How to Hook and Keep Gold Customers

The adage, “80 percent of your sales come from 20 percent of your customers,” is as true today as when it was coined many years ago.

The real questions are how to identify those prospects and one- and two-time buyers who may have a strong affinity for your merchandise, and then how do you keep them buying? That is, how to turn prospects and one-time buyers into gold customers.

Following are some strategies to test, roll out and then measure.

If They Look Like Customers …

Tactics such as calculating average order value (AOV) and/or lifetime value (LTV); modeling; and segmenting buyers by recency, frequency and monetary (RFM) value offer sound foundations for your gold-customer identification process. Looking beyond those tried-and-true tactics, what else should you focus on?

John Lenser, president of Lenser, a San Rafael, Calif.-based catalog consultancy, and list brokerage and management firm, says ideal customers may include those with the following characteristics:

1.Those who come onto your housefile after qualifying to get a prospect catalog. “Usually those mailed will have a higher value because they were mailed in the first place,” says Lenser. “Perhaps they had made significant direct purchases from a competitor or have model characteristics similar to your best customers.”
2. They came from a prospect list that in the past has delivered high-LTV customers to you.
3. They responded to a full price offer.
4. They joined your loyalty club or program.
5. They are the gender of most of your customers.
6. Their initial orders were more than your AOV, either in dollar value or number of units ordered, Lenser continues.
7. They were not holiday-only buyers, but ordered even in your off season.
8. They did not pay by check, Lenser continues.
9. They did not order just one item.

No need to worry that the above-noted segmentation process will produce too many cells, says Lenser. “When reading results, you’ll aggregate segments together by variable to determine each variable’s influence on response. Base the number of future contacts on these results,” he notes.

Channel Swimmers

One immutable sign of a valuable customer is one who shops from you via various channels: catalog, online, e-mail, retail, affiliate programs, search, etc. Michael Grant, president of Michael Grant Direct, a Scarsdale, N.Y.-based marketing and database consultancy, says some of his clients have started using CRFM — the “C” is for “channel.”

“Those shopping in more than one channel usually are gold customers. So the propensity to buy in two or more channels, plus the number of transactions they make with you, plus how many of those transactions give you positive contribution — that’s how you can determine the high-margin, or gold, customers,” says Grant.

Elisa Krause, Ph.D., vice president of analytics at Abacus, a Broomfield, Colo.-based database marketing services provider, agrees that your best buyers swim in the multichannel sea. Abacus’ ClearEDGE marketing database clients can add to their segmentation plans variables such as whether the buyer is shopping in various channels and the interval between those purchases. The closer the intervals, the more likely you’ve hooked a gold customer.

ClearEDGE also can identify those on your housefile who’ve bought directly from you or through an online affiliate program. Armed with that information, Krause says, you gain a better idea of how to allocate your affiliate marketing budget.

Also, she notes, the database can tell you which customers are shopping in your retail stores in areas other than where they live. “If they’re shopping from you while in a vacation spot, you know you have a loyal customer,” she notes.

The ClearEDGE database can capture all of that information and roll it up, so you see exactly how customers are coming onto your file and then how they’re shopping from you. It gives you a clearer view of what previously had been seen as batched customer behaviors not inter-related to one another.

Match It Back

A lot has been written about matchbacks in recent years, so we won’t belabor the point here. No doubt you know how important such initiatives are to helping you plan your marketing spend. Several solutions and services are available to help trace the source of new housefile names.

CognitiveDATA in Little Rock, Ark., is one of those companies. CEO Rod Ford notes that while matchbacks can be helpful, one of the real issues is accurately allocating what he terms the “broken pile,” the 25 percent to 30 percent of new names that, in today’s multichannel world, can’t be traced to the promotional source. “I say 25 percent of broken contacts a year is too much error on which to develop a sound business strategy,” says Ford.

