Tag Archives: Marketing thru Operations

Profiling Subscription / Service Customers

Jim answers questions from fellow Drillers

Topic Overview

Hi again folks, Jim Novo here.

This Driller knows his stuff, using advanced database marketing techniques on the customer acquisition side. But in a business where the bill gets paid every month and it’s about the same (electric utility), how do you get to the R and F (Recency and Frequency) to model potential customer defections? Great question, and a pithy answer.

Remember, you can use RF profiling on any behavior not just payment related activity! If you don’t know what we’re talking about with this RF stuff, see explanation here.

Q. Jim, Ordered and read your book AFTER reading EVERY page in your website. Your newsletter is outstanding and you seem to be one of the few with real life experience in database marketing with the skills to simply explain with pragmatic examples of how RFM and LTV should be used.

We are a technology based Call Center company with over 70 clients – we do a lot of the “operational” CRM stuff you refer to – Siebel, Onyx, Kana, Webline, …….., as well as a lot of custom developed SFA solutions and data warehousing solutions we developed – mostly the premise of investing to collect enough information to do the 360 view of the customer across communication medium (email, chat, phone, fax) and reason for calling (campaign, sales, orders, info, customer service….)

We have a good mix of B-B as well as B-C. We already do a lot of the demographic modeling for list acquisition (SIC codes, size, number of computers, Geo ….). One thing I noticed is that we do a lot of lead generation based upon list acquisitions along with inbound marketing campaigns that seem to address one shot Sales, not recurring sales.

For example, we sell and service de-regulated energy for one client – this is sell once, then service. Since they pay every month for the service, how do you suggest the RFM model be used for service based sales since there is not really an R or an F??? We still have acquisition and retention problems, but we mainly focus on operational efficiency through technology, not strategic use of CRM data. I would really like to be able to add real value based upon the data collected.

I know this is not your forte, but I was just curious if you had any opinions using CRM data in an RFM model when the product is basically recurring service.

A: Thanks for the compliments on the site, book, and newsletter. I hope they will be helpful to you as we try to get a firmer grasp on these subjects this year!

It’s a little tough to provide you a direct answer to such a broad question without more details, but in general, R and F are highly predictive of any action-oriented behavior. In a “billing / service” business like a utility, you sometimes have to hunt a bit harder for the action you want to model as predictive.

For example, at Home Shopping Network, use of the automated ordering process (touch-tone interface to the ordering system circa 1990) was very highly correlated with Future Intent to Purchase. Not exactly a traditional RF action, to be sure, but a falling RF score on use of the interface was very highly predictive of a defecting customer.

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Measuring the $$ Value of Customer Experience

 Marketing IS (Can Be?) an Experience

Early on I discovered something from the work of leaders in data-based marketing business models: they were always very concerned with post-campaign execution – not only from marketing, but also through product, distribution, and service.  I thought this strange, until I realized they knew something I did not: when you have customer data, you can actually identify and fix negative customer value impacts caused by poor experience.

This means you can directly quantify the value of customer experience, budget for fixing it, and create a financial model that proves out the bottom line hard money profits (or losses) from paying attention to the business value as a result of customer experience.

And critically, this idea becomes much more important as you move from surface success metrics like conversion and sales down into deep success metrics like company profits. Frequently you see the profit / loss from “marketing” often has less to do with campaigns and more to do with the positive or negative experiences caused by campaigns.


You might think taking the time to provide special treatment to brand new customers would always encourage engagement and repeat purchase.  You’d be wrong.  Sometimes this works, sometimes this does not work, depending on the context of the customer.  Does it surprise you to find out customers often do not want to be “delighted”?

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A Budget for Discounts?

The following is from the December 2008 Drilling Down Newsletter

Got a question about Customer Measurement, Management, Valuation, Retention, Loyalty, Defection?  Go ahead and send it to me here.  If on the topic below, please leave a comment.

A Budget for Discounts?

Q:  For the first time ever, we have a Discount budget built into our financial plan.  We’ve been told this number in the budget is less than we used last year, but our Sales target is a bit higher.  We’re supposed to hit our sales targets while at the same time not going over budget with our Discounts to generate those sales.  This directive comes from Finance.

A:  You have just been offered the opportunity to graduate from Advertising to Marketing!

Q:  We are fairly sure if we reduce the discounts we give, response is going to fall and so are sales, especially from best customers.  Or we could keep the same discounts but do fewer discount promotions, with probably the same effect on sales.  Are there any other alternatives, any ideas on how to manage this discount budget issue? 

We’re an online only retailer.

A:  Sure, ask an easy one over the holidays!

Seriously, I hope you did not take my comment about graduating from Advertising to Marketing the wrong way.  This is really an opportunity for you to shine in so many ways, and to learn a lot of new ideas in the process – if you want to take advantage of it.

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