The Web Retailing Example - Drilling Down
Newsletter # 30: February 2003
Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
Customer Valuation, Retention,
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In This Issue:
# Topics Overview
# Best of the Best Customer Marketing Links
# Tracking the Customer LifeCycle: Recency
# Questions: ROI of CRM?
Hi again folks, Jim Novo here.
We've got a good crop of must read customer marketing articles,
IMIssAsia.com at the brink of a major discovery about customer
behavior, and a fellow Driller who wants to predict - gasp - the ROI
of CRM. But do I sweat? Do I shake in front of the
question so many failed to answer? Nah, I just tell 'em how to
OK, let's do some Drillin'!
Best Customer Retention Articles
This section flags "must read" articles moving into the paid archives
of trade magazines before the next newsletter is delivered.
If you don't read these articles by the date listed, you will have to pay
the magazine to read them from the online archives.
Note to web
site visitors: These links may
have expired by the time you read
can get these "must read" links e-mailed to
every 2 weeks before they expire by subscribing to the newsletter.
**Relearn the Rules of Direct Marketing
Expires February 22, 2003 DM News
It really is amazing how some basic truths about direct marketing got so twisted
up in the dot-com years and used to justify everything imaginable. LifeTime
Value comes to mind as one of the most tragic victims; everyone just skipped
right over the Customer LifeCycle and ended up
with a pot of fool's gold. Likewise Relationship
Marketing morphing into CRM. Go back
to the classics and relearn what you were taught during this period; you'll
be better off.
to Do Once Your
Loyalty Program Is Up and Running
Expires February 26, 2003 DM News
If you are familiar with loyalty programs this list will come as no big shock,
but loyalty programs are gaining steam right now, and this list may help with
your planning if you are new to the loyalty game. You can see the advice
about control groups in action by downloading
this loyalty program case study.
**Advantages of Life-Stage Segmenting
Expires March 5, 2003 DM News
Oh, so customers have life stages? I wonder if that has anything to do with
the LifeCycle? Of course it does; Life
Stage / Cycle marketing is at the core of Relationship
Marketing, which is not about being buddies with customers, but
understanding how needs change over time.
Tracking the Customer LifeCycle:
Real World Examples
If you are new to our group and want to review the previous
LifeCycle metric - Latency - that discussion is
along with the Real World examples Hair Salon and B2B
Software. The previous piece on Recency is here;
this series on Recency starts here.
Recency: The Web Retailing Example
Recall last month, the owner of IMissAsia.com completed the "Last Purchase Date"
30-60-90 bucket calculations and found the following percentages of customers in each bucket:
What Percentage of Customers Last
Purchased How Many Days Ago?
This was clearly not good news. Almost one third of people who have ever purchased
from the IMissAsia.com web site last purchased quite a long time ago -
over half a year. How could that be? Sales have been flat
to growing slightly each month. If such a huge percentage
of customers had not purchased in six months, where were all the sales
coming from? Why are sales not falling?
Pondering this question, the owner went about the usual business
tasks for the day. Scanning the new newsletter subscriptions,
the owner notes the different sources producing the majority of new
subscribers, then moves on to process orders for the day. Folks,
recall that response to the newsletter has been falling, and the owner
was pleased to see the latest newsletter generated decent order
As usual, some orders stood out from the rest; the owner recognized
repeat buyers and people who had just placed an order Recently.
"What makes them do that, I wonder?" thinks the owner.
They buy something then they buy something else only a week
later. Why don't they buy both at the same time? They
could save money on shipping, the owner thinks...
As the owner processed orders, thoughts returned to the 30-60-90
bucket analysis. I have all these orders, day after day, the
owner thinks, yet most customers have not bought from me in quite some
time. How is this possible? It doesn't make any sense.
Then the owner has a brainstorm. What would the 30-60-90 Last
Purchase Date information look like just on people who responded
and purchased from the recent newsletter? I could match
people who bought from the newsletter with their Last Purchase Date before
I sent the newsletter, and then could find out how effective the
newsletter is at getting my "lost customers" - those
who have not purchased in months - to buy again.
In other words, what percentage of people in each 30 day bucket
purchased through the last newsletter I sent out? Perhaps this would provide the insight needed to demonstrate what
this Recency data means, and provide some insight into the kind of action
that needs to be taken to keep people buying for a longer time. The owner sorted responders to the newsletter according to the Last Purchase Date
before the newsletter was mailed out, with the following results
- to pop up a chart of the results, click here.
The owner was slack-jawed. How could this be? Is it possible that
(top row) almost 1/3 of the responses came from 3% of customers?
