Grow Lifetime Value
With very few exceptions, the long-run success of a most businesses is not based on once-and-done sales to customers who never return - and for that reason, the effort to grow lifetime value should begin when customers first come aboard (or earlier, in the case of brand marketing).
From an accounting perspective, the lifetime value of a customer is the net present value of the margin that the company expects to earn from a customer over their lifetime, as a result of repeated transactions conducted over any channel.
It is important for companies to calculate that metric, and take it into consideration as they plan their marketing efforts, rather than merely looking to the ROI on the specific one-time sale they expect to achieve from a single transaction - especially in cases where squeezing a customer for the sake of one sale is destructive to the future value they may otherwise have contributed.
On-Boarding New Customers
On-boarding is the marketing process of introducing a new customer to the entire range of the company's products, which has been found to increase the expected lifetime value of a new customer by increasing the likelihood that their satisfaction with one product will lead them to give the company preference when they consider vendors for other products.
A case study form the banking industry shows that there is a 90-day window of opportunity when a person opens a new account, during which time they are most likely to purchase additional products. These customers are in "witching mode," having already moved one of their accounts, they will be more likely to consider making other changes as well.
Also, the level of customer loyalty increases proportional to the number of products they own under a given brand. They are less likely to switch vendors for any one of their products, and are more likely to be open to considering additional products from the same vendor.
However, the bombarding process also holds risk: if the customer is not thrilled with their first product, this will create a negative impression of all other products to which they are introduced, which can have an even more dramatic adverse effect on their likelihood to buy anything from the company in the future.
On-boarding is, by its nature, rules-based marketing: the purchase of their first product is the event that triggers the company to take additional actions to on-board them. Effective on-boarding also depends on considering the precise product they purchased, rather than merely lumping all "new customers" into one heap and mass-marketing them.
Right-Channeling Customers
The concept of right-channeling entails identifying the channel through which an individual customer prefers to conduct business.
Left to their own devices, the customer can (and will) choose the channel they prefer. The company must ensure that channel will accommodate their needs. When outbound communications are sent, the company would do well to consider the customer's channel of preference, which will be evidenced by the probability of a favorable reaction.
Note that the channel of preference may not be the same channel for all communications: the same person may be more responsive to promotions sent in the post, most likely to do product research on the Web, and most likely to make a purchase on-site.
A word of caution is given to companies that apply operational logic to their channel management and attempt to steer the customer toward the channel that entails the lowest operational expenses in order to save money. Customers are not to be taken for granted, and rather than being forced to do business with you through your channel of choice, they will simply take their business elsewhere.
The long-term view is that the channel that is most likely to retain the customer, even if it is at higher cost, has a more significant impact on a company's long-term profitability, as it affects the top line (revenue).
Segmenting customers according to their channel of preference requires experimentation and measurement over time. Marketers should be reluctant to make snap decisions, and should not assume that a customer's channel preferences will remain the same over time.
Automating Customer Relevancy
Brand marketers recognize the importance of keeping heir brand in the customer's mind through repeated messaging. The example given is soft drink brands - not every ad you see is meant to elicit a purchase, but to make sure that their brand is in your consideration set when the time comes. The frequency of contact is a delicate balance: too little repetition and your brand isn't remembered; too many, and it is considered annoying.
Automation is used by many firms to plan (and execute) messaging of this nature. However, if done clumsily, this ends up spamming the customer. But again, how much is too much is a subject of speculation (EN: I recall the study that indicated the average American adult make saw the Budweiser logo an average of seven times a day, which was considered "good")
Attrition Risk Detection
Another key to preserving the lifetime value of a customer is to be attentive to the risk of losing their future purchases to other vendors. It is generally accepted that it is less arduous and expensive to retain a customer than to earn the business of a new one - but even among retention efforts it is easier to be proactive in keeping a pleased customer happy than having to perform a service recovery, and easier to perform a service recovery than to try to win back a lost customer.
Changes in certain customer behaviors have been found to signal a risk of loss:
- A customer who experiences an unusual number of service issues (even if they are minor)
- A customer who makes less frequent purchases than in the past
- A customer who purchases fewer products (in fewer categories) than in the past
- A customer whose pattern of purchases becomes irregular
- A customer who is less prompt in making payment on credit
Each of these phenomena is a signal that the customer may be dissatisfied, or may be trying other vendors. If a company is not monitoring such things, it may not realize when a customer is likely to defect.
Save and Win-Back
In saturated markets, the only way a company can win market share is to lure customers away from competing vendors, especially in instances where switching vendors can be done easily, the market may become very incestuous.
The "save" is a tactic used to retain a customer who is being lured away by another competitor. In most instances, the save is done proactively (price competition is an example of where you may lower your price to prevent customers from being lured away by a competitor's offer); but in others, it may be reactive (especially when the customer must cancel an ongoing service).
The "win-back" is a tactic used after a customer has been lost, to get them to come back to your company after they have switched to a different vendor.
Beware of using tactics to "force" customers to stay with your company against their will. Unless things such as term contracts are common in your industry, customers will resent them, and the perception will be that your price or quality is not competitive.
Also, beware that your tactics to save or win back customers may also be harmful to your future business: lowering a price to retain a customer gives them the sense they were being gouged all along; repeated attempts to get them to switch back may be seen as nagging; etc. In some instances, it's better simply to let the customer go in hopes they will return of their own volition rather than being so ham-handed in your attempt to cling to them that they are even less likely to ever return.
Overcoming Barriers to Implementation
EN: This is a typical tack-on section at the end of a book, the pitch to "go do it," but it does illuminate some of the barriers that one may encounter - and so, a few notes:
- Be aware that you'll have to make a strong case in the face of business-as-usual complacency
- Be aware that the concept of lifetime value versus immediate ROI is unfamiliar ground
- Be aware that performance metrics may be tied to traditional marketing (behavior for short-term thinking is rewarded)
- Be aware there are significant social and cultural barriers between online and offline marketing departments and staff
- Be aware there are similar barriers between brand and direct marketers
- Be aware that language, methods, and metrics are different
- Be aware that existing systems may not be compatible
- Be aware that preexisting rivalry among silos will be difficult to overcome
In all, be aware that it may be an uphill battle, but the rewards will be worth the effort.