Published May 19–24, 2021
In my earlier writings on Velvet Rope Marketing, I had created a framework to think about customers: Best-Rest-Test-Next. I wrote: “A possible approach can be to consider three segments: Best (top 20%), Rest (middle 30%) and Test (bottom 50%). This 20-30-50 split may vary based on actual numbers for different companies but is quite indicative of the 60-20-20 revenue contribution.” I added: “The Best Customers make up the head of the Customer Lifetime Value curve. The bottom 50% or so of customers in most circumstances make a negative contribution to profitability. These ‘Test Customers’ make up the long tail.” Next customers are the brand’s future customers.
A marketer’s focus for each of the segments should be as follows:
- Best: retention and revenue expansion. A term used for B2B SaaS companies – Net revenue Retention (NRR) – can be very helpful to measure success. An NRR of 110% means that there was a 10% increase in the revenues of the same customers even after factoring in churn. Velvet Rope Marketing is one of the themes I have explored in how to ensure the Best customers stay and spend. In fact, brands should create a separate business unit to focus on their Best customers because this cohort of 20% customers is likely to account for 60% of revenues and upto 200% of profits. Even a small increase in the revenues of these customers can lead to a substantial increase in profits.
- Rest: next best action. The 30% or so customers in this segment generate about 20% of revenue. They are familiar with the brand and many have the potential to become tomorrow’s Best customers. So, it becomes imperative to nudge them on what they should do next. This is where the Best Customer Genome can guide marketers on what is the next product or action that a specific customer should take in the purchase journey. The right recommendations can delight and deepen the customer relationship.
- Test: action and reactivation. The bottom 50% of customers are not yet loyal. They may have registered but not purchased or done a small number of purchases. Marketers do not know enough about these customers. From a relationship standpoint, this segment is either dormant or dead. Just sending repeated communications similar to what is sent to Best and Rest is unlikely to make an impact. A different approach is needed – what I call “action and reactivation”. The brand needs to be re-introduced to the Test customers and simple actions need to be targeted – opening an email, SMS or push notification, and clicking through to the website or app. This is where microns (micro newsletters/nudges/nuggets) can play a very important role.
- Next: targeted acquisition of Best lookalikes. Marketers spend a lot of money on new customer acquisition. This is the exciting part with big budgets and lots of ads. Here is where marketers are missing a trick. The focus tends to be on acquiring customers like the ones which are there rather than replicating the attributes of the Best customers in the new acquisitions. By narrowing the acquisition to lookalikes of the Best via an adtech-martech bridge, brands can reduce their marketing spend and get more profitable customers. Referral marketing programmes targeted at the Best can become another useful cost-effective acquisition vehicle.
The right implementation of the Best-Rest-Next-Test customer framework can improve customer relationships and boost profitability. My earlier essays have discussed many ideas to make this happen:
- Velvet Rope Marketing
- Becoming Chief Profitability Officer
- The One Number to Predict Profits
- Rethinking Referral Marketing
- How Velvet Rope Marketing can transform Customer Loyalty
- Best Customers and Velvet Rope Marketing
In this series, I will focus on the Test customers – how to drive action and reactivation. Money has already been spent in ‘acquiring’ them so they are a net loss if they cannot be driven to repeated transactions. Microns are the key to unlock value from Test customers.
Here is what I had written earlier about Test Customers:
We can think of the long tail of customers as comprising of one or all of the following:
- The bottom 50% of customers
- Leads who have not yet matured into customers
- Offline customers who are unknown to the brand
Each requires a different strategy.
Here are some ideas for the bottom 50% of customers:
- Generate more transactions and reduce service costs via ‘multiple and wide nets’
- Possible segmentation: value customers (coupon/discount) or niche buyers
- Capture additional data at time of (first) transaction
- Use martech to ensure tech-led engagement to reduce service costs
- Capture engagement data and work towards replica of BCG (Best Customer Genome)
What I had not discussed then is the how. How can the long tail of customers be targeted and engaged? How can they be persuaded to give the brand another try? While it is possible that some of this segment may have come only for a specific objective to the brand site or app, the important point to note is that they did engage. The brand is not an unknown. So, perhaps with the right approach, the relationship can be reactivated. The question of course is how.
The current approach taken by brands is to push promotional emails or SMSes (assuming the customer or visitor shared the email address or mobile number). There is nothing special done for this cohort. Promotional emails typically are a list of periodic offers focused on enticing some action. After some time, these promotional emails tend to look the same to the customer and are ignored – as happens to 85% of brand emails. The marketer then stops sending emails – worried about impacting the domain reputation because of low engagement. And thus, a relationship is broken and lost forever.
And here’s the rub: it is entirely possible that the brand’s acquisition programmes will perhaps target and try to reacquire the same customer again! This is a cycle that continues. The only beneficiaries are the digital media companies like Google and Facebook who make good money from lazy marketers.
We have all experienced this: the same promotional emails or notifications that flood our inbox from brands we had engaged at some time. And we know what to do with such messages – ignore or delete. So, what is the answer? Is there a better way to engage with Test customers? Is there a more cost-effective way to reawaken them? Yes. The answer is microns.
Dormant customers abound. As we have discussed, about half of the customers for a brand are likely to fall in this category – what I have called Test customers. Brands have spent good and big money acquiring these customers but for various reasons that relationship is no longer active. Instead of a blossoming friendship, brands and customers have become strangers to each other. Both have gone their own separate ways. Is there a way to bring them back together and rekindle the joy that they had once experienced however briefly?
Jerome Collomb: “One of the best moments as a marketer or salesperson is converting a potential customer into a sale. But just as importantly as converting visitors into customers, marketers need to be on the lookout for making sure that customers stay customers. Dormant customers are a bummer for any business, and it’s important as CMO to create a strategy that successfully awakens these sleepy buyers and gets them back interested in your product.”
Tracy Blanchard: “Customer retention is the most important investment any business can make. That’s because the cost of acquiring new business is five times higher than that of maintaining an existing customer. Once you’ve gone to the trouble (and cost) of gaining a new customer, you’re going to want to hold onto them for dear life. However, even the best-laid retention strategies aren’t 100% fool-proof. Sometimes customers slip away and stop responding to prompts from you. When this happens, it’s important to be proactive in your attempt to win them back.”
Goran Dragosavac: “Dormancy is typically defined as accounts that were previously active but now have a zero balance, with no transactional or financial movement within a specified period of time. In regards to dormant customers – it is unlikely that they have been given effective “wake up” call, otherwise they would not be dormant, and whatever previous marketing effort had been spent on them – clearly wasn’t effective! The good news is that there is still chance to be awaken with the right marketing stimuli. Key is to try to understand specific dormancy drivers.
Maria Wróblewska: “All companies experience dormant customers. Knowing how to talk to them and win them back is that part of the job where a loyalty program can help you. According to COLLOQUY’s Loyalty Census report (2016), 58% of memberships in the US were inactive. That’s a huge number!”
Annabelle Avery: “The probability of selling to an existing customer is 60-70%, whereas the probability of selling to a new customer is 50-20%. Just let that sink in. So why, oh why do only 18% of companies have a greater focus on customer reactivation strategies as opposed to 44% of companies who have a greater focus on acquisition? Even if a customer hasn’t engaged with you in a while, it may be that marketing dollars are better spent drawing dormant customers back in rather than trying to acquire new ones.”
Tracy Blanchard (again): “Businesses have a 60-70% chance of selling to existing customers and only a 5-20% chance of selling to a new one. Existing customers are not only more likely to buy, but they also spend on average 31% more than new ones. When customers stop responding to marketing efforts, many businesses abandon them. But why abandon a customer who has already done business with you? Even if a customer hasn’t responded for a while, marketing dollars are still better spent courting dormant customers than acquiring new ones. In fact, it’s 3-10 times more expensive to acquire new business than it is to reactivate unresponsive customers.”
It should be clear by now that giving up on dormant customers is not the answer. Brands need a strategy and programme for reactivation.
Current Reactivation Approaches
There are a lot of articles one can find on reactivating dormant customers. Here is a small sample:
- Gone, but not forgotten: 5 ways to recapture inactive customers
- How To Win Back Dormant Customers
- 5 Customer Retention Strategies for Winning Back Dormant Customers
- Powerful Strategies For Shopify Stores To Activate Dormant Customers
- How to Reactivate Dormant Customers and Get Them to Come Back
- How to reactivate dormant customer?
- Key Steps to Reactivate Lapsed Customers
- Customer Reactivation Marketing: Why and How to Do It
- Reactivate Your Inactive Subscribers Fast
- 5 steps to developing an effective reactivation strategy
There are some common themes as one reviews the articles. Reawakening dormant customers necessarily needs some form of push marketing. Typically, there will be limited information on dormant customers. Some form of identity will generally be available with the brand – either an email address or a mobile number. So, best options are SMS, push notification, WhatsApp or an email. Alternate options include using Google and Facebook to do 1:1 ad targeting with their ‘custom audience’ options. SMS can be expensive and has limitations with its text-only format. Push notification needs the presence of an app on the recipient’s mobile – which may be unlikely since dormant customers may have either uninstalled the app or turned off notifications.
WhatsApp is also expensive to send and has limitations on the type of messages that can be sent. Push ads can also be quite expensive. That leaves email as one of the best channels for reactivation of dormant customers.
