Happy New Year!
This may sound a bit odd but I look at myself as my "control."
As you know, a "control" is your best performing direct mail piece or campaign, and your goal should be to do everything you can to beat it.
I feel the same way about the 2005 version of me.
It was okay. But my New Years resolution is to beat my "2005 control" and become a better, happier and more productive person in 2006. I also wish the same for you.
All the best, Alan
Do you know who your most valuable customers are?
Does everyone in your company know them?
Are you doing anything to reward them, or make them feel special, or keep them satisfied?
If you answered "no" to any of these questions, you might be placing your business at risk and also missing a major opportunity to increase sales and grow your business.
And thats why finding, keeping and winning back your Most Valuable Customers is the sole focus of this issue. Its that important.
How can you identify your most valuable customers?
There is a model which is used by most catalogue companies, mail order firms and also nonprofits. It may also apply to your business.
You may know it as RFM and its one of the best ways to determine who your most valuable customers are, and also who is most likely to respond.
RFM stands for Recency, Frequency and Monetary Value. Lets take them one by one.
1. Recency is how recently a customer has purchased from you. This is one of the best indications that they will purchase from you again.
And it makes sense. If I bought from your company two weeks ago, Im much more likely to make another purchase than someone who bought from you two years ago.
2. Frequency means how often a customer has bought from you. Someone who buys only once may not purchase again, but someone who buys two or three times is much more likely to remain a customer.
Thats why some direct marketing experts say that the second sale a customer makes is the most important one. And there are some techniques you can use, which I will describe later in this newsletter.
3. Monetary Value is how much the customer has spent with you over a given time period. Again, the more they spent the more likely they are to spend again.
By the way, the last big agency I worked for commissioned an expensive study on customer value.
They felt that RFM was oldfashioned, and there had to be a better way to determine the value of customers. So they spent a lot of money testing dozens of different variables.
And after this expensive test, the top three variables were R, F, and M.
So the first step is to use RFM to determine your most valuable customers and you may be surprised by how few you really have
100 years ago, Vilfredo Pareto analyzed the distribution of wealth in Italy.
Pareto was born to an aristocratic Italian family, and studied the classics as well as engineering. After graduating at the top of his class, he entered the business world and eventually became the managing director of a huge iron and steel company.
He seemed to have it made and he was also in line to inherit his fathers title of Marchese, which my Italian friends tell me is somewhere below a Duke and somewhat above an Earl.
But Pareto had a change of heart.
He quit his job, moved to a small villa, and began writing articles and giving public lectures against the government. He felt strongly that too much of the wealth was concentrated in the hands of just a few families.
Pareto did some research and determined that 20% of the population owned 80% of the wealth.
This equation became "Paretos Principle," and was later adopted by marketing and management experts.
Today, most of us know it as the 80/20 rule. And what it means is that 80% of your business will come from 20% of your customers.
Of course, its not true of every business and its an old rule. Does it still hold up today?
You may be thinking 80/20 is far too one-sided. Most businesses today have many more customers, and the old 80/20 rule just isnt applicable. And youd be right.
Its even more one-sided.
The new rule says that 90% of your profits will come from 10% of your customers.
Because of this, many large companies have stopped marketing to their unprofitable customers, and even want to discourage them from shopping.
Best Buy, the top U.S. consumer electronics store, is one example. They dont want people who just come in and purchase their special sale items. Theyre just not profitable so they simply wont mail to them.
Many supermarkets take the same approach which is radically different from what theyve done in the past. It used to be the supermarkets would take some staple commodity like eggs, bread or milk and offer it at a huge discount.
These were called "loss leaders" because the store might actually lose money on that specific item.
However, the thinking was if we can get the customer to come in for that special deal theyll buy more of the full-priced stuff and well make a profit.
This might have been true but now its changed. And supermarkets have discovered that many people who came in for the special offer often left with just that special offer. These people then went to other stores and selected that stores special offer.
And so supermarkets began migrating to a card system, where they could identify their most valuable customers and give discounts only to them.
For example, my local Stop & Shop considers me a "Top Banana."
So I get special offers and discounts that less-valuable customers never even see.
Again, the 90/10 rule may not apply to your business but there is very often a small percentage of customers who are responsible for a large amount of your profits.
And thats why its more important than ever before to identify, protect, and reward your most valuable customers. So how can you do that?
"Protect & Serve" is the motto of most police departments around the world.
It should also be true of your marketing. Your goal is to protect and serve your most valuable customers to keep them happy, to keep them buying from you, to keep them referring you to other customers.
Here are two suggestions:
1. Recognize Them.
By this I mean, make them feel valued.
The credit card companies do this by offering Gold, Platinum and even Titanium cards to their most valuable customers. Of course, theyve overdone it and these designations have lost their power over the years.
Whats next, a Plutonium Card?
Harvey Mackay is the president of the Mackay Envelope company and has written several terrific business books. My favorite is How to Swim with the Sharks without Getting Eaten Alive.
He writes that he calls at least one customer a day, just to thank them for their business.
The response is amazing and every customer is delighted that the president of the company cares enough to call. You can accomplish the same thing with a personal letter.
We used this to win back customers to AT&T and it was one of our most successful mailings. People love to be recognized as important or valuable.
2. Reward Them.
You dont have to give them deep discounts or expensive gifts. Sometimes the little things are much more effective.
Here are three examples
Dont think this is an important perk? Theres a popular website that gives you phone numbers to call for over 110 U.S. organizations.
These numbers allow you to bypass the touchtone or voicerecognition systems and will save you time and a world of aggravation.
Its called the IVR Cheat Sheet and its available at www.paulenglish.com/ivr
Theres one more thing you might want to do with your most valuable customers, and thats to spend more money marketing to them.
Wait why should we do that?
Theyre going to buy from us anyway, arent they?
They might but they might buy even more if you spent more money marketing to them. And you have a much greater chance to retain them. Heres what I mean:
Does every customer deserve a Holiday or Birthday Card?
Absolutely, but it might be too expensive to send one to everybody. Thats fine just make sure you send one to all your most valuable customers.
Should you mail to customers more often?
That might not be profitable but it will pay to mail to your most valuable customers more often. But not just to sell them stuff. You want to thank them, and give them information they might find useful.
Should we ask their opinion?
Of course because nothing improves customer satisfaction and retention by sending out brief questionnaires that say, "We Value Your Opinion."
Even customers who dont respond will feel good about it theyll think "Gee, this company seems to care about what I think and what I want."
This also gives you the opportunity to identify any potential problems that your existing customers may have and correct them before they get out of hand.
A final thought.
To paraphrase The Declaration of Independence "All men and women are created equal. All deserve to be treated equally, and be given equal opportunities."
Noble words but if youre treating your most valuable customers the same way you treat your least valuable customers you may be making a mistake.
Nothing lasts forever and no matter how well you do, some customers, even your most valuable customers, may decide to leave.
They may leave because they dont feel valued. They may leave for a perceived lower price. They may leave for countless other reasons.
You may not be able to stop them but you should try to win them back. How can you do that?
1. Contact them as soon as possible.
It sounds counter-intuitive shouldnt you leave them alone for awhile? But in test after test to win customers back to AT&T, we found that sooner was better than later.
Why sooner? The customer may have "buyers remorse" over leaving you. They may have been promised the world by a different company and then found out they were just empty promises.
2. Tell them you miss them
At the very least, send them a simple letter that acknowledges that they left, tells them how disappointed you are, and wishes them the best for the future.
3. Tell them how youve changed
You wont win them customers with a regular direct mail package you need to address the fact that they left, and explain why they should come back. Your tone should be simple, sincere, and even a little contrite.
We just did a Winback mailing for my client, Ancestry the #1 online source for family history information. It went to customers who had used us in the past, but didnt renew their membership.
The letter began with:
And the Brochure lists 7 Reasons to come back to Ancestry.com.
Weve done Winback campaigns for several clients over the years, and weve found that mailings to lapsed customers can be 2 10 times as effective as a prospect mailing.
So do everything you can to stop them from leaving but if they do, do everything you can to win them back.
As one of our newsletter readers, I consider you one of my most valuable customers. (Even though we may not work together yet)
And I value your opinion. This is the first time Ive devoted a whole issue of the newsletter to one subject.
Do you like it or do you prefer my usual collection of tips and stories? Please let me know by emailing me at Arosenspan@aol.com.
And also please let me know if there are any areas that are important to you that I can try to address in a future issue.
Thanks again and all the best for the New Year.
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© Alan Rosenspan & Associates