A case study showing how to implement a great, easy customer retention program that you can use at your own retailer. Juice up the profits by segmenting your users (I explain how).
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Ron has a gym. No one is showing up. In just 60 days, Ron packs the house. Here’s how he did it.
- Trip-Wire Marketing is the ability to market to the customers who deviate from typical customer behavior.
- It is super profitable.
- Juice up the profits by segmenting your users (I explain how).
- There are seven steps to a customer retention program: timing, create the offer, pulling the list, setting up tracking, delivering the promotion, monitoring, and calculating the ROI.
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Today, on the nerd marketing podcast, I’m going to tell you about my buddy, Ron. My buddy Ron runs a gym, and three months ago the gym was going out of business, and today it’s more profitable than ever.
What did Ron do? We’re going to find out but first, let me introduce myself, my name’s Drew Sanocki and I want to welcome you to the Nerd Marketing Podcast. The only podcast on all the internet where Drew Sanocki talks to you about eCommerce and marketing. My goal here is to give you a hundred percent actionable information in five to ten minutes a week. I want to give you one golden nugget, one actionable thing that you can take back to you eCommerce retailer and use to make money.
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Today’s topic is trip wire marketing. I’m in the middle of two or three episodes here where I’m really drilling down on trip wire marketing. What do I mean when I say trip wire marketing? I basically mean that, if I go back to the last podcast to review and get you up to speed, customers exhibit typical behavior and a great way to market is to market to the customers when they deviate from that typical behavior. Why is that? Because it’s super profitable.
Most customers have adhere to a standard customer lifecycle. They get into your brand for awhile, they buy from you for awhile and then they get burned out and stop buying. That is a typical, average customer behavior and so what I’m arguing is that, if you’re going to choose points to market to that customer, market when they start deviating from that average. For example, the average customer buys every thirty days, and that customer hasn’t bought in awhile, in forty-five days, it’s a good time to market to that customer. It’s really profitable to market to that customer at that time. If you need a refresher on that, go back to the last podcast.
Today I’m going to give you an example of how to implement some trip wire marketing to build a kick-ass retention program. Why start with retention? Because retention is super profitable. You know as well as I do, if you’re running an eCommerce retailer, most of the time eCommerce retailers are barely profitable on the first sale, often they lose money because it costs so much to acquire a customer so you’re basically breaking even. All the profits are made on the second, third, fourth sale when it’s easier to reengage with that customer through email or through marketing or something like that. Retention is a great place to start and we’re going to start there with trip wire marketing.
I’m going to get back to the story I alluded to at the beginning of the podcast, my buddy Ron Gabrisko, ,muscle bound fellow here in New York City, owns a gym on the upper west side. He’s got monthly subscribers to his gym and annual memberships to his gym but we’re going to talk about, today, the per diem customers. These are customers who pay fifteen dollars to come in for a work out. Let’s go back two or three months, Ron is barely profitable with this gym, actually let’s say he’s unprofitable with the gym. He’s looking around the gym, he’s got yoga and weights and crossfit and a couple of other things but the gym’s pretty empty. He figures, “You know what? I used to have these standard customers and they came in like clockwork everyday so I think I need to try to reengage them.” You know? He wants to work on retention because it’s more profitable than trying to get new feet in the door.
Ron sits down and he goes into his database and the database is much like your orders table. Because he has customers flash a card and check in every time they come in, he kind of knows who’s been there and who hasn’t been there in awhile. He pulls a list of everybody who hasn’t been to his gym in seven days. It’s a pretty sizable list. Then he saunters over to Mail Chimp and, because he’s got everybody’s email, he shoots an email to everybody who hasn’t been in in seven days and he says, “Hey, I haven’t seen you in awhile at Gabrisko’s Gym. Come in and save fifty percent on your next visit.” Instead of fifteen dollars, the next visit’s going to be half off.
What do you know? Two days after he sends it out, Gabrisko’s Gym is packed. Everybody’s in the yoga room, everybody’s in the weight room and on days like that Ron is a very happy guy because he is making money for everybody that is in his gym, they’re paying him, a fair amount of coupon redemptions too.
He’s high fiving himself but there’s a bit of a concern and the concern is, of all the new customers that came back in, he heard a fair amount of, “Thank you, Ron. Like, I haven’t been here in awhile, I needed to come back and the coupon got me back in. Thanks.” He also heard, say twenty percent of the people said, “You know, Ron, I was going to come in anyway and I got that coupon and man, it was awesome. You know, I was on my way in, I checked my inbox and I got a coupon so I saved money.” He got a lot of that sentiment and he kind of gritted his teeth and he was like, “Great, guys, so you came in and I paid for you to come in when you were going to come in anyway.”
