Forty percent of a catalog’s success comes down to knowledgeable list selection and sophisticated modeling techniques to maximize response. The remaining 60% results from maximizing the relevancy of the message — and this is where the vast majority of catalogers fail. They work diligently on the response side of the equation, and then send every customer or prospect exactly the same catalog.
Granted, just about every consumer has the same goal when shopping: to find products and services that enrich his life or enable him to live better. But the specifics, of course, vary. To address those specifics, you need to better personalize the customer experience — through selecting the optimal communication channels, emphasizing the appropriate product benefits, and making the most relevant offer. Combined, these actions offer you the opportunity to dramatically increase your response rates.
In the 1990s, one-to-one marketing, the notion that marketers could increase response rates by developing unique, household-specific (or even person-specific) marketing communications that used every piece of information a marketer had about a household, became the ideal. Unfortunately, this ideal is very costly and ultimately unmanageable.
A more realistic yet still effective solution is to round up groups of households that are homogeneous enough that when they receive a particular type of offer, through a preferred channel of communication, their overall likelihood of responding increases. Call it “one-to-some” marketing.
Humanizing your database
You can easily perform one-to-some marketing with household-level market segmentation. Distinct consumer segments are created based on demographics, lifestyles, attitudes, consumer behavior, and the like. These segments are descriptive, portraying different portions of the U.S. population. Savvy careerwomen could be one of your most profitable customer segment; active newlyweds another. This type of segmentation helps put a “face” on your data, so that the real human personality factors come to the surface.
By combining segmentation data with the purchase behavior and channel preferences (online, mail order, retail) apparent from your customer database, you will fully understand what types of people do certain things and behave in particular ways. And that leads directly to the ability to create the versioned messages and offers that are the most relevant for the different types of people — delivered at the right time through the right channel. Your marketing team, merchandise buyers, and creative staff alike can refocus on the consumers who will benefit your business the most.
Consumers are much more savvy about what marketers know about them — and their expectation is that you’ll do something with the information. It’s not easy, and it is more expensive. But the results of sending more-relevant product offerings with copy that resonates, through the right channels, will definitely increase response.
There are a variety of ways to version. The most effective, of course, is to create several different versions of your catalog, but given the expense involved, that may not be your first choice for testing versioning’s ability to lift response. You can also version your cover, version a few pages, or version the ink-jet message directing different types of consumers to different pages within the catalog.
By analyzing your customer database using market segmentation, you will understand how different segments interact with you. Let’s assume you want to determine which customers to drive to your Website via e-mail. Within your database you’d look at market segments, channel purchase behavior, RFM data, categories of purchases, and seasonality. You may find that six to eight segments define the majority of your high-value buyers who have made more than two purchases, some of whom have a propensity to buy from you online.
In your next mailing, you would perform split tests, sending some of those customers your regular catalog, some an e-mail message driving them to your Website (assuming you have e-mail addresses on your file), and some both the mailed catalog and the e-mail message. Within the channel splits, you would test two or three versioned messages against your control. At the end of the test, you would understand each segment’s purchase behavior by channel, how much lift you get from the versioned messaging in each channel, and whether there is a lift when the customer gets both messages.
What types of results might you expect? I’ve worked with companies that have seen versioning create lifts in response of 20%-300%. I would challenge any marketer to say those types of increases aren’t worth the extra effort!
Other uses for segmentation
Segmentation can also help you with your reactivation efforts by assisting you in selecting only those lapsed customers who look like your best customers — and again, sending them a relevant message. For instance, you may have found through previous channel analysis that certain customer groups prefer to shop retail. Your reactivation strategy, then, would be to identify those groups within your database of lapsed customers and send them a postcard testing an incentive to drive them into one of your stores instead of sending them catalogs.
Once you understand the customer segments within your database, you can also link specific segments to consumer behavior collected by outside companies. As an example, if you advertise in magazines, you can determine which publications the savvy careerwomen of your customer file are most likely to read, as opposed to which magazines the busy newlyweds tend to read.
Syndicated research — information gleaned from household questionnaires compiled by companies such as MRI and Simmons — viewed by market segment can help you identify appropriate marketing partners. If you want to offer customers the chance to win airline tickets, syndicated research can help you determine which airlines your key market segments have propensities to fly on. Armed with the actual data, you could better promote your partnership with the most appropriate airline.
Another obvious application for market segmentation is prospecting. Again, the key is to identify a household-based segmentation system, which gives you the ability to “subselect” within segments (for example, selecting only busy newlyweds over the age of 35). Or you can combine a group of market segments and build a response model within that group. The “preselect” of the segments allows you to create a relevant message while maximizing response within the homogeneous group.
Market segmentation also allows for specific and actionable market research. Because different types of consumers buy — or don’t buy — from you for different reasons, conducting market research within homogeneous groups can be enlightening. Certain market segments may feel you are positioned uniquely in the marketplace, while others may list several companies they view as your competitors. Homogeneous focus groups allow for real attitudes and expectations among the consumers most relevant to your company, instead of from a randomly selected group that contains members of multiple and diverse segments.
Market segmentation will help you understand your marketing channels in combination with what various types of customers want from you. In addition, it will help lessen the advertising glut in both the mailbox and the e-mail inbox. It’s all about steering and delivering the right message to the right household — through the right channel at the right time.
Sandy McCray is managing director, sales and marketing, for Denver-based consumer marketing information company Looking Glass.