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NMOA Direct Marketing Article
How to Profit from a Top Market Strategy
By Betsy Kruger

Are you working harder for profits in direct marketing? Are you spinning your wheels like a hamster? Work smarter and apply the 80/20 rule to your profits. Learn how to prioritize your contacts with a top market strategy.

The 80/20 Rule Universally Predicts Results

Most direct marketers apply the 80/20 rule to sales. But research proves the 80/20 rule predicts results universally. So you can predict the top 20% of your contact lists will generate 80% of your profits. These highly profitable contact lists are four times more profitable than average contact lists. Conversely, the bottom 80% will generate only 20% of your profits from contacts. These less profitable contacts are one-fourth as profitable as expected. Amazingly, your top contact lists are 16 times more profitable than others. Moreover, the bottom 20% will complain 16 times more than other contact lists. If highly profitable new contact lists replace less profitable ones, your profits from contacts can quadruple.

How to Implement a Top Market Strategy

Before you can profit from the 80/20 rule, we must review some terminology. Profit is items purchased times profit per item. For example, heavy users purchase more items, while loyal contacts tolerate more profit per item. Thus, your loyal, heavy users tend to generate the most profit. You can profit from the 80/20 rule by implementing these steps:

A. Distinguish your most and least profitable contacts.

• Average the purchases and loyalty for each list of contacts.
• Multiply the averages to estimate the potential profit per contact.
• Identify the most and least profitable 20% of your contact lists.
• Distinguish substantial differences between these contacts.

B. Target highly profitable contacts with a top market strategy.

• Continue direct marketing to your most profitable contacts.
• Offer them what they want, when and where they want it.
• Appeal to their motivations and facilitate their purchases
• Discontinue direct marketing to other contact lists.

C. Contact top prospects and convert them into customers.

• Profile contacts in the most profitable 20% of your lists.
• Obtain a list of new contacts with these distinguishing characteristics.
• Contact these top prospects repeatedly with direct marketing.
• Convert them into highly profitable new contacts.

Example of a top market strategy Let's demonstrate these steps with a fictitious catalog of women's shoes.

A. Distinguish your most and least profitable contacts.

Each contact list consists of subscribers to a magazine. The following table sorts them by their potential profitability. Subscribers to Success tend to be middle-aged aspirational women. In contrast, subscribers to People tend to be young trendy women.
                                               Table 1: Potential Profitability of Lists

Magazine

Average

Purchases

Average

Loyalty

Potential

Profitability

Market Segment

Success

$190

.5

$95

Most Profitable 20%

Oprah

$  50

.5

$25

 

Black MBA

$  30

.8

$24

Better Homes

$  40

.6

$24

People

$110

.2

$22

Least Profitable 20%



B. Target highly profitable contacts with a top market strategy.

Continue direct marketing to subscribers of Success. Offer conservative heels for each season. Show models "dressed for success" and describe the heels as tools for upward mobility. Discontinue direct marketing to other subscribers.

C. Contact top prospects and convert them into customers.

Success lists the characteristics of its subscribers. Order a new contact list with these characteristics. Repeatedly contact them with your top market strategy. Convert these top prospects into highly profitable new customers.

Summary

You are working smarter when you implement a top market strategy. The top 20% of your contact lists will generate 80% of your profits. These highly profitable contact lists are four times more profitable than average contact lists. Amazingly, your top contact lists are 16 times more profitable than others. So if highly profitable new contact lists replace less profitable ones, your profits from contacts can quadruple.

About the Author:
Betsy Kruger empowers prosperity through speeches, writing, and consulting, segmentmarket.com. Her clients include Peachtree Data and May & Speh. Read Top Market Strategy: Applying the 80/20 Rule, www.betsykruger.com

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