Customer Value :
Retention in Durable Goods, Mutual Funds
# 56: 5 / 2005
Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
Customer Valuation, Retention, Loyalty, Defection
Get the Drilling Down Book!
In This Issue:
# Topics Overview
# Best Customer Retention Articles
# Retention in Durable Goods
# Retention in Mutual Funds
Hi again folks, Jim Novo here.
This month, we're looking at Customer Retention in another couple
of areas people don't expect active retention programs - durable goods
and mutual funds. Just because customer programs are a little
"out of the box" for these industries doesn't mean you can't
use these techniques to increase profits.
Speaking of out of the box, we also have a couple of great customer marketing article links.
The first is about the amazing work some people are doing with
analytics in - of all places - the restaurant industry. Then we
take a look into the future - a future I have already seen at the Home
Shopping Network - where analytics are persuasive throughout all silos
and at all levels of a company - what I call Six Sigma Everything.
Let's do some Drillin'...
Best Customer Retention Articles
Behind The Big, Bad Burger
And Other Tales Of Business Intelligence
April 10, 2004 CIO Magazine
Instead of droning on and on about why analytics should be producing
better returns, the restaurant industry (of all places!) is actually doing
something with analytics. Up next is Six
Pervasive Business Intelligence-
Enhancing Key Performance Indicators
April 24, 2004 DM Review
What is it with people inventing acronyms? The latest is PBI
(Pervasive Business Intelligence) which is essentially "always on
KPI monitoring and alerting for all levels of the company".
Sounds a lot like Six
Sigma Everything to me. The article mentions the need for a cultural
shift under PBI (they are right) but doesn't get into the
details. If you want to understand how disruptive something like
PBI can be and what to do about it, I'm speaking about this at the eMetrics
If you are a consultant, agency, or software developer with clients
needing action-oriented customer intelligence or High ROI Customer
Marketing program designs, click
Questions from Fellow Drillers
Customer Retention in Durable Goods
Q: Jim, we're a high end manufacturer of appliances,
distributing offline only through dealers / the retail channel
only. We're trying to figure out how / if we should try to
create relationships with the end buyers of our appliances, but we're
stuck. Would you answer a few questions we have?
Q: 1. When does a deep market testing
environment make sense for a large company like ours? How do we
know it will work?
A: I'm not sure what you mean by "deep
testing", but I assume you mean database- driven marketing / CRM
or whatever they call it now. It makes sense when you can get
accurate data on the end target customers and there is a compelling
reason to do it. In your case, that compelling reason could be a
customer LifeCycle starting with the low end or mid-tier brands that
for some reason does not "pull" people up into the high end
brands. For example, people buy from you at the low end but do
not consider you for the high end and defect to other high end
If this scenario is even a remote possibility, it would make sense
for you to explore the idea with a "deep testing" program,
since there is so much money being left on the table when the customer
cycles out like this. I suspect you probably don't know if it is
happening and to what extent. Perhaps you do, but if you
don't, that is where you start.
If you really have no idea what goes on with the customer over
time, then drop back to surveys using warranty card data or some other
"in appliance" distribution. For example, I have seen
the "Fill out this survey and we will send you a free spice
rack" type of thing work well for this. The results will be
a bit biased towards "freebie folks" but with your product I
don't think this is a concern, and would be better than nothing at
Q: 2. Why is one2one marketing still difficult to
achieve for companies?
A: It's not very difficult to achieve that I am aware
of, it has been happening in many industries for decades. It may
be difficult for certain industries and distribution chains to do
well because they lack good data or knowledge of the correct way
to go about it.
Here in the US, many high-end appliance brands engage their
customers in these programs through the mail, and now using e-mail.
