August 2009 – Dormant Does Not Mean Dead

Best practices for reactivating your e-mail campaigns and getting
the response that you want from your marketing messages

By Dave Hendricks

In the strange multilingual argot of modern marketing, one of the more mysterious terms tossed around is “dormant customer.” What does this mean?

Dormant is a French word that means “sleeping.” That would make a dormant customer a sleeping customer–not gone, just merely in a state of suspended animation, ready to wake at any time. But are these customers light sleepers? That’s what many marketers hope.

The truth is that dormant customers are not light sleepers at all, and, when they do wake up–like many of us–they are a bit groggy. Eventually, they begin shopping again for the things they want and need. However, whether you are Target, Title 9, Vermont Teddy Bear, L.L. Bean, J. Crew, Williams-Sonoma or a hip retail youth brand like Baby Phat or KarmaLoop, they may not remember your brand at all. In fact, it is very likely that when they do begin shopping again, they’ll begin exploring and connecting with new brands in your category, compelled by discounts, price points or other points of attraction that aren’t even on your radar. So, even if you message them frequently, it is unlikely that you are providing them with the type of “wake-up calls” they really need to remember you and shop again. The only way to do this is to pay attention to what your awakened customers are telling you by their actions, and by changing your modus operandi.

Unfortunately, most merchants continue to routinely message to active and dormant customers in the same fashion all the time and do not change their approach much to wake up, or reactivate, customers who haven’t transacted with them in some time.

BE REACTIVE; NOT INACTIVE
The realization by a merchant when that’s occurred–that most of its customer file is dormant–hasn’t seemed to change their routine marketing behaviors.

If I were a psychiatrist, I might conclude that merchants are insane when it comes to their reactivation processes. By marketing the same way to their dormant customers as to their active customers and expecting them to react the same way, they enact the definition of insanity–doing the same thing over and over and expecting different results.

If you speak with any retailer–traditional, multichannel, catalog, Internet or electronic– about their customer file, they can usually tell you a couple of things about their customers, depending on their perspective and marketing approach. What they know and what they don’t are very telling.

Now I expect that retailers of all types will complain that I’m generalizing about what categories track what sorts of metrics. No retailer tracks the same things as another, and there are some folks who are doing very advanced measurement. But by and large, most categories are defined by the limitations of their customer interaction, and to some degree, the ingrained marketing behaviors that are inculcated and reinforced over time. Disclaimer complete–comment away!

Multichannel retailers, the kind now represented by companies that have an online and an offline presence–a.k.a., “clicks and mortar”–can tell you how many store visits they receive and some comparative stats on sales across various channels. The sophisticated database marketers among them can tell you how many multichannel buyers they have, typically their most valuable type of customer. They can break down the payment type, channel type and other valuable information. They can capture more, but the traditional retailer that accepts cash payments on-site is at a distinct disadvantage compared to its more modern brethren when it comes to customer intelligence. The small specialty store will disagree, but by and large the traditional store is limited in this respect. These merchants are going to extrapolate much of the behavior from a relatively small sample.

Catalog retailers, the first major innovators after traditional retail, will tell you about their total file size, and their 12- and 24-month file size, the latter representing the number of customers who bought from them during a certain period. Catalog retailers were the original innovators and the co-op databases, like Abacus, arose to serve their increasingly sophisticated marketing approaches. These retailers can tell you many things about their customers, from basics such as which lists performed best and which catalog cover was most effective, all the way to which DMA ordered more online after reading the catalog.

Today, most catalog marketers, though using an old-fashioned medium, are very sophisticated and run their businesses based on analytics and ROI models to ensure that they don’t bankrupt themselves mailing to non-responsive customers. But despite that, they still send catalogs to my house that are quickly transported to the junk mail folder: my trash can.

Just because Internet-only retailers are using the most up-to-date marketing tools–e-mail, search, affiliates, etc.–it doesn’t mean that they are any smarter about dormant customers. Internet retailers can tell you about the number of unique site visitors, the size of their opt-in e-mail list and the number of opens, clicks and conversions that they recorded from the e-mail they sent. They can often tell you their average cart size. They can also tell you the affiliate that drove them their traffic, the keyword that generated the URL or any type of referral source. They can tell you the subject line that generated the response, the “from” line on the e-mail and even the color of the creative in the image that won the transaction.

Direct response retailers of all varieties can tell you what their customers responded to and a plethora of other information. Unlike a traditional store merchant, the electronic retailer has a wealth of information at its fingertips: name, postal data, SKU purchased, payment method, purchase time and date and anything else that might have been collected during the transaction process.

What none of these retailers seem to be able to tell you is how they define and reactivate the dormant customer.

