Thursday, June 14, 2007

Customer Data Management -- Avoiding the Walking Dead

There are many schools of thought on how to most effectively direct market to your existing customers. This is especially true when you are looking at cross-sell, up-sell campaigns. How do you make sure that you are making the best-next-product offer to your clients at a time when they will be most open to it?

Well, there's some new, recently-completed research on this very subject that was conducted by the Wharton School of the University of Pennsylvania. Marketing Professor, Peter Fader is the co-author of the study and comments on his research in a very interesting article. In the research, three general states were identified that define a customer's relationship with a company. The research was conducted on a telecommunications firm.

"In State 1, customers are close to certain key services, such as basic cable. 'In this introductory state, you're just dipping your toes in the water and trying out one or two services to see if they meet your needs and if you like working with the company,' Fader said.

In State 2, 'you broaden your relationship, often acquiring additional services, like premium channels,' Fader noted. But that's not always a good thing. 'A customer who moves rapidly into State 2 is likely to reconsider his portfolio more quickly and possibly acquire additional services. However, while such customers may appear tempting, these same customers are also likely to transition into State 3 quickly and reconsider their portfolios (i.e., drop all services) without much delay,' the researchers write.

State 3 customers, the walking dead, are just one move away from severing their ties with the company. 'However, customers' transition to this state may not be immediately observable; they may maintain their current portfolio for several months (or longer) due to inertia. Having plateaued in their level of service, their next change almost certainly will be to drop all services,' the researchers state.

Fader adds an important caveat: 'While we see a relatively sudden drop in this particular dataset, there could be additional states in other settings. Customers might gradually shed their services as they slowly sever their relationship with the firm. It would be interesting to compare these evolutionary processes across different types of multi-service providers.' "

Understanding which customers are in each of these defined states can allow your company to better identify the next-best-product path for each customer segment, thus enabling you to market products and services appropriately to each specific customer state. We've conducted several studies that have helped our clients better determine which customers they should spend their time marketing to and which customers should be "pruned" because further marketing efforts and customer service efforts will be wasted -- or at the very least, not very profitable. In fact, we've created a case study on Building Customer Profitability.

So, as the Summer Solstice approaches, perhaps it's time to take a look at your customer database and determine which of your customers resemble the walking dead -- and which of your customers you can treat more like the living by continuing to build solid, profitable customer relationships.

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