Tag Archives: Customer State

Offline Engagement Modeling

The following is from the November 2008 Drilling Down Newsletter.  Got a question about Customer Measurement, Management, Valuation, Retention, Loyalty, Defection?  Just ask your question.  Also, feel free to leave a comment. 

Want to see the answers to previous questions?  The pre-blog newsletter archives are here.

Offline Engagement Modeling

Q:  In our business (airline) – particularly on the loyalty side – we’ve been using both RFM as well as lifetime and current cumulative totals.  For instance in our mileage program, we look at both lifetime miles earned and used as well as current balance. 

Does that seem appropriate?

A:  Well, I guess the question is appropriate for what purpose, what action are you driving to?

For example, if you were to divide metrics into “strategic” and “tactical”, meaning “for management / long-term planning” and “for campaigns / taking short-term action” then you get different answers.

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Marketing Bands: the Numbers

(A post by post index of this Marketing Bands Series is here.)

Just wanted to add a quick piece about the results of Optimizing the Bands (see Band Model) – this is the Marketing Productivity Blog after all!  Thanks Moe for the reminder

As we Optimized, there were changes in budget allocation by Band, and as a result there was an increase in Net Customer Value – the goal of the Optimization program in the first place.  For those of you not following the whole story, the budget remained constant, we simply allocated it to the highest and best use through testing.

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Online Marketing Bands

So, we had some good “translation” discussions on the HSN Marketing process document, and the idea that there are a couple of ways to look at “Segments”. 

It’s my belief that if you start with Communication Segments (an idea we finally arrived at with the HSN Optimization in 1993) and then move to Visitor or Customer Segments, you will end up with a clearer, more actionable picture in the end. 

If each Band has a single Objective, and you Optimize to this single Objective, you will end up Optimizing the entire system because Visitors / Customers naturally flow down through the Bands as they pass through the LifeCycle.

There’s really no concrete benefit, on either side, to send the same message to all the folks in these different Bands.  That approach is inefficient at the least and irritating to the customer at the most!

Continue reading Online Marketing Bands

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Customer Modeling for Finance Folks

The following is from the May 2008 Drilling Down Newsletter.  Got a question about Customer Measurement, Management, Valuation, Retention, Loyalty, Defection?  Just ask your question.  Also, feel free to leave a comment. 

Want to see the answers to previous questions?  The pre-blog newsletter archives are here.

Customer Modeling for Finance Folks

Q:  My boss (VP of Phone Sales) is really looking to try out some new ideas and RFM is one he has latched onto.  He actually has explored this concept for a few years but never acted upon it.  Anyway, he just purchased your book and after finding that he did not have time to read it he gave it to me.  My job was to read and understand at a high level and to lead a discussion with the marketing group to get them excited about the concept.  I am a finance guy by trade so this concept was very interesting.

A:  That’s funny, the people who really “get it” the most are Finance people and IT people, because my approach is very numbers driven.  Stuff either works or it doesn’t – did you make money or not?  Many marketing people seem to dislike the idea of accountability…..hmmm…

Q:  Obviously I either did not do a good enough job explaining RFM, Latency Tripwires, etc. or they just are unwilling to have someone from their team tackle the concept.  My feeling is they felt this is a sales tool.  The question they always wanted answered was “Why did the customer behave the way they did?  We find that out and make a sales call, not engage in ‘marketing air cover’ tactics.”

A:  Not sure what you mean by this…in fact, depending on the value of the customer, a sales call might be exactly what is needed.  If you have a formal “wall” between sales and marketing, usually the issue can be decided by “degree of pain” e.g. how painful will it be to lose the customer?  Generally, a personal call is more effective than Marketing but more costly, so you use those guns sparingly.

If you have a small number of very high value customers who look to be defecting then a sales call is triggered.  If you have lots of medium to low value customers who look to be defecting, then a direct mail campaign is probably what you need, which is probably Marketing.  Match the value of the effort to the value of the customer; this is how you get gigantic ROI’s (or since you are a finance guy, more accurately something like ROME’s – Return On Marketing Expense).  The scoring approach to customer value is about allocating scarce resources to the highest and best use.

I think what Sales is saying is this: if you know a specific thing about a customer, we handle that “one to one” thing; Marketing does the “all customers” messaging.  And this is precisely the point of customer models – they allow Marketing to do the “one to one” thing, as opposed to the “air cover” thing.

Q:  So it has fallen upon me to develop a project plan and come up with some ideas to implement.  If we can not get marketing support we will run with it ourselves.

