Architect Company Marketing Plan - PowerPoint

Document Sample
Architect Company Marketing Plan - PowerPoint Powered By Docstoc
					Customer Retention: how to
measure it, build it and keep it.

        San Francisco DMA
         March 16, 2006
           3:00 – 5:00


     Arthur Middleton Hughes
     VP / Solutions Architect
       How a Modern Database Works



   Customer
  Transactions        Marketing
                      Campaigns                  Marketing
                                                   Staff -
                                    Analytic &   Access By
                                    Campaign       Web
Inputs from retail,    Marketing    Software
   phone, web          Database

                                                  Modeling &
Data Cleaning
                                                   Analytics
Standardization
                                   Appended
                      Website        Data
Why retention is important:
long term loyal customers
• Buy more per year
• Buy higher priced options
• Buy more often
• Are less price sensitive
• Are less costly to serve
• Are more loyal
• Have a higher lifetime value
How to retain them

• Recruit the right customers to begin with
• Once you have them, segment them by
  lifetime value
• Communicate with them to build loyalty
     What proves that
     communications
     work?

• Manufacturer of indoor lighting products
• Catalog sent to 45,000 contractors
• Previous policy: wait for the orders
• Test: pick 1,200 customers, split into test of
  600 and control of 600
• Two person pilot program build relationship
  with test customers to see the results
       Change in the number of orders


                                    112%
            120%

            100%          82%
            80%
Change in
number of   60%
 orders
            40%

            20%

             0%       1             2


                   Control vs Test Groups
         Change in the Average Order
         Size

                                  114%
         120%
                       86%
         100%
          80%
Change in
 average 60%
order size
           40%
          20%
           0%      1              2


                 Control vs Test Group
            Total revenue gain: $2.6 million
            dollars

                                        127%
            140%
            120%
            100%
                          70%
Change in    80%
   total
 revenue     60%
             40%
             20%
             0%       1             2


                   Control vs Test Group
    Communications work!

Building a relationship with
 customers can be highly
 profitable
Using a database to recreate the
 old family grocer is a winning
 strategy
Relationship marketing is the
 way to go
But, with millions of customers…

• Which ones should you spend resources
  on?
• If you communicate with everyone, you
  will not have enough resources to retain
  the very best.
• To select the best, you need to compute
  customer lifetime value
Lifetime
 Value
  Why we need Lifetime Value
          Analysis
• We need to know the value of our
  customers, so as to properly target
  our sales and retention efforts
• We need to discriminate among our
  customers to acquire and retain the
  best
     Lifetime Value Analysis
     Goal: Determine...



• where to put your retention dollars
• the value of each retention strategy
• where to put your acquisition dollars
• how much to spend on acquisition
      What is lifetime value?

• Net present value of the profit to be
  realized on the average new customer
  during a given number of years.
• To compute it, you must be able to
  track customers from year to year.
• Main use: To evaluate strategy.
Examples of Profitable Strategies
  User Groups
  Newsletters
  Surveys and Responses
  Loyalty Programs
  Customer and Technical Services
  Membership cards and status levels
  Event Driven Communications
 Event driven communication:
                                               Ridgeway Fashions
Dear Mr. Hughes:                               Leesburg, VA 22069

I would like to remind you that your wife Helena’s birthday is
coming up in two weeks on November 5th. We have the perfect gift
for her in stock.

As you know, she loves Liz Claiborne clothing. We have an
absolutely beautiful new suit in blue, her favorite color, in a
fourteen, her size, priced at $232.00.

If you like, I can gift wrap the suit at no extra charge and
deliver it to you next week, so that you will have it in plenty of
time for her birthday. Or, I can put it aside so you can come in to
pick it up. Please call me at (703) 754-4470 to let me know which
you’d prefer.

