Chapter 10
The Tactical Advantage: Designing Data Driven Marketing Campaigns
In This Chapter
Learning the difference between event-triggered campaigns and mass mailings
Using information about change as a customer-retention tool
Upselling and cross-selling to your customers
Recognizing when customers move
As the old saw goes, the only constant in life is change. This is as true of your customers as it is for your business. People grow up, go to college, get married, buy their first house and car, retire, and do many things in between. With every change comes changes in their needs, preferences, and means.
Your products have a life-cycle as well. Retail consumer goods wear out or are used up and need to be replaced. Loans are paid off. Annual passes expire. These events all create opportunities for you to make new sales.
By recognizing and even anticipating changes in both your business and your customers, you can design communications and offers that are relevant to your customers’ new situations. With relevance comes revenue. In this chapter, I examine a number of ways that you can be proactive in turning change to your advantage.
Event-Triggered Campaigns: Understanding the Basics
Timing is everything, as another saying goes. It’s one thing to know how many widgets you sold last year. It’s quite another to know who bought how many widgets and when. And it’s worth even more to know about these events immediately — at the time they happened.
This chapter introduces you to some strategies and tactics that database marketers use to take advantage of time-sensitive customer information. This information might be related to their recent purchases. But it may also be related to a move, the birth of a child, or any number of life events that affect their needs and attitudes. In Chapter 7, I talk about the identification of lifestage segments. The life events I mention here essentially signal that a customer has moved from one lifestage segment to another.
Changes in your data about customers may signal marketing opportunities. Campaigns that are designed to address these opportunities are known as event-triggered campaigns. Because you’re responding directly to a customer’s changing situation, your message will be powerfully relevant to your customer’s current needs.
As I’ve mentioned, my wife and I have moved several times over the years. Each time we do, we get a note or a postcard from several national retail chains, home improvement stores, computer retailers, and so on. These are simple event-triggered campaigns.
These communications are all designed to guide us to the closest store in our new community. They’re triggered by the change-of-address forms we filled out at the post office. The database marketers at these retailers subscribe to change-of-address services from the USPS and they send these communications accordingly.
In many cases, these communications are quite helpful. Not only do they help us to learn our way around our new environment, they often contain special offers for exactly the kind of stuff that new homeowners need. I don’t think we’ve ever paid full price for shelf liner.
Event-triggered campaigns versus mass mailings
Event-triggered marketing campaigns differ in a couple important ways from more traditional mass mailings. The power of event-triggered campaigns comes from recognizing when an individual customer has experienced or caused some event.
In order to do take advantage of this information, you must run these campaigns continuously, rather than in one large mail drop. The communications are literally triggered at the time when you recognize that some event has occurred. Depending on the situation, these campaigns can be executed monthly, weekly, daily, or even in real time.
An important distinction between event-triggered campaigns and mass mailings has to do with the size of the target audience. Your customers are typically not all doing the same thing at the same time. You don’t have half of your customer base moving every month, for example. Because event-triggered campaigns are run continuously, the target audiences for these campaigns tend to be much smaller than the audiences for mass mailings.
There are seasonal fluctuations that cause demand to spike throughout your whole customer base at once. Think Black Friday after Thanksgiving, for example. In these cases, event triggers don’t really make any sense. You would take a more traditional mass-mailing approach to reach your target audience when you expect a seasonal spike in demand.
Because of the continuous nature of event-triggered campaigns, they provide an ideal laboratory for learning which messages and offers work and which don’t. In mass-mail drops, you have to wait awhile to apply what you learn to the next campaign. What you learn from your Christmas mailing can’t be applied until next Christmas.
With event-triggered campaigns, if you run the campaign for a month and it isn’t working to your satisfaction, you can tweak your messages and offers on the fly until you see the desired results. This adaptability, along with the inherent relevance of your timing, makes event-triggered campaigns an extremely effective way to generate revenue.
In Chapters 14-17, I talk at length about measuring and learning from your marketing campaigns.
Choosing a marketing channel
The success of an event-triggered campaign depends on its timing. You don’t want to be closing the barn door after the horses are out. When you’re deciding whether to communicate via mail, e-mail, or some other channel, it’s extremely important to understand your window of opportunity. It isn’t open forever.
