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    Create more sales by targeting fewer customers

    Not many people head to the racetrack these days, but if you suddenly got an urge to play the ponies and were trying to figure out which horse to bet on in the fifth race at Belmont, you’d probably start by looking at the odds. If you see one horse going off at 3-to-1 and another at 100-to-1, where’s your money going? You’re probably going to bet on the horse you think has a better chance of winning, which is usually the one with lower odds. Betting on the 100-to-1 horse will get you a bigger payoff, but it’s a lot less likely to win.

    But, when you change the race from horses to marketing, it’s amazing how many businesses put everything they have on the line by betting on the long shot.

    If there’s one maxim most local marketers are willing to follow to their grave it’s the following: “if my message reaches enough people, I’ll get enough customers.” That philosophy worked well in the days when there were fewer media choices (and no Internet). You could advertise in just a few places and, for relatively little money, reach nearly everyone in any market. Today, the world is a lot different, with fractured media use and skyrocketing costs.

    Many marketers find they’re getting better results by reaching fewer people, but concentrating exclusively on those who are highly likely to do business with them. Like the seamstress who “measures twice and cuts once,” they take the time to study their customers, learning all they can about their habits, lifestyles and preferences before launching a marketing campaign.

    Despite the changing media landscape and the proven success target marketers are having, most local businesses are still concentrating on reach as their most important marketing criteria. 

    As defined in advertising, reach is simply the total number of people exposed to a particular message. When a marketer uses circulation figures or radio and television ratings as the basis for placing their ads, they’re trying to reach the largest audience possible for the dollars invested. The efficiency of such a buy is expressed in terms like “cost per (ratings) point” or “cost per thousand (people reached).”

    Reaching a large audience is sort of like playing the odds. “If I reach a lot of people, the odds are in my favor that at least a few of them will want to buy what I’m selling.” But, what, exactly, are the odds?

    The accepted average response rate for direct marketing these days ranges from one-half to one percent. That means, for every 1,000 pieces of mail sent, the marketer expects to get 50 to 100 responses, making the odds 20-to-1 on the low end and 10-to-1 on the high end of any one individual responding to the marketer’s offer.

    But wait: those are just the odds of getting a response. What are the chances any one of those 1,000 people will actually buy something? That depends on the company’s closing ratio. If the marketer gets 50 responses and has a closing ratio of 20 percent, the company will make 10 sales, raising the odds to 100-to-1 that any one person who received the solicitation will respond and make a purchase.

    A target marketer, on the other hand, can improve their response rate by taking time to study both their customers and the market. They know what kind of offers, messages and imagery will attract the attention of their best customers and prospects. And because they also know the market, they have the ability the find the location of households that fit the profile of their best customers.

    The target marketer’s response rate ranges from one to two percent (although in many cases it can be much higher), making the odds are 10-to-1 on the low end and 5-to-1 on the high end and generating between 100 and 200 responses.

    Focusing on better prospects also results in a higher closing ratio for the target marketer, since the prospects often come ready to buy. At a one percent response rate, the target marketer will get 100 leads. If the closing ratio is 50 percent, they will make 50 sales, putting the odds 20-to-1 that any of their 1,000 prospects will become a customer.

    Based on the odds, the target marketer, at 20-to-1, is five times more likely to make a sale than the reach marketer at 100-to-1. And that’s before the multiplier effect kicks in.  

    Let’s look at the two different approaches in a hypothetical town with 5,000 households. A reach-minded marketer’s goal would be to put the company’s message in front of everybody, so they mail 5,000 pieces, one to each household. With 100-to-1 sales odds, they should make fifty sales.

    The target marketer can take those same 5,000 pieces and send them to his 1,000 prospects FIVE TIMES!                  Now the 1,000 prospects will each get five messages instead of one. Advertising experts say the average person needs to see a minimum of three messages before they’re able to make a buying decision.

    That’s one of the big problems with a reach strategy: people who aren’t aware of your company or its products and services can’t act upon the one message you’ve sent, because they don’t know why it’s important to them. But, when that prospect sees multiple repetitions of your message, they become more aware, increasing their chances of responding.

    That’s the multiplier effect. While the reach marketer, at half a percent response, is still stuck at 100-to-1 odds and 50 sales, the target marketer, at one percent, operates at a base of 20-to-1 odds, racking up 50 sales each time they mail! That’s 250 sales over five mailings, plus the added bonus from the multiplier effect, which could increase response rates by an additional one-half to one percent by the fifth mailing. So, if the fourth and fifth mailings generate an additional 50 responses each, the odds of getting someone to respond to the target mailing drop all the way down to about 3-to-1, or a pretty good bet (certainly better than a 100-to-1 long shot). And, with a total of 350 sales, compared to the 50 generated by the reach marketing plan, the target marketer is seven times more effective at leveraging their marketing dollars. It also cost them a lot less to acquire each customer.

    If the reach marketer spent 25 cents to mail each piece (or $1,250), they paid $25 to acquire each customer ($1,250 divided by 50 customers). Meanwhile, the target marketer spent about 15 cents more per piece ($2,000 total, including paying for the research), but wound up paying less than six dollars for each customer ($2,000 divided by 350 customers). That’s a savings of 76 percent over the reach marketer.  If these two businesses were competitors, the target marketer would be ahead in every meaningful measurable way except two: they didn’t reach as many people and they spent more money per mailing.

    This comparison works in other media, too. Run 50 spots on one radio station instead of 10 spots each on five stations and you’ll get a better response. Same for television, newspaper or the Internet. Concentrating your resources on a smaller target allows you to repeat the message enough times to activate the multiplier effect, leveraging more sales from the same amount of marketing dollars.

    If you’re selling any kind of product or service that’s purchased fairly frequently, target marketing will win out over reach marketing almost every time. So, next time you find yourself mailing more and more pieces just to maintain the same number of responses and sales, why not analyze your customers and your market to see if you could benefit from target marketing—right after you reach for that losing ticket on that long shoot in the fifth.