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Making Money with the Customer LifeCycle: Latency Profiles

First published 9/15/01

Jim's Intro: We expand on the idea of Latency, and find tracking multiple Latency points begins to look an awful lot like tracking a customer LifeCycle.  This article is Part Three in a series of articles on Behavioral Marketing techniques.

Part 1: Trip Wire Marketing
Part 2: Customer Latency
Part 4: High ROI Latency Promotion
Part 5: Extending the LifeCycle


Latency is one of the simplest of the "trip wire" metrics you can use.  If you know the average amount of time between two customer activity events, you can set up systems to recognize when a customer trips the wire (behaves outside the norm) and activate a response. 

But what if you were to look at an entire series of Latencies?  For example, the average number of days between the first and second purchases, the average number of days between the second and third purchases, third and fourth, fourth and fifth, etc.  You don't have to use purchases, you could use contacts with customer service, visits to a web site, any behavior important to your business.  What would that look like, and more importantly, what can it do for you?

It would look like a snapshot of the customer LifeCycle, that's what it would look like.  And what it can do for you is start you on the path to predicting customer behavior and increasing the value of your customer base. 

Let's say you look at average behavior across all  customers, and end up with a "Latency Sequence" that looks something like following.  An event can be purchases, downloads, visits to a web site, whatever:

Time between 1st - 2nd event:   90 days
Time between 2nd - 3rd event:   60 days
Time between 3rd - 4th event:    30 days
Time between 4th - 5th event:    60 days
Time between 5th - 6th event:    90 days
Time between 6th - 7th event:   120 days
Time between 7th - 8th event:   150 days

What does this pattern say to you?  Think about it. 

I'll tell you what it says to me.  First, as you probably realized, you are now starting to see something that looks like a "cycle," as in LifeCycle of the customer.  It's a series of events you can graph with a line and make charts of.  If you can measure it, you can try to affect it in a positive way, and determine the results of your efforts.  

Second, you now have a series of seven "trip wires" to can use as described in the previous article to more finely sift and screen behavior looking for deviations from the norm.  If the average number of days between events for any single customer starts to exceed the average for all customers, a trip wire call for action is triggered on that customer.

And third, somewhere around the 3rd or 4th event, something significant happens to change customer behavior in a very noticeable way.  The customer accelerates into the 4th event, then begins to decelerate in terms of behavior.  Depending on your business, this may be positive or negative. 

How to use this information?

Regarding the Lifecycle and the trip wires, you could have a series of seven actions ready to take at any point in this LifeCycle where the customer deviates from average behavior.  As long as the customer stays on track, save the money and take no action.  But as soon as the customer misses or "rolls over" past one of these LifeCycle milestones, you know to pull the trigger on your action.  If you follow this model, you will end up maximizing every cent of your budget and driving higher profits, because you don't spend unless you have to, and when you spend, it creates maximum impact.  This is the recipe for high ROI customer management and marketing, folks.  Act only when you have to and always at the point of maximum impact. 

Regarding the behavior change, if I was a retailer, this looks negative, since the "ramp" in buying behavior reversed and went in the other direction.  If I was running a pure service center, this may be a very desirable pattern, perhaps meaning the customer has "learned" the product and no longer needs as much service.  It could be negative though, since opportunities to upsell or cross-sell the customer are decreasing over time. Depends on your business.  The important thing to recognize is there was a change in behavior, and to try and determine how you might affect this change in a positive way.  Reversals in the direction of a behavior like this are almost always significant turning points in the relationship with the customer.  

Human behavior dynamics often take on seemingly "physical" properties.  Inertia is one such property - an object in motion tends to remain in motion unless acted on by an outside force.  This reversal in the direction of the customer "momentum" around the 4th event indicates there is something about your business - a process (or lack of a process), a product (or lack of a product), something - which causes the average customer to "slow down" and reverse their contact momentum.  Your mission (should you decide to accept it) is to find out what it is and try to influence this "something" positively. 

If I was a retailer with very limited resources, this is what I'd do.  Given the seven possible promotional opportunities listed above, but looking for the absolutely highest ROI on a single promotional event, I would send a promotion to the customer immediately after the 4th purchase - and no sooner.  

I don't want to spend money on a promotion or by reducing my margin if I don't have to, and as long as the customer is accelerating, there is no reason to spend any money.  But I would really like the ramp to continue past the 4th purchase, and any way I can bring that 5th purchase in closer to the 4th is going to affect my bottom line, not to mention perhaps lengthening the ramp into the 5th or 6th purchase and beyond.  

If I had more money to spend on promotions, I would test each of the seven trip wire opportunities, and pursue only those with the highest ROI, probably using a separate and unique discount ladder approach for each of the seven trip wire opportunities.

If I was a service center, the fact it takes 3 calls to educate the customer might not be acceptable, and I would look for ways to decrease the length of time it takes.  If I upsell and cross-sell, I would look to weight more of this activity early in the process knowing I am not going to get as many chances as time goes on and the customer becomes more likely to defect.  Success at either of these actions can create incremental profits with very little expense - you're not necessarily changing what you do, just when you do it, to match more closely with the customer LifeCycle.

Of course, you can begin to subdivide the customer base, just as we did in the first article.  The Latency Sequence may look quite different for hardware buyers relative to software buyers, and it certainly will be different by the type of campaign you used to attract the customer in the first place.  Once you are able to compare and contrast different customer LifeCycles by product, campaign, customer source, or any other data point meaningful to your business, you begin to paint a more complete picture of what parameters positively or negatively affect customer behavior.  Once you understand the behavior, you can learn to profit from it.

If the above makes sense to you, then you are on your way to designing the highest ROI customer marketing campaigns of your career.  The Drilling Down book teaches you all of the proven LifeCycle-based marketing techniques step-by-step, gradually building up from simple ideas like Latency to full-blown visual customer LifeCycle mapping techniques.

If you want to start returning profits of 2 - 5 times the money you spend on a customer marketing campaign, you need this book!

 

 
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This is the original Drilling Down web site; the advice and discussion continue on the Marketing Productivity Blog and Twitter.

Download the first 9 chapters of the Drilling Down book here: PDF
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