The Importance of Customer Communications by Arthur Middleton Hughes

If CRM is going to work, the proof will be that the customer retention and spending rate improves by a measurable amount. How can you make that happen? By communicating with your customers. Let's look at a few examples of customer communications that really worked.

A 25-unit Steak and Seafood company offered a \$10 birthday discount to 215,600 customers who filled out a birthday club registration cards while eating. A database was created from these registrations.  They used the database to send birthday card mailings which, over a year, cost about \$90,000. 41.1% of the cards were redeemed, producing overall sales of \$2.9 million dollars. Each birthday patron brought an average of 1.8 other guests for the party who paid full price.

Another restaurant issued paper Frequent Diner membership cards for their patrons. When they had issued 25,000 paper cards, they decided to mail plastic cards to replace them. The cards plus mailing cost about \$12,000.  During the week before the cards went out, these card holders visited the restaurants 1,050 times. During the 13 weeks after receiving their permanent plastic cards, these same patrons visited an average of 1,400 times per week – an increase of 33%. They spent \$156,000 more than they were spending before the cards were mailed. What is most significant is that there was no special promotion associated with the plastic cards. There was no additional discount offer. The plastic cards were simply a substitute for the paper cards. They were a form of customer communication. Communications programs work!

Another restaurant chain wanted to increase frequency and reactivate members who seemed to be “drifting away.” They selected 4,000 frequent diner card members who had not earned any points during the previous three months. They sent them a letter offering a \$5 discount on dinner. The offer was good for 35 days. The letter cost \$1,800. What were the results?

• Average member visits went from 25 per day before the promotion, to 42 per day during the promotion, and 29 per day in the 35-day period after the promotion was over.

•  Average visits per card went from 1.18 before to 1.26 during and 1.22 after the promotion.

•  Incremental sales were \$17,100 during the promotion and \$4,700 in the 35 days after the promotion was over.

In other words, by spending \$1,800, this restaurant chain reactivated 599 people who were otherwise lost as patrons. The gain was not only during the promotion period, but had a lasting effect, with 147 of the reactivated people visiting the restaurant after the promotion was over. Relationship building works and has lasting benefits.

This is not high tech stuff, folks. It is simply collecting customer names and using the information to create communications.  A more sophisticated communication program was launched by a video chain that sent 170,000 emails about movies every two weeks to customers who asked for them. They held out a control group of 16,000 who got no emails. The company did not sell direct. The customers had to come in to the store to rent or buy the movies.  After six months, the company discovered that those customers who got the emails spent 28% more per household than the control group.

So, when someone is talking about their CRM program, ask them what their program is doing to increase customer retention and spending. Ask what their personalized  communications are like, and whether they have control groups. These are the key questions about CRM success.

Arthur Middleton Hughes is Vice President of The Database Marketing Institute. Ltd. (Arthur.hughes@dbmarketing.com) which provides strategic advice on relationship marketing. Arthur is also Senior Strategist at e-Dialog.com (ahughes@e-Dialog.com) which provides precision e-mail marketing services for major corporations worldwide. Arthur is the author of Strategic Database Marketing 3rd ed. (McGraw Hill 2006). You may reach Arthur at (954) 767-4558 .

The articles on this web site are available to the general public to read, enjoy and for limited business use. If you want to reprint more than one or two of them for resale or use in a business or educational environment, send an email to Arthur Hughes at arthur.hughes@dbmarketing.com. He will give you permission by return email. The cost, depending on the number of copies you want to reprint, is very inexpensive.

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