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eMetrics Summit

Analytical Culture, Web Analytics

Man, that was one marathon of a conference.

Not the conference itself really, but all the associated WAA business that gets conducted there makes it a double-overload kind of situation.  When I’m not is a session, I’m in a meeting of some kind, all day, every day.  Gruesome.  I’m still in San Fran reviewing some related analytical education opportunities…

I’m sure the other WA blogs have covered anything of significance that happened at the Summit – don’t know for sure though, have not had time to read any of them.

Anyway, the most significant thing going on there in my mind was the hard core  interest IT folks now have in the business side.  It was stunning – a pure geekfest just a few years ago, you now have a lot of these same folks attending and digging sessions on Marketing Strategy.  A real win on the analytical culture issue, methinks.

More later – another damn dinner to go to (just kidding Eric!)

 

6033% ROI, Defining Churn

DataBase Marketing, Driller Q & A, Newsletters

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

6033% ROI
—————-

Q: We have exchanged email a few times, and I don’t recall if I ever said thank you for your book.  While I had been experimenting with many CRM programs in my little dry cleaning shop, your book gave my thoughts order and clarity to refine what I had started.  Today, I see the world differently.

A: Well, thanks for the thanks!

Q: You may or may not remember me. Just after I sold my dry cleaning shop, I had bought your Drilling Down book. I was the dry cleaner who had been doing rudimentary data mining and CRM with a point of sale system I had developed in Regina, Saskatchewan.

A: I do remember. Internally, I was thinking, “Wow, this is going to be a real test of the Drilling Down concept”? I mean, I have seen it work in many small businesses, but dry clean (seems to me) is a very tough, tough business. Too many players, a lot of competing on price, etc. A great environment for underground customer marketing in terms of beating the other guy – they will never know what happened to them. But still, tough for small owner / operator to have the “will” and time to really make it happen. So yea, I remember…

Q: Well, I’ve continued working within the dry cleaning as a marketing consultant. The programs I had developed in my shop have now been transplanted into a few of my client’s shops, and are bearing fruit.

Tonight one of my clients reported a ROI of 6033% doing direct mail to certain customers in his market in California. Another client of mine reported his fourth year of steady growth. One of my first clients has been showing a 7 percent annual compound growth, and he is in a flat or declining market. What began in my shop has been proven across North America, into Europe and Australia by my clients.

A: I can’t express how exciting that is. Congratulations!

Q: Jim, data mining dry cleaner’s data is a blast. You would be stunned at the quantity, and quality of data a dry cleaner gathers today. Would you ever have thought data mining could be applied to suits and shirts? Well yes, it can.

A: I am stunned, and I bow to your most excellent Drilling!

Q: Once again, thank you.

A: And thank you for sharing this, it’s very, very exciting to hear. Like you said, no other word for it than “stunning”. I remain most stunned!  Keep me informed. Perhaps you should write a book?

Jim

Defining Churn
———————

Q: I work for an economics consulting firm based in Washington DC. I am researching customer churn and customer displacement statistics across a variety of industries to try to establish a benchmark of what is considered high and low customer displacement.

A: Nice to meet you, and a noble task!

Q: Do you happen to have any such churn statistics, or know if a place you could recommend?  I found plenty of statistics regarding churn rates within the telecom industry, but am most interested in companies that are involved in business-to-business relationships with their customers (relationship between a customer and a supplier).

In addition, I would also like to find churn statistics for customers who use multiple suppliers. For example, a customer may go to several grocery stores rather than sticking with one dedicated store.  I would be interested in learning more about the statistics companies in these types of industries use to track customer displacement.

A: The reason you find a lot of churn info in telco / cable is the end of the customer life is easily defined by the disconnect, and these numbers are reported publicly as part of annual reports and so forth. In many other businesses like the ones you describe, typically the companies have failed to define customer defection and so in their minds, there is no churn because there is no defection.

A “customer”, even though they have not contacted the company for 3, 5 or 10 years, is always still a customer. If the company thinks like this there is no churn rate to be measured, by the definition the company has chosen for itself.

At the same time, defining defection is pretty easy to do by looking at the transactional data and defining the patterns of defection, for example “if a customer has not ordered from us in 3 years they are highly unlikely to order again”. That’s defection defined; you just put a line in the sand and say “3 years no contact is a defection”. The company then should declare customers in this status “defected” and then a churn rate could be found. This is pretty easy to do, so if not executed, one of two situations exist: either the company does not have the data or they don’t have the “will” to discuss, internally or externally, the concept of customer defection.

A third possibility exists: the company in fact has the data and has defined defection, but would never, ever speak to churn or customer defection in any kind of public forum because this information is so critically important from a competitive and strategy perspective. To discuss these numbers or the implications in public could have dramatic consequences for company positioning in the market or stock price. So if they have the numbers, they’re locked in a safe.

