Monthly Archives: March 2009

Use Discounts for Customer Retention? (Incremental Sales / Subsidy Costs)

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Q: Most CRM experts agree that discount is a terrible way to attract new customers. They seem to all agree that these “transaction buyers” are money-losing customers and have no loyalty.

A: I think using discounts profitably for customer acquisition depends a lot on your “Brand Personality” and your business model. That said, often people screw this up and attract the wrong kind of customer.

Q: But, I have seen a lot of different opinions on the use of discounts to increase loyalty and retention among current customers. I have seen experts contradicting themselves on this subject saying that discount is a terrible way to reward gold customers or to move up customers to a “better segment”and after some time they contradict themselves mentioning a successful discount case study (points are a common method used). Jim, what is your opinion about using discounts as a weapon in a retention program?

A: First, we have to define “discount”. Price discounts have the effect of reducing margins, but so do “better service” ideas like “VIP phone lines” and loyalty programs. So you can take your discount on the top line or the operational line, the fact is it costs money to provide good service to best customers in hopes of keeping them. I mean, what’s the $10 million you spent on a CRM system? Choose your poison, it costs money to retain customers.

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Analytical Culture – 3 Books

The web analytics conference season is upon us and I find myself sitting on several panels dealing with analytical culture issues.

“The Culture” is a tremendously important issue and am pleased to see the progress since developing the Creating and Managing the Analytical Business Culture course for the WAA.

At eMetrics Toronto, I will be moderating a Round Table discussion group called “Getting Buy-in and creating an Online Analytics Culture” and on a panel moderated by Jim Sterne called “From Web Analytics to Online Intelligence“.  At Webtrends Engage, I’ll be on a panel called “Socialization of Data” moderated by Barry Parshall.

With all this activity surrounding the Analytical Culture, I can’t help but suggest 3 books for those of you who are interested in / struggling with these analytical culture issues.  The first book you probably know about, but for the sake of providing a complete toolkit, I include it – best book for “CEO buy in” I can think of. 

The 2nd two books are probably off your radar screen because they deal with organizational issues, but trust me, these are the concepts the senior people need to understand to get any action going.  I find the biggest impediment to creating a proper analytical culture is the “roadmap” problem, and these two books together pretty much spell it out for you, including lots of tools to get you moving.

Here’s the list:

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Relationship Marketing in Manufacturing

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Q: Do the principals in the Drilling Down book apply to manufacturing? I was first introduced to Relationship Marketing in an MBA course years ago. I have been looking for an opportunity to test these ideas and now find that chance in this job (I was and still am a foot soldier, but now have more responsibility in these areas).

Manufacturers typically look at the highest revenue-producing customer, then pull out the manufacturing directory and start calling every company in the same business. Not really marketing. Can CRM be used to mine the data we need to be predictive and focused on the value of customers and retention?

A: Sure, same core issues and metrics apply:

1. Retention: Identify best customers, determine order cycles, set up a report that tells you who “should have” ordered but did not based past on past history, either market to them or send this info to sales, depending on the value of the customer.

2. Recapture / Defection: Identify best customers who have stopped purchasing and find out why, take action aligned with the value of the customer. You may not get these customers back, but you will learn critically valuable information that will help you retain customers in the future – is there reason in common why these customers left you? Was there a common Salesperson? A common Product line? A common type of Machine used? A common Material? Take these findings back into Operations and find out if the issue can be corrected.

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