Author: Jim Koppenhaver
Source: articleage.com
1. “We hold these truths to be self-evident, that all men are created equal.” (Not!)
With apologies to Thomas Jefferson and his penultimate Declaration of Independence, when it comes to prospecting, all non-customers are not created equal. Everyone agrees it’s pretty difficult to figure out who you should go after, and oftentimes, who you should retain. The secret is identifying those consumers who have the highest likelihood of developing into “revenue drivers.”
I’ve also noticed three shortcomings in relying on household income that result in poor ability to discriminate and predict purchase behavior:
?Inaccuracy – The fundamental challenge in household income is that it’s collected from relatively limited survey information and then projected to a wide universe of households based on demographics. As a result, it’s not bad at describing and accurately capturing the mass middle but woefully inaccurate at the highs and lows of the spectrum.
?Single-dimensional Income vs. Spending Power – The secondary challenge in relying on household income is that as affluence increases, the sources of income become more diverse (assets, real estate, credit, etc.) all of which are ignored in traditional household income measures. Additionally, factors like cost-of-living and other impacts on “spendable income” are also disregarded.
?Static vs. Dynamic – The tertiary challenge is that the above methodology produces relatively static and unchanging pictures of household income which belie the dynamic nature of spendable income as households move through lifestages, career changes, or short-term fluctuations (positive and negative) in their assets.
To truly predict who will purchase, marketers need to know which consumers have the ability to buy, not just the details of their household income.
2. Driving the customer “numerator” (spending with you) is the Holy Grail. But what value is the numerator if you don’t know the denominator (total spending in your category)?
When the CRM craze hit, the prevalent thinking was that driving the numerator of customer decisions and spending was the best revenue and profit growth strategy for direct marketers. We now know that a smarter path is to understand both the numerator and the denominator of customer relationships and spending.
Case in point would be two current customers spending $1,000 per year with your company. Understanding numerators suggests treating them equally. Denominators would tell you that while you have 100% of the spending of Customer 1, you only have 50% of Customer 2′s spending. No doubt, at $1,000 per year, they’re both valuable, but Customer 1 is not going to be the vehicle to the revenue and profit growth that your shareholders demand.
Since most marketers don’t necessarily know what the denominator is for each customer (i.e. how much money they have invested in cars, electronics, vacation travel, second homes, etc.), it’s encouraging to know that using spending power can at least point you in the right direction of deciding between Customer 1 and Customer 2.
3. Insanity = Doing the same things you’ve always done and expecting different results.
Ever wonder why new products at McDonald’s don’t really seem to be new products? Because every new product is made with the same basic 10 ingredients in the store to begin with! This McDonald’s sandwich syndrome also applies to targeting efforts – recombining the same basic demographic data we’ve had for years in different ways simply creates a modified Big Mac.
Declining response and conversion rates are simply the consumers’ way of saying, “You keep targeting me with the same ineffective measures but just with different glossy brochures.” Given that our competition is media advertising and we now have both better tools (in targeting) and better vehicles for direct marketing (Web and interactive), it’s time to introduce the McDonald’s customer to T-Bone steaks and garlic mashed potatoes.
Enough about insanity. To paraphrase Thomas Jefferson’s quote on the price of freedom, “The price of maximum direct marketing efficiency is constant curiosity.”
Jim Koppenhaver is Group Vice President for Echelon Targeting. Echelon Targeting provides segmentation and targeting solutions focused on finding consumers with discretionary spending power for both for profit and nonprofit organizations. As a division of IXI? Corporation, Echelon Targeting offers products and services based on the proprietary wealth-measurement techniques of IXI. Jim Koppenhaver can be reached at 847-808-7652 or via e-mail at jkoppenhaver@echelontargeting.com.