Customer Lifestage

Customer LifeStage

Marketing Plan

Joe Hage and Rob Befumo

June 20, 2000

A Y2K presentation Page 2

Increasing Purchase Frequency is Rel. Marketing’s #1 Goal

Background: In 2000, we increased purchase frequency among 12-month customers from 2.04 purchases / year to 2.11 / year (+3.4%).

Objective: In 2001, we will increase frequency from 2.11 to 2.20 (+4.3%).

Strategies:

Smarter about who we mail and when.

Email: we will do big campaigns over 16 times to 33MM customers (up over 100%)

– and Welcome all first-time buyers with email addresses (1.3MM)

Direct Mail: we will mail for all 7 Major Occasions (4.6MM)

– and Welcome first-timers without email addresses (1.3MM)

Customer LifeStage work


Customer LifeStage Definition

Customer LifeStage Definition:

where the customer is in the ordering cycle; and what services the customer opts in for.

Awareness Browsing Buy

Browse

Registration Gift Reminder

Buy Again

• Advertising

• Recipient

• Word of Mouth

• Public Relations

• Permission to Contact

• Bookmark

First-Timers

• Products

• Services

• Welcome

Extra support during Peaks

Pre-Purchase

Same for All

Repeaters

Different by Opt-in Services


Customer LifeStage Options

The options we give customers are:

1 Remove yourself from our electronic communication (opt-out of mass email)

2 Register for our electronic communication (opt-in for mass email)

3 Enter reminder dates and information (opt-in for personal services)

Many of these programs are best suited for Interactive customers, which is why collecting email addresses is so important!


Customer LifeStage - One of 4 ways to think about 18FC customers

Customer

Lifetime Value

Customer LifeStage

Contractual Obligations

Responsiveness

• Most Valuable Cust.

• Most Growable Cust.

• Below Zeros

• Responds to our communication

• Doesn’t Respond

• Let MVCs get preferred service.

• Dangle incentives to MGCs.

• Avoid BZs.

• Needs completed Datamart in 7/00.

• CHAID program will predict who will respond.

Note: Note:

• Talk to AOL a certain way

• Airlines

• Sears

• Potential customer

• Accepts email

• Registered (Y/N)

• Gift Reminder User

• We will de-couple “registered” from “opted-in.”

• Gift reminder users opt-in for most relevant messages.

Note:


Menu of 16 Communication Points

Pre-Purchase:

How to start a dialog?

• Email Opt-In

• Pop-Up at Exit

Post-Purchase:

Repeat purchases?

• Promotional Email

• Newsletter Email

• Gift Reminder Email

• Direct Mail

First Purchase:

Maximize contact?

• Register

• Gift Reminder

• Welcome Email

• Bookmark

• Order Confirmation

• Wrap Up Page

• Delivery Confirm

• Second Sell

• Welcome Booklet


Menu of Communication Points

Email Opt-In

Pre-Purchase (what Seth Godin calls “Getting to Maybe”)

Pop Upat Exit

Strategy: even if a visitor doesn’t purchase

• gain permission to begin a relationship

• learn something about the visit

Execution:

• Email: Place to collect email addresses of “Browsers”

• Pop up (example): We’re sorry we weren’t able to help you today. Was it because:

(a) You were just browsing

(b) We didn’t have what you were looking for?

(c) Items were more than you wanted to spend?

• Upon reply, pop up: $5 off your next visit. Thank you for shopping with us. Enter your email address if you’d like us to send you a $5 discount for your next visit to our site.



Register

Wrap UpPage

OrderConfirmation

DeliveryConfirmation

First Purchase

ShoppingCart

Could include customer survey -- mail -- telephone

Bookmark2nd Sell

anything elsetoday?

Optional

Optional Services (customers’ choice to accept or decline)

General Services (all receive these communications)

WelcomePostcard

and/or Email

(phone equivalent is scripting)



Opportunityto Register

Wrap UpPage Banner

OrderConfirmation


First Purchase

ShoppingCart

Opt-in box to

register at checkout

No, Didn’t Register

Register now

Register now

Register now

Yes, Did Register

Gift Reminder now and Save on your next gift reminder purchase.

“Gift Reminder” will mean:

• Reminders (not addr bk)

“Registration” will mean:

•Easy Check out

•Address Book

•If we ever do points

•Preview products in short supply



Opportunityto Register

Wrap UpPage Banner

OrderConfirmation


First Purchase

ShoppingCart

Registered?

No to Reminders

Gift Reminder now

Gift Reminder now

Yes to Reminders

Product Sell

Product Sell

Yes, Did Register

Gift Reminder now and Save on next purchase.



Register

Bookmark

First Purchase, Optional Services continued

ShoppingCart

2nd Sellanything else

today?

Bookmark Me! Click here to add us to your Bookmarks.

Additional page (after “Billing,” but before “Review & Payment”)While we have your billing information loaded, is there anything else we can help you with today?• Yes, a friend’s birthday is coming up• Yes, please show me your Father’s Day collection• Yes, remind me about your Rose Month sale next month.



Retention Efforts

Promotional& Newsletter

Email

DirectMail

Repeat

Purchases,or End

GiftReminder

Email

Strategy: communicate our products and services until:

• CHAID program predicts customer would be unresponsive

• customer tells us to stop (opts out)

Content: content of communication will depend on:

• customer type (“regular,” airlines, Sears, Small Office/Home Office, B2B)

• customer LifeStage (registered?, remindered?, opted out?)

