SYMBIOSIS INSTITUTE OF MANAGEMENT STUDIES Dissertation

To study the impact of digital marketing communication on customers

Presented ByRhythm Malhotra 2B-28 PRN : 10020441180

TITLE

To study the impact of digital marketing communication on customers

Abstract
With the possibilities to reduce costs, reach larger and new audiences, personalize, interact, and serve customers better marketers are learning how to utilize digital channels, like the Internet, email, mobile phones and digital television. The possibility to use digital channels for building customer relationships and long-term loyalty has recently gained rising attention. This paper shows how brand communication, service, personalization, and interactivity can help marketers boost customer relationships. The cost efficiency of digital channels facilitates marketers active and frequent brand communication. This helps achieve positive effects on customer-brand relationships via several routes. Customers knowledge about marketers products and services, and their involvement may increase. Digital brand communication can also boost sales; build positive brand attitudes, emotions, and loyalty. An increase in customers activity can also be achieved. Interactivity in digital media offers customers better options to search for information, work as initiators, and get help. Interactivity also offers new ways to spend time with a brand, like playing games or participating on an activity on a web site. Furthermore, personalization can make customers perceive brand communication more relevant and interesting. Digital service has the potential to provide customers with better choice, access, control, and convenience over traditional service channels. The ability of customers to actively create or shape the form of their services enhances satisfaction and loyalty. Also, marketers can create more personal services based on

customers behaviour and interests. The interactive elements of digital media can be used to create self-service options, like allowing customers to track their postal packages. Customers can also be offered additional service when buying products, such as maintenance reminders, and help for keeping their products upto-date.

Introduction
Marketers are learning how regular contacting affects the building and sustaining of customer relationships. The dominant logic of marketing is shifting from the exchange of goods toward service, interactivity, connectivity and ongoing relationships (Vargo and Lusch 2004). Technological innovations, new channels, and changing media environments facilitate this shift (Bhattacharya and Bolton 2000), and the question of how firms should interact with their customers is gaining in importance, especially as firms consider the cost differences between traditional communications media, such as television and sales forces, and electronic media such as the Web and email (Reinartz et al. 2005). The cost efficiency and interactivity of digital channels facilitate ongoing dialogue between the enterprise and the customer (see e.g. Deighton and Barwise 2000; Peppers and Rogers 2004). Marketers can now be in touch with their customers on a more frequent basis and increase the level of personalization and interactivity with low or non-excessive cost. Our main claim is that being frequently in touch with customers should help achieve positive effects on customer loyalty. For instance, customers can be offered additional information and brand communication when buying products or when using them. This can include newsletters, maintenance and repurchase reminders, help for keeping their products up-to-date, and tools for interacting with friends and peers. For example, Lensmart sends their customers email reminders when they expect customers to start running out of their supply of contact lenses. Lensmart uses database and purchase information to predict the repurchase moment and produce the personalized email. This way Lensmart can sell cost-effectively to their existing customers, and automate the re-selling process. While Lensmart gains in decreased sales costs, this kind of reminder also adds value to the customer. It may strengthen

