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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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