Forget Friends and Followers. Focus on This Secret Weapon
BY Victor Ho
Sure, it's nice to have a big social media following. But there's a much more effective tool for forging customer connections.
Everyone is focused on the public scorecards that show how well they are doing building connections with customers: Facebook likes, Twitter followers, and Google +1’s are all trumpeted as statistics that reflect a business’s reach and popularity. But that misses a major piece of the puzzle: the size and proper use of a business's customer database.
The size of the databases can be a business's secret weapon--especially with everyone else distracted by their friends and followers. Let me explain why.
Most people don’t spend lots of time obsessing about the size of their competitors’ databases the way they do their Facebook fans. Maybe they should. Consider this: We know from Panera Bread's most recent annual report that it has over 13.8 million contacts in its customer database, built up through signups to the MyPanera loyalty program. By contrast, Panera has “only” 1.9 million Facebook likes. They’re both huge numbers, so let’s examine the power of each program to drive influence and sales.
Typically, emails sent can have a 20 to 30 percent open rate. Facebook posts, by contrast, typically reach only 16 percent of their audience, according to data supplied by Facebook last year. Plus, clickthrough rates after someone opens an email are typically in the 10 percent range. By contrast, if a typical Facebook post reaches a user, from our experience, it can generate clickthrough rates any where from 0.3 to 3 percent.So an email from Panera could conceivably reach more than 2.5 million people and get more than 400,000 clicks, while a post on Facebook for Panera will only reach 300,000 and might only get a few thousand clicks.
Simple math shows where Panera should focus first, and as a result, Panera has grown the size of its customer database by 45 percent since last year. Panera uses its database to send a birthday surprise email to customers on their birthday. Through simple back-of-envelope calculations, I estimate these birthday email campaigns could drive more than $3 million in incremental revenue to Panera every year. According to Panera, the growth in the MyPanera program has allowed the company to significantly increase the efficiency of its marketing, and perhaps not coincidentally, over the past year, the company’s stock price has increased almost 30 percent.
The strategy isn’t just for big companies. I have seen it work numerous times at small businesses. One of our clients, Soulman’s Bar-B-Que in Texas, built its database to over four hundred customers after deploying a customer loyalty program. Since signing up for the loyalty program is through the customer’s phone number, Soulman’s was able able to send out a quick Valentine’s Day promotional text that involved customers showing the cashier a message to get 20 percent off and some free desserts on Valentine’s Day. Over 4 percent of the recipients of the text came in, and the company generated an 18-times return on the campaign’s cost.
So where do you start? While it might seem low tech, the best way for local businesses to build their databases is at the point of sale. I was at Office Depot the other day, and they asked me if I wanted to join their loyalty program and get special perks by providing my email. I asked the cashier how he gets trained and incented to sign up Office Depot loyalty program members, and he said that employees are tracked and get rewarded for signing up more people. Small business owners can easily implement a similar system and provide perks for customer contact information and employee rewards for signups.
Does this mean we should ignore social media? Heck no. Social media is still really valuable to drive amplified word-of-mouth, but you shouldn’t just be tracking your Facebook likes and Twitter followers and comparing them to your competition. You should be secretly building the size of your customer database and cleverly deploying it, because it could be your secret to your long-term success.
IMAGE: Image courtesy flickr user Nutmeg Designs http://www.flickr.com/photos/nutmegdesigns/
Last updated: Jun 5, 2013
VICTOR HO is the CEO and Co-Founder of FiveStars, a venture-backed startup building the first loyalty automation platform for local businesses. Previously, he was a consultant at McKinsey & Co. in New York, where he helped multiple Fortune 500 companies build and manage their loyalty and customer retention programs. Victor holds three degrees from the University of California, Berkeley, and is a Rubik’s cube enthusiast with a personal best of 45 seconds. @FiveStarsCard