What Madewell Did Well on Facebook

This was inevitable, but it’s still nice to see (hat tip to Alison Driscoll for the find.)

Retailer-of-the-moment Madewell is giving it’s facebook fans 15% off. To the unenlightened, this is proof positive of the folly of social media.

<Stupidity> “So what you’re saying is I need to sacrifice real profit to add fake “Fans? AREYOUEFFINGKIDDINGME???” </Stupidity>

You think? Well pull up a chair, grab a cream soda, and pay attention.

You have to spend money to acquire a customer. Expenses for marketing and discounts make new customers your least profitable customers, to the point that in many businesses (subscription businesses, mostly), losing money on customers early on makes economic sense in light of the long term value of that relationship. This is hardly a new idea, though it’s less than intuitive.

Over time the costs of acquisition are fully amortized, and you’re left with… a customer. These folks comprise the head of the bell curve, the majority of the folks who buy from you, and the foundation of your profitability.

Some of these folks become loyal customers. Loyal customer are disproportionally profitable. The costs of acquiring them are long gone. They are less price sensitive. They buy regularly. As an added bonus, they have a habit of telling new customers about you, which makes your most costly customers less so, and helps establish a virtuous profit cycle. Which is even more fun to ride than a Harley.

But you need to show these folks the love once in a while to keep them around. Prove to them membership has it’s privileges, so to speak. And it’s only right… sharing a little of the incremental gross profit they create for you is smart business, especially when you can do it in a way that doesn’t give money away unnecessarily to the unwashed masses.

That’s what this is, folks. It’s an incentive to keep loyal customers – already invested in the brand, highly profitable, and inclined to offset your new customer acquisition costs by spreading the word – loyal. It’s a great use of social media, and I expect to see a lot more of it going forward.

Social Media Marketing Mayhem (myventurepad.com)
Puppies and Social Media Marketing (brandimpact.wordpress.com)
Customer Satisfaction Doesn’t Matter (rohitbhargava.typepad.com)
Considering social media’s business value (vator.tv)
Your goal for social media marketing and marketing in 2009 (directmarketingobservations.com)

Tagged as: Business, Customer, Customer Service, Marketing, Marketing and Advertising, Social Media, Social network

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