August 22, 2010

Dear Catalog CEOs: New Audiences

Dear Catalog CEOs:

Even the post office is looking for new audiences to promote products and services to, products and services like catalogs.

One of the tragedies of the Great Recession was the dramatic shift away from prospecting.

Here's what I see, over and over again. A business used to retain 40 out of 100 customers, then acquired/reactivated 65 customers, so that next year, the business has 0.40*100 + 65 = 105 customers.

When the recession hit, the business instead retained 37 out of 100 customers, and prospecting efforts became less effective, causing the business to acquire/reactivate 59 customers. Next year, the business has 0.37*100 + 59 = 96 customers.

But prospecting efforts became so unprofitable during the recession that prospecting efforts were cut back, cut WAY back!! Now, the business acquired/reactivated 52 customers. Next year, the business has 0.37*100 + 52 = 89 customers.

It's here that the "struggles" kick in. Next year, the brand will "go halfway" in increasing prospecting, acquiring/reactivating 56 customers. Retention rates improve to 39%. Two years from now, the business has 0.39*89 + 56 = 91 customers. In year three, using the same metrics, the business has 0.39*91 + 56 = 91 customers.

The popular answer to this problem is to "make customers become more loyal", as if you can somehow force a customer to do something that the customer does not have a natural inclination to do ... just "force" the customer to buy two more items!!

The practical answer is to expand prospecting efforts. Most of us don't work at Wal-Mart, where you aren't going to find new customers. Most of us work for businesses that have less than 1% of total market share, so expanding prospecting efforts is a logical and strategic way to grow a business. It is, of course, contrary to most of the advice were given.

2 comments:

  1. Terrific point, Kevin. The best way to avoid being sucked under by the "death spiral" is to avoid the outskirts of that whirlpool. Counter-intuitive to push when the going gets tough, but essential, and it makes a clear case for really understanding your business's metrics. If you've marshaled your cash smartly during the good times, now is the time to invest.

    ReplyDelete