Defection Rejection - Part 2
# 71: 9 / 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 2
Hi again folks, Jim Novo here.
In Part 2 of the Defection Rejection series, we are following up
with some simple analytics you can do to further prove to your company
that a reallocation of marketing budget to be more aligned with
customer behavior will result in higher marketing productivity. We're taking this "productivity approach" to deflect any of
the politics surrounding the whole LifeTime Value mess and at the same
time, giving the marketing spend more accountability.
This "by the numbers" approach 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 previous newsletter.
OK? Let's do some Drillin'!
Best Customer Marketing Articles
September 22, 2006 Chief Marketer
Keeping analysis simple and relevant often provides the most powerful and
actionable information. Avoid analysis paralysis!
September 09, 2006 Multi-Channel Merchant
Sometimes you simply do not have all the numbers you would like to have. Instead of giving up, do some intelligent guessing based on your experiences in
Questions from Fellow Drillers
Defection Rejection - Part 2
Last month we looked at two different ways you can use to start the
conversation about marketing productivity. Both the attrition
approach and the retention
approach should be eye-openers for those who have not considered
the question of marketing productivity before. If a small basket
of customers generates the majority of current revenues or value, why
would you spend the marketing budget equally on all customers?
Yet, there can still be skeptics in the crowd. "Well,
the company offering has changed over the years so looking at past
data is not really fair" is a common complaint. Another is
the "Well, we provide much better service now than we did back
then" is another. I've heard them all; a parade of reasons
not to believe the actual data you put forth.
So what's a marketer / analyst to do? How about looking at
some current data that will point to the productivity trend in
You have some kind of recent campaign data, don't you? You
can probably use that data to prove the point. It doesn't matter
if you are generating leads or selling products or just trying to
generate e-mail opens or visits; your campaign data holds productivity
secrets that will be revealed - with the proper analysis.
Let's say you do a lot of e-mail drops and you drop to all
available names, no matter how long it has been since you have had any
response from the customer. Response can be anything -
purchases, opens, visits - whatever it is you track for success.
Let's say you typically get a response rate of 10%. What if I
told you your 10% response rate is probably distributed like this:
Now, it may be over a longer time period (say 5 years) or it may
have a different "slope" to it, but the fact is that the
longer it has been since a person responded, the less likely it is
they will respond again. In B2B, this effect often shows up as
the "cold lead". All salespeople have dealt with this
effect at some time in their career. The longer it has been
since the lead was generated, the less likely it is they can close the
lead. In fact, the effect is so pronounced that many salespeople
learn from experience to sort their leads by date of generation and
pursue the most Recent first. All else equal, this approach
consistently generates a higher close rate and salespeople naturally
gravitate to this method over time.
How do you see what this "response curve" looks like for your
company? Well, here are two possible ways to go about it:
Next Campaign: Before your next drop, set up tracking and
reporting so that you capture the previous last response date of all
responders. There are several ways to do this depending on your
systems. You could tag each e-mail itself with the last date of
response or contact, perhaps embedding a code in the link
structure. Or you could do a lookup as responses come in and
write previous contact data to the promotion file. Be aware that
some systems keep a "last contact date" that is overwritten
with each new contact, so you will have to plan accordingly if that is
Previous Campaign: This may be easier or impossible
depending on your set up. Keeping backups of databases in pretty
common practice these days. You may be able to locate a backup
of the customer or contact database from just prior to your previous
campaign. Take the responders from this campaign and match back
to the backup of the database prior to campaign drop to identify the
last response date of each responder to the previous campaign.
Either way, you will undoubtedly see a pattern similar to the one
above. Response by Recency may
drop off much more quickly or more gradually, but the pattern is
Now, this data is a "snapshot" in time rather than a
"movie" like the attrition
method or the retention
method. But think about this; every time you do a campaign,
you get a "snapshot" that looks like this one. It's a
single frame or scene for the whole retention movie, isn't
A series of these campaign snapshots stitched together is what
creates the 3, 5, or 10 year movie that results in most of your
current revenue coming from newer customers. It's why only 20%
of your customers who were new 5 years ago are still customers
(attrition), or 80% of your revenue is coming from customers who were
new in the past couple of years. These monthly "campaign
snapshots" create the 5 year attrition / retention
To say the least, this data proves that marketing to "all
customers" is not a very effective and certainly not
the most productive way to spend a marketing budget. There is
tremendous waste in this model. Forget about whether your boss
believes customers can be "retained" or not; or that you can
design High ROI customer retention programs that will drive serious
increases to the bottom line. Forget about LifeTime
What you have right in front of your eyes is indisputable evidence
of the Customer LifeCycle, and the
fact is that after a certain point in the LifeCycle, most customers no
longer respond to you or your marketing.
Are these non-responsive customers "defected"? I
don't know, but does it really make a difference what you call
them? What their LifeTime Value is and all that?
From a marketing productivity perspective, these customers are simply
unresponsive; and to continue to spend budget on them is a lot of
wasted time and money. So the question you have to ask yourself
is this: what else could I do with the budget I have been using to
contact these people who will not respond? How could I use
that budget more effectively to drive increases in bottom line
The answer is you want to reallocate that budget towards slowing
down the process that creates unresponsive customers in the first
place. You have to act earlier in the LifeCycle we have just
seen, and you have to act more forcefully than what it is you are
That's what we will talk about next
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
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 2006, The Drilling Down Project by Jim Novo. All
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