June 22, 2008

E-Mail Marketing And Customers Who Return A Lot Of Merchandise

Sometimes, our instant access to metrics cause us to screw up.

This happens to most of us.
  1. We execute an e-mail campaign on a Tuesday morning at 9:00am.
  2. By 10:27am, we have a forecast for how well the e-mail campaign will perform. We know open rates (or render rates as the experts now say), click-through rates, and conversion rates. We may even know $ per e-mail.
Three weeks later, twenty percent of the customers who purchased from the e-mail campaign returned their merchandise for a refund.

Did the e-mail marketing campaign work?

One of the things we can do is identify customers who are "high returners". I've done this analysis for many companies. Typically, a small subset of the audience (maybe 1% to 5% of your twelve month buyer file) are responsible for a disproportionate amount of returns.

An easy way to address this problem is to identify customers with a high return rate, and see if those customers will have a high return rate in the future. If so, you run a profit and loss statement on future sales. You talk to your folks in finance, folks who know the actual cost to process each item returned to a company.

At Eddie Bauer, we knew that if a customer had ordered at least three times in the past, and returned two-thirds or more of the merchandise she purchased, she would be unprofitable to market to in the future.

In e-mail marketing, this one is a slam dunk! You simply create a suppression list for this tiny subset of the customer file, and don't send e-mail marketing campaigns to this segment.

And then you bask in the glow of the increase in profit you obtain because of your strategy.

You are likely to see a drop in your metrics --- high returns customers are typically your most active customers --- they open e-mails, they click-through to the website, they buy stuff. And given your returns policy, you should let them buy stuff. However, there is no rule that says you must also market to the customer. So generate additional profit for your company. Stop e-mailing customers who return too much merchandise!

2 comments:

  1. Kevin,

    Thanks for pointing out a nice use of this common email feature (and for your continued postings on email marketing).

    Out of curiosity, why not simply cull these people from your database entirely, rather than suppressing them? (If they're unprofitable, they're unprofitable, right? Why keep them around?)

    I guess you might monitor their activity to see if they stop being unprofitable - but how do you do that if you are no longer marketing to them?

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  2. Hi Justin, thanks for the comment.

    I never remove customers from a database, because customer behavior changes over time.

    When I build statistical models that predict who is likely to return most of their merchandise in the future, I sometimes find that as a customer "ages", in other words, as more time lapses since the last purchase, the likelihood of being a customer who returns a lot diminishes.

    Also, most multichannel marketers find that e-mail marketing only accounts for a tiny fraction of total purchases. So, the customer who is not marketed to is likely to continue to shop, and may change his/her behavior in the future, allowing us to market to the customer once again.

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