A:  Good for you!  A good old fashioned skunk works operation, I love that!  And led by a Finance guy on top of that.  Bravo!

Q:  I am now reading the book for a second time and I have a slight problem with how to best implement with our business.  I can see how this concept could be used to radically change our sales channel, but I do not think I have that much pull.

A:  Well, let’s take a look at it.  Typically, and particularly since you are in Finance, what you do is look to prove out a high value concept, then share financial success up the chain.  This builds momentum for the approach and gets people really interested in knowing more, which leads to taking concrete action.

So for example, find your very highest value potential defectors using either Recency or Latency.  Then split them into two equal groups – test and control.  Have sales call the people in the test group and find out what is causing the defection behavior, try to save the customer.

Then 90 or 180 days later, look at the number of test and control that stuck with the service.  Subtract the control number from the test number, this is the “net” retained due to your calls.  Multiply by value of the contracts, and you have sales due to your program.

Q:  We are a subscription service in which customers pre-pay for the service they expect to use.  Our sales (and I guess marketing to some extent) are responsible for driving customers to use their service throughout the year.  Usually if a customer uses more than they committed to then they raise the commitment the following year.  For us sales leads to higher revenues leads to higher sales, etc, one big circle.  So I guess my question is this: Can RF scores be used for a pre-paid subscription service?

A:  Sure, but perhaps not in the “classic” sense of transactional revenue.  For many service biz, particularly subscription ones, you profile activity other than billing, since the billing tends to be static.  Sounds to me like what you want to profile is **usage** – the more Recently and Frequently a customer has used the service, the more likely they are to continue using it.  I assume you are authenticating subscribers to the service on your web site, so this shouldn’t be a big deal.  Then your scores would rank customers by likelihood to “continue using the service” and their value. 

High value customers with falling or low likelihood (falling RF score) to continue using  the service get a sales call, mid to low value customers with low likelihood to continue get a direct mail piece from marketing.  Dramatic changes in score require the most urgent attention, in terms of allocating resources.

Q:  As an FYI,  we have customers who pay as they go and customers that sign a yearly commitment.  Would it be best to segment the two groups individually for the RF model and Latency tripwires?

A:  Yes.  Annual subscriptions and Pay As You Go are two fundamentally different behaviors and mindsets, so mixing them will confuse the scoring.  You have a Long cycle (annual) and a Short cycle (PAYG) decision being made; both the models and the actions would be different.  For example, PAYG will be a more sensitive model with action required more immediately.  Also, these are probably low value customers so you’re talking about e-mail or direct mail.

And, your measurement cycle would be different.  Taking the test example above, you would check for “net results” on PAYG probably at 60 days; annuals you would wait for renewal date unless the offer affected this date in some way.

Q:  We also have different size customers some spending more than $10K / year and  some $1K, should we segment based upon dollar values as well since the more they committed to the higher their FM scores (you would expect)?

A:  You can make anything really complicated with segmentation if you want to!  Just starting out, my answer is Segment in terms of message yes, but Segment in terms of scoring and triggering action, no.

Keep in mind the Current Value / Potential Value model; don’t confuse the two behavioral vectors and their meaning.  Current Value – what they have paid so far – is about how valuable the customer is to the company and determines what action is taken.  This is the “personal call” versus “send e-mail” part of the equation; the cost component.

The Potential Value (Recency, Latency) is about predicting the likelihood for future business, it’s about “when” to act.  This is the risk of losing the business in the future.

So I would not segment by value in terms of predicting defection, because the likelihood of losing the business is really unrelated to the Current Value of the customer.  You can have High Value and Low Value customers with the same defection likelihood, whether “value” is measured as Sales, Page Views, Engagement, whatever.  Value is largely independent of likelihood to defect.  But once defection is predicted, you then segment between High Value and Low Value and take action based on the value of the customer or visitor segment.

The two primary rules of High ROI Customer Marketing are:

1.  Don’t spend until you have to
2.  When you spend, spend at the point of maximum impact

Current Value = What to do
Potential Value = When to do it

That’s why this approach is so much more profitable then dropping Marketing on a “batch and blast” calendar schedule (you called it “marketing air cover”).  Right message, to the right person, at the right time.  And it works especially well online because Relevancy (right message, right time) is so important and switching costs are low. 

Q:  What kind of Marketing should we do?  Is there any other segmentation we should try?

A:  Well, that’s a little tough without knowing more about the business, but there’s a good way for you to find out!

