sales & marketing | by lois boyle

All Customers Are Not Equal … and Should Not be Treated Equally.

Most companies admit they implement only one marketing plan. Knowing that 80% of your business comes from 20% of your customers, does this one-marketing-plan-fits-all approach make sense? Consider how much it costs to get a new customer and realize that your best investment is in your own customers and the prospects (yes, prospects) already in your customer file.

The concept of creating specialized marketing plans to segmented customers is not new to direct marketers. It's called database or relationship marketing and you do not have to be a million dollar company, or a rocket scientist, to make it work for you. Whether selling cappuccino, cars or Convairs, your marketing dollars will work harder for you if you speak to your customers appropriately.

The following chart is a simplified way to look at your customers. Whether you keep your customers in a card file or a sophisticated database, they will all fit within this hierarchy.

One-time buyers are not customers until they have purchased again. Perhaps that first purchase was made at a discount or maybe they were dissatisfied with your product or service. What are you doing to get that one or two-time buyer back?

How about your loyal customers? Thank them for their repeat buying. Know who they are. With today's technology, and the ability to network customer databases with point of purchase computers, it's amazing customers are not talked to appropriately. For instance, if you know you have customers who spend hundreds of dollars, wouldn't you want to thank them at the next point of sale?

Many marketers get into the habit of consistently presenting offers and, in the end, create havoc on the bottom line. Distinguish between repeat buying and brand loyal behavior. Repeat buying can be bought with discounts, true brand loyalty must be earned and reinforced.

Prospects in your own customer file? Yes. Consider customers that fall into either the left or right columns. To the right of the chart are customers that, for some reason, decided not to come back. It is your fiscal responsibility to find out why and encourage them back. These lapsed customers are actually less expensive to reactivate than converting new prospects to buyers.

What about customers who purchase frequently but do not spend enough to ever be profitable? With the cost of doing business, squeezed margins and the cost to fulfill your customers' orders, many companies do not realize they have a sieve in their bottom line. The column to the left illustrates this segment of customers. Do you know what the optimum order should be in order to make a customer profitable and, if so, what can you do to get low average order customers to spend more money with you?

How you segment is up to you. Remember what you are trying to accomplish - getting more customers to spend more money, more often. One popular method of segmentation is to use RFM, which distinguishes customers by:

Recency How recently did your customer do business with you?

Frequency How often has your customer done business with you?

Monetary How much did your customer spend with you? Some companies have added other variables:

Product What did your customer buy - (can you sell them more of the same or can you cross-sell them?)

Seasonality When did they purchase with you - (can you sell in the off-season?)

While using RFM data to segment your customers is good, it is even more important that you understand what makes a profitable customer. How much do they need to spend and how often should they spend with you in order for you to break-even on your original prospecting investment? Knowing this will help you build your customer hierarchy and build marketing communications that are profitable!

Lois Boyle is Owner and Chief Creative Officer of J. Schmid & Assoc. Inc., a direct marketing consultancy/agency located in Overland Park. Contact her at 913.385.0220 or their web site at www.jschmid.com.