Recency: It's all Relative
Drilling Down Newsletter # 24 - September 2002
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Folks, something a little bit light-hearted to close out the summer
and before what could be a stressful time period for many around the
world. I hope you enjoy the 24th newsletter.
We're kicking off the Recency metric as promised, but with a bit of
a twist. Those who care to, read between the lines
- there are a lot of lessons in this piece, which we will dig into
next month full steam.
OK - Let's do some Drillin'!
Tracking the Customer LifeCycle:
Real World Examples
=====================
Hope you enjoyed the series on Latency. You might like to know
that portions of that series have now appeared all over the world, in
both online and offline forms. Just wanted to let you know
people are watching what we do next, and what we are doing next is
Recency. So start talking about Recency with your boss now and
you'll look like a genius (maybe even a marketing psychic) 6 months
from now.
If you are new to our group and want to review the previous
LifeCycle metric - Latency - that discussion is here,
along with the Real World examples
Hair Salon and B2B
Software.
Recency: It's all Relative
It was a day just like any other day. The Customer Retention
Clinic was open, yours truly at the helm. Both offline and
online marketers trudged through, with the same old issues. One
is drowning in data. The other has reports that provide no
actionable information. Still others have fancy models and
profiles but don't know how to use them to make money.
I became aware of a fresh-faced marketer, waiting eagerly in
line. Something seemed different about this one. Untouched
by CRM. Never been to a Business Intelligence demo.
"Your question?", I said.
"Jim, how can I tell if a customer is still a customer?"
was the reply.
I stood there, floored by the question. I knew this marketer
was special. How elegant, I thought: the summation of 20 years
of my work in a single question. Nobody had ever asked it
before. They always want to know about the money, you know - how
can I make more money, show me the tricks. Addicted to
ROI. They start off innocent enough, maybe a simple model or
two. Before you know it they're into data mining. But they
don't make any money for the company. Devastating.
Then they show up at the Clinic, looking for the magic bullet, the
secret to ROI. But not this one. Nope, this
one was special.
"Why do you want to know?" I asked. "Because I want to calculate the retention rate and track it
over time" was the answer.
"You can't put a retention rate in the bank, you know"
was my cynical answer. "What you really need is a formal, widely accepted definition of when a customer
is no longer a customer in your company. Then you will be able
to get at your precious retention rate".
Silence from the fresh-faced one. Then:
"In customer service, they say only 10% of customers complain
and state they will stop doing business with the company. They
say customer satisfaction is 90%. Does that mean customer
retention is 90%?"
Well, it's all well and good to be fresh-faced, but now we're
getting into naive. Still, I think, maybe there is something
here, something worth saving for the marketing future.
"Are you saying the only defected customers are ones which you
have documented?" I sneer. "Ones who told you they
will never do business with you again? Look, a customer is a
person or company you sell stuff to, who pays you for a product or service.
You have identified 10% who are not going to buy from you; they are
defected customers."
"But the word customer implies some kind of "future"
doesn't it? I mean, if you know they will never buy from you
again - as in the above complaint example - you don't call them
customers, so the opposite must be true: to be a customer, there must
be expectation they will buy again. If you know they will not
buy again, they're former customers, correct?"
"So a customer definition would be:
1. Purchased from you in the past.
2. Is expected to purchase in the future."
"Just because somebody bought from you in the past and didn't
tell you they hate your guts does not mean they are a customer.
A customer is somebody you expect to buy from you in the future;
otherwise they are a former customer, by definition."
Not a bad sermon, I think.
"Wait a minute" says fresh-face, "what about
customers who purchased in the past that we have no expectations
for? We don't have any idea whether they are likely to buy or
not; there is no "expectation". What about
them?"
Oh, so fresh-face is going to play tough with me, I think.
Probably an MBA. Wait a minute, I'm an MBA. Is it getting
hot in here?
"Listen, you know the answer to that question, don't
you? Because you don't know jack about your customers and their
likelihood to buy, you simply call them all
"customers". You have no more reason to call them
customers than to call them former customers, but of course, you
"default" to calling them all customers. They didn't
tell you they are not customers, so they are, right? Is that
what you are saying?" It is hot in here...phew.
I go on. "What if they didn't tell you they hated your
guts, but they told 10 other people they would never buy from
you? Are they still a customer? Do you know how many there
are? How many have had a bad product or service experience and
never said anything? Is it 10%, 20%, 40% of your customer base?"
No reply. Floor staring. I have caused hurt
feelings. But I have got to move on, there are people waiting
for the magic bullet.
"Look, I'm sorry" I say half-heartedly. "Let's
come at this from a different direction that will perhaps be more
helpful. Let's take all the customers who you think are
customers, and ask just one question - when was the last time you had
contact with this customer?"
"For example, the last time you had contact with the customer
was 3 years ago. Are they still a customer? With no
activity for 3 years?"
"Maybe" says fresh-face.
"OK, fine. What about if the last contact with the
customer was 5 years ago? Is this person or business still a
customer?"
"Maybe" is the reply.
"10 years ago?" I ask, sweating.
"Maybe".
That worked like gangbusters, I think. No wonder nobody knows
how to sell more to current customers while reducing costs. All
customers are customers for life - unless they tell you they aren't
anymore. These people have no sense of reality. They are
treating every person or business that ever bought something as a
customer!
"All right, one more try" I say impatiently.
"Take two customers - last contact with one was 10 years ago,
last contact with the other was 2 years ago. Would you be
willing to go out on a limb and say the "customer" you
last had contact with 2 years ago was more likely to still be a
customer than the customer you last had contact with 10 years ago?
What say you?"
"Yes", says the face.
"Finally", I gasp. "And if the contact 2 years
ago customer is more likely to still be a customer than the contact 10
years ago customer, the contact 2 years ago customer is more likely
to purchase from you than the contact 10 years ago customer?"
"Sure".
"More likely to purchase now, and in the future, from
you?" I wheeze.
"Yes" is the reply.
"So, let me get this straight - when comparing two customers,
the customer you have had contact with more Recently is more
likely to purchase, relative to the other customer?"
"I would think so" is the answer.
"What???" I gurgle, starting to lose my balance, eyes
becoming glassy...
"I mean yes, Jim..."
"Then, if I was to define a customer as someone who:
1. Purchased from you in the past, and
2. Is expected to purchase in the future,
you would say that the customer you last had contact with 2 years
ago was more likely to still be a customer than the customer
you last had contact with 10 years ago? Would you say
that?" I ask breathlessly.
"Yes!" the face shouts triumphantly. "I get
it!"
"So for any two "customers", the one you had contact
with more Recently, relative to the other is more likely to
still be a customer and keep buying from you, now and in the
future?"
"Yes!!!" fresh-face screams.
"And so you would treat these two customers equally, spend the
same amount of money marketing to them, even though one is more likely
to still be a customer and purchase than the other?" I ask.
The trap closes.
"Yes!!" face blurts out. "That's what we
do!"
"I know, you and 95% percent of the companies out there.
The question is why, when it is so darn easy to tell which customers
are more likely to buy relative to the others?"
To be continued...
-----------------------------------------
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-----------------------------------------
That's it for this month's edition of the Drilling Down Newsletter. If you like the newsletter, please forward it to a friend - why don't you do this now while you are thinking of it? Subscription instructions are at the top and bottom of the newsletter for their convenience when subscribing.
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 Defection right here.
'Til next time, keep Drilling Down!
- Jim Novo
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