Retention and Relationships

Its tough out there.  When Best Buy gets 1/8th of HQ staff to take a voluntary layoff that tells you most people there expect it to get worse – and want the severance instead of an involuntary termination.

So as everyone hunkers down, where do you cut?  If marketing expense as a percentage of revenue stays flat or goes down somewhat, those are real dollars that have to come out of the original plan.

Having lived through this on an 8 figure budget, its not a simple question.  Its tempting to either a) cut 100% from a couple of line items to make the number (easy to execute) or b) cut a couple % from every line item (easy to explain).  The real response has elements of both approaches, but what’s important is how they are applied.

Standard ROI Expenditures

These are marketing efforts where the return on investment is well described by classic economics, that is, an upside-down U.  The initial investment has a high return, then it eventually drops to 0, then it turns negative when saturation occurs.  Search engine marketing (SEM) and optimization (SEO), online marketing, CRM and direct marketing are all in this camp.  Good companies are already at the most efficient point of ROI on these investments.  Taking a few percent off these budgets leaves spending that is still very effective.

Discontinuously Effective Expenditures

This is the tricky part.  Some types of spending look like an S curve combined with an upside down U.  The initial investment has a low return, then it hits an inflection point and rises rapidly, then follows the classic upside down U.   For example, a rule of thumb for TV or Radio is that 100 GRPs per week is the minimum to be effective. So if you are buying media right around this level, you need to trim markets or weeks, not points per week.  Your choice of which markets to trim is influenced by your current awareness, maturity, other investments, and overall history.  You might offset this 100% cut by maintaining the other types of spending to maintain some presence in that market.  This is oversimplified, but hopefully you get the point.  You can extend this approach to verticals, partnerships, channels, and other areas where a continual, sustained effort must be maintained or effectiveness drops off quickly.

So I found out a large, well known company (not a client) mails its entire house file each time they send out a catalog.  Still.  In 2008.  WHAT?  We are so far past that I can’t believe it.  Maybe their ROI is positive in every single segment in their customer base for every mailing.  And maybe pigs are flying over San Francisco right now.

What I’m guessing is that no one has questioned why they still mail everyone.  It’s a good lesson, especially given the current environment.  Why do we do something this way?  Why do we use this vendor?  Why is this program running?  Why are we doing this manually? 

Getting into the habit of questioning why something is done a certain way will go a long, long way towards understanding how your CEO thinks. Most CEOs are never satisfied with the status quo, and always look for new, better, and different.  Don’t wait for someone to poke around in your area of responsibility and turn over rocks.  Better for you to turn over the rocks and find the bugs crawling around for yourself.  Because that gives you the opportunity to fix, change, stop, or improve whatever it is you find.

All those investments you’ve made in customer relationships are about to come to fruition.  If you’re in a position where you know who a good chunk of your customers are, now is the time to take advantage of that fact.  Conventional wisdom says to increase advertising in a downturn, so you can take customers away from weaker competitors.  Don’t be that weaker competitor.

Response rates among existing customers will always be better than new customers.  So go talk to those existing customers using targeted offers, double/triple points (if you have them), special events, secret sales, and anything else you can think of.  Since you have email addresses (right!?) you can communicate inexpensively, and drive incremental business with very low expenditure.  So your ROI will be much higher than typical acquisition ROI is in times like these.  And by defending your best customers, you don’t have a leaky bucket problem that requires even more expenditure to address.

The WSJ reported today that we’re looking at Q3 2009 before growth turns up again.  So you have 7 1/2 months to get through.  Good luck.

At Starbucks of all places.

I’m used to going to Flora Grubb out in Bayview for my Ritual Coffee from their awesome coffee machine.  Works out well, since my wife drags me there to shop for interesting house plants.  Even trade.

Now suddenly the same machine (a Clover, I guess) shows up in Starbucks.  Kudos to Schultz and crew for remembering why people started going to Starbucks in the first place.  (I even heard some electronic music in there for the first time in  years – good to see less pandering to the mean.)

Let that be a lesson…while its easy to coast on reputation (as Bucky’s did for a long, long while), staying focused on what made you successful and continuing to innovate will keep you in front.

If you haven’t already, its time.  Every marketer should be living and breathing life with an iPhone, now that Apple has opened up to 3rd party software developers.

Download a few apps from the AppStore.  After a couple of weeks, you’ll wonder why anyone needs a website anymore.  (Ok, that’s overstating slightly.)  Yelp, for example, is perfect for the iPhone.  As a new interaction medium, its the best thing to come along since the browser.  The ideas are already starting to percolate…

Its been a while since I’ve been able to write here and hopefully this long of a break won’t happen again.  As President of a young company, time has a way of getting away from you and next thing you know its 2008.

The experience of seeing the whole company work together to deliver great best customer management solutions for great brands is one of the best of my career.  I’ll start sharing more of my insights gained by working with such excellent brands (without naming names, of course).