customer loyalty as customers feel that Lensmart takes care of their stock and assists them to repurchase at the right time with low effort. Customers might perceive emotional value for being personally remembered and cared, and appreciate the extra service (see e.g. Cram 2001). For being regularly in touch with customers is also one of the central ideas of CRM. Recent studies have found that the relational information processes of CRM (regular communication, information collection, etc.) play a vital role in enhancing an organizations customer relationship performance (Jayachandran et al. 2005). Furthermore, the use of CRM applications is positively associated with improved customer satisfaction (Mithas et al. 2005). Reinartz and Kumar (2003) show how profitable customer lifetime duration is positively related to the number of mailing efforts of the company. Simulations show that to maximize customer profitability by optimising spending the dominant form of communication should be email (Reinartz et al. 2005). While email is substantially cheaper to send than conventional direct mail, research also suggests that it can deliver significantly better response rates (Brondmo 2000; Di Ianni 2000; Rosenspan 2000). That is, from a company point of view, digital channels offer cost efficient opportunities for a brand to keep frequently in touch with customers which not only improves marketing performance, but particularly customer loyalty. With such prospects in mind, it is not surprising that the use of digital channels in marketing is becoming an essential part of strategy in many companies. Car manufacturers use the Internet and email to launch new models, as well as engaging their customers into interaction on their web sites and with email. BMW uses a mobile portal to distinguish itself from its competitors, providing customers pictures of new models, games, and service. Nike targets the youth segment by launching a digital spring fashion show, which allows consumers to use the brands latest fashion catalogue online to create their own looks and photos, and a virtual identity (HargraveSilk 2005). Canon iMage Gateway helps consumers share their digital photos with friends online. LOrals brand Lancme uses email newsletters to keep in touch with customers and hence strengthen their brand loyalty (Merisavo and Raulas 2004). Magazine publishers can activate and drive their customers into the Internet with email and SMS messages to improve resubscription rate (Merisavo et al. 2004). Such interaction and low cost communication with customers increases the effectiveness compared with traditional direct marketing efforts that publishers have used to win orders.

In line with Fourniers (1998) ideas, marketers increasingly bring brands closer to consumers everyday life. The changing role of customers as coproducers of value is becoming increasingly important (Prahalad and Ramaswamy 2004). Interactivity in digital media offers customers better options to search for information, work as initiators, and gets help. Interactivity also offers customers new ways to spend time with a brand, like playing games, participating in an activity on a website, or learning about the product or service they are using. This is what Canon pursues with iMage Gateway service, which can lead to improved customer involvement and satisfaction. Interactivity also provides marketers with more information about customer needs, preferences and interest. Furthermore, interactive and virtual brand communities, like those built by Harley Davidson and Ducati, bring consumers with specific interests together from different geographic areas to strengthen their brand loyalty (McAlexander et al. 2002; Wind et al. 2002, 97). McDonalds uses online channel to reinforce brand messages and relationships. They have focused their online community building on communities for children, such as the Happy Meal web site with educative and entertaining games (Rowley 2004). Digital channels also contain opportunities and tools for personalization. By using digital channels, customers can actively create or shape the form of brand communication, for example by stating their channel and content preferences. Likewise, marketers can create more personal brand communication based on customers behavior and preferences, which can increase the effectiveness of brand communication by making customers perceive it as more relevant and interesting, and wanting to maintain a relationship with the marketer (Simonson 2005). As Simonson notes about customized offers; If successful, marketers will be rewarded for the superior value they provide with higher customer loyalty. For example, LOrals CRM initiative aims to enhance personal communications with customers by analytical profiling, segmentation, database build and design, and bolstered data gathering (Brown 2003). This way LOral seeks to increase the return on investment and capitalise on their customer insight for the long term. Despite the growing use of digital channels in marketing and the evolving research around it, there are few models for explaining the mechanism of how digital marketing communication works from a relationship marketing perspective, especially for enhancing customer loyalty. Ideas have been suggested in many areas of marketing literature. Relationship marketing (RM), customer relationship management (CRM), as well as brand

management and service literature emphasize the importance of building and managing customer relationships, and offer useful models to understand how customer relationships develop. Also consumer behavior, advertising, direct marketing, and e-marketing literature give insight into how digital channels can be used to communicate with customers in order to enhance customer loyalty. The objective of this paper is to draw together previous research into an integrative conceptual model for understanding how digital marketing communication affects customer loyalty. In the following, we first define digital marketing communication. We then present and describe the model. Next we examine in more detail the components of the model and the theories behind it, and construct research propositions and study the impact of digital marketing communication on customers and the relationship thus formed.

Definitions
Digital marketing is marketing and interaction via digital channels: Internet, email, mobile phones, digital TV, etc. Digital marketing includes communication (e.g. offers, newsletters), service (see below), and tools for customer-managed communication and interaction (FAQs, games, etc). Both marketer and customer can initiate interaction. Digital marketing as a term is more extensive than e-marketing because it encompasses marketing via digital channels independent of the medium, be it Internet, mobile, or any other. Digital service (e-service) is service via digital channels. Examples of digital services include e-tailing, online banking, discussion boards, order tracking, mobile weather services, personalized web pages, etc. Customer relationship refers to a relationship between customers and companies, service providers, and brands. From a customer perspective, the existence of a relationship refers greatly to an attitude: perception of mutual way of thinking, i.e. two-way commitment (Grnroos 2000). From a company point of view, relationship is usually considered existing when a customer has made the first or repeat purchase, although the line between prospects and customers is in many cases thin. In this paper, the main interest is in existing business-to- consumer relationships, especially in consumer-brand relationships.

Brand loyalty is the biased (i.e. nonrandom) behavioral response (i.e. purchase) expressed over time by some decision-making unit, with respect to one or more alternative brands out of a set of such brands, and is a function of psychological (decision making, evaluative) processes (Jacoby & Chestnut 1978, 80). That is, for brand loyalty to exist, a pattern of repeat purchase must be accompanied by a positive attitude towards the brand. We think that purchasing behavior is the ultimate sign of brand loyalty, but also interest, knowledge, emotions, and activity expressed by customers can reflect brand loyalty (e.g. perceived fun, recommendation of products or services, feedback, spent time on a web site). Customer loyalty is considered very similar to brand loyalty, differing only in the object of loyalty. That is, a customer may be loyal to a certain store or provider of products or services, but not necessarily to a particular brand. For example, a customer may always shop at Sears but does not care about the brand of the DVD player to be purchased (customer loyalty); yet another customer may have a favorite DVD player brand that could be purchased from any store (brand loyalty). Interactivity is the ability to address an individual or a group and the ability to gather and remember their responses, and to address the individual or a group once more in a way that takes into account their unique responses (Deighton 2000, adapted). We suggest that interactivity also includes customer feedback, inquiries, participation in product/service development, etc, because both marketer and customer can initiate interaction and typical communication processes (i.e. marketing message response) are not always followed. In this paper we focus mainly on the communication function of digital marketing, and how it helps to enhance the loyalty of existing customers. Hence, in this paper we refer to digital marketing communication (DMC) as communication and interaction between a company or brand and its customers using digital channels (e.g. the Internet, email, mobile phones, and digital TV) and information technology. This definition appreciates that communication can be two-way, initiated by either the marketer or the customer. Communication can be general messages to a larger audience or personalized messages. A customer relationship aspect acknowledges that communication can also include relational and service elements (e.g. news, reminders, tips), not just advertising and offers aiming for immediate purchasing transactions.

AN INTEGRATIVE MODEL OF THE EFFECTS OF DIGITAL MARKETING COMMUNICATION ON CUSTOMER LOYALTY Figure 1 It proposes an integrative model of the effects of digital marketing communication on customer loyalty and the interactions with digital marketing communication.
An Integrative Model of the Effects of Digital Marketing Communication on Customer Loyalty

The model consists of means (brand communication via different channels), moderators (personalization and interactivity), outcomes (perceived value, commitment, and customer loyalty), and mediators (customer characteristics, involvement, relationship, and situational factors). By brand communication we refer to communication between the brand and customers. This can include advertising, direct marketing, newsletters, or consumers activity in a brand community. This complies the view that the process of building brands and customer relationships is much more than traditional media advertising.

