High ROI Customer Marketing
Loyalty, Database Marketing, CRM,
Frequency Marketing, Permission
Marketing, and One-to-One
Marketing are all customer value-based approaches. They
may be different in how they are "positioned" to the
customer, but all have the same objectives:
1. Retain your best, most active customers
2. Increase the value of most customers
If your methods for retaining and increasing the value of customers are
money-losers, you'll go out of business trying to keep your customers. A
customer value-based marketing plan also has to be profitable.
To retain and increase the value of customers, you have to engage them by
communicating on a regular basis. If you don't, customers will
be less loyal and either abandon you for a competitor who
communicates with them, or will spend less with you over time. Marketing
promotions are essential to any kind of customer retention effort;
promotions drive the sales activity of customers.
Customer retention results when you make, and the customer
accepts, new offers over time. This process is an ongoing
renewal of the relationship with a customer.
There are three key components to maximizing profits in customer
1. Structuring offers to get the most profitable mix
of response rate and cost of the offer. You don't want to
limit response (offer too weak), or give away the store (offer too
2. Creating an "early warning system" to flag customers
who are likely to leave you so they can be targeted for special
promotions. This is accomplished by tracking customer
3. Identifying customer acquisition practices that optimize
the value of new customers coming to the business in the
first place. You want to identify advertising, products, and
areas of the site that generate the highest value customers over the
longer term. This key concept is the subject of the tutorial.
Profitability of Offers
of customer promotions depends heavily on two data points -
the response rate and cost of the offer. This is true for
"hard" offers like discounts / upsells, and
"soft" offers, like service upgrades.
At any given time, some customers are more likely to respond
than others. This likelihood to respond is then influenced
by the size (cost) of the offer you make - the discount or
giveaway. A customer who did not respond to a 10% discount
might have responded to a 20% discount. Similarly, a customer
who would have responded to a 10% discount may be offered a 20%
discount, and take it. Both these situations cost you money, either in
lost response or extra discounts you did not have to give!
Ideally, you would like to have a consistent way to identify the
likelihood of a customer to respond, so you could determine the most
profitable offer to make to each customer - before you send out the promotion.
Customers highly likely to respond would be given a lower
value offer; customers less likely to respond would be
given a higher value offer. You get increased response
with lower promotional costs.
Does it make sense to you? The idea is to allocate your
precious budget dollars according to how much "work"
they have to do to get a customer to respond. Instead of
making the same offer to everybody, you make a less expensive offer
to customers likely to respond, and using the money you save, make a
more expensive offer to customers less likely to respond. This
approach increases your response rate while lowering your
promotional costs, and has the overall effect of retaining your
best customers while increasing the value of most customers. Here's
You can predict the
likelihood of a customer to respond. Likelihood to
respond scores are created for each customer
using a simple spreadsheet (or by writing a scoring program, if you have the
Identifying Best Customers at Risk
Now think about this. If you can predict the likelihood of
a customer to respond, what does it mean when this likelihood begins
to fall? For example, when a customer is one of the most
likely to respond and then falls to the "middle of the
That's right, they're in the process of leaving you.
Something has happened - maybe product problems, service problems,
new competition - to make this customer become less
likely to respond. When you see falling likelihood to respond scores,
your "early warning system" has kicked in,
flagging customers beginning the process of defection - of taking
their business elsewhere. It is critical
to identify this behavior in a timely way, and take action to
In fact, when you score your customers
for likelihood to respond for the first time, you will find that
many of the low scoring customers are former best customers.
Optimizing New Customer Value
There's more. Think about this - have you heard of the
term LifeTime Value? Lifetime Value is the current value plus
the expected future value of a customer. If you know the
likelihood of a customer to respond, what do you know about their
A customer who is more likely to respond has a higher future value
than a customer less likely to respond, by definition. So you
can use this scoring technique not only to determine likelihood to respond,
but also to compare the future value of customers.
If you can compare the future value of customers, you
can organize your business around customer value. You can
specifically tie any activity in your business - ad sources,
search terms, products, areas of your site - to future customer
the customers coming from one ad have high likelihood to respond
scores (high future value), and the customers coming from
another ad have low likelihood to respond scores (low
future value), which ad is the more profitable ad for your business
If the customers who buy a certain product have high future
value, and the customers who buy another product have low future value, which product do you feature?
If the customers who frequent one area of the site have high future value, but the customers who frequent another area of the
site have low future value, which area do you promote?
Which area do you fix?
You can use the
data customers leave behind through their interactions with you to create
likelihood to respond scores, and use these scores to dramatically
increase customer marketing profitability. The Drilling Down book
teaches you how to build and use these scores yourself in 30 minutes
with an Excel spreadsheet. If you want to increase
sales while reducing the costs of marketing to customers, you
have to get this book.