The Billion $ Online Biz of 2011

Are willing to be known as a discounter?

Or would you rather be known for your value?

The past couple years we have the growth of Groupon and other daily deal web sites which have had mixed results.

According to this survey from Mediapost, this type of promotion is popular with consumers.

But I worry about the long term sustainability of these promotions for an individual business.

See, the more we train consumers to only buy when something is on sale, the more fickle those consumers are likely to be. But I'll write more about that another time...

Daily Deals Anticipated By Consumers

According to research from Yahoo! Mail and Ipsos OTX MediaCT, reported by EMarketer, consumers will not quickly tire of the daily deal websites and mailing offerings, nor the rush of established online companies like Google and Facebook to get into everyday promotions. In March, BIA/Kelsey predicted US daily deal site revenues would reach $1.25 billion this year.

The February 2011 survey found that US adult internet users subscribe to an average of almost three daily or weekly shopping emails or newsletters, and 56% of internet users subscribe to at least two of the emails.

Subscribers also say they regularly read the emails. Among those who subscribe to at least two, 61% said they read all of the messages. And most access the emails at least once a day.

Frequency of US Internet Users (18-34) Accessing Daily Deal Emails or E-Newsletters (% of Respondents; February 2011)
Frequency	% of Respondents
Once a day	38%
Several times a day	22
A few times a week	23
Once a week	7
A few times a month	5
Once a month	1
Less than once a month	2
Never	2
Source: eMarketer (Yahoo! Mail, Ipsos Consumer Pulse, March 2011), April 2011

Most recipients of daily deal emails also pass along the messages to friends and family, though with less frequency. Less than a quarter passed messages along every day, and 45% did so at least weekly.

Frequency Of Forwarding Daily Deals To Friends Of Family (% Of Subscribers To Daily Deal Or E-newsletter; Feb 2011; Ages 18-64)
Frequency of Forwarding	% of Respondents
Several times a day	12%
Once a day	10
A few times a week	17
Once a week	6
Once a month	5
Less than once a month	14
Never	22
Source: eMarketer (Yahoo! Mail, Ipsos Consumer Pulse, March 2011), April 2011

More than six in 10 respondents reported subscribing to more of these emails now than last year, and nearly half were still excited enough about them that they said they "can't wait" to see the latest deals in the messages.

The survey also found that for most consumers, daily deal emails are appearing in their main inbox. Just 27% of internet users said they had a separate email account for such offers, further reinforcing the perception among subscribers that these emails are desirable and relevant.

For additional information, please visit eMarketer here.

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How Homeowners Are Spending their $$

Conservatively, and with a hammer:

Fortunes of Home Improvement Chains Improve as Americans Tackle Repair Projects

After several years of perusing real estate listings and spending Sunday afternoons at open houses, Denise Majeski decided to stay put and fix up her 25-year-old Gurnee, Ill., home.

As the housing market languished even as the economy improved, Majeski determined the financially prudent course would be to fix up the house a little at a time, starting with replacing the windows and renovating the bathrooms.

"Initially we were thinking about moving," said Majeski, 55. "But that would require a mortgage and additional amounts of money. We can do a home improvement at a pace that we can afford."

It is a choice more homeowners are making these days and one that is lifting the fortunes of the long-suffering home improvement industry.

Seasonal hiring at Lowe's Cos., the nation's No. 2 home improvement retailer, is up 15% this spring as homeowners, feeling more secure in their jobs, tackle maintenance projects delayed during the recession.

And Home Depot Inc., the largest home improvement retailer, in February reported its first annual sales increase since 2006, before the housing market crashed. The home improvement business is stabilizing despite the continued weakness of the housing market, Home Depot Chief Executive Frank Blake said at the time.

"People are doing what it takes to be happy where they are," said Jack Horst, retail strategist at Kurt Salmon, a consulting firm. "They are more likely doing maintenance and replacement than big fundamental changes."

A few buckets of paint, brighter lighting and some new door handles are enough to make Rebecca and Bill Klies happy in their new home. The couple, in their 30s, bought their first condo last October in a short sale, in which a lender allows a homeowner to sell a property for less than the amount owed on the mortgage.

Now the Klieses spend weekends at Home Depot and Lowe's getting ideas on how to fix up their West Loop loft in Chicago without spending a fortune. They've swapped out light fixtures, recaulked the shower, put up new towel racks, installed a ceiling fan in the bedroom, bought new light switch plates, painted several rooms and touched up the molding.

"These are simple little fixes that make a big difference overall," Rebecca Klies said.

At the same time, home improvement stores are getting an extra sales boost as homeowners dig out from a winter of lengthy cold spells. The severe weather has left shingles, gutters and downspouts in need of repair and lawns littered with broken shrubs and damaged trees.

"These are the have-to-do projects," said Jim Kane, president of Home Depot's northern division. "We've just come through a tough winter, and the winter has just taken its toll on all those things."

Maintenance and repairs account for about 40% of Home Depot sales, up sharply from recent years when home sales slowed, said Daniel Binder, an analyst at Jefferies & Co., in a report last month.

Spending on home remodeling is expected to rise 9.1% in the first quarter to $125.1 billion from the same period a year ago, according to a widely followed index from Harvard University's Joint Center for Housing Studies. The last time remodeling activity for a three-month period topped $125 billion was the second quarter of 2008.

