Van Clieaf is the Managing Director for MVC Associates International, a North American consultancy providing expertise in organization design, recruitment and leadership assessment/development. He has set up marketing departments for world-class marketing companies and agencies using best practices benchmarking to identify what 21st Century marketing organizations should look like, and what type of new leadership skills they need. With this knowledge, and an extensive background working within the advertising and marketing industry, from which he came 15 years ago, Van Clieaf was appointed the chair for the Organization/Leadership Subcommittee of the newly formed Wireless Marketing Council for the Association for Interactive Marketing / Direct Marketing Association.

Van Clieaf recently attended the Cellular Telecommunications & Internet Association (CTIA) 2002 Conference in Orlando, Florida, and came back with some strong impressions of the wireless industry, which he shared with iMedia Connection.

iMedia Connection: Tell me about the Wireless Marketing Council. What are its goals? What is your role?

Van Clieaf: The Association for Interactive Marketing, whose parent is the Direct Marketing Association, has formed a new committee -- the Wireless Marketing Council -- because the association's leadership feels that the direct marketing community and marketers in general could benefit from better understanding about this new emerging media and channel and what role it may play in the marketing mix. My role is to provide thought leadership in the area of what type of new marketing organization structure and new skills are needed for this emerging media.

The association isn't trying to duplicate what the CTIA is doing, which is really the key association for the wireless industry, or what the Mobile Marketing Association is doing, which is setting some standards for marketing. The experience of the team around our table is with closed-loop marketing and CRM, direct/database marketing, and interactive marketing, so we felt we'd bring some expertise to the industry that some of the other organizations and associations may not have. Some of the committee team members like Ben Isaacson, the head of AIM, and Ben Jeremi Karnell of One to One Interactive, who chairs the complete wireless committee, are spending a lot of time in Washington trying to educate the Senators and Congress who are putting bills together that could impact the whole wireless-actually the whole interactive-industry. But mostly we're hoping to bring some thought leadership to this whole issue, especially in regard to interactive marketing and CRM.

iMedia Connection: What was on the agenda for this conference?

Van Clieaf: The conference included a number of panel discussions presented by the leaders in wireless and wireless marketing. In fact, it was a who's who of wireless all coming together from around the world. I met people from Italy, Japan, UK, and Finland. These countries are more advanced than North America in the development and use of wireless.

iMedia Connection: What are some of the observations you made from the panel discussions?

Van Clieaf: First, I was very surprised when a number of the panel members from various sessions, which included executives from well-known companies like AOL, Disney, AT&T Wireless, started talking about wireless marketing as a mass medium. If they start looking at wireless as a mass marketing medium, and they treat it that way, the industry could be at big risk. Because wireless and wireless marketing is a very personal and addressable medium because of the carrier and device -- it is a very personalized and targeted medium and marketers need to understand that. As well, unlike with other channels, if you send an SMS text message, multi-media message or other communications to a customer it will cost money and impact the wireless minute bucket and monthly bill of the consumer. The landline based Internet never did that. This has huge implications for the wireless Internet, opt-in and customer contact.

iMedia Connection: What else?

Van Clieaf: Another observation is I don't think the industry is clear on who its customers are in the wireless domain at a micro-segment level. One of the keys to where we are going is moving from mass marketing-radio, TV, print-which is unaddressable, to addressable marketing, through channels like the Internet, direct mail, call centers, wireless Internet, interactive TV. When you are in a recurring revenue business in which you know who each and every one of your customers are by name and by address and by usage pattern, you can do some very sophisticated micro/one-to-one segmentation and targeting.

You can look exactly at what customers are doing and how they are doing it because it's all in the transactional and billing information. So to hear the wireless industry talk about this being a mass-market medium suggests there is great potential to increase their sophistication about customer insight and understanding to move the wireless industry to the next level of growth and profitability.

iMedia Connection: Why do you think they haven't done much micro-level segmentation and actioning of that segmentation?

Van Clieaf: After the conference I called a number of friends and contacts who are in the wireless industry. They explained that it's partly due to the history of the industry. For the most part, many of the executives in the wireless industry are long time telecommunications people who primarily came out of operations, engineering and accounting backgrounds from the RBOC's and AT&T. So they really are not classically trained marketers. Secondly, with that background, they have had minimal exposure to micro-segmentation because they didn't have to-they used to be in monopolies. So there are some cultural and leadership issues behind why this isn't happening.

Some of my colleagues who are in the industry actually have attempted to do some sophisticated segmentation and target marketing, and many of them who have tried actually have left frustrated. Their analytic work identified that at some carriers 15% of the customers are making up for 150% of the profit, confirming that not all customers are created equal and that a micro-segmentation, not a mass-market approach, needs to be taken. But when they took this to the senior management, although the executive team understood it, they weren't prepared to operationalize it because Wall Street is using the wrong metrics.

