Defection Rejection - Part 3
# 72: 10 / 2006
Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
Customer Valuation, Retention, Loyalty, Defection
Get the Drilling Down Book!
In This Issue:
# Topics Overview
# Best Customer Retention Articles
# Defection Rejection - Part 3
Hi again folks, Jim Novo here.
This month, we have a couple of great article links that provide some
background for our ongoing series on Marketing Productivity.
Then, in Part 3 of the Defection Rejection series, we are looking
at a simple idea in B2C commerce you can use to increase marketing
productivity. Next month we will go on to specific Marketing
Productivity examples for B2B and service-oriented businesses.
We're taking this "productivity approach" for two
reasons: to deflect any of
the politics surrounding the whole customer defection / LifeTime Value mess
but at the same
time, provide increased visibility into the marketing spend and
accountability for it.
This "by the numbers" angle is what you are going to
have to follow to gain credibility and a seat at the strategic table -
provided you want that seat, of course. More on this idea can be
found in the first article of the
OK? Let's do some Drillin'!
Best Customer Marketing Articles
Is Marketing ROI Dead?
October 26, 2006 Chief Marketer
No, it's not dead, but the focus of it is shifting from "Campaign ROI"
to "Customer ROI" because the increase in profitability is so
huge. Retention marketing finally comes of age.
Marketing Budgets: Zero Sum Wins
October 17, 2006 Chief Marketer
Marketing is finally being represented in a language the CFO understand.
That's a concept I took a shot at five years ago and
the whole "accountability" thing now seems to be playing out if you
have the data!
Questions from Fellow Drillers
Defection Rejection - Part 3
Last month we looked
at a typical marketing productivity problem in B2C commerce. People generally
look at the overall response rate to a retail campaign instead of breaking
response into meaningful behavioral segments. For example, often
a 10% response rate is distributed like this (a customer can be in
only one segment):
From a marketing productivity perspective, this is tremendously
important information. If the segments above are all roughly the
same size, that means there was as much spent on the "1
month" segment to generate a 28% response rate as was spent on the
"12 month" segment to get a .6% response rate. Does that make any sense to you? In fact, the vast
majority of the spend in the out months is completely wasted, isn't
Add to this the fact that the segments in the "out
months" are typically bigger than the segments in the "close
months", and you get a real mess in the marketing productivity
This is the Customer LifeCycle at work. As each month slips
by, most customers fall into the next lower monthly level, and they become even
less responsive at each level on the way down. If you do
nothing, they continue down this "stack" of levels until they simply
do not respond to anything.
Many people think that sending out a monthly e-mail promotion is
retention marketing. I see this talked about everywhere.
But promotions are not targeted by LifeCycle behavior, as true
retention marketing always is. In retention marketing, you want
to tailor the offer to the stage of the LifeCycle the customer is in,
the level they are in the stack. The objective is to keep
cycling as many customers as you can into the upper levels of the
stack, where they are more likely to respond to promotions.
That's how Promotions and Retention are different but work
together; retention activity drives higher response to promotional
If you're pleased by the ROI you get with your promotional stuff,
wait until you see what targeting by LifeCycle segment delivers - the
double whammy of reduced defection and higher response rates to
So what's a smart, productivity inclined marketer to do? You
want to slow down this "falling through the levels" process, you want fewer customers falling into
the next lower level each month. That means you have to design
more compelling and more effective marketing programs to slow them
down. But where does the budget for the testing and new, more effective
campaigns come from?
It comes from the budget you are simply flushing on the very low
response rate customers. You reallocate much of that part of the
budget "back to the top" so you can really work as hard as
you can to counteract the effects of the Customer LifeCycle.
At the same time, as suggested previously, you should start testing
acquisition programs against the non-responsive
"customers". You need to culturally change the mindset here. These low
responder groups are not acting like customers anymore, yet you are continuing
to treat them like customers. However, since the vast
majority don't act like
customers anymore, you end up not talking with them, but
talking at them. You are not providing the messaging they
need to hear to change their behavior.
On the other hand, these groups are fantastic acquisition targets
because they have interacted with you before. Market to them
like acquisition targets and you will be more successful in getting
them to respond.
Realize, however, that even though they are "old
customers", their behavior is going to be like a new customer.
They are starting at the top of the LifeCycle stack again, and will
just start dropping down level by level all over again. So you
should be prepared to catch them in your shiny new retention net.
The key to profitable retention programs is to act early in the
defection process. "Win Back" is too late, the ROI is
going to be weak because it takes so much force to overcome a
defection that has already taken place.
Can you see why retention can't possibly be efficient as an
"annual" program, as some companies treat it? It's out
of synch with the LifeCycle. In an annual program, you have
people who have not responded in a year and people who have not
responded in 3 months. But these people will behave differently,
so you just get the same kind of "stack" as above, with no
one segment optimized for ROI.
Rather, you want to find the place in that stack that generates
the highest level of profitability for your retention programs.
And then you want to hit everybody who falls to that level when
they get to that level, every month like clockwork.
Going beyond the "one level" idea above, for each level,
there is a different marketing campaign or technique that will
provide the highest ROI against that segment. Your mission is to test and find out what these different campaigns
are. The right message to the right person at the right
time. If B2C commerce is your thing, start out testing your
levels by exploring the Discount Ladder
Next month, we'll hit all the same topics as this month for B2B and
If you are a consultant, agency, or software developer with clients
needing action-oriented customer intelligence or High ROI Customer
Marketing program designs, click
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
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other questions on customer Valuation, Retention, Loyalty, and
'Til next time, keep Drilling Down!
- Jim Novo
Copyright 2006, The Drilling Down Project by Jim Novo. All
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