Suppose you own a busy restaurant. How do you deal with last-minute cancellations? You don’t have time to send a postcard to a customer on your waiting list. That table is a perishable asset, and you will lose revenue if it sits empty tonight. So, to respond effectively to the cancellation trigger, you need to communicate quickly. A text message or phone call would be your only viable options.
This points up an advantage of event-triggered tactics as opposed to mass communications. Because of the relatively small audience size, you open the door to more expensive marketing channels. It might be financially unthinkable to call everyone that lived within 20 miles to tell them you’re opening a new restaurant. But calling a handful of customers on your waiting list to fill a cancelled reservation is perfectly reasonable. It’s also extremely effective.
The same idea applies to event-triggered campaigns that you execute through the mail. You may not want to pay first class postage for a large mailing. But if you’re only mailing a few pieces each week, you may choose to pay the extra postage. This would get the mail into the customer’s mailbox a little faster as well as make it more likely that they actually read it. (In Chapter 4, I talk more about the relative costs and advantages of different marketing channels.)
Campaign timing depends on data timing
Because event-triggered campaigns have such a quick turnaround and high effectiveness, they can be very useful marketing tools. But their effectiveness comes with a cost.
In database marketing, everything starts with the data. For an event-triggered campaign to be effective, it needs to be based on fresh data. Your window of opportunity might last only 1 or 2 days after a particular customer event occurs. If data about that type of event is only loaded to your database weekly, you’re powerless to take advantage of the information.
The freshness of your data is commonly called data latency. In simplest terms, this means the time it takes to be able to act on that data. The data in your marketing database has varying degrees of latency, depending on its source.
For example, you might only purchase third-party data on your customers monthly or semiannually. On the other hand, you may load transaction data weekly or even daily. Unfortunately, it’s a pretty general rule that your infrastructure costs go up with the frequency of your updates.
I don’t have room in this book to get into the technical architecture of your data systems. But as a general rule, you don’t want to be updating your marketing database on a real-time basis. For one thing, your reports will never come out with same results twice. For another, doing so would put an unwelcome burden on your transaction systems.
Two strategies can help you to get around the cost implications of frequent database updates:
Focus only on the small number of transactions that display the event trigger you’re interested in. Rather than trying to convince your IT department to invest in daily, rather than weekly, updates from your transaction systems, you could ask for a daily feed containing only the relatively small number of transactions that you’re actually interested in.
Execute the campaign from the transaction system itself. Most real-time, or near real-time, campaigns are executed through electronic media. E-mail confirmations or follow-up offers are typically triggered by an online purchase. You can execute these communications based on information available from your Internet service provider. There is no need to download the online data and integrate it into your customer database before this communication is sent.
An Ounce of Retention Is Worth a Pound of Lure: Holding on to Your Customers
It’s a generally accepted fact among marketers that it’s far less expensive to keep an existing customer than to acquire a new one. Cost estimates vary, but acquiring a new customer can cost several times more than retaining an existing one does. It’s not unusual for companies to find that acquisition is ten times more expensive than retention. For this reason, even relatively modest improvements in customer retention rates can pay big dividends.
No matter what business you’re in, customer retention is important. Event triggers are not a replacement for a broader retention strategy, but they can be a useful tactic. Ask yourself what you know or can learn about when and why customers stop doing business with you. Knowing beforehand gives you the chance to do something about it.
Sometimes you create the customer-retention risk. You sometimes need to increase prices for example. Or you may have oversold services to your customer — services they don’t really need. The key is to recognize when a customer is at risk and intervene before they leave you. How you do this is obviously highly dependent on what business you’re in.
Take it to the bank
The financial-services industry, particularly retail banking, provides a good context for a discussion of event triggers. For one thing, bankers have the luxury of having a large amount of data on their customers. The very nature of banking requires that they keep track of everything. For another thing, bankers have been aware of the value of their customer data for a very long time — the banking industry was one of the first to really embrace the use of customer databases in marketing.
The basic idea of banking is to take in deposits at a low rate of interest (don’t you just love the three cents a month you get on your checking account?). These deposits are then loaned out at a significantly higher rate of interest. For this reason, among others, keeping deposit customers is very important.
The approach that banks might take is to monitor the average balances in large deposit accounts. For example, they may keep an eye on customers who keep at least $10,000 in a savings account. What they look for is a sudden drop in the size of the account.
A customer can have any number of reasons for withdrawing money from such an account. They may be making a large purchase — a house or car, for example. They may be paying off a debt. They may be moving the money to a higher-yielding investment like a CD or a mutual fund.
