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Is RFM still valid in the online world?

Years ago in New York City I was introduced to the concept of RFM modeling (recency, frequency, monetary value). I briefly met Donald Libey and sat through a discussion / presentation with him while he mopped his head with a handkerchief. He was very enthusiastic about the topic and worked up a sweat - I supposed the room and lights might have also helped. :) Ever since, I have been a fan of this approach to business and have found it to be exceptionally useful.

In my career, I have used RFM in many industries, have combined it with frequency momentum and extended it by adding "depth" metrics drawn from web site traffic. And yet, I pose the question today, is it still valid in the online world?

Can email delivery analytics help you market smarter to your customers?

Recently I reviewed some material from my early days in catalog marketing and magazine publishing. The context of "deliverability" back then, as it still is today in the physical world, was all about understanding the postal system. Things like sectional center facilities (SCFs), zip code sort, zip+5, carrier route coding, bar codes, containerization, in-plant post office, merge/purge reports and site-penetration were just some of the things that were used to make decisions about getting your catalog or magazine delivered to the right people on time.

All of that seems to have been stripped away when deliverability was netted down to one item: the email address.

Or does it?

"Who cares what they need-it's what they want that sells."

Many years ago, in the formative years of my career, this was one of the sage pieces of advice given to me. In truth, this goes against all the idealism that was poured into me in my tender youth. :)

However, there is some truth to this and it's important to reconcile with it in your efforts to constantly increase the economic exchange that happens as you work through the lifecycle of your customers. Let me illustrate with a few examples:

Customer Lifecycle Metrics: Nurture, Score, Repeat

Nicely written, Lisa Canon captures many of the reasons why marketing automation platforms are so popular. However, please recognize as you read through this, the metrics and reasons expressed can apply anywhere in the customer lifecycle. Remember, the customer lifecycle is all about the customer and metrics like those identified here, can apply to any stage of the customer's life experience with your company. Thy can occur as a Prospect, during Acquisition, Conversation, Penetration, Retention and ReAcquisition.

Is GoDaddy Shifting Gears?

Customer lifecycle marketing provides an approach to business that can be extremely useful in understanding customer behavior, company behavior and whether or not a company and its customers are "getting along with each other." Join me as I experiment in a series of posts with lessons learned in customer lifecycle marketing and apply it to GoDaddy and their public records to see what the numbers tell us about GoDaddy, the world's largest domain name registrar.

Remember, this is an experiment, to poke and prod and "peel back the onion layers" and see what we can see using customer lifecycle marketing methods about GoDaddy's customer loyalty, revenue and business model assumptions.

Okay, here are a few reference points for your consideration:

GoDaddy has 14 million customers today (their web site says so) and had 13.8 million on December 31, 2015. On March 31, 2014 they had 12M customers and taking it back to Dec 31, 2009 they had 7M customers. That's 100% growth over a six year window of time. Not bad.

In 2013 they added 1.3M customers. In 2015 they added 1.1M customers. I am inclined to believe these are "net adds" and not gross numbers of new customers acquired during the year. Hence I would expect the growth rate to drop to a number close to 1 million customers added in 2016. If correct, that would be roughly 30% slower than three years ago.

Okay, GoDaddy has also been kind enough to publish that 700,000 customers spent "over $500" each in 2015. That tallies to $350M in annual revenue if they "average" $500 each, but they don't they spend "over $500 each." Let's use $1,000 as the "average" for this group. This tallies to $700M.

Based on the 700k customers that spend "over $500 each" the above point leads me to believe 5% of their customers generate between 18-35% of total revenue. That's (700k high value customers / 14M total customers and $350M -$700M high value customer revenue / $1.9B total revenue). Okay, so far so good.

Now the GoDaddy retention rate is at 85%...unless the customer has been with the company three year or longer, then it jumps to 90%. We're going to stick with the 85% number. On a base of 14 million customers, with 85% retention rate, GoDaddy loses over 2M customers per year. In order to achieve the net add of 1M in 2016, this suggests they need to "acquire" 3M new customers in order have a net increase of 1M.

Turning to profitability, the company has made steady progress in shrinking their annual losses. 2015 showed a small loss of $52M. Based on the last three years, it is possible that GoDaddy will achieve break-even by the end of 2016.