The center predicts the industry to gain momentum this spring with sales jumping 12.7%, to $132.9 billion, in the second quarter from a year ago, before tapering off to a 6.5% gain, to $123.5 billion, in the third quarter.

More homeowners are tackling basic house projects on their own instead of using general contractors, bringing in electricians or plumbers only for the toughest jobs, said Rich Cowgill, Chicago-area chapter president of the National Assn. of the Remodeling Industry.

Cowgill said he had noticed an increase in the size of the do-it-yourself classes he teaches as a volunteer at ReStore for Habitat for Humanity as more homeowners try to lay tile, replace windows or put up drywall.

"People are dressing up their homes because they've come to the realization with housing devalues that they're not going to move," said Cowgill, who also owns a home remodeling business.

Kris and Dennis Cortes of Flossmoor, Ill., are typical of the post-recession home remodelers, industry experts said. The parents of five children said they chose to stay in the home they bought 20 years ago and to give the house a face-lift. They are adding a couple of gables to the roof, installing a new garage door and updating the landscaping.

"We could buy the megamansion, but we choose not to," said Kris Cortes, 46. "We're choosing to allocate our resources more toward education, charity and savings. I do think the country at large is headed in that direction."

(Source: Chicago Tribune, 04/13/11)

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Are You Friendly with your Customers?

It takes more than a "Like" on your business Facebook page to earn a loyal customer.

It takes building relationships.

Last week on the Not-So-Secret Writings of ScLoHo, (click here), I asked 4 questions you should take the time to ask yourself:


If your best customer was also your best friend, what would you be doing differently in your interactions with them?

If your best friend was also your best customer, what would you be doing differently in your interaction with them?

If you treated all of your new customers the way you treat your best customers, what would you need to do differently?

If you treated all of your current customers the way you treat new customers, what would you do differently?

Take a moment and answer those 4 questions.

Write those answers and ideas down.

Only you know the real answers.

Now I have one more question.

If you implemented the changes and ideas you just wrote down, would your business be more successful and your future more secure?

The Not-So-Secret Writings of ScLoHo is updated every Tuesday morning at 7am and you can also subscribe free to email or RSS feeds. Click here to go there.

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7 Timeless Secrets

Every Tuesday morning at 7am Eastern Time, I update my other marketing website, The Not-So-Secret Writings of ScLoHo.

Click here to go there. You can get email updates, RSS updates, or just wait for me to share with you the following Monday.

Speaking of which, here's the most current update:

(This is an updated repost from about 15 months ago.)

For nearly 8 years, I have worked for a group of radio stations in Fort Wayne, Indiana known collectively as Summit City Radio. (Click on the logos to go to each stations website.)

This was not my first experience in Sales or in Radio.

My radio career began in 1976 at the age of 16, and ten years later I began a career in radio advertising sales and marketing.

The 7 Secrets are neither original, nor secret.

However, I have seen so many people in the sales world either fail, burn out, or never establish their full potential because they either didn't know or didn't follow these 7 Sales Secrets.

So, let's get started:

1. People don't want to buy what you are trying to sell them. They want to buy a solution to their problem/need/want. The classic example is people don't buy a drill because of the shiny black handle. They buy a drill because they need to create a hole.

2. Price is not important. Value is all that matters. While there are limits to what someone is willing or able to spend, if your customer sees no value in what you are offering, there is no price cheap enough to overcome a lack of value.

3. Objections can lead to a yes. An easy "yes" means you either know your client very well, or you're just being an order taker. I know it sounds harsh, but objections are conversation starters, and these conversations can lead to customizing a solution to their problem/need/want. Which leads us to...

4. You have to listen and learn, more than smile and sell. I do my homework and am prepared with research about my customers and their business. I also look at their competition and we talk about them. We talk about their goals for the future, their past history, what they have done that was successful and what didn't work too. Too often salespeople are only focused on what they have to sell instead of seeing how they can help their customers.

5. Your customer knows more than you give them credit for. We live in an information age with easy access via the internet. Your customer has done their research. However...

6. Your customer knows less than they think they do. Just because the information is available, doesn't mean they know how to use interpret it and use it to their advantage. That's where you come in as the expert. Which means that you better know your stuff inside and out. You are personally responsible for your own education, not your boss. Be your very best.

7. Relationships are forever. Apply the Golden Rule. Treat others with the same honesty and respect that you would like to be treated with. Keep relationships alive with your customers, potential customers and even those that may never become your customers. After a few years at my current group of radio stations, I had developed relationships that began paying off in ways I would have never imagined.

That's it. A half dozen plus one Sales Secrets, that shouldn't be secret. Your comments are always welcome.

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And the BIG Money goes to....

Hey, it's tax season in the U.S. of A.

And lot's of folks use Uncle Sam as a savings account, with tax refunds as their annual payoff.

Here's who will benefit in 2011 according to a report from Mediapost in my email this week:

Tax Returns To Buy TVs, Furniture And A Vacation

According to the National Retail Federation's 2011 Tax Returns Consumer Intentions and Actions Survey, many Americans are now keen to use their tax refunds to treat themselves or their families to a major purchase. 13.2% of Americans will spend their refund on a big ticket item, such as a new television or furniture up from 12.5% last year.

