Tuesday, March 15, 2011

How To Segment Your List For Better Performance

One of the best ways to build your online business is to build your list - that is, your subscribers or database of potential customers (prospects). But you can also do it by changing the way you market to your existing customers.

Today, I'll show you how you can segment your database of names to boost sales, increase bonding and shorten conversion time. Data mining, list segmentation, or strategic database marketing, is basically the art of slicing and dicing your own in-house list of names for optimal performance. You do this to help increase the response to your promotional and conversion efforts. You see, once you divide your list of names into smaller groups ("segmentation"), you can specialize your product offers. Then, by targeting your offer based on customer needs, you'll be promoting products to people who are more likely to buy them. You increase your customers' satisfaction as well as your potential conversion rates. (The conversion rate is the number of people who not only read your offer but actually purchase the product.) And higher conversion rates means more money for your company.

One proven model is the RFM method. It's practiced by direct-response marketers all over the world, and is a marketing method used at many large publishers and direct response marketing companies. "R" stands for Recency, how recently a customer has made a purchase. "F" stands for Frequency, how often the customer makes a purchase. And "M" stands for Monetary, how much the customer spends. Here's how you can use the RFM method to help lift your sales.

Whether your house list is made up of people who signed up to receive your free e-zine or people who paid for a subscription, you can segment your database according to how long your customers have been with you. Let's say, 0-3 months, 3-6 months, 6-12 months, and 12+ months. You would look at these groups as your hot subs (newest subscribers), warm subs (mid-point subscribers), and cool subs (those who have been subscribing to your e-zine the longest). Let's say your list is made up of subscribers to your free e-zine. Here's how you use that information...Because your "cool subs" may have lost their initial enthusiasm for your e-zine, you should cross-reference them with your open rates. If most of them haven't been opening your e-zine in six, nine, or 12 months, you should consider sending them a special message asking if they still want to receive your e-zine. But that doesn't mean you ignore them. These inactive subscribers are a great group on which to test new marketing approaches, new prices, new subject lines, and so on. After all, you have nothing to lose. Your goal for this group is to re-engage them. And since they aren't responding to your current e-mails, why not use this platform to test? Your "hot subs" are your newest, most enthusiastic subscribers. They are ripe to learn more about you, your products, and your services. If you handle this group properly, you can cultivate them into paying customers. So you may want to send them targeted offers and messages.

For example, you could send them a special introductory series of e-mails (also known and auto responder series). This special series would introduce them to your e-zine's contributors and philosophy. It could also tempt them with specially priced offers. Sending an introductory series like this can not only increase the number of subscribers who convert to paying customers, it also increases their lifetime value (LTV) - the amount they spend with you over their lifetime as your customer. Hot Tip! Make sure to suppress the recipients of your auto responders from any promotional efforts until the series is complete to ensure more effective bonding.

If, instead of subscribers to a free e-zine, your house list is made up of people who paid for their subscription, the same segmentation process applies. You break your active subscribers into hot subs, warm subs, and cool subs. You also break out expirers (those who allowed their subscription to run out) and cancels (those who cancelled their subscription). Cross-marketing to these lists is usually effective. The expirers often just forgot to renew and simply need a reminder. And just because someone cancelled one subscription doesn't mean they may not be ideal for another service or product that you provide. If they're still willing to receive e-mail messages from you, add these folks to your promotional lists. Once you've gotten these otherwise inactive subscribers to open your messages, turning them into paying customers is just a matter of time. Most Internet marketers would have written these people off. So any revenues you get from them are "extra."

This segmentation tactic is another way to break down your house list: by how frequently customers have bought from you. So once you've divided your list based on recency, you look at it in terms of your customers' purchase behavior. First, you identify your multi-buyers - customers who've purchased more than one product from you. You then split this list further, segmenting out two-time, three-time, four-time (and more) buyers.Those who have bought from you most often have proven their loyalty and obviously like the products and service they've been getting from you.

So if, for example, you're considering launching a new product with a high price point, these would be your best prospects.

Finally, you look at your list in terms of money. One way to do this is to divide your list by the amount of money each customer has spent with you. You might, for example, assign a benchmark dollar amount, such as $5,000, $10,000, or more. Customers at that level make up your "premium buyers." This is the group that has the most favorable LTV for your company. These are your "VIPs." Once you discover who your VIPs are, you can design products or offers specifically for them. Let's say you have some kind of exclusive - and expensive - lifetime membership club. You would market this to multi-buyers who also fall into your "premium buyer" category.

If you offer payment options to your customers, another monetary way to divide your list is according to the payment options they have chosen: monthly, quarterly, yearly, etc. This will help you determine the initial purchase tolerance of each group of customers and which ones may respond best to future price points. As you can see, by looking at your customers' purchasing habits - recency, frequency, and monetary - you can identify the best customers for certain products. And by offering a product to customers who are likely to want it, you can improve your conversion rates.

By using the proven RFM model and other data-mining techniques, I've seen conversion rates double and triple. I've also seen inactive subscribers' open rates surge from 0 percent to more than 30 percent. That's quite an accomplishment, considering that the average open rate for the industry is about 20 percent.

However, many companies that send emails don't have the capacity for datamining.
Unfortunately, many smaller business or start-up companies typically cut email features for cost. Oftentimes, these companies save money using cost-effective and efficient online email service providers that can certainly get the job done, but don't offer robust segmentation tools that allow the client list analysis and dissection features. So try to think of the bigger picture when shopping for email service providers. Hot Tip! When looking at email marketing companies, make sure you ask if there's a list segmentation or datamining feature that can easily be done through their email platform. Find out if it's standard or an upgrade, and what those costs may be monthly. Sometimes it may be an additional fee, but will certainly pay for itself over time.
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