Milk House File to Create Growth
Since that column, I have received several e-mails from companies that are offering new techniques to find new names. These all have been aimed at better database manipulation for prospecting. I am not opposed to that. It is wise for a cataloger to continue to find new buyers from prospect lists or segments of old lists that historically have met ROI targets.
However, what I think is necessary is for catalogers to think outside the box, looking in places that have been neglected or have not been explored within one's house file.
House mailings. Since one-time buyers are unprofitable, if one wants to grow and be profitable one should concentrate on increasing response from the house file. However, the majority of catalogers still focus on finding new names rather than figuring out how to milk their house file. This requires new programs that will generate more income from your repeat buyers and make more of your one-time buyers become re-peat buyers. Here are a few ideas.
Loyalty programs. This has to be the one tactic that most catalogers fail to use. Every study shows that consumers and business buyers love these programs and that they influence buying behavior. Frequent flier programs, which are loyalty programs, are second only to schedule in determining which airline is chosen for a trip, because one can accumulate miles toward awards. People even use airline affinity cards for their non-travel purchases just to gain additional miles toward awards.
Yet catalogers think that given their product offerings a loyalty program would have little appeal to their customers, certainly not worth the effort to manage one. I argue that if you do an in-depth RFM analysis of your buyers you can identify the cream of the crop that will justify such a program, like the top 5,000 customers.
Charles Schwab did that a few years ago and found that the top 1 percent of its accounts represented 65 percent of its net profit. Fearing losing them to full-line brokerages, Schwab started a loyalty program that included providing these accounts with extra benefits like a personal broker.
The loss of these accounts was minimal, as was the cost for this new program, and the accounts increased their trading volume and their portion of overall profit leapt to more than 70 percent.
An example closer to home would be Neiman Marcus' Platinum and Gold Circle programs, which have mirrored Schwab's results, yielding greater volume and more profit from the same customers at minimal cost. Every company has an elite group of customers who make up a disproportionate share of profit. Conduct an ROI by customer; an individual lifetime value and those that generate 50 percent or more of your profit are your target for a loyalty program.
What can you do for them? Assign a customer service rep to each customer who calls the customer monthly asking about their latest purchase, what else they would like, announcing a sale and offering previews. To do this you have to commit to the program and have it led by a senior management person as this requires cooperation among every department.
There will be many other benefits. These customers will tell friends about their great experiences with you, and if you get them into a friend-get-a-friend program you will receive excellent prospect leads. Word-of-mouth is the best form of advertising, so make your best customers your advertising agents.
Solo mailings. What about customers at the other end of the spectrum, those who don't qualify for special treatment? How can you afford to keep mailing them? Too often catalogers get bogged down in the concept that they can mail only a catalog, that the cost of postage, etc., makes it the most cost-efficient mailing.
If you want marginal lists to yield buyers at an affordable cost you have to find other programs, like solo or mini-catalog mailings, that will work. Such programs are used extensively in food-gift and business-to-business. You need to get the merchants with the marketing staff and develop merchandise programs that fit smaller concepts and yet are powerful.
You have to stay focused on your goal of getting more activity from your house file, and that requires thinking and using non-traditional techniques and mailing tactics.
E-mailing. We have a new tactic that most are still using in very limited ways: the chance to e-mail your customers to gain sales. Many companies use e-mail as a separate tool to drive people to their Web site, not realizing that it is also a tool to drive people to a catalog or the phone. Calls are more expensive, but they provide the human element of your company that your Web site cannot.
Most companies still do not use e-mail to support their mail programs. How many catalogers are capturing e-mail addresses during a phone order and then e-mailing the customer shipping information? This is one simple way to make the customer enjoy their experience with you and return.
I cannot guarantee that these ideas will increase ROI from your customers. But I guarantee that if you continue to try just further modeling and segmentation tactics you will see only marginal gains and growth. The key is your customers, not your would-be customers. Your company should make increasing revenue from the average customer, say 10 percent, a major goal for the next year, and that has to be a top-down commitment. If you achieve that and do it with carefully constructed programs, you will increase the bottom line and ROI for the company now and in the future.