But with the economy also serving as a reminder that it's best to be financially prepared for the worst, 42.1% of people will put their refunds away for a rainy day vs. 40.3% in 2010. 66.2% of tax payers are expecting a refund this year, up from 65.5% last year.
Matthew Shay, NRF President and CEO, says "Despite the difficult unemployment situation... Americans receiving a tax refund this year seem eager to plough this money back into the economy... NRF is becoming more bullish about the economic recovery."

Other ways consumers will use their refunds include:

• 41.9% of consumers plan to pay down debt.
• 11.9% planning a vacation
• 29.7% paying for everyday expenses

This year, 57.6% of U.S. taxpayers will file their taxes online, up from just 50.1% in 2007:

• 35.2% will prepare their taxes using computer software
• 21.5% will use an accountant
• 19.3% will use a tax preparation service
• 10.9% will have a friend, spouse or other relative prepare their taxes for them
• 13.2% will prepare their taxes by hand

According to the survey, 63.9% of Americans will have filed their taxes by the end of February, meaning that many tax returns have already been received or are on the way. An additional 21.1% will file in March and 15.0% will wait until the last minute and file in April.

Phil Rist, Executive Vice President, Strategic Initiatives, BIGresearch, notes that "Many Americans have spent the last few years paying down debt with their tax refunds, but... others are looking to the future... by putting their ‘free money' in a savings account... "

For more information from the NRF and BIGresearch, please visit here.

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Still considering Groupon?

A lot has been talked about and written about Charlie Sheen, I mean Groupon in the past few months. Take a look at this from one of my clients:

Two Sides of the Social Buying Coin

Mar. 1, 2011

Thom Villing

Lately all the buzz has been about social buying websites like Groupon, LivingSocial and SlickDeals. Everyone loves a bargain. I know I like the idea of getting half price at a good restaurant – whether it’s an old favorite or a new one I’ve been meaning to try. And it’s a great way for the business to get trial. Everyone wins, right?

Well, not so fast, my friend. Last month Scott Tingwald wrote about Groupon engaging in some activities that could hurt its brand. There are other factors retailers may want to consider before jumping on the social buying bandwagon.

The biggest concern for retailers should be whether they are willing to risk devaluing their product. There is always a point of diminishing return when it comes to discounting. If a product is always on sale, why would anyone ever buy it at full retail? Unless they are desperate, most consumers will simply wait until the next coupon mailer or this week’s “sale of the century.”

“There’s no doubt social buying sites have tremendous potential.”

There’s also the issue of selling below cost. If costs are higher than the selling price, “making it up on volume” is a dubious strategy. As I understand it, sites like Groupon essentially require retailers to discount their products by 75 percent. The consumer gets 50 percent off. The retailer and Groupon split the other 50 percent. That leaves the retailer with 25 cents on the dollar.

So what’s the problem? It’s just a temporary loss leader to stimulate trial. Nothing new or radical about that. Until it runs into that pesky old law of unintended consequences.

Let’s say all these new customers are just bargain hunters. They have no plans for return visits and don’t even fit in with the profile of the company’s regular customers. In fact, the influx of activity could upset the regulars and exceed the capacity of the organization to provide a positive experience for everyone. That’s seldom a good thing, and may be very costly.

But wait! There’s more. Never forget the nature of social media users. Many of them like to make their opinions known. That means reviews on sites like Yelp or Groupon itself. If those reviews are positive, great. If not… well, you get the picture.

There’s no doubt social buying sites have tremendous potential. For certain businesses, these sites can be a powerful new marketing tool. But as the old expression goes, “there are two sides to every coin.” So before you make the call, it would be good to know which is the winning side for your business.

To get our latest articles when they are posted, please subscribe by e-mail or RSS.

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Survey Says....

A friend of mine who used to own a radio station now owns a research company and we were discussing a few years ago the limitations of surveys.

Michele Miller asks similar questions on her WonderBranding blog:

Survey On Gender Desire For Brands: Fuzzy Logic?

Posted: 03 Feb 2011 08:50 AM PST

WalletPop reported on a new study just out from Buyology marketing group, listing the “20 Most Desired Brands” for each gender.

Here are the results:

Top 20 Most Desired Brands in the World: Women

1. Johnson & Johnson
2. Sony
3. Kleenex
4. National Geographic
5. MasterCard
6. Google
7. Amazon
8. Visa
9. General Electric
10. Toshiba
11. Crest
12. Microsoft
13. Disney
14. Target
15. Tropicana
16. BMW
17. Febreze
18. Ford
19. Olay
20. Chase

Top 20 Most Desired Brands in the World: Men

1. Crest
2. BMW
3. National Geographic
4. Panasonic
5. Hyundai
6. Kleenex
7. Coca-Cola
8. Microsoft
9. Tide
10. Lexus
11. Apple
12. Bed Bath & Beyond
13. Ford
14. Animal Planet
15. Hitachi
16. Mercedes-Benz
17. FedEx
18. Procter & Gamble
19. Hallmark
20. Geico

You can read the entire article on the study, but some questions came to mind as I reviewed the results.

• Are these really the most desired brands in the world? According the article, the survey was given to consumers in America and Japan.
• The survey was presented to 5,000 consumers. Were they evenly divided among gender? Among country?
• What were the qualifications for brand identity? There seems to be a mixture of conglomerate brands and product brands – for example, Proctor & Gamble, which owns Tide.

Finally: How were survey questions posed to consumers? Were questions worded differently for women than men? Female consumers definitely speak a different language than male consumers.

