The Direct Marketing Challenge: A Tale of Two Households

Imagine a retailer in the process of determining its advertising and promotional strategy for the next year. The retailer knows that there are millions of potential customers, but knows too that not all of them are the right targets for their brand. So, how can a retailer – or any marketer for that matter – identify the right targets for their brand?

Traditionally, marketers have relied on demographics – age, income, geography. But these characteristics can lead them astray.

To get a clearer picture, let’s look at two, seemingly similar, households:

Household #1 has an income of $90K. A married couple between 35 and 54 years old, with two children, they own a home in the suburbs. Ditto for Household #2.

They sound alike but behind closed doors, these families are really quite different. So how can the retailer tell the difference between these two households?

What if the retailer also knew that Household 1 exhibits high spending behaviors: they own a Cadillac Escalade, they took a luxury cruise in the past 18 months, and that they remodeled their kitchen to the tune of $100,000+. Meanwhile, Household 2 shows low spending patterns: they recently purchased their home, they have payments on a Toyota Camry, and they shop at WalMart. Demographically similar but their purchasing patterns are dramatically different.

Household 1 will likely be attracted to more premium brands and have more sophisticated financial services needs. They might even be seeking new sources of credit to support their purchasing habits. Household 2 on the other hand, is likely to prefer more moderate brands. Their debt is likely to be lower and brand takes a back seat to price.

Now that’s actionable information.

But marketers would never know it based on traditional segmentation.

Clearly, even the best marketing models fall short when they rely only on income and other demographics. To make the most of their budgets – and to build their brands – marketers must look at information that provides a deeper understanding of consumer needs, wants, propensities, and ability to purchase. Financial assets, such as stocks and bonds, as well as home equity and transaction history mean a great deal in terms of a consumer’s ability and propensity to buy in specific product categories. And, more importantly, this information has great meaning in terms of the types of brands and brand messages to which they respond.

In the old world, “birds of a feather flock together” segmentation systems were the only systems available to target consumers. Now, armed with more intelligent data on the spending power of households, we can single out those “birds” with the most potential to respond to a specific branding message and to buy a particular brand. So while everyone else is following the flock, marketers utilizing more granular information will be increasing both their efficiency and effectiveness in customer acquisition, development, and loyalty.

How can our retailer integrate this powerful data on spending power into its advertising and marketing strategy for the next year?

Let’s go back to our Two Households.

Household #1 (the big spenders) is watching TV. They see a commercial and take immediate note of a new model for a premium brand. Then they check the weather online, and they see an ad for the premium brand. Finally, they get their mail and low and behold, it’s a direct mail piece for the premium brand they are looking for.

Meanwhile, Household #2 (the value conscious family) is watching TV, but their focus is on an entirely different set of commercials than Household #1, even though they are in the same “cluster.” They also check the weather online, but they see different ads than the first household. And when they open their mail, there is notice of a sale at their local department store.

So much for John Wanamaker’s comment that half of his advertising is wasted – he just didn’t know which half. Today he could figure it out. The fur department would be marketed to one group, lower-priced sportswear to another. This second group would be notified of sales. The first group would be the first to know about new jewelry shipments.

The implications of this information for brand marketers – from retail to financial – are huge. The bottom line is that there are differentiating factors that are not identified by standard demographic selects. Just think what brand marketers could do with more intelligent data on the spending capacity and propensity of consumers!

This information is available today and can be used to create more successful marketing campaigns, more targeted advertising strategies, and a stronger brand. It is the information that successful marketers will use to distinguish between price-conscious customers and those that value name brands. With this information marketers will discover those prospects with the discretionary funds and the interest to buy their products. This is the information that will help a company succeed.

Hurricanes and Direct Marketing Campaign Issues

If your business relies on direct marketing campaigns and uses such companies as Money Mailer to send out coupons you may find yourself in a world of hurt during times of catastrophic hurricanes, which hit nearby regions. This is because the mail bunches up and your customers are not home and many have evacuated and all that mail just gets thrown out.

Most of those coupons never did get in the hands of your potential new customers. This can be a devastating blow to a small business almost as much as if the location itself were flooded end-to-end with flood damage from the hurricane. The United States Post Office says that it delivers Rain or shine and for the most part that is true, but when the mail backs up and the roads are flooded much of the mail cannot be delivered and many of those coupons fall by the wayside or those companies who mail out coupons decide not to bother to do them because they cannot get enough small businesses to advertise after a major storm.

There is really no easy way around this issue, except to know that you will need alternative marketing strategies during these time periods of rebuilding after large hurricanes like we saw during the 2005 Atlantic tropical hurricane season. It is best to plan ahead and perhaps use alternate means of marketing or have them available in case your region is hit by a large hurricane. I hope you will consider this in 2006.

Targeting Inactive Customers With Postcards

You probably know that a prospect needs to see your business name an average of seven or eight times before they trust you enough to buy. When you consider the high cost of advertising and the lifetime value of a customer, it makes sense to try to recapture your inactive customers (people who have not purchased from you in the last six months to two years).

Postcards can be an inexpensive means of accomplishing this goal. However, to make your campaign effective, you need the following: (1) a good list, (2) strong offers,(3)an eye-catching creative, (4) repeated mailings, and (5) measurable results (in that order).

Begin with your list. Take at look at each inactive customer. Do they live far away and come to your store once or did they buy from you many times? How much have they spent with you? How long has it been since you have seen them? This can sometimes give you a better idea of who these customers are.

Now, you need to find out why they stopped doing business with you. Was it a problem with your product? Service? Price? What would it take to get them back in the door? Telephone surveys are probably the best way to obtain this knowledge. Since most customers don’t complain (they just leave), negative customer feedback is a gift. If you truly believe that and it comes across to your customers, you can probably conduct these calls yourself. However, to ensure the most honest answers from your customers, it’s best to use a third party.

Once your list is cleaned up (you know who to remove and have gotten some useful feedback on what would motivate the rest), you’re ready to create your offers. Remember, inactive customers are very hard to motivate and will not respond as often as your loyal customers. With that in mind, make your coupon or offer aggressive. Spending a little money here is a wise investment: many will not respond and those that do have the potential to become regular customers in the future. Don’t waste your money on the postcards if you’re only going to offer a 10% discount. If possible, pick a coupon that will appeal to a lot of people and gets them back a couple of times. For example, a car dealer may offer: buy one oil change, get the next one free. A free service, a substantial discount (like 20% off), or an added value to a purchase work well. Relating the discount to your product or service gets you the more bang for your buck than a gift certificate to another store.

To keep your piece from going in the trash, make sure it’s eye-catching. Bright colors, bold the offer or use large size font, use an unusual picture, an odd shape, or a clever statement to get attention. Make sure both sides of the postcard are compelling.

Plan to mail once a month for at least three months in a row. If Christmas time is where you make your money, schedule an October, November, and December campaign. People need enough time to respond. You may even want to increase the discount you’re offering for non-responders.

Finally, make sure your results can be measured. A discount code for your website, a coupon that must be brought in to be redeemed, or asking customers what prompted their purchase when they come in are examples. You may even want to split your mailing into two groups and test different wording or incentives. Tracking the results, will help determine what works and where you should spend your money next time.