Two Tips for Data-Driven ROI

January 2008 By Kate DeBevois

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The one-size-fits-all marketing mentality is losing steam as personalization proves profitable. In an age of segmentation, treating all of your customers as one homogenous group is a recipe for disaster; you may risk losing valuable customers, says KnowledgeBase Marketing VP and Solutions Architect Arthur Middleton Hughes. Existing loyal customers are more profitable than new or disloyal customers simply looking for bargains. Determining who those loyal customers are and marketing to them based on database details is the best way to build and retain a strong, ROI-driven customer base.

Consider the following database-building tactics:

# 1. Equitable Distribution. To build and maintain loyalty you need to target your audience and adjust your spending based on retention, Hughes says. For example, a $1 million retention budget spread over 1 million customers costs $1 per year, and you “can’t build much loyalty on $1,” he states. On the other hand, $1 million spread over 100,000 customers costs $10 per year, and according to Hughes, “You can build loyalty with that.”

# 2. Segment for Profitability. Segment your list based on profitability. Then focus your attention on the most profitable portions of your list to maximize advertising dollars. Segmenting your customer base is more effective then segmenting the market when working to boost your ROI. Ask, “What is the sales value of this segment when measured against the cost?” For example, Hughes explains, if only 5 percent of your list has a 79 percent response rate, you can achieve 80 percent profitability when marketing to that segment. It’s not hard to weigh the cost-benefit ratio of marketing to that segment against marketing to the 28 percent of your list with a response rate of 20 percent and only 15 percent profitability, he asserts.