Want Multi-Buyers? Cultivate Them!
Let's talk about a few "truths" commonly agreed upon by direct marketers:
Truth No. 1: Eighty percent of your business comes from 20 percent of your customers.
Truth No. 2: It costs more to acquire a customer than it does to retain a customer.
Truth No. 3: Hotlines are high performers because of the recency of the name.
Truth No. 4: Junk mail (the postal or e-mail variety) is marketing that is unwanted, because it is not relevant to the recipient.
If you add up these four truths, you have the underpinnings of what it takes to cultivate multi-buyers. First, you have to identify your new customers. Second, you need to acknowledge their value to your organization. Third, you must determine what they value so, fourth, you can make them relevant offers.
All New Customers are Not Alike
Every time you prospect, you bring in new customers. And whether you generate 10 new customers or 10,000, some of these people have the potential to become life-long patrons.
But how do you recognize them among the tire-kickers? A good place to start is by matching them up against the customers you already have.
"Marketers should be looking at their most recent multi-buyers, since in many businesses these profiles tend to change over time," advises Melinda Nykamp, vice president of the Professional Services division, Fair, Isaac & Co.
When looking for common traits that indicate long-term potential, Nykamp suggests marketers analyze:
* Where did new customers come from (source of name, geography)?
* When did they buy (any seasonal or other patterns)?
* What offer(s) did they respond to?
* What channel(s) did they use?
* What products/services did they buy?
* How much did they spend?
* How did they pay?
"Try to find any trends that could influence your overall prospecting strategieswhen you mail, what you offer and what you feature," says Nykamp.
While this depth of insight is valuable to making relevant offers to the right customers, it's equally crucial not to let data analysis equal data paralysis.
One of the myths that marketers like to believe, says Chris Dickey, partner, DataPlus Millennium LLC, is that after new customers make a purchase they should get an undefined latency periodsay, two months or more, depending on the industrybefore they are re-contacted.
"Typically when we look back into the data," Dickey explains, "we find that many of the multi-buyers bought very shortly after their first purchase, when contacted. The learning is that incenting that second purchase should be done as soon as possible after the initial purchase, in almost all cases."
So how do you get out of the gate faster to capitalize on recency? Dickey has found that average order is a good indicator of future response. "Higher average-order customers tend to continue to buy at the price point first purchased at, and higher average order corresponds in many cases to repeat purchases."
Conversely, Dickey notes, companies that make low-dollar offers to acquire customers will have a difficult time getting them to spend more in the future. "What happens is that they end up with low-dollar customers with low lifetime value," he adds.
We're talking about good old RFM (recency, frequency, monetary value) segmentation, says direct marketing consultant Gary Hennerberg. But he reminds marketers that frequency of purchase needs to be reviewed based on the purchase opportunity you present to customers. You don't have a true apples-to-apples comparison if Customer A only received three offers from you last year, and Customer B received 10 offers.
Ultimately, says Hennerberg, your most convincing piece of analysis is the initial sale. Just getting a purchase is enough to trigger a second contact.
The Second Offer
Since speed-to-market is a critical factor to the success of your second offer, why not take advantage of one of the multiple customer touchpoints during the initial sale, Hennerberg asks?
Between order and fulfillment, the following opportunities present themselves for upsells and cross-sells:
* Time of order, whether a gift or self purchase.
* Thank-you or order acknowledgment.
* Order fulfillment.
If your follow-up offer requires a different approach than those above, Dickey notes the best-case scenario for getting a second offer out is on a batch-by-batch basis. You don't want to wait until the end of the response curve, he explains, or you will miss out on the early adopters who make decisions quickly.
Dickey also cautions marketers to try to be as relevant as possible with follow-up offerswithout sacrificing lots of time.
For example, one of Dickey's clients had been making a follow-up offer of $50 off to all customers. "What we found was that they were incenting repeat purchase, but significantly driving down the average order by offering someone $50 off [who] may have purchased at the $1,000 level."
While you probably cannot create individualized offers for each respondent, Dickey explains, you can create offer levels that match the incentive to the response you want to get.
