InsightIQ Blog

Does Customer Value Really Matter?

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Jul 6 2009

Upon my arrival home from a recent business trip, I was greeted with three different catalogs from the same well-known outdoor clothing and apparel company. While each catalog focused on a slightly different area of interest what really got me thinking was simply the volume of catalogs I received in this instance coupled with the fact that I receive catalogs from this same  retailer every two or three weeks year-round. My first thought involved the production and mailing costs this retailer must be incurring in sending me catalogs as frequently as they do.

Delving a little deeper brought me to the conclusion that I must be a pretty highly-valued customer for the company to view these expenses as worthwhile. After congratulating myself and reveling in my assumed high-value status for a minute I began to realize that, much to my chagrin, there may be a less self-glorifying reason for the retailer's direct marketing related activities.

A little background may be useful. Like many retailers, the one sending me all of the direct mail happens to have a co-branded VISA credit card that offers rewards points for purchases. These rewards points are only redeemable for products and services offered by the retailer but they accumulate pretty quickly and, well, they've got some pretty cool stuff. While there is debate as to who really benefits or suffers from the current popularity of rewards cards in our economy1 , one thing is certain: while I have purchased from this retailer a number of times I have NEVER purchased anything from them using anything other than points. 

Obviously I don't know the fee structure between this retailer and VISA. As such, it is impossible for me to accurately know whether I am truly a high value customer or one of the dregs they should banish from their customer file.  What I do know is that I'm a cheapskate and that I tend to redeem my points on sale and clearance items that cut into the retailer's margins. So to me this brings up an interesting series of questions. First, is this retailer using analytics and customer value scores in its marketing efforts and, if so, does customer value really matter?

I've no way of knowing whether this retailer is using analytics in driving their direct marketing activities. My assumption would be yes, given the longevity of this company and their well-known name within the outdoor clothing and apparel landscape. Having created customer valuation algorithms and scores at a host of retailers in my past I can think of little reason to believe that a self-admitted cheapskate such as myself would fall anywhere near the top of a customer value ladder.  Especially since I've only redeemed points and never spent a real dollar with this company. Perhaps this retailer is weighing recency and frequency too highly in their model.  Perhaps this retailer is overvaluing the marketing effectiveness of the co-branded card itself and allowing this to negatively impact their contact strategy.  Or perhaps customer value really doesn't matter as much to direct marketers as we analytic types tend to think it does.

Regardless, tonight I'll be heading by the gas station on the way home and building up more points so I can buy another hat or coat that I probably don't need.

 

1  Fumiko Hayashi. "Do U.S. Consumers Really Benefit From Payment Card Rewards?". Economic Review. Federal Reserve Bank of Kansas City. 2009:Q1

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