DM News Essential Guide to Lists and Databases: Applying Data Services To the Customer Lifecycle
The late, great management theorist Peter Drucker said, "The purpose of business is to create and keep a customer." He also said, "The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself." These phrases, now common in business, speak to a company's customer acquisition and retention relationships and how data, which become information and then knowledge, should be used to guide and anticipate changes in the customer's behavior over time.
The customer lifecycle begins with the acquisition stage through the rental of compiled or response lists, Web site registration leads, search engine marketing click-throughs or mini-markets created through statistical modeling (cluster and regression analysis).
It then moves into the retention stage, where the goal is to detect and stave off customer defection and keep the customer who has been acquired for at least the time required to break even on the acquisition (or investment). It is in this stage that you can evaluate indicators for attrition, or what other vertical industries practicing database marketing may call churn. The idea is to later evaluate how active customers compare with those who lapsed, then you have information for planning a customer reactivation program.
The next stage, which feeds off retention, is customer cross promoting, also known as the enhancement, cross-sell/upsell or harvest stage. Typically, when customers enter the cross-promoting stage, they have:
• Established some tenure.
• Will have paid back in purchases the investment made in their acquisition.
• Will be making purchases that fall directly to the bottom line.
These are customers who also become profitable through retention efforts because they're a source for referrals, which require no acquisition outlay, and thus become more loyal. Customers who buy products and services across categories and channels and make referrals will have higher lifetime values that should guide your marketing strategy.
Engage your customer's lifecycle stage. Lists are purchased for prospect and lead generation. Their names and addresses are perishable once they are mailed or called. Lists satisfy customer acquisition. If the economy suddenly hiccups or economists predict rough patches ahead, how is a list going to satisfy keeping your customers or provide you with any insight for planning?
If you are looking to add phones or demographics to your customer records, then chances are you're looking to call and sell them (cross sell/upsell) or you are interested in identifying characteristics that help in segmenting your best customers for tailored direct marketing communications (customer retention).
Understanding your customers' behavioral trends provides you with a feedback loop to measure the effectiveness of sales, marketing and technical developments. It's about intelligently managing the customer lifecycle by asking:
• How will I increase acquisition from X to Y? (And over what period?)
• How will I increase retention from X to Y? (And over what period?)
• How will I increase cross sell and upsell from $X to $Y per encounter/touch?