The reason I ask this is because I was so surprised at the results in the men’s category. Tide is a more “desired” brand than Lexus? Bed Bath & Beyond? And it beats Mercedes?

While I appreciate the time and effort put into this survey, I strongly question the methodology and results. Not having had an opportunity to view the study’s platform or parameters, my marketing intuition tells me that it was either hastily put together or created without regard for posing questions in a language suitable for each gender.

What do you think? How do these lists reflect with your own “desire?” I’d particularly love to hear from the men out there.

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Playing favorites?

Who do you treat better, your new customers or the regulars?

You might want to rethink your thinkin'!

Seth Godin:

How should you treat your best customers?

Here's what most businesses do with their best customers: They take the money.

The biggest fan of that Broadway show, the one who comes a lot and sits up front? She's paying three times what the person just three rows back paid.

That loyal Verizon customer, the one who hasn't traded in his phone and has a contract for six years running? He's generating far more profit than the guy who switches every time a contract expires and a better offer comes along.

Or consider the loyal customer of a local business. The business chooses to offer new customers a coupon for half off—but makes him pay full price...

If you define "best customer" as the customer who pays you the most, then I guess it's not surprising that the reflex instinct is to charge them more. After all, they're happy to pay.

But what if you define "best customer" as the person who brings you new customers through frequent referrals, and who sticks with you through thick and thin? That customer, I think, is worth far more than what she might pay you in any one transaction. In fact, if you think of that customer as your best marketer instead, it might change everything

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Creatures of Habit

from Drew:

Marketing tip # 32: People are like sheep

Posted: 08 Jan 2011 10:48 AM PST

My agency, McLellan Marketing Group's, bank has a branch near our house, so I am usually the official "deposit the checks" guy at our company.

Like most bank drive throughs, they have a commercial lane on the far left and then several "everybody and anybody" lanes to the right of that. The branch I go to is no exception. Except that their drive through isn't straight -- it's curved to the right.

So already my car needs to be at an angle to reach the commercial window. Add to that, they've installed a big pole so drivers don't get too close to the building and damage their cars or the building.

The net result of this is... their commercial window is a pain. I can never get quite close enough to the drawer (even when it's fully extended) to comfortably put something in it or take out my receipt. More than once on a windy day, the receipt has fluttered off and I have had to chase it through their parking lot.

We have banked at this particular institution for several years and I have probably been in that drive through a few hundred times. Every time, I grumble to myself about how much I hate the drive through experience. But, I endure it.

I take pride in the fact that I'm a bit rebellious. That I don't always follow the path well taken. That my 7th grade teacher told me I was incorrigible, even though looking back I am pretty sure she didn't mean it as a compliment. My point being -- I don't think of myself as someone who is afraid to question or disregard rules on occasion.

Which is why this story is embarrassing to tell.

The other day, as I yet again approached the drive through, FOR THE FIRST TIME, it occurred to me that I didn't need to use the commercial lane. I could use any of the drive through lanes...and the rest of them are straight and utilize the tube/chute thing rather than a drawer with a paperweight in it.

I pulled into one of the "everybody and anybody" lanes and had a lovely drive through experience. Duh!

For years, years mind you, I have been gritting my teeth and enduring the frustrating lane. All because it had a sign over it that said "commercial" and we're a commercial customer.

My point in telling you this story?

Human beings, even incorrigible ones, typically do as they're told. We are all, even me, rule followers by nature. We want to get it right.

From a marketing perspective -- this is wonderful news. Couldn't you use this truth in selling and improving the customer experience? For example:

~ On your website, use this truth to control how people navigate through. Use prescriptive commands on buttons to guide them exactly where you want them to go so they don't have to click around looking for something.

~In your bricks and mortar establishment -- use signage and other prompts (Disney uses different colored walkways and other tricks) to drive traffic in the right direction and to show a customer when they've strayed off path.

~ In a B2B environment, using checklists and other guides to prompt clients to advance through a project faster and more accurately (good for you and for them).

Bottom line -- while it may not be the most flattering of human truths, the fact that people are a bit sheep-like can actually help you create a better (and maybe even WOM buzz worthy) experience for your customers.

But, as in the case of our bank -- you can also inadvertently create a bad experience too. So...be mindful of the prompts you've already created. Do some of them need tweaking?

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What we Really want for Christmas

Reward the person who is buying...

Shoppers Look to Rewards for Holiday Spending

Consumers are looking to stretch their holiday dollars with benefits from the various rewards programs they belong to, according to research from LoyaltyOne and Epsilon Targeting.

According to the companies' research, which involved a nine-question survey sent to more than 700 U.S. households, 11% of consumers said they planned to use reward points or miles to augment their holiday spending this year. Of that group, 70% said they would use those points on purchases for other people, rather than for themselves.

According to the survey, more than 70% of consumers said they were occasional or frequent users of rewards programs. Of those users, 8.1% of them said they planned on spending more on holiday purchases this year, compared with 6.6% of the total respondents.

"Retailers who use data from their reward programs to respond to customers' most pressing concerns at critical times like the holiday gift giving season can enhance the shopper experience and leverage relationships in a way that deepens loyalty to their store or their brand," said Epsilon Loyalty Solutions Vice President John Bartold, in a statement.

