Tag Archives: Relationship Marketing

Segment to Best Determine LifeTime Value (LTV)

Analytics Education, Customer Experience, DataBase Marketing, Digital Analytics, 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.

LTV has to be actionable.  If  you can’t take action on the information, it’s not relevant anyway.

There you go, the most universally true rule when attempting calculation of LTV.

And the best / easiest way to accomplish this is to identify similar customer behaviors and segment the customers by these behaviors – THEN figure out LTV by segment.

If you can’t actually take action on the information, then why spend countless $$ and hours fussing over all the reasons the number you come up with might be wrong and trying to solve unsolveable data or corporate issues? The best idea to implement when developing / using LTV is consistency – let’s get the team to agree on what LTV is and how to measure it, stick with those ideas for at least several years, test and take action on the results to uncover value, THEN (perhaps) discuss improvements!

Q:  I have just been reading your series on Comparing the Potential Value of Customer Groups. I am having trouble calculating the lifetime value of our customers.

A:  Yes, well, everybody does for some reason!  Often the problem is too much
focus on trying to look at the “average customer” as opposed to segmenting
customers.  By segmenting first, it’s both easier to get to LTV *and* more useful since it’s easier to take action on  a segment than the “average customer”.

Q:  Our company provide accounting software solutions to small to medium sized owner operated  businesses.  Because of what we sell and who we sell to, a lot of our customers are most likely to just buy one or two of our software products and unless they sign up for support (only around 15% do), we may never here from them again.  It is therefore very difficult to determine an average / standard lifetime that customers use our product.

A:  Sure.  First, the 15% segment that does sign up for support sound like good customers to me.  So that’s one segment.  How long do they typically stay signed up?  That’s the average life for this segment.

Then there are probably people who upgrade over time, right?  I can’t imagine an accounting product that people would not upgrade – perhaps not every cycle, but every 2nd or 3rd cycle.  That’s another segment.  Then there are probably some who both follow the upgrade cycle and pay for support.  These are probably the “best customers” and they are a unique segment as well.

And finally, you have the buyer who makes one purchase and you never see again.  These people are also a segment.

Q:  What should I base it on, how long our customers use our products (which would be almost impossible to determine), or how long they spend money with us?  So I measure on average the time between the first and last transaction of customers who have the highest Recency???

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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 Pedicure Spa

Analytical Culture, 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.

I hear from lots of “really small” business owners who are interested in doing “loyalty programs” or similar types of marketing – particularly in service businesses – but think these ideas are too complex or too expensive for a typical owner to handle. I’d say this is not so, the trick is to think through the program features and match them to business needs and resources available. You don’t need a points program to create customer loyalty, my fellow Drillers …

Q:  I came across your website while researching customer loyalty programs and I  am hoping that you may be able to give me some feedback on an idea that I have.

I run a small home-based spa that specializes in pedicures, and have had great feedback from my clients.  So far I have relied on word of mouth and am now ready to do some advertising as I need to be busier.  I have come up with an idea for a program to help with my pedicure loyalty and referrals.  This is a rough idea of it, customers will earn Points in the following ways:

For each friend or family member you send to me, earn 8 points.  You will receive 7 points if you pre-book your next pedicure within a before leaving.  For each pedicure you receive, earn 5 points (except those paid by Gift Certificate).  When you have earned a total of 50 points, you will receive a $25 Gift Certificate!!  (my pedicures are priced at $35).  Your Point total is maintained on your individual file.  The total is updated whenever you earn or redeem points.

I am new to the marketing aspect of all this and I would love to hear your opinions on such a program and also if it seems fair from a customer point of view.  I am also looking for suggestions on a name for it or any other suggestions towards it and presenting it.

Continue reading Customer Marketing for a Pedicure Spa →