Typical advice includes: data analysis, segmentation, offers, samples, personalisation, experiment with different subject lines, invite to events, send videos, and so on.
Even after 20+ years of email marketing there is no clear playbook for a reactivation campaign. As I considered this, I came to one important conclusion: a big limiting factor is the price of email. Even though emails offer better RoI than all other marketing channels, when it comes to reactivation, the cost per email can be a barrier. Here is why:
- Typical email pricing is 10c CPM (cost per thousand)
- Let’s say, one has a list of 100 email IDs for reactivation
- Assume each wave of 15 emails results in 1 activation (click to website/app)
- Thus 1500 emails sent (for 15c CPM) result in 1 activation
- At 15c cost per click, brands may find it cheaper to simply go in for new acquisition
- In all this, there is also the risk of domain reputation being negatively impacted
There is a better reactivation solution – microns with a different marketing playbook.
The Case for Microns
Microns are short, informational, identified, sequenced emails – priced at a tenth of regular emails. Here are some earlier writings on microns which provide background information:
- Microns: Making B2C Emails Better
- Microns: Theory and Economics
- Microns and Brands: Made for Each Other
- Micron-verse: The New World of Brand-Customer Communications
Microns are much more than simply cheaper and shorter emails. They are identified in the inbox (via BIMI) and also via the subject line (with the µ). They are not one-off but habit forming by arriving in the inbox each day at the same time. This sequencing can enable story-telling in short bursts. They can be made dynamic with the use of AMP thus enabling an exciting interactive component right in the email (micron) itself. Most important, microns are informational and as much more likely to be opened because they inform, educate and entertain – rather than just promote.
While microns have many different applications, one of the best use cases can be for reactivation. Here is the case for microns in brief:
- Majority of email addresses become inactive over time – “the lost world”
- Marketing departments tend to focus more on acquisition and retention. It is cheaper to activate than acquire new customers.
- Email is the best (only) channel to re-establish/ ‘re-awaken’ relationship
- Use Story Microns, as opposed to promotional emails
- For new customers, do “continued addressability” via DailyFresh Microns
- Microns can also be used for leads that did not convert
Another important aspect of microns is that they are cheaper than regular emails. The economics for reactivation now look so much better with microns priced at a tenth of regular emails:
- Typical micron pricing is 1c CPM (cost per thousand) as opposed to 10c CPM for emails
- Let’s say, one has a list of 100 email IDs for reactivation
- Assume each wave of 15 microns results in 1 activation (click to website/app)
- Thus 1500 microns sent (for 1.5c CPM) result in 1 activation
- At 1.5c cost per click, brands will now find it significantly more cost effective compared to new acquisition
- A new subdomain can be used to alleviate the risk of the primary brand domain reputation being negatively impacted
Microns can thus become a new mechanism for reactivation – and a huge new market opportunity.
The Business Case
In India, there are about 400 million email users. Let’s assume that the transactors are about 25% of those – so about 100 million. Let’s further assume that each of these users has about 50 brand relationships – across all the ecommerce categories, media, OTT, telecom, travel, retail, banking and finance, and social. Each of us will at least have 10 dormant relationships. So, that makes for a billion dormant brand-customer relationships. Brands have spent at least Rs 100 in acquiring each of these customers so that is about Rs 10,000 crore which lies wasted. Assuming brands are willing to pay Rs 10 to reawaken a customer, this is a Rs 1,000 crore market opportunity for microns – 5 times the total market size for email in India.
Let us look at it from the brand side. About a third of the brand’s customer base is likely to be dormant. (We had taken 50% in the Rest customers category – assuming a third of them are unreachable for various reasons, we come to the same 33% figure of the overall customer base.) A snippet from V12 suggests even higher numbers: “According to a Marketing Sherpa study, upwards of 75 percent of email subscribers are inactive… Approximately 25 percent to 30 percent of contact data goes bad each year under normal circumstances.”
Reactivation is a problem for every brand. The same idea of reactivation using microns can be taken globally. With 4 billion email users worldwide (10 times that of India), the global opportunity for microns is easily Rs 10,000 crore (about $1.3 billion) – probably much greater.
Reactivation hasn’t been looked at seriously since it falls between the two stools of acquisition and engagement. The adtech team wants to acquire new customers – which is also what the top management would like to see and show. The martech team wants to drive engagement and retention, and ignores customers who were once new but are now inactive. No one is responsible for reactivation. This is the whitespace for marketers – it can give faster success at lower spends. (But which marketer wants to lower their spending budget?!)
The compelling economics of microns can make reactivation as the new acquisition. Combined with Velvet Rope Marketing (VRM) for the Best customers, this can be the second cannonball that smart marketers can fire to accelerate growth and increase profits. After all, it is better to reconnect with forgotten friends than approach strangers!