Meanwhile, a separate survey found that Canadians are much more likely to use rewards programs than Americans. According to the Air Miles and American Express Holiday Rewards survey, 91% of Canadians use rewards programs, compared with 72% of Americans. Eighteen percent of Canadians said they plan to use those programs for holiday purchases, compared with 8% of Americans.

Americans, on the other hand, are more likely to shop online than Canadians, at a rate of 73% vs. 44% for general sites. However, when the online shopping involves a loyalty or rewards site, Canadians are three times more likely to shop online.

(Source: Marketing Daily, 12/04/10)

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Last Minute Shoppers

Just because it's a week away, and retailers have had Christmas stuff in their stores since July 5th, doesn't mean Americans are done shopping...

Majority of Holiday Shoppers Still Have Gifts to Buy

Hard to pass up holiday sales helped motivate holiday shoppers a little earlier this year, though most agree they still have quite a dent to make in their list. According to the National Retail Federation's 2010 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, the average person had completed 49.5 percent of their holiday shopping by the second week of December, up from 46.7 percent at same time last holiday season.

"It's well-known that at least half of the shopping that occurs during the holiday season happens during the last few weeks, making the final stretch of utmost importance to retailers," said NRF President and CEO Matthew Shay. "With the big day falling on a Saturday this year and a lot of shopping left to be done, retailers will continue to push aggressive promotions in the weekdays leading up to it, hoping to remind shoppers they only have one more weekend to shop."

According to the survey, 37 million people (16.9%) had not even started their shopping as of late last week, lower than the estimated 42 million people who said so during same point last year. Additionally, 22 million go-getters (10.1%) say they have already finished, up from 8.6 percent who had finished by this time last year. Though they started the season with a bang, men admit to having completed slightly less than women at this point (48.5% vs. 50.4% respectively).

It seems many shoppers are well aware they only have one big weekend left to shop. According to the survey, most holiday shoppers (32.4%) plan to complete their list prior to Saturday, December 18. Though, Friday, December 24 (11.9%) is expected to be the second busiest day between the 18th and Christmas Day.

Of the people who say they have used their smartphone to shop this holiday season, more than one-quarter (26.0%) have used the phone to make an actual purchase. Nearly one-third (32.5%) are specifically using their phone to receive text messages with special offers and 34.6 percent are reading what their peers are saying in customer reviews. It seems locating store hours or locations (50.7%) and perusing their options by browsing for gifts (60.2%) are the most popular ways shoppers have used their phones thus far.

"Just as we saw with the emergence of Internet shopping, mobile shopping, too, is already starting to catch on in terms of being a generator of sales for retailers," said Phil Rist, Executive Vice President, Strategic Initiatives, BIGresearch. "Tracking down mobile coupons and reading customer reviews remain extremely popular options for shoppers as they look for the best price, product and even store location."

Department stores can expect the larger share of traffic over the next few weeks (38.4%), though online retailers (37.6%) and discount stores (36.5%) will also be popular shopping destinations for last-minute shoppers. Electronics stores (19.4%), clothing or accessories stores (18.8%) and outlet stores (10.8%) will also see their share of procrastinators in the coming days.

When it comes to gifts that have been bought so far, most say they have purchased clothes or clothing accessories (43.9%). Though books, CDs, DVDs, videos or video games (38.1%) have also been popular purchases. Consumers also bought toys (35.3%), gift cards (29.9%), consumer electronics (21.3%), food or candy (20.0%), and home décor (15.2%).

When asked which payment method they have used the most, four out of ten (40.9%) have used their debit or check cards most often. Nearly one-third (31.1%) have used their credit cards and nearly one-quarter (24.4%) have used cash. A mere 3.6 percent have relied on checks.

Christmas Day itself will largely serve as a day for consumers to cook (45.6%), visit friends and family (66.0%) and watch TV (52.8%), but nearly one-quarter (24.1%) will browse the Internet as well. NRF has revised its holiday sales forecast to 3.3 percent, or $451.5 billion, up from the original 2.3 percent expected increase.

(Source: National Retail Federation, 12/15/10)

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The True Value of a Customer

This is similar to a formula I learned in 1986 when I went to work for a radio station in Detroit that didn't subscribe to any of the ratings services and we didn't do business with advertising agencies.

It's the kind of information that cuts to the heart of what is really important in business, Customers Spending Money, which allows each and every business to operate.

Read and learn from Chuck Mckay:

How to Calculate Lifetime Customer Value

In How to Make Money by Losing Money" we introduced the concept of back end sales, and suggested it was worth giving away a $400 (retail) cellular telephone in order to get a $100 per month cellular telephone service contract.

How did we know? We simply subtracted the cost of the premium (the front end transaction) from the sum of back end profits over the lifetime of the vendor/customer relationship. In Part 3 we'll learn how to use the Customer Lifetime Value to calculate useful things, like ad budgets.

Our hypothetical telephone company is a small start up. It has 3,500 customers, each locked in to a twenty-four month service agreement. The company's net profit is $297,500 per month.

Over the first year of the contract those 3,500 customers will produce $7,140,000 in profit - approximately $1,020 each.

They will also produce $955 each in the second year. (There will frequently be a difference between year one and year two. More on that in a minute).

This means that even if every single customer stops doing business with this company, the lifetime value (profit) of every new customer this phone company can acquire is still $2,040.

Calculating LCV for your business.

This LCV number is important. Without it we can only guess at how much we are able to spend to acquire a new customer.

