Monthly Archives: January 2024

New RFM: Segment Wireless Customers by Behavior or Demos?

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

If you’ve never actually segmented customers by behavior, it can be a bit tricky exercise.

Just remember this: if improved customer retention is the goal, you want to segment with ideas and data that will lead to metrics specialized in driving successful retention programs. For example, demographics are descriptive of the customer; segmenting by demographics will group customers by description. This segmentation does not really indicate anything about their behavior, so will rarely give you the tools or leverage needed to change behavior. If you want to change behavior, segment using behavior.

Make sense? Then on to the Drillin’ …

Q: I have taken up a new assignment in this new financial year in my company, a Cellular / Mobile connections provider. I would like some direction from you; also I have suggested your book to my management.

A: Well, thanks for the plug on the book and I’ll give the “direction” a try!

Q: Objective: To create loyal customers who become brand evangelists

Areas covered:

  1. To drive customer loyalty to ensure 80% of the customers recommend brand to others.
  2. Customer Behaviour Profiling: Create an action oriented customer profile, use profiles to create marketing & service programs to retain & increase value of customers.
  3. Predictive Marketing / Promotions: To predict the likelihood of future events based on customer models & to predict the profitability of a promotion to encourage customers to do what we want them to do & achieve the highest ROI (Return on investment). Predict when a customer is about to defect / leave us.
  4. LifeTime Value: To find what a customer is worth in the future and based on this to find how much you could spend on retaining them & still make a profit.

Please reply on how to start this activity?

A: Yikes! That’s a pretty long list of “areas to be covered”, you are going to be very busy! Some of it sounds pretty familiar too, like I’ve read it on my web site you might want to get that book after all!

The creation of retention programs always starts with customer segmentation, you have to understand the behavior you have before you can create programs to modify behavior.

That probably means starting with #4, LTV. You want to look at LTV by segment.

Get records of defected customers, put them in a spreadsheet or database, and determine:

  • Average length of time as subscriber
  • Average spending over that time
  • % of this spend that is considered “profit”, which you can use as a proxy for LTV.

In the beginning, you can use a company “profit” average for LTV until you get more sophisticated. In communications, the number often used is EBITDA Margin; ask your finance people what you should use to determine % of spending that is LTV.

Once finding the average, it is time to segment by different dimensions and determine the same 3 variables above for all the different customer segments. For example:

Spending quintiles – highest 20%, high 20%, middle 20%, low 20%, lowest 20% of
defected customers; what is average length of subscription, spend, LTV?

Product / service bundling – identify different levels of service / tiers / add on services of defected customers; what is average length of subscription, spend, LTV?

Source of customer – which ads / offers / selling methods originally attracted the defected customer; what is average length of subscription, spend, LTV?

Geography – using transmitter locations or other natural boundaries dividing the defected customers; what is average length of subscription, spend, LTV?

Hardware – group defectors by type of phone or terminal or other hardware; what is average length of subscription, spend, LTV?

Contract details – if contracts vary widely as to their basic nature and terms, group defectors by contract type; what is average length of subscription, spend, LTV?

After running these studies you should have enough data to logically and critically construct your other 3 initiatives in profitable ways.


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Branding vs. Direct Marketing Metrics

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

Oh dear. A marketer caught between branding and direct. Each approach has it’s own data and metrics that either can be important or not to the folks working with the other approach. Can the measurment of success using these two approaches be reconcilled? It’s possible, but does that make sense if the “success outcomes” are radically different? Gonna be a deep Drillin’…

Q:  We constantly try to quantify the value of web sites as a branding vehicle.  The thing that keeps gnawing at me is we will often report the average time spent on site.  This seems like it should have a value we could wrap into our ROI, but as it is, it stands largely on its own.  

Are you aware of, or have any thoughts on, how we might put an actual value to this?  Is it enough to show lift without respect to time, and to talk about return visits in terms of frequency models, or is there some way to drill down to a fundamental value of what a person-second on your site could be worth (obviously the content of the site will impact how much of that value you actually got)? 

A:  I’ve done a bunch of work like this and personally, I think you measure branding with branding metrics and direct with direct metrics.  If the CPG people understand the value of advertising in terms of brand affinity, recall, intent to purchase, and so forth, then it seems to me that is what you measure.  They have already made the “final connection” between these metrics and ROI, so it’s not really up to the marketer to make those connections.  They believe increasing intent to purchase = advertising worked.  And I’m not sure you really can make a connection, because the “units” you are measuring are different and the math ultimately fails.

Here’s why.  Traditional advertising has never been judged by the “value of the customer,” it is judged by the “value of the media.”  The customer is “reach” and has no individual value; individual customers are totally exchangeable as long as the reach is the same.  Any single person is irrelevant; it does not matter what they do or don’t do.  If there is no “customer,” I’m not sure how you would ever get to ROI.  It is assumed from reach comes sales, and this is proven using branding metrics, not ROI.

Q:  I’ve gone back and forth on this and approached it from a few different angles For example, determine cost of 1 second of TV advertising per person.  You could use this information to calculate how much it would have cost to communicate the total person-seconds you had on your site in a particular month, but this is fraught with problems as you might guess, and am looking for another point of view.

Continue reading Branding vs. Direct Marketing Metrics

New RFM: Predicting Student Churn

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

Only attempt to control what you can actually get control of. In a massive operational system, sometimes everybody agrees they would like to improve this or that customer retention metric. But the reality is, because of the way the system is structured / managed / operated, it will be nearly impossible to improve the specific metric. Such is the case with a University. So you gotta carefully evaluate and choose what metrics you think you have a chance to control. Sound difficult? Sure it is. But difficulty hasn’t stopped us yet, has it fellow Drillers?

Q: It is clear that retention of students is a complex issue. The students’ satisfaction with the university will be partly determined by their experience during their first semester with the university. I have identified that each service encounter will contribute to the overall impression that the student has of the university. Some encounters are ‘moments of truth’ and will have a major impact on the student’s perceptions of the university.

A: Hmm, interesting.

You just got very lucky, I happen to have first-hand experience on this topic, which is very rare, as not many educational institutions are thinking this way. You should be congratulated for making this connection, though it will be a difficult battle dealing with the university administration on making changes, in my experience.

Q: I would much appreciate if you could advice me on the retention strategy and what approach the university should take to retention. Also, any ideas on management of moments of truth, particularly what enhances and detracts from the customers’ encounters with the university.

A: Please consider this old business maxim: Only attempt to control what you can actually control; otherwise you will end up not having an affect on anything.

It very well may be that the various “touchpoints” exist and can be defined, but can you reasonably control any of them? Which ones, and how will you control them? This is where you need to focus your efforts.

In my experience, a university is not the kind of place where you can undertake a “customer service education program” with employees and expect compliance at all the touchpoints. So what you have to do is pick the major points of influence where you know you can exert some control and seek to prove your case with facts and testing.

Continue reading New RFM: Predicting Student Churn