Tuesday, March 29, 2011
Marketing: it's in the mind
Consider this: In taste tests, consumers can rarely tell the difference between different brands of chilled cola (some claim we can’t even tell the difference between a cola and Sprite). Below a certain temperature, all we taste is the cold, the sugar, and the sensation of the bubbles on our tongue. The rest of the experience is in the brand. And the brand resides in the mind, not on the tongue.
Monday, March 28, 2011
Welcome to Just Marketing
Have you ever heard anyone say "ah, but that’s just marketing."
Maybe you've even said it yourself.
“Just marketing”??? What does that phrase mean?
As I understand it, at best it is dismissive, a trivialization of marketing – as in, “it’s nothing important,” “nothing you should take seriously” – it’s just marketing.
At worst, it is synonymous for "it's a lie," or "they're just lying." As
Sunday, March 27, 2011
The Devil (and the Details) are in the Budget
All major decisions that an organization makes are made during the budgeting process. In many cases, the budgeting process is informed by a strategic plan or multi-year proformas. However, the practical and strategic decisions that are necessary to put a strategic plan into play are primarily discussed and decided upon during the budgeting process.
Ideally, an operating budget is created and adopted by an organization’s senior staff, thereby ensuring that each department is represented. For senior managers that represent marketing and are responsible for earned revenue streams, the following are some important questions to ask during the budgeting process:
1) How accessible does your organization desire to be?
• Average Ticket Price and Percent Paid Capacity. In major organizations, earned revenue can come from a myriad of different sources including ticket sales, fees, parking, restaurants, concessions, event rentals, merchandise, advertising, classes and summer camps. However, for most performing arts organizations, the majority of earned revenue comes from ticket sales. When adopting sales figures for tickets, a manager must consider two variables: average ticket price and percent paid capacity. When a budget is being developed, the higher these two variables climb, the less accessible an organization becomes. For example, if an organization adopts a budget with an overall average ticket price of $60 and an average percent paid capacity of 80%, it will be forced to enact pricing and marketing strategies to fulfill its budgetary requirements, meaning that only 20% of its inventory can be sold at less than $60 (and this includes all complimentary tickets).
• Complimentary Tickets. All earned revenue budgets should include a well thought out complimentary ticket budget. In many cases, organizations will find themselves with competing interests. Economic pressures can force an organization to increase its percent paid capacity and average ticket price, but doing so will also force a change to how an organization uses complimentary tickets. Many organizations use complimentary tickets for charitable donations, community outreach, publicity, donor cultivation, staff benefits and artist relations. However, only the budget will determine the amount of tickets available to use in any given year for these purposes. It is the responsibility of marketing representative to remind the budgeting team that no matter what current standard operating procedures are or what the desires are of staff members, the higher the average ticket prices and percent paid capacities go, the fewer tickets, especially for prime seat locations, will be available for complimentary tickets.
2) How much risk are you willing to take? The budgeting process can be pressure filled. After several rounds of budgeting, the pressure mounts on the marketing representative to increase his earned revenue forecasts. In doing so, there is only one question the budgeting team needs to ask—how much risk are we willing to take? A couple of bits of advice:
• Let the Data Do the Talking. A marketing representative should have years of data at his disposable, and he should use that data to produce the most accurate earned revenue projections he can. In projecting ticket sales for individual projections, one needs to do two things: 1) study the micro sales patterns of similar productions in recent history (3-5 years), and 2) study the macro sales patterns of all productions in recent history (5-7 years). The sales patterns of similar productions should give you a good indication of what is both possible and probable. I try to select at least three similar productions: one that under-performed, one that performed as expected and one that over-performed. Using the data from all three gives you a statistically probable figure, with room to do better than your projections. The macro sales patterns gives you an overall sense of standard operating revenues as well as outliers. If you notice during your budgeting process that you are forecasting that each of your productions will perform in the top 10% of all productions in your recent history, you might want to leave a little more room for failure. If the organization you are working for is taking the appropriate amount of artistic risk, you will need it. Final word of advice—no matter how much you are encouraged to do so, never go with your gut or “a feeling.” Decisions like these are should be left to the data.
