A Few Words On Churn

In my article about the city not understanding Sky, I mentioned how good the Sky churn rate was. An old client of mine wrote and said that most investors probably think that churn is something you buy milk in. Made me laugh, but it did remind me how much obfuscating jargon we use. Churn is simply the number of customers you lose in a year and is expressed as a percentage of your total customers.

Every business will suffer churn to some degree and the aim should be to keep it as low as possible. You’ll lose some customers through natural wastage (jargon for death) and others because they no longer have a need for the product or service. It’s tough selling nappies to mothers of young children after a certain age. So this must be subtracted from your churn rate.

Everything else you can manage and is all about how you go about recruiting and looking after customers.

A credit card company once asked me to get new customers to use their card. This activation process was as difficult as pushing water up hill, because the customers had been heavily incentivised (jargon for bribed), to sign up for the card. After testing various mailings, we found that the only way to get them to use their new piece of plastic was to offer a further bribe. So a cheap method of recruitment became very expensive.

This stupidity continued for quite some time, long after I resigned the business in frustration, because the company was more interested in telling its investors how many new customers it had. The important data was, of course, the number of active new customers.

This illustrates how important the recruitment process is, how much thought is needed to make it work effectively and how closely you should measure the results. But a further point needs to be made.

If you really want to drive your company forward you won’t achieve it by undertaking the most cost effective recruitment policy. You’ll need to take a few risks to build recruitment numbers and then work hard to turn them into customers. This can be achieved by delivering a customer experience that is second-to-none. A subject I will return to another day.

Rub Your Hands – It’s A Royal Wedding

Prince Charles getting down on one knee will have a rejuvenating effect on parts of the dm industry. Indeed, many dm people will have received the news as if they had found themselves at the end of a rainbow, won the lottery and received an all clear from the clinic all in one go. One of my oldest friends, Danny Phillips, was first off the mark when he showed me the artwork for his client The Westminster Collection. This was for a first day cover complete with Royal Mail Stamp, Wedding Day Postmark and Official Engagement Portrait for a princely (sorry) £3.50 plus p & p. Of course, each envelope will be individually numbered within its 29,500 worldwide edition limit.

Now, you may look down your nose at this activity or think that it is beneath you to find a Royal Wedding link for your own organisation. On both counts you would be wrong and I can only encourage you to get your nose in the royal trough as soon as you can, after all, time is limited! Let me tell you why. The Westminster Collection will almost certainly flog all their 29,500 limited edition envelopes and if they make any money doing so I will be agreeably surprised. But what they will have done is acquire 29,500 punters, or in marketing speak, recruited new prospects, and this can be a very difficult to achieve at a low cost per prospect. But Westminster will do this and then have a field day. For the next few years these prospects will receive many more offers to complete their wedding collection. I shouldn’t be at all surprised to see commemorative covers becoming available from every Commonwealth country and most small islands around the world. It could take years for a customer to complete their collection and every time they add to it the cash registers will be ringing in Watford (look Westminster is just a name). On a dm course they’ll call it ROI and retention activity, but I think you’d be quite justified to call it milking the punters.

Now of course, I’m not expecting you to do exactly same activity as outlined above. All I’m encouraging you to do is not to over estimate the great British public and appeal to the monarchists out there who love the Royal Family. Put your thinking caps on, brainstorm, get some ideas, rejuvenate your own dm and take advantage of the media fixation that we will all suffer or enjoy between now and 8th April and probably beyond.

I’ve just noticed that Asda will soon be selling a replica of the Royal Engagement Ring for £19. Good on you lads, fill your boots!



The real ring on Camilla Parker Bowles's finger, and the £19 fake from Asda

SKY Broadcasting – don’t the city understand?

You know, the direct marketing business is very simple and you don’t have to be that talented to be reasonably successful at it. Which is why I’m so surprised that most city investment analysts seem not to understand it at all. But perhaps I shouldn’t be surprised and they are just thick. Look at this. A few days ago Sky Broadcasting announced their latest figures, their subscriber numbers had increased by a net 192,000 for the quarter. The analysts looked at this and the share price went up. Then they got beyond the headline numbers and looked at how much money was being spent on recruiting new subscribers, an increase of £43 million driven by “higher acquisition and retention costs, reflecting increased direct marketing and installation offers across all product categories,” and the share price went down. Did the analysts think Sky could get new subs for free?

Now if an analyst had spent a week with a direct marketing agency or, better still, a good old-fashioned mail order company or a mobile phone operator, they might have understood the Sky figures better. Mind you, perhaps the thicker ones might have needed to spend a little longer understanding the dynamics. All they need to understand is recruitment numbers and costs, churn and annual average revenue per customer. Sky tell us that their churn was just 9.5% (amazingly low) and annual average revenue per customer £386. That was £17 up on twelve months ago and you don’t have to be a genius to work out that if you’ve got 7.6 million customers and you can squeeze an extra 17 quid out of each of them, then you’re doing quite well!

What the analysts would also have understood after a week with a mail order company, is that eventually, all the low-cost customer recruitment methods get worn out and that you can’t rely on Member Get Member promotions and discount offers to get new customers. So if you’ve already got 7.6 million customers that’s going to be tough. They would also understand that eventually you need to start recruiting a different type of customer because you’ve saturated your existing market place. This costs money and it seems to me that Sky have been spending £43 million very wisely to achieve this. What they have also done very well is gently reposition their brand with their new target audience so that they don’t just come across as a sport and movie provider.

If there is any good to come out of this, I suppose it is that a direct marketing expert and even quite a few of the inperts, could make a few bob out of investing in Sky. What’s more, if I were running the Institute of Direct Marketing, I would seriously think about running a dm basics course for city analysts so that they could understand the business.

What's this all about?

Why do so many organisations spend a fortune every year mailing rubbish? You would have thought that in a maturing business the quality of communications would have improved. Thirty years ago there were only one or two direct marketing agencies in the UK...now we have dozens. The Institute of Direct Marketing train dozens of people every year. But despite this expertise being available, my letterbox still gets stuffed with what can truly be called junk.

No doubt, you receive your fair share of it too. This blog aims to expose the culprits and suggest ways of improving their approach and copy. I'll be using the contents of my letterbox as examples, but if you receive an item that you would like to expose, simply send it to me with your comments or critique and I'll expose the villians.