A. What is the profit on your average sale? $ _________

B. How many times will the average customer repurchase from you? _________

C. Multiply A by B to estimate your average customer's lifetime value. For your company that value is: $ _________

Lifetime Customer Value = Pt (profit per transaction) x R (number of customer reorders)

Of course, this is overly simplistic.

In the real world, Lifetime Customer Value is a moving target.

Under most conditions, not all of those cellular telephone customers will complete all 24 months of the service agreement. If 14 percent cancel during the first 12 months, 3,200 customers will enter year two of their relationship with the cellular provider.

At the conclusion of the second year we can estimate that, freed from their mandatory minimum service agreement, 70 percent will either upgrade to a new phone with the same company, or sign with a competitor. Either way, they'll be entering into a new 24-month agreement.

But the remaining 30 percent will appreciate the month-to-month nature of their new relationship with their cellular provider. 1,050 will enter year three with the company.

Also, the profit margin actually increases the longer a customer stays a customer, since older customers tend to consume fewer support services.

So, applying a bit more accuracy to our figures, the actual customer lifetime is three years. She'll generate $2,205 in value to the company during that lifetime.

Calculating Customer Reorders for your business.

Your average sale figure is pretty straightforward. Simply divide total revenue by number of transactions. Estimating the number of times a customer will make another purchase is a bit more difficult.

You could divide the number of total sales by the number of customers, but that leaves us with a bit of a problem. Can you spot it? Exactly. Newer customers will not have ordered as many times as a long-term customer would have.

We'll get more accurate data if we remove data from all customers who have not finished their relationship with you. But that means you must already have a good estimate for the length of time a customer is likely to continue to purchase from you. And if we knew that, we wouldn't have to estimate. (Author makes "I'm going crazy" sound of index finger thrumming on lips).

OK. Let's reconsider.

If you've been in business for several years, you can create a fairly accurate estimate by removing from your list of customers any who haven't ordered anything from you in the last 12 months. Now, select every fifth (or seventh, or thirteenth) remaining customer until you've created a significant sample. Fifty may be acceptable. One hundred is much better. The larger the sample, the more accurate your results.

Calculate the number of days between each customer's first order, and their last order with your company.

D. What is the number of days between the first purchase and the last for each customer in your sample? ___________

E. Sum the number of days as customers from each customer sample. The total is: _________

F. Now divide by the number of customers in your sample. ___________.

This is the average length of a customer relationship, in days. If you're a younger company and don't have records going back years, study your sales data. As closely as you can, estimate the length of the average customer relationship, in days.

G. Whether calculated, or estimated, how many days does this work out to be for your company? __________

Trim the database.

From your complete customer database, remove all data back as far back as the number of days in your average customer relationship. Count the number of sales transactions which remain, back to day one. Count the number of customers which remain, back to day one.

H. For your company the number of sales is: __________

I. For your company the number of customers is: __________

Divide the remaining total sales by the remaining number of customers and you'll have a highly accurate customer reorder number.

J. Divide H by I. The average number of reorders for your typical customer is: __________

The final step.

Divide the average profit per sale (from A, above) by the average number of reorders (from G).

K. That number, your true lifetime value of a customer, is: $___________.

You can add a degree of sophistication (and accuracy) by discounting the value of future cash flows. It's a bit complex, but if you're curious, drop me a note.

____________

Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about budgeting with lifetime customer value may be directed to ChuckMcKay@ChuckMcKayOnLine.com.

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Should You Go Undercover?

from Drew:

Marketing tip #17: Stop assuming!

Posted: 29 Oct 2010 11:44 AM PDT

I've said it before....no one is worse at seeing your business objectively than you. If you own or run it -- you cannot possibly remove your own biases, opinions and hopes from the equation.

So when you make operating, marketing and customer service decisions, you need to second guess yourself now and then. You need to remove yourself from the equation and see it from your customer's perspective. But how do you do that, if you can't possibly be objective?

You walk in your customers' shoes. Literally.

You need to experience exactly what they experience. Go through your own drive thru, try to navigate your phone system without using any of the back end short cuts, see what asking for a credit or return feels like.

I'm betting that 90% of companies never do this. They think they know what their customer wants, so based on that dangerous assumption -- they run their business. We all know the old saying about what happens when you assume...

Over at IowaBiz today, I explore this topic some more. Come jump into the conversation.

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Groupons, 1/2 Price Coupons, Are Not for Everyone

If you need a sale to get customers then:

1. Your regular prices are too high
2. You're lazy and uncreative
   
3. You are a new business
4. You are a shyster
   
5. You have problems retaining customers and building a loyal following

I know, it sounds pretty harsh.

Maybe 1 of the above is true. Like #3.

The "New Economy" has consumers demanding value for their money, not the cheapest price.

My group of radio stations is going to be launching a 1/2 price gift certificate program next month. We have studied others, looked for problems, found solutions and are confident that the version we kick off will have a better than average chance of success for the businesses we allow to participate.

Check out this report from Mediapost:

Expectations Important For Coupon Campaigns

Social couponing, in which online coupon offers go active once a minimum number of registered users sign on to them, has become a hot new promotional platform, at least for Groupon and Living Social. But new research finds that about a third of the merchants extending those discounts may find them a very mixed blessing.

According to study of 150 businesses by Rice University's Jones School of Business, of a coupon promotion by Groupon, those coupon campaigns were unprofitable for 32% of the businesses that ran them. And more than 40% of the response group said they would not run another social coupon promotion again.