• If You Are Uncomfortable, Say So. Marketing representatives have one primary responsibility in the budgeting process—they must be honest and transparent. If a budget makes you uncomfortable, voice your opinion. Ultimately, the budgeting team and the executive staff have final authority over the budget, but as part of the budgeting team, you must tell people when you are uncomfortable. That doesn’t mean you shouldn’t pass a budget that makes you a little nervous. All of us have passed budgets in the past that have kept us up at night, particularly in the past few years during the global economic crisis. However, you should never support, present and defend a budget that is irresponsible and dishonest. I am fortunate that I have never been placed in the position where I have been told I must present a budget that is irresponsible or face the consequences. However, if am ever faced with that position in the future, I would immediately start my search for new employment.
• Tell the Truth No Matter How Uncomfortable. I am fortunate to have a close working relationship with the senior staff at my current position, which allows for open and honest discussion. However, even in the best of environments, it can be uncomfortable to tell the truth. As the marketing representative on the budgeting team, you are in your position because the organization requires your truthful analysis and opinion. To not provide it for any reason is tantamount to dodging your responsibility. That being said, you also must be open to hearing sometimes painful and uncomfortable analysis as well.
3) Do you have the capacity to fulfill the budgeted expectations? My boss at Arena Stage has a great way of phrasing this question during the budgeting process. He diligently asks throughout the process if we have the capacity and resources to match our ambitions. It is a succinct and direct question that focuses the entire budgeting process. I am afraid that too many times arts organizations extend themselves by having unrealistic budgets because this question wasn’t asked. In terms of marketing, even if demand warrants a high budgeted goal, one needs to ask if you have the infrastructure to execute, which can include a multitude of actors such as staffing, technology, and operating procedures.
The final question I like to ask myself in terms of revenue projections is the ultimate litmus test—do we have an equal or better chance of over performing on budgeted revenue goals as we do under performing? If there is evidence that a greater likelihood exists that an organization will under perform rather than over perform, then I encourage you to adjust expectations to mitigate your risk.
Ideally, an operating budget is created and adopted by an organization’s senior staff, thereby ensuring that each department is represented. For senior managers that represent marketing and are responsible for earned revenue streams, the following are some important questions to ask during the budgeting process:
1) How accessible does your organization desire to be?
• Average Ticket Price and Percent Paid Capacity. In major organizations, earned revenue can come from a myriad of different sources including ticket sales, fees, parking, restaurants, concessions, event rentals, merchandise, advertising, classes and summer camps. However, for most performing arts organizations, the majority of earned revenue comes from ticket sales. When adopting sales figures for tickets, a manager must consider two variables: average ticket price and percent paid capacity. When a budget is being developed, the higher these two variables climb, the less accessible an organization becomes. For example, if an organization adopts a budget with an overall average ticket price of $60 and an average percent paid capacity of 80%, it will be forced to enact pricing and marketing strategies to fulfill its budgetary requirements, meaning that only 20% of its inventory can be sold at less than $60 (and this includes all complimentary tickets).
• Complimentary Tickets. All earned revenue budgets should include a well thought out complimentary ticket budget. In many cases, organizations will find themselves with competing interests. Economic pressures can force an organization to increase its percent paid capacity and average ticket price, but doing so will also force a change to how an organization uses complimentary tickets. Many organizations use complimentary tickets for charitable donations, community outreach, publicity, donor cultivation, staff benefits and artist relations. However, only the budget will determine the amount of tickets available to use in any given year for these purposes. It is the responsibility of marketing representative to remind the budgeting team that no matter what current standard operating procedures are or what the desires are of staff members, the higher the average ticket prices and percent paid capacities go, the fewer tickets, especially for prime seat locations, will be available for complimentary tickets.
2) How much risk are you willing to take? The budgeting process can be pressure filled. After several rounds of budgeting, the pressure mounts on the marketing representative to increase his earned revenue forecasts. In doing so, there is only one question the budgeting team needs to ask—how much risk are we willing to take? A couple of bits of advice:
• Let the Data Do the Talking. A marketing representative should have years of data at his disposable, and he should use that data to produce the most accurate earned revenue projections he can. In projecting ticket sales for individual projections, one needs to do two things: 1) study the micro sales patterns of similar productions in recent history (3-5 years), and 2) study the macro sales patterns of all productions in recent history (5-7 years). The sales patterns of similar productions should give you a good indication of what is both possible and probable. I try to select at least three similar productions: one that under-performed, one that performed as expected and one that over-performed. Using the data from all three gives you a statistically probable figure, with room to do better than your projections. The macro sales patterns gives you an overall sense of standard operating revenues as well as outliers. If you notice during your budgeting process that you are forecasting that each of your productions will perform in the top 10% of all productions in your recent history, you might want to leave a little more room for failure. If the organization you are working for is taking the appropriate amount of artistic risk, you will need it. Final word of advice—no matter how much you are encouraged to do so, never go with your gut or “a feeling.” Decisions like these are should be left to the data.
