To Engage High-Potential Customers, Focus on their Behavior

Many organizations have figured out how to use data to better serve their customers. It helps them optimally stock grocery aisles, price hotel rooms, select the right colors for their catalog sweaters or study regional buying patterns. But what many organizations haven’t gotten a handle on is customer loyalty and engaging high-potential customers.

The term “customer loyalty” gets tossed about quite a bit, but what does it really mean to a company’s bottom line? In his book The Ultimate Question, Frederick Reichheld of Bain & Co. says every five percent increase in retention equals a 25% to 100% increase in profitability. What many organizations fail to understand is that to increase the retention levels of the customers who matter most, they must shift from a product focus to a customer focus.

Focusing on product profitability is still necessary. It’s important to understand what products earn the most and how to maximize that knowledge. Consider the example of a beverage that costs more per ounce when purchased in a larger size. It takes advantage of consumers’ tendency to assume the bigger the box the better the unit price — and it works, or organizations wouldn’t do it. It is, however, a product-centric way of looking at increasing profit because it doesn’t factor in what the customers feel like when they realize their trust has been violated.

When an organization is customer focused the question changes. It’s not so much “How can I get the most profit out of this product?” It’s “What percent of my best customers buy my product every week and what can we do to maintain and even grow that number?” And, “How can I assure that my products are delivering value to the customers who matter most?”

Take the example of a retailer that struggled to understand why it was losing market share. The company had a tremendous tradition of strong, data-driven operational procedures. What it seemed to lack was customer loyalty. It realized it had plenty of data on its audience, but just wasn’t using the information to segment its customers and marketing messages. By leveraging customer data to target messages more effectively, the company significantly improved customer loyalty, which translated to a 20% increase in profitability.

Trying for a more interactive approach to retention — whether it involves text messages or efforts to bring customers to a Web site — can also pay dividends. Consumers, as the Association of National Advertisers has pointed out, want to be spoken with and not spoken to. It’s not enough to send a “Your subscription is about to expire” letter. Rather, publishers should engage subscribers throughout the entire subscription period.

An international publisher was losing 50% of its customers after the first renewal. The publisher switched to a more proactive retention campaign that opened up a dialogue with subscribers from their first issue onward. As readers responded to different messages, the company gained insight that helped it tailor messages further. Within a few months, the retention rate improved by 10%.

Market segmentation is critical, but to really bring in a high number of potential customers, marketers need to get the offer to the person just in time. It needs to feel less like a “pitch” and more like the organization understands customers’ desires.

A terrific example is a casino that tried to understand what created loyal customers. By building predictive models, management determined that a customer’s experience within the first hour of setting foot in the casino determined how long he or she was likely to stay, how profitable that visit would be, and whether the person was likely to come back. They began to monitor the first-hour experience of high-value customers and, when appropriate, started offering incentives.

If a high-value customer came into the casino and hit a string of bad luck, a casino employee would immediately engage the customer and offer a special treat, such as free tickets to a show. This sent the message that the casino values its relationship with the customer and is willing to invest to assure that he/she has a positive visit. The company is now the most profitable in the industry.

Jeff Gilleland is the global customer intelligence strategist at SAS. Karen Heath is a managing practice principal in HP’s BI Solutions group.