Sincerely yours,

Robin Baumgartner
Robin Baumgartner, Store Manager
Lets look at a retail operation




• Before and after a loyalty program
           LTV Before New Strategies
                       Year 1        Year 2        Year 3
Retention Rate               40%           45%           50%
Customers                200,000        80,000        36,000
Visits Per Year               1.4           1.6           1.8
Spending Per Visit           $50           $60           $70
Revenue              $14,000,000    $7,680,000    $4,536,000

Cost Percentage              50%           49%           48%
Costs                 $7,000,000    $3,763,200    $2,177,280
Acquisition Cost $32   $6,400,000
Total Costs          $13,400,000    $3,763,200    $2,177,280

Profit                 $600,000     $3,916,800    $2,358,720
Discount Rate                  1           1.12          1.32
NPV Profit             $600,000     $3,497,143    $1,786,909
Cum NPV Profie         $600,000     $4,097,143    $5,884,052
Lifetime Value             $3.00         $20.49        $29.42
    Discount Rate Basic Formula


Market Rate of Interest...5%
Assume Risk (Double rate)...10%
Years = n Interest = i
Formula: D = (1 + i)n
Calculation of rate after 2 years:
 D = (1 + .10)2 = (1.10)2 = 1.21
New Retention Strategies

 Provide all customers with a
  card or register their credit
  cards
 Birthday Club
 Communicate with them
 Give them premiums if they
  shop a lot
 Lets see what could happen
                       With New Strategies
                          Year 1         Year 2         Year 3
Retention Rate                  50%            60%            65%
Customers                   200,000        100,000         60,000
Visits Per Year                  1.6              2            2.4
Spending Per Visit              $55            $70            $80
Revenue                 $17,600,000    $14,000,000    $11,520,000

Cost Percentage                 50%            49%            48%
Costs                    $8,800,000     $6,860,000     $5,529,600
Acquisition Cost $32      $6,400,000
Database Costs              $500,000       $250,000       $150,000
Loyalty Program                $5.00         $8.00         $10.00
Loyalty Costs             $1,600,000     $1,600,000     $1,440,000
Total Costs             $17,300,000     $8,710,000     $7,119,600

Profit                    $300,000      $5,290,000     $4,400,400
Discount Rate                     1            1.12           1.32
NPV Profit                $300,000      $4,723,214     $3,333,636
Cum NPV Profie            $300,000      $5,023,214     $8,356,851
Lifetime Value                $1.50          $25.12         $41.78
       Effect of adoption of new
       strategies


                       Year 1      Year 2       Year 3
Old LTV                    $3.00      $20.49       $29.42
New LTV                    $1.50      $25.12       $41.78
Change                    -$1.50       $4.63       $12.36
With 200,000 members   -$300,000    $926,071   $2,472,799
        What is the proper computation
        period?

• Which is the correct lifetime value? 1, 2, 3, 4, 5 or
  more years?
• They are all correct. Which you use depends on
  your product or service.
• Long lifetimes: banks, insurance, utilities.
• Short lifetimes: discount houses, package goods,
  catalogers.
Five Ways to Boost LTV with
Database Strategies
 • Increase the retention rate
 • Increase the referral rate




 • Increase the spending rate
 • Decrease the direct costs
 • Decrease the marketing costs
      How to use lifetime value
• Compute a base lifetime value
• Dream up a new strategy. Estimate the benefits
  and costs
• Determine whether your new lifetime value goes
  up or goes down
• Don’t undertake any new strategy until you can
  prove it will be successful
       Using lifetime value to get
       budget approval

• Database marketing budgets are usually
  carved from somewhere else
• You have to prove that you will make better
  use of the funds than the others
• Lifetime value can supply testable numbers
  that CFO’s can understand
• Base your budget on solid numbers backed up
  by valid tests
        What your new budget will buy




                       Year 1      Year 2       Year 3
Old LTV                    $3.00      $20.49       $29.42
New LTV                    $1.50      $25.12       $41.78
Change                    -$1.50       $4.63       $12.36
With 200,000 members   -$300,000    $926,071   $2,472,799
  How you got there
                         Year 1         Year 2         Year 3
Retention Rate                 50%            60%            65%
Customers                  200,000        100,000         60,000
Visits Per Year                 1.6              2            2.4
Spending Per Visit             $55            $70            $80
Revenue                $17,600,000    $14,000,000    $11,520,000

