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Why companies must continue to prospect in hard times
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AP Photo - Robert Mecea
The lifeblood of a direct mail company is growing sales and adding new customers. One senior direct marketing manager for a Fortune 500 company was recently quoted saying “While it is tempting to curtail acquisition activities in a difficult economy, direct marketers will always suffer from customer attrition. The on-line channel attracts customers primarily focusing on product and offer and not the brand, when compared to catalog customers who focus more on the brand. Catalog prospecting acquires branded customers who are easier to retain and have a higher LTV.”
The mistake that many companies make is in cutting back severely or entirely the efforts to acquire new customers using any form of direct mail due to considerable delivery challenges and high delivery costs. The mathematics of maintaining a customer file and continued sales growth can be easily outlined. In a conversation with another seasoned direct marketing professional, Gregg Viall of Viall Marketing Group, the following aspects of prospecting became apparent.
Historically if a customer file looses 10% of its active customers per year and requires new customers to replace them, the goal being a net zero result. Setting aside the questions of which channel the customer came from, and current customer reactivation efforts, two areas are impacted before you reduce acquisition pieces.
First, most catalog marketers have been affected by the current economic conditions making results from response, or rented customer, lists weaker than they were in the past. This will result in fewer new customers.
Second, if 100,000 prospects were mailed last year and the new plan is to mail only 50,000 of the strongest prospects this year you’ll see a lower quantity of new customers. The degradation of your customer base moving forward is accelerated.
With that in mind, it make sense to try testing new acquisition lists at this juncture, since profitable response lists may fluctuate in size and response. Trying out a new segment or source could provide a profitable back up to make your acquisition totals. Cutting back is acceptable as long as it isn’t cutting back to zero. Make sure you review the acquisition test rental usage reports and make sure there is some affinity to your market.
New customers can come from any channels and should be sought from all channels; just be sure to monitor the lifetime value of the customer acquired by each channel to ensure future profitability.
Customer reactivation certainly helps but it’s not the only answer. Realize that investing marketing dollars to reactivation efforts may help slow the attrition of your file but it will never eliminate it. Successful companies also monitor the costs associated with reactivation to make sure they are not above that of acquiring a new customer, especially when factoring in the lifetime value of a new customer. Always plan on reviewing the lifetime value of a newly reactivated customer with that of a newly acquired customer.
In the end there is no magic bullet for success, but there is a poison pill waiting to discharge and decimate customer files that are not replenished. Acquisition planning requires a long-term view and approach and evaluating the dollars spent there require a long-term perspective.
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