With a service, you hopefully know why people stop using it.  To prepare for these campaigns from a Marketing perspective, find defected best customers (high value cancels) and look at why they stopped using it (or interview them if you don’t know, offer a free month or whatever to get them to talk to you).  Create Sales / Marketing – pitches / materials / offers to address their issues.  

Then when you see a client engaging in a defection pattern on usage (drop in RF score, Latency Tripwire), engage the appropriate response (Sales or Marketing) based on the value of the customer.

And sure, the more you segment your customer base, the better it works.  You should start at the bottom, however.  Don’t “out-think” the segmentation; let the data speak to you.  Try something at a very basic level and look for the hands to be raised; this will tell you what works and put you on the right track for more complexity.

For example, let’s say (and I imagine it would be true) that SIC codes play a role in your sales and retention.  Certain types of businesses are simply going to be more likely to realize value from the services.  So you do a campaign (sales, marketing, or both) to *all* customers in a particular defection state and let the SIC data speak.

Let’s say for simplicity that you find if a PAYG  subscriber doesn’t use the service for 10 days that’s a warning flag for defection.  You prepare and drop the retention campaigns to any accounts that “trip” this trigger – right message, at the right time.

What you see when the data comes back is certain SIC codes had a very high response and “activation” and start using your database again, and others do not.  The data has now spoken, told you which SIC’s it is worth spending time / money on.

Then you look at bit deeper, and find that within an SIC code that looks to be a “bad idea” overall, the results are pretty good as long as the offer is made by direct mail in the South.  So you keep this particular segment of the “direct mail” campaign and kill the rest of the marketing activity for that SIC code.

You can look for other segments by value, by region, by services subscribed to, by type of data they look up, whatever.  As you subdivide segments, you will find new pockets of profitability.  You could spend a LifeTime chasing down all the segments – I have never, ever finished this task on any particular engagement.  In fact, clients call me years after they have stopped using my services to tell me they have discovered unique new segments that are extremely profitable.

Good luck with the skunk works project and let me know if you have more questions!


Any comments or questions on the above? 

I’m not saying you should abandon traditional customer communications, the batch and blast that you do.  What I am saying is there is a deeper, more Strategic Objective you can drive through either customization of current programs or by adding an additional layer – maybe cut back on a little of the blasting at the same time?

The basic idea is really no different than optimizing Campaigns – except you’re optimizing Customers by recognizing problems with individuals and offering solutions, instead of always being in their face asking for something – especially when the customer is already demonstrating to you there is a problem of some kind.  A little “Is there something we’ve done wrong”? or “Can we help you use our product more efficiently?” or “Would you take a survey?” to specific customers could not hurt.

Sound like a good idea?

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Hitting the Wall

Looks like Red Envelope is Hitting the Wall.  What they need now is a Relationship Marketing Strategy based on understanding dis-engagement.  It’s the only way to dig out of this. 

They need higher Marketing Productivity.

Check out this statement:

“We hoped that our renewed creative statement would drive an up-tick in performance in fall and holiday, but unfortunately this was not the case” – CEO John Pound

Got some old schoolers there.  That’s a “pray and spray”, offline Customer Marketing approach, not an interactive customer strategy.  They have to understand why the behavior is different

You know, the difference between Brand and Branding.

They have the data.  But they didn’t do the analysis, because the effects of dis-enagagement were masked by new customer acquisition.  They thought everything was just fine and changing creative could “give them an uptick”.

Not.  I’m just guessing, but it seems to me this business model is a case where the Catalog – as they are implementing it – is only driving incremental business in very small segments, and is a loss overall.

In other words, a prime candidate for a Controlled Test to resolve this matter of catalog incrementality quickly by avoiding the “matchback” problem so common when one takes an old school approach to an “always on” interactive medium.

I’m not saying the catalog is a bad idea.  I’m saying it matters more than most folks understand who you send it to and when.

So, have you ever shopped with Red Envelope?  How was the experience?  Did you purchase again from them?  What’s your Net Promoter Score with respect to them? (giggle)

More details on what Hitting the Wall is all about are here.

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A Framework for Engagement – e-Mail Example

Let’s take a specific example of what I was talking about in the last post in this series to show you what a Relationship Marketing Strategy looks like in action.  I have stated, for example, in this interview, that email is both taking credit for sales that would have happened anyway and generating more sales than you think it is. 

