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.
What is your customer retention rate? Well, that kinda depends on how you define the customer. Have you had an internal discussion, and more importantly, solidified agreement across divisions / functions on the definition of an (active?) customer? Please do.
For example, is someone who hasn’t interacted with your company in any way for over 5 years still a customer? You see, if you don’t specifically define a customer, then you can’t have discussions around topics like reactivation, retention, Lifetime Value (LTV) and so forth. Where to start? With segmentation. Create segments of similar customers, then try to decide which segments are still customers; this exercise will get you going down the right track. The Drillin’?
Q: Seasonality has great effects on customers’ purchasing activities in the retailing industry, as you may easily understand.
A: Yes…
Q: Furthermore, what you call Latency has also great effects on their purchasing activities, (I mean, for example, the customer who purchased a coat in one winter season are not expected to purchase another until the next winter season and so forth.)
A: Yes, but you are profiling customers, not products, right? The customer who bought the coat may also buy a dress, shoes, pants in other seasons? Your approach so far sounds a bit too product centric…
Q: Here is the problem, how these issues of seasonality and Latency must be taken into consideration for calculating retention rate?
A: Well, you can take it into account or not, depending on your objectives. What is the objective of the analysis? If the objective means you should take these issues into account, then you probably should segment the customer base to do so.
Continue reading Problems Calculating Retention Rate