Managing the Customer Life-cycle: Customer Acquisition, Retention and Development Semester Genap 2010/2011
Dec 21, 2015
Managing the Customer Life-cycle:Customer Acquisition, Retention and
Development
Semester Genap 2010/2011
Learning Objectives
Understand the meaning of the terms customer life-cycle
Introduce the strategies that can be used to recruit new customers
Understand the economics of customer retention and how to select which customers to target for retention
Stages of the Customer Life Cycle
Customer acquisitionCustomer retention
aims to keep a high proportion of current customers by reducing customer defections
Customer development aims to increase the value of those
retained customers to the company
Customer Acquisition
Why Focus on Newly Acquired Customers?
New customers may have greater future life-time value potential than longer tenure customers evidence suggests that retention rates rise
over time, so if defections can be prevented in the early stages of a relationship, there will be a pay-off in future revenue streams
Key Customer Acquisition Questions
Which prospects (potential new customers) will be targeted?
How will these prospects be approached?What offer will be made?
Two Types of New Customer
New-to-category customers are customers who have either identified a
new need or have found a new category of solution for an existing need
New-to-company are customers are won from competitors
Strategic Switching
Strategic switching occurs when customers who shift their allegiances from one supplier to another in pursuit of a better deal
Banks know that their promotional pricing stimulates hot money
Selection of Prospects to Target for Acquisition
What is the estimated value of the customer? This depends on the margins earned from the customer’s
purchases over a given time period. If that customer switches from his current supplier/s,
what proportion of category spending will your company earn?
What is the probability that the customer will switch from current supplier/s?
Hofmeyr’s Conversion Model
Hofmeyr’s basic premise is that customers who are not committed are more likely to be available to switch to another provider.
Commitment is a function of satisfaction with the brand or offer, the attractiveness of alternatives, and involvement in the brand or offer.
B2B Prospecting: Key Questions
Does the lead have a need for my company’s products?
Does the lead have the ability to pay?Is the lead authorised to buy?
Sources of B2B Leads
Satisfied customers Referrals from satisfied customers
Networking Personal contacts with well-connected and co-operative people
Promotional activities Exhibitions, seminars, tradeshows and conferences
Delegate and attendee lists Advertising response inquiries Publicity
Web-sites Lists and directories
SIC listings, telephone directories Canvassing Tele-marketing E-mail
Sources of B2C Prospects
advertisingsales promotionbuzz or word-of-mouthmerchandising
Cognitive & Affective Advertising Objectives
Cognitive advertising objectives include: raising awareness developing
understanding generating knowledge
Affective advertising objectives include: developing a liking for
the product generating preference
Advertising Questions for Customer Acquisition
Which messages will generate most new customers?
Which media are most cost-effective at customer acquisition?
Media Efficiency Statistics
Response rates provide a first-level indicator of ad effectiveness. Examples include the number of coupons clipped
and returned, or calls requesting information (RFI) made to a contact centre.
Conversion rates offer a second-level indicator of ad effectiveness. Examples include sales made as a percentage of
coupons returned, or proposals submitted as a percentage of RFIs.
KPI’s for Customer Acquisition Programs
How many customers are acquired?What is the cost per acquired
customer?What is the value of the acquired
customer?
Operational CRM Tools for Customer Acquisition
lead management The lead management process includes a number of sub-
processes, including lead generation, lead qualification, lead allocation and lead tracking
campaign management Campaign managers design, execute and measure marketing
campaigns with the support of CRM technologies. Sometimes these are multi-media campaigns across direct mail, email, fax, outbound telephony, and SMS platforms
event-based marketing EBM provides companies with opportunities to approach
prospects at times which have a higher probability of leading to a sale, e.g. important life-stage events
CRM Analytics Supports Customer Acquisition
Operational CRM tools have to be supported by sound analytics to ensure that the right offer is made to the right prospect through the right channel at the right time
It is often possible to query current customer-related databases for clues to guide customer acquisition
Customer Retention
Contents of a Customer Retention Plan
1. Which customers should be targeted for retention?
2. What customer retention objectives should be set?
3. What customer retention strategies will be used?
4. How will the performance of the retention plan be measured?
Can You Tell If a Customer Has Defected?
May not be able to measure retention and defection if you have Product-based views of customers Channel-based views of customers Separate customer records in sales,
marketing and service
Measures of Customer Retention
Raw customer retention rate the number of customers doing business with a firm at the
end of a trading period expressed as percentage of those who were active customers at the beginning of the period.
Sales-adjusted retention rate the value of sales achieved from the retained customers
expressed as a percentage of the sales achieved from all customers who were active at the beginning of the period.
Profit-adjusted retention rate the profit earned from the retained customers expressed
as a percentage of the profit earned from all customers who were active at the beginning of the period.
Retention Issues
It may not be beneficial to maintain relationships with all customers. Some are too costly to serve strategic switchers constantly in search of a
better deal not strategically significant in roles such as
benchmark, door opener, inspiration or technology partner
Which customers to retain?
Strategically significant customers High life-time value customers High volume customers Benchmarks Inspirations Door openers
But… these may also be attractive to your competitors
Commitment and Retention
The level of commitment between your customer and you will figure in the decision about which customers to retain. If the customer is highly committed, i.e.
impervious to the appeals of competitors, you do not need to invest so much in retention.
If strategically significant customers are not committed to you, you may want to invest considerable sums in their retention
Negative & Positive Customer Retention Strategies
Create exit barriers Enforce the contract Extract switching
penalties
Delight customers Create customer-
perceived added value Create social and
structural bonds Create customer
engagement
What is Customer Delight?
Customer delight = P > E
where P = PerceptionE = Expectation
What Do Customers Really Expect?
1. Expectations based on promises
“I expect to have my car serviced within 2 days of calling the garage”
2. Expectations based on desires
“I want my car serviced the day I call the garage”
3. Expectations based on experience
“Most folks normally have to wait 3 days to have their car serviced”
4. Expectations based on ideals
“My car should be serviced overnight and delivered to my home the next morning”
Ways to Delight Customers
provide information about the customer’s served market A packaging company could alert a fast-moving
consumer goods manufacturer customer to competitive initiatives in the market.
volunteer to collect and replace a faulty product from a customer rather than issuing a credit note
offer better, lower cost solutions to the customer, even though that might reduce margin
3 Ways to Create Customer-perceived Added Value
loyalty schemescustomer clubssales promotions
Bonds
Social• Positive relationships
between individuals • Empathy• Responsiveness• Reliability
• Leads to development of trust and commitment
Structural• Investments linking
customer and supplier• Financial • Legal• Equity• Technological• Value-based• Geographic• Project• Multi-product
KPIs for Customer Retention Programs
1. Raw customer retention rate2. Raw customer retention rate in each customer segment3. Sales-adjusted retention rate4. Sales-adjusted retention rate in each customer segment5. Profit-adjusted retention rate6. Profit-adjusted retention rate in each customer segment7. Cost of customer retention8. Share of wallet of the retained customers9. Customer churn rate per product category, sales region or
channel10. Cost-effectiveness of customer retention tactics
Customer Development
The Role of Research
Why are customers churning?Are there any lead indicators of impending
defection?What can be done to address the root
causes?
Advance Indicators of Intention to Churn
Reduced RFM scores (Recency – Frequency – Monetary value) Non-response to a carefully targeted offer Reduced levels of customer satisfaction Dissatisfaction with complaint handling Reduced share of customer (e.g. customer only flies one leg of
an international flight on your airline) Inbound calls for technical or product-related information Late payment of an invoice Querying an invoice Customer touch points are changed e.g. store closes, change of
website address Customer change of address
CRM Technologies for Customer Development
Campaign management Event-based marketing Data mining Customization Channel integration Integrated customer communications Marketing optimization
Strategies for Terminating Customers
Raise pricesUn-bundle the offerRespecify the productReorganise sales, marketing and service
departmentsIntroduce ABC class service
Typology of Companies’ Termination Behaviours
Hardliners take an active and rigorous stance in terminating
unprofitable relationships, including the regular clearance of their customer portfolio.
Appeasers take a more cautious approach concerning the
termination of unprofitable relationships The undecided
are reluctant to terminate unprofitable relationships
References
Francis Buttle, Customer Relationship Management: Concepts and Technologies, 2e, Elsevier Ltd., 2009
Baran, Galka and Strunk, Principles of Customer Relationship Management, South-Western, 2008