• If You Are Uncomfortable, Say So. Marketing representatives have one primary responsibility in the budgeting process—they must be honest and transparent. If a budget makes you uncomfortable, voice your opinion. Ultimately, the budgeting team and the executive staff have final authority over the budget, but as part of the budgeting team, you must tell people when you are uncomfortable. That doesn’t mean you shouldn’t pass a budget that makes you a little nervous. All of us have passed budgets in the past that have kept us up at night, particularly in the past few years during the global economic crisis. However, you should never support, present and defend a budget that is irresponsible and dishonest. I am fortunate that I have never been placed in the position where I have been told I must present a budget that is irresponsible or face the consequences. However, if am ever faced with that position in the future, I would immediately start my search for new employment.
• Tell the Truth No Matter How Uncomfortable. I am fortunate to have a close working relationship with the senior staff at my current position, which allows for open and honest discussion. However, even in the best of environments, it can be uncomfortable to tell the truth. As the marketing representative on the budgeting team, you are in your position because the organization requires your truthful analysis and opinion. To not provide it for any reason is tantamount to dodging your responsibility. That being said, you also must be open to hearing sometimes painful and uncomfortable analysis as well.
3) Do you have the capacity to fulfill the budgeted expectations? My boss at Arena Stage has a great way of phrasing this question during the budgeting process. He diligently asks throughout the process if we have the capacity and resources to match our ambitions. It is a succinct and direct question that focuses the entire budgeting process. I am afraid that too many times arts organizations extend themselves by having unrealistic budgets because this question wasn’t asked. In terms of marketing, even if demand warrants a high budgeted goal, one needs to ask if you have the infrastructure to execute, which can include a multitude of actors such as staffing, technology, and operating procedures.
The final question I like to ask myself in terms of revenue projections is the ultimate litmus test—do we have an equal or better chance of over performing on budgeted revenue goals as we do under performing? If there is evidence that a greater likelihood exists that an organization will under perform rather than over perform, then I encourage you to adjust expectations to mitigate your risk.
Saturday, March 19, 2011
Is It Time to Re-Think the Way We Discount?
It seems to me that there are two reasons to provide discounts:
- To encourage and reward particular behaviors
- To provide access to targeted demographics
Too many times arts organizations provide discounts that don’t encourage desired behavior, or that benefit patrons outside of targeted demographics. While exercised with good intentions, a quick examination of some common practices reveals that there can be some detrimental unintended consequences:
Rush Tickets. Many organizations have policies that place tickets on sale, sometimes to certain demographics like students, at the last minute at a steep discount. Unless your organization is selling at a high percent capacity, or has thousands of seats, by practice, you are guaranteeing a steep discount to relatively good seats in exchange for people exercising an unwanted behavior (late ticket buying). Many organizations bemoan the deterioration of their subscriber base, but continue to promote their rush ticket policies. Why would patrons buy several shows at once months in advance when they know they can get a better deal on decent seats at the last minute? Instead, I would encourage organizations to develop policies to reward desired behaviors. In order to convert a single ticket buyer to a subscriber, an organization usually must do two things: 1) convert them into multi-buyers so that they are purchasing multiple productions in the same season, 2) incentivize them to purchase their tickets earlier and earlier. By doing both, you establish behaviors that closely mimic a subscription, and therefore your conversion from single ticket buyer to subscriber should be much easier. Recommendation: If you would like to provide discount tickets to targeted populations such as students, then do so in a manner that instills early buying habits. Instead of incentivizing a last minute purchase, incentivize purchases that are done weeks, if not months, ahead of time.
Pay-What-You Can (PWYC) Performances. The intent of a Pay-What-You-Can performance is honorable. Most organizations desire the ability to make their products available to populations that simply cannot afford standard ticket prices. However, in practice, another reality presents itself. I am always amazed by organizations that continue this practice citing accessibility concerns, when all one has to do is stand outside and count the number of patrons who arrive for PWYC performances in expensive luxury sedans and fur coats. If you can afford a Mercedes, I am pretty sure you can cover the price of a regular ticket. What those patrons are doing is taking away inventory from the people you want to serve. They are taking advantage, but only because you are allowing it. Recommendation: Several organizations are now requiring proof of limited income in order to access PWYC performances or substantially reduced price tickets. Much like how students must show IDs, proof such as an EBT card or a tax return can ensure that you are serving the exact populations you have created these programs for.