These statements are both accurate at the same time.  When you use Control Groups to measure the incremental behavior generated by e-mail campaigns, what you find is both effects occur at the same time but each one happens with a completely different behavioral segment – Engaged versus dis-Engaging.  Unfortunately, in most cases, the net effect is e-mail falsely takes credit for more sales than it doesn’t get credited with accurately, because the Potential Value (likelihood to buy) of the Engaged is far greater than that of the dis-Engaging.

Against a graph of Response by how long ago the last click in an e-mail occurred, these dual effects on the actual response rate of an e-mail drop versus control group look something like this (red line).

Click picture to enlarge:

On the left we have the highly Engaged, and moving to the right, the pattern of dis-Engagement.  On the left, we have a much higher percentage of “would have bought anyway”, which decreases as we move to the right.  The portion of the blue bars above the red line represent buying activity in the control group – they bought without receiving an e-mail.

As we move to the right, this effect decreases, until the blue bars are now below the red line.  The space between the blue bar and the red line represents sales made because of your e-mail that were not tracked back to the e-mail drop.  Often, this is a result of simply not tracking the “campaign tail” for long enough, which is difficult to do without using a Control Group to find the long-term lift.

The implication: for commerce, you should be sending a different message to these different behavioral segments depending on where they are in the LifeCycle if you want to maximize profit.  In the segments with highest likelihood to buy, you should take it easy on the discounts; one way to optimize commerce profit across the entire engagement spectrum is to use a Discount Ladder

For all other business models, it’s highly likely that you could benefit from the same approach, if you have clear value KPI’s and understand this dis-Engagement process.

Now, I am well aware the above sounds insane to offline retail folks.  Most if not all of you lack the data to measure these effects, but that doesn’t mean they don’t exist.  For the folks that do have the data, the day will come.  Hey the web is interactive, the web is different, right?  Well, yes it is, so why measure the effect of promotions like they do offline if you have a superior method of optimizing for profit?

When a visitor / customer is highly Engaged, they often generate visits or sales without needing any Marketing at all.  That’s what the Relationship Marketing Strategy is all about – the Relationship drives the business.  That’s why, for example, people have found that including a lot of relevant and customer-focused content in a commerce newsletter gets higher response rates than just sending people coupons.  It’s why creating a new customer kit drives higher repeat purchase rates – it’s the Relationship building.  And that’s why you will find (if you use Control Groups) that for the highly Engaged, your e-mail program is taking credit for sales it did not generate, and that if you are providing discounts to the highly Engaged, you are probably wasting money on them.

A portion of the Engaged segment would have bought anyway, and the fact that you dropped a coupon in their lap with e-mail is simply coincidence.  Or, if you send a coupon every week on the same day, the customer simply waited for the coupon they knew they were going to get so they could make a discounted purchase they would have made anyway at full margin.  That’s how e-mail takes credit for sales it does not generate, and anybody who is managing to ROI / profit should care deeply about this.

Now, if you’re a “share” thinker, this subsidy cost related to “would have bought anyway” doesn’t matter to you, because any sale the other guy didn’t make is a good sale.  But last time I looked, you can’t put share in a bank account, and the logical extension of this share mindset is you can get 100% share by selling product below cost, so I have never understood it.  If your directive is increasing gross sales, that’s pretty much the same thing – you get there by unproductive ad spending, which in the end is the same thing to the bottom line as selling product below cost.

By the way, I’m not saying the Engaged should receive no communications, but they should get a different kind of communications tailored to their behavioral state.

On the flip side, no matter what your directive, you should care about not getting credit for sales your e-mail generated.  E-mail to another segment, those in the process of  dis-Engaging, almost certainly generates sales you are not tracking and not crediting to e-mail.  And that’s because the dis-Engaging are changing their behavior with the company for some reason.  They are seeking alternate channels, for example.  In other words, they are responding to your e-mail but they are not responding through your e-mail, they are not using whatever devices or links you give them in the e-mail but are still making a purchase because of the e-mail.  Again, you don’t see this unless you use Control Groups.

A third segment, the dis-Engaged, doesn’t respond to your e-mails at all.  And they’re not going to, because your company is now irrelevant to them.  The company has not been tracking the dis-Engagement process so it didn’t take any specialized action to slow or stop the dis-Engagement.  In fact, the company is probably just damaging their Brand by sending these folks any e-mail at all.

This is Relationship Marketing Strategy; it completely redefines how you communicate with customers based on where they are in the Engagement / dis-Engagement cycle.  And it works amazingly well.  The bottom line is customers remain customers longer – this Strategy tends to extend the LifeCycle – with the result customers end up with higher LifeTime Value.

