Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Relationship Management
Newspaper subscriptions
Long distance telephone
Clothing catalogues
Internet service providers
66 percent
30 percent
25 percent
22 percent
Communications companies
Retail banks
Insurance companies
Healthcare organizations
Utilities
Marketing Metrics
Marketing Metrics
Traditional
Market Share
Sales Growth
Primary
Customer-based
Customer
Acquisition
Popular
Customer-based
Customer
Activity
Strategic
Customer-based
Market share
Sales Growth
Market share
Sales Growth
Measured in percentage
Where j = firm, S = sales, Sj = sum of sales across all firms in the market
Sales Growth
Measured in percentage
Indicates degree of improvement in sales performance between two or more time
periods
Sales growth in period t (%) =
100 S jt S jt 1
where: j = firm, Sjt = change in sales in period t from period t-1, Sjt-1 = sales in
period t-1
Acquisition Rate
Acquisition Cost
Evaluation:
Purpose:
To induce current members to spend more of their flight dollars with
American Airlines
To efficiently target new prospects and convert patrons of competing
airlines
Information source
Sales records
Evaluation:
Easy to calculate, useful for industries where customers make frequent purchases
Firm intervention might be warranted anytime customers fall considerably below their AIT
Retention rate (%) = 100* Number of customers in cohort buying in (t)| buying
in (t-1) / Number of customers in cohort buying in (t-1)
75
(0.75*100)
56.25
(0.75*75)
42.18
(0.75*56.25)
31.64
(0.75*42.18)
30
25
20
15
10
5
0
1
9 10 11 12 13 14 15 16 17 18 19
Plotting entire series of customers that defect each period, shows variation (or
heterogeneity) around the average lifetime duration of 4 years.
20
16
12
8
4
0
50% 55% 60%
Retention rate
Success attributed to attempt to learn about customers and their needs and
then using this information to offer value-added features to them
Survival Rate
Period 1:
Period 2:
Period 3:
Period 4:
Retention rate
0.55
0.62
0.68
0.73
Survival rate
0.55
0.341
0.231
0.169
Survivors
550
341
231
169
2.Actual
retention rate
3.Predicted
retention rate
4.Defection
rate%
5.Survival
Rate
6.Expected
Number of
active
customers
7.Number of
Active
periods
1
2
3
4
5
6
7
8
9
10
11
12
13
32.0%
49.1%
63.2%
69.0%
72.6%
76.7%
77.9%
78.5%
79.0%
80.0%
79.7%
79.8%
79.9%
68.0%
50.9%
36.8%
31.0%
27.4%
23.3%
22.1%
21.5%
21.0%
20.0%
20.3%
20.2%
20.1%
32.0%
15.7%
9.9%
6.9%
5.0%
3.8%
3.0%
2.3%
1.8%
1.5%
1.2%
0.9%
0.7%
2400
1178
745
514
373
286
223
175
138
111
88
70
56
2400
2357
2234
2056
1865
1717
1560
1400
1244
1106
969
844
730
14
79.9%
20.1%
0.6%
45
628
15
80.0%
20.0%
0.5%
36
538
Cohort of 7500 customers at the outset, maximum retention rate is 0.80 and the
coefficient of retention r is 0.5; after period 10, the company retains approximately 80% of
customer base
* Number of periods / N
Customer relationships
Contractual Lifetime duration (lost-for-good )is time from the start of the
relationship until the end of the relationship (e.g.: mobile phone
contract)
Buyer 2
Buyer 3
Buyer 4
Observation window
Buyer 1: complete information
Buyer 2 : left-censored
Buyer 3: right-censored
Buyer 4: left-and-right-censored
Estimation of P(Active)-Example
Customer 1
Customer 2
Observation period
Month 1
Month 8
Month 12
Month 18
To compute the P(Active) of each of the two customers in the 12th month of activity
For Customer 1: T = (8/12) = 0.6667 and n = 4
P(Active)1= (0.6667)4 = 0.197
And for Customer 2: T = (8/12) = 0.6667 and n = 2
P(Active)2= (0.6667)2 = 0.444
P (Active)
Probability of a customer being active in time t
P(Active) = (T)n
Where, n is the number of purchases in the observation period.
T is the time the last purchase expressed as a fraction of the observation
period..
N is the time elapsed between acquisition and the period for which
P(Active) needs to be determined.
Non-contractual case
Popular
Size
Of
Wallet
Share of
Category
Reqt.