• time of year / occasion

Gen. Service

(All Receive)

WelcomePostcard

and/or Email


Communication Matrix / Peak Period / MVC Service

Communication Matrix

Segmentation will run along three variables:

Customer LifeStage (4) (Potential / Purchaser / Registered / Service User)

Lifetime Value (3) (Most Valuable / Most Growable / Below Zero)

Contractual (6) (Regular / AOL / American / Delta / United / Sears)

Peak Period

Repeat Customers will get access during Peak Periods:

Phone (jump to the top of the queue)

Service (jump to the top of TLO’s, etc.)

Merchandise (exploring priority access)

MVC Services (Q3)

Special Service for Most Valuable Customers:

Best Reps, Treatment in Queues, Interactive Prompts

Appendix



Retention Effort #1

WelcomeMail & Email

Strategy: communicate our products and services to new customers

Communication Priorities: (1) thank you for your purchase; (2) come back soon; (3) Everyday gifting; (4) our breadth of product and services (experts); (5) online benefits.

Execution:

• Email: all records with email addresses get a welcome email (regular, airlines, Sears, SOHO, B2B)

• Direct Mail: all non-email records will get a booklet, some email records will get a booklet (test)

– Three versions: Regular, American, Sears (differences on return address and Jim letter)

– Other differences would be handled by stickers or laser printing on label.

– The package may be updated with 7.0 improvements, and we may test elements (letter, etc.).

Note: CHAID may predict some buyers are less likely to repeat, and may be omitted.



Retention Effort #2

Promotional& Newsletter

Email

Versions:

• Function of Communication Matrix

Strategy: communicate our products and services to all predictably responsive customers (CHAID)

Execution:

• Fiscal 2001 has 18 promotional emails planned, 12 Newsletters, and 3 Gift Guide Newsletters (see 2001 Marketing Calendar).

• Distribution will be determined by CHAID.

• If a customer purchased already for the holiday, alter the message to encourage multiple recipients.



Retention Effort #3

Strategy: since gift reminders are the highest level of permission, communicate only what was specifically requested (opted-in for) by the customer.

Execution:

• We will still email reminders for Holiday, Valentine’s, and Mother’s Day, unless customer opted-out.

• We will still deliver promotional and newsletter emails, if the customer opted-in for them.

• We will still deliver Direct Mail, if CHAID predicts it would be efficient.

GiftReminder

Email


Lifetime Value: Money, and More

The Lifetime Value (LTV) of a customer is the stream of both actual and expected future profits, discounted at an appropriate rate back to current net present value.

The ranking/sorting of customers not only assigns a dollar value to a customer, but incorporates a “score” on select non-monetary attributes.

LTV is not a quantity that can be precisely calculated for a particular customer; rather, it is a forecast based on probabilities. This measure will incorporate historic monetary value as well as non-monetary factors that impact expected future value, discounted back to the present.1

LTV = NPV [(Historic Monetary Value)*(Non-Monetary Considerations)]

1: Need to determine interest rate to be used.


Strategic Value: Incremental Potential

Beyond non-monetary factors considered in projecting Lifetime Value, Strategic Value (SV) estimates the incremental potential of a customer if the company applies a targeted strategy to increase its share of customer.

“Migrators”MVCs MGCs BZs

Use 1to1 to keep these customers...

Lifetime Value

Strategic Value

Servicing CostsMigrate these(strategic value

unknown)

Spend no resources marketing to these

...and grow these.


= Lifetime Net Margin

Monetary Value

The team has identified an initial proxya to begin ranking customers in terms of relative profitability.

Total lifetime margin contribution

- Cost of status-check calls: [annual weighted avg call lengthb] x[cost/minute] x [# of status checks]- Cost of “problem” calls: [annual weighted avg call lengthc] x[cost/minute] x [# of problems]- Cost of make goods (product)- Cost of make-good handling (mailings, coupon value, etc.)- Direct marketing costsd

a This proxy deducts partial CSI and direct promotional expenses linked to individual transaction profiles.b, c Paul, Mark, Jake to determine the extent to which variable line time and CSR time factor into this measure.d This factor will be built in, starting with customers who have joined in the past six months.


Non-Monetary Value

Cost to Serve (Margin) Customer service inquiries (3 measures) Ratio of Internet orders to total orders Promotion sensitivity (2 measures)

Indicators of Potential Volume

Ratio of non-holiday orders to total orders

Trend in order frequency

Number of recipients

Ratio of multiple-purchase orders to total orders

Strength of Relationship

Ratio of non-floral orders to total orders

Ratio of planned orders to total orders

Team has identified nine non-monetary factors that impact a customer’s Lifetime Value :


Calculating Lifetime Value

The formula for calculating Lifetime Value has been determined. The coefficients and constant will be determined by modeling historic data (greatest weight will be given to most recent data):

LTV = C + (CoMVo) + (C1F1) + (C2F2) + (C3F3) … (C9F9)


Geodemographic Scores

Homeowner (Y/N)

Length of residence (years)

Age (years)

Estimated household income ($000)

Median home value ($000)

Merchandise buyer category (last transaction )

Marital status

Ethnic markets

Number of children

We will receive, on a quarterly basis, the following nine InSource data elements applied to our customers and recipients:

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Customer Lifestage

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