Speaking Directly

Book helps you know your clientsThe following column, which appears each issue, looks at new and emerging trends in direct marketing. Alternating columnists are Barbara Canning Brown, a leading figure in the Canadian direct marketing industry, and David Foley, a specialist...

Book helps you know your clients

The following column, which appears each issue, looks at new and emerging trends in direct marketing. Alternating columnists are Barbara Canning Brown, a leading figure in the Canadian direct marketing industry, and David Foley, a specialist in database marketing programs.

Customers are not created equal.

Most organizations know this, which is why they classify their customers, usually by sales or contribution, into convenient size groupings of small, medium and large.

The process of categorizing one’s customers can lead to some interesting questions, such as: which medium-size customers exhibit most of the characteristics of our large-size customers except for their sales volume?

Which mirror?

Which small-size customers mirror the characteristics of our medium-size customers except for their sales volume?

Which large-size customers, if any, are significantly different from other large-size customers (and what are the implications of these differences?)

Jay Curry, an American who is now an international management consultant based in Amsterdam, outlines a useful process for categorizing customers in his book, Know Your Customers! How Customer Marketing Can Increase Profits, which has been published in Dutch, German, French and English, and read by thousands in Europe. (It is almost unheard of in Canada.)

In a recent survey among buyers of the Dutch edition, it was found that more than 40% were applying the techniques described in the book to their businesses, and an additional 30% indicated their intention to do so.

Just what is this European secret?

Important predictor

Since most businesses rely on today’s customers for most of tomorrow’s sales volume, the behavior of current customers is an important predictor of future sales and profits.

Know Your Customers! describes a process in which customer information is gathered to categorize customers, using a variety of criteria, and which becomes the database from which all future activity is driven.

Sales volume is but one criterion, others include customer characteristics (total sales, locations, employees, payment history, years in business, etc.), recency and frequency, media influences, competitive product/service purchases, and the history of the relationship between the customer and the organization.

Already have info

Much of the required information is already in the organization, according to the book: invoices, contracts, order forms, service files, credit applications, warranty cards, salesforce reports and general correspondence are all sources of information about the customer.

In addition, Curry writes, a customer satisfaction survey (with telephone follow-up) can often provide much of the required information for the customer classification process.

Visually, the customer groupings are shown on a pyramid, with the best 1% of customers at the top, followed by the next 4%, the next 15%, and the remaining 80%.

Then, the same criteria (excluding sales volume) are used to determine which customers in any one category have the potential to move to a higher category, since they exhibit the characteristics of the higher category other than sales volume.

The process is completed by allocating marketing communications and sales resources in accordance with the customer category, and the upgrade potential.

10% to 15% increase

According to Curry, the organizations that he has worked with, using these techniques, have achieved a 10% to 15% increase in sales volume, with very little incremental cost.

The increase in profits can be substantially higher: the book cites a real world example of a publishing company that increased sales by 20%, although profits increased 118%.

For more information on Know Your Customers! How Customer Marketing Can Increase Profits readers can call Jay Curry overseas at 011-31-20-679-3077. Fax is 011-31-20-679-2224.

David Foley is a marketing consultant and an instructor in database marketing at York University in Toronto. He may be reached at (905) 940-8784; fax (905) 940-4785.