He was thinking like, why does that phenomenon happen? Why does he, he’s seeing like eighty percent success but the other twenty percent of the people would have been there anyway. Then it occurs to him, the guys who are saying that to him, tend to be the muscle bound guys who do weight training and they’re in there once a week. Right? The people who do not say that to him, that are just happy to come in are by and large yoga students. Yoga students are in there daily. If you think, a yoga student who is in there daily and isn’t in there for seven days, is probably not coming back. You know? They’ve burned out on their yoga program. This is a daily regimen and they’re not in there for seven days, like, they needed that coupon to come back. Whereas the weightlifter who lifts once a week to allow for time for recovery, is in the middle of a week off anyway and gets this coupon out of the blue on the day he or she is going to come in and lift weights, they had no need to have that incentive.
Ron rolls up his sleeve at the end of the day … Did I say sleeves or sleeve? He rolls up his one sleeve because Ron has one arm. This story is getting more interesting but bear with me. Ron rolls up his sleeve. Which, if he has one arm begs the question, like, what’s he rolling up that sleeve with? That will be the subject of the next podcast. Say he rolls up his sleeve with one arm and he’s very physically adept because he can do this.
He goes over to his computer and he says, “Great, promotion worked, you know, I got a full house here. Yeah, there were a fair amount of discounts but still, you know, I’m more profitable today than I was last week when this place was empty. Next time I run this promo, I’m going to do better. I’m going to do better by creating two segments.
I’m going to pull lists again in say, thirty days, I’m going to pull lists of people who, I’m going to only look at the yoga students, who have taken yoga classes and then I’m going to only pull lists of people who haven’t been in in three days. You know, a shorter latency, a shorter trip wire. Then I’m going to turn to the men and women I know are bodybuilders and strength trainers who are in there once a week doing their slow burn workout which is a once a week workout. I’m only going to pull people who haven’t been in for ten days. You know, because I know those guys come in every seven days anyway so seven days isn’t really a good trip wire, I’m going to choose ten days.
Segment one, let’s call them the yoga dailies, my trip wire’s going to be set at three days there. Segment two, my slow burn lifter weeklies, there the trip wire’s going to be set to ten days. A month goes by and Ron says, “It’s time to run my retention program again.” He goes into his database, logs in with his single arm and he pulls those two lists. “Okay, of all the yoga people, I want to see everybody who hasn’t been in in three days. Of all the weightlifters, I want to see everybody who hasn’t been in in ten days.” Boom. You get two lists and now I go into MailChimp instead of sending out one email, I’m basically going to send out this email, two emails, one to each segment, same discount though, fifty percent off. Boom.
He maxed out on headcount last time and this time around, the second time he ran his retention promotion, with segmentation, he’s not only maxing out on headcount but his profitability’s gone way up. Because he’s spent half the money on discounts. Say before he had to incentivize fifty people to get in the door, now he only has to incentivize twenty. He’s doing a much better job.
In short, Ron has done a great job of building out a basic retention program. Every month that goes by, he just has to go to his database, pull these lists, send the lists out, email the lists in MailChimp a coupon and it’s a kick-ass retention system. He made it kick-ass by adding on the segmentation.
He could go further. He could probably find another trip wire that works for people who do crossfit, another trip wire that works for people who do pilates. I arbitrarily chose the dailies and the weeklies but the more you stay at this, the better job you do of segmenting out your customers.
Really, it’s not different for you and your eCommerce retailer. I think you should all consider running some basic trip wire marketing like Ron did here, with your own customers. You may have one segment, you may have twenty segments but let’s start at one and the more you fine tune that over time the more profitable your promotion will get.
What I want to do now is review all the steps Ron went through. You can follow these steps if you want to build out a trip wire retention program at your own eCommerce retailer. Also if you go to my site, nerdmarketing.com, and sign up for my email list, I’ll send you the playbook on how to do this. It’s a one page summary on how to implement your own trip wire based retention programs complete with some examples and a spreadsheet that should have you doing this within twenty four hours. There’s really no excuse.
Let’s go back to Ron’s example. The first thing he did, step one. There are seven steps, I don’t want you to get scared away by the seven steps but step one, he determined the timing of his promotion. In your case, you normally want to take action as close to the trip wire event as is practical. He decided on seven days, somewhat arbitrarily. Maybe in your business you notice customers coming back every thirty days so that’s your trip wire. Don’t set it right at thirty, maybe add a couple more days in there because you don’t want to create an incentive if someone’s likely to buy anyway and in Ron’s case he chose seven days.
Step two, create the offer. In a retailing business this is as simple as a discount. Ron did fifty percent off your next visit, in your case, ten percent off. For those of you who hate doing discounts, there are plenty of example of non discount based promotions you could do. Gift with purchase, free shipping, here’s a 1-800 number you can call to get elite vip service or something like that, whatever the incentive is, the key is just create that offer.
Step three, you want to pull your list. The first week of each month, say, you go into your database, your orders table, pull out everybody who is beyond that trip wire. You came up with a trip wire of thirty days, pull up all the names of all your customers who have not purchased in thirty days. What I would also recommend you do, at this point, just so you see how kick-ass this is, is carve out a ten percent control group. Say you pull out a hundred names, take ten of those names and that’s your control. A good way to do this in online business is if you have a customer id, I always like to say, okay, all customers whose id ends in zero, you know, is roughly ten percent of all customers. Those are my control group. I’m not going to market to them. I’m just going to let them coast and I’m going to market to everybody else. I really urge you to build out that control group because you are going to thank me for how good this promotion is.
