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Customer Marketing for Small Business
Drilling Down Newsletter # 50: 10/2004

Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
*************************
Customer Valuation, Retention, 
Loyalty, Defection

Get the Drilling Down Book!
http://www.booklocker.com/jimnovo

Prior Newsletters:
http://www.jimnovo.com/newsletters.htm
========================

In This Issue:
# Topics Overview
# Best Customer Retention Articles
# Customer Marketing for a Pedicure Spa?
# Customer Marketing for a Carpet Store?
--------------------

Topics Overview

Hi again folks, Jim Novo here.

This month we're looking at Customer Marketing for (really) small businesses.  Yes, from a pedicure spa to a carpet store, small business can also take advantage of customer marketing concepts - and they can do it on the cheap, without any fancy hardware / software.

I'm taking a slightly different course on the article links this month, instead of "how to" stuff we're taking on the corporate politics of data-based marketing, including the (gasp) accountability that comes with a data-based approach.  Look folks, if you want a seat at the corporate strategy table, you have to play by the numbers, just like the CFO and the ops guys.  You either prove marketing is strategic in nature with hard facts or you don't.

Either way, it's time for some Drillin'!

Best Customer Retention Articles
====================

Metrics Revolution
September 15, 2004  CMO Magazine
"Companies are beginning to realize that it's important for their marketing strategies be aligned with their business strategies."  This is a pretty unusual statement coming from a CMO, I mean, isn't marketing a strategic function?  I guess things may have changed, but one thing is for sure, if you want a seat at the strategy table, you may need something like Six Sigma Marketing to get you there.

Stand by Me
October 4, 2004  CFO IT Magazine
You know, it must be because I have always worked in technology-driven sectors that this kind of thing astounds me.  This is a new idea, that the CFO and CIO should work together?  Perhaps the adoption rate of data-driven marketing (see also article above) is being influenced by all of this "old school" thinking.  You can bet that in companies that live and die by the data that the CFO and CIO are joined at the hip, the glue joining them is the CMO, and marketing has a strategic seat at the boardroom table instead of the lunch table.

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Questions from Fellow Drillers
=====================

Customer Marketing for Pedicure Spa

Q:  I came across your website while researching customer loyalty programs and I  am hoping that you may be able to give me some feedback on an idea that I have.

I run a small home-based spa that specializes in pedicures, and have had great feedback from my clients.  So far I have relied on word of mouth and am now ready to do some advertising as I need to be busier.  I have come up with an idea for a program to help with my pedicure loyalty and referrals.  This is a rough idea of it, customers will earn Points in the following ways:

For each friend or family member you send to me, earn 8 points.  You will receive 7 points if you pre-book your next pedicure within a before leaving.  For each pedicure you receive, earn 5 points (except those paid by Gift Certificate).  When you have earned a total of 50 points, you will receive a $25 Gift Certificate!!  (my pedicures are priced at $35).  Your Point total is maintained on your individual file.  The total is updated whenever you earn or redeem points.

I am new to the marketing aspect of all this and I would love to hear your opinions on such a program and also if it seems fair from a customer point of view.  I am also looking for suggestions on a name for it or any other suggestions towards it and presenting it.

A:  A loyalty program is generally  a good idea, I think.  But your execution of it (the details of how it works) sounds a bit complicated for this
kind of "relationship" business, it strikes me as a bit "cold".  In other words, you may risk  creating hassles which damage the experience by creating too much complexity.  I know when my wife goes to get a pedi she does it as much for the overall experience of it as needing her nails clipped, and if on top of that you throw in a lot of "rules" and "things to remember" you might damage the experience.  Like I said, I think the overall idea works though, so how about doing it this way:

Print up some "pedi gift cards", could be just like a business card, same size, only less formal.  Name of business, address, telephone number at the bottom.  At the top, maybe your logo and something like:

"You've been given the gift of a pedicure by:
(your customer writes in their name here) a $35 value!  Please arrange your appointment by calling the number below..."

That's just an example, use any wording you feel works with the image of your business and your own personality.  After all, this is a personal services business and a big part of the service is you.  Print up a stack of them, and give them to your repeat customers in a personal way.  Tell these customers you would like to try an experiment in growing your business, then ask, would they help if there is something in it for them?  

Tell them about the cards and how you want to bring in new customers.  Explain you'd like the current customer to hand cards out to people who don't currently have pedicures done with you, and that for every one that comes back to you with a new customer holding it that you will give your customer (that gave away the free pedi card) 25% off their next pedi (or whatever discount you feel is appropriate - use your own judgment).

