Issue #21 - Tuesday, August 28, 2018
Posted by Denny Hatch
Don’t Coddle Lousy Customers. Redline!
117th Street, New York, 10035. Circa 1937
Redlining has been a fact of life in direct marketing for 100 years. For example:
Many years ago, the Book-of-the-Month Club received a phone call from a new member in New York City. The person said she had replied to an introductory New York Times ad offering "5 books for $1" and had heard nothing.
The club's telephone rep asked what ZIP code the caller lived in.
"10035," was the reply.
"Oh, we're not filling orders from that ZIP code."
The result: outraged screams of discrimination by media and consumer action groups.
The policy was based on a ZIP code analysis of customers in inner city neighborhoods where buyers kept the five premium books, never paid the $1 and never ordered additional books.
Best Buy’s Problem
Back in 2003, Best Buy’s CEO Bradbury H. (Brad) Anderson analyzed his customer file and discovered out of the 500 million customer visits a year, 20 percent—or 100 million—were unprofitable.
Imagine! 100 million money-losing customers!
Anderson hired as a consultant Columbia Business School Professor Larry Selden, author of Angel Customers and Demon Customers.
Selden divides customers into "angels" and "devils."
Angels are the desirable customers who buy lotsa stuff, keep it and pay their bills.
Devils are the worst customers who…
• Order 3 party dresses from an upmarket catalog, wear one to a gala and return all three the next day.
• Order 3 party dresses from an upmarket catalog, wear one to a gala and return all three the next day.
• "… buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts.
• “… load up on 'loss leaders'—severely discounted merchandise designed to boost store traffic, then flip the goods by selling them on eBay.
• “… research rock-bottom price quotes from Web sites and demand that Best Buy make good on its lowest-price pledge."
— Gary McWilliams, The Wall Street Journal
It was Selden who came up with a revolutionary theory:
A company is not a portfolio of product lines,
but rather a portfolio of profitable customers.
Duh.
Best Buy carefully analyzes its customer base. It cannot keep these sleaze balls out of retail stores. But it can make life difficult for them, such as a 15% restocking fee for bad actors.
Who Are Your Good Customers?
The marketing 101 formula for good customers is Recency, Frequency, Monetary Value (RFM).
The most recent customer who frequently spends the most money with you is your best customer.
Savvy retailers and direct marketers divide customers into 5 quintiles. In Quintile #1 are your best customers. In Quintile #5 are the poorest performers.
Seattle marketing guru Bob Hacker’s advice to his clients:
“Wanna make a profit this quarter? Don’t mail your 5th quintile.”
Takeaway to Consider
• If you don't have a precise list of customers—angels and devils—you don't have a business.
Takeaway to Consider
• If you don't have a precise list of customers—angels and devils—you don't have a business.
###
Word Count: 455
Note to Readers:
May I send you an alert when each new blog is posted? If so, kindly give me the okay by sending your First Name, Last Name and e-mail to dennyhatch@yahoo.com. I guarantee your personal information will not be shared with anyone at any time for any reason. I look forward to being in touch!
Invitation to Marketers and Direct Marketers: Guest blog posts are welcome.
If you have a marketing story to tell, case history, concept to propose or a memoir, give a shout. I’ll get right back to you. (Kindly stay within the limit of 500 words.) I am: dennyhatch@yahoo.com • 215-644-9526 (rings on my desk).
You Are Invited to Join the Discussion!
No comments:
Post a Comment