Do you engage in “coopetition”? You should!

The way that many companies keep their customer lists, they have the names and assorted contact information for everyone who’s ever bought from them and gave them such information. That’s about it.

And this is those companies that even bother to keep customer lists at all.

Of course the really good companies keep much more. Why do you suppose large retailers and service companies have loyalty programs? Frequent flyer programs, frequent buyer programs, grocery store discount cards… you name it.

Those programs serve two very important purposes:

  1. By making customers fill out an “application” to sign up for their program, they are getting those customers to give them a great deal of information: full name, address, email, phone number and sometimes more.
  2. Every time a customer uses his card or account number, the company logs what was purchased. (Yes, even your two foot long grocery store receipt with 133 items on it.) In that way, they can build up a very detailed history of exactly what any given customer likes, as opposed the customer seated across the aisle or the guy in the room down the hall.

Savvy companies milk this information for all it’s worth and extend custom-tailored offers to each customer. Naturally, by offering what you’ve already demonstrated you like and will purchase frequently, it greatly increases the odds of making another sale.

Or perhaps they make a special offer on somethingyou don’t normally buy. Most likely something complementary to what you usually buy. Only stay in the hotel on weekdays but never on weekends? By offering to extend your stay for a reduced price, perhaps they can induce you into longer stays that include weekends. Always buy the name brand cookies but the store brand of lots of other items? If they can convince you to give their store-brand cookies a try, they stand to make more profit. (Even though the price is lower, the margins are typically higher.)

But that’s about as far as it goes.

So what’s missing?

A lot, as it turns out.

How many companies distinguish between current and former customers? When customers stop buying from you, there will rarely be an announcement. There’s just a change in buying behavior and you may never know why.

Perhaps that salesman who flew three out of every four weeks is now an executive who hardly travels. Or the family of five who bought groceries every week was lured away by a new store. Or moved to another state.

How do you even define a former customer? How long do they have to go without making a purchase before they make it into that category? Is there hope of rescuing the business relationship before it comes to that?

And what of prospects who gave you their information but then never actually became customers at all? Do you save that information? What do you do with it?

Most companies will try for some time to lure those prospects into becoming customers. (Some keep trying indefinitely.) They may change the offers around a little, dangle a different carrot, so to speak, but that’s really about the extent of it.

Here’s a radically different idea: what about giving those prospects and stale former customers to one of your direct competitors?

Of course I’m not talking about some kind of twisted professionally self-destructive altruism. Instead I’m talking about a trade. You give one of your competitors “x” number of prospects who never converted plus former customers who obviously aren’t coming back and, in return, they give you the same number of their unconverted prospects and former customers.


If these prospects gave you their information, it was most likely because they needed or wanted what you have to offer. They were interested in becoming customers but then something happened. It could be that they changed their mind, or that your price was too high, or they heard or read something about you that they didn’t like, or they had a negative interaction with someone at your company, or decided to buy from a competitor instead.

The reason doesn’t really matter all that much.

What matters is that, unless this was a one-time only need that’s already been satisfied, these prospects have selected themselves as potentially good customers for someone in your industry. Just not for you. (If that were the case, you would already have converted them into customers.)

The same is true of your competitor’s unconverted prospect list; those are potentially great customers for someone but not for them.

So you’re both sitting on lists that have tremendous potential value to some company in your industry. It only makes sense then to exchange lists. They stand to wring some value from yours while you stand to wring some value from theirs.

This combination of cooperation and competition is called “coopetition”.

This is not collusion. You’re still competitors, you’re just engaging in a more enlightened form of cooperative competition.

Of course there is the possibility that many of the prospects you get from your competitor may already be your customers. They run the same risk with your list. That’s just part of the cost of this kind of transaction.

Another major consideration is concern over privacy. One of the things you can most easily do is to not actually exchange lists but each merely send out a solicitation on behalf of the other. If trust is a concern, you could mutually agree on a third party mailer who will process both lists. That way, the information never actually changes hands.

The only way you get your competitor’s prospect information (and vice versa) is if one of those prospects responds to the mailing and you collect it from him directly.


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Tax Time Marketing

I got a brilliant piece of marketing in the mail yesterday. I’ve actually gotten the same piece every year for the last several years. That tells me at least one very important thing: it’s working.

A company would not keep sending out the same mail piece if it wasn’t working to generate revenue.

What was this brilliant piece of “junk mail”?

A software CD.

So what is it that makes this such a brilliant marketing piece?

Let’s think about this for a moment. I’m going to have to make some very broad assumptions here but I think they’re reasonable.

            1. Every adult in America is required to file taxes, even if they have no income.
            2. Most of those people will file using their computer in some way, either online or by using software just like what was sent to me.
            3. This software was probably sent to several hundred thousand households. My guess is that all of them are previous users of this very same program from prior years.
            4. The software is neither more nor less expensive than if I went out to a store and bought a copy myself. What I save is the time, gas money and all-around hassle of doing so.
            5. The software comes from a well-known company; one of the two or three largest in their industry.

Now let’s think about the economics of this mailing. To keep the math simple, I’m going to assume that they only sent this CD out to 100,000 households.  (In reality, it was probably several times that many.)

The cost to get a CD mass-produced in those quantities amounts to only a few cents per unit. Likewise, the cost of the case and label is only a few cents per unit. Their largest cost is postage but even then they get bulk mail rates thanks to the volume and the way they sorted and prepped their mail pieces.

Total cost should be well under $1.00 per unit but, again to keep the math simple, let’s call it an even dollar.

I happen to know that typical response rates to mailed solicitations is 2%-3%. Again, this came from a very well-known company and was sent primarily to existing customers and was selling a product that those customers are essentially “required” to use so their response is likely much higher but let’s just stick with 3% for now.

So they paid $100,000 to create and send out these CDs. 3,000 people actually purchased the software at the lowest cost option of $34.95. (Some of those people certainly paid extra for an upgrade or to add on a state tax program but we’re keeping it simple here.) So that amounts to revenue of $104,850.

Meaning that even going with our ultra-conservative estimates, the company made a profit on this mailing. (Yes, my assumptions ignore things like the programming cost to develop the software and assorted operational overhead to keep the lights on at company headquarters.) This is essentially their worst-case scenario; the mailing bombs and they make only a tiny profit. (Boo-hoo.)

What’s more likely? They sent out 500,000 pieces at a cost of around $0.85 each for a total mailing outlay of $425,000.

Given the nature of the product and the list to which it was mailed, response was likely something north of 20% but let’s keep it at 15% just to be safe. So that’s 75,000 buyers. Let’s assume that 45,000 of them (60%) bought only the lowest cost program ($34.95) and nothing else. That’s a subtotal of $1,572,750.

The remaining 30,000 purchased upgrades. There are $44.95 and $64.95 options. Most people don’t need the highest priced option unless they own a small business so let’s assume that upgraders spent an average of $48. This will account for the small fraction who got the highest level upgrade available on the disk. So the subtotal for upgraders is $1,440,000.

Combining these two subtotals equals revenue of $3,012,750. Backing out the original mailing cost gives a margin of $2,587,750. Certainly plenty to pay developers and still make a handsome profit.

Plus, let’s not forget that this is a huge and very well-known company. They also sold some of those very same disks in stores. (The extra volume brought their per-disk manufacturing cost down too.) They also leveraged their software development cost by reusing the code for their online and in-office offerings.

So essentially they made a profit of at least a million dollars plus got an inventory of merchandise they could sell in stores for free. (Pure profit!) As if that weren’t enough, they also got profit-generating website development essentially for free and still get to use the software in their offices (yet another profit center).