What merchants often do then, he continues, is simply reallocate the broken contacts across the channels in which they’ve advertised proportionate to the percentage marketing spend. “But that process has a lot of assumptive errors in it,” he notes. “It assumes that all multibuyers are multichannel, and it doesn’t exactly direct the sales to the brand-promoting element that prompted the sale.”

Additionally, Ford says, once his team does an advanced matchback for a client, “We determine every time — literally every single time — we find that the catalog was under-allocated.” That is, the catalog channel should have received a higher allocation of the broken pile.

“Paid search still has this mystery and magic about it,” he notes, “so merchants are allocating funds to it. But they shouldn’t forget about the catalog. I’ve seen companies, however, not take that into consideration and then talk seriously about cutting catalog circulation. But once they’ve done that, their paid-search results go down, too, because the company no longer is top of mind among shoppers.”

Keep Them Shopping

Once you’ve gleaned the gold customers from your database, the next task is to keep them buying. Looking beyond the usual tactics of offering terrific customer service, valuable offers (e.g., free shipping) and deals (e.g., percentage discounts), here are some other tactics to try.

* Loyalty clubs and programs can work well, says Grant, but they have to be managed correctly. Otherwise they become resource drainers. And if their contribution to your bottom line turns out to be negative, it’s often difficult to stop loyalty programs without incurring customer displeasure, he continues.

* New merchandise will keep customers interested. Ideally, says Grant, you’ll want to add products and categories that add depth and breadth to your assortment. “One good place to start is by looking at which companies are renting your list and what those companies sell,” he notes. “That might offer a clue as to products that are complementary to yours. Similarly, try looking at the rental lists you’ve tested in which the response was good. Perhaps those people buy merchandise you don’t currently sell but could.”

* Employ a contact strategy that targets customers based on their true consumption rate of merchandise in your category. Merchants using the ClearEDGE database, for example, can see what their customers are buying from other merchants, including competitors. Krause offers an example: Say you sell baby products, and you have a one-time buyer who bought from you. Is she a gift-buyer or a new mom?

“Most marketers live with tunnel vision,” says Krause. “They see only what customers spend with them. They don’t see what those individuals are spending with competitors. With our alliance data we can see the spend of 90 million households shopping in 89 product categories. With that kind of data, you can see that someone with a low RFM score with you may be a big spender somewhere else.”

Back to the example of the baby-products buyer: If you saw that that one-time buyer actually was buying a significant amount of baby merchandise from your competitors, wouldn’t you treat her differently in your contact and customer service strategies?

Housefile Hygiene

Ford notes with consternation in his voice that while catalogers will measure and question every action they take, they still will blindly order batched data processing done, perhaps, only quarterly. “Catalogers should ask every single time they mail, ‘How sure am I that this promotion will reach those people who’ve shown an affinity for my products?’”

Housefile hygiene, he continues, is crucially important to effectively maintain contact with buyers. When CognitiveDATA looks at a catalog client’s non-traceable sales, about 20 percent are because the customer got married and changed her last name. “But if your database isn’t updated regularly — that is, every time you mail — that information won’t be known by you for awhile,” says Ford.

Also, if the address of one of your multibuyers suddenly is flagged as undeliverable, Ford recommends you call or e-mail those customers to verify if they’ve moved, or — as is more likely — there were data-entry errors in your contact center the last time those customers ordered from you. Ford says that among his catalog clients who call multibuyers to check on undeliverable addresses, “they report that 30 percent to 40 percent of customers will respond to the contact and give a correct mailing address. Often customers say: ‘I don’t know what happened. I want your catalog. Here’s my correct address.’”

This tactic is especially crucial to retain economically active individuals, says Ford. He estimates there are 60 million to 70 million Americans with significant discretionary income and spending habits and who, in turn, get the lion’s share of the catalogs mailed each year in the United States. “If you lose contact with a portion of those economically active people,” says Ford, “they simply will buy from someone else.”

As John Lenser sums up, it’s difficult to have too many contacts with customers. The keys, however, are to measure and test your contact strategy so you can determine those customer segments that positively contribute to your bottom line. And then treat those individuals like the gold customers they are.