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Drilling Down Newsletter  October 2000
Customer Retention for Online Retailers

In this issue:

Drilling Down Site Revisions
New Article: Retention for Online Retailers
Questions from fellow Drillers

Hi again Folks, Jim Novo here.  
Let's do some Drillin'!

Drilling Down Site

If you haven't been to the Drilling Down site lately, I have been practicing what I preach - that is, the database and direct marketing approach to doing business on the Web.

Although my expertise is on the "keeping customers" side of the coin, I have considerable experience in the "getting customers" biz too, at least from the direct marketing perspective.  The site has gone through a series of redesigns and the visitor to book sales ratio has improved substantially.  Dig this:

Weeks 1-4:      1 book sale per 500 visitors
Weeks 5-6:      1 book sale per 250 visitors
Weeks 7-8:      1 book sale per 100 visitors

How did I do this?  You will get all the details in upcoming issues of this newsletter (Hint: The secret to keeping customers is getting the right ones in the first place).  So stay tuned!  You might want to check out the Drilling Down site for clues if you haven't been there for a while at:


New Online Retention in Retailing Article

"Measuring Customer Retention in Online Retailing" is an article I wrote for the newsletter E-Tailer's Digest, loosely based on the Hurdle Rate concept from the Drilling Down book.  It shows you how to use Hurdles to set up a "down and dirty" customer retention tracking method.  I created this method at Home Shopping Network and it works great for interactive environments.   Check it out at:


The only data you absolutely need is last activity date of the customer.  In retailing, you use purchase records; in pure publishing, you would use visits or page views.  Got more data?  Then you can track multiple indicators and sub-segments using the same method.

Questions from fellow Drillers

Got a couple of top shelf questions this issue from the more experienced side of the customer retention biz.  As I've said before, the Drilling Down method works whatever size your business is.  The tools used are different, not the ideas driving their use.  For example, a small business may be using MS Excel or Access to keep track of customers, and a large business would be using a CRM app or rules-based engine.  Doesn't matter, works for both.  So, hey little guys, don't let the experts hog the spotlight, send your questions in!

These two questions from Drillers make a nice pair; they are related features of customer buying behavior...

Q:  Jim, I still don't get subsidy costs.  I get the idea of using control groups, but how can a response to a marketing campaign be bad?

A:  Most response is good, of course.  Subsidy costs refer to a hidden cost primarily in best customer programs, where customers have a high probability of making a purchase anyway.  When you promote to these people and offer discounts, you run the risk of spending money and margin you did not have to spend to generate the sale.

Think of it this way.  You have a specific catalog purchase in mind.  The catalog mails to you pretty frequently (you're a best customer), so you are waiting intently for a catalog to arrive to make the purchase.  It arrives, and low and behold, has a "20% off" coupon banner on it.

You go ahead with the planned purchase and spend 20% less than you intended.  That's a subsidy cost.  Great for the customer, bad for business.  The point is, you can measure these subsidy costs, and a promotion has to cover the cost of them to be profitable.  A better alternative is to intentionally design the promotion to minimize subsidy costs.

Q:  Hi Jim.  Is there any way to tell what the best length of time is to look for Halo Effects?

(If you have not read the Drilling Down book:  Halo Effects occur when people respond to a promotion outside of business tracking procedures and are "not counted" as having responded.  For example, you send a discount and the customer loses it but makes a purchase anyway because you "reminded" them of a need they had).

A: Not really.  You have to look for them at different time intervals and discover the right length of time for your business and products.  In B2C, I would be very surprised if there were significant Halo Effects after 60 days.  In long sales cycle B2B, it could be 6 months, maybe a year.  Try looking at 30 days, then 60 days, then 90 days, you'll see the Halo Effects slope off and approach zero.  When they approach zero, you should cut off your measurement.

Generally, the better the customer, the *less* the length of time will be.  If you are doing a one-time buyer conversion promotion, you could look out a bit longer, probably as far as 6 months.

That's it for this month's edition of the Drilling Down newsletter.  If you like the newsletter, please forward it to a friend; the subscription is free!  Subscription instructions below.

Any comments on the newsletter (it is too long, too short, prefer articles included in newsletter to a  website link, etc.) please send them right along to me.  And don't forget, keep sending your customer Valuation, Retention, Loyalty, and Defection questions to me.

'Til next time, keep Drilling Down!

Jim Novo

Copyright 2000, The Drilling Down Project by Jim Novo.  All rights reserved.  You are free to use material from this newsletter in whole or in part as long as you include complete attribution, including live web site link and/or e-mail link.  Please also notify me as to when and where the material will appear.


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