Tag Archives: Customer State

When Acquisition Spoils Retention

Analytical Culture, Analytics Education, DataBase Marketing, Driller Q & A, Marketing thru Operations, Measuring Engagement,

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 →

Customer Marketing for a Carpet Store

Analytical Culture, Analytics Education, DataBase Marketing, Driller Q & A, Marketing thru Operations, Measuring Engagement,

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 Jim, so what if the small business is “old school”, you know, not a lot of computer stuff other than billing / scheduling and so forth, and knowledge of spreadsheets is limited. Can the business till take advantage of the ideas you are putting forth without a lot of Excel going on?

You betcha fellow Driller – as long as you don’t mind a little paper and pencil madness …

Q:  Like most of your readers and visitors, I am absolutely bowled over at the prospect of what can be achieved by studying customer behaviour on a simple database/spreadsheet and using the resultant insight to drive unique High ROI customer marketing programmes to increase profits and reduce marketing costs.

A:  That’s a mouthful!  Welcome to the club.

Q:  I have to say that prior to meeting you, on your website and in your book, I had been intrigued by Arthur M. Hughes’ Strategic Database Marketing, but regretfully had reached the conclusion that its inspirational techniques were just not capable of being actioned by me, an Access/Excel illiterate and not so good on the figures either.

A:  Arthur Hughes is a hero of mine though I have never met him.  Some very nice folks have told me my material reminds them of Hughes, sort of a “next generation” Hughes.  That’s very good company for me to be in…

Q:  But your Drilling Down methods and the possibility of your consultancy help, has revived my enthusiasm to learn all I can about these wonderful techniques and to make use of as many of them as I am able.

Here is my challenge:  Father and son business.  Together about 12 years, but moved to present premises four years ago when they extended their product range and re-launched with new branding- under our stewardship!  They are a typical, small company turning over just under the $1M mark and spend around $30,000 – $40,000 pa on their marketing, mostly direct mail (works for them) and email.  Their product range has consisted of fitted carpets, flooring and Oriental rugs.  They have now doubled the size of their store by taking the first floor too.

Continue reading Customer Marketing for a Carpet Store →

Actionable Customer Retention Measurement

Analytical Culture, Analytics Education, Customer Experience, DataBase Marketing, Driller Q & A, Marketing thru Operations, Measuring Engagement,

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.

Simple question below, not so simple answer. There’s a lot of conflicting ideas floating around on the subject of how to measure customer retention properly, and to be honest, it really does depend on the type of business we’re talking about. Further, in order to properly measure customer retention – in a way you can take action to improve retention / increase profits – you have to define it first, and that can be as much of a challenge as the actual measurement. Ready for a trip down into the depths of this area? Hang on, it’s quite a ride, you Driller you …

Q:  How do most companies measure customer retention?  Is there a formula?

A:  The short answer is not many companies outside of specific industries are very adept at customer retention – yet.  For traditional (not-online-born) companies, it is most commonly used in telecommunications, financial services (including insurance), direct marketing (catalogs / web sites, etc.), subscriptions / publishing, and the travel industry.

The reason for this concentration: these industries have traditionally collected detailed data on customer interactions as part of the offline business model.  Now that many other industries are collecting data on customer interactions online, the lessons learned in these “lead” industries are proving quite valuable for industries new to direct customer interaction.

A “standard” way to measure it, if you are looking to align your metrics with Wall Street and your financial statements for example, is “12 month active”.  Any customer you have had contact with in the past 12 months is still a customer, any customer with no contact in the past 12 months is a defected customer.

This is a retail / mail order oriented view, and if you sell products, then “contact” means “purchase”.  If you are in the services business, it could be any contact – phone call, e-mail, sales call, download.  Divide the number of 12 month active customers by the total number of customers and you have your retention rate.

There is no reason you can’t use “24 month active” or “36 month active” or “5 year active”.  The point is to define what retention is for your particular business and stick with it.  Get agreement on what makes sense for a measuring stick and try to improve.  Often your own data will tell you what the best “no activity cutoff” is for your business.

Retention is really a “continuum”, and retention rate is always “relative” to your perspective. If you use a very “tight” definition like “12 month active”, you will lower your retention rate. As you expand the time period, your retention rate rises. The problem with most companies is they expand this cutoff time period to infinity, meaning every customer is still a customer unless they notify you they are not. Is this a useful measurment? Doubt it…

Continue reading Actionable Customer Retention Measurement →