Are you surprised?  You shouldn’t be.  People talk about this incessantly on the web all the time, don’t they?  Relevance?  Customer centricity?  Customer experience?  Blah blah blah? 

Then how come so few people are using a Relationship Marketing Strategy?  How come so few are using Control Groups to measure the true net influence of e-mail?  Why are people blasting out the same irrelevant message to all their customers once a week?  A lot of talk and very little action, methinks.  Perhaps you just needed a framework to put everything into perspective, a roadmap to getting it done? 

Now, I realize many folks in the community don’t have the tools they need to measure dis-Engagement; typically only the high-end tools have metrics like Recency and Latency and even though Google Analytics tracks Recency, it isn’t easy to do much actionable segmentation for that metric in the tool. 

There’s a very simple reason for this, if you think about it – it’s a lot harder to measure something that doesn’t happen than measure something that does happen.  After all, servers are all about requests, they’re not really thinking about “did not request”, if you know what I mean.  That job takes a database that’s remembering the last date a request was made forward in time, and calculating “did not request”.  That capability is a lot more expensive, at least for now.

But, I hope the “tool problem” doesn’t mean the community will ignore the concept of dis-Engagement while screaming to the skies about how important Engagement is to measure.  Those of you with access to a transactional database don’t have to wait for web analytics tools, you can profile customers for Engagement and the dis-Engagement process right in the transactional database with a simple query tool.  And I hope you now have a Strategic framework to think about why dis-Engagement is so important, at least from a Marketing perspective, so when you get your hands on that high-end tool, you will know exactly what to do with it.

If you really take some time to think about the ramifications of the Relationship Marketing Strategy that Engagement is a Tactical part of, you just might come to believe that dis-Engagement is even more important to measure than Engagement.

To summarize this series, the idea of Engagement, and a lot of notions surrounding it – customer centricity, relevance, and customer experience – are concepts within a Marketing Strategy known as Relationship Marketing that tosses out calendar-based communications in favor of communications based on the customer’s relationship with the company.  The ability to do this depends on an understanding of the Customer LifeCycle, the results of each interaction between the customer and the company over time.  The LifeCycle is tracked using various Engagement metrics, including dis-Engagement, which typically is the first sign of a problem with the customer Relationship.

If your company is having trouble understanding why Engagement is important to measure, perhaps it’s because senior management lacks the context of the Customer LifeCycle for taking action and the strategy of Relationship Marketing as a game plan.  Maybe you should send a link to the Wikipedia definition of Relationship Marketing to the CMO or CEO and ask, “Is this what you want?  Because if you do want this, I know how to measure the success of it”.

Questions or comments on e-mail engagement and response? 

Have you ever heard of the strategy called Relationship Marketing?

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Example: Messaging for the Apathetic

So I look at the mail yesterday and there’s a catalog from Bliss.  If you don’t know Bliss, they are an online / catalog / storefront multi-channel retailer.  The tagline on the book is “beauty by mail from new york’s hottest spa” – yes, no caps at all.  So you pretty much know this book is positioned for younger – or want to feel younger – gals.

The book had a wrap on the outside with a message for the Apathetic.  This is a great technique to use because you can do it “in-line” with the rest of the mailing, which saves a lot on postage.  The Engaged just get the catalog, the Apathetic get the catalog with this special wrap around and they all are processed inline and enter the mail stream together. 

It’s one of my favorite catalog tricks, check out the piece:

Bliss Catalog Wrap

Let’s do the copy thing:

You can see on the left spine the macro message of “we want you back” – again, no caps.  This is an acknowledgement of the state of the relationship – we’re not sure if you like us, but we still like you!  This is a classic Date message tactic, it sets the proper tone and pulls the customer into the conversation.

Then they just come out and say it:

We haven’t had an order from you in a while and – what can we say? – we miss you.  We feel lost without those 3 a.m. ‘beauty’ calls and the sweet, soft sound of your mouse clicks.

Yes, they’re great copywriters, but there’s a bigger point I think you should take away: you couldn’t possibly get away with copy like this if you had not set up the personality of Bliss in the first place.  They can speak like this because they have spoken like this to the customer in the past – all over the web site and throughout their catalogs and hopefully in customer service phone / e-mail.  Consistently.  Everywhere.  That’s a Brand in remote retailing, that’s how Brands are built.  Theatre of the Mind is the best weapon you have.  Copy.  Art.  Get it?  What about your web site?