As a result, I’m sorry to say, I do not have any broad-based “sources” for you, save one possibility: a book called The Loyalty Effect by Frederick F. Reichheld (1996). In this book, Reichheld goes through the business models of 25 different companies that excel at retaining customers in different industries , and proves out the financial model of customer retention using real data. This is the book where the quote, “It costs 5x more to acquire a new customer than retain a current customer” (or the various bastardizations) came from. So it might help you out.

The only other thing I can suggest is that “churn” is not always the word used to describe these stats but is most often used when the disconnect is easily defined, as in telco / cable; “displacement” is a rare use for this idea as far as I can tell..

“Customer Turnover” is a popular phrase in Europe and is used by some in the US; also “defection rate” is used quite a bit. So if you’re pounding on Google to try to find these numbers, try those phrases and others you may find when doing these searches. Banking / finance / insurance is another area where the “disconnect” is often easily defined, so you will find various defection rates in some of their case studies on the web.

Jim

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Book: Managing Customers as Investments

Analytical Culture, DataBase Marketing

Are You Spending More on Your Customers than They are Really Worth? authors Gupta and Lehmann ask.

Based on my experience, Why Should We Care? is the return question.  Lots of companies apparently do not care, at least not yet.  But someday these companies will “hit the wall” with the traditional focus on acquiring new customers, and then they will care.  Just a Case of History Repeating, don’t ya know.

When I published the 3rd edition of my book, I was pretty sure the business world had finally made it past “Why Should We Care?” and would be on to “How Do We Do This?”.  Wrong, as Ron constantly remind me.  Before the book reviewed below was published, I was using what I called the “portfolio approach to managing customers” idea to set up the Current Value / Potential Value model.  Spent an entire chapter on the idea.  Apparently, that was not quite enough to answer the “Why Should We Care” question.  My bad.  Turns out the same idea is worthy of an entire book.  Sigh…

So for those of you who are more interested in the “Why Should We Care?” (90% of You?) as opposed to the tactical “How Do We Do This?” presented in the Measuring Engagement Series, I give you the following book:

This is a 6 Chapter, no nonsense, 165 page book that is heavily annotated with the kinds of “proof” you need to potentially get your Boss to care about this topic.  I mean, the boss-person can just hit the EndNotes (another 33 pages with the Appendix) and find out how the theories, formulas, and examples in this book have all been well documented by a slew of hard core academics and Consultainers alike.  These references to various studies, books, papers, and so on probably have more impact than say, sending an e-mail to the boss titled “Interesting Stuff” with a link to my blog…

The book is easy to read and shoves all the “Math” into the Appendix so whether you’re using the right or left brain you can follow right along – ignore the math and just Grok the pictures, or get right down into full-blown proofs with your Calculus shoes on.  Have it your way, as they say.

Just look at these Chapter Titles:

1.  Customers are Assets – no argument there from me.  Want definitive proof?  Here it is.

2.  The Value of A Customer – do you know the value of yours?  Here is an easy – and I mean easy – way to estimate this value.  Call it Lifetime Value “Light” –  it’s way better than what you have now, I bet.

3.  Customer-Based Strategy – Oh, to develop Strategy and actually do something based on the Value of the Customer, as opposed to whining about how they are “in control”.  This is the best chapter in the book.  Customers can only take control if you give it to them, you know.  And that’s a Strategy problem.

4.  Customer-Based Valuation – they’re talking firm valuation here, for the purposes of acquiring companies or selling them.  As I said before, Wall Street uses the Current Value / Potential Value Model.

5.  Customer-Based Planning – as in building Customer Value right into the Business Plan, so the execution is rock solid.

6.  Customer-Based Organization – sure, the tough one.  How you make it all work in the org.  A bit of the Analytical Culture thing.

The Gupta and Lehmann book is great because it takes what I’ve learned through 20 years of “exposure” (Why You Should Care) and explains it in corporate speak, creating links to stock prices and all kind of other good stuff the CFO would really like to hear about, like projecting future sales, estimating the buyout value of the firm, evaluating acquisitions, and so forth.  All from the same kind of customer analysis we just worked through in the Measuring Engagement series.  Really.  Except they hide all the numbers from you – unless you go looking for them.

Oh, and did I mention this info is all well documented by a slew of hard core academics and Consultainers alike?  Seriously though, there are over 120 footnotes that at the very least provide you a library of solid references and case studies on the topic of using customer value data to drive increased profits.

So, if you’re a Marketer trying to create a bridge to Finance, get a copy for your friend over there.  If you’re an analyst trying to get a deeper understanding of why customer analysis matters to the business side, get a copy for yourself.  If all of a sudden you are in charge of “CRM” or “Customer Experience” or whatever they are calling running a business that doesn’t shred its own customers these days, get this book for the sake of your company.  The book really is a great read and might help you make sense of all the disparate and seemingly conflicting marketing and service ideas you read about today.

And while you’re at Amazon, get a guide for the people who will have to turn all this Customer Value Data into Profits for you – mine.