With the sprouting of gray hairs…

With the sprouting of gray hairs comes the realization that life is changing. First it was the reading glasses and now the gray hairs in my beard. This got me thinking about how my life today is different from a year ago not to mention 5, 10, or 15 years ago, and how much it will continue to change in the future. Fast forward through the sentimental and philosophical and you end up with the simple notion that:

“People need stuff and that stuff changes depending on their Lifestage”.

It Doesn’t Take a Genius
Marketers have known this for years and I take no credit for pointing this out. Many have gone to great lengths to create tools and methodologies to capture new clients whose journey through life is punctuated with events that ultimately define their needs (“needs” are very subjective and a whole ‘nother story). Life events include things like getting married, buying a home, having children, getting divorced (for more than 50% of U.S. society), becoming an empty-nester, and finally becoming a senior whose only interest seems to be spoiling the grandchildren and driving with a turn signal on. Let’s just say that my neighbor and I are both buying diapers but for different reasons – talk about cradle to grave, right?

Successfully reaching these consumers and getting them to buy your product or service depends on your ability to deliver a relevant, timely and compelling message in the appropriate and desired channel, which might include direct mail, email, mobile, social, search, or display.

Lifestage + Channel
This is a topic with increasing interest as of late – just this past week I read a MediaPost article that talks specifically about marketing to new parents in the mobile space. Apparently new parents are the group most likely to be responsive to mobile marketing. Some could guess that the lifestyle of those with young children is chaotic and thus making this group more receptive to “marketing on the go” since they are no longer spending a lot of time surfing the web, sifting through their inbox, social network, or even their direct mail as diligently as they did before children. When it comes to proximity or geo-location type of mobile marketing, again, the segment of those with children under 6 was most positive about the idea, as opposed to the “gotta have the new technology young male” as many would assume.

Since mobile marketing is still relatively new and untapped, only later will we later find out if mobile marketing receptiveness is less about the lifestage (having children under 6) and more about the generation of those who presently have children under 6? Only time (and science) will tell.

Image compliments of webcomic XKCD - http://xkcd.com/

Science is Fun!
There’s that word science again. The science behind marketing doesn’t have to be complicated. As a matter of fact, there are many solutions in the marketplace today that let you benefit from the science of others. Examples of this from Acxiom include things like “Life Event Triggers” which enable one to choose a prospect list based specifically on a recent life event like graduation, marriage, or child-birth. If your product or service is specifically relevant to people experiencing these events you can simply “subscribe” to receive lists of prospects in your area that recently “triggered” an event. Combine that with some technology and you can automate direct mail programs to effectively go “door-to-door” for you.

If your product or service does not have a clear tie to a specific life event, this is when you might use a Lifestage Segmentation system to uncover commonality in your current customer base to target new customers. Acxiom has a Lifestage Segmentation solution called PersonicX – if you follow the link you can see an interactive introduction to PersonicX. This solution segments U.S. households into 30 Lifestages that are then assigned to one of 70 Clusters. The Lifestages have cool names like “GenX Parents”, “Boomer Barons” and “Active Elders”, while the Clusters are sub-categories like “Cartoons and Carpools” or “Apple Pie Families”. Each Lifestage and Cluster is defined by a specific set of demographic variables combined with geographic and behavioral factors and represent a modern take on “birds of feather flock together”. Consumers move from one Lifestage/Cluster to another over time.

Using these types of solutions can be a very beneficial and simple way to inject some “science” into your marketing. With a simple list of your current customers you can identify the Lifestage of each with PersonicX, and chances are you will see the old 80/20 rule highlighted in a previous post come to life. There will likely be a concentration of your best customers in only a handful of Lifestages & Clusters. Based on this insight, you would be ahead of the curve if you were to then obtain a list of prospects in your trade area that are in the same Lifestages and Clusters as your best customers.

I look forward to your thoughts and feedback on using Lifestages to improve your targeting and increase response…

Who are your BEST customers?

When this question is posed to a small business owner, a sales associate, or a marketer, it often results in a firm, clear answer like seniors, baby boomers, or soccer moms. Or if in B2B circles, something like “mid-market manufacturers of durable goods”. If you then follow with a simple “Great, but how do you know that?” this is where the blank stare comes in, followed by “I’m in the store all day and I greet all of the customers” or “I personally perform all of the quotes for new clients”. So it must be true – you CAN judge a book by its cover!

Wrong – everyone knows that not all soccer moms are created equal!

Data Rules
The reality is that in order to truly understand who your best clients are, you need data. This data can be transaction level data from point of sale systems, historical, summarized sales data from your accounting package, and even third parties in the form of demographic, psychographic, and behavioral data that is appended or added to your customer records. If you don’t have sophisticated systems for collecting and managing all of this data, do not fret for there are some simple ways to get started. And it is important that you get started!