This is probably the most common retail problem on the web today – web sites / businesses that completely lack any kind of personality.  Catalogs know how important this idea is in remote retailing and have been using it for a very long time.

So, in a totally shameless attempt to woo you, we’ll send you a Free full-sized bottle of our clog-dissolving cleansing milk (a $28 value) when you order $75 or more from this catalog or at blissworld.com.

The classic Dating offer, complete with a threshold ($75) as explained here.  They’re testing.  The importance of the words “full-sized bottle” you don’t know about but I do; about 4 weeks ago we received another “we want you back” effort that offered a trial size.  They’re essentially starting small with the offers and when we remain Apathetic, they up the offer. 

This approach drives down the cost of the average customer reactivation; the strategy is called The Discount Ladder.

(If that’s not a great excuse to arm yourself with our all-out flab attack kit (p. 49) or smooth yourself citrus with our lemon+sage set (p. 09), we don’t know what is.)

This is just very smart merchandising, it is persuasive because it directs you to a specific place rather than giving you a lot of choices – by the way, how many different offers do you make in a promotional e-mail?  The choice of products promoted here may have been customized (not sure of my wife’s buying history) or they may simply be very popular products with a high conversion rate to lapsed buyers on catalog covers.

I would bet the latter; that’s how I would play it because after all, she’s a lapsed buyer.  She’s stopped buying because she doesn’t want what she has bought before.  Do you make offers based on what customers have bought before?  Why is that?  Why not offer the products that convert people like the targets?

Unless you have specific evidence that “people who buy this also buy this” I’m pretty sure that outside of certain niches, you depress response by making “forced offers” to customers – especially lapsed ones – to buy a specific item or category just because they bought it in the past.  Think about it.  “Buy anything over $75” is a lot stronger offer than “Buy these specific things we are promoting”.

A lot to test there as well…

To take advantage of this special offer, just order something from us before March 1, 2008.  Our land of lotions and lip gloss just isn’t the same without you.  Bliss on, the entire bliss team

Par for the course here – a deadline and an “in personality” close.  Urgency and persuasion.  If you’re busy, you probably keep the book at least to check out p. 49 and p. 09…

P.S.  If you’ve been getting your Bliss fix somewhere other than our catalog or web site (it happens), don’t forget to keep up with our latest and greatest by signing up for Bliss beaut-e-mails at www.blissworld.com

Ah, the beaut-e of multi-channel done the right way.

They probably don’t have perfect visibility between the direct channel (web and catalog) and the retail channel (who does?) so they are acknowledging that, telling you it’s OK, and then offering you a service so you can “keep in touch” – the general theme of “we want you back”.  They don’t want you to feel bad if you find their retail distribution more convenient, and at the same time they’re trying to re-engage you electronically and generate value from this catalog drop even if you don’t buy. 

I guess the channel managers are team players.  By the way, this relationship started on the web site…and in my experience, you can extend the LifeCycle by switching customers to another channel.  But you don’t want to force it, you let it play out the way the customer wants it to.  Test and look to the behavior; they will tell you what is right on an individual or segment basis through their actions.

bliss-ful job on the catalog wrap gang!

P.S. Well, almost.  A search for “flab attack” (phrase from the promotional copy above) on the web site returns this result:

We’re sorry, but your search for flab attack returned no results.  Please try again with a different keyword, or double check the spelling. (You’re not alone – we only learned how to spell ‘fuchsia’ properly a week ago.)

Gotta love that personality thing though…

Questions on this?  What do you think of this promotion?

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Messaging for the Apathetic

Recall from the Messaging for Engagement post we generally have 3 states of customer in the database:

  • Engaged – highly positive on company, very willing to interact – Highest Potential Value
  • Apathetic – don’t really care one way or the other, will interact when prompted – Medium Potential Value
  • Detached – not really interested, don’t think they need product or service anymore – Lowest Potential Value

Combine this messaging approach with a classic behavioral analysis, (the longer it has been since someone purchased, clicked, opened, visited etc., the less likely they are to engage in that activity again) and you get different messaging for each group, what I call Kiss, Date, and Bribe.  Click image to enlarge if you want…

Kiss Date Bribe

Please note “Months Since Last Contact” means the customer showing interest / taking action and contacting you in some way (purchase, click) not the fact that you have “contacted” them by blasting out e-mails.  Behavioral analysis is about customer behavior, not yours.