The main focus in our model is on how brand communication affects customer loyalty. Two main factors in brand communication that are expected to affect customer loyalty are frequency (e.g. how many brand messages) and content (e.g. promotional or relational). The main outcome, customer loyalty is divided into behavioral (e.g. purchases) and attitudinal loyalty (e.g. brand attitudes). For true customer loyalty to exist, a pattern of repeat purchase must be accompanied by a positive attitude (see Jakoby and Chestnut 1978). This distinguishes it from spurious loyalty, where only behavioral loyalty is detected with low relative attitudes (Dick and Basu 1994). Brand communication can also be personalized. For example, customer profiles or preferences can be used to create customized message content for different segments or individual customers, sent via their preferred channels. This should increase the value of communication to the customer. We have identified content, timing, and channels to be the personalized elements. Furthermore, brand contacts can be interactive; customers can search for information, make inquiries, give feedback and engage in various other activities with marketers or other customers. This can likewise have positive effect on customer loyalty. We have divided interactivity into functions (e.g. a web contact form), processes (e.g. that messages are contingent upon previous messages), perceptions (how customers perceive interactivity), and time spent with a brand (e.g. playing games on brands website). The effects of brand communication are constructed in customers minds through information processing, leading to perceived value and commitment. Finally, the effects of brand communication on customer loyalty can be detected from behavior and attitudes: e.g. purchases, website visits, brand attitudes, and satisfaction. There are also mediating factors that affect how the loyalty effects of DMC are created. For instance, a message received in a specific situation can be perceived as more valuable. One example to demonstrate the model is General Motorss internet-based owner center My GMLink (www.mygmlink.com), which offers customers a single location to manage all post purchase needs. With the use of this information and service portal, customer-brand communication and interactivity are increased because customers are able to visit the website anytime, anywhere - more often than stores. This way, the frequency of brand communication is increased, with the positive moderating role of interactivity. Customers also get different types of value from services like email service reminders, maintenance tips, seasonal safety tips, and special privileges and offers. GM also provides personalized information to customers. For example, they can check the current resale

value estimate of their own car and determine the optimal time for selling it, which brings economic value. This can also lead to a shorter buying or trading cycle for cars. When customers get used to visiting the website regularly they may become emotionally attached to it, which builds commitment. Overall, customers increased brand contacts by using My GMLink service possibly strengthen GMs customer relationships with more sales, and enhanced attitudinal and behavioral loyalty.

HYPOTHESES
Hypotheses 1: Increased frequency of brand communication due to digital marketing communication enhances brand loyalty. Hypotheses 2: Digital brand communication that is expected, and is received or accessed when desired by customers has a positive effect on brand loyalty. Hypotheses 3: Activity in virtual brand communities increases customers brand knowledge and loyalty. Hypotheses 4: Increased time spent with the brand (online) by a customer increases brand loyalty. Hypotheses 5: Brand loyalty of customers who are active, and who initiate communication (i.e. who make product inquiries, give feedback, update service profiles, etc.) is increased.

METHODOLOGY
In this chapter the frame and structure of the research was presented in order to obtain suitable and valid data. The methodology chapter will provide information about the methods used in this thesis to provide a solution for the research questions posed earlier in this study. The methodology illustrates how the necessary data is collected and the usage of the gathered data to answer the research questions. Additionally an outlook on the data analysis will be given.