Step four is to set up tracking. The metric you’re interested in here is revenue per customer. Right? The best way to track it is typically click-throughs on your Mailchimp campaign or your Clavio campaign to order. You can get that out of Shopify or Magenta, you can also get it out of Google Analytics, if you tag your emails properly. Basically you want to get an aggregate number of revenue that you make off this email that you’re about to send out. You’re going to compare the revenue per customer there with just the average revenue per customer you get off that control group that’s just sitting there. Some people from that control group will probably come back and order and you just want to see what the lift is like, you know, how much more am I making off this promotional email?
What you do in step five is you deliver your promotion to your test group, to your ninety percent. Do it through your email software. If you’re not that advanced, if you run a coffee shop, you know, send out a coupon. Send out a coupon as a postcard. This stuff doesn’t have to be sophisticated, it works whether it’s a postcard, it works whether it’s an email. If you want to get really advanced this could be your remarketing offer to a pool but let’s stay in the world of eCommerce and let’s talk about an email offer here. You deliver your promotion to the test group in step five.
Then, what you want to do in step six is monitor the revenue of your test and your control group over a period of time, say two months. Every week, go into Google Analytics, see what the differences in revenue per customer, for your test group versus your control group. What you’re going to see, the revenue per customer for your test group is going to be much higher, especially initially. It’s going to shoot right up because you sent out a coupon but it should remain higher for quite some time. This is why I want you to measure over, like, thirty days or sixty days.
There’s this thing in retail called halo effect. What a halo effect means is, if I give you a coupon to come in and buy and you come back in and buy, then you’re actually likely to buy from me again and again and again at full price. It’s called the halo effect of that coupon. We want to capture some of that.
Over thirty, sixty days, whatever makes sense for your business, you just keep running this report and going into Google Analytics or going into Shopify and measuring the difference in revenue between your test group and your control group. You do that until you notice the revenue per customer becomes equal between the two groups. Right? Eventually your test group, the one you promoted to, and your control group, the one you did not promote to, will stabilize. Eventually they’ll become the same. Maybe that’s in two week, maybe that’s in a hundred and eighty days but eventually these two groups, if you treat them the same after that initial email, are going to stabilize and you’ll find that the revenue per customer per month is the same. That’s a sign to you that you can call off the test. It’s like, hey, I got my initial lift, eventually it went back down to baseline. My test is over.
I’m now at step seven where I can calculate the ROI of this. Here is where you look at how much additional revenue you made off your test group versus your control group and then an ROI is not just revenue, it’s profitability so you also take into account that you spent a little bit more money to market to that test group. Money in terms of the email or postcard sent, money in terms of your time, money in terms of the discount you sent out. Put those things together and you come up with an ROI and you can see that I am betting, if you have never done this kind of thing before, your ROI is going to be, like, four or five hundred percent. Right? It’s going to be huge. Where do you get a return of four or five hundred percent in the stock market? You don’t. Okay? This is why this type of promotion makes so much money. It’s anti-defection. You’re literally keeping customers from leaving your business. You’re keeping them buying from you and your use of a control group really does help prove this out.
I love running these promotions. If you need some help, again, on the structure of these promotions, the seven steps, and ultimately calculating that ROI at the end, go to my website, nerdmarketing.com and again, I’ve got a playbook there and as part of the playbook I’ve got a little spreadsheet that helps you calculate an ROI.
Okay? Let’s abstract back to Ron. Ron is now running a profitable retention program using trip wire marketing. He does it in a manual way, he manually pulls the lists every month. The beauty of this and the beauty of eCommerce is that once you do that a couple months you’re going to get tired of it and you can automate it. You can automate it in Mailchimp. You can automate it in Clavio and any number of other email programs but I hope I’ve given you the strategy to understand what you want to automate in order to keep people buying from you.
Go to my website, nerdmarketing.com where you can sign up for my list and get the free playbook which will let you implement this at your own retailer. If you’ve got any questions about how to do it, email me. This wasn’t the easiest thing for me to understand or get my head around the first time I did it and now I absolutely swear by trip wire marketing. It’s one of the first things I implement for any client or at my own eCommerce businesses.
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Thanks for listening to this episode of the Nerd Marketing Podcast, in the next episode I’m going to give you an actual case study of an online business that’s using this trip wire marketing approach. Do you have any thoughts or questions or want more information? Contact me through my blog, nerdmarketing.com where you will find playbooks and action plans that make it easier for you to grow your online business and please take the time to review this podcast in iTunes. Only if that’s going to be a good review. If you do that, you’re going to help me bring the magic of data driven customer analytics to the entire world and that’s a dream we can all get behind. My name’s Drew Sanocki, I will talk to you next time, thanks.