The Chumps Are Smartening Up
By Denny Hatch
"You can't cheat an honest man. Never give a sucker an even break or smarten up a chump." —W.C. Fields
In many American upmarket suburbs there's an unwritten agreement among realtors that homes for sale or rent will not be shown or offered to minority families. This is a form of discrimination called redlining.
In point of fact, all successful direct marketing is based on redlining—not offering a product or service to undesirable prospects and customers. Examples:
Premium bandits. This is consultant Bob Doscher's term for chiselers who join book and record clubs, or subscribe to magazines, to collect the yummy up-front bait—and then never buy another thing.
Serial returners. Characterized as the woman who orders three dresses from a catalog, wearing one to a wedding and another to a New Year's Eve party, before returning all three for full credit.
Non-payers. Consumers with poor credit histories.
Send no mailings to and misplace all orders from … . Packages going to inner city ZIP codes.
All of this suppression activity described above is old-fashioned, sound direct marketing.
The Three Kinds of Consumers
I believe three kinds of consumers exist: 1) those who want to save money; 2) those who want to save time; and 3) those who don't care or are too stupid to know the difference.
The folks in categories (1) and (3) above generally want good, quick service and are willing to pay for it. These are what Best Buy CEO Brad Anderson calls "angels," because they are profitable.
The worst customers are those who have time on their hands and spend hours clipping cents-off coupons from the Sunday FSIs and get red-eyed perusing the shopping comparison Web sites, scrutinizing offers and buying only the loss leaders, remainders, seconds and leftovers—or buying stuff, using it, then returning it. Anderson calls them "devils," because they are unprofitable.
A fascinating new development is being chronicled in the media. It seems retailers are taking a cue from what direct marketers have known all along. Instead of driving as much traffic into stores as possible, the newest trend in retail marketing is to reward the angels and punish the devils.
Best Buy was a pioneer. CEO Anderson estimated that of the 500 million annual customer visits, 20 percent were unprofitable. He hired on as a consultant Columbia Graduate School of Business Professor Larry Selden, who came up with the revolutionary theory that the company should view itself as a portfolio of customers rather than a portfolio of product lines. Duh.
All kinds of retailers are jumping on the bandwagon— Guess?, Inc., Staples, KB Toys and others.
According to Gary McWilliams' story in the Nov. 8, 2004 Wall Street Journal, the centerpiece of this revolution is software called Verify-1, a product of Return Exchange in Irvine, Calif. It maintains a database of customers' buying and returning proclivities, much as the old Hooper-Holmes tracked credit risks. Serial returners are denied return and exchange privileges or, at the very least, are forced to pay hefty restocking fees. The result: profits where losses used to be.
At the same time, Larry Schwartz and Pearl Sax of The Fraud & Theft Information Bureau have announced the Ultimate U.S. Address, Zip Code and Phone Fraud-Blocker Database, "enabling every direct response advertiser, credit card company, bank and credit grantor to screen credit cards and check data as it is received and warns them of every mismatch, thereby stopping fraud and preventing chargebacks before they occur."
The noose is tightening on the bottom end of the consumer food chain. The chumps are smartening up.
DENNY HATCH is a freelance direct marketing consultant and copywriter. He is the author of three marketing books and three published novels. You are invited to visit him at www.dennyhatch.com.