Retention and Relationships : Marketing Thoughts by Michael Greenberg

OK, love is a strong word here.  But gaining insight into share of wallet, especially when it can be cross-tabbed with other data, is one of my favorite ways to learn how customers are engaging with your company.

I looked at a simple data set from Marketing Charts in a post elsewhere which rekindled my love for the metric.  I used this extensively as a direct marketer in a past life, because it told us so much about where there was opportunity for additional revenue.  Plus I tracked it over time, which made it a great leading indicator of softening or strengthening demand.

Lets take a simple example.

Lets say your customers report they spend $200/year at your store, and $1000/year total in your category.  6 months later, they report $250/year at your store, and $750/year total in your category.  You have 2 things to figure out - is my share of wallet increase from 20% to 33% real, and is the 25% decline in category spending real.  But you have good information from which to continue to explore.  In this case, if they are real, then you can get excited about the successful increase in market share, and be terrified by the decline in market size.

Another example is similar to how I looked at the Marketing Charts example - what if top 10% customers spend $1000/year with you and $1500 total, while next 10% customers spend $400/year with you and $1200 total?  The opportunity in the next 10% is actually greater than the top 10%, although the downside risk of not retaining top 10% is higher.  Knowing the difference, however, lets you craft strategies that best accomplish your objective(s) in each segment.

Catching up on past articles - here’s my August 2007 column at Chief Marketer.

I look at the difference between discovery - information and insights about the client - and strategy - what to do with the client to effect change.  It was prompted by the common question I get asked, which is “what should I do?”  So I tend to ask back, “what do you need?” and so on.  Enjoy

I’ve already received several requests for clarification on the customer grid from my Chief Marketer column.  Once you have chosen two criteria for segmenting customers, imagine a grid with each criterion on one axis.  Each combination of criterion values represents a segment to be investigated.

So if a hypothetical sporting goods store was set up where Criterion A is Private Label Credit Card Holder = {Y,N} and Criterion B is Activity Type = {Outdoorsman, Weekend Warrior, Family Sports}, there would be 6 boxes in the grid.  (Resemblance to a company where I once ran marketing is completely coincidence.  Besides, that company no longer exists.)  For each box, provide an objective and develop the strategy to accomplish each objective. 

For example, the Outdoorsman PLCC Holder has a lot of Open To Spend and lots of big ticket items in his typical wish list.  So the objective might be to generate big ticket purchases.  The loyalty strategy here might be to focus on long-term accrual, so that he can save up benefits to use on his one big purchase.  Or you might assume he has already made at least one big ticket purchase (a possible third criterion for your grid) and your objective is to maintain his spending level.  The loyalty strategy here might be to provide point acceleration on key consumables or accessories throughout the outdoor departments or provide increased accrual rates when a spending threshold is met.

As every serious marketer knows, the role of math, modeling, and statistics is only growing.  As I was recently perusing academic research and white papers on association rules, I was struck by how important my econometrics background has become.  I could follow the math and logic but I doubt more than 2% of all the marketing professionals I’ve worked with could also have done so.  As technology like on-demand CRM levels the application playing field, the winners and losers will increasingly be defined by strategy and tactics derived from superior insights.  Much like my earlier assertation that customer individuality will only increase, the importance of superior data-driven insight will only increase.

So if your children want to follow in your marketing footsteps, be sure they learn the statistics they will need to operate in the not-too-distant future of marketing.

My latest at Chief Marketer.

uTANGO has a business model built on a 30-year time horizon.  What if all companies took a longer view of their customer relationships?  Lifetime value would be more heavily influenced by retention, leading to changes in the allocation of marketing resources.  Plus acquisition spending would eventually come down, as revenue from existing customers begins to grow more quickly.

Its now time to find out how effective everyone’s relationship efforts were throughout the year. Confronted with a blizzard of offers, catalogs, ads, and products, consumer choice will come down to who can cut through the clutter.

The first test is Thanksgiving weekend, where companies are pouring email and direct mail into the hands of key customers (well, lets be serious, everyone is getting something).  I count inbounds from 46 different companies on personal accounts on Monday-Tuesday alone, plus direct mail inbounds from another 33 on the same days.  While deals still influence visitation if someone offers just the right item, nowadays the choice is heavily influenced by our relationship with the destination.  Its nice that some companies are reaching out to me now, but trying to relate to me once a year just has little impact on my decision.

The second, and more interesting, test is the email and direct mail they deliver in the 3rd and 4th weeks of December.  Who will try and relate to the gifts I bought last year, and point me towards similar categories?  Who see that I respond to coupons?  This is the fun part of holiday…I’ll come back to it in January and analyze.

Every marketer wants to keep a finger on the pulse of their target market.  I’ve long followed job openings to study how marketing organizations change over time.

But SEM data is a direct pipeline into the minds of your target audience.  Watching how specific keywords grow or decline in importance around a particular topic is fertile ground for spotting changes in your business.  For example, I’ve seen a significant shift in the interest in “loyalty” in relation to “CRM” in the retail world.  So it appears that retailers have figured out that CRM is a technology, while loyalty is a strategy.

Something to keep and eye on and ask your analysts to look at every once in a while.

Yes, I know…way too long between posts.  Here’s my latest article for Chief Marketer on the best investment you can make as a marketer.

In a nutshell, its investing in a true in-house analytics resource.

I’ve seen a flurry of metrics-related articles recently that generally show direct marketers and other data driven marketers don’t track their metrics closely enough.  They don’t follow lifetime value, or don’t measure churn, or don’t know conversion rates of email, or one of a million different KPIs that we could manage our businesses with.

Well, that’s OK.  As long as you track something that relates to your basic assumptions about why your customers care about your company, you’re ahead of the game.  Don’t get me wrong…all of the metrics mentioned above are incredibly important (especially the changes over time) but ultimately they are resultants and trailing indicators.

Have a point of view about why your customers care about you and do business with you, then measure the things that tell you the most about your point of view.  Anything else is nice, but not the end of the world if you don’t track it.

One company I know was very interested in average sales per customer in various relationship marketing programs.  Some programs worked better than others, and their efforts were focused commensurately.  However, it wasn’t until months had gone by that they realized the underlying cause of the sales differences was the presence of certain big-ticket category purchases.  Suddenly their understanding of the business changed, and they tracked % of activity in key categories by program, plus which campaigns drove the big ticket purchases.  This focus has transformed their business and their metrics now focus on the long term drivers of value, namely activity in a select few categories that best predict larger lifetime value.

There’s a fascinating study going around from the CMO Council that looks at how marketers are interacting with their customers.  To summarize, they’re not.

49% named CRM or database systems as their main information source on customers.  75% don’t have advisory boards or online communities.  30% don’t develop their own customer segmentation.  Plus, there are plenty of other insights on the CMO Council website.

From my perspective, every marketer should talk or listen to customers every week.  Whether that means walking onto a sales floor as a retailer, reading customer satisfaction survey responses, listening in to a call center, or participating in weekly account manager conference calls, keeping up to date on customer needs, concerns, and input is crucial.  Qualitative input helps balance the tendency to rely solely on quantitative input, which many of us practitioners have tended to fall back on.