How to Ultra-Segment Your List to Increase Response Rates, Lifetime Value, and Offline Sales

CHALLENGE

Although Cetaphil® skin care products compete with the likes of Dove and Neutrogena on retail shelves across America, maker Galderma Laboratories doesn't do TV, radio, print or other mainstream ad campaigns to support sales.

Garlderma's roots are in the prescription skin care industry, so the marketing team played to their area of strength -- marketing to consumers via referrals from their physicians and dermatologists. The tactic worked so well that sales grew beyond forecasts. By carefully studying buyer data, the team learned two key factors were contributing to the unexpected sales:

o 93% of Cetaphil buyers are women, and when women love a product they are extremely likely to tell friends about it. Turned out that 30-35% of customers were referred by other customers instead of physicians.

o Once a consumer tries Cetaphil and likes it, they tend to demonstrate exceptional brand loyalty, continuing to purchase the product for a long time.

While the company remained committed to sticking with its proven primary marketing tactics, as VP IT Ken Ferrell explains, "We felt email might be a very good way to make it easy for people to spread the word and to be encouraged to grow loyalty."

While that sounds exciting, do consumers really care enough about a bottle of lotion they got at Wal-Mart that they want a frequent, ongoing, email relationship with the brand?

How can a packaged goods company send email to customers on a regular basis that doesn't get pretty darn boring, pretty darn quickly?

CAMPAIGN

The answer is, of course, no matter how wonderful your lotion and related products are, very few consumers care so much about them that they want regular email from you.

However, consumers do care about one thing very deeply -- themselves.

Cetaphil's marketing team decided the only way to be successful with ongoing email was to microsegment the content to match each recipient's demographic, buying habits, lifestyle, and interests as closely as possible. So, although they only planned on sending two emails per month (a newsletter and a sales alert) the team invested in a full-throttle database capable of collecting and storing an enormous amount of information about each participating consumer on the house list. This data ultimately would include:

- Registration (opt-in) form data including questions
- Appended demographic and lifestyle data based on zip code
- Emailed coupon redemption rates
- Individual's responses to interactive surveys and polls contained in the emails
- Email response data far beyond open and click rates, such as how responses varied by number of messages received (email account lifetime), types of preferred offers, etc.

Each newsletter issue was created specifically to encourage interactiveness, featuring polls, surveys, and loads of clickable links (every graphic was clickable -- something other emailers should test.) For example, every single story included a "Did you find this useful?" poll.

However, the articles themselves were complete within the email. Why? Because the point was to present information in a super-useful format; and concise self-contained stories have a higher perceived value to consumers than summaries with links do.

The team hired a full-time copywriter to create the volume of content that would be needed so that everyone on the list received articles and offers targeted to their segment.

For example, an article about lotion might be written dozens of different ways emphasizing completely different benefits to soccer moms versus retirees versus 20-something singles. Articles also might vary by region of country.

Depending on how many articles and varieties of articles there were per issue, a single newsletter could have as many as 400-3,000 potential variations. (See link below for samples of four variations for the May 2004 issue.)

The content for the monthly sales alerts was also super-segmented and personalized. In this case the offers were fairly standard -- often a coupon for redemption at retail, or a new product sample offer, or a note that a national retail chain was about to run a special sale on Cetaphil products.

However, the execution of this alert creative also pulled from the database for higher impact. For example:

o Consumers who'd responded to a newsletter poll about their lotion concerns might see benefit copy related to those concerns.

o Consumers who'd indicated they'd never tried a particular Cetaphil product might receive a cross-sale promotion to get them to give it a go.

o Consumers at the messaging lifestage in their opt-in account when they were most likely to get bored and cease responding might get a more highly compelling offer.

o Consumers who were the strongest, loyal buyers might receive stronger offers as a reward for their behavior. The graphic design department also worked overtime, pulling together a wide array of photo options for newsletters and alert issues so that consumers in different demographics saw relevant photos of others in their demographic. Young people saw young people, older people saw older people, etc.

When the program first launched in January 2003, Cetaphil didn't have an opt-in email list. So, the team sent out a direct postal mail effort to a house list offering free membership in the Cetaphil Skin Care Club. They also added offers to product packaging, physician-distributed materials, and the brand's website.

After a ten-month shakedown cruise, they began to test expanding beyond house invitations to outside lists -- most notably a test with CoolerSavings. Hopes were not terribly high, because the team feared the savings crowd might not be wowed by content instead of discounts.

RESULTS

7,500 (15%) of postal mailed consumers agreed to join the Skin Care Club. "We were ecstatic about it," notes Ferrell. In the 18 months since then the house file has blossomed to just under 100,000 names and growing.

The list's overall active reader retention rate as measured an algorithm weighing opens *and* interaction (no one at Cetaphil takes mere open rates very seriously) is at 97%, and 92% of users have interacted with the polls and/or coupons fairly recently.

"We're pretty much giddy about the level of response we get from any email newsletter or coupon we put out there," says Ferrell.

Data shows that the average new Club member is most likely to get bored and stop interacting at about the fourth regular message they receive from the program (not including their Welcome). However, the win-attention-back campaign the team launched around message #3 has helped the vast majority of sign-ups over the hump, and kept them interested.

But does all this affect the bottom line? Yes. The team's been able to show by measuring against control panels and using coupon redemption rates that each Skin Care Club member is worth an incremental $22.19 of brand sales per year.

According to coupon redemptions and self-reported evidence, many members have been cross-sold on trying Cetaphil products they hadn't considered before. (The average coupon has a 10% offline redemption rate.)

Biggest surprises? Several demographics no one expected to pull well have been outstanding winners, including consumers over 55, men, and CoolerSavings members.

The team predicts they haven't begun to bump against the universe wall yet either. Three-six million consumers use Cetaphil products, and the total potential buying population in the US is around 95 million. There's loads of room to grow this program.

They're also excited about new segmentation and targeting possibilities. For example, you could segment by preferred message velocity/frequency, etc. This story is only half written...

Useful links related to this article:

Samples of the May 2004 newsletter showing variations, plus a sample retail coupon: http://www.marketingsherpa.com/cetaphil/ad.html

Integrative Logic - the database marketing firm that handles creative and list management for the campaign: http://www.integrativelogic.com

Coupons Inc - the company that powers Cetaphil's online/offline couponing program: http://solutions.coupons.com/solutions/main/

Cetaphil http://www.cetaphil.com