Contributions to Profit: Plan For 2007 and Rank Your Customers, Prospects

This is the first of a three-part series. The other two installments will appear in November and December 2006 issues.

As you develop your marketing plans for the coming year, look at all of the different prospect and customer groups, and build a plan for each group. There are five different types of prospects and customer groups: advocates, buyers, triers, prospects and suspects, based on a behavioral perspective. In the first part of this series, I’ll define these groups; in the other installments, I’ll offer some actionable plans to help you increase your profits next year.

1. Advocates. These are the long-term customers who have the highest lifetime value, spend the most amount of money with you and have the highest profitability. They’re the cream of your customers and will recommend your product/service to others, as they have a strong connection to your brand built over time. Carefully define, identify, communicate with and keep this group loyal.

2. Buyers. This hierarchical group of customers who purchased two or more times also is called two-plus or multibuyers. They’re loyal to your brand, but if there are changes to quality and service levels in your company, they could easily defect. Keep track of this group’s purchase (or non-purchase) trends; it’ll help you define your future plans both from a circulation and merchandising perspective. In most companies, multibuyers generate the revenue that drives contribution to profits and funds prospecting efforts.

3. Triers. These new customers, also called single or one-time buyers, have made their first purchase with you. They’re “trying out” your products, your company and your service, but haven’t made a commitment to your brand.

4. Prospects. Obviously this group is made up of people who haven’t yet purchased from you, but fit in your defined target market. They could range from information and catalog requestors to names not yet mailed on a list that you have yet to roll out to, or names on other lists in your category that you haven’t tested yet.

5. Suspects. People you suspect may become customers, this group is the basis of any new customer acquisition plan. It consists of various target markets within and outside your product category. Since you have no history with this group, only suspicions, test carefully as you would anything new.

Up the Food Chain

When thinking about your plans, try to follow the Pareto principle: 20 percent of your customers (buyers and advocates) will fund 80 percent of your business. Therefore, the goal of your plan should be to move each person higher up on the food chain with each marketing effort.

This industry tends to be focusd on circulation plans. Too much effort gets placed on prospecting, and less effort goes into converting triers to buyers, buyers to advocates and keeping advocates happy. We look at our customer categories as numbers on a spreadsheet, not as individual groups of people who need certain attention (beyond the number of mailings sent). We have loyalty programs as well, but these days loyalty programs have reached a certain degree of parity and tend to lack differentiation. It costs a great deal of money to prospect — as we all know — but we can contribute more to our bottom lines by focusing on the other four groups.

So what can we do, beyond the circulation plan, to impact our business and create more multibuyers and advocates? In the second part of this series in the December issue, I’ll flesh out some promotional ideas you can use to move prospects and customers through the hierarchy. In the meantime, send your tested and untested ideas to Editor in Chief Paul Miller at pmiller@napco.com.

Jim Gilbert is president of Gilbert Direct Marketing and professor of Direct Marketing at Miami International University of Art and Design. Contact: jimdirect@aol.com.