This approach has three benefits versus the format you proposed:

1.  It is deadly simple for both you and the customer.  You don't have to track points, customers don't have to remember points and rules, etc. yet it still creates the "stored value" idea that is at the heart of a points program - customers hate to abandon "credits" they have earned with you.  Just keep the cards you get back and announce the discount when the customer comes in for what they think is a full price pedi.  They will be excited!  In marketing, this is called a "surprise and delight" strategy and it is proven to work, especially in a business that is based on personal service.

2.  This program turns your customers into salespeople of a very special kind; they aren't selling anything, they are giving!  Do you think your customers will have a problem giving the gift of a pedi to their friends?  I don't.

3.  This is very important.  People generally travel in circles of friends who are like them.  If you focus the program on your best repeating customers they are likely to hand out gift cards to people who are like them - likely to become repeating customers.  A nurse who tells all the other nurses on her shift, the office worker who tells all the other workers on her floor, etc.  Typically a person's friends are like the person, they enjoy the same things.

Now, could there be potential problems with this idea?  Sure, there is with any marketing idea, including the most frequent one - the idea just doesn't work.  I don't think you will have that problem with this idea.  But here are 3 issues you need to watch for and adjust the program as needed:

1.  The people who use the gift cards come in for their free pedi and never come back.  I'm assuming most will come back at least one more time for a full price pedicure.  So part of the success of this program lies with you and your "perfect pedicure".  

These potential new paying customers have to like the service  enough to switch to you from whoever they go to now.  You can certainly sell them on coming back.  Try to book a next appointment during the free pedi.  If you can get them to commit for a paid pedi next time they need one and they complete that paid appointment, they are very highly likely to continue on with you well into the future.  

In addition, some of those who won't commit during the free pedi may come back as well.  Not all will convert to repeat customers, so don't be disappointed by that.  But think about it, if only 50% of them convert to full time repeating customers, does that pay for your time doing the discounted and free pedicures?  

Over time, you will recognize which kinds of best customers (example, nurses) that you give cards to end up handing them out to people who come in for the free pedi and continue as customers.  You will also realize other kinds of best customers (example, office workers) that you give cards to end up handing them out to people who come in for the free pedi and never come back.  This is what I'm referring to when I say "adjust the program" - you can tweak it a bit based on the actual results you get over time.

2.  Some of your customers may try to "game the system" by giving each other free pedi cards.  In this kind of "personal" business, I don't think that is too likely, especially if you handle dispersing the cards on a personal basis, as opposed to printing them up and leaving a stack on the table for anyone to grab - do not do that.  You may also get the occasional current customer (as opposed to  new customer) coming in with a free pedi card, but as long as it doesn't get out of hand you should be fine.

3. You might also get customers that hear about the program and ask for cards when you normally would not give them one because they are not "best" customers.  That's OK, try giving them some cards, see what happens.  A lot of successful marketing is about testing new ways to execute the idea.  Don't sweat it and do what they want, the customer is (almost) always right.  You might find the program works for most off or all your customers, it really just depends on who they are and the perception of your service.   Generally, it is "safer" from a financial perspective to start something like this with your best customers and then expand it as you learn how it is working for you.

I think it is great you are thinking creatively about marketing your business in a unique way, that's exceptional and unusual in a personal services business like yours.  Let me know if you have any questions and how it ends up working for you!

Jim

Jim's Note: This type of program can work in the personal services business where the costs and overhead are basically your own time and effort and you need a "no cost" (other than your own time) method to attract new customers.  I wouldn't do it for a business with "hard costs" such as retail; the danger of loss through subsidizing best customers is too high.
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If you are a consultant, agency, or software developer with clients needing action-oriented customer intelligence or High ROI Customer
Marketing program designs, click here.
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Customer Marketing for Carpet Store
====================

Q:  Like most of your readers and visitors, I am absolutely bowled over at the prospect of what can be achieved by studying customer behaviour on a simple database/spreadsheet and using the resultant insight to drive unique High ROI customer marketing programmes to increase profits and reduce marketing costs.

A:  That's a mouthful!  Welcome to the club.

Q:  I have to say that prior to meeting you, on your website and in your book, I had been intrigued by Arthur M. Hughes' Strategic Database Marketing, but regretfully had reached the conclusion that its inspirational techniques were just not capable of being actioned by me, an Access/Excel illiterate and not so good on the figures either.

A:  Arthur Hughes is a hero of mine though I have never met him.  Some very nice folks have told me my material reminds them of Hughes, sort of a "next generation" Hughes.  That's very good company for me to be in...

Q:  But your Drilling Down methods and the possibility of your consultancy help, has revived my enthusiasm to learn all I can about these wonderful techniques and to make use of as many of them as I am able.

