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Welcome to our Special Report on Continuity Marketing

Welcome to the latest in a series of special reports from Direct Listline.

This edition is about the marketing of continuity programs.

In this special, we explore how continuities can be a profitable way to connect with buyers who have specific lifestyle interests or needs that must be replenished regularly. We also look at trends and statistics in the market, including the internal dilemma of negative vs. positive option.

These reports are designed to provide a snapshot of a niche at a given moment. Several more are planned for 2005.

If you have any comments or suggestions, please contact Ray Schultz, editorial director, at rschultz@primediabusiness.com (mailto:rschultz@primediabusiness.com).

MARKET OVERVIEW

Customers With Commitment
By Jim Emerson

Talk about a steady relationship. By definition a continuity customer is already a multibuyer from the get-go, which not surprisingly makes finding a new continuity club member more valuable than a conventional buyer for a first-time purchase.

Instead of thinking 80% of sales will come from 20% of customers, continuity marketers can spend more time running list models that base sales projections on the cost of customer acquisition, level of response and paid orders. All of this will be factored against the often-high predicted rate of product returns to determine the program's return on investment.

Choosing lists that identify prospects by personal interests and using overlays to enhance response files with lifestyle data are considered among the best ways to select files for targeting continuity offers.

Motivation to respond to one of these offers is likely to increase in proportion to how serious a person is about a hobby or interest and how often they engage in a particular activity over time. Likewise, premiums work best if they are linked to the prospect's niche interest.

Experts in continuity marketing say the strongest categories for generating response are educational and entertainment products; indulgences such as gourmet foods; and supplies like pet food that are used daily.

Products that consumers feel they need, rather than merely want, generally work well for continuity programs. On the flip side, items that fall squarely into the 'want' column -- like books, CDs and DVDs -- are also good performers.

One of the largest continuity marketers around is Bookspan, with an estimated 10 million members worldwide. Jointly owned by Bertelsmann A.G. and Time Warner Inc., Bookspan's affiliates include Book-of-the-Month Club, The Literary Guild and Quality Paperback Book Club.

Besides booksellers, the other main industry players in the market are insurers, packaged goods marketers, entertainment companies and service-oriented firms, especially in the financial sector.

STATS

Demographic Facts and Figures

The widely acknowledged inventor of marketing clubs is Robert L. Hemmings, member of the DMA Hall of Fame since 2000 and president of Hemmings IV Direct in Pasadena, CA. Hemmings started the first such club in Los Angeles.

Among multibuyer lists, continuity club members are considered Nirvana because they have more upscale demographics and disposable income than the general population. A search for "continuity club" on Nextmark's database turns up 2,871 results.

Price points for continuity programs offering business-to-business products typically run 50% higher than clubs promoting goods to consumers. High-end prices in the B-to-B sector range from $40 to $50, compared with $15 to $20 for consumers.

It's not unusual for continuity marketing programs to maintain as much as a 20% higher rate of customer retention and successful back-end payment history compared with conventional "bill me" offers. An average continuity customer makes three to six purchases annually from the same company, while 50% or more of new conventional customers will never place a second order.

As a norm, negative-option programs, in which a consumer receives shipments at regular intervals (unless the company is notified not to ship), will deliver more sales than a positive option by a 2-to-1 margin. Return rates may run as high as 50% and customer service reps may receive more complaints, but historically the negative option can be expected to sustain higher overall sales. Consumer attitudes and behaviors aside, the positive option is believed to deliver more loyal long-term customers.

Pricing strategy can be the key to increasing incremental sales to continuity customers, since it's normally easier to boost average dollar-spent amounts than response rates. One method involves analyzing purchase history to offer special pricing on products likely to attract specific customer segments. To entice high-end customers to buy from additional product categories, lower-priced samples can be offered. Customer history also can be used for targeting upsell offers to consumers who consistently order lower-priced products.

Several continuity marketers have contributed data to the TransactionBase database being developed and tested by Alliant Cooperative Data Solutions. It'll be used to predict which consumers are most likely to respond to and pay for bill-me offers, such as those extended by clubs. Participants include Doubleday, Book-of-the-Month Club, National Geographic Society and International Masters Publishers.

Sources: Direct Creative, Direct Marketing Association, Link Group Inc., Newbridge Communications