Are Your Best Customers Losing Value?

In the good ole days, BG (before Google), we could predict response rates and average orders for our best customers within 5%. The marketing team segmented the file, rolled out the projections, mailed the catalog, and filled out the deposit slip. (Okay, that is a little bit of an exaggeration, but if you have a traditional catalog background, you know exactly what I am talking about.)

Things have changed. Marketing plans are still diligently designed and implemented, but the returns are all over the board. Top segments are underperforming while bottom segments exceed plan. Lifetime value for the best customers is dropping. And, the scariest thing of all is that you may not see the cause and effect if you are using RFM (recency, frequency, monetary value) to segment your file.

There are two secrets, hidden deep in your house file. First, your long time customers are changing their behavior. It is the Google effect. If you haven’t established a deep, unbreakable relationship with them, they are Googling your items for the best price and shipping charges before they buy. If your competition offers a better deal, they have the buyer (at least for one purchase.)

This brings us to the second secret. Your new converts may only be visiting. I call them “hit and run” buyers. It could be that you offered the best deal. Or, you have one special item they want. Either way, they make the purchase and move right into your hotline buyer segmentation.

But they are not hotlines. They are not even warm. Any resources allocated for marketing to the hit-and-run buyers is good money spent poorly. The challenge is to identify them before they become unprofitable.

RFM marketing is not dead; it just needs some additional information to be effective. Some systems add channel to the mix. It helps, but more is needed. Look deep into your customer file for individual buying patterns. Use them when creating your next marketing plan. Your bank account will thank you.

For more information on how our marketing world is changing, check out our “New Rules of Multichannel Marketing.”
Have a great weekend!

Debra



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{ 2 comments… add one }

  • Will Dymott

    Nice Post Debra
    Companies need to move from RFM to a propensity model that used RFM but also other indicators such as First Item purchased, % discount used, order source etc. Come up with the most obvious and then try them out on an old mailing cell. i.e. use your model to identify the best 50,000 from a 100,000 mailing.

    Reply
    • Debra Ellis

      Will,

      Thank you for commenting. You’re on the right track. Every company would have a better return on investment if they followed the strategy you outlined. Marketing smarter beats marketing more every time.

      Reply

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