Product Selection Pointers
Nykamp notes there are two levels to product analysis for follow-up offers:
* Macro-levelLook at what products your first-time customers have purchased; break this down by season, timing and maybe also by various characteristics of first-time buyers and multi-buyers (such as demographics, geography, etc.). This provides over-arching guidance on the types of programs, promotions and products on which you should focus.
* Micro-levelFrom a targeting perspective, you can build next-product-to-buy models, projecting individuals' likelihood of purchasing on a product category, product characteristics or individual product level.
"Both of these are essential, with the macro-level guiding your overall budgeting and marketing program planning, and the micro-level guiding individual targeting," says Nykamp.
Hennerberg wisely adds that many times, our ability to sell depends not so much on the exact product and offer, but on how we package it. "It's our job to suggest how the product can be used if we want to get sales."
Data that Can Help
New customers can be a bit of a mystery, since you only have one sale to assess. Appended data can help you round out the profile. But what kind?
Dickey has found it difficult to successfully append lifestyle data to customer files, since it tends to be underpopulated. When only 10 percent to 15 percent of a file is appended, he says, you can't do much meaningful segmentation.
However, Dickey notes that general demographics or simple firmographics can help provide the additional
insight needed for message and media optimization.
Beyond using data enhancement files, Dickey urges marketers to reach for the kind of customized information that can fill in the gaps between "what can be enhanced and what is crucial to know." For example, a pet supplies company can ask customers what type of pet they have, and then customize offers accordingly.
A great place to collect this information is on your Web site, says Dickey. The key here is to capture data you can't easily get from other sources at a decent priceso lose the questions about age, household income or presence of children.
Develop a Contact Strategy
When it comes to how often you should contact customers, there's no such thing as a magic bullet.
"It all depends on what you have to sell, and who your customers are," says Nykamp.
Your two block-and-tackle segmentation approaches for determining frequency of contact, says Hennerberg, are average order purchase (on the last purchase) and the date of last purchase.
And if you sell once a year, he further explains, the most recent sale is what's important; year-round selling is evaluated from a cumulative basis.
Dickey points out that while you have to look at profitability metrics and test results, you also should keep in mind that getting the second sale means a customer's lifetime value often doubles, triples or more.
"In short, most marketers don't contact the more recent/frequent customers enough, and contact less recent/less frequent customers too much," he says.
Dealing with Lapses
If you care about activity lapsesand you shouldyou need to find out why someone is not buying, says Hennerberg. But you should first be sure that you've identified a lapse.
"Often, marketers race to the assumption that their customers have 'left,' when in reality, they are still aroundjust not buying, or buying in a way that's not measured on a database," says Nykamp.
For example, customers may have "stocked up" on your products when you offered them a great discount or special promotion. Or, Nykamp offers, they may be buying from your retail channel, or from a channel partner, and therefore not tracked by your database.
If you see a lapse in response that seems to fit a pattern, Hennerberg advises you do an internal audit. Was delivery slow, or did you have back-order problems? Did you increase the product price or the cost of shipping and handling? Did you change the promotional mix? Any number of changes can affect customer satisfaction.
Dickey cautions against waiting for a lapse in the first place. "Marketers should seek a repeat purchase among the more recent, higher-responding buyers first. This will lower the number of customers that 'lapse' in the first place."
How to Reactivate ... and When
Just because a customer hasn't bought from you in a long time doesn't mean he'll never make a purchase again. All kinds of reasons exist for why buying activity takes a hiatus.
It pays to review the data on prior lapsed customers to see how long a period between purchases can occur before the ROI is not justified on a reactivation effort.
One client of Dickey's found that at 36 months it was a lost cause to bring back expires; within that 36-month timeframe, however, the 24-month mark was the turning point.
The good thing about expires is that marketers have found it takes less to renew them than it did to acquire them. You spend less on the reactivation mailing, because you ostensibly need to explain your company and maybe your product in less detail. But you still need to sell the customer on the benefits of the offer.
The irony of direct marketing, Hennerberg remarks, is that marketers make better offers to prospective customers than to current customers.
And we've trained our customers to expect this treatment. So, we have no one to blame but ourselves for customers who take a wait-and-see approach to our offers, just in case there's a better one coming around the corner.
Maybe it's time, he says, to reconsider our strategy, if we truly want to cultivate customer relationships. n