According to Jones School associate professor Utpal Dholakia, the author of the research, the profitability of a coupon promotion can be measured by two main criteria: whether customers redeeming the coupons spent more than the coupon amount, and what percentage of those customers came back again to shop without a coupon offer.

Those survey respondents who said the campaigns had not been profitable for them reported that only about 25% of redeemers spent more than the face value of the coupon. They also said that about 13% of those coupon holders came back a second time to shop at full price.

The 66% who reported these promotions as profitable said that 50% of redeemers spent more than the value of the coupon, and 31% returned to become customers again at undiscounted prices. But even some of those businesses who reported successful promotions said they would not be likely to run another campaign on the platform, because the offers did not draw the right customers.

Dholakia found that marketers who set a ceiling on the number of coupons offered through the platform tended to see more demand. However, only 11% of the businesses studied in the survey imposed such coupon caps, and those that did set them relatively high at an average of 2,190 offers.

Foodservice businesses sold significantly more coupons than other types, the survey found:

· Restaurants made up the largest single business category in the response pool (32.7%)

· Educational services (14%)

· Salons and spas (12.7%)

· Tourism (8%)

Dholakia writes in the study that "... there is disillusionment with the extreme price-sensitive nature and transactional orientation of these consumers... they are not the relational customers that they had hoped for or the ones... necessary for their businesses' long-term success... "

The report concludes that coupon promotions can draw large customer surges into a business, but many of these will be either new users or price-conscious shoppers, unaware of the need to tip service employees or to tip based on the undiscounted price. Businesses need to consider that these consumers are bargain hunters. By nature they are frugal.

For additional information about the report, please visit Promo Magazine here.

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Race and Research

I don't like being lumped into a big group.

Most folks don't.

Yet researchers continue to lump us together.

A common "Target Demo" for broadcasters are adults age 25-54.

In my own family, I have myself, my son, two daughters, and three son-in-laws that are in that demo. There are three others in my family that are borderline with that demo.

But if you look at the trends and ways to create patterns, it makes sense, allowing for exceptions to all the research.

With all of that in mind, here's some info on consumer research and buying habits:
Consumer Spending Influenced by Cultural Differences Whites and Asians have the largest incomes, and generally have more disposable income than Hispanics or Blacks to spend on consumer goods and services. However, cultural and lifestyle factors introduce variations in spending by category, according to data from the New Strategist Who's Buying series based on Bureau of Labor Statistics cited in the 2010 Retail Business Market Research Handbook.

Asians and Hispanics, for example, outspend other races/ethnicities on groceries. Both cultures favor cooking with fresh ingredients, some of which are exotic and can be more expensive than common canned or frozen ingredients. In addition, Hispanics tend to have larger households that include extended family members, driving up their grocery bills.

Asians outspend other races/ethnicities in the consumer electronics category. This is a cultural difference: Many Asian countries are leaders in technology, and their higher-than-average spending may be to keep up with the trends they hear about from their homelands.

Non-Hispanic Whites and Asians dominate spending on jewelry, a category that is largely dependent on having disposable income.

Hispanic spending on toys and games and sporting goods is second only to non-Hispanic Whites. Hispanic families have more children than families of other races/ethnicities. In addition, Hispanics are the youngest ethnic group and are more likely to be in the early stages of starting a family, when spending on toys and games is at its highest.

(Source: Research Alert, 08/20/10)

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Payday is Spend-day

When I read this headline, I wondered what was really going on....

Are consumers maxed out on their credit cards?

Are they unable to get credit?

Or are they simply becoming more thrifty and not spending until they actually have the cash in hand?

Shoppers Still Stick To Payday Purchases

Consumer-products makers continue to see shoppers stock up on necessities around payday, a sign that some of the frugal habits consumers picked up in the recession linger.

The so-called "paycheck cycle" -- where shoppers make purchases in tandem with salary checks or government payouts and then pull back on spending as they run out -- became more prevalent at the height of the recession. But many consumers are stubbornly sticking to that buying pattern even as the economy improves.

Unilever NV said it continues to see a sales jump in the first week of the month in the U.S., with brands like its lower-priced Suave shampoo, and kitchen staples Skippy peanut butter and Ragu sauces getting some of the biggest lifts as paychecks are cashed.

"A lot of people are still truly living paycheck to paycheck," said Lisa Klauser, vice president for consumer and customer solutions at Unilever North America.

Consumers typically shop close to payday, but the paycheck cycle "heightened during the recession, and it's one of the behaviors we would now call the new normal," said Ms. Klauser.

Finding ways to appeal to frugal Americans has turned into one of the biggest challenges for consumer companies. The persistence of a marked paycheck cycle suggests that some recessionary patterns will be hard to shake off -- particularly among consumers with lower incomes.

Some brands are trying to reach payday shoppers. Jeff Ettinger, chief executive of Hormel Foods Corp., said retailers still talk of the paycheck cycle as having an impact on the timing of sales. Hormel is trying to time some promotions around the cycle and is working with retailers to make sure it has the right brands stocked at pay time. Ms. Klauser said Unilever tries to time marketing programs like coupons for when shoppers are likely to have more money.

