A Deeper Look at Database Segmentation (ABT Analysis)
For years, database experts have touted “RFM” as the best available model for segmenting databases. Originating in the for-profit direct marketing world, many arts organizations adopted and adapted this principle to their own businesses.
Yet RFM may not paint a full picture of a patron’s true buying behavior. There are other measurable behaviors that, when appropriate to an organization’s needs, can and should be kept in mind to provide a more meaningful and actionable picture of overall customer loyalty. ABT Analysis™, which takes these other behaviors into account, yields a richer customer profile and gives the arts marketer a strategic advantage that can result in a more favorable return on investment.
The RFM model groups customers and potential customers according to three attributes of buying behavior (hence the initials RFM), typically expressed as follows:
- Recency of purchase: Is the household a current or lapsed buyer?
- Frequency of purchase: Does the household represent a unique purchase, or a multi-buyer pattern?
- Monetary value of the purchase: Is the household a single ticket buyer or a subscriber?
- Does the household contribute a small or large donation to the organization?
While RFM has been an adequate tool to segment patron databases in the past, it is becoming apparent that the RFM model alone can be a misleading indicator of actual buying behavior, as shown in the following considerations:
- Recency: The most recent ticket purchase that a household has made is not necessarily the most important or best purchase by that household.
- Frequency: The term “multi-buyer” can be far-ranging and does not always predict a propensity to purchase additional tickets. Someone can be considered a multi-buyer for simply buying a single ticket in two consecutive years.
- Monetary: Just because a household has made a high dollar purchase (such as a subscription), it does not necessarily have the same propensity to buy a subscription in the future. First-time subscribers typically have a 40% lower retention rate than long-term subscribers.
Although careful stewardship of the marketing database can yield greater insight into buying behavior and help the marketer avoid some of the pitfalls of RFM, today’s non-profit marketing and development professionals cannot afford the time to micro-manage their databases to the degree required to fully explore buying behavior using traditional tools. Moreover, true customer loyalty cannot be adequately ascertained with the more generalized RFM system, because certain behaviors are outside its scope.
- How long has the patron been a consistent ticket buyer/donor?
- Is the patron a board member or volunteer?
- Has the patron made both ticket purchases and donations?
- Has the patron crossed over among various product offerings?
- Does the patron attend other arts/cultural organizations?
- Where does the patron sit, and how much does s/he value the seat location?
And there are many additional behavioral questions about patrons that can be considered. Through a careful analysis of these factors and their effect on historical buying trends and impact on revenue, patrons can be scored along a continuum of overall patron loyalty. This score, in turn, can yield an Advocate, Buyer, Tryer Analysis™ (ABT Analysis), which allows patrons to be grouped into one of three behavioral groups:
Advocates: This is the institution’s smallest, but most valuable group of patrons. Extremely loyal, they tend to be long-time consumers of the product and cheerleaders for the organization. They typically have the lowest cost of sale, because little work is required to convince them to return season after season.
Buyers: These patrons’ behavior seems to indicate the belief that the product is “OK,” the service is “OK,” and the price is “OK.” They have set out on the road to advocacy and are relatively loyal to the organization. This group holds the greatest potential for up- and cross-selling.
Tryers: This group of patrons has experienced an organization’s product but is the least loyal to that product. They comprise the largest group of patrons in the database, but represent the least revenue; they are also expensive to maintain and to up-sell.
ABT Analysis provides the marketer with strategic directives to accomplish the following:
- Identify Advocate behavior in the organization and determine the best prospects in the Buyer group for promotion into the Advocate group;
- Determine “at risk” Advocates who need more attention to maintain their position;
- Through an understanding of Buyer behavior in the organization, identify Tryers who may be moved up into the Buyer category and reduce the cost of sale to this group.
Once the ABT Analysis is completed, another valuable dimension of information can be added to each of the three groups through demographic/psychographic overlay and analysis. Understanding these additional aspects of each group enables further segmentation within the groups, as well as more effective prospecting to the existing community of non-buyers.
Conclusion
Using the more sophisticated tool of ABT Analysis to segment an organization’s database creates a strategic advantage that allows the marketer to increase sales volume while decreasing the cost of sale, and, ultimately, to maximize the gross margin of revenue.
To learn more about ABT Analysis and how it can benefit your company, please contact Will Lester, Vice President, Target Resource Group at 719.314.5835 or email wlester@trgarts.com.
