Combining a Top Marketing Specialist’s Framework with Our Thoughts
We just spent several hours speaking with Marc Schwartz, an Integrated Marketing Specialist. Marc has been in marketing for 25 years in various high level positions with companies like Kraft/Gevalia, Publishers Clearing House, Starwood Hotels, Wyndham, Pfizer and Sanofi. His experience spans both online and offline. In this post we combine his concept of a marketing framework with our thoughts on specific topics within that framework.
Creating a Marketing Framework
Marc points out that it is important for every company to have a marketing framework that has three common threads throughout:
- Consistently build your brand throughout every step in the process.
- Measure everything – “If you can’t measure it, don’t do it!”
- Be customer centric – always think about how the customer will feel about anything you choose to do
Marketing can be broken down into 4 important steps and companies will likely need different people with different skill sets to address each step:
- Upsell /Cross sell
- Winning Back Customers
1. Customer Acquisition – The 40/40/20 Rule
Marc’s experience has shown that in acquiring new customers 40% of success has to do with targeting the right people, 40% with the nature of the offer and 20% with creative. Worth noting while creative and messaging is critical, in direct marketing the right offer delivered to the right audience is the most important factor. Targeting is not about mass marketing but rather about knowing your potential customers and finding the most efficient way to reach them.
One important thing I have found is that it may make sense to spend more money per potential customer (referred to as Customer Acquisition Cost or CAC) if you reach individuals who will be greater spenders on your product (this is referred to as Life Time Revenue or LTR). For example Facebook charges more to find closer matches to your target demographic but spending more initially has led several Azure portfolio companies to acquire a stronger customer set which in turn increases LTR and and makes the higher spending worthwhile. The key is to compare the CAC of each particular acquisition channel to the value of the customer (Lifetime profits on the customer or LTV). When LTV is higher than the CAC that means the customer is profitable. But we discourage our companies from going after marginally profitable customers so I would encourage you to think in terms of LTV being at least twice the CAC (I won’t invest in a startup unless I believe the ratio can exceed 3X). Each acquisition channel can become less effective when going beyond a certain scale but that scale will differ dramatically with the products being offered. The determination of where to cap spend should be decided by gradually increasing your commitment on a successful channel until you find that the incremental spend is not yielding good incremental results. It is important to avoid being a one trick pony so using multiple channels helps scale customer acquisition without hitting diminishing returns for a much longer period. Any channel that tests well should be utilized with the total spend being apportioned based on effectiveness (the ratio of LTV/CAC) of each channel.
Each campaign should lead with an offer that is a strong value proposition for the target customer. The offer must have a very clear call to action. Saying “try my product” would not usually be viewed as a compelling offer. At Gevalia Coffee, the company offered a free coffee maker if you began subscribing. At Publisher’s Clearing House the company entered you in a contest where you could win $1,000,000. More recently, Warren Buffet offered $1 billion to anyone who picked every game right in the NCAA tournament (his risk of paying out is low as the odds of there being a correct answer among 100 million unique entries is less than one in 10 billion!). Marc points out that his experience indicates there is a direct correlation between the value of what you give away and retention. The more compelling the offer, the lower the retention as more “cherry pickers” sign up so starting with a free month of a physical product can potentially backfire. In fact, these days, there are bloggers who tell their following, “Go to this site for a free month of some product”. It would be surprising if your company recovered it’s CAC on this set of potential customers as followers of such bloggers will rarely become paying customers.
Therefore it’s important to find the balance between your brand equity and the value of the premium used. While a lower valued premium will probably lead to fewer customers being acquired, it is likely to also lead to higher LTV for those customers and stronger brand equity. The key with this, as with everything in this blog post, is a continuous A/B testing philosophy to see what works best.
One note of caution: From early November through late December, the cost of virtually every form of marketing goes up due to increased purchasing that takes place for Christmas gifts. If your product won’t benefit from this, your annual plan should have the lowest spend (if any) during this period.
Marc ranks creative at 20% of the formula for winning customers. This is half the importance of proper targeting and the nature of the offer because great creative can’t overcome a poor offer or going after the wrong customers. However, the creative is where you get to explain who you are (your brand statement), why the offer has value to the target customer and your call to action. If the call to action is not clear enough than you won’t get the desired action. The creative needs to be A/B/C tested for best language, fonts, colors, graphics, etc. Every element of the creative has an impact on how well the offer performs. You also need to decide if different offers and/or creative should be used for different subsets of the target customers. One of the best examples of this that I have seen was a campaign that targeted graduates of various schools and led with something like: “Your Harvard degree is worth even more if you …” The conversion rate of this highly targeted campaign was more than double the norm for this company.
2. Optimizing Customer Retention
I’m sure you have heard the expression: “You only get one chance to make a good first impression.” Your best opportunity comes after the customer has placed their order (although the acquisition process was the first step). For this section I’m going to assume you are sending the customer physical goods. Marc calls this first experience “The Brand Moment”. If you think of how Apple packages its products, they have clearly enhanced their brand through the packaging with every element of the package as perfect as they can make it. Opening their box certainly enhances the Apple brand. So you need to balance the expense of better quality packaging against the degree to which it enhances your brand equity. The box itself should be branded and can contain a message that you want to relate to the customer. The nature of collateral material, how many items, what messaging on the materials and the order they are placed in the box needs to be researched. Have you included easy to find information on how to resolve a problem? Should there be a customer support phone number to call if something is amiss? Is your brand position re-emphasized in the materials? A good impression can lead to higher LTV, recommendations for other customers and more.
Marc believes the first step in communications should be to welcome the new customer. This would usually be through an email (or snail mail). Marc finds an actual phone call is highly effective but costly. Obviously your business model will determine the appropriate action to welcome the new customer. The welcome email (or call) is an opportunity to re-emphasize your brand and its value to the customer. It’s important to communicate regularly with every customer. He actually found that placing a phone call can often improve customer retention even more than giving something for free. To the degree that it makes sense, customers should be segmented and each segment should get their own drip campaign of emails. Don’t over communicate! This can be even more negative than under communicating and can cause churn. Of course if you can offer real value to the customer in greater frequency than do so – for example, customers that sign up to a “daily deal” product probably expect daily emails. There are some email platforms that automatically adjust frequency based on open rates (very low open rates are a good indicator of over communication with that customer).
Various types of premiums can be used for retention. Much like those used in acquisition there should be careful testing of cost vs expanded LTV. For any offer, tests should be constructed that track how paired groups perform who haven’t received the offer vs those that have. If the LTV of the group receiving the offer doesn’t exceed the LTV of the paired group by more than the cost of the offer than the offer should not be rolled out. Marc found in the past (in a subscription model) that if an offer is too valuable the company may see a large churn of customers in the month subsequent to the offer being received.
3. Cross Sell/Upsell
There are multiple ways to think about increasing a customer’s LTR:
- Keep them as customers longer
- Get them to buy more frequently
- Get their average invoice value to be higher, i.e. cross sell/upsell
The strategies I spoke about for retention actually focus on the first two of these. The third is an extremely valuable part of a marketing arsenal and I am surprised on how underutilized this tactic is among many companies. To begin, you need to have things in your product set to upsell or cross sell. The items should be relevant to your brand and to your customers. If you are already shipping a box to your customer as their base order, adding another item or shifting to a more expensive version of the base item typically makes the order not only higher in revenue but also can increase the Gross Margin on the order as shipping and fulfillment are unlikely to increase much, if at all (and these days shipping is usually absorbed by the seller). Every company needs to think about brand positive ways to make such offers.
When I was the primary analyst on Dell it was the early days of selling online. Dell quickly created a script that included several upsells like “add another x bytes of storage at 75% of the normal price” (and huge GM to Dell), “financing available for your computer”, etc. Several phone manufacturers started to offer the ability to insure your screen against breakage (usually from a drop). What is interesting there is insurance sometimes covers things the company would have done anyway but is now being paid extra.
For clothing companies, saying “this blouse would go very well with the skirt you’re buying” or “for the suit you bought which of these three ties would you like to buy”, can substantially increase cart size and increase margin. One company I’ve dealt with has an increasing discount on the entire order based on the total dollars you spend (net of the discount). Since it sells T-shirts, socks, underwear, etc., it’s easy to add to your order to get to the next discount level and given my personality I always wind up buying enough to qualify for the maximum 20% off.
4. Winning Back Customers
Customer service is usually the first line of defense for preventing customer cancellations. The key to saving a customer is to listen to his or her issue that is causing the cancellation and to be able to adjust your relationship in order to solve that issue. Most companies match each cancellation reason with a particular offer. A simple example is if a customer thinks the product/service is too expensive, a company may offer a discount.
Creating rebuttals and scripts
Your company should create a list of reasons why a customer might cancel. If a new reason why a customer cancels arises, add it to the list. For each reason they might cancel, you must prepare a rebuttal that addresses that issue. If she is receiving too many offers you can agree to cut the frequency to what she prefers, if she is unhappy with something you sent her you can agree to take it back or give a coupon towards the next purchase, etc. Marc says the key is creating scripts and emails that address every reason for cancellation with a counter that you believe will make the customer happy (without too much cost burden on you). Once you have this in place, anyone who will be dealing with the unhappy customer needs to be trained on how to use the script and what escalation (to a supervisor) procedure should be used.
Winning back Customers
The least expensive customer to acquire is a previous customer. You know quite a bit about them: what they prefer, how profitable they were and more. Given what you know, churned customers can be segregated into groups as you are probably willing to spend more to win back the high value group than a lower value one. For each group you need to go through the process of original acquisition, but with a lot more specific knowledge. So an offer needs to be determined for each group and creative needs to be created. The methodology should parallel that of customer acquisition with the difference being a defined target.
The steps of the framework have been outlined in detail. But there are a few more points to be made.
- SEO should be utilized by all companies as it’s the lowest cost of access to target customers.
- Work with a very strong agency partner who understands the fundamentals of marketing.
- Have a solid set of vendors for things like email, campaign management, etc.
- Data is crucial. Make sure you track as much as you can regarding every potential and actual customer.
- If you can’t measure it don’t do it!
- There has been much chatter this season about Curry becoming the 8th player with 50/40/90 stats – 50% field goal shooting, 40% 3-point shooting and 90% from the foul line. My partner Paul Ferris noted that if we raise this to 50/45/90 Curry is only the third. And the surprise is that the other two are Steve Nash (not a surprise) and Steve Kerr! Data for this observation was gleaned from BasketballReference.com.