Here’s where having a large amount of guest data can come in handy. The bank knows what other accounts the customer has. So the bank can check to see if this withdrawal was immediately deposited in another account. The analytics here can get very advanced, but the basic idea is to predict what the customer has in mind for the money.
If the money went from savings into a checking account then the customer is probably getting ready to spend it. Because this was a significant amount of money, they may be getting ready to spend it on something big. But large purchases are often partially financed. The money from the savings account might be intended to cover a down payment. In that case, this would be a good time to communicate with the customer about the various loans offered by the bank. This gives the bank a chance to replace the lost deposit with a loan and not only keep the customer but actually deepen the relationship.
Another simple train of thought might revolve around how the money left the savings account. If the money was transferred out via a wire transfer, it becomes more likely that it may have gone into some sort of investment account. In this case, it might be a very good time to have an investment advisor contact the customer to talk about the bank’s products in that area. This may seem futile if the customer has already invested the money elsewhere. But remember, even a small percentage recovered is very valuable.
These examples all relate to banking, but similar thought processes can be applied to any number of different businesses. Resort hotels have customers that come back every year. They can be on the lookout for folks who haven’t made their usual reservation. Automobile dealers know how long people usually drive their cars before buying a new one. They can contact them pro-actively; extolling the virtues of this year’s new model.
Experience matters: Dealing with customer problems
Every business wants happy customers. Every business strives to create a smooth and satisfying customer experience. But nobody is perfect. Mistakes will be made, and problems will occur. The way you deal with your customers’ problems is central to keeping them as customers.
It has been said that no marriage is perfect. The measure of a good marriage is how well a couple resolves conflict. The same is true of your relationship with your customers. Research suggests that your most loyal customers are not those that have never had a problem with you. They are the ones for whom you have resolved an issue in a satisfactory way.
Being proactive: Identifying customer problems
You almost certainly have a credit card. And you’ve probably experienced a very effective event-triggered communication related to that card. I’m talking about the fraud prevention call. Someone from the credit-card company calls you and asks if you actually made a certain transaction.
So what’s going on here? They bank is trying to protect you, and itself, against credit-card theft. Their computers are constantly sifting through credit-card transactions looking for suspicious patterns. Again, there are some pretty heavy-duty analytics going on here. But the basic idea is that thieves do some predictably unique things. For example, a thief does not typically steal a card and proceed directly to the mall to buy a flat-screen TV. More often they buy a small item or two first to make sure the card works and hasn’t been reported stolen.
By checking with the credit card holder when suspicious transaction patterns are observed, the bank is able to significantly reduce its losses. They have also spared the customer a great deal of hassle. This makes it far more likely that the customer will not throw up their hands and bolt to another credit-card company. The bank can issue a new card and retain a valuable customer.
Anticipating problems: Optimizing service levels
I got a call from my cellphone provider recently in which they pointed out that I wasn’t using anywhere near the minutes that I had purchased. They asked me a few questions about whether my low usage level was likely to continue. They then proceeded to adjust my plan to better reflect my actual usage. And not surprisingly, my monthly bill went down.
This may sound counterintuitive. Why reduce their revenue stream? But in fact, this was a classic, data-driven customer-retention initiative. The cellphone provider realizes that because competition is so fierce, cost is a big driver of customer attrition. They also realize that they need to keep customers on the books for a long time before they recoup the cost of free phones and introductory offers that they use to acquire customers.
The company didn’t wait for me to initiate the conversation. And they didn’t wait until my contract was about to expire to start the conversation. By proactively reducing my bill, they made themselves more competitive should I start shopping around when my contract does expire.
They get the additional benefit of my positive experience with them. They’ve instilled some trust in me that they are interested in serving my particular needs. This positive attitude may actually be more important to my continuing to do business with them than the monthly bill.
Buyer’s remorse is real. When you push a customer into buying a product or service that they really don’t need, you create bad blood between you and your customer. This in turn creates a customer-retention problem. By recognizing how a customer is, or isn’t, using your product, you can take action to get your relationship with your customer better aligned with their needs.
Expiration date: Keeping the relationship alive
Many industries sell products with an explicitly defined lifetime. Your automobile lease is a two-year contract. Your auto insurance card needs to be renewed every six months. Your season ticket is only good for one season. Cellular service contracts, golf club memberships — the list goes on. Customer retention in these industries comes down largely to getting the customer to renew or re-affirm their relationship.