We’ve already gone over an example of Kiss Messaging, so lets provide an example of Messaging for the Apathetic. 

Recall the tactical background with Apathetics:

Apathetic – Date Messaging: We’re not real clear where we stand with you, so we’re going to be exploratory, test different ideas and see where the relationship stands.  Perhaps we can get you to be Engaged again?  In terms of ROI, this group has the highest incremental potential.  Example: this is where loyalty programs derive the most payback.

The most consistently successful (meaning profitable) messaging for this group generally looks at what their past behavior is and tries to drive it just a bit higher with a carrot / stick combo. 

In commerce, if you were looking at a behavioral segment such as “No Purchase in 180 days” (month 6 on chart above), you find their average purchase price and then discount for purchasing over that average price threshold.  So, for example, if a segment (or individual customer, if you can go that far) has an average purchase price of $80, you do a promotion like $10 off any Purchase over $100.  This approach tends to preserve margin on the customer while driving new activity, thus setting up the customer to become re-Engaged on a longer-term basis. 

Why re-Engaged?  A new purchase moves them to the 1 month column in the chart above, so they have a much higher “natural” likelihood to purchase again.  They are now Engaged again, and their messaging should change to Kiss, if you want to really leverage their state.

The values I have chosen above are not a “formula”, you have to test and optimize the thresholds and discounts for your business.  For example, sometimes people don’t trade up to just over the threshold, they’ll respond to a $10 off purchase over $50 discount by generating an average purchase price of $125.  Now you’re talking some severe latitude on your margins and you can try for incremental response with a higher discount or try to drive margin with a higher threshold.

The trick with Apathetics is this: unlike the Engaged, they probably need some incentive to act on.  But unlike the Detatched, they still have some Potential Value you would like to unlock – you don’t want to just all out bribe them because you’ll lose some of that Value. 

After all, in an always-on sales environment like the web, some people are going to purchase anyway – without an incentive – no matter what segment they are in.  For this 180 day case (chart above) a healthy portion of the 7% are “buy anyway” kind of folks.  The more Recent the action, the more likely it is to repeat.  That’s why you give ’em a threshold – to ensure you don’t give away more margin in discounts than you are making from the rest of the promotion. 

Does this “threshold approach” depress response?  Sure.  But are you trying to drive response (gross demand) or profit?  Those of you whose success is judged by ROAS don’t need to answer; profit doesn’t matter in your world.  You’ve never used a control group.

If you were working on my business, I’d want you driving profit.

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Messaging for Engagement

Or Behavioral Messaging, as we used to call it. 

Much has been written about Measuring Engagement, but once you measure it, then what do you do with this information?  Most folks know the idea driving the Engagement Movement is to make your messaging more Relevant, but how do you implement?  Perhaps you can find the triggers with a behavioral measurement, but then what do you say?

This is the part Marketing folks typically get wrong on the execution side.  They might have a nice behavioral segmentation, but then crush the value of that hard analytical work by sending a demographically-oriented message, often because that is really all they know how to do.  So as an analyst, how to you raise this issue or effect change?

Marketing messaging can be a complex topic, but there are some baseline ideas you can use.  Start here, then do what you do best – analyze the results, test, repeat.

You want to think of customers as being in different “states” or “stages” along an engagement continuum.  For example:

  • Engaged – highly positive on company, very willing to interact – Highest Potential Value
  • Apathetic – don’t really care one way or the other, will interact when prompted – Medium Potential Value
  • Detached – not really interested, don’t think they need product or service anymore – Lowest Potential Value

Please note that none of these states have anything to do with demographics – they are about emotions.  The messaging should relate to visitor / customer experience as expressed through behavior, not age and income.

These states are in flux and you can affect state by using the appropriate message based on the behavioral analysis.  Customers generally all start out being Engaged (which is why a New Customer Kit works so well), then drop down through the stages.  The rate of this drop generally depends on the product / service experience – the Customer LifeCycle.

Generically, this approach sets up what is known as “right message, to the right person, at the right time” or trigger-based messaging.  Just think about your own experience interacting with different companies; for each company, you could probably select the state you are in right now!

OK, so for each state there is an appropriate message approach:

Engaged – Kiss Messaging: We think you are the best.  Really.  We’d like to do something special for you – give you higher levels of service, create a special club for you, thank you profusely with free gifts.  Marketing Note: be creative, and avoid discounting to this group.  Save the discounts for the next two stages.

