LifeCycle Marketing

Lisa Bradner from Forrester Research called to discuss LifeCycle Marketing, which is kind of a coincidence given the Sense and Respond post below.  Apparently folks are having some difficulty with implementing the concept…

The Customer LifeCycle is really just a process that you can map, just like any other business process.  At each stage of the LifeCycle you have an expected result based on the behavior of other customers as a whole or in the customer segment.  You measure the behavior of individual customers against the process benchmarks, and when the customer is behaving as expected, you do nothing, taking no action.  If the customer behavior is “out of bounds” with the expected result, you take action.  This method generally allocates marketing spend to the highest and best use.  If this sounds a bit like Six Sigma for Marketing, well, you’re right, it does.  You have a problem with that?

Another way to look at it is this: there is a “tolerance” band for behavior and the ability of marketing to affect behavior depends on where the customer is within that band.  If the customer moves too far outside the band, it becomes impossible for marketing to really do anything at all to affect behavior.  So as long as the customer remains in that band, it conserves marketing resources to take no action.  As the customer begins moving towards the band, significant marketing action is triggered and needs to be taken before the customer moves too far outside the band.  So you have a reallocation of marketing resources towards highest and best use, always pushing marketing spend to where it will be most effective.  It’s a marketing resource allocation model of sorts.

Let’s take a simple retail example of how this works.  Let’s say you look at new customer purchase behavior, and you see for new customers who make a second purchase, they usually make the 2nd within 45 days of the first purchase.  So, you can look at new customers and divide them into 2 groups; those that are doing the “expected” and those that are not, based on the 45 day rule.  Applying the LifeCycle concept, any new customer that makes a second purchase within 45 days of the first, marketing does nothing (inside the band).  This conserves marketing resources and margin dollars that would have been lost to discounting.  That money is then reallocated and spent on the customers crossing over the 45 day tripwire without a second purchase (outside the band), and since you have more to spend (courtesy of the reallocation), the programs can be more effective.

Further, let’s say that you analyze this 45-day idea looking at the marketing campaign that generated the new customer.  You have only 2 campaigns and the days between 1st and second purchase is 60 days for one and 30 days for the other (average 45 days).  So, the first thing you ask yourself is why is the behavior different – media, copy, offer?  The second thing you ask is should we reallocate spend from the campaign with a 60 day window to the campaign with the 30 day window, which would generally increase cash flow?  And the last thing you do is adjust the original 45 day trip wire to 2 distinct tripwires, one for the 30 day campaign and one for the 60 day campaign (if you keep the 60 day campaign).  You are optimizing the marketing system based on the unique LifeCycle profiles of these new customers, generally lowering costs and increasing margins as you optimize.

The thing is, this is really fundamentally the same as optimizing a web site.  It’s the same idea, only with different variables and more detailed data.  I think that’s why many of the web analytics folks seem to “get it” and are now working on systems to automate it.  I saw a shopping cart demo last week with this kind of LifeCycle profiling built right into it.  You could run the profiles and execute the LifeCycle-targeted e-mails right within the same interface.

Behavior predicts behavior.  If you use behavioral metrics like Latency and Recency, you can discover these LifeCycle patterns and use them to your advantage.  Every marketing system, B2C or B2B, has LifeCycle processes in it.  By understanding these processes you can focus resources and increase the overall profitability of all your marketing efforts.

Why are companies having troubles implementing such a relatively simple concept?  I dunno, guess we will have to see what Lisa has to say in her report…but why do companies have trouble implementing just about every data-driven Marketing or Service effort?  More often than not, the root cause is lack of a proper analytical culture to support the effort.

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3 thoughts on “LifeCycle Marketing

  1. Hi Jim,
    I would be interested to have your opinion on the application of lifecycle and recency principles in the field of continuity services, like a telephone or ADSL subscription.
    Is service usage an event which can be used to measure recency or not ? Should one use only customer order events or other interaction events in order to measure recency ?
    I guess you will answer that any recency metric should be tested in order to assess its predictive power.
    Is the recency principle applicable only to certain product types with short lifecycle ?

    Thanks
    K

  2. If I answer this question, will a loosely edited version of my answer end up on your web site? Just curious…

    If the revenue transactions are not expressive of customer behavior, for example, as in many utility businesses, then you look to data that is expressive of behavior. In many cases this data is in the customer service, help desk, or “dispatch” areas. In a service-oriented business, you look to service-oriented data for predictive power.

    More here:

    http://www.jimnovo.com/Utility-Profiling.htm

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