Keep the Conversation Going

When the going gets tough, the tough get talking – to their customers. Customer Relationship Management and ongoing communication will make or break your business. It’s true in a good economy, and even more true in a bad one.

It may seem counter-intuitive. You may have seen the results from your direct marketing efforts diminish significantly versus better times. You may be wondering, “Should I abandon my CRM strategy, or cut back on my communications frequency?”

Maybe your CRM approach does need adjusting. But abandon it? Go ahead, your competitors will thank you.

Instead, make your CRM work smarter. Spend more time, not more money, managing the relationship. Analyze, target, measure and test. Readjust constantly based on response. Experiment and expand on what you see is working. Above all, make good use of your customer database to micro-target communications as closely as possible to specific demographics and preferences.

To maximize results, consider this research on what prompts consumer response to a direct marketing campaign:
• 50-60 percent is due to the quality of the mailing/e-mailing/phone list
• 30-40 percent is due to the appeal/targeting of the offer
• 0-15 percent is due to creative/production factors of presentation

List Selection has the biggest impact on customer response; therefore, it’s where most of your effort should apply. Selection metrics start with RFM:
• Recency – Length of time since the customer’s last transaction
• Frequency – Number of transactions in a specified time
• Monetary – Amount the customer spent in a specified time

With every retailer our CRM team has helped over the last 25 years, somewhere between 20 and 30 percent of the customers provide between 70 and 80 percent of the sales. This ratio, known as the Pareto Principle, holds true for almost every type of retailer. Even in a weak economy, when you may have a smaller population of best customers, that 20 to 30 percent will still account for 70 to 80 percent of your business.

All the principles of CRM apply to this reduced population. You want to continue communicating directly with this “best customer” base because it will continue to generate a very large portion of your sales. Just as important, these are the customers that will be there for you when the economy comes back — and they will be even more loyal because you stuck by them. They will be part of your “best customer” population long into the future.

Proximity to the store is another metric in List Selection. If in the past, you used a 40-mile radius, consider reducing it to 30 miles. In a downturn, consumers tend to shop more locally.

Strength of offer is your next power play. Since this generates 30 to 40 percent of your responses, it’s a very important decision. “Should I offer $25 off the purchase, or protect myself by offering $25 off a minimum of $75?” A minimum purchase requirement may protect margins, but will definitely depress the response rate. Yes, some customers will come in, spend $25 and walk out, but experience shows the vast majority will spend higher than your normal/average transaction.

Creative presentation drives only about 10 to 15 percent of customer response, yet may incur the most cost. Can you reduce the quality of paper, print black/white instead of color, mail a small versus large post card without affecting your brand image? As long as you have selected the proper list and given as strong an offer as possible, you can help offset negative impact of lower cost production choices.

In times like these, short-sighted retailers have a tendency to revert back to a “broadcast” message as a way to reach customers without the cost of targeting. But CRM science has shown broadcast efforts are actually more expensive because they are less effective. The best way to influence future purchase intent is through communications that strongly connect with the customer’s interests. Lead time for developing purchase intent may be longer in today’s economy, but it is still best managed via timely, relevant campaigns.

Remember: When you aren’t communicating with your customers, your competitors are.