Apathetic – Date Messaging: We’re not real clear where we stand with you, so we’re going to be exploratory, test different ideas and see where the relationship stands.  Perhaps we can get you to be Engaged again?  In terms of ROI, this group has the highest incremental potential.  Example: this is where loyalty programs derive the most payback.

Detached – Bribe Messaging: You’re not really into this relationship, and we know that.  So we are simply going to make very strong offers to you and try to get you to respond.  A few of you might even become Engaged again.

Can you see how sending a generic message to all of these groups is sub-optimal?  Can you see how sending an Engaged message to the Detached group would probably generate a belly laugh as opposed to a response?  You’ve received this mis-messaged before stuff, right?  You basically hate the company for screwing you and then they send you a lovey-dovey Kiss message.  Makes you want to scream, you think, “Man, they are clueless!” and now you dislike the company even more.

Combine this messaging approach with a classic behavioral analysis, and you now have a strategy and tactic map.  For example, you know the longer it has been since someone purchased, clicked, opened, visited etc, the less likely they are to engage in that activity again.  Here’s the behavioral analysis with the messaging overlay:

Click image to enlarge…

Kiss Date Bribe

Please note “Months Since Last Contact” means the customer taking action and contacting you in some way (purchase, click) not the fact that you have tried to contact them! 

So does this make sense?  Those most likely to respond are messaged as Engaged – as is proper in terms of the relationship (left side of chart).  As they become less likely to respond, you should change the tone of your communication to fit the relationship up to a point, where quite frankly you should take a clue from the eMetrics Summit and not message them any more at all (right side of chart).

Example Campaign for the Engaged: At HSN, I came up with the idea of creating some kind of “Holiday Ornament” we could send to Engaged customers.  If the idea worked (meaning it generated incremental profit), we could do it as an annual thing; we could put the year on the ornament and create a “collectible” feel, which is the right idea for this audience.  No discount – just a “Thank You” message “for one of our best customers” and “Here’s a gift for you”.

These snowflake ornaments were about $1.20 in the mail (laser cut card stock) and generated about $5 in 90-day incremental profit per household with the Engaged, test versus control.  Why?  Good ‘ol Surprise and Delight, I would bet.

We had some test cells running to see how far we could take this, and as expected, the profitability dropped off dramatically based on how Engaged the customer was.  If the customer was even minimally dis-engaged – no purchase for over 120 days – there was very little effect. 

Interactivity cuts both ways; it’s great when customers are Engaged, but once the relationship starts to degrade, folks can move on very quickly emotionally.  That’s why it is so important to track this stuff – so you can predict when your audience is dis-engaging and do something about it.

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One (Customer) Number

Ron’s post Why Do Marketer’s Test? reminded me of an incident that keeps repeating itself. 

The presentation I do as part of the Web Analytics BaseCamp includes a section on the importance of measuring marketing success at the customer level as opposed to the campaign level.  Then I get this question: “If you were to measure just “one customer number” what would that be? 

Putting aside all the reasons why measuring one customer metric is a faulty approach for the moment, I reply “Percent Active”, meaning:

What percent of customers have initiated some kind of transaction with you in the past 12 months, or 24 months if you are highly seasonal?  Higher percentage is better.

Initiated being the key concept.  Just because someone is “balance active” or is receiving a statement doesn’t mean they are “Active”, or if you prefer, “Engaged”.  And for some businesses, for example utilities or help desks, a lower percentage will be better – the lower the percentage of customers who have initiated a trouble call or a billing problem, the better.  “Transaction” can be most anything, define it for your business – what generates profit or cost for you?  That’s a good place to start, among other things like inquiries and so forth.  Adjust for your business, keep it simple. 

If you don’t sell anything, consider shortening the 12 month window.  If you are a highly interactive business and depend on that interactivity as a business model (MySpace, Facebook) consider using 3 months.

It is truly amazing to me how many folks don’t know what this number is for their business.  And often, truly shocking to them when they find out what the number is.  I have seen their faces.

This number is so simple to calculate and track, and simple to measure success against, why don’t people have it?  It’s a very powerful predictor of the future health of a business.  It’s like a searchlight showing you the way, giving you the head’s up when things are not right in customer land.  All this crap about being customer centric and not one number to fly by, it’s really pretty sad.

All I can conclude is folks simply don’t want to know what the number is.  Am I wrong? 

Why don’t you know this number for your business, or why doesn’t your boss care about this number?  I want to hear all the excuses and have a list of them right here so we can refer to them in the future!

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