Research purpose According to Babbie there are three fundamental purposes for doing research. These are explanatory, descriptive and exploratory. Regarding exploratory research it can be stated that this kind of research is investigating a new field of research. Therefore the research problem is often not defined closely but more general. Exploratory research satisfies the need of personal curiosity, but also inspires others to conduct more research in this area. Almost any question dealing with the nature of human behaviour or the lack of such behaviour is an appropriate question for an exploratory research approach. A descriptive research approach is useful if the research problem is already clearly defined and well structured. In addition to that there is no intention on the investigation of connections between causes and symptoms. According to Dane descriptive research serves the purpose of distinguishing and differentiating a purpose from other phenomena. Descriptive research has the purpose to develop subjective descriptions for a clearly defined research problem. Last but not least there is the explanatory research approach. Explanatory research is aimed to test hypotheses and the relationships these hypotheses have to other research problems. This type of research examines the causeeffect relationships between phenomena. It identifies whether a cause-effect relationship is valid or not. It also determines which of a set of competing explanations is more valid. Based on the research problem and the research questions stated earlier in this thesis, this research will be primarily exploratory and descriptive. This research is exploratory because so far only little research has been done on the digital marketing communications impact on customers. The effects of the digital marketing communication behavior have not been investigated precisely yet. Research approach In general the approaches for research are distinguished as two different basic approaches. The research approach can either be based on quantitative or qualitative data. Quantitative research has its focus on detecting differences or sources in the form of numerical data in order to give an answer to the research problem. The two different ways to gain quantitative data is either counting or scaling. This approach is helpful to

measure variables and compare similar factors with each other according to the gathered information. On the contrary to the quantitative approach there is the qualitative research. The difference of the qualitative approach to the quantitative is, that here they gained information does not come in numbers or scales but mainly in words. Qualitative research has a wider range of potential empirical information sources compared to the quantitative researcher. Qualitative research approaches are characterized for using diverse data sources to solve a research problem. Qualitative data is rich on detailed information and diverse in the kind of appearance, because it can come in all kind of data. The qualitative data can come structured or totally unsorted. This depends on the type of how the data is obtained. Structured data can be obtained via standardized interviews, while unstructured qualitative data can be a result of field notes from an observation. The purpose of this thesis is to study how digital marketing communication influences the customers and companies in the 21st century. Therefore we have utilized a quantitative research approach. The quantitative research approach was justified by the design of the research questions, which concentrate on the problem of the companys marketing communication and the involvement of the new phenomenon of digital marketing. Data to analyze the research questions will be based on numerical and statistical data, with focus on segment-specific data gathered on a few involved parties dealing with this phenomenon. Research strategy In general the research strategy is divided into five major approaches: case study, archival analysis, experiment, survey and history. Regarding this topic the suitable research strategy should be chosen according to the following three criteria. Type of research question asked Dimension of control the researcher has over actual behavioural events Extent of focus on contemporary as oppositional to historical events

Regarding the research questions posed in this thesis, a questionnaire research strategy is favourable to choose. This is because on one hand, it relies on direct observation of the events researched and, on the other, there is proof by interviews of parties involved in the topic.

Sample Selection In order to be able to answer the research questions posed in the first part of the thesis, suitable respondents who will provide us primary information have to be found. The companies we target for interviews have to fulfill certain criteria to be matching for the purpose of the research. In general we target companies using the tools of digital marketing communication and also the customers to whom these are targeted. Their responses to the questionnaire will be evaluated and analyzed to study the impact and also the interrelationships between digital marketing communication and developing the customer relationship in light of increasing their loyalty. Data collection method After having selected the research strategy the researcher has to gather empirical data to analyze the posed research questions. Primarily the researcher has to divide the collection of data into two different segments. Therefore the collection of empirical data is divided into primary and secondary data. Primary data includes all empirical proof the investigator has collected, on their own, for this particular research. Secondary data includes everything that has already been collected by other researchers regarding the same topic, but with a different focus. The six most important sources of collecting empirical data are: Direct observations, interviews, participant observations, archival records, documentation and physical artifacts. There is no source, which can replace the use of the other sources completely. Instead each source is complementary to each other. The more types of sources used for data collection the stronger the research. In order to gather secondary data we use documents to strengthen the evidence we collected from other sources and to get an insight into the past marketing communication efforts companies performed so far. For this study documents like articles and statistical analysis will be used as secondary data to complete the information gained from the primary data collection. The main source for primary information will be collected by interviews with suitable companies in this segment and their customers on closed ended questionnaire and surveys. By doing this the gathered information will be specified to the topic and contain precise information to answer the posed research questions.