Share of
Wallet
Strategic
Transition
Matrix
RFM
Past
Customer
Value
LTV
Metrics
Customer
Equity
Size-of-Wallet
J
Information source:
Primary market research
Evaluation:
Critical measure for customer-centric organizations based on the assumption
that a large wallet size indicates more revenues and profits
Example:
A consumer might spend an average of $400 every month on groceries
across the supermarkets she shops at. Her size-of-wallet is $400
Share-of-Wallet (SW)
Individual Share-of-Wallet
J
= summation of
j 1
Information source:
Numerator: From internal records
Denominator: From primary market research (surveys), administered to individual customers,
often collected for a representative sample and then extrapolated to the entire buyer base
Evaluation:
Important measure of customer loyalty; however, SW is unable to provide a clear indication of
future revenues and profits that can be expected from a customer
If a consumer spends Rs 3000/- on groceries monthly, and Rs 1000/- of her purchases are with Big
Bazaar, then BBs share of wallet of that consumer is 30%
High
Hold on
Share-of-wallet
Target for
additional selling
Do nothing
Low
Small
Size-of-wallet
Large
The matrix shows that the recommended strategies for different segments differ
substantively. The firm makes optimal resource allocation decisions only by
segmenting customers along the two dimensions simultaneously
among buyers
Example:
BINGO has 5,000 customers with an average expense at BINGO of $150 per
month (=share-of-wallet * size of wallet)
The total grocery sales in BINGOs trade area are $5,000,000 per month
RFM
Recency, Frequency and Monetary Value-applied on historical data
Recency -how long it has been since a customer last placed an order
with the company
Frequency-how often a customer orders from the company in a
certain defined period
Monetary value- the amount that a customer spends on an average
transaction
Computation of RFM
Method 1: Sorting customer data based on RFM, grouping and
analyzing results
RFM Method 1
Example:
The earliest purchasers are listed on the top and the oldest are listed at the bottom.
The sorted data is divided into five equal groups (20% in each group)
The top most group is assigned a recency code of 1 and the next group
a code of 2 and so on, until the bottom most group is assigned a code of 5
Analysis of customer response data shows that the mailer campaign got the highest
response from customers grouped in recency code 1 followed by code 2 etc
4.50%
4.00%
2.80%
3.00%
Response %
2.00%
1.50%
1.05%
1.00%
0.25%
0.00%
1
Recency Code (1 - 5)
Graph depicts the distribution of percentage of those customers who responded fell
within the recency code grouping of 1 through 5
Highest response rate (4.5%) for the campaign was from customers in the test
group who fell in the highest recency quintile (recency code =1)
Response Rate %
3.00%
2.50%
2.45%
2.22%
2.08%
2.00%
1.67%
1.68%
1.50%
Response %
1.00%
0.50%
0.00%
1
Graph depicts the distribution of what % of those customers who responded fell
within the frequency code grouping of 1 through 5
The highest response rate (2.45%) for the campaign was from customers in the
test group who fell in the highest frequency quintile (frequency code =1)
Response Rate %
2.50%
2.35%
2.05%
2.00%
1.95%
1.90%
1.85%
1.50%
Response %
1.00%
0.50%
0.00%
1
Limitations
May not produce equal number of customers under each RFM cell since
List of 40,000 test group customers is first sorted for Recency and grouped into 5
equal groups of 8000 each
The 8000 customers in each group is then sorted based on Frequency and divided
into five equal groups of 1600 each- at the end of this stage, there will be RF codes
starting from 11 through 55 with each group having 1600 customers
In the last stage, each of the RF groups is further sorted based on monetary value
and divided into five equal groups of 320 customers each
- RFM codes starting from 111 through 555 each having 320 customers
Considering each RFM code as a cell, there will be 125 cells ( 5 recency divisions *
5 frequency divisions * 5 monetary value divisions = 125 RFM Codes)
11
R
1
M
131
12
132
13
133
14
134
15
135
41
3
4
42
43
44
Customer
Database
45
441
442
443
444
445
Sorted Once
Contribution
margin
Lifetime of a
customer
Lifetime Profit
LTV
Discount
rate
Acquisition
cost
t 1
T
Information source:
CM and T from managerial judgment or from actual purchase data.
The interest rate, a function of a firms cost of capital, can be obtained from financial
accounting
Evaluation:
Typically based on past customer behavior and may have limited diagnostic value for
future decision-making
Customer Equity
Customer Equity,
CE
i 1
1
CM
it
1
t 1
T
2
Sales per
Customer
3.
Manufacturer
Margin
4.
Manufac
-turer
Gross
Margin
5.
Mktg
and
Servicin
g Costs
6.
Actual
Retention
Rate
7.
Surviva
l
Rate
8.
Expected
Number
of
Active
Customer
9
Profit per
Customer
per period
per Manufacturer
10.
Discounted
Profit per
Customer
per Period
to
Manufacturer
11.
Total
Disctd.
Profits per
Period to
the
Manufact
u-rer
120
0.3
36
20
0.4
0.4
400
16
16
6400
120
0.3
36
20
0.63
0.25
250
16
14
3500
120
0.3
36
20
0.75
0.187
187
16
12
2244
120
0.3
36
20
0.82
0.153
153
16
11
1683
120
0.3
36
20
0.85
0.131
131
16
1179
Total
customer
equity
15006
Summary
Firms use different surrogate measures of customer value to prioritize their customers
and to differentially invest in them
Firms can use information about size of wallet and share of wallet together for optimal
allocation of resources
Transition matrix provides the probability that a customer will purchase a particular
brand if what brand has been purchased the last time is known
The higher the computed RFM score, the more profitable the customer is expected to
be, in the future
Firms employ different customer selection strategies to target the right customers
Lift analysis, decile analysis and cumulative lift analysis are various techniques firms
use to evaluate alternative selection strategies
Summary
Customer activity metrics track customer activities after the acquisition stage