Archive for the ‘Mktg – CLTV’ Category

Finding “Good Targets” in the Digital Age

December 6, 2010

TakeAway:  To find the “best” customer targets, marketers need to include digital and social behaviors into the profitability equation.

In addition to revenue measures such as lifetime value, current spending in category in dollars, current brand share, number and types of products or services purchased, and brand switching history/potential, there are also several other characteristics that make one customer more valuable than another because s/he’s easier to get and keep, as well as engage as co-marketers.

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Excerpted from AdAge, “How to Define a ‘Good Target’ in the Digital Age” By Kevin Clancy and Peter Krieg, November 17, 2010

Marketers have to integrate traditional and digital paid advertising with “owned” properties such as the brand’s website, as well as traditional and social “earned” media such as news articles and tweets in a way that gets them the biggest bang for their marketing dollar.

To separate the “best” from the rest, marketers need to find customers who are:

Less price sensitive. Unless you’re Walmart and want to grab share among the folks who put price above all other brand considerations, price insensitivity is another important indication of a buyer’s value to a brand and one particularly relevant these days.

Struggling with big problems. The bigger the problem your brand can solve, the bigger the market response.

Interested in new products and services from the brand. Introducing new products and services can generate the kind of organic growth companies crave. So why not ensure that new products and services will generate bottom-line growth by narrowing in on the customers most interested in considering the latest offerings from a brand or company? Apple’s pretty much got this one down.

Will advocate for your brand. The greater the level of influence a buyer has among her social networks, the more a brand’s marketing ROI will benefit.

Socially connected on the web. Because of the speed and number of tools available to customers to spread information about product and services online, word-of-mouth activity is even more important to capture in a digital environment. The more active and engaged a customer is with different social media, the more valuable he can be to a brand. Ford chose 100 20-something YouTube storytellers who’d developed a fan community of their own and gave them a Fiesta for six months. Each month they shared their experiences on YouTube, Flickr, Facebook and Twitter. Ford received 50,000 requests for information on Fiesta – almost entirely from new-to-Ford customers – and sold 10,000 units in the first six days of sales.

Rather than look at each of these things separately, though, marketers can and should bring together all of these “proxies for profitability” with financial data to calculate a single measure of value.

From an operational standpoint, then, marketers need to look for customers who are:

Distinct in terms of needs and wants. The more homogeneous and anticipated a target group’s needs and wants, the easier time marketers will have developing compelling positioning and messaging that breaks through in traditional and digital channels.

Relevant to traditional and digital communications decisions. Get a sense of how high-value customers use traditional, digital and social-media communications throughout the pre- and post-purchase process, and in particular, how they like to interact with a brand within different communication channels.

Findable in syndicated media databases. The “best” communications channels – either current or prospective – are the ones with a disproportionate number of high-value customers.

Edit by AMW

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Full Article:

http://adage.com/cmostrategy/article?article_id=147155

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Loyalty programs lose their umph … at least for airlines

January 28, 2009

Excerpted from WSJ, “Plunging Value of Fliers’ Miles Saps Loyalty” By Scott McCartney, Dec 9, 2008

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The plunge isn’t as severe as your 401(k) or home appraisal, but the value of frequent-flier miles has dropped so far that airline programs no longer drive customer loyalty as strongly as they used to … But now, a handful of airlines … are launching tweaked programs they hope will rebuild ties with fliers.

The percentage of online buyers who say they are loyal to particular travel companies fell to 25% this year from 31% in 2006 … Customer loyalty for airlines … are worse than for hotels and cruise lines. And travelers buy tickets based on price and schedule more than ever instead of choosing to fly a particular airline.

“Airlines are shooting themselves in the foot…Their loyalty programs are just not worth what they once were to consumers.”

The biggest force driving the erosion of loyalty is the loss in value of frequent-flier miles … Airlines have raised the price of awards and tightened availability of the cheapest award levels, forcing travelers to jump to more-expensive mileage levels to claim seats…

To be sure, frequent-flier programs still drive loyalty for some road warriors… And they still make lots of money for airlines … The programs have grown more profitable as airlines have made it more difficult to cash in miles and added fees and surcharges to awards…

Not surprisingly, research …s hows growing dissatisfaction with mileage programs…Some airlines are addressing these flier gripes and revamping their programs …

Industry watchers say it may be risky to continue to degrade frequent-flier programs … airlines need to re-examine if they have squeezed frequent-flier programs too tightly. He says airlines have ignored trends in other industries where loyalty programs are stronger, and made their rewards more expensive and more difficult to redeem than other loyalty programs.

“Airline passengers get whacked by a lot of sticks, but there are not a lot of carrots out there for them” … airlines need to reinvigorate their customer-service efforts across the board, improving service at the airport and on board aircraft … frequent-flier programs could be more valuable to airlines as stronger drivers of loyalty if carriers revamped their confusing and frustrating redemption schedules, and gave consumers better benefits for purchasing loyalty.

“The idea of trying to reward people for loyalty is good … but it has become too complex and frustrating in the airline industry.”

Edit by SAC

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Declining customer loyalty adds pressure to the airlines already heavy financial woes.  Passengers no longer see the value in the customer loyalty programs that were originally created to increase customer loyalty.  As such, frequent-flyer programs may be profitable for the airlines in the short-term, but in the long-term customer lifetime value is likely to decline having a great impact on the airlines’ bottom line.

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Full Article:
http://online.wsj.com/article/SB122877921525689525.html

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Managing the customer experience … from "delight" to "good enough"

January 26, 2009

Excerpted from the McKinsey Quarterly, “Maintaining the Customer Experience”, by Adam Braff and John C. DeVine, December 2008

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Stinting on customer service is a common and sometimes costly response to tough economic times. By managing the customer experience more rigorously, companies can maintain quality while still saving money.

How can consumer businesses make necessary investments in service while facing the pressure on revenues and costs? One key is to minimize wasteful spending while learning to invest in the drivers of satisfaction. Specifically, companies should challenge their beliefs about service and test those beliefs analytically. Many will discover that long-held but seldom-reviewed assertions about what customers really want are wrong.

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Consider service levels, specifically average time-to-answer, which is one of the most common metrics used in call centers. Companies that closely manage the customer experience have taken a rigorous approach to resetting service levels and, in some cases, are saving money without degrading them or customer satisfaction. In short, these companies have carefully measured the “breakpoints” to find their customers’ true sensitivity to service level changes.

One company, a wireless telecommunications services provider, found that its customers had two breakpoints at X and Y seconds on a call; answering the phone immediately (less than X seconds) produced delight, while leaving customers on hold for longer (more than Y seconds) produced strong dissatisfaction (exhibit). Although customers were fairly indifferent to service levels between X and Y, the company’s average time to answer was only loosely managed between these two points.

 

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The company considered raising service levels to the “delight breakpoint” or reducing them to just above the “patience threshold.” Customer-lifetime-value economics pointed to the second option: relaxing service levels but guarding against crossing the patience threshold. The drop in customer satisfaction was negligible, but the savings in staffing were significant, and the company ended up saving more than $7 million annually.

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Other good places to look for potential overinvestment include marketing campaigns (for example, offering to move a customer to a cheaper rate plan regardless of whether the customer says cost is a problem) and excessive use of bill credits and adjustments. The business case for these “customer delight treatments” can include unrealistic assumptions about how they will increase customer referrals and retention. And often, there is no business case.

Finding these savings requires rigor in customer experience analytics: the collection of customer-level data, matching survey responses to actual behavior, and statistical analysis that differentiates to the extent possible between correlation and causation. It also requires a willingness to question long-held internal beliefs reinforced through repetition by upper management.

Edit by DAF

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Full article:
http://www.mckinseyquarterly.com/article_print.aspx?L2=16&L3=14&ar=2259

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How much of a discount? Depends on how much you're worth.

January 22, 2009

Excerpted from WSJ “Marketers Reach Out to Loyal Customers” by Emily Steel, November 26, 2008

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With the critical holiday-sales season at hand, there’s a new character joining Santa and his elves on the advertising circuit: the analytics geek…Marketers…are mining their customer databases and reaching out to loyal consumers with targeted ads, instead of relying on the traditional yuletide blitz.

Rather than create one TV commercial or send out a single, shotgun email promotion, uneasy retailers…are tapping statistical models and other technologies to send specific consumers promotions based on what is potentially on their shopping lists…

Persuading a satisfied customer to return is cheaper than attracting a new one…in the struggle to do more with less, that concept is becoming even more important. Acquiring a new customer costs about five to seven times as much as maintaining a profitable relationship with an existing customer…

Sears and Ogilvy have developed a system to identify the categories of merchandise Sears customers have purchased in the past and to measure the chance that they will buy those sorts of items again this season. That helps Sears determine the type of emails and point-of-sale offers to aim at individual customers. When customers buy an item online, Sears confirms the purchase with an email including a promotion tied to that product. A person who buys a new appliance at Sears.com might get an email offering a deal on the store’s extended-warranty program.

Sears is even offering customers differing discounts based on its predictions about the value those customers will bring to the company in the long term.

Companies have long tracked the habits of their consumers, but they have been overwhelmed by the reams of data they collect. Only fairly recently has the technology become sophisticated enough to allow marketers to link all the data points together — and work effectively with their advertising partners to leverage that data in ad campaigns…

Even if marketers get closer to predicting what’s on consumers’ wish lists, it’s going to be a tough sell, with people strapped for cash. Growth in e-commerce sales has already slowed significantly this year…

Edit by SAC

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It is clear that marketers can benefit from targeting customers based on Customer Lifetime Value (CLTV).    This is especially important for retailers facing a challenging economic situation with trimmed advertising budgets and customers who are cutting their spending.  The retailers that take advantage of the technology available to more accurately calculate CLTV and then target the more profitable customers have a better chance at a profitable holiday season. 

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Full Article:
http://online.wsj.com/article/SB122766322705958805.html?mod=article-outset-box

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AMS: Cutting Cell Phone Churn

December 3, 2008

Excerpted from the McKinsey Quarterly, “New ideas for customer segmentation”

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Customer life-cycle management, though a likely and proven strategy, presents a vexing challenge to prepaid mobile operators. They often resort to blanket promotions that risk destroying value by needlessly cutting prices or offering free services.

One alternate way is for marketers to look more closely at their billing systems, which contain a wealth of information; to create segments, often as small as 100,000 subscribers; and to plan tailored promotions for each group.

The exhibit below illustrates one prepaid mobile operator’s strategy to reduce churn rates by segmenting subscribers through their usage patterns. Tracking the number of days before a customer is “lost” helped the company to introduce promotions most likely to increase usage and retention while minimizing revenue lost to scattershot offers and unnecessary discounts.

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Edit by DAF

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Full article:
https://www.mckinseyquarterly.com/newsletters/chartfocus/2008_11.htm

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