Reactivate lapsed customers – the 17% response rate story
A number of years ago I was given a task by a cash retail company: generate loyalty from our cash customers.
The first cash retail loyalty program in the world
I created a free Club for the customers to join and then had to manage the loyalty program that was part of the club. At the time, this was the first full-scale loyalty program for a major cash retailer in the world. After a year we had over 200,000 club members. In order to drive purchase behaviour from customers, one of the offers we used to send to them was:
Make a purchase of $30 or more and we’ll give you $10 off your purchase.
The average response rate was 3%.
The average transaction for that kind of offer was around $35.
Making the effective discount rate: $10/$35 = 28.6%.
So if we did a mailing to 80,000 non-active customers we generated the following (on average):
Gross Revenue $84,000
Discount: $24,000 (28.6%)
Net revenue: $60,000
Number of customers: 2400
A risky decision that paid off – big time
On one particular occasion, we decided to reactivate lapsed customers so we tried something controversial and “out-of-the-box”. The decision to implement this controversial offer was only done after numerous testing to ensure that the results did not cause financial hardship to the retailer. All our testing had resulted in very similar results and we were confident that it would hold true upon roll out. We held our breath…
What we did was make a similar offer to the same base of 80,000 customers; however the $10 offer had no minimum purchase requirement as its primary condition. In other words, someone could come into the store, purchase $10 of merchandise and walk out without having to pay anything. So, what were our results?
Average purchase value: $32
Response rate: an amazing 17%
Gross Revenue $435,200
Discount: $136,000 (31.3%)
Net revenue: $299,200
Number of customers: 13,600
The most important aspect of this activity is that we re-activated (13,600 – 2,400) 11,200 customers and got them back into the stores to make a purchase, just by eliminating the minimum purchase requirement. The drop-off in average purchase value was more than made up by the incremental traffic that ultimately continued to purchase on an ongoing basis. The move paid off and represented just another success for our loyalty program.
Have you ever considered an offer that, on the face of it sounded crazy? The way to deal with the potential “craziness” is to test the offer in a controlled environment first, before rolling it out.
Loyalty is not a trivial requirement. Neither is the need to reactivate lapsed customers. What is most important to understand is that it is very often all about the lifetime value of that customer, and not about the value of the customer in any one transaction. If you see growth and loyalty as important to you, look at their lifetime value and build programs to maximize their return over the longer period. That’s how you will build growth into your business.
Be creative and test the boundaries to repay their loyalty to you. And never forget your current or lapsed customers. They are easier to keep or reactivate than continually looking for new customers.
This is the type of approach that is reflected in my book Big Bang for Business. In there are numerous stories that reflect the idea that smart, clever marketing is a prerequisite for growth.
Good luck. Feel free to call me if you have any questions or comments about this unique situation – you too could generate these kinds of results, in whatever business you have.
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