Easy does it: Making it convenient
The good news for marketers in these types of industries is that these “defined lifetime” products come with built-in triggers. There is no mystery here about which customers are potential flight risks or when they are most likely to disappear. You know when their contract is up. The basic database marketing strategy here is obvious: Don’t wait until customers become ex-customers before contacting them. If you do, then someone else probably has their business.
On the other hand, competition in these industries can be fierce. The media, both broadcast and digital, is full of advertising for car companies, insurance policies, and cellular phone services. Such media presence requires a significant marketing investment, which makes it all the more important for these industries to keep their customers in the fold.
One approach is to remind the customer and streamline the process. In many states, the DMV sends out a notification that your driver’s license is about to expire. In many cases, you can renew it via mail or online. Any business that’s dependent on annual memberships could do something similar. Theme parks, museums, and golf courses could all benefit. This approach takes advantage of the fact that a customer’s membership information is already on file. In other words, a renewal is much simpler than signing up a new customer. The customer can verify and update their information without having to leave the house.
The timing of a renewal reminder is important. It may be tempting to trigger the communication based on an upcoming expiration. But sometimes it’s far more effective to trigger the reminder based on the customer’s usage. A customer may have had a recent, presumably positive experience at your theme park. You want this experience to be fresh in the customer’s mind when they consider renewing their annual pass. Of course, that also means it’s not a really good idea to pitch them an annual pass renewal if they’ve just called in to complain about poor service.
Automatic renewals
Another common strategy is to provide automatic renewals. This happens at the time of the initial purchase. The customer essentially gives permission for the annual renewals to be charged to a credit card or other account. The renewals then happen automatically until the customer says to stop. This is a popular approach with software companies who offer annual licenses.
Automatic renewals appeal to both the seller and the buyer because of their convenience. But there is some risk for the consumer. Convenience can sometimes become forgetfulness. Consumers sometimes fail to cancel the renewal when they no longer want or need the product. If they’re not carefully watching their bank statements, they may not discover this for quite a while.
You need to protect your brand and your company’s reputation. Your customers can be quite sensitive to, and even angered by, automatic renewals if they aren’t done in a straightforward way. Relying on confusing offers to mask the fact that an automatic payment has been established is a sure way to annoy your customers. Equally annoying is a confusing and difficult cancellation process. Be clear with your customers when you sign them up for automatic renewals.
Because of this sensitivity, it’s preferable to put some safeguards in place. Checking to make sure the consumer is getting software updates may indicate they’re still using your product, for example. Another, very inexpensive safeguard is to simply send out an e-mail confirmation of the automatic payment. In any case, setting up an automatic renewal doesn’t mean you should just ignore the customer.
Knowing when it’s time
Many products have a fairly predictable lifetime. Some products wear out. My wife and I know we need to stain our deck every three years or so. Our air filters need to be replaced every three months. The cars need to be serviced every few months. (And as I write this, I realize mine is overdue.)
The lifetime of other products has more to do with their becoming obsolete, at least from the customer’s perspective. Many people like to have the latest and greatest. This is true of cars. In fact, it’s one reason why auto leases are so popular. They tend to be fairly short — only two or three years. A lease allows the consumer to get more car for a lower monthly payment than a purchase. And the best part for some people is that they get a new car every couple of years.
This shiny-new-toy mentality is especially true in the technology sector. I’ve been calling my wife Gadget Girl for years because she jumps on the latest device as soon as it’s out. She hasn’t kept the same cellphone for more than two years since we’ve been married. I, however, am still using the same flip phone I bought ten years ago.
Or I should say I was still using the flip phone. For years Gadget Girl has been feigning embarrassment over the antenna on my phone (at least I think she was kidding.) Finally, just last weekend, she took matters into her own hands. While I was home working on this book, she disappeared to the Verizon store. When she returned, she presented me with a brand new iPhone 5. And she had actually synced it up with my iPad so it was ready to go. I had to admit that I had definitely been missing out.
My point is this: Cars and computers and cellphones don’t come with the same kind of explicit expiration dates as an annual pass or an auto insurance policy. But they have an implicit lifetime. That lifetime depends on the customer. But you have a great deal of data in your purchase history that can tell you which customers are replacing products and how often.
