Retention and Relationships

If there’s one unexpected mental shortcut I’ve learned from examining dozens of corporate loyalty efforts and customer databases, its that just about any idea will work for 20% of customers. The problem for marketers? You can’t predict which 20% with a lot of certainty, and there’s only partial overlap between any particular 20%.

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.

My latest at VentureBeat’s Entrepreneur Corner.

This was an interesting article, primarily since it was very focused on a specific task – generating a second sale.  While repeat visits often happen naturally, nudging customers to return is often necessary.  The second purchase is incredibly important, since it identifies the customer as someone with the potential for a long term relationship.  Additional investment in the relationship will have a far higher likelihood of paying off with these customers.

One point I wanted to add to a recent article was the notion of involuntary loyalty.  Many companies have this and mistake it for one of the other types – rational or emotional.  Involuntary loyalty is attachment to a provider or entity due to reasons beyond the individual’s control.  Think Comcast, Hulu, Walmart in many places, many grocery stores, Medicare, your local mass transit agency, and many others.

When there are no realistic substitutes, people are forced to choose a provider involuntarily.  With analysis, their behavior will even look loyal.  Not understanding that many people would choose to go elsewhere if they can might be fatal to many organizations.

My latest article for the web channel at Multichannel Merchant.

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.

Pandora Radio logo

I love Pandora.  Pandora rules.  I wish everything was like Pandora.  I don’t really have to think or do much, and an incredibly accurate stream of stuff I want to hear just appears like magic.  I can tweak it to get it dialed in to my tastes.  And I now buy MUCH more music than I used to, discovering new music and buying on Amazon so Pandora gets a little affiliate revenue.

The closest we see to this ideal today is Amazon and a few other online retailers.  Borders appears to be using my purchases (finally!) to tweak the email they send me, which is great.

This is the next frontier for retailers and manufacturers.  A whole generation has had their priorities reoriented, much as the Great Depression did 70 years ago.  Consumers will think a bit more before buying and will be much less willing to use credit to finance their lifestyle.  So selling will need to move to a more relevant, customer-specific mindset if a retailer wants to succeed over the long term.

There are already many companies focusing on this space, but it will be a long time before clear winners emerge.  I think the winners will likely be those who can distribute the experience wherever customers want to consume it – which means we still have a ways to go.

Good piece at Harvard Biz Publishing today, but most of the community commentary misses the point.  Offering price promotions to all customers isn’t loyalty marketing, its price promotion.  Some customers respond only to this message, but many would be just as responsive to a different message (new product intro, local event, cross-sell to a recent purchase), to great service, or to the brand as a whole.

The authors rightly point out that usually only 20% of customers are profitable.  But its not that simple, since what matters is the marginal profitability of the last dollar sold.  You have to cover those fixed costs somehow.

A different interpretation of the tactic they criticize might be:

Resources are limited, so focus on the most profitable customers.  If you have the resources to focus on unprofitable customers too, go for it, since they help cover fixed costs.  But try to allocate your overall resources based on potential for future profitability, not evenly across all customers.  Only when you are totally out of time, creativity, and employee bandwidth should you shift to pure price promotion.

I try to help a non-profit ”international neighborhood micro-center for artistic and intercultural life in San Francisco” with operating and marketing advice.  They put on 120 events a year and I’d always advocated getting the word out about individual events.  We looked at email, and while it would probably work, the overhead for so many was relatively high.  (Almost everyone is a volunteer and resources are scarce.)

Enter Facebook Events.  Set up the event, send an invite, and voila, there’s your email notifications.  Its timely, professional, and useful.  Now I know what’s coming up and can make quick decisions to change my schedule.  It doesn’t feel obtrusive, since I joined the group of my own volition and can control messaging.  It shows the intersection of time-based content, opted in peer to peer communication, and user-controlled media streams (i.e. I still choose email over text) can and will be incredibly powerful.

I expect to see attendance max out going forward.

Amazing how an app can tip so quickly. Maybe its the connectors that let you post to multiple networks, so you only need to write once. Regardless, once Twitter recast itself as a microblogging service (vs. a party/barhopping planning tool) its become the defacto communication standard. I figure it will last about 6 months, since the noise has quickly become deafening.

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.

2008 has been a brutal year for most businesses.  Interestingly, there’s a sudden upswing in interest in customer retention.  I guess even the solid, predictable customers aren’t spending as much as they were.

A good first lesson in retention ROI is to understand that the first chunk of investment will have a high ROI, pretty much no matter what you do.  After that, channeling investment into the right interactions with the right customers is the key.  And unlike most marketing expense, you can figure out the right way to manage this second chunk of investment pretty quickly.

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.