Cost Percentage                50%            49%            48%
Costs                   $8,800,000     $6,860,000     $5,529,600
Acquisition Cost $32     $6,400,000
Database Costs             $500,000       $250,000       $150,000
Loyalty Program               $5.00         $8.00         $10.00
Loyalty Costs            $1,600,000     $1,600,000     $1,440,000
Total Costs            $17,300,000     $8,710,000     $7,119,600

Profit                   $300,000      $5,290,000     $4,400,400
Discount Rate                    1            1.12           1.32
NPV Profit               $300,000      $4,723,214     $3,333,636
Cum NPV Profie           $300,000      $5,023,214     $8,356,851
Lifetime Value               $1.50          $25.12         $41.78
       Using lifetime value to get
       budget approval

• Database marketing budgets are usually
  carved from somewhere else
• You have to prove that you will make better
  use of the funds than the others
• Lifetime value can supply testable numbers
  that CFO’s can understand
• Base your budget on solid numbers backed
  up by valid tests
Who is going to defect?

• Besides LTV, you can develop a model
  that predicts which customers are most
  likely to leave.
• Putting that model with LTV you can
  refocus your entire retention strategy
• You create a Risk Revenue Matrix
    Focus on A and B: 44% of your
             customers.


         Probability of Leaving Soon
LTV      High       Medium Low
High     Priority A Priority B Priority C
Medium   Priority B Priority B Priority C
Low      Priority C Priority C Priority C
Who uses LTV in marketing?*
• DMA survey shows 52% of Consumer Only
  marketers use LTV.
• 25% of B to B use LTV.
• 49% Larger companies ($100 million or more)
  use LTV. 32% smaller companies use LTV
• 65% plan to use LTV more extensively in 2006
• 70% use LTV to decide when to reactivate a
  lapsed customer.
• 68% determine promotions by LTV

           *DMA Survey 2005
Conclusion: you can do this

• Create a lifetime value table for your
  customers.
• Put LTV into each customer record
• Use LTV to determine your marketing
  strategy
• Use it to improve retention, cross sales,
  and profits
Break
Why you need customer
segments
• Customers are usually very different
• College students, senior citizens, families
  with children, empty nesters…
• The same message to all may not work
  so well.
• Solution: create segments, and design a
  program for each segment.
How one retail store created 9
    customer segments.
Segments differ from status levels
Segment Strategy
    An ideal segment…
• Has definable characteristics in terms of behavior and
  demographics: for example, Retired Couples
• Is large enough in terms of potential sales to justify a custom
  marketing strategy with appropriate rewards and budget
• Has members who can be motivated by cost effective
  rewards to modify their behavior in ways that are profitable for
  your company
• Makes efficient use of available data to support segment
  definition and marketing efforts
• Can be measured in performance, with control groups
• Justifies an organization devoted to it: can be a single
  person, or part of a person’s time, but there should be
  someone who “owns” each segment.
A valid segment strategy involves:
 • Communications to the segment (direct mail,
   email, on-location personal attention)
 • Rewards designed to modify behavior
 • Controls to measure the success of the
   strategy
 • A budget for implementation of the strategy
 • Specific goals and metrics for engagement: for
   behavior modification
 • An organization that accepts responsibility for
   the segment
Segment action plan:

• A roadmap showing what will happen
  when. “Send each policyholder a
  birthday card and a policy review 45
  days before their policy renewal date.”
• A budget for the infrastructure and for the
  segment marketing plans
• An organization chart that shows who is
  responsible for each segment
• Specific goals to be achieved with
  milestones for measurement of success
Using Clusters as segments
How one non profit measured
success by cluster- Their best
Their worst – in terms of
response and contributions
Success from mailing only to the
best, and not mailing the worst

• $5 Million more in net gross revenue.
        Multi-channel users are more loyal
                            Retention Rate Year 2

Catalog, retail, web
    Catalog & Web
    Retail and Web
   Retail & Catalog
         Web Only
      Catalog Only
        Retail Only
                       0%    10%   20%   30%    40%    50%       60%   70%   80%




