All posts by

Modeling Defections – When is a Customer No Longer a Customer?

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.

Metrics are not usually also Models; the metrics have to be fine-tuned / combined and built up into models. And executing this process usually depends alot on what type of business is being analyzed, and what kind of problem is targeted for a solution. So while it’s pretty simple to define a metric, creating a version of the metric that specifically addresses the challenge at hand can be a bit more difficult. Not hard, mind you; it mostly just takes a decent understanding of how the business works. Want some examples? Read on, O Fellow Driller …


Q:  Is Latency, as a metric, out of the question when the spread of the number of days in a latency period is so wide that to average them out and call the resultant figure “Acceptable days to date of predicted purchase” would seem meaningless?  I am thinking about the disparity in latency between customers who are Heavy, Moderate and Low users.

A:  I’m not sure I have enough context to understand the question (what are you trying to accomplish by using the metric?) but Latency is what it is.  In other words, you take your clue from the existing behavior itself.  If the average Latency for a certain segment is 2 years, well, it is, and that’s not too long or too short, it just is.  Whether you can act on that information is another story; it depends on what you are trying to accomplish.

For example, average Latency on major home appliances, depending on brand, is anywhere from 5 to 10 years.  Is that too long of a “spread” to make the metric useful?  No.  It just is what it is, and you deal with it. Typically these ideas are used to reallocate marketing spend away from waste on unresponsive segments towards segments that will generate incremental profits.

Continue reading Modeling Defections – When is a Customer No Longer a Customer?

When Acquisition Spoils Retention

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.

OK, here’s a bit of a tough one – what if while investigating customer retention problems you find out that customer defection is highly correlated to specific salespeople or marketing programs? What if I told you this correlation is pretty common – but unrecognized, because hardly anybody goes looking for it? And if found, find trouble doing something about it?

Two issues – you can try to predict / save a customer in the process of defecting, and / or you can hunt down / fix the source of the defection – why is it happening in the first place?

Welcome to the politics of customer retention – and make sure to put your Drillin’ shoes on …


Please note: XXX is a major cell phone provider…

Q:  I’m an XXX customer – I saw an ad for a new phone I wanted for $230.  I went in to the XXX store and asked for the phone – the clerk rang it up at $580!! I showed him the ad.  He said that price is for new customers and he could not give it to me at that price.  So it made me feel that XXX did not value my business.  I then cancelled with XXX service and have told about 10 people about this situation.

A:  Right, this is a pretty common problem with companies that don’t understand
customer retention.  They’re so focused on acquisition that they cause defection and that’s where a lot of the churn in that particular business comes from.  I’d chalk it up to totally clueless marketing management.  

The irony of this situation:  XXX used to be one of the “gold standard” 1-to-1 marketers in the good ‘ol days.

In the first place, companies should not “broadcast” these kinds of offers, because you understand the impact, the leverage, the “costs 5x as much to acquire a customer as retain one” and so forth. If you want to make offers like that, you try to use discrete channels – direct mail and so on, as opposed to newspapers or radio / TV. The strategic issue is people are defecting at such a high rate the company thinks they need to really drive acquisition to make up for it instead of concentrating on retention, which would be less costly and more profitable overall. But even worse, these aggressive acquisition programs are actually increasing the likelihood of customer defection!

Continue reading When Acquisition Spoils Retention

How to Define “Frequency” Metric in B2B

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’re not really clear on what you’re trying to accomplish, designing a successful customer retention program can be a bit of a struggle. Hey, maybe you just don’t know what to look for / what needs fixing / where to start? Gotcha, fellow Driller, the current value / potential value matrix is a great place to start – for you, and perhaps more importantly, your boss / the CFO. Ready to try on some focus? Let’s get to the Drillin’ …


Q:  I am totally getting into your book.  I am up through chapter 17 and have completed my RF Scoring.  My company [my day job] is a custom software company.  It was difficult for me to get my head around the units thing yet, so I just used the “M” as you put it.

A:  Thanks for the kind words, I’m glad it’s working for you!

Q:  In term of companies, we are probably like the B2B example you used in Chapter 8.  So, I could not get my head around the units deal yet because I have not studied the data enough to see if there is a progression.  I think I would need to look at it year to year; but should I stop now and do it first?

A:  Well, customer analysis always starts with an objective…what are you trying to look at / prove / do?  It’s hard to comment without knowing the business problem or issue you are facing…and without any information on how your business really works.  I can rarely find that out from looking at a web site…

“Units” would probably be the total number of “jobs” you have completed for a client.  It also could be the total number of hours the client has used, if that is more logical for the business.  It’s hard to tell without a bit more information.  The point of the “units” variable is to look at the Frequency of commitment, so use whatever makes sense for the business.

Q:  So, my question is, should I go back and do what you suggest in chapter 9 – setting up a look at Latency by customer to get the progression before I continue with Chapter 18.

Continue reading How to Define “Frequency” Metric in B2B