Kieran Kilmartin explains how to design smarter email campaigns that reduce costs, increase revenue and enable lifetime customer relationships
A colleague recently recounted how one retailer was only targeting the most relevant customers by direct mail but targeting everyone by email. His reason being, "because email’s free – there’s no mailing cost – so there’s no real reason to focus on a smaller segment of customers."
There may be no ‘per piece’ cost of communicating the offer but the cost of fulfilling it and the potential to undermine longer term customer value in pursuit of short term gains is enormous. A strategy like this goes against the grain for direct marketers whose Holy Grail is to increase a customer’s lifetime value through the investment in offers and services made to them.
To avoid the heavy price that can be paid for flooding customer inboxes with untargeted offerings, companies need to constantly evaluate what works and what doesn’t. With email campaigns, particular attention should be paid to:
• Keeping customer data clean and updated
• Analysing data to segment customers so that all communications are relevant
• Incorporating customer preference management around how and when to contact
Today marketers will use business intelligence and data mining tools to manually cut and slice historical data to reveal patterns which will inform marketing decisions. However this will only tell them what has happened previously. Future interpretation is left up to the skill of the analyst.
At the next level, predictive analytics provide a window into the future. Given an objective, such as propensity to churn or respond to a product offer, predictive analytics will generate a behaviour model that will help organisations to effectively segment and target its customer base to predict responses.
From this they will know who is likely to respond to a campaign but not who will be positively affected by the campaign. ‘Uplift modelling’, however, makes this distinction so that companies can target only those customers where marketing can make a positive difference. – therefore truly optimising their marketing campaigns.
To achieve a truly personalised and targeted approach to email campaigns companies need to consider five key elements:
1. Be aware of mental opt-out
If a customer opens his inbox to find the same old messages offering an irrelevant product he or she will most likely delete it. They may not scroll down to unsubscribe but they will have chosen to ignore the message and mentally opt out. And every additional untargeted email will slowly chip away at the likelihood that the recipient will take time to read and act on the next one.
2. Take time to consider customers as individuals
Organisations can only optimise the impact of their email campaigns if they understand which customers will react most positively to a particular message or offer. By taking time to analyse and understand them as individuals, organisations can ensure that they only ever contact them with relevant and timely emails.
3. Segment customers using ‘uplift modelling’
Traditional response models effectively assume that all purchases during, or in some period after the campaign, are incremental, i.e. would not have happened if the campaign had not been carried out. They also implicitly assume that no purchases are lost as a result of the campaign. History has taught us that it is simply not true. More sophisticated ‘uplift’ modelling will be likely to perform much better as it predicts the incremental impact – or uplift – a marketing campaign has on a customer. Uplift measures the variation in the difference between a treated group and a control group.
4. Pick ‘persuadables’ and let ‘sleeping dogs’ lie
Uplift modelling differentiates customers into those that are most likely to buy regardless of receiving an offer, those who are expected to respond positively, those who would be unlikely to buy regardless of the offer, and those who will react negatively. Known as ‘sure things’, ‘persuadables’, ‘lost causes’, and ‘sleeping dogs’,
Uplift identifies these critical customer response segments before a campaign is run and helps marketers focus on contacting only those customers that will react positively; namely the ‘persuadables’. Importantly, it also identifies the ‘sleeping dogs’; customers that will react negatively to a campaign and may be provoked to opt out of the contact list and take their business elsewhere. For example, a renewal reminder to this group would be a red flag to get a competitor’s quote.
5. Avoid ‘sure things’ and ‘lost causes’
‘Sure things’ were planning to buy or renew regardless and don’t need any incentive or extra marketing. It’s important to identify these customers and avoid emailing them special offers that will hit profit margins. On the other hand ‘Lost causes’ are customers that will never buy or renew no matter what you email them so contacting them is a waste of time.
A targeted strategy, fuelled by intelligent analytics, is the key to determining customer preferences and ensuring that the right message or offer is targeted to the right person. Get it right and you can reduce both mental and physical opt-out, improve overall campaign ROI and reduce churn. In short, making more money for the business whilst spending less on direct marketing.
Email may be free but used ineffectively it can actually lose customers. Uplift modelling can be used to design smarter email campaigns that will develop solid customer relationships, build trust and unlock long-term value. Certainly, organisations such as US Bank, have invested in this and made significant cost savings while safeguarding long term customer relationships. It really is a case of taking a strategic approach to the ‘persuadables’ and letting ‘sleeping dogs’ lie.
Kieran Kilmartin, Director of Marketing, EMEA
Pitney Bowes Business Insight
http://www.pbinsight.co.uk