4 Developing & Retaining Customers Profitable Multi Channel Marketing March 2010

www.sterlingmarketing.co.ukwww.ivantage.co.uk

Developing and Retaining Customers

What we’re covering

• Defining the customer• Developing customers• Segmenting your customers• Understanding your costs• Contact frequency• Optimising performance• Contact strategies• Data and Testing• Summary

Defining your customer

Who are we talking about?

…. you know about and havebought from you

….. you know about and have never bought from you

….. you know nothingabout and have bought from you

You know nothingabout and have never

bought from you

Customer Acquisition vs Customer Development

How does a customer define you?

• Customers buy from you because– You provide a product or service they want at a point in

time– At a price they consider realistic– With a service that they find acceptable– And because they trust you (or at least don’t distrust you)

• Generally they won’t buy from you any more if any one of these elements is no longer true

Defining ‘a customer’

• ‘Customer’ is a very broad concept• Many ways to define a customer

– buyer– multibuyer– active– best– lapsed– new– profitable– …………..

Defining ‘a customer’

• ‘How you define ‘customer’ in your business depends on a variety of factors

• Such as:– Cost of recruitment– AOV– Purchase frequency– Lifetime value– Contact cost

• Final analysis - its all down to profitability

Developing customers

• You’ve just spent money on acquiring a customer• What do you do next?

• How do you ‘tempt’ customers to buy more?• How do you decide which customers are most likely to

buy?• How do you decide on the most appropriate

temptation(s)?• How do you decide how much to spend and when?

• The big advantages of marketing to customers are:– You know who they are– You know what they bought– You know may know what triggered the purchase– You certainly know how they bought it

• Developing customers is about using, and building on, this information to drive sales through a planned contact strategy

• Who’s going to give the best return?• Most common modelling is RFM

– Recency– Frequency– Monetary

• More complex modelling can refine this but get the basics right first.

Segmentation

Segmenting your customersSales per Book

RFM Bands

£0.00

£1.00

£2.00

£3.00

£4.00

£5.00

£6.00

£7.00

00 - 06Month

07 - 12Month

13 - 18Month

19 - 24Month

25 - 30Month

31 - 36Month

37 - 42Month

43 - 48Month

49 - 54Month

55 - 60Month

61 - 66Month

67 - 72Month

73Month +

Time Since Last Purchase

k 4x+ Multi Total

3x Multi Total

2x Multi Total

Single Total

Segmenting your customers

00 - 06 Month

07 - 12 Month

13 - 18 Month

19 - 24 Month

25 - 30 Month

31 - 36 Month

37 - 42 Month

43 - 48 Month

49 - 54 Month

55 - 60 Month

61 - 66 Month

67 - 72 Month

73 Month +

4x+ Multi Total £5.38 £3.20 £2.51 £1.73 £1.33 £1.07 £0.40 £1.86 -£0.74 £0.47 -£0.31 £1.40 -£1.04

3x Multi Total £2.41 £1.24 £0.97 £1.14 £0.15 -£0.04 £0.16 £1.17 £0.07 -£0.84 -£0.74 -£1.01 £1.61

2x Multi Total £1.48 £0.99 £0.27 £0.40 £0.05 £0.90 -£0.28 £0.03 -£0.41 -£0.41 -£0.10 -£0.69 -£0.92

Single Total £0.64 £0.16 £0.15 £0.04 -£0.07 -£0.05 -£0.05 -£0.32 -£0.19 -£0.03 -£0.20 -£0.29 -£0.54

• Which groups contribute most - and least

00 - 06 Month

07 - 12 Month

13 - 18 Month

19 - 24 Month

25 - 30 Month

31 - 36 Month

37 - 42 Month

43 - 48 Month

49 - 54 Month

55 - 60 Month

61 - 66 Month

67 - 72 Month

73 Month +

4x+ Multi Total £5.38 £3.20 £2.51 £1.73 £1.33 £1.07 £0.40 £1.86 -£0.74 £0.47 -£0.31 £1.40 -£1.04

3x Multi Total £2.41 £1.24 £0.97 £1.14 £0.15 -£0.04 £0.16 £1.17 £0.07 -£0.84 -£0.74 -£1.01 £1.61

2x Multi Total £1.48 £0.99 £0.27 £0.40 £0.05 £0.90 -£0.28 £0.03 -£0.41 -£0.41 -£0.10 -£0.69 -£0.92

Single Total £0.64 £0.16 £0.15 £0.04 -£0.07 -£0.05 -£0.05 -£0.32 -£0.19 -£0.03 -£0.20 -£0.29 -£0.54

• And how many customers in each?

95% of profitable customers?

00 - 06 Month

07 - 12 Month

13 - 18 Month

19 - 24 Month

25 - 30 Month

31 - 36 Month

37 - 42 Month

43 - 48 Month

49 - 54 Month

55 - 60 Month

61 - 66 Month

67 - 72 Month

73 Month +

4x+ Multi Total £5.38 £3.20 £2.51 £1.73 £1.33 £1.07 £0.40 £1.86 -£0.74 £0.47 -£0.31 £1.40 -£1.04

3x Multi Total £2.41 £1.24 £0.97 £1.14 £0.15 -£0.04 £0.16 £1.17 £0.07 -£0.84 -£0.74 -£1.01 £1.61

2x Multi Total £1.48 £0.99 £0.27 £0.40 £0.05 £0.90 -£0.28 £0.03 -£0.41 -£0.41 -£0.10 -£0.69 -£0.92

Single Total £0.64 £0.16 £0.15 £0.04 -£0.07 -£0.05 -£0.05 -£0.32 -£0.19 -£0.03 -£0.20 -£0.29 -£0.54

• And how many customers in each?

