Objective: Corporate Express needed a way to boost its furniture sales, increase average sales and reduce customer churn.
Strategy: Using behavioral tracking, the company was able to look for commonalities among customers with similar purchasing habits. Separately, it was able to cross-promote furniture products to past customers.
Results: Corporate Express increased response rates by 50% in a single quarter and reduced cost-per-response by 30%. ROI for the overall online marketing program improved by 120%, while customer churn rates fell.
In 2007, discount office supply company Corporate Express, which caters almost exclusively to b-to-b buyers, had a problem: customer churn. Moreover, the company, which counts 70% of its sales online, was not selling as much furniture as it would have liked to, while overall customer response rates were down.
Recognizing that office furniture buyers have specific behavior profiles, Matt Schwartz, VP-business intelligence and analysis at Corporate Express, implemented a behavioral marketing program. His first target: reducing customer churn.
Schwartz and his team based their first program on declining indicators, for instance, counting how often defecting buyers placed orders and what their purchase values were. While the technique gave 75% accuracy in predicting which customers would stop using company services, it wasn't enough, Schwartz said. A better model, he said, was to look for positive indicators, for example, which customers were buying a lot and often.
At the same time, Schwartz and Walter Scott, VP-marketing and e-commerce, wanted to increase sales to customers who were already buying regularly. Using software from SPSS Inc. and the positive indicators, Schwartz examined how customers were adding nonfurniture items to their online shopping carts. Knowing this, Corporate Express could start upselling customers, placing product suggestions on associated product pages, Scott said.
“In the past, we tried to upsell, but there was no rhyme or reason,” he said. “If someone bought a pen, we might suggest a paper SKU. Now, looking at past customer purchase behavior, we can suggest exactly what we know other people have bought when they bought [that] exact pen.”
The strategy has delivered improvement in sales and profitability, Scott said. It also helped predict with 87% accuracy which customers would stop making purchases. Today, when someone is identified as a possible defector, the sales team is immediately notified so it can intervene. This information is also passed along to online marketing so they can e-mail a special retention campaign out.
The next move was to focus on improving furniture sales. Before the 2007 initiative, customers and pro-spects in the Corporate Express database received a quarterly catalog that encouraged a visit to the Web site.
But given the rising cost of postage and printing, the direct mail catalog was becoming more and more expensive, Scott said. By cross-matching actual sales to the database, Schwartz and Scott could see that people who buy furniture online are already furniture customers. This meant sending direct mail catalogs to prospects was a waste of time and money. People weren't going to purchase furniture for the first time online or via catalog. That was probably going to happen in person.
“We decided to limit [catalog] circulation and actually improved response 50% in one quarter, reduced cost per response by 30% and improved ROI of that campaign by 120%.”
In addition to the increased ROI and response rates, overall customer churn rates dropped, Schwartz said. “By reducing direct mail catalog circulation and improving ROI, we were able to expand our marketing collateral,” he said. “Overall, we were able to spend a little more by creating [an] online catalog, but it balances out. Our spending increase is 10% and our ROI is 100%.”