• What is the right balance of marketing efforts between prospecting and retention?
It’s important to note that retention drives prospecting—not the other way around. Retention increases lifetime value, which increases the value and potential of prospects. Retention is the horse, prospecting is the cart.
Why Are Segments Different?
It is not enough to segment customers based on total spending. There are nearly always specific customer behaviors that correlate with high or low spending, and marketers need to understand which triggers are most effective. Typical differences include:
• Average order. Some customers make many small purchases, some make a few large purchases. In general, average order is a more effective segmentation tool than total monetary value (overall spending.) A recency-frequency-average order segmentation usually will be substantially more effective than a recency-frequency-monetary segmentation.
• One item vs. many. In general, the greater variety of things customers buy, the greater the likelihood they are to return. By contrast, a large customer who buys only one item often has a high likelihood of defecting.
• Time on file. New customers often behave differently than customers who are set in a pattern. New customers often try many different things; they are ripe prospects for cross-selling.
Note how each difference in the customer leads to a different response by the marketer, and how the customer’s response could move him or her into another segment.
How Should Contacts Be Made?
Marketers often select a favorite media to reach buyers and prospects, and tend to rebel when that media is deemed ineffective for certain offers. For example, a marketer sending out 500,000 direct mail prospecting pieces usually is disappointed if it finds out that only 250,000 are likely to be profitable and the mailing size should be reduced.
Rather than testing another media such as print, e-mail or broadcast, it might struggle to avoid reducing its favorite media. However, especially with the Internet, there certainly is a media mix that is appropriate for even classic direct marketers. To pursue that mix, ask yourself: