StrateScapes - Dissecting Customer Value


		Excerpted from StrateScapes - Volume 6, Number 3

Dissecting Customer Value
When your budget’s gone under the knife, send your customer data there, too.

Your budget shrank. Expectations didn’t. So how do you get the biggest bang from your newly trimmed funds?

Target your marketing efforts more tightly and more accurately than ever before — but don’t count on recency-frequency-monetary (RFM) to get you all the way there. Today, you have better customer-value measurement instruments at your disposal, as well as innovative tactics for using them to build profitable customer relationships.

Leaving higher returns on the table
“RFM is among the most basic ways to measure customer value — it’s easy to implement, and it’s an easy way to segment your customers,” says Bill Schneider, senior vice president for IntelliStats Analytic Solutions Group of CCG. “But it captures only the lowest common denominator in how consumers are interacting with you.”

On the other hand, Schneider continues, “With customer value scoring, you value the customer based on the terms you use internally to define who your best customers are. That will include elements of RFM, but it doesn’t have to end there.”

In fact, customer valuation incorporates such vital details as the channels and/or departments your customers shop, the services they use most, the share of wallet they give you, their potential or lifetime value (LTV), and their demographic and psychographic traits.

Armed with that insight, many forward-thinking companies have already started putting customer valuation strategies to work. Take a look at the three examples below and on the next page.

“With customer valuation, you see not just the depth, but also the breadth of the customer’s relationship with you — how entrenched that customer is with you and how extensive the relationship,” says Schneider. “You can even use it to gauge the growth potential of a particular customer.” All of which will help you form a complete and accurate picture of your top customer, allowing you to precisely target your marketing efforts to both existing customers and clone-like prospects — and allowing you to gain the largest return with the smallest financial outlay.

Success #1:
Targeted resources

Objectives: Rather than continuing to spread resources equally across all customer types, a major life insurance company wanted to reapportion its marketing budget based on customer value and attrition scores.

Data and Tools: An LTV score was given to each customer, using such information as profit margins, method of payment and time each person was expected to remain a customer. In addition, each customer was ranked according to their attrition value, or likelihood of defecting.

Actions and Results: By creating a grid that showed LTV on one axis and attrition scores on the other, the company was able to quickly and easily evaluate customer value and thus determine how much money to spend on each person. The company avoided spending money to retain customers who had low LTV and were highly likely to leave. And they focused resources on the customers who might consider leaving, but whose moderate LTV showed value-growth potential.

Success #2:
Impeccably timed offers

Objectives: A specialty retailer wanted to develop a CRM road map that would leverage the company’s existing customer data and segmentation to enhance the effectiveness of its marketing communications.

Data and Tools: For each of the store’s five customer segments, past transactions and average time between transactions were analyzed. A four-quadrant grid was created that slotted customers into sub-segments based on these two variables. In addition, data on past categories shopped was used to develop a condition-results model that showed which category each customer was most likely to purchase from next, based on their last purchase.

Actions and Results: The grid and condition-results model helped the store fine-tune its marketing efforts, giving the retailer a way to determine the best type and timing of communications to send to each customer. For example, customers with above-average time between transactions and an above-average probability of purchasing might get a direct mail piece timed to get them in the store sooner. And customers likely to make their next purchase in the appliances category might get a special offer for products in that department.

Success #3:
A 26 percent lift in response

Objectives: Einstein Bros® Bagels wanted to identify top customer segments so it could better target new customers for direct mail and free-standing newspaper inserts, while reducing advertising costs by focusing resources on acquiring more profitable, frequent customers.

Data and Tools: Name and address information in the store’s existing customer database was matched to demographic and lifestyle characteristics (profiling), then Cohorts® was used to apply a segmentation code to each customer.

Actions and Results: In testing the top customer segments against a control group, the bagel eatery saw a 26 percent lift in response rates for the segment-targeted list. By targeting newspaper inserts to zones and ZIP codes associated with the highest concentration of potential top customers, the company saw a 300 percent greater response than control. In a national direct mail promotion, the company reduced quantities mailed by targeting only select customer segments; they saved $35,000, yet met response and sales goals.

Ready to lift response rates, slash mailing costs and rev-up sales and customer-service performance?

CCG has the expertise to help you pluck the most pertinent value measurements from your existing customer data and apply it for optimal benefit. For information about our retail programs, contact Dave Rinaldi at 800.525.0313 x104. For financial program information, call Greg Sultan at 513.947.9102.

Customer value scoring can …

			Increase response rates

			Reduce advertising and marketing costs

			Identify true high-value customers and their clones

			Give your company a competitive advantage

			Fine-tune marketing and communications strategiesk this brand ideal and made it more tangible to customers.

“With customer valuation, you see not just the depth, but also the breadth of the customer’s relationship with you.”

STRATESCAPES and STRATESCAPES SUPPLEMENTS are published by Customer Communications Group, Inc., a full-service agency specializing in relationship marketing and customer communications. Our comprehensive, turnkey services include data analysis, customer segmentation, strategic consulting, account management, creative execution, print production and multimedia solutions.