Here is my challenge:  Father and son business.  Together about 12 years, but moved to present premises four years ago when they extended their product range and re-launched with new branding- under our stewardship!  They are a typical, small company turning over just under the 1m mark and spend around 30,000 - 40,000 pa on their marketing.  Their product range has consisted of fitted carpets, flooring and Oriental rugs.  They have now doubled the size of their store by taking the first floor too.

They plan to extend their product range, again, by adding furniture (particularly leather) and beautiful stone tiles.  We are currently working on a Marketing Re-launch for February, 2005, using press advertising but including a mailing to attend Preview to all customers.

They reckon they have about 6,500 customers, but as you say in your book, "When is a customer no longer a customer?"  I have just got hold of a disc with their "customer database" on it.  We are going to try to sort average latency for each of the three basic product categories - and set up the "tripwire" column to end on the last day of acceptable days since last purchase.

Please understand that my two creative colleagues do not understand Access and Excel one bit, and I did only an Introductory Course on them a couple of years ago at the local tech.  So none of us is very database or spreadsheet literate, which is why we shall need outside help for spreadsheet querying.

A:  It doesn't sound like we have much of a technology base to work with here, but have no fear!  I think there are a couple of simple things you can try.

First, an angle on cost savings regarding advertising mail using Recency.  I would focus on last purchase date, with the objective of reducing the volume of mail in any one drop so you can mail more frequently to the people who respond to the mailings.  Perhaps you could print a code on the labels of the mailer indicating how long it has been since last purchase - "1" for 1 month, "2" for 2 months, "3" for 3 months, etc.  I assume these mailers have an offer of some kind; ask the customer to bring the card to take advantage of the offer.  After the initial promotion, look at the numbers on the cards "redeemed" to find some kind of pattern.  No cards redeemed
with a number higher than 12?  Then you probably are wasting money mailing to people with a last purchase date of over 12 months ago, and should not mail them again.

Do the numbers on the redeemed cards "cluster" anywhere, say around 6 months?  If so, you will probably get the highest response mailing when last purchase was 6 months ago.  This means every month you should mail an offer to people whose last purchase was 6 months ago.  Generally, take the same budget and reallocate the spending away from where you get no response and towards where response is strong; you spend the same amount but get more for it.  Very simple idea and low tech as well.

Further, over time, you may see other "clusters"; look to see if perhaps those people bought the same kind of product, it was over / under a certain price, was it their first purchase, etc.  Reallocate budgets and target based on these new findings.  For example, you may get the highest response for new customers / first time buyers at 3 months since last purchase, but with customers having over a year of buying history, higher response at 6 months since last purchase.  Look for these segments and adjust accordingly.

Second, perhaps some of the money saved on these mailings could go into "pipeline" building.  If you can capture name and address "at the point where they are asked to visit and quote for a carpet fitting or whatever" you can develop a "sequenced mailer" for non-buyers - people who don't respond to the quote.  The idea is this: if they are having you quote, they are probably into a "LifeCycle stage" where they will need similar products / services.  Even if you don't close the original quote, these people are a highly targeted list for other business.  You creative types should have a ball with the copy on this one!

I assume when a quote is given a quote sheet with customer name and address is created, and a carbon copy goes back to the office to a "waiting" file or something like that.  After a certain amount of time goes buy or after a follow-up phone call, there are quotes left which did not "close".  Create a simple list with these names and mail out a follow up card.   Not sure what the message should be, but it could be humorous, for example.  You could use the same idea as above: a single mailer that goes out to a cross-section of dead quotes where it has been 1 month since quote, 2 months since quote, 3 months since quote, and so on, tracked as above. 

Or, you could create a "campaign" series of say 3 mailers mailed 1 month, 2 months, and 3 months after the dead quote to the same person, to see if that works.

The point is, when you organize segments by using buying behavior like this, any success you have becomes repeatable, it works again and again.  If 3 months after first purchase is the best time to mail new buyers today, it will be next month and next year.  You find out what works, then reallocate budget away from what doesn't work and towards what does work.  Simple, low tech, and should be fun for a bunch of creative older gentlemen!

Jim
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That's it for this month's edition of the Drilling Down newsletter.  If you like the newsletter, please forward it to a friend!  Subscription instructions are top and bottom of this page.

Any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them right along to me, along with any other questions on customer Valuation, Retention, Loyalty, and Defection here.

'Til next time, keep Drilling Down!

- Jim Novo

Copyright 2004, The Drilling Down Project by Jim Novo.  All rights reserved.  You are free to use material from this newsletter in whole or in part as long as you include complete credits, including live web site link and e-mail link.  Please tell me where the material will appear. 

 

 
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