My intent was to make sure entrepreneurs confronted the fact that in the vast majority of cases, they are taking market share or spending from someone else, so must plan accordingly. Start with a great product or service, but understand how to keep customers engaged.

Price promotion? 20% (probably more, but you get the point)
Loyalty program? 20%
Recognition? 20%
Special event? 20%
Early access to new releases? 20%

The list goes on. A few get more, many get less, but 20% is a good rule of thumb. Why 20%? Hard to say, but that’s what the data says.

The takeaways?
1) Incorporate as many interesting ideas as you can manage effectively, since each will produce results. But don’t stretch too thin, or all of them will drop off.
2) Choose ideas that do not overlap, to ensure maximum return and responsiveness.
3) Budget has an impact, no doubt. Stack ranking from cheapest to most expensive isn’t a bad idea.

There’s a whole separate group of initiatives that only 1% will respond to…that’s for a later post.

As with most interviews, some stuff comes out that wasn’t planned ahead of time. But what stuck with me were my comments to focus on just a few social media/marketing options vs. going after many. So I wanted to expound a bit.

Many companies are paralyzed by social media and how it relates to customer retention. Like anything else, start simple. Pick one area and start, learning more and determining how to incorporate the results into daily operations. Over time, the relationship between actions and results will become clearer, and you can make the business case for increased (or decreased) investment.

Once you master one, add another and go through the same process. It doesn’t have to be difficult. What seems to cause so much uncertainty is the proliferation of options that all appeared at once. So my guidance is to simplify, start narrow, and expand over time.

I think my point didn’t really get across, but its mostly my fault.  The bigger point here is the separation between loyalty and value, and that customer experience is a great driver of loyalty, which in turn improves value.  Since this is part of a longer series of columns that will eventually tie together, I’ll back and rethink this one.

“It’s inevitable that customers leave.  Your customer base is constantly evolving, and your customer loyalty and retention metrics likely hide that natural dynamic. Traditional measures look at full attrition and ignore shrinkage, maintenance, and growth. Savvy companies look deeper and respond to incremental behavior changes within their customer base.

The two measures presented below, dollar retention rate and replacement rate, let you spot issues in your retention and customer development efforts early and focus your decision making on the results you really want – revenue and profit.”

Read the full article at Chief Marketer.

This was prompted by internal research we’ve been doing to identify trends in customer behavior that can help predict larger shifts in revenue in the future.  We’ve found a lot of interesting stuff and spun off many ideas, of which this was one.

It led me to think more deeply on the nature of decision making and how asking the right questions leads to better decisions.  (Yes, I do think about this stuff for fun.)  With the coming explosion in data availability, the ability to ask good questions will only increase in importance.

What’s the problem?  Quantity vs. quality.  The underlying task of using information to generate insight and of using insight to making good decisions still takes skill and talent.  Many people have never had to think through how to enable good decision making, and more data won’t change that.

One way to solve this problem is a simple two-part test for any information gathering and decision making process.  It’s not rocket science.  But I see surprisingly few people pay this much attention to the process.

The basic approach has two components:

1. What is the form of the answer?
2. How will you use the answer to make a decision?

Applying these two tests to any inquiry help isolate useful and interesting questions from the merely interesting.  It’s not really meant for a casual conversation, but more for the preparation stage of a presentation or discussion.

Let’s take a simple example.  “Who is your core customer?” is a pretty typical question in my business.  But it’s not a terribly useful question, since the response will likely be a generic description of the largest customer segment, and there isn’t much you can do with the information, since the answer tells you nothing of why they are core or what the opportunity is among the group.

A better way to frame this is to work backwards.  I want to, for example, improve top-line revenue and profitability with minimal incremental spending.  So understanding core customers will lead to decision making around marketing targeting and allocation.  Based on that, what I really want to know is which customers have the highest potential for ROI given increases in marketing investment.  And since that investment will be different depending on their demographics and spending patterns, I really need to look at several segments, not just one. 

Given this need, a better way to ask the question is, “Which customer segments have the potential to grow with reasonable marketing investments?”  Which, of course, means you need to figure out your segments, not just your core segments…which leads to more questions.  You get the picture

So when I saw this post at Buzz Canuck, I realized this was a pretty good way of collecting all of WOM into a cohesive framework.  And while I don’t agree with all of the details, looking at WOM in terms of its effective half-life is a good organizing principle, especially when you apply it all the way to customer evangelism.

Many people think of Viral as equivalent to WOM, and try to shoehorn a viral element into every initiative.  Sean’s emphasis on events and high risk ideas is right on – its nearly impossible to light a viral fire without a very, very compelling meme.  Green Day has been selling out their semi-secret local tour in minutes with just a couple emails and a few sentences on their website, powered by fans spreading the word.  Add a few key critics invited to the shows, and the band is building buzz without a whole lot of effort.

Do you think the fans that scored tickets have been evangelizing?  You bet.  And yeah, I went and it rocked.

Facebook is already there. All the extra features that put additional information into the feed have crowded out the really interesting stuff – what friends and acquaintances are really doing and thinking about.

I remain convinced, however, that opt-in peer to peer communication will supplant email as the main communication medium within a couple years. This means the cheapest marketing medium will continue to implode, and marketers will need to keep innovating to stay up with their customers.

This is one of those times when the tide is going out.  (The reference is attributed to Warren Buffet and goes something like “When the tide goes out, we find out who’s been swimming without a bathing suit.”)

You need to inspect every dollar and challenge your assumptions.  Am I generating visits with my radio?  Am I buying too much TV?  Can I get a better deal on my direct mail by bidding out projects?  Because surely your budget has been cut.  And the first reaction is to cut new spending, instead of asking yourself, “Is this proposal a better expenditure than something I’m already doing?”

Nothing should be sacred.  Sports tickets, luxury boxes, or sponsorships – gone (very limited reach, especially geographically).  Television can pause for a while with minimal erosion of awareness.  Radio can probably get lighter for a while with minimal impact.  Newspapers will be extinct in a few years anyway, so might as well learn to live without them now.  Interactive campaigns are fun, but if they aren’t part of a long term engagement program, don’t bother.  Outdoor…uh, I hope not.  [And I won't get into Operations in general - I guarantee you have lots of dead wood.]

What’s on the flip side?  Email, SEM, SEO, Facebook, iPhone, basic customer segmentation, versioning, response modeling (i.e. don’t mail everybody!), PR, retention marketing (pretty much of any kind), etc.

In fact, it might make more sense to do zero-based budgeting where you fund these initiatives first, then see what’s left for the rest.