Email and Customer Loyalty

Circulation Management, Feb 1, 2004

Byline: CHET VAN WERT

We've all heard the truism that it's less expensive to retain a customer than to acquire a new one. This seems so obvious that it can lead to the mistaken assumption that effective loyalty marketing strategies are also fairly obvious. In particular, a couple of "obvious" strategies can easily fail to deliver measurable results.

The good news is that online media really do expand our ability to develop effective loyalty marketing, when it is done with traditional direct-response discipline. In general, this means avoiding "feel good" tactics aimed indiscriminately at your broad customer base.

Instead, I've seen measurable improvements in customer value with campaigns that target a relevant call to action to specific customers or prospects at critical points in their "customer life-cycle."

The Obvious Tactics

One "obvious" approach to loyalty is to focus on your best customers. Belief in the 80/20 rule leads some of us to assume that focusing on the 20% of customers who are responsible for 80% of profits will improve results. I've tried best-customer programs twice, each time testing a variety of tactics over 18-24 month periods. I found that the best customers will respond enthusiastically to short-term incentives, price reductions, and the like, but it's very difficult to improve their long-term value.

Another approach that often surfaces in loyalty discussions is a frequent-buyer rewards program. I have seen frequent-buyer programs work well for club memberships that have a large attrition problem at the point members complete their purchase commitment. However, the concept seems less applicable in other contexts.

The basic weakness of these programs is that they don't make an offer at the moment when the customer wants to buy. Instead, they typically ask the customer to build equity in the relationship that will pay him or her back sometime in the future. For many marketers, this is not going to work as well as making a compelling offer at precisely the moment the customer wants to buy.

Customer Life-cycle Approach

A strategy I've had success with in both a large company and a more entrepreneurial environment is to treat loyalty as a habit that can be cultivated and reinforced one transaction at a time. Each transaction is a step toward a "loyal customer" relationship. As direct marketers, we are on solid ground when we focus on making specific offers to specific groups of customers to drive specific transactions.

Don't try to develop a retention plan for your entire customer base. It's not homogeneous, and many of your customers may not need any special motivation to continue buying from you. Instead, identify the transactions that represent milestones in your customer relationships, as they progress from prospects to loyal customers or from former customers back to active status. Then create a structured program designed to move these target segments through key transactions.

A typical customer life-cycle begins with interested prospects. Online, these are people who come into your virtual store and have enough of an interest in your product to register and give you an email address. The steps in the cycle can look something like this:

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Prospects - for whom you have contact information

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Interested shoppers - who have requested information or a catalog, or have signed up for an email newsletter

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Trial Users - who have requested a product sample or a trial issue - subsets of this category include those who have paid something for the trial (or even supplied a credit card for delayed billing) vs. those receiving it free or on a "bill me" basis

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One-time buyers - who have actually paid

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Repeat ("loyal") buyers

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Lapsing - less frequent purchases or non-responders to early renewal efforts

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Lapsed/former customers

One powerful opportunity that the internet and email offer is the ability to identify and market to interested but undecided customers. Direct mail is a yes/no medium because, for most of us, it's too expensive to interact with "maybes." But online you can interact cost-effectively with prospects before they're ready to buy.

By focusing on the early part of the customer life-cycle in an environment where individual messages have a negligible cost, it is possible to methodically move a larger number of prospects from step 2 (interested shoppers) to step 3 (trying your product) to step 4 (actually buying it), and, ultimately, to step 5 (buying again and becoming a regular customer), all at a low variable cost.

Real Hotlines

Online you can interact instantly with the ultimate hotline names - those who want to shop right now. An interested shopper at step 2 has identified himself or herself as someone who is both (a) interested in what you've got to offer, and (b) interested right now. Don't make a hot prospect wait - make him or her an offer immediately. The key to loyalty is easing prospects along the path by making the next transaction easy. Some ways you can make the trial or first purchase easy include: