Acquire the good quality customers, not just anyone | 
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By Belinda Neal (Client Services Director, Crazy Horse)
Published by The Wise Marketer in June 2005.
Many direct marketers focus on acquiring new customers in droves and pay less attention to quality, or on driving new customers toward profitability. Here we present a much more profitable strategy...
Few companies are brave enough to change to a true customer lifetime value model (something you can read about in The Loyalty Guide report). Personally, I find it amazing that more companies don't aim to acquire only those customers who are likely to deliver a worthwhile profit. Of course, such an acquisition campaign's initial response might be lower but the potential value of new customers will be much greater than before.
Smart acquisition
In many typical businesses, as much as 45% of direct, one-off, purchasers do not go on to purchase a second time. In order to grow and maintain a successful business, we must follow three simple rules:
- Acquire customers that are likely to repurchase - even though this may be at the expense of initial raw response;
- Recognise which customers are unlikely to repurchase and limit your marketing spend for this segment accordingly;
- Focus marketing budget on those who exhibit the same profile as existing repurchasers but have yet to buy a second time.
Unless we adopt these three principles, the task for the retention side of the business becomes unnecessarily onerous. I've found that the crux of the problem often lies with the organisational structure. The functions of acquisition and retention are often kept separate from each other, both having different targets; acquisition tends to be based on volume while retention is based on customer lifetime value. Change the structure, with both acquisition and retention targets residing under the same manager, and the issue will ultimately resolve itself.
Focus on quality
Clearly, the quality of customers acquired at the outset should be the focus of any direct business. Generating response, often using ever more elaborate incentives (which do nothing to drive brand values), means respondents are becoming less likely to have a true empathy with the brand or to even really desire the product. The incentive becomes the reason for the response, delivering a poorer and poorer quality respondent. This can only be justified on those rare occasions when 100% ROI is achieved at the point of acquisition. It is worth noting that the most poorly responding cells of an acquisition campaign are often the very customers who deliver the best long-term response. They want your product, not the incentive.
Very often customers that appear on many of the externally-obtained lists entering your deduplication process are considered the "Holy Grail" as they generally yield the highest response rates. But beware: not only are these customers promiscuous shoppers but they will also be mailed heavily by competitors and are likely to be less responsive to your offering over time.
Practical profiling
Profiling who you should be acquiring based on your current book of business should be standard business practice. But the best direct marketers also remember that if they are planning to target a particular channel, they only profile their best customers who were acquired through that channel. And, if planning a particular creative execution, they profile only their best customers who have responded to this particular creative approach in the past.
Once acquired, wise direct marketers quickly build a propensity model to help apportion their budgets against the new customers likely to become their most profitable customers of the future. Recognise that new entrants need a bespoke contact strategy, often by channel, and usually by acquisition topic. Remember that not all of your new entrants understand your full offering, and neither is it necessarily relevant to them.
Use the first 3 months of the new relationship to gather data, drip feed relevant information about your organisation rather than deliver a weighty 'welcome pack' tome, and work towards securing that all-important second purchase. Recognise that a one-off purchaser is only that until they have chosen to do business with you a second time - and often a bespoke 'conversion' contact strategy is required to encourage them to do so.
Build loyalty
Build loyalty through the second purchase of a similar genre to the first, then encourage wider purchases from the brand portfolio - this will help develop a loyal, profitable customer. Recognise that dimensions of loyalty go beyond the traditional view of recency, frequency and monetary value (RFM) into the customer's depth of involvement with your brand, in terms of breadth of category of goods purchased, advocacy, willingness to provide feedback and communicate with you through a variety of channels - these are indicators of a loyal customer.
Finally, handing high quality new customers to your retention manager means less budget is required to generate a profitable response, to develop customers who are actively loyal, and to get them choosing you over your competitors in the long term.
In my view, to really make it work, the company's Retention Manager should be promoted, and have Acquisition report to him. It is by turning things on their heads that companies will start to recruit fewer short-term customers, and more customers who want to do business repeatedly, delivering a profit both now and long after the acquisition manager has moved on.
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About the author...
Belinda Neal is a brand marketer with the UK-based brand response agency Crazy Horse, and believes that establishing brand without hearing the response is a waste of both time and money. The company is both brand-oriented and response-focused, and is driven by a need to deliver measurable ROI through a thorough understanding of the brand. The Crazy Horse team combines strategic brand expertise with direct marketing skills to produce brand marketing campaigns that can be monitored, measured and translated into bottom line financial value. Crazy Horse can be found online at http://www.crazyhorse.co.uk
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