So, here's my early thesis or my rough observation, GoDaddy is shifting up market. 5% of the customers could be generating 35% of revenue. The profit picture is improving and the net add in customers is becoming increasingly difficult. The bigger the base, the more difficult it is to maintain rapid customer growth across the entire customer base.

GoDaddy continues to make acquisitions, as evidenced by their recent purchase of ManageWP in order to add a wider and deeper offering to their existing customers. In other words, the GoDaddy business is shifting from high customer acquisition growth to revenue and profit growth from existing customers. This is a fundamental shift in their business and will alter the way they sell to and service customers. It is likely their segmentation models will change, their customer lifecycle methods will change and their product offerings will change. There's a whole lotta change coming to GoDaddy...

But then again, this is very rough, and very we peel back the layers… with a very limited number of data points. Time will tell if I'm barking up the wrong tree. After all, rumor has it there are over 1B registered domains around the globe and GoDaddy says they only have 63M under management.

Does your customer journey start like this?

Recently I signed on to receive emails from a specialty clothing retailer - just to see how they do their marketing. What you see above is the result of my first 20 days of emails received. Notice that the Welcome Email came on day one, then a pause until day 7, then every day a new email. A few other things I'd like to point out:

  • No personalization exists in any of these emails
  • No dynamic content has been delivered
  • No gender specific offers

Customer Lifecycle Metrics, Part 4: Convert, and Create a Customer

This article talks about the "customer lifecycle" but in realty the author is talking about "prospects." and the use of "conversion" metrics from a Prospect to a Customer. The lifecycle being talked about is BEFORE the person or company even becomes a "customer." My definition of a customer being someone that buys something. Meaning if they haven't given you money for your product or service, then they're not a customer.

We may be splitting hairs on this one, but Lisa still has some valid points and it's worth the read.

58 Emails and Counting...

A little more than 60 days ago I started tracking a $100M retailer to see how they manage their customer interactions. So far I have been disappointed. Especially since they are using the Eloqua platform and I have some familiarity with what it can do.

To make the point, here are a few actions I've taken and capabilities I have failed to experience:

Marketers count on short-term memory loss with customers

It must be one of the "secrets of the trade." Marketers count on short-term memory loss in their customers.

As mentioned earlier, we are tracking the email marketing of a $100M+ retailer. So far nearly 80 email offers received over the lat 3 months or so. One of the offers that sticks out is the "Last Chance for Free Shipping." Only it's not the last chance. The "free shipping" offer with "last chance", "2 days left" and "ends tomorrow" type of language has been received no less than 15 times.

Do they really think the customer is going to believe them the next time they say "Last chance...?" Nope. They're banking on the belief that customers have short-term memory loss OR that customers don't believe what they say anyway, so they can say whatever they want just to get a response.

Brings to the forefront why "truth in advertising" laws came into place in the first place. And it's a no-so-subtle reminder that when talking about "relationship marketing", "customer lifecycle marketing" or the "customer journey" it's important to be honest and truthful in your marketing.

Traditional campaign marketers fail when it comes to lifecycle marketing...

Unless they change their thinking and their behaviors.

Take a look at the ugly / simple chart above. Notice that a 5 day gap exists between each email in the campaign. Now consider that this drip campaign has 8 steps in the series. Simple math tells us that 40 days will pass before the prospect or customer passes through the entire series...

Years ago when I first started in direct marketing, one of the companies I studied was Reader's Digest. As I recall they used a 37 step renewal series. That's right, 37 steps! And they weren't mailing every 5 days. It took years to complete the series.

Why did they do this? Simple. They knew that it cost less to obtain an order by mailing their house file 37 times than it did to find a new customer that would buy that first time...

Sometimes marketers act as if the only answer they know is "more is better" and "faster" must be best of all.

This is foolishness...

Data-driven marketers are computer scientists? Or riverboat gamblers?

Way back when, in the early stages of my career I was told that my job was to be half computer scientist and half riverboat gambler. The trick was to figure which half, at what point in time and in what situation.

Teradata recently ran an ad in Forbes magazine with the headline, "Data-driven businesses outperform" and the sub-head of, "Becoming a data-driven organization is now a matter of survival in the market, because such organizations tend to outperform."

Oh really?

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