Building retention with knowledge

Mar 01, 2008 10:30 PM  By

Have you cut a postage check recently? Even if you weren’t the one to sign off on it, you’re probably aware that your company may have spent as much as $.45 per catalog on postage alone for your last mailing. That’s the new reality of the catalog business.

With costs rising constantly — and rapidly — keeping the customers you have is critical. Effective customer retention, or back-end marketing, hinges on the collection, analysis, and application of a massive amount of usable data.

All your competitors want your customers’ business. To stave them off, you have to apply everything you know about the customer to keep her. You have to build retention with knowledge.

Going to school on customer segments

A buyer is not a buyer is not a buyer. To study the transaction history of a broad universe of customers and think that you can draw detailed conclusions about specific segments is being shortsighted.

Instead, the first step to building retention is understanding who your customers are at a segmented level. Not in “12-month multibuyers over $50” terms, but rather in terms of a set of identifiable characteristics that get to the “who” of the segment.

Understanding the mindset of the customer is a key step in improving retention. Do you know, for example, if purchasing from you is an indulgence for the customer? Is ordering from you something she’ll do once a year and feel that she is a loyal and “retained” customer? Are you her source of all things home, for instance? And if she’s not buying from you once a month, are you in the process of losing her?

You will come to know these answers only by understanding how and why the customer shops from your category and, more important, from you. Data is available, surveys can be conducted, but getting to the essence of who the customer groups are and what you can and should expect from them is step one in the knowledge building process.

The five classic questions

Very similar to the 5Ws concept in journalism, direct marketers need to know who, what, when, why, and how in order to build stickiness in their customer files. More specific, who is the customer; what do they buy; when do they buy; why do they buy; and how do they buy?

WHO ARE YOU

Overlaying classic recency, frequency and monetary scoring with customer profiles allows you to look beyond traditional transactional elements to evaluate specific customer classes in terms of their purchasing behavior. For example, even simple demographic overlays would allow you to cluster customer segments into peer groups. Applying RFM to the individual cluster groups and then running an analysis to establish historical benchmarks for retention among those segments would give you a starting point for measuring future behaviors.

Keeping tabs on the transaction activity at a variety of levels for each peer group over the course of several rolling quarters provides the basis for whether customer retention is truly improving over time within unique RFM segments.

There are far more complicated ways of creating customer clusters to enhance RFM; the point is that understanding and employing RFM alone may no longer be enough to keep the customers you’ve worked so hard to get.

WHAT DO YOU WANT

Once you can classify customers into meaningful groups based on who they are, you should compile the data to determine what they buy. The “what are they buying?” question isn’t as simple as a long list of products. The issue of what the customer is buying should be understood at as many levels as possible.

Certainly, items are a part of the equation. But you’re challenged to understand the common characteristics of products that members of the same clusters are buying.

You may find that members of your most populous cluster fancy low-ticket items and multiple line items, for example. This may suggest that they would be more responsive to a dense presentation of lower-priced products. Look at factors such as customer service or “ship fast” features, price points, and product categories.

SAY WHEN

The next step in building retention is to understand when the customer buys. Again, this is a question that should be considered on several levels. When a customer buys is certainly a question of timing. Do they buy only during holiday seasons? Do they buy only when the product line changes?

These “when” answers are tied to the calendar. But what about cause-and-effect “when” issues? For example, the customer buys only when you put product on sale. Or maybe the customer responds only when you feature a specific product line on sale in e-mail promotions.

KNOW WHY

Understanding why customers buy, the next step to building the knowledge to effect retention, could also entail some of the issues above. For example, that customers purchase when you offer promotions is certainly an answer to a “why.” But the why goes beyond that.

At its most potent, why is a branding question and gets to your company’s higher-order benefit, that emotional “thing” that the customer gets from you that they don’t get from any other cataloger. It could be innovation, or value, or understanding, or any number of benefits that you uniquely offer the market. It may differ slightly from cluster to cluster but, overall, every segment should recognize that your company is bringing one thing to the market in a way that no competitor is.

HOW NOW

How the customer buys, the last of the classic questions, is obviously a function of purchase channel. But think beyond the simple “they buy from the Web” or “they buy from the phone” answers. Dig deeper to understand the stimulus of the order regardless of which channel the order ultimately arrives in.

You hear all the time how more than half of all orders are coming online and that e-mail will take over the world. But you never hear how many orders come to the call center with customers wanting to redeem an e-mail promotion code. Pay attention not only to the outcome (which channel the order came through) but also to the stimulus (what drove the orders in the first place).

And the data is becoming more and more available to look at the how in even greater detail. For instance, imagine a scenario where you’re able to overlap a contact strategy (what was mailed or e-mailed to the customer and when) not only with resulting orders, but with the purchase path that produced it. In a world where PURLs — personalized URLs — are becoming more prevalent and showing powerful results, an e-mail campaign can now be tracked from the initial click through the entire transaction process.

Now imagine a time when you’re ink-jetting on the back of every catalog a PURL for every customer in your mail file with landing pages and content developed specifically for that buyer or buyer cluster. And imagine how powerful it would make your efforts to know not just that they buy, but exactly the navigation they took to get to the purchase.

You need to apply a knowledge of who the customer is at a deeper level with a grasp of what she is buying, what she’s getting from you that she isn’t able to get anywhere else, when she buys, and how she’s buying from the moment she’s engaged by your brand. This will enable you to produce dramatically higher retention and keep far more of those customers who you worked so hard — and paid so much — to get.

Steve Trollinger is executive vice president of J. Schmid & Associates, a catalog consultancy based in Mission, KS.