That (top two rows together) nearly 50% of the responses came from 9% of
customers? The owner's head was swimming! What was the implication here?
Is it possible - and just this simple - that the response rate of a customer to the newsletter could be
predicted based on how many days ago they last made a
purchase? The implications were stunning. One simple
calculation. Incredible ability to predict purchase behavior.
Of course, my fellow Drillers, the question really is what can
the owner of IMIssAsia do with this new information to make the
business more profitable? We'll get to that issue next month,
when the owner discovers an even more stunning connection between the
newsletter and the purchase behavior of subscribers - and figures out
how to increase profits by taking advantage of it.
To read the next installment of Recency: The Web Retailing Example,
I can teach you and your staff the basics of high ROI customer
marketing using your business model and customer data, and
without using a lot of fancy software. Not ready for the expense
and resource drain of CRM? Get CRM benefits using existing
resources with Simple CRM.
Questions from Fellow Drillers
Q: Hi Jim,
Our industry is facility management services where a
headquarters with chain locations contracts with us to manage their
facilities in all their markets. The President is interested in
a "CRM Solution" but is concerned about the ROI he might
expect from implementation. Do you know of any number that I can
pass along to him that would placate his insistence on knowing in
advance what the ROI will be?
A: Bad news: No, not really.
Good news: You can figure it out, which is something nobody did in
the past and is why so many "failed" at CRM. You might
not even need any new software to "do CRM," though it
depends on what you have now and what the objective of the CRM program
is (you do have one, correct?). But the software required is
certainly not millions of dollars and if you only have 1000's of
clients you can probably do it with some combination of ACT! or
GoldMine, MS Access, and MS Excel.
The key question to ask: do you really know how your customers
behave? In this kind of contract business, I imagine the central
issue is this: Can you predict which customers are likely to re-up a
contract, and which ones are not? And then can you use this
information to focus on the ones less likely to re-up, and take steps
to make them more likely to re-up?
Sometimes it is just a matter of better customer service. In
this case, what you need is better service practices, not
"CRM." From a distance, it is very difficult to know
what the issues might be in your company.
Here's a test you can do to find out where you might be on the road to
answering the CRM question. If you cannot accomplish one or more
parts of the following, you are not ready to even talk about
"CRM," and need to do some more internal research.
These steps, by the way, are the ones everybody skipped on the first
round of CRM and will pave the way for a successful implementation if
you decide to go with a CRM approach:
1. Define a "best customer." It's not just
sales, you have to take into account margins, service costs, etc.
Don't worry about finding exact financial numbers. Think
about best in relative terms - these customers are better than those
customers, and you are pretty sure it is true. If you can't get
to this point, you probably need better data collection before
you think about a CRM project.
2. Once defined, how many of these customers left you in the
past year or 2 years or whatever the right time frame is for your
business? If you typically sign 3 year contracts, then it might
be "in the past 4 years." Also identify best customers
who stayed with you and renewed. If you can't get to this point,
you probably need better data organization before you think
3. Group best customers who left and best customers who
stayed and compare the two groups. Look for similarities and
differences. Is it the kind of business they are in, geography,
number of "trouble calls," billing disputes? You will
almost always see patterns that will lead you to conclusions on what
circumstances create a best customer who stays and one who leaves.
If you can't get to this point, you probably need better data
analysis before you think about CRM.
4. Now that you know what causes customer defection and
retention, figure how much more money you could make if you could
keep a certain percentage of these best customers that would otherwise
leave. If you can't do this, you probably need better customer
reporting before you think CRM.
5. Figure out what it would cost to keep this certain
percentage of best customers that would otherwise leave. Is it
better targeting in sales upfront, better customer service, better
billing practices? If you can't do this, you probably need
better financial reporting before you think about a CRM
6. Calculate your ROI and either decide to do it or not.
If you can't do this, don't invest in CRM, because it is going to cost
you more than you will make on it!
Sorry I don't have "a number" for you, it simply does not
work like that. But you can find that number, a number that is
right for your business, with a little detective work. If
you get hung up with any of the above steps, perhaps I can help.
Many businesses can get great results following the above plan.
If you are
a larger organization with a lot of complex issues, you might need the
industrial strength version of the above, described here.
That's it for this month's edition of the Drilling Down newsletter.
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Any comments on the newsletter (it's too long, too short, topic
suggestions, etc.) please send them right along to me, along with any
other questions on customer Valuation, Retention, Loyalty, and
'Til next time, keep Drilling Down!
- Jim Novo
Copyright 2003, The Drilling Down Project by Jim Novo. All
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