95% of profitable customers?

Understanding costs

Understand your costs

Customer Mailing

Affiliates

Particularly in the ‘grey’ areas

Contact frequency

Contact Frequency

0-6 Month Multibuyers6 Month Contribution At Differing Contact Frequencies

£0.00

£5.00

£10.00

£15.00

£20.00

£25.00

£30.00

£35.00

£40.00

2 4 6 8 12 26

Contact Frequency (Weeks)

Contact frequency

12 -24 Month Buyers6 Month Contribution At Differing Contact Frequencies

-£4.00

-£3.50

-£3.00

-£2.50

-£2.00

-£1.50

-£1.00

-£0.50

£0.00

£0.50

£1.00

£1.50

2 4 6 8 12 26

Contact Frequency (Weeks)

Optimising performance

Optimising Customer Performance

• For the vast majority of your customer base basic analysis tools will work fine.– RFM analysis– Source of initial order– Possibly initial product category

• This will identify both– Your existing ‘best’ customers– Those customer types which provide the best ROI and thus

the ones you want to target and encourage

• Once you’ve got this data and acted on it you could look at more sophisticated modelling – it will fine tune the boundaries but is unlikely to change the general approach

Optimising Customer Performance

00 - 06 Month

07 - 12 Month

13 - 18 Month

19 - 24 Month

25 - 30 Month

31 - 36 Month

37 - 42 Month

43 - 48 Month

49 - 54 Month

55 - 60 Month

61 - 66 Month

67 - 72 Month

73 Month +

4x+ Multi Total

3x Multi Total

2x Multi Total

Single Total

• Monitor the structure of your database• If the numbers in the top left are rising you’re winning

Optimising customer performance

00 - 06 Month

07 - 12 Month

13 - 18 Month

19 - 24 Month

25 - 30 Month

31 - 36 Month

37 - 42 Month

43 - 48 Month

49 - 54 Month

55 - 60 Month

61 - 66 Month

67 - 72 Month

73 Month +

4x+ Multi Total £5.38 £3.20 £2.51 £1.73 £1.33 £1.07 £0.40 £1.86 -£0.74 £0.47 -£0.31 £1.40 -£1.04

3x Multi Total £2.41 £1.24 £0.97 £1.14 £0.15 -£0.04 £0.16 £1.17 £0.07 -£0.84 -£0.74 -£1.01 £1.61

2x Multi Total £1.48 £0.99 £0.27 £0.40 £0.05 £0.90 -£0.28 £0.03 -£0.41 -£0.41 -£0.10 -£0.69 -£0.92

Single Total £0.64 £0.16 £0.15 £0.04 -£0.07 -£0.05 -£0.05 -£0.32 -£0.19 -£0.03 -£0.20 -£0.29 -£0.54

• RFM would lead you to focus on the top left hand• More sophisticated modelling, such as regression analysis, might find subgroups to rule in or out linked to other variables• But this is more likely to impact the yellow areas than any other

Customer strategies

Customer strategiesContact methods

• Contact drives sales– Variety of Contact Mechanisms

• Mailed catalogues• Other mailings (leaflets / postcards)• Bounceback catalogues• E-mail• Outbound telephone• Text

– And these can be enhanced with• Offers• Promotions• Personalisation

Customer strategies

• Different types of customer will be best served by differing strategies. For example:– New customers (recent single buyers)– Existing customers (multibuyers)– Best customers (recent 2+ multibuyers)– Fading customers (6 - 9 month buyers)– Lapsed customers (9 month + buyers)

Customer strategiesNew customers (recent single buyers)

• Objective: Convert to Multi Buyer– Welcome e-mail as soon as order likely to be delivered

featuring:• Greeting to the business• Feedback form asking to comment on experience• Product ‘offer’ related to add on to first purchase

– Catalogue mailing within 4 weeks– High frequency contact strategy (most frequent mailing

and e-mail strategy)

Customer strategies Existing customers (multibuyers)

• Objective: Convert to higher level multibuyer and maintain recency value– High frequency contact strategy by mail and e-mail– Introduce graduated promotions to contacts after first 1/3

of season

Customer strategies Best customers (recent 2+ multibuyers)

• Objective: Convert to yet higher level multibuyer and maintain recency value

• These are the most valuable customers AND the ones that like your product and service the most

• The aim should be frequent contact but there should be less need to promote– High frequency contact strategy by mail and e-mail– Tailor e-mail / personalised print communication to reflect

‘special’ status– Exclusive product offers– Delay promotion to last 1/3 of season and focus on

exclusivity / first chance to get offers.

Customer strategies Fading customers (6 - 9 month buyers)

• Objective: Catch before they fade away– Lower frequency contact strategy– More use of e-mail– Stronger ‘come back’ promotions– Mail at start of season and with Sale catalogues

Customer strategies Lapsed customers (9 month + buyers)

• Objective: last chance to get back as buyers before abandoning– Low frequency contact strategy– Heavy use of promotions / offers– ‘Last chance’ call to action

• Assess seasonality (e.g. gift buyers at Christmas) and tailor contacts accordingly

Data & Testing

4 Developing & Retaining Customers Profitable Multi Channel Marketing March 2010

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