Armed with an understanding of your customer’s purchase cycle, you can design communications that talk about the latest shiny new toy. You can base your communication timing on the amount of time that has elapsed since they last bought the product. And you can get these communications in front of customers at the time they’re beginning to bet bored with their now not-so-shiny old toy.
Sticker shock: Don’t just send them a bill
Prices do go up, sometimes significantly. But trying to sweep the increases under the rug is a risky strategy. Businesses don’t hesitate to sing loudly and often about price decreases. When prices go up, it’s worth telling your customers your side of the story. They might just understand.
The examples in this section are not, strictly speaking, related to event triggers. They do however relate directly to customer retention. How and when you communicate rate or fee increases to your customers can make a big difference in their willingness to pay them.
Explaining yourself
A number of years ago, I had a membership at a local golf course. The membership dues were collected annually on the anniversary of my joining. Every year they would send me an invoice for the next year’s dues. Predictably, the dues increased every year. But the size of the increase was not predictable. Some years it was nominal, and others it was huge. In either case, no one knew how much it was until they saw the bill.
Since I actually lived on the course, many of my neighbors and friends also had memberships. In our collective observations and conversations with the golf course staff, we were all pretty well aware of the improvements and alterations that were happening. In other words, we were able to figure out why some years had such large increases. It usually meant some significant money was being spent on improving the course.
Over time, membership shrank. The problem was sticker shock. Some members were so annoyed at the large increases that they never bothered to find out what they were for. Even had they known, their annoyance might well have clouded their judgment about whether they were worth it. The members that weren’t neighborhood insiders were particularly at risk. Many just never came back to find out why their bill was so high.
The point of this story is that people really do shoot the messenger. I heard countless neighbors make comments like, “Did those idiots think I wouldn’t notice?”
Now suppose a couple walked into the clubhouse around the time the dues increase went into effect to inquire about joining the club. The marketing director would give them a tour of the facilities. She would explain that some work was being done on the golf course and why. She would treat the course improvements as a selling point. And you can bet she would quote them the new higher membership rate.
Why not give the current members the same treatment? Instead of just sending them the bill, why not give the same sales pitch as a prospective member would get? You could even organize a tour for the members to explain the planned upgrades. For the members, the improvements would be readily understood because they’re familiar with the course.
The golf course missed an opportunity to anticipate the negative reactions to their price increase. Simply acknowledging and explaining the increase would have gone a long way toward softening the sticker shock. “We’re finally getting around to solving that drainage problem on the 14th fairway. Unfortunately, this is going to cost a little bit to do.” That’s a far better message than an invoice.
When you increase prices, you’re going to have to convince new customers to pay those prices. You generally do this by highlighting the quality and value of your product. You need to convince your current customers as well. But with your current customers, the discussion needs to be about the added value related to the price increase.
Giving your customers an alternative
I have a love/hate relationship with my cable/Internet provider. Over the years, I’ve been somewhat trapped by the lack of alternatives and have often resented the fact that my provider seemed to behave as if it knew this. As the market has gotten a little more competitive, that provider has actually adapted fairly well. The quality of its service and my opinion of it have both increased significantly.
Recently I got a notification that the cable modem which they provided upon installation was no longer going to free. They were going to institute an additional monthly fee to rent it to me. When I saw the amount of the rate increase, my initial reaction was “Just when I was starting to like you! I could buy a modem online for the price of six monthly rental fees!”
Now, five years ago, this company would have just included a note on the back of my bill and applied the increase. But as I read this fee increase notification further, they actually addressed my frustration directly. They gave me an alternative.
They had anticipated precisely my reaction and acknowledged it. They explicitly told me that I could avoid this fee increase by purchasing my own modem. And they were careful to point out that I didn’t need to purchase it from them.
The cable company obviously lost a potential revenue stream when I did purchase my own modem. But that revenue stream is small. It pales in comparison to the monthly bill I’m already paying.
The strategy of offering alternatives to fee increases is especially important in industries where there is significant competition. It’s almost essential if the industry also suffers from a generally negative public perception. If customers are already primed to take their business elsewhere, then any fee increase could be the straw that breaks the camel’s back. Banks, for example, are well aware of the need to waive fees to protect profitable relationships with their customers.
We miss you: Reactivation
Sometimes, despite your best retention efforts, customers do leave you. They may decide to try a competitor’s product. They may no longer have need of your product. They may have had a bad experience with you. But these lapsed customers have a history with you, and you have some knowledge about them. That means that you may be able to recover their business. It certainly makes them more likely prospects than people who have never done business with you.
