Repeat Sales: Identify Your Best Customers
Every company wants life-long customers. If you could identify that loyal lot, you'd reward them right now. But here's the puzzle: What do your best customers look like? Are they the proverbial 20% contributing 80% of sales? Or are they, say, the 5% that boost the bottom line?
For answers, you could use statistical modeling to compute "customer lifetime values" -- as some catalog houses do. Or you could create your own markers. Consider how Health Valley, a producer of nonfat foods in Irwindale, Calif., gets the skinny on its customers.
Many people have sampled Health Valley's fat-free soups, fruit bars, and cereals, particularly after they've penned their New Year's resolutions. Health Valley can't survey all its supermarket customers but has learned how to spot its strongest allies. "They are committed to a healthy lifestyle," says advertising director Harry Urist, "versus those who buy fat-free cookies because it's the thing to do."
In other words, Health Valley's ideal customers are not Nabisco Snackwell's addicts. But just who are they? The company identifies them in two ways: One, those who save up 20 bar-code labels for a $5 rebate. Two, those who order Health Valley's books: the $14.95 Cooking Without Fat or the $12.95 Baking Without Fat.
Since 1992 Health Valley has carried both the bar-code and book offers, along with a toll-free number, on the packages of its 150 products. More than 600,000 consumers have responded, boosting membership in Health Valley's Preferred Customer Club. In three years Cooking Without Fat has sold 500,000 copies.
The membership card the company gives to its preferred customers has a dedicated toll-free line for their dietary questions. "When they call, we know something about them," says Urist. Preferred customers also receive periodic product samples and newsletters in the mail.
Of course, creating effective offers takes money and time. Concocting a book of tasty, fat-free recipes "was a nightmare," Urist admits. But the alternatives were unappetizing. Health Valley tried, for example, freestanding inserts (FSIs) in major Sunday newspapers. Too costly.
While a 2% response is considered good for FSIs, Health Valley's newsletter yields a stockier coupon-redemption rate: 8%. The best way to advertise, Urist concludes, is "direct contact with customers."