March 07, 2010

Dear Catalog CEOs: Aging Customers

Dear Catalog CEOs:

Here's a topic worth consideration.


What kind of customer do you want to acquire?


On the surface, this is an easy question to answer. You want customers who fit your target demographic, customers who are profitable in the acquisition transaction, customers who will generate long-term profit.


Theoretically, however, this is a challenging question to answer.


Most of us do not append demographic data to our customer files. We should append, at minimum, age information.


Why?


Because our existing best practices (i.e. ask the co-op for a million names) yield an outcome that we may not desire.

Let's assume that most of us don't append demographic data to our files. Can we then agree that a customer who mails her order to us via the postal service is probably not a twenty-six year old? Can we agree that, most of the time, a customer who phones the call center to place a $100 order (not the $775 order that requires assistance) is older than the customer who orders online?

If we can agree that those assumptions are valid, then we have some interesting metrics to consider.

Take your co-op results, and look at percentage of transactions by mail, by phone, and online. Are these percentages skewed more to mail and phone than are other outside lists? Are these percentages skewed more to mail and phone than they are for your housefile?

If the answer is "yes", then your co-ops are essentially optimizing your results for an audience that is generally older than your core customer.

This becomes a big deal, because your online marketing efforts often result in acquisition of a customer that is a bit younger than your catalog customer.

Now, granted, you may only care about surviving 2010. But if you plan on shepherding your business into the future, you probably care about the kind of customer you are acquiring via the co-ops (or online, for that matter).

When you acquire older customers, your measurement systems allow you to track them more directly --- mail and phone demand easily tie into your merchandising systems, allowing you to measure demand per thousand pages circulated easily. This results in a merchandise assortment that skews toward older customers, so you plan for 2011 merchandise that will be preferred by older customers, thereby allowing your co-op lists to appear to perform even better because the older customers they pick for you like the merchandise you offer ... can you see where this is heading?

Strategically, it is important to compare the merchandise that is purchased via mail orders, phone orders, and online orders. If you have demographic data, compare merchandise productivity by age bands (18-24, 25-34, 35-44, 45-54, 55-64, 65+).

Once you have this data, it is time to make a strategic decision.

  • Market to the same customer cohort as that cohort ages.
  • Market to a demographic (i.e 55-64 year olds), as customers age through that age band.
  • Market to a younger customer that may be less productive today (i.e. risky), but may help guarantee the long-term success of your business.

So analyze your data, understand what is happening, and make the appropriate strategic decisions!!

2 comments:

  1. Pete B7:02 AM

    Good point ... and appending data has gotten pretty cheap. It may not just be age … depends on your business … but agree age most often will be the most useful.
    Let me add … there are 3 parts to the process;

    1) Acquiring customers – Customer acquisition has gotten so difficult that really cannot be picky who you catch … can’t really throw some back.

    2) Segmenting – if you do a good job of creating homogeneous performance segments and optimize contacts, offers etc … theoretically it should naturally take care of itself. Low performers will get less contacts etc. Don’t have to throw any back … just get them in the right segment. Age data may help do that (as well as reams of other data)

    3) Targeting – This is what we struggle with and where there is the biggest opportunity. To be good direct marketers you have to be good at #1 and #2. #3 is a bigger deal and harder. Deals with versioning and developing more content (e-mails, home page versions, banners, and catalog versions) and more product with less volume per sku. Economics frequently difficult and we abandon initiatives. But I think targeting your offer is the key to growth. Don’t abandon your old offer… it may shrink if prospecting is broke .Try to replace the “shrinkage” with doing something different to a different audience. Bite the bullet and have 2 business formulas if necessary.

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  2. Good points, thanks!

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