Offline newsletters are pretty standard
for the up-market brands, they provide recipes and "how to"
as the "content" while pitching new or related products -
Q: 3. Why can advanced analytics only take a company
A: I'm not sure you need "advanced
analytics" of any kind to increase profitability. You need
a customer database and some kind of analytics, but it doesn't
have to be advanced. I think you are perhaps confusing
"advanced analytics" with "advanced marketing
techniques", which really are
not very advanced unless you have never done them before. But
it's not "hard", really, and it's only cutting edge if no
other companies in your industry are doing it, which to me, is not a
You can build
yourself a very simple "what if" model in a
Let's say only 50% of your low end customers who end up buying high
end buy it from someone else. Further, let's say these people
will make 2 high end purchases in their lifetime. Well, how much
in sales and profits is
this? That is how much money you are leaving on the table by not
having some kind of relationship program. Use whatever numbers
you have. If you don't have any numbers and no data, a survey is
the way to start so you can determine "where you are".
And if you don't have any end-customer records at all, try the
"freebie for a survey" tool.
Hope that helps!
Customer Retention in Mutual Funds
Q: I just found the "Drilling
Down Project" and it sounds perfect for my company (a mutual fund
company). We were about to start trying to profile shareholders
by testing hypotheses, but from your book excerpt it appears we should
be creating action-based customer models first.
A: Sure, it depends on what you're trying to get at.
If you create your behavioral segments first, and then look at the
demographics / other features of those segments, you will have
predictive power because you can target people behaving in a certain
way. It doesn't work in reverse; demographic segments by
themselves rarely predict behavior because they give no
"signals", they are fairly static.
Q: I'm about to order the book but had a software
question -- Does the Access template address negative units?
Mutual fund transactions can be inflows (positive) or outflows
(negative). It's great if someone is
making a lot of recent transactions, but if all of them involve taking
out their money, that's not good from a business perspective.
A: Strictly speaking, the software will
"handle" negative transactions because it simply sums the
value of the transactions, in your case providing a "net"
number. I'm not sure this will be useful to you and could
considerably cloud the results, depending on what you are trying to
accomplish. For example, a high "turnover" customer
(frequent deposits and withdrawals of similar value) will seem to have
a low Monetary value yet will be very Recent and Frequent.
Assuming there are fees associated with the transaction activity, this
type of customer might well be a "profitable" or
"best" customer but might have a low rank.
So it really depends what you are trying to shoot for; and to be
honest, I'm not sure RFM is the right model for your industry anyway.
For example, a lack of transactions at all might be good - a stable,
long-term investor - and RFM is not a particularly good tool for a low transaction volume environment.
It strikes me that Latency - the time between transactions, also
covered extensively in the book - might be a more useful tool, but I
don't know what makes a "profitable" customer in your
business so it's hard to say. Of course, if you don't really
have any idea what you are looking for (very common!), it's best to
work "backwards" - isolate the behavior you are concerned
about and then look for
Let's say you are trying to predict complete defection - a customer
withdrawing all their funds. It seems to me a customer who is
devoted to a "theme" in investing would try to stay with the
fund family if they could, and if they were disappointed with the
returns, would try different funds in the family before completely
So find customers who have defected already and then look at
their behavior prior to the defection. Was there, for example, a
period where the customer was actively "switching" between
funds in your family before pulling out all their money? If this
behavior occurs in many of the defected customers, then this switching
behavior becomes the "red flag" that tells you execute a
"save the customer" program against all
"switchers" when the behavior is detected.
Then, you want to try and go back further. Where did these
"switchers" come from, did you in fact "create"
them? Many times, specific marketing programs are in fact
responsible for creating best and worst customers. If you see
the "source" of many of these switchers is ultimately a
specific acquisition campaign, then you can make a judgment as to
whether this campaign is a good idea to run or not.
If you care to provide some more info on the behavior / outcomes
you are reaching for perhaps I could be of more help...
That's it for this month's edition of the Drilling Down Newsletter. If you like the newsletter, please forward it to a friend - why don't you do this now while you are thinking of it? Subscription instructions are at the top and bottom of the newsletter for their convenience when subscribing.
Any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them
right along to me, along with any other questions on customer Valuation,
Retention, Loyalty, and Defection right here.
'Til next time, keep Drilling Down!
- Jim Novo
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