Complimentary Tickets. A complimentary ticket represents the ultimate discount, yet too many times they are used for the wrong reasons. Consider the following circumstances:
- Potential Donors. Many development officers use complimentary tickets to get donor prospects in the door and into a performance. We all know that first impressions are critically important, so I would ask what message are we sending to someone with obvious means when we have to give them a free ticket to get them in the door? If they are seriously interested in your work, or in becoming a major donor, shouldn’t they want to pay the same ticket price that standard patrons pay in the first place?
- Board Members and Current Major Donors. Giving at certain levels should come with exclusive benefits, such as access to purchase house seats or the ability to purchase tickets before they go on sale to the general public. However, many organizations simply give away tickets to Board Members and Major Donors. In the case of Board Members, they should always be looking for ways to help an organization increase revenue, and by taking complimentary tickets, in many cases they are using inventory that can be sold. Major Donors on the other hand are often gifted tickets at certain levels of giving, however the ideal situation would have them purchasing tickets and giving philanthropically. By providing large amounts of complimentary tickets to Major Donors, all an organization is doing is moving revenue from the earned line to the contributed line. When trying to build revenue, both earned and contributed, an organization cannot rob Peter to pay Paul.
- Media. Many organizations don’t take the time to properly credential media, and by not doing so, they are tempted to provide complimentary tickets to every request that comes into their press department. Professional journalists deserve a complimentary ticket if they can commit to coverage via a properly credentialed media outlet. If journalists request a complimentary ticket, but cannot commit to coverage or they represent an outlet that is less than professional, it is the responsibility of your publicist to decline the request. In many cases as a courtesy, organizations will also provide a second complimentary ticket so a journalist can bring a guest, however this isn’t obligatory. Many Broadway producers and major organizations will only provide a single complimentary ticket for a journalist in circumstances where there is incredibly high demand on inventory.
- Complimentary Standing Room (CSR) or Standby Tickets (CST). Many organizations have very liberal policies for CSRs and CSTs. However, similar to rush tickets, unless you are selling out regularly, you are training those that use CSRs that they are available for virtually any performance, thereby guaranteeing that those who use CSRs will never purchase a ticket in the future. In many cases, CSRs are a self-fulfilling prophesy. The argument being that if an organization has unused inventory immediately before a performance, why not use unfilled seats for CSRs or Rush tickets? Well in many cases, CSRs and Rush Tickets are the reason why organizations have unsold inventory at the last minute. In my opinion, CSRs should only be used for customer service issues for longtime subscribers/donors or for internal artistic staff that need to maintain a production in a long run. Other than that, CSRs should be subject to your standard complimentary ticket policies and tracked as a complimentary tickets.
A final thought on complimentary tickets:
It isn’t uncommon for an arts organization to use 5-10% of its entire inventory for complimentary tickets. Usually these tickets are provided to people that could easily afford the cost of a ticket. At the same time, many organizations are desperately looking for ways to make their work more accessible to populations of people who simply do not have the means to purchase a ticket, even at a discount in some cases. I wonder what would happen if an organization adopted a policy that complimentary tickets would be reserved exclusively for patrons who had no other means to access their work? Hundreds, if not thousands, of complimentary tickets would become available to the people who needed them the most.
Thursday, March 17, 2011
Spring is in the air...and motivation is all around us!
I look around and see people going for walks, kids outside playing, plants and flowers starting to grow, birds chirping, the grass is starting to get green - It's that time of year to get active and motivated! It's time for rebirth, renewal and regrowth.
There is no better time of year to get a fresh start, spawn fresh creative and ideas, refresh your mind and energy. Its amazing what some fresh spring air will do to clear the mind and dust off the cobwebs of winter. We all get the winter blues - get burnt out on the cold air, gray skies and the mucky mess outside. The change of seasons is a great motivator. Take the opportunity and extra spark that Spring brings to finish the lingering projects you have been putting off, tie up those loose ends, back-up files, update your systems and get things tidy and in order for a new quarter.
A quick list of simple things you can do to really get motivated and get an exciting fresh start for the season:
Until next time,
Jeremy
There is no better time of year to get a fresh start, spawn fresh creative and ideas, refresh your mind and energy. Its amazing what some fresh spring air will do to clear the mind and dust off the cobwebs of winter. We all get the winter blues - get burnt out on the cold air, gray skies and the mucky mess outside. The change of seasons is a great motivator. Take the opportunity and extra spark that Spring brings to finish the lingering projects you have been putting off, tie up those loose ends, back-up files, update your systems and get things tidy and in order for a new quarter.
A quick list of simple things you can do to really get motivated and get an exciting fresh start for the season:
- Back up all of your files
- Clear your desk
- Open your windows and let some fresh air in
- Do any cleaning or equipment maintenance
- Get out, enjoy something active, feel the warmth of the sun
- Pack up your snow boots and winter coat
- Go out on the town, be social
Until next time,
Jeremy
Wednesday, March 16, 2011
What an 6 year old can teach us about customer motivation.
My 6 year old daughter took up Irish Dancing about 6 months ago (she's the redhead in the photo). For 6 months she's been practicing every day and learning new steps. Finally, last week, she had her fist recital and did great!
She loves her Irish Dancing, but since her recital, she can't stop talking about it.
Stay with me, there's a banking point here ... recognition!
Just a little recognition or reward can help to motivate a consumer.
- A congratulations notice when a customer hits savings milestones
- An "your almost there" notice when a loan is paid down to a limit
- Hand written thank you notes when someone opens a new account or makes a large deposit
Think about how you can do the little things to recognize your customers and reignite the spark of interest, excitement or fun that they felt when they first walked into your branch.
Have a blessed and safe St. Patty's day - a day when we're all Irish Dancers.
Take care,
Eric
Tuesday, March 15, 2011
How To Segment Your List For Better Performance
One of the best ways to build your online business is to build your list - that is, your subscribers or database of potential customers (prospects). But you can also do it by changing the way you market to your existing customers.
Today, I'll show you how you can segment your database of names to boost sales, increase bonding and shorten conversion time. Data mining, list segmentation, or strategic database marketing, is basically the art of slicing and dicing your own in-house list of names for optimal performance. You do this to help increase the response to your promotional and conversion efforts. You see, once you divide your list of names into smaller groups ("segmentation"), you can specialize your product offers. Then, by targeting your offer based on customer needs, you'll be promoting products to people who are more likely to buy them. You increase your customers' satisfaction as well as your potential conversion rates. (The conversion rate is the number of people who not only read your offer but actually purchase the product.) And higher conversion rates means more money for your company.
One proven model is the RFM method. It's practiced by direct-response marketers all over the world, and is a marketing method used at many large publishers and direct response marketing companies. "R" stands for Recency, how recently a customer has made a purchase. "F" stands for Frequency, how often the customer makes a purchase. And "M" stands for Monetary, how much the customer spends. Here's how you can use the RFM method to help lift your sales.
Recency
Whether your house list is made up of people who signed up to receive your free e-zine or people who paid for a subscription, you can segment your database according to how long your customers have been with you. Let's say, 0-3 months, 3-6 months, 6-12 months, and 12+ months. You would look at these groups as your hot subs (newest subscribers), warm subs (mid-point subscribers), and cool subs (those who have been subscribing to your e-zine the longest). Let's say your list is made up of subscribers to your free e-zine. Here's how you use that information...Because your "cool subs" may have lost their initial enthusiasm for your e-zine, you should cross-reference them with your open rates. If most of them haven't been opening your e-zine in six, nine, or 12 months, you should consider sending them a special message asking if they still want to receive your e-zine. But that doesn't mean you ignore them. These inactive subscribers are a great group on which to test new marketing approaches, new prices, new subject lines, and so on. After all, you have nothing to lose. Your goal for this group is to re-engage them. And since they aren't responding to your current e-mails, why not use this platform to test? Your "hot subs" are your newest, most enthusiastic subscribers. They are ripe to learn more about you, your products, and your services. If you handle this group properly, you can cultivate them into paying customers. So you may want to send them targeted offers and messages.
For example, you could send them a special introductory series of e-mails (also known and auto responder series). This special series would introduce them to your e-zine's contributors and philosophy. It could also tempt them with specially priced offers. Sending an introductory series like this can not only increase the number of subscribers who convert to paying customers, it also increases their lifetime value (LTV) - the amount they spend with you over their lifetime as your customer. Hot Tip! Make sure to suppress the recipients of your auto responders from any promotional efforts until the series is complete to ensure more effective bonding.
If, instead of subscribers to a free e-zine, your house list is made up of people who paid for their subscription, the same segmentation process applies. You break your active subscribers into hot subs, warm subs, and cool subs. You also break out expirers (those who allowed their subscription to run out) and cancels (those who cancelled their subscription). Cross-marketing to these lists is usually effective. The expirers often just forgot to renew and simply need a reminder. And just because someone cancelled one subscription doesn't mean they may not be ideal for another service or product that you provide. If they're still willing to receive e-mail messages from you, add these folks to your promotional lists. Once you've gotten these otherwise inactive subscribers to open your messages, turning them into paying customers is just a matter of time. Most Internet marketers would have written these people off. So any revenues you get from them are "extra."
Frequency
This segmentation tactic is another way to break down your house list: by how frequently customers have bought from you. So once you've divided your list based on recency, you look at it in terms of your customers' purchase behavior. First, you identify your multi-buyers - customers who've purchased more than one product from you. You then split this list further, segmenting out two-time, three-time, four-time (and more) buyers.Those who have bought from you most often have proven their loyalty and obviously like the products and service they've been getting from you.
So if, for example, you're considering launching a new product with a high price point, these would be your best prospects.
Monetary
Finally, you look at your list in terms of money. One way to do this is to divide your list by the amount of money each customer has spent with you. You might, for example, assign a benchmark dollar amount, such as $5,000, $10,000, or more. Customers at that level make up your "premium buyers." This is the group that has the most favorable LTV for your company. These are your "VIPs." Once you discover who your VIPs are, you can design products or offers specifically for them. Let's say you have some kind of exclusive - and expensive - lifetime membership club. You would market this to multi-buyers who also fall into your "premium buyer" category.
If you offer payment options to your customers, another monetary way to divide your list is according to the payment options they have chosen: monthly, quarterly, yearly, etc. This will help you determine the initial purchase tolerance of each group of customers and which ones may respond best to future price points. As you can see, by looking at your customers' purchasing habits - recency, frequency, and monetary - you can identify the best customers for certain products. And by offering a product to customers who are likely to want it, you can improve your conversion rates.
By using the proven RFM model and other data-mining techniques, I've seen conversion rates double and triple. I've also seen inactive subscribers' open rates surge from 0 percent to more than 30 percent. That's quite an accomplishment, considering that the average open rate for the industry is about 20 percent.
However, many companies that send emails don't have the capacity for datamining.
Unfortunately, many smaller business or start-up companies typically cut email features for cost. Oftentimes, these companies save money using cost-effective and efficient online email service providers that can certainly get the job done, but don't offer robust segmentation tools that allow the client list analysis and dissection features. So try to think of the bigger picture when shopping for email service providers. Hot Tip! When looking at email marketing companies, make sure you ask if there's a list segmentation or datamining feature that can easily be done through their email platform. Find out if it's standard or an upgrade, and what those costs may be monthly. Sometimes it may be an additional fee, but will certainly pay for itself over time.
Today, I'll show you how you can segment your database of names to boost sales, increase bonding and shorten conversion time. Data mining, list segmentation, or strategic database marketing, is basically the art of slicing and dicing your own in-house list of names for optimal performance. You do this to help increase the response to your promotional and conversion efforts. You see, once you divide your list of names into smaller groups ("segmentation"), you can specialize your product offers. Then, by targeting your offer based on customer needs, you'll be promoting products to people who are more likely to buy them. You increase your customers' satisfaction as well as your potential conversion rates. (The conversion rate is the number of people who not only read your offer but actually purchase the product.) And higher conversion rates means more money for your company.
One proven model is the RFM method. It's practiced by direct-response marketers all over the world, and is a marketing method used at many large publishers and direct response marketing companies. "R" stands for Recency, how recently a customer has made a purchase. "F" stands for Frequency, how often the customer makes a purchase. And "M" stands for Monetary, how much the customer spends. Here's how you can use the RFM method to help lift your sales.
Recency
Whether your house list is made up of people who signed up to receive your free e-zine or people who paid for a subscription, you can segment your database according to how long your customers have been with you. Let's say, 0-3 months, 3-6 months, 6-12 months, and 12+ months. You would look at these groups as your hot subs (newest subscribers), warm subs (mid-point subscribers), and cool subs (those who have been subscribing to your e-zine the longest). Let's say your list is made up of subscribers to your free e-zine. Here's how you use that information...Because your "cool subs" may have lost their initial enthusiasm for your e-zine, you should cross-reference them with your open rates. If most of them haven't been opening your e-zine in six, nine, or 12 months, you should consider sending them a special message asking if they still want to receive your e-zine. But that doesn't mean you ignore them. These inactive subscribers are a great group on which to test new marketing approaches, new prices, new subject lines, and so on. After all, you have nothing to lose. Your goal for this group is to re-engage them. And since they aren't responding to your current e-mails, why not use this platform to test? Your "hot subs" are your newest, most enthusiastic subscribers. They are ripe to learn more about you, your products, and your services. If you handle this group properly, you can cultivate them into paying customers. So you may want to send them targeted offers and messages.
For example, you could send them a special introductory series of e-mails (also known and auto responder series). This special series would introduce them to your e-zine's contributors and philosophy. It could also tempt them with specially priced offers. Sending an introductory series like this can not only increase the number of subscribers who convert to paying customers, it also increases their lifetime value (LTV) - the amount they spend with you over their lifetime as your customer. Hot Tip! Make sure to suppress the recipients of your auto responders from any promotional efforts until the series is complete to ensure more effective bonding.
If, instead of subscribers to a free e-zine, your house list is made up of people who paid for their subscription, the same segmentation process applies. You break your active subscribers into hot subs, warm subs, and cool subs. You also break out expirers (those who allowed their subscription to run out) and cancels (those who cancelled their subscription). Cross-marketing to these lists is usually effective. The expirers often just forgot to renew and simply need a reminder. And just because someone cancelled one subscription doesn't mean they may not be ideal for another service or product that you provide. If they're still willing to receive e-mail messages from you, add these folks to your promotional lists. Once you've gotten these otherwise inactive subscribers to open your messages, turning them into paying customers is just a matter of time. Most Internet marketers would have written these people off. So any revenues you get from them are "extra."
Frequency
This segmentation tactic is another way to break down your house list: by how frequently customers have bought from you. So once you've divided your list based on recency, you look at it in terms of your customers' purchase behavior. First, you identify your multi-buyers - customers who've purchased more than one product from you. You then split this list further, segmenting out two-time, three-time, four-time (and more) buyers.Those who have bought from you most often have proven their loyalty and obviously like the products and service they've been getting from you.
So if, for example, you're considering launching a new product with a high price point, these would be your best prospects.
Monetary
Finally, you look at your list in terms of money. One way to do this is to divide your list by the amount of money each customer has spent with you. You might, for example, assign a benchmark dollar amount, such as $5,000, $10,000, or more. Customers at that level make up your "premium buyers." This is the group that has the most favorable LTV for your company. These are your "VIPs." Once you discover who your VIPs are, you can design products or offers specifically for them. Let's say you have some kind of exclusive - and expensive - lifetime membership club. You would market this to multi-buyers who also fall into your "premium buyer" category.
If you offer payment options to your customers, another monetary way to divide your list is according to the payment options they have chosen: monthly, quarterly, yearly, etc. This will help you determine the initial purchase tolerance of each group of customers and which ones may respond best to future price points. As you can see, by looking at your customers' purchasing habits - recency, frequency, and monetary - you can identify the best customers for certain products. And by offering a product to customers who are likely to want it, you can improve your conversion rates.
By using the proven RFM model and other data-mining techniques, I've seen conversion rates double and triple. I've also seen inactive subscribers' open rates surge from 0 percent to more than 30 percent. That's quite an accomplishment, considering that the average open rate for the industry is about 20 percent.
However, many companies that send emails don't have the capacity for datamining.
Unfortunately, many smaller business or start-up companies typically cut email features for cost. Oftentimes, these companies save money using cost-effective and efficient online email service providers that can certainly get the job done, but don't offer robust segmentation tools that allow the client list analysis and dissection features. So try to think of the bigger picture when shopping for email service providers. Hot Tip! When looking at email marketing companies, make sure you ask if there's a list segmentation or datamining feature that can easily be done through their email platform. Find out if it's standard or an upgrade, and what those costs may be monthly. Sometimes it may be an additional fee, but will certainly pay for itself over time.
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