Why is identifying my BEST customers so important?
There are two major reasons why it is important to identify and recognize your best customers.
1. The first is supported by the now mythical adage that “it is cheaper to keep the customers you have than it is to acquire new customers”. This statement has been spewed more ways than I can count and is credited to more sources than I can name, but the fact is that there is truth to these words and understanding who your best customers are enables you to strengthen the relationship and their loyalty through personalized customer service as well as relevant & timely communications and offers.

2. The second reason understanding your best customers is important, is that the insight gleaned from analyzing your current customers can be leveraged to find prospects that exhibit the same demographic, psychographic, and behavioral characteristics, which through deductive reasoning tells us they are good candidates to potentially become one of your best customers. Or in other words, “birds of a feather flock together”. Doesn’t marketing to those with a higher propensity or likelihood to become customers verses marketing to everyone make sense? The cost of acquiring a new customer will improve, contributing to an overall improvement in the return on marketing investment.

Getting Started
Whether you sell directly to consumers or to other businesses, there are several low-cost ways to get started. Assuming you already have a database of your customers and have some access to transactional or historical sales data, below are several approaches that with a little elbow grease will yield great results:

1. Use the Pareto Principle; “Roughly 80% of the effects come from 20% of the causes”. I used to work in the paper business (no, not Dunder Mifflin – but close) and one of the primary sales management tools was the “80/20 report” which simply showed us who our top clients were from a revenue and gross profit standpoint – ie where sales should be spending their time and attention. The inverse was also true – the accounts at the bottom of that report might be candidates for direct efforts to stimulate growth, or even all together pruning. Firing a bad customer is often worth more on the bottom line than landing a new one.

2. Use of a “20/50/30” approach to isolate the “best, middle, and worst” – this is an extension of the above and segmenting customers into three (or more) categories might enable more precise prescriptive actions per segment, drive pricing tiers, etc. My aforementioned experience in the paper business had an answer to this as well – all clients (client being defined as having a minimum number of purchases or a minimum value of purchases in a rolling 12 month window) were categorized as Platinum, Gold, Silver, Bronze and Lead, with new accounts and “up and comers” or those with high potential falling into the Nickel segment. This is a very eye-opening exercise, because depending on the metrics chosen to rank and segment, you may find that who you thought was a great client could be very average or worse yet unprofitable.

3. RFM Analysis (Recency, Frequency, Monetary) – This method will highlight several “groupings” of clients in a stack/rank fashion – see the sample RFM Analysis in Fig. 1 below. This type of analysis is especially valuable since it takes into account multiple factors such how recently a customer purchased, how often they purchase, and lastly how much they have spent. Those that find themselves at the top of this list, should find themselves at the top of your marketing list as well. I employed this method when working with a marketing service provider that focused on small businesses. We were able to create a list of 150 great clients that were on autopilot. By proactively engaging with them we saw an immediate increase of business from this group by simply offering them an incentive to “upgrade” to a higher level service package. They were already satisfied clients, we just needed to give them a reason to show us more love.

Fig. 1 Simplified RFM Analysis

Metrics for all three of these methods might include things like Revenue, Gross Profit, Number of orders, Average order size, and even returns, issue escalation, or other inbound requests. It depends on your industry, but these metrics along with questions like “Do the clients use self-service tools or are you providing full service to all clients?” can provide valuable insight into who your best (and most profitable) customers really are.

4. Product/Service Consumption Matrix – Lastly, another way to slice and dice your customers is to look at them from a product or service perspective to identify the products and services that are consumed by each client and isolate segments based on your ability to cross sell and up sell clients to expand your relationship with them.

Building on your Effort
So now that you have worked on one or more of the above methods for segmenting and ranking your customers, imagine taking a deeper look at the top performers based on 3rd party data like demographics, psychographics, and behavioral data to define the ideal criteria for who you should be prospecting – talk about super charging your marketing efforts. Demographics are things like age, income, home ownership, marital status, presence of children, ethnicity, etc. and can be very telling in and of themselves when looking at who your best prospects are. Psychograhics are more about the underlying motivations, values, interests, and attitudes of people, and these can add another layer of insight in determining a prospect’s intent or likelihood to respond. Lastly, behavioral data is available in many forms. This might be actual click stream data from your website or perhaps licensed data from third parties who aggregate point of sale data by SKU. For example, believe it or not, it is possible to identify individuals who are male homeowners with six-figure incomes, who travel for pleasure >5 times per year, and have purchased golf clubs in the last 6 months.

Sound like a great prospect for a golf getaway… When do we leave?

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