Jim answers questions from fellow Drillers
Topic Overview
Hi again folks, Jim Novo here.
What happens when your business doesn’t really fit the mold of traditional customer scoring that retail and similar businesses use? Well, you can certainly come up with a version of the tradional models that is customized for your business, as we do below for a fellow Driller’s travel agency. Wanna see how that’s done? Then, to the Drillin’ …
Q: Just read your book and I say full marks for such a practical and sensible approach!!! Start small and grow is the way to go.
A: Well, thanks for the kind words!
Q: I am a part owner of a travel agency (not been the best area to be in during pandemic).
A: Eeeeek!
Q: My first focus for Drilling Down is on our leisure customers. But my head is spinning a bit with all the ideas I have from your book. I can electronically access our: customer names etc., an ID number, when they purchased, how much the product cost, the supplier, the category (i.e. air only, cruise, tour etc.) and the final destination. If you would be so kind as to give me a little steer in the right direction in setting up the metrics and scores.
A: Hmmm… I of course don’t know your business but would think that particularly in leisure, there is a natural cyclicality caused by vacation timing, anniversary events, and such. So in terms of timing, you use a classic Latency approach, e.g. if a customer took a trip last July they are somewhat likely to take one this July. If they took one last July AND the July before, they are very likely to take one this July. If they have taken a trip the last 5 July’s in a row, they are extremely likely to take one this July.
So you can rank customers by likelihood to travel each month, and if you want, could assign them a “score” to represent this likelihood, in the case above, extremely likely = 5, very likely = 4, etc. People who have not booked with you for a year might be a 2, not for 2 years a 1.
Then you add a frequency / monetary component and you have a two-digit ranking quite similar to an RF score, but customized for your business. My guess is due to the variance in prices on travel (e.g. plane flight versus ocean cruise) using monetary or total sales rather than frequency is the ticket, so to speak. Even better would be margin dollars or profit, since as I understand it a person could take 10 flights and not deliver the profit you might make on 1 cruise; the profit margins vary enormously, so “sales” or “number of bookings” is probably not tracking the real issue, which is to identify most profitable customers. Rank customers by value then divide customers into 5 equal “Quintiles” on this score as discussed in the book.
Once you have your rankings, first digit = likelihood to purchase, second digit = value of the customer (the RF score), you proceed with marketing as suggested in the book, using the scores to identify customers likely to buy and customers likely to defect.
For example, under the likely to buy approach, you may have an idea of how many days a person books travel in advance of the trip (or you can get this from your records, date of sale versus trip date). Let’s say it averages 8 weeks. It is currently June, so 8 weeks from now is August. Find all customers who traveled last August, and look at their rankings. If you were going to call them but can only make a few calls a day, start with the ones with the highest ranking – the ones who are most likely to buy and are also best customers, and work down the list.
This average number of weeks between booking and trip probably differs by type (cruise versus plane), so you might want to approach it like that, e.g. in June you call people you traveled by plane last July (plane = average 4 weeks booking to trip), and people who traveled by cruise last August (cruise = average 8 weeks booking to trip). Follow? Identify the behavior and then follow it, try to get it to repeat. This is the “when,” the “timing.” The “who” to market is defined by your rankings; with limited resources, start with ones most likely to result in a sale.
On the defection side, look at people with high rankings who failed to book when they were supposed to. Back to using June as the current date, this would be customers with high rankings who booked last May. They are now Latent, past the “trip wire,” they failed to book when they were most likely to. So you call them and find out if the trip was taken with somebody else, or perhaps delayed (highly likely) and would they like help with organizing it for later on in the year?
The above approaches (both sales and defection work) combined create a very systematic and directed way to just gradually push the whole thing forward every week, by specifically identifying customers who are likely to buy and likely to defect. You end up concentrating your work where it is likely to be most effective, and as long as you are taking advantage of every opportunity to predict a sale or recapture defecting customers, all customers will eventually make it to your radar screen as an opportunity for increased profits.
Hope that helps!
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