How Can Relationship Marketing Be Used By You?

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Learn Data-Driven Techniques to Increase Your Customer's Potential Value

***tier3square.shtml***Relationship Marketing starts with a solid understanding of your customers. While opinions and techniques vary, there is a simple and straight forward approach to analyzing data you already have that can help you identify when your customers begin to leave or defect (some call it churn).

This is about using data to understand Who to reach out to, When to reach out, and What to say.

Who Do You Reach Out To?

Who you reach out to is critical. A main benefit of relationship marketing is the ability to control ROI both on the income side and the cost side. Sending the same offer, extending the same service, or whatever is appropriate, should only be done to the customers that need it to remain customers.

To do this, you need to know which customers are likely to stay and which are likely to leave. Once you understand this, you won't have to send mail to customers that you don't need to and you won't need to offer discounts to customers who don't need them to make a buy from you again. This is efficiency and you will not only see sales you would not have seen before, the margins will be much better. And that should always be a priority in your decision-making process.

When To Reach Out, A Proven Relationship Marketing Technique

I'm not a marketer by profession, so when I found something that made complete sense to me, I embraced it. Call me simple-minded, but I believe that most effective CRM solutions can be found in the simplest places. Once such simple solution is based on RFM (Recency, Frequency, Monetary).

RFM is based on a statistically reliable means of anticipating buying behavior, or in  the case of support centers, problem resolution. The theory goes like this:

• The more recently a customer has bought from you, the more likely it is they will buy again
  
• The more frequently a customer buys from you, the more likely it is they will buy again
  
• The more money a customer has spent, the more likely it is they will buy again (sometimes this is left out since there is overlap and it tends to smooth things out, not always what you want)

In the most basic of terms, your customers are scored on these three attributes. You can use quintiles (each quintile is one-fifth) of your customers sorted by each attribute to apply a score of 1-5. There are more sophisticated ways to break these down, but I'll let the experts go into that.

• Recency - They get a value of 1 - 5
  
• Frequency - They get a value of 1 - 5
  
• Monetary - They get a value of 1 - 5

Each customer will have three separate scores. Then you simply concatenate them to get an RFM score, or maybe a better term is a Relationship Marketing Score. It could like these, 111,555,333,123, etc.

These scores have meaning and you once you've given each customer a score, you can begin to learn much more about them and when groups of them (based on score and other things) will need a nudge.

What to Say

Once you become proficient with breaking this data down, it will start becoming clear to you who's leaving, when they are leaving and most likely you will be able to tie something to this. This will be the basis of your message, or offering. Since each business is different, I'll have to leave that up to you.

If you want to learn a really simple method for using RFM in your business to create a more effective relationship marketing program, I highly recommend a book by Jim Novo called Drilling Down. He's the former VP of Marketing for the Home Shopping Network and his book is an extremely easy read, and he shows you how to do all of this using a spreadsheet. So, no expensive software to purchase. I learned a lot from this book.

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