Articles - Written by Arthur Hughes - 1 Comment
That is Your Customer Response Rate? A Case Study.
In the seminars that Paul Wang and I give, we are often asked, “What response rates can we expect from a successful promotion?” Of course, the question has no general answer. For some products, in some industries, a 2% response rate is about as good as you can expect, and may be highly profitable. In other industries, with other products, a 40% response rate can be achieved. I recently had a chance to look in detail at the response rates generated by an interesting program run by Paulette (Pete) Goggins of the 3M Construction and Home Improvement Markets Division. The results are quite amazing.
3M sells Filtreteä air filters designed to trap “unwanted airborne house guests” like pet dander, mold, bacteria and micro particles of smoke, viruses and dust. The filters are sold in retail hardware stores, home centers and mass merchandisers. The filters sell from $11.99 to $14.99 each. People are supposed to change their filters every three months. Of course, many people forget to do this. Each filter is sold with a self-adhesive “Time to Change Me” sticker on which the customer inserts his own preferred date. Are people using these stickers? Do they look at the stickers to learn when to change the filter? Who knows? This is where database marketing comes to the rescue. 3M used their customer data to identify and reward their loyal customers.
Customer data is acquired from an on pack survey. The package insert with the Filtreteä filter contains a 6 question Customer Survey. There’s no incentive for completion beyond paid postage. Thousands of these survey forms are received. They are keypunched and entered into a database.
3M used their database to initiate an automatic filter change reminder service. They sent an invitation to some customers who had filled out the Customer Survey form inviting them to enroll in the new service by placing the sticker from the new filter on an enclosed postage free post card. Those enrolled in the 3M Reminder Service mail 3M the “Time to Change Me” sticker, designating the month they wish to change their filter. 3M mails back a “Time to Change” reminder letter with a reactivation perforation and post paid return envelope a week before the customer’s requested change date. On purchase of a new filter at retail, the sticker is again removed and mailed back to continue the reminders.
The reminder program was launched by a test mailing to some of those who had completed the Customer Survey. What kind of response rate did 3M get to the mailing? Half were offered a $2 rebate. The response was 22%. Half got no cash incentive, but had a response rate of 18%. The total response was 20%. A follow up mailing to the entire file, less the previous respondents, offered a $2 rebate and achieved a 10% response rate. Altogether, they were able to get 30% enrolled in the program as a result of two mailings. A reconfirm invitation mailing was sent one year after the initial mailing, again offering $2 to join. This also resulted in a 20% response rate. What does all of this mean? In summary, 24% of 3M customers who were invited to join the reminder service responded to the offer; it was an offer about something of interest and importance to them. This is valuable information.
Why would 3M want to remind customers to change their air filters? 3M had market research information telling them they had some very loyal Filtreteä filter users. They wanted to find them and reward these loyal customers. They also wanted to open a dialog with them to learn more about them. Ultimately, a loyal customer segment profile can be developed that will improve marketing efficiency to reach more loyal customers.
So, what was the retention rate of the customers who began the reminder service program? A very interesting pattern emerged. Let’s divide the 3M filter customers into three groups: those who adopted the reminder program in the first mailing (20%), the non-responders who adopted it in the second mailing (10%), and those who came in from the last mailing (20%). What they had to do when they got the reminder was to buy a new filter at their retail store, install it, put the sticker from the new filter on the notice they received and mail it back to 3M so they could receive the next free reminder. How many did so?
|Early Adopters (20%)||49%||58%||64%||73%||65%|
|Last Mailing (20%)||41%||24%|
In summary, of the 24% of all Customer Survey Responders who enrolled in the program, there was a 46% active participation rate. The differences in the three groups are striking, however. What do they show?
First, the 20% early adopters were really loyal Filtreteä customers. Quarter after quarter, more than half of these people continued to buy filters and send in their reminder notice requests. Their retention rate averaged over 60% for the first eighteen months. The non-responders, however, were an entirely different group. Their retention rate after nine months was only 38% and falling, while the last mailing group averaged only 34%. Keeping track, in the database, of the offer that the customer responded to is important to understand customer behavior.