                Illustrative numbers from several case studies
    Why the web is important to
    retention
• Web customers are more affluent
• Their average order size is 12% higher than phone orders.
• The cost of the web order is 16% lower than phone orders.
• Typical incentive offered is 5% off on any order over $50.
• Result: 11% of non web customers shift to the web every year.
      Creating a club on the internet

• A company selling sporting goods created an
  internet member club.
• When DB was built they learned that:
  – Club members bought 11 times more than non club
    members.
  – In two years, 81% of club members became multi-
    buyers.
  – The club boosted retention
        Club Members Retention

                  80.5%   Conversion to Multi-
90.0%                     Buyers after two years
80.0%
70.0%
60.0%
50.0%
                                   23.4%
40.0%
30.0%
20.0%
10.0%
0.0%
           Goal Club      Non Goal Club
Cataloger Customer Retention
• Miles Kimball sent 20,000 emails with three
  different catalogs, and 20,000 with the three
  catalogs alone.
• Those who got the emails bought 18% more
  than those who got the catalogs alone.

                                                   118
                120




                115




                110




                105
                                100

                100




                95




                90


                           Control          Test


                      More sales = Higher overall retention levels
     Retailer Customer Retention
• Video retailer sent email newsletters to 170,000
  customers for 6 months.
• Control group of 14,000 got no emails
• Retail sales to test group was 28% more than to those
  without emails.
                                                    128
                      140


                                  100
                      120



                      100



                      80



                      60



                      40



                      20



                       0


                             Control             Test

                      More sales = Higher overall retention levels
One Click Ordering

• With the web we use cookies to say,
  “Welcome back Susan”.
• We keep her credit card on file if she
  wants so she can do one click ordering
• Result, compared to controls, is higher
  retention and annual revenue from those
  who have one click ordering available.
Tests and controls

  • Essential to measuring the effectiveness
    of retention programs
Why controls are essential

• The sales force acquires new customers
• Database marketers create higher
  retention rates
• How do you prove this?
• Retention program effectiveness can
  only be measured using control groups
Every marketing promotion
should always be a test
• Test those who get the promotion
  against the performance of those who do
  not get the promotion
• If you are sending birthday cards or a
  newsletter, select 50,000 who do not get
  birthday cards or the newsletter.
• Look at the control’s spending rate, and
  retention rate.
• If there is no difference, your cards or
  newsletters are a waste of money.
What to measure
• Attrition and retention of both groups
• Migration upward and downward
• Incremental sales per program and per season
• Frequency of purchases
• Dollars spent per trip and per season
• Number of departments shopped
• Number of items purchased
• Share of customers’ wallet
     Illustration: Birthday Gift

• Get customers to record their birthdays with
  their emails.
• On their birthday, send them a birthday Pizza
  Coupon
• One fast food restaurant offered a $10
  birthday coupon to 215,000 customers.
• Of the coupons sent out, 86,612 were
  redeemed ($866,120) producing overall sales
  of $2,900,000 – a sales increase of $2 million.
   Live Agent

• 74% of shopping carts abandoned at
  checkout.
• Reason: customers have some
  question. They are unsure about the
  product, service, color, delivery, etc.
• Solution: put a live chat button at
  checkout time.
• Have live agents available to answer
  questions.
• Result: increased retention and sales
   Caller ID

• Use Caller ID to bring customer’s
  complete purchasing history on the
  screen before the agent begins talking.
• Result, she can talk to the customer as if
  she knew her.
• Result: Increased retention. Greater
  opportunity for cross sales.
What should you do to keep your
customers?
     • Select loyal customers to begin with.
       Reward agents for customer loyalty.
     • Set up a customer communications plan
     • Calculate LTV of each customer
     • Use modeling to predict churn and to
       determine the Next Best Product
     • Combine LTV and NBP to run a proactive
       retention program
     • Optimize your inducements
       Books by Arthur Hughes




From McGraw Hill. Order at
www.dbmarketing.com
Contact Arthur: arthur.hughes@kbm1.com

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:151
posted:12/22/2010
language:English
pages:61
Description: Architect Company Marketing Plan document sample