The fallacy behind "break-even point" strategy

23 Jul 08 - Mark Klein

We believe that there is a big fallacy buried in the strategy of companies that use direct mail.
Most direct mailers, especially catalogers, have a ‘house list’ of customers to whom they mail. This list is scored by one methodology or another, for example recency or RFM (Recency, Frequency, and Monetary value). These companies usually talk about “mailing down” the list to some point called the “break-even point”. By this they mean they have ordered their scored list with their best customers at the top and their worst customers at the bottom, and have identified a point on the list below which it is unprofitable to mail. “Unprofitable” typically means that the mailing cost to reach these lower ranking customers exceeds the gross margin dollars that the mailing generates.

Once More and I'll Scream

16 May 08 - Mark Klein

This week, when I asked a new client what kinds of insights her company was expecting from using Longbow, I had to restrain myself from an offensive, too sharp reply. She said she wanted our analytics to identify her best customers. We get that request often, and sometimes it can drive me up the wall.

There were several reasons for my frustration. First, she should already know her best customers, because they are spending the most and buying often. How well could her company be managing if they don’t know their best customers? Second, if her company had been doing any segmentations at all, those top customers would stand out. Even unsatisfactory linear methods like RFM will identify best customers. Third, she was asking the wrong question.

The Devil's Compact in Customer Loyalty Programs

20 Apr 08 - Mark Klein

Sometimes I show some resolve and actually carry out my resolutions. Yesterday was one such day—I cleaned out my wallet, which was too light on money and too thick with cards from various loyalty programs. Pruning those loyalty cards made me look at each program and decide whether participation was worth it, whether there was there a decent quid pro quo for using the program.

The obvious description of customer loyalty programs is that they are a way for a company to thank its regular customers for their continuing patronage with rewards and discounts. Whether it is a coffee card for an extra java after ten purchases or free tickets to Hawaii after a winter of business trip, we all especially enjoy the “free” product or service. It’s nice to be appreciated and thanked.