When identifying which customers are active and which are lapsed, you need to be careful about the time period you look at. Different businesses have different purchase cycles. A credit-card company might consider a customer to be lapsed if they haven’t done any transactions for six months. But an auto dealer wouldn’t flag a customer as lapsed a year after they signed a two-year lease.
When designing a reactivation campaign, it’s important to try to understand why a customer has lapsed. If it’s a service or quality issue, you may communicate to them about improvements that have been made in that regard. Automobile companies often take this approach after recalls, for example.
It’s also important to understand what your lapsed customers were doing before they lapsed. Clues to why they stopped doing business with you may be found in their previous purchase history.
In Chapter 8, I describe a simple approach that credit-card issuers use to group their customers based on their behavior. Some customers, called transactors, do a lot of transactions and pay off their balances every month. Other customers, called revolvers, carry large balances over every month. Still others don’t do much at all.
This last group of inactive cardholders can be divided into two subgroups. First you have the truly inactive cardholders — those who have never used their cards at all. The other subgroup is your lapsed cardholders. These customers have used their card in the past but have since stopped.
Now, suppose you’re asked to design a reactivation campaign targeted at these lapsed cardholders. A critical piece of information for you is which category these cardholders fell into when they were active. In other words, you need to know which ones were transactors and which ones were revolvers.
Their previous behavior offers strong clues about why they left. The transactor didn’t leave you to take advantage of a low-interest balance transfer. He didn’t have a balance. But the revolver may well have done just that.
This line of thought leads to two different reactivation strategies. You focus on usage with one group and balances with the other. You offer cash back or other rewards to the lapsed transactors, for example. And you offer low-interest balance transfers to the lapsed revolvers.
The success of your reactivation campaigns depends heavily on your understanding of why your customers lapsed in the first place. As the preceding example illustrates, previous purchase history can sometimes tell you quite a bit. But understanding why customers lapse is also a popular subject for survey research. You can gain a lot of insight by just asking some of these customers where they went and why.
If You Like That, You’re Going to Love This: Upselling to Your Customers
You probably have a spectrum of products that vary in price and quality. New cars vary widely in price depending on the class of the vehicle, for example. This variation is largely due to the fact that your customers vary widely in what they can afford or are willing to pay.
Generally, you would like your customers to buy as far up the price scale as is reasonable or possible. Once they’ve purchased or are committed to purchase a certain product, it’s sometimes quite effective to try to push them just a little bit higher up the scale. This technique is known as upselling.
Why upselling works
The psychology behind upselling is fairly simple. Once the customer has decided to pay the asking price for a particular product, they’re resigned to spending that money. At this point, getting them to buy a slightly more expensive product is all about focusing them on the incremental cost of upgrading their purchase. If this cost is small relative to the cost of the product they want to buy, you have a chance to convince them that it’s worth it.
My wife has become an expert at upselling me when it comes to everything, from home improvements to automobiles. She and I both know I’m unreasonably miserly when it comes to making large purchases. So she has perfected the strategy of getting me to agree to something that costs significantly less than what she actually has in mind. Over the course of the next few days or weeks, I’ll get up sold a couple hundred dollars at a time into what she really wants. Generally, these conversations start with the phrase “As long as we’re doing this, we may as well . . .”
There are two keys to successful upselling:
Do it in manageable bites. You’re typically not going to sell someone a car that is twice the price of the one they’re initially interest in.
Upsell them into something that fits their tastes and needs. Strong-arming them into something they’ll regret buying creates bad blood and ultimately a customer-retention problem.
Upselling service levels
Many companies are in the business of providing services. Your cellphone, tablet, computer, and TV all require a service provider to make them work. Those service providers are not one-size-fits-all operations. They offer a variety of different service levels with varying costs.
In all these cases, your service provider has some sense of how you’re using their products. Your Internet service provider knows how much data moves across your connection. Your cellphone company knows about your data use as well as how many minutes you use and how many text messages you send. Your cable provider knows when you make a pay-per-view purchase.
I have a bundled cable, Internet, and phone package. When I first signed up for it, I suffered a bit of sticker shock, and my miserliness kicked in. I bought the package that gave me the smallest bill I could manage while still giving me the service that I need.
Over the next six months, the company proceeded to upsell me into a number of upgraded services. Both my wife and I do a great deal of work from home, much of which requires us to move large amounts of data across our Internet connection.
