Do You Know Who Your 20 Percent Is?

20 February 2013

Assistant Editor's Note: This article by and reprinted with permission of Outdoor Industry Association.

Ben Lockett still remembers the bike manufacturer who, when asked if he collected product warranty cards, responded happily by plopping down a cardboard box overflowing with them. Customers had gone to the trouble of mailing them in, and the manufacturer had kept them, but he had never entered the customer information into any kind of database to use for marketing.

Lockett — a customer relationship management, or CRM, guru — is director of CRM sales for Leisure Trends Group. In his opinion, not entering the data on those cards into a customer database is equivalent to seeing a nugget of gold on the ground and not picking it up. Yet many manufacturers and retailers, big and small, fail to capture such data, or they leave it scattered in different silos across their businesses. Rather than integrating data they already have to get a clearer picture of who their customers are, companies use a one-size-fits-all marketing strategy. They spend time and money collecting information, but never use it to enhance revenue.

“You need to focus on reducing data as a cost center,” said Lockett. “Data costs money. It requires people and money to accumulate and, if it's not clean, it also costs money in terms of lost revenue. It only becomes income when you use it to target the right person, at the right time with the right products.”

The biggest cost may be not knowing who your most valuable customers are. There is a maxim in the retail business that says 20 percent of customers drive 80 percent of revenue. Yet most local retailers use the same marketing techniques for 100 percent of their customers. This increases the chances of an untargeted email being perceived as irrelevant, prompting subscribers to opt out.

For instance, a local outdoor store in Colorado might send an email blast to all 5,300 of its newsletter subscribers announcing the arrival of a highly anticipated new alpine touring (AT) boot, even though only 25 percent of its customers participate in backcountry skiing. This would be totally irrelevant to, and might even alienate, 75 percent of the customer base.

"Eventually those folks are going to unsubscribe and when you lose them, you lose them forever,” said Lockett. “We must move from mass direct marketing to one-on-one marketing, from sending one promotional message to tens of thousands of people to sending several different messages to hundreds of people."

To achieve this, Lockett recommends small companies divide customers into at least four segments based on their sex, age, marital status and whether they have children. Businesses can then supplement the data with information from their point-of-sale (POS) systems, web forms and third-party vendors. The goal is to build clusters of personas that represent whatever customer groups you want to target. Claritas, a Leisure Trends Group partner, has compiled 65 such clusters that recognize the five major life cycles every person passes through.

The Colorado outdoor shop, for instance, could narrow its AT ski boot campaign by running a report on its POS for all customers who purchased AT gear in the last year. By emailing the promotion to only those customers, the store not only improves the chances the emails will be opened and converted into sales, but it also avoids bothering other customers with an irrelevant email that may cause them to unsubscribe.

“The world is changing,” said Lockett. “Never before has it been more important to connect with customers in a timely and relevant way. Not doing so could result in your customers leaving and never coming back.”