The exact cycle can be hard to predict as timings of paychecks and government payouts vary, but many companies notice a jump at the beginning of the month. The cycle has become more prominent in brands popular with shoppers on low incomes or getting government benefits. Food-stamp benefits, which more people are using, generally are received in the early days of the month in many states.

ConAgra Foods Inc. said it sees a sales spike of about 2% to 5% in the first two weeks of the month for brands like Banquet frozen meals, Snack Pack pudding, Manwich sloppy joe sauce and Hunt's ketchup. ConAgra said that the brands tend to be heavily used by households on government-assistance programs, and it attributes the sales lift early in the month to factors like paychecks, government checks and food stamps.

Dawn Brown, a single mother in Rockford, Ill., who makes about $33,000 annually, said she lives paycheck-to-paycheck and stocks up on necessities early and mid-month when she gets paid. She became more careful during the recession, timing purchases early in the month when her neighborhood stores offer big discounts. Ms. Brown, who works as a credit counselor at Chicago nonprofit Family Credit Management, said many of the people she counsels tend to have similar purchasing habits.

The paycheck cycle also appears in more discretionary categories. Jim Moseley, a senior vice president for consumer planning at Diageo PLC said the company sees the cycle play out most in its "subpremium," or more-affordable brands. Lines like the company's more affordable Gordon's Vodka appeal to consumers looking particularly hard for value, he said. At the height of the recession the company saw the paycheck cycle play out a little in premium brands as well, though that trend has since eased out.

The big brands say that consumers remain willing to pay for a higher-end product, but want to ensure they get good value for money. That focus on value is another recession habit likely to stick. "We have created a generation of smarter consumers," said Mr. Moseley.

(Source: The Wall Street Journal, 08/30/10)

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Many Happy Returns

What is your customer retention rate? It's a question that I was asked recently by the president of the group of radio stations I work for.

See, we've made a couple of changes this year, and a couple of our stations are almost sold out all the time, and the other two have room to grow.

So, as we look to sell out the two that have room for more advertisers, the first place to look is at former and current clients.

The Customers Rock! blog featured a post on this subject:

Growing Business the Old-Fashioned Way

Here is a blast from the past, a classic Customers Rock! post on taking care of your current customers. Thanks to @Foundora for bringing it back to my attention. Enjoy!

Many companies spend a lot of time and money on attracting new customers to their product or service. Much of the marketing budget is spent on mass approaches such as advertising and direct mail. While those media may have their place in attracting prospects, they don’t help companies with their most valuable asset: their existing customer base.

Taking care of existing customers is a fantastic, cost-effective way to grow your business.

Drew McLellan shares some advantages we have when we concentrate on the “old” customers. I especially like the first advantage he lists:

“They know who you are and trust/like you enough that they’ve done business with you”

How well is your organization doing in its communications with your customers? What would cause them to trust you and want to come back for more?

Take a brief break here and think about the last 5 communications you received from companies you (or your company) are doing business with. What kinds of touches were they? Interactions with existing customers tend to be one of the following types:

• A bill
• An upsell offer
• A cross-sell offer
• A renewal offer

While there may be some customer value in these actions, they tend to be more favorable to the company than the customer. In order to keep and grow existing customers, a proactive strategy is needed. Here are some great ideas from a few of my favorite bloggers:

Meikah of Customer Relations shares with us some insight from Jack Stahl, former president of Coca-Cola and CEO of Revlon, on how to strengthen relationships in a B2B setting:

“Persist in offering value. Give consistent and routine attention, which shows that you are always interested in your customer’s business, in good times and bad. Also, have an ongoing dialogue with the retailer, when an opportunity arises to regain your business.”

Offering something of value to your customers is very important to furthering the relationship. If there isn’t value, customers may continue to do business with you for awhile, but the relationship will be short-lived. Keeping the communications line open, whether or not the customer has recently purchased something, is one of the keys to keeping up a conversation with customers.

Joe Rawlinson of Return Customer gives us some ideas on communicating appreciation with existing customers.

“When was the last time someone told you how much they appreciated you? How do you feel when you get a thank you note? If you’re like most, you get a warm fuzzy feeling inside. You smile. You feel a little bit better.

Don’t you think your customers would like to feel that same joy?”

Words of thanks are greatly valued by customers. They are a nice antithesis to all the sales calls and could actually make the next call more fruitful!

Rosa Say of Managing with Aloha tells us how to deliver on the promise of our customers’ dreams. She tells her readers about the art of creating loyal customers:

“Managing with Aloha incorporates the art of Ho‘okipa to achieve a service and product delivery that is unparalleled in the dreams of your customers, turning them into loyal customers for life. When people feel they have experienced the ultimate in good service and in hospitality, they return for more of it time and again.”

Customer loyalty comes from more than just great products and services. The customer experience has a very strong influence on customer attitudes towards an organization. I love the way Rosa describes it above – an experience that makes you want to return again and again.

Other ideas on how to create meaningful interactions with existing customers:

• Birthday cards/anniversary of start of relationship
• Invitations to customer appreciation events
• Asking for customer feedback, then acting on it and letting customers know the results
• Customer apologies, where needed
• Customer advisory boards

Which types of interactions you use depends on the company, it depends on the culture, and of course, it depends on what is important to the customer.

Finally, one can always use the element of surprise to keep relationships fresh. Here is an unexpected example from Bounce fabric softener shared in Andy Nulman’s blog.

Sometimes it is the little things that make all the difference.

(Photo credit: cookelma)

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