After letting us stew for about a month over the time we were wasting on both successful and aborted file transfers, our service provider sent us an offer in the mail related to upgrading our Internet data plan. The price of this upgrade was a few dollars a month and represented a small fraction of our overall bill. So we bit.
A month or two later, I got another offer related to adding a sports package to my basic channel lineup. Again, it was a nominal increase in cost per month. Both my wife and I are avid sports fans. In fact, I’d estimate that upwards of two-thirds of the time we spend in front of the television is spent watching sports. So the offer resonated, and we bit again.
Now, according to the cable company’s privacy policy, they don’t track what shows or channels people are watching. They didn’t know how much sports we watch. At the time I got the sports package offer, I was thinking that the company was doing some pretty good segmentation to identify us as targets for the sports package. But then a while later I got another offer.
This one was related to baseball. They were offering me coverage of every major league game for the entire season. Again, this turned out to hit home. From a baseball perspective, I live in the Atlanta Braves market. I’ve been routing for the Detroit Tigers since I was a kid. Between the National League focus in the south and the distance from here to Detroit, I only get to see a handful of Tigers games during the season, at least through the regular broadcast channels.
The timing of this offer, a month after the season had started, got me thinking that my service provider was not just pretty good at database marketing but very good at it. I don’t know for sure, but I suspect that the offer for the baseball package was related to my searches for baseball games on the company’s website. For the first month of the season, I had logged in and checked their listings almost daily.
In any case, the upsell worked again. And my current monthly bill is now actually higher than the initial package that caused me to go into sticker shock. The offers had been extremely relevant to my tastes and needs. Had the offers been for movie channels, they never would have worked. The offers had also been made one at a time, gently moving me up the price scale.
Using bounce-back offers
A common approach to upselling is to re-contact your customer soon after a purchase is made. An offer related to a recent purchase is often called a bounce-back offer. You’re trying to get the customer to “bounce back” to do more business with you.
This is particularly easy to do when their purchase is made online because online purchases generally require an e-mail address. Also, the communication you send is related to an established relationship — namely, their recent purchase. This releases you from some of the burdens of the opt-out compliance discussed in Chapter 4.
Any venue that sells tickets can benefit from a simple bounce-back tactic. Sports teams, museums, theme parks, and zoos all offer one-day tickets as well as season tickets or passes. Clearly, selling a season pass is the ideal sale. It generates revenue from the pass, and the more times customers come back, the more they spend on food, drinks, and souvenirs.
Once the customer has bought the ticket, wait for them to use it. Then, once they’ve used it, immediately send them an e-mail offering them a deal on an annual pass. You might even allow them to apply the price of the ticket to the annual pass price, for example.
You want to instill a sense of urgency with this offer. Give the customer a fairly short window of time to take advantage of the offer. You’re banking on the fact that they enjoyed their recent experience. Having that experience fresh in their mind will be what gets them to upgrade.
Batteries Not Included: Cross-Selling to Your Customers
Closely related to upselling is the tactic of cross-selling. Upselling is about getting the customer to buy better stuff. Cross-selling is about getting the customer to buy more stuff.
Chapter 8 talks a little bit about market-basket analysis. As you may recall, this is an analytic technique designed to identify groups of products that are typically purchased together. It forms the basis for many cross-sell campaigns.
Whenever I visit the grocery store, for example, the cash register prints out a handful of coupons with my receipt. These coupons are generated based on my purchases. If I buy a particular brand of tortilla chips, for example, I might get a coupon for that same brand’s salsa. The coupon is an attempt to cross-sell me products based on my current purchases.
Cross-selling online
Like upselling, cross-selling can be particularly effective online. You can design your online sales engine to offer additional products at the time a customer makes a purchase. These offers are based on what other customers have typically done.
Virtually every e-commerce site follows the grocery store model. They all use a shopping cart metaphor that allows the user to shop for and select multiple items before checking out. Data about the items in past shopping carts forms the basis for cross-sell recommendations that appear while the customer is still shopping.
Whenever I buy a book online, other books by the same author appear as suggested additional purchases. For me, that isn’t terribly helpful. If I like a book, I typically go search for other books by the author anyway. But what is helpful is that I also get a list of books by other, similar authors who write in the same genre. These suggestions often lead me to discover good books that I might not have stumbled onto otherwise.