Wall Street is measuring the total number of subscribers that the carriers have regardless of whether they are profitable or not. So using an aggregate metric like EBITDA/customer across the total customer base hides where and how you are really making money. And Wall Street does not seem to care about the key metric of the life-time value of a customer or even if the subscriber is an unprofitable one. So measures like cost-per-acquisition at an average level and average revenue-per-user (ARPU) for the customer base are some of the key metrics Wall Street and thus the industry are using, and it's taking the wireless industry down the wrong path. Instead, the industry should be looking at who the high-value segments are and how much they spend/month as opposed to the low-value segments. If you use an average revenue-per-user, it will mask the fact that 15% of your customers are generating 150% of profit and that their revenue-per-user is actually $500/month vs. your low-customer revenue-per-user, which is $30/month. The economics here impact customer contact strategy and marketing investment optimization from acquisition through customer retention. Averages are dangerous in world-class new age marketing. So averages in terms of cost-per-acquisition, revenue-per-user, EBITDA/customer are the wrong metrics at an individual company level and drive sub-optimal decision-making. Some of my colleagues have told me they know they're doing things that are wrong from a marketing investment perspective but because their CEO and CMO are being measured on these inappropriate aggregate numbers that are inappropriate, they must follow suit.

iMedia Connection: Why is micro-segmentation so important?

Van Clieaf: If you look at the last four years, the wireless industry has primarily been focused on acquisition-rightfully so. But we're at a point today where 60% of adults in North America have wireless access. So it's no longer an acquisition game. It's a game of deepening customer relationships, retention, and up-sell and cross-sell of all of these new services like SMS text, multimedia messaging, location-based services, wireless media in the car, and other new wireless services. But you can only do that if you understand at a micro-segment level the usage, interests, wants, lifestage and lifestyle of all these different customers and that not all customers are created equal.

When I asked these panel members and vendors in the exhibit hall at the conference about their segmentation and customer insight, for the most part they hadn't really done any. When one of the major wireless carriers said that they were starting to do demographic segmentation, I was surprised because we know that in others parts of the telecommunications industry, much of financial services and other data-driven industries have discovered that demographic segmentation is almost of no value in a segmentation schema.

You start with transactional behavior-Who are your highest value customers? Who is spending the most? Who are you making the most money on?-then cluster those into quartiles or deciles of users by revenue and profit, and start finding out more about whose in those $500/month buckets and what they look like. Just because they spend alike doesn't mean that attitudinally, or technologically, or income wise that they're the same customers -- they're probably not. It takes a level of sophisticated micro-segmentation to really understand who these customers are. And if the industry doesn't do that, then it's at risk of failing to bring all of these new products and services successfully to market, because they haven't done the research and datamining to find out who these customers really are, what these consumers really want, are interested in, and how these new technologies could improve their lifestyles. Right now there is too much technology push.

iMedia Connection: Any other observations?

Van Clieaf: I was very surprised (and so was the CTIA) when a couple of the panel members said they didn't believe wireless marketing needed to be measurable and that it only had to be held accountable to an awareness metric similar to other types of branding. I think that's a mistake. We are living through a fundamental revolution in marketing from mass marketing to targeted marketing, from unaddressable media to addressable media. And as you move to addressable media, everything can be measured. And if marketers want to have a chair at the executive table, they need to bring the marketing strategy and marketing expenditures into a light that puts it in a context of return-on-marketing investment and impact-on-shareholder value. It's no longer about marketing and marketing communications as an expense; it's about marketing as an investment to build the business, and that requires the marketing team to take a measured approach to much of their investments in new product development and marketing communications.

Now don't get me wrong - the concept of the brand and branding is not going to go away. But it needs to be reinvented for a digital world. Much of Madison Avenue still does not understand this and that's why we had marketing tragedies like Pets.com. I question why marketers are trying to use old mass-marketing/media metrics like Reach and GRPs on the Internet -- an old mental model applied to a digital world. But I think the mix of traditional, unmeasurable mass communications and branding as opposed to targeted and measurable addressable media will fundamentally go through a shift in the next three to five years. It's going to take leadership at the top with CFOs and CEOs asking some tough questions of the chief marketing officers and their teams. This will require a new mental model for marketers because it's no longer about doing great creative and doing great TV commercials. That's still part of it, but it's about creating profit and managing customer relationships across the complete customer life cycle, and across multiple channels that creates value for customers and shareholders and that's what marketing's about.

iMedia Connection: So in a nutshell, what needs to be done to bring the wireless industry forward from a strategic marketing perspective?

Van Clieaf: First of all, it's courageous leadership at the top because, back to where we started, if the CEOs, CFOs and CMOs are not prepared to push back Wall Street on what really matters to build the industry, then they'll continue to use the wrong metrics. It is the size and duration of cashflows at an individual customer level along with marketing and technology investments and their optimization against these cashflows that will create shareholder value in the medium to longer term.

And this is not about mass marketing; this is about addressable media, content and the utility that a wireless solution can provide to enhance work and personal lifestyles. We will see a convergence between the wireless industry, the financial services industry and the media industry over the next three to five years. Wireless is the backbone to this convergence.

So you must bring a strategic and segmented micro-marketing approach to managing your customer base. When you move beyond what was primarily an acquisition game, to a game of strategically managing and retaining your best customers with current products and services as well as introducing new products and services, that requires a new set of leadership skills. The executive teams must migrate from primarily being technology driven to being customer driven enabled by these great emerging technologies. And much of these marketing investments must be measurable because it is an addressable channel and media.