This is truly a challenging question for most merchants to answer, and there is likely a much different answer across different merchants. Consider the example of the Halloween or other holiday merchant. A seasonal merchant may only serve one specific holiday, like Halloween, so their expectations of frequency are probably much different than a merchant who is selling something that someone buys more frequently, like clothes or books. If you are a Halloween-related merchant selling costumes, you shouldn’t expect that a casual customer is going to be purchasing from you more than once a year.

But, of course, there are exceptions for this type of merchant. Another customer, perhaps a professional performer, might see the costume store as core to her own business, and may patronize it several, if not dozens, of times each year. If the casual customer doesn’t come into the store every six months, that is not a cause for alarm. However, if the performer–a different segment of consumer for the costume merchant–starts coming in less frequently, or stops altogether, that is a sign that something is potentially wrong in the relationship. The customer is becoming dormant.

KEY STEPS TO FOLLOW
So what is a merchant to do when faced with a dormant customer? The most important thing is to properly define, for your specific business and customer base, all customer segments. Here are several types of customers that you need to define:

• The ideal repeat customer. This alpha customer drives the highest sales and is the customer to whom you target your retention marketing efforts. These folks are the experts in your products and the ones who share the good and the bad about your brand with friends and relatives. These are folks who write reviews on websites. They also may know and buy from your competitors. They may cost more to service, but they make up for it in repeat purchases and word-of-mouth recommendations.
• The casually loyal customer. This is often the largest base of your customers and the folks who buy once in a while, somewhat dependably, but not with the same enthusiasm and expertise as your ideal customer. When they are buying in your category, they buy from you.
• The one-time or infrequent customer. Depending on your segment, this could be a bigger group of customers than the casually loyal.
• The lapsed customer. A customer who has been in one of the previous three categories, but has not yet been identified as dormant.
• The dormant customer. This type of customer makes up perhaps more than 50 percent of your customer list. For some categories of companies, these are referred to as the “the walking dead,” as Wharton marketing professor Peter S. Fader calls them in his interesting study, “Modeling the Evolution of Customers’ Service Portfolios.”

“The walking dead” aside, a dormant customer is one who has fallen out of the regular purchase cycle, is not actively purchasing in the market but has the potential to “wake up” and restore their relationship with you. Message to them the wrong way and they’re gone forever.

Here are some tactics that you should employ, if you aren’t already.

• Start classifying and stratifying your customers now. Define the various categories of customers based on numbers, not emotion. The most common method for this is using the direct marketing method of RFM (recency, frequency and monetary).
• Find a way to measure and report on these customers. By doing so, you have an idea of how many customers fall into each category. Categories may be based on activity, or they could be based on profitability.
• Begin treating these customers differently. Create promotion strategies to keep active buyers active–like a loyalty discount or some form of incentive–and other strategies to migrate customers into the active category. Don’t forget to devise strategies for shedding unproductive customers.
• Implement dialogue marketing approaches to drive a conversation with each customer. They should be based on where they are on the customer continuum.
• Start looking at buying behavior as a clue to how to market to all of your customers. This is one of the most important points to remember.

TIMING IS EVERYTHING
One reason why you may be successful in marketing to one group versus another may be when you are marketing to them. As we all know, catching someone at the right moment to drive a purchase is enormously important. The entire lead generation industry is practically built around the idea of hot leads.

Your dormants may actually be better potential customers than you know. But if you don’t look at buying time/date behavior, you are missing the boat.

In the e-mail marketing industry, one of the most common marketer questions is: “When is the best time to e-mail?” as if there’s one time when all of your customers are waiting for you to communicate with them. There’s no one best time to e-mail. The fact is that everyone has different priorities and schedules.

At one point, the acknowledged “best time” to send marketing e-mail was deemed 10:00 a.m. on Tuesday. Really? For everyone?

Your dormants may be dormant solely because of the time and day that you are mailing them. For example, if you are marketing to busy moms, would you e-mail them at 10:00 a.m.? If they are busy working moms, they are probably not checking their e-mail at this time. When, then, are they going to be receptive to your pitch? When the kids are in bed and the dishes have been washed (hopefully by someone else!). The working mom may not even get to her personal e-mail account during the week, and it may not be until Saturday morning, when the kids are outside playing or watching TV, that she can get to her e-mail account. In that case, if you sent your marketing appeal on Tuesday at 10:00 a.m., four days earlier, your message will be buried at the bottom of her inbox. She might not get to it at all.

Purchase time is critical to marketing time. If your customer has been purchasing on Saturdays, why send on Tuesdays? As a 21st-century electronic retailer and marketer, you have the knowledge and the tools at your disposal to market correctly to your customers. Why live in the past? Harness what you know about your customers, market to them when they purchase or open, and you will have a chance to convert those dormant “zombie customers” to active, profitable, satisfied customers.

Dave Hendricks is executive vice president of Datran Media in New York, N.Y. He can be reached via e-mail at dhendricks@datranmedia.com.