Measuring the Cost of an Internet Program Customer Lost

Posted by arlene

Sending irrelevant and poorly targeted email to customers is costly, not in offline terms of paper, printing, and postage, but in terms of something even more valuable: Every customer who disengages from an email marketing program is a lost opportunity to realize value from that customer in the future. If the customer disengages completely, the cost is relatively straightforward to calculate: It’s what you’ve already spent on acquisition plus the expected future value of that customer. The expected future value of a customer is the life-time click-value (LTCV) of the customer minus the value you’ve already realized so far in your relationship with that customer.

It’s a lot more difficult, however, to quantify the economic impact of a customer who is partially disengaged, or to understand and measure the factors that are causing that customer to give us only a portion of his or her attention.

One brick-and-mortar retailer was thrilled by the early responses to its email marketing program launch. Close to 40 percent of its customers clicked through on the initial emails. But within weeks, the response rate had tapered off to the high single digits. Customers still seemed to have some interest in the emails, but the initial enthusiasm had clearly waned. What was going on? Was the program still worthwhile? How could the retailer quantify the impact of being able to engage only a small fraction of its customers?

One way to gauge the cost of losing customers‘ attention is to evaluate the impact of email frequency and relevance on life-time click-value. This is a little harder than it sounds because neither frequency nor relevance are absolute measures but vary on a customerby-customer basis. Let’s assume that relevance is a function of individualization (targeting, timing, and personalization) and that there’s no such thing as too relevant. But when it comes to frequency, there’s no question that it’s easy to reach the point of diminishing or even negative marginal returns (where each successive contact hurts more than it helps). While too much contact can be hurtful, too little contact can cause you to lose the customer’s attention too. The difficulty is that the appropriate contact frequency is probably going to be different for each customer. Therefore one way to reduce contact frequency as a factor influencing customer value is to give customers a simple way to control how often they receive your emails.

So how can you tell when you’re losing your customers‘ attention or when they’re completely disengaging? Equally important, how do you measure the economic impact of losing that attention?

The brick-and-mortar retailer began to measure the correlation between the content of emails and customers‘ purchasing behavior. It discovered that its emails were indeed causing customers to buy more of the featured products. But this analysis did not indicate the missed opportunity and value of its disengaged customers. To understand this, the retailer would have had to take its analysis one step further and use the historical data it had already collected about its customers. Correlating the historical data about customers who had disengaged from the program with the increased value of customers who remained engaged would offer an indication of the potential economic value of reengaging the “lost” customers.

Problems with customer engagement can be detected by performing RFC analysis and contrasting it with contact frequency and relevance. Consider the following process for correlating customer engagement to your contact plan.

1. Select the customer segment you are going to analyze.
2. Select a time period over which you want to perform the analysis.
3. Graph the average RFC scores for that segment over the time period.
4. Evaluate the historical graph and determine whether there has been a change in (aggregate) RFC values (indicating a change in customer engagement).
5. Graph contact frequency and individualization for the chosen customer segment over the same time period.
6. Look for a correlation between level of engagement, contact frequency, and individualization.

These steps will enable you to correlate customer engagement with the email communications that have been designed to engage them. To estimate the cost of lower engagement, you need to recalculate the LTCV, which presumably will have decreased. The downward change in aggregate LTCV is essentially the opportunity cost of too much contact.

Possibly related posts: (automatically generated)
Measuring the Cost of an Internet Program Customer Lost

• Some obvious rules of messaging conduct
• Checking the Results of the Import
• Should You Continue to Use Windows 2000 Professional or Move to Windows XP Professional?
• Security of File Servers Consideration
• Sharing Data, Database Design and Data Backup
• Some Obvious Rules of Messaging Conduct
• Website Hosting Sever, some Pitfalls you need to avoid part 1
• File Servers Remote Procedure Calls
• Network and Servers Technical Compare continue...
• Security Facilities in Java