Marketing return rates are shrinking. It’s little wonder given the state of the global economy. But what if the problem with the reduction in your return on investment isn’t related to the downturn?
Technology has changed how people shop yet most marketers continue to use the same tactics developed decades ago. They presume that new customers follow the same buying patterns as their predecessors and implement campaigns similar to ones that worked in the past. This strategy requires a greater investment that generates less revenue and profit.
People have choices today that were unimaginable two decades ago. When people have options to buy similar products more conveniently at a better price, they are less likely to remain loyal.
Prior to the internet, direct marketers searched for prospects most likely to be interested in their products or services. Targeted campaigns worked well to acquire customers that fit a specific profile. Once acquired, the people followed a typical lifespan from first purchase to last. Good marketers could accurately predict lifetime value for new additions based on source and the first few purchases. Occasionally an outlier would appear that didn’t fit the profile but this was an exception.
Dealing with a hit and run
Things are different today. Prospects find companies instead of vice versa. One might think that this is a marketer’s dream come true, but it comes at a price. A high percentage of the people that find companies are hit-and-run shoppers. They purchase once or twice and then disappear, never to order again. Continuing to invest marketing spend after completion of their lifespan is a waste of money. Traditional metrics do not identify these shoppers. They cycle through the marketing plan reducing response rates and profitability for every campaign.
When hit-and-run shoppers entering your marketing cycle were an occasional occurrence, watching for them was a waste of resources. Now, failing to seek them and adapt your marketing strategy as needed is corporate suicide. Customer retention is the lifeline of most business models. Unfortunately, strategies designed to keep profile customers engaged simply won’t work on hit-and-run shoppers.
Identifying these short-term shoppers isn’t easy. They often look exactly like other customers when they first enter the database. For example, a few years ago my daughter wanted a Goth costume for Halloween. We shopped online for the perfect outfit and accessories. One store that specialised in Goth apparel for teens had the perfect look at a great price. I placed an order.
The items selected and sizing fit the profile for a young girl embarking on a Goth adventure that would last for a few years. I was placed in their marketing cycle as an active customer. Even though I requested removal from their list, I received promotional materials for two years. The mail pieces included “we want you back” postcards. Why would they want me back when I only placed one order in 24 months?
If the marketing team had identified me as a short-term shopper early in the process, their marketing investment would have been reduced. Even though my first purchase was similar to other customers, there were some warning signs that I wouldn’t be back:
- The order was placed online without a source code.
- The purchase included a request to ship in time for Halloween.
- All items were on clearance with deep discounts.
- There wasn’t a second purchase.
- I unsubscribed to the promotional emails. (Considering that I didn’t opt-in, I’m not surprised they missed this one.)
- My demographics don’t fit Goth culture.An initial assessment of my first order should have created two red flags. The timing of the order suggests that the items are for a costume and not everyday apparel. Purchasing clearance items implies that I may be a discount or hit-and-run shopper. No orders after months of marketing should have sent my information to the dead customer file. It moved me to the reactivation list instead. How can you reactivate a customer that has never reached the active stage?
There are nine types of customers and prospects in your database. They are:
- Newbies-ordered less than three times
- Discount-only order when there is a sale
- Hit-and-run-order once or twice and then disappear
- Active-ordered three or more times with the last order within three months
- Rising stars-ordered three or more times within the last 12 months
- Platinum-consistently order with a predictable pattern
- Falling stars-nearing the end of their lifespan
- RIP-completed their lifespan
- Social customers-active buyers that promote your brand on social platforms.
- Social promoters-never ordered but subscribe to your marketing programmes and promote your brand online.
The secret to a successful strategy is identifying the discount, hit-and-run, and social customers/promoters before wasting marketing budget. The effect on the bottom line can be substantial. A company with a 24-month marketing cycle, £1 per month promotional costs, and 20,000 hit-and-run customers in the active marketing file will add £360,000 of profits without affecting revenue if it identifies hit-and-run shoppers within six months.
Managing discount shoppers requires a different strategy. They are a valuable segment if the marketing matches their preference for sale prices. Targeting these people with promotional pricing creates an excellent liquidation vehicle for inventory overstocks. Sending emails with added-value discounts increases the response while clearing old items.
Social customers expect recognition and an integrated shopping experience. They are more valuable than their nonsocial counterparts because they are actively engaged and invested in the company. Treat them well and they will respond with purchases and promotions.
Social promoters talk about their love for your brand but don’t contribute to the revenue stream. They provide value but not enough to justify the investment of marketing budget for a full cycle.
Marketing in the new economy requires a higher level of sophistication. Paying attention to people’s buying behaviour is the first step to creating a strategy that maximises return while minimising investment.
Debra Ellis is president of Wilson & Ellis Consulting and specialises in creating customised customer acquisition and retention strategies that optimise multichannel marketing.