Websites that sell clothing do a lot of cross-selling. I recently bought a new pair of golf shoes and was offered a deal on golf shirts. When I buy slacks, I typically get offered dress shirts. A scarf purchase leads to an offer on gloves.
In addition to exposing the consumer to related products, another technique is commonly used to get them to buy more stuff. The technique is to offer some incentive for purchases that are above some dollar value. That incentive could involve free shipping or a free upgrade to overnight shipping. It could involve a discount on a future purchase.
When implementing an offer based on a purchase threshold, do some analysis on how much your customers typically spend. If most of your products cost between $30 and $45, then a threshold of $50 won’t strike the customer as unreasonable. And if they continue to shop, they’ll probably buy another $40 or so item that will get them significantly over the threshold.
Back to bounce-backs
A bounce-back offer can be an effective cross-sell tool as well. They idea is that you want to generate repeat business. If a customer has recently bought a product from you and liked it, they may be willing to give you more of their business.
In Chapter 8, I explain the use of recency, frequency, monetary (RFM) models in marketing. These models, which are popular in the catalog and retail consumer goods industries, focus on three measures of the customer’s purchase patterns: how recent, how frequent and how much.
Ideally you’d like to have customers that score high on all three measures. Bounce-back offers are born of this view. You’ve got the recency part down. Now you want to address the frequency and monetary part. By giving the customer an offer that incents them to make another purchase, you’re inching them along the path to loyalty.
I experience a simple example of a bounce-back offer almost every time I buy clothes online. Shortly after my purchase, I get an e-mail or direct mail message that I’ve earned a discount off my next purchase. Typically this involves some code that I can enter online when I decide to buy.
As I say frequently throughout this book, creating a sense of urgency is important. If your bounce-back offer doesn’t come with an expiration date, it’s more likely to be put in a drawer for later consideration. And for most people, for later consideration generally means to be forgotten about.
Chapter 15 goes into detail on measuring the success of your marketing campaigns. I do want to point out here, however, that the offer code you include with your bounce-back message serves two distinct purposes:
The code facilitates the transaction. It allows your e-commerce site to process the discounted transaction.
It allows you to measure your campaign’s success. You can count the number of transaction that were made with that offer code, and that count forms the basis for understanding your response rate.
Welcome (Back) to the Neighborhood: Using Address Changes
People are moving around all the time. Your customers move into and out of your markets. They also move around within your footprint. Chapter 3 emphasizes the need to keep your customer address book up to date. Part of the reason for this is to avoid wasting money on postage. But recognizing address changes when they happen can also expose marketing opportunities related to a customer’s relocation.
Having moved many times over the years, I’ve come to appreciate the fact that many of the national companies that I do business with recognize the fact that I’ve moved without my needing to tell them. Moving is hectic, and things fall through the cracks. Communications from these companies help me to find them and sometimes remind me that I need to modify my service.
Just getting a postcard telling me the closest location of a store is helpful. But equally helpful is the note from my investment advisor giving me the contact information for my new local representative. Some companies send me e-mails saying, “We notice you’ve moved,” and asking me to confirm the change.
If your business doesn’t have a national presence, you’ll find that customers do leave your footprint. Clearly, it doesn’t make much sense for you to keep marketing to them. But don’t just relegate those customer records to the dust heap. Continue to update their addresses. Sometimes people move back.
My wife and I are a case in point. We have returned, after several years of wandering around, back to the place where we lived when we first got married. Clearly it was good to be back among familiar faces, friends, and family. But we were also pleasantly surprised to see that many businesses remembered us as well.
Our surprise actually began when we went to the DMV to get new driver’s licenses. We, like almost everyone, dread this experience. But when we walked up to the counter, the attendant said our old driver’s licenses were still in the system and she could issue replacement licenses for a nominal fee. She didn’t even take our pictures. Now, this example has more to do with databases than it does with marketing, but it was only the beginning.
My favorite gourmet grocery store sent me a “welcome back” letter complete with a new loyalty card. Our alarm system company, Internet provider, and gas company all proactively re-established contact with us. In many cases, we were offered service renewals at a discount below the fees paid by new customers.
By welcoming previous customers when they return to your area, you gain a big leg up on your competition. Businesses, including yours, can buy lists of customers that are new to the area. Recognizing your previous customers as such strongly differentiates you from your competitors. “Welcome back!” is a much more powerful message than “Welcome.”