The 80:20 rule suggests that 20% of the customer database generates 80% of the sales. The reverse is also true. The remaining 80% of the customer database generates just 20% of the sales.
If we can identify the characteristic that allows us to separate these two sections of the database, we can target individual promotions more accurately. Contacting 20% of the database to get 80% of the return sounds good. It sounds like a four-fold increase in efficiency.
The reality is that a promotion to 20% of the database requires slightly more effort than a promotion to 100% of the database. (We have to create and apply the segment.)
The gain in efficiency is an illusion. A segmented promotion delivers just 80% of the returns, so we lose out on effectiveness. If we are only going to run one promotion in a time period, we would be better off contacting everyone to get 100% of the result.
However, when we run two or more promotions in the same time period, segmentation starts to deliver a net increase in the total volume of results. The idea of running multiple promotions has three implications.
- We have to have sufficient resources to run multiple promotions. This is the factor that will have the biggest influence on marketing planning. How much effort is required for a single promotion? How many promotions can we run in a month? In practice, the number of staff hours is often more of a restriction than the amount of budget or the technical limits of an eMarketing system.
- For each and every product that we want to promote, we have to know the characteristic that enables us to target the high-yield segment accurately. Do we have this information? And if we don’t, how are we going to find it?
- There should be no overlap between the high-yield segments for the various products. This ensures that we only contact each person just once in any given time period and offer them the product that is most relevant to their interests.
The articles that follow will look at each of these issues in turn …