How representative of all Filtreteä customers are these reminder program participants? Not very, I would say. We are dealing with a very select group to begin with. Only people quite interested in air quality, or extremely responsive to surveys would fill in and mail a survey with no incentive. What percentage of total filter purchases is that? We do not know, but I would expect that it would be way below 20%. But the percentage is unimportant. Once this active group has self selected themselves by filling out the survey, we have identified an important niche; responsive, active, interested customers. The reminder program mailing was able to tap into this niche and induce them, through the reminders, to continue buying Filtreteä filters. We do not know if they bought any more filters than they would have bought without the reminder program, but they did buy only Filtreteä brand. We might be able to get some idea about the numbers by a telephone survey of a test group of those participating. We could ask them how many filters they bought in the year before they began the reminder program.
A second use of the database has been to find out where Reminder Program members are buying their Filtreteä filters. A questionnaire included with their reminder program forms asks just that. 3M can use these responses to show dealers just how much traffic they are able to generate for these hardware chains by their reminder program. They have already used their results at trade shows with large chains to demonstrate the value of the program. The database thus has an important secondary usage, to encourage dealer interest and participation to encourage customers to buy Filtreteä filters and to participate in the reminder program.
But there is more. Now that 3M had a database which defines a niche market of people interested in a clean house with clean air and Filtreteä filters, they went on to take the next step to encourage this loyal group to expand their purchases of 3M products. They used their database to mail a quarterly “value package” with the theme of maintaining a clean home and seasonal tips to reduce energy costs. The package included a free O-Cel-O Stay Fresh sponge and a coupon. There were also rebates for various 3M Weather Strips and Window Insulator Kits. The $2 incentive check was also included where appropriate. The coupons were bar coded so 3M could determine the source of the redemption. A second value package was mailed in late Spring with similar contents with a summer activities theme. A third value package sent in December was in a newsletter format. It included samples and coupons for related products including Breathe Riteä nasal strips.
They also asked participants for their opinion of the Reminder Service with a postage paid “How are we doing?” postcard. They received responses from 35% of those mailed with 92% rating the Reminder Service “Good” or “Very Good”. The overwhelming #1 suggestion to improve the program was “Send more coupons” followed closely by “Keep up the new product samples and information about 3M”. New product information, samples and coupons for other 3M products are also of interest and importance to these loyal customers.
Response rates for the Value Packages are not yet in, because coupon redemption and check applications take many months to complete. When they do come in, however, 3M will be able to compare the response rates of several groups: 1)Those in the reminder program and 2)those not in the reminder program. Of those in the reminder program, they can break them into the 3)early adopters, 4)the non-responders and 5)the last mailing participants.
There are more interesting developments to come. Now that the program is launched through an on-pack customer survey, why stop there? There are 40 million homes in the US that have forced air systems. Each such home has some sort of an air filter which has to be changed periodically. Why not test the use of the new 3M reminder service on rented names of people that live in single family homes? What would be the best list to use?
3M did some experimenting with just this idea with a direct sale offer. Their objective was to test various list sources. The primary audience was allergy sufferers so they rented a list of people with known allergy problems, since these people would be most interested in clean air. They also bought lists of mail responsive homeowners. They tested two messages; the allergic population receive “Attention Allergy Sufferers…” . The mail responsive group of whom they knew nothing concerning their allergy problems, received “Great News for Homeowners…”. The mail responsive lists produced a response rate three times the allergic group. So, even with a message specifically directed to the intense need of group, mail responsive households responded better to a clean air message than known allergic people.
What is the next step for 3M? I feel that they have discovered something very valuable about their customers. There is a niche that will loyally respond to a reminder program and are very interested in 3M products. The retention rates are amazing. They need to find out how large this niche is, and to determine whether they can increase it by going from on-pack offers to direct mail or other media. Then they need to determine the lifetime value of members of this niche. This will tell them how much they can afford to spend on promoting and developing the reminder program for four objectives; to acquire new 3M customers, to build the loyalty (retention rate) of existing customers, to increase sales to existing customers and to broaden the products purchased by customers in this identified niche.
Arthur Middleton Hughes is Vice President of The Database Marketing Institute that does research and consulting for e-mail and database marketing companies. He would love to hear about your problems. Perhaps he could help. He can be reached at Arthur.email@example.com or 954 767 4558. His new book Strategic Database Marketing 4th Edition is due out from McGraw-Hill in 2011.
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