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Customer
Acquisition & Retention
Marketing campaigns are typically measured
by response rates and return on investment (ROI). This works well for
individual campaign evaluation and comparative analysis for multiple
campaigns. It measures marketing effectiveness and provides guidelines for
future campaigns. Customer acquisition and attrition analysis measures how
well the campaigns get and keep customers.
Some marketing campaigns are extremely
successful based on response and ROI, but they do not attract long-term
customers. For example, a sale promotion featuring heavily discounted
items will attract price sensitive customers. A few will become loyal
customers; some will only buy discounted items; and most will be one-time
shoppers. These cash flow campaigns can still be included in the marketing
plan, but they need to be recognized as such. Customers acquired in cash
flow campaigns should be flagged so they will not fall into the
traditional marketing plan.
Growth campaigns are designed to acquire
potentially loyal customers. Their loyalty is dependant on many factors
outside marketing such as quality, service, and value. It simply starts
with the right message. These campaigns follow the more traditional
marketing plans.
Basic customer acquisition and attrition
analysis provides a snapshot view of the overall marketing effectiveness.
Once the snapshot is taken, then in depth analysis will show which
campaigns have contributed the most loyal customers.
To create the initial snapshot, first sort the customer file by first purchase date and
separate by year. Determine the number of new customers added to the house
file each year. The acquisition rate is the percentage of new customers
acquired based on the previous year. This measures the marketing plan’s
effectiveness at acquiring new customers. Next, sort the file by last
purchase date and separate by year. Determine the number of customers
whose last purchase was made each year. The attrition rate is the
percentage of last purchase customers (in any given year) based on the
available customers. For example, the available customers in 1998 are new
customers 1997 and 1998 (9405 + 8776 = 18181) minus 1997 last purchase
customers (5492) for a total of 12,689. The last purchase customers may
have made their first purchase in a previous year. This is a very dynamic
number because reactivation programs can significantly improve the last
purchase status for any years. Attrition is not calculated for the most
recent year since the last purchase customers are also the current
customers.
The active customer carryovers are
customers carried over into the next year. It does not define the year
they are acquired only the quantity available for the next year.
The initial review of these numbers will
identify the trends. In our example, acquisition is strong 1997 through
2000, but in 2001 & 2002 it begins to decrease. This is very normal
for niche markets because there is a limited universe. The problem lies in
the attrition. It has been trending upwards from 1998 until 2001 when it
exceeds acquisition. They are losing more customers than they are gaining!
They are in serious trouble even though their financial report may
indicate that they are thriving. By the time the financial statement is
impacted, it may be too late to save the business.
Every customer file will have some natural
attrition. Lifestyle changes can eliminate the needs for specific products
or a company’s ability to market to those individuals. Normally, this
will account for 3 - 5% of the attrition.
Once the snapshot is reviewed, additional
analysis can determine specific cause and effect. If the attrition is
especially high for any year, review that year carefully to determine if
there were any major issues impacting customers. Segment the customers
that made their last purchase that year and look for commonalities. Did
they receive the same promotions? Order the same items? Experience service
delays?
Review the customers that are purchasing
year after year for commonality to determine how they were acquired.
Often, there are similarities in offers, lists, or advertising. Find the
keys that isolate attrition and retention and they will unlock future
growth and profitability.
As soon as the first audit is complete,
plan and schedule the next one. They should be scheduled annually,
semi-annually, or quarterly depending on the promotion cycle.
The first audit establishes the benchmarks.
Future audits monitor the progress. Compare the new audit with previous
ones to see how many last customers have been reactivated.
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