Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Contact strategy,Contact Strategy:What is it?,Contact strategy deals with using information about,Customer purchases,Promotion patterns,Interests,and,Preferences,In order to,Regulate the frequency and sequence of customer contact,Customize the offer,creative thrust,and positioning of contacts,What is new in todays Contact Strategy,All the key decision criteria are based at the customer or individual level,A customer is included in a promotion or campaign depending on whether there is any incremental profit from contacting the customer,What is new in todays Contact strategy,Previously all customers who did not own product A were mailed promotions about product A.,Today,a customer is mailed promotions about product A depending on,How long a person has been a customer?,What products the person has previously bought?,What were the persons responses to previous mailings,or contacts?,What are the purchase patterns of the person?,These factors are then combined to compute the Return on Investment(ROI)for a particular customer,Customer Lifetime Value,Lifetime value is the NPV of the profit that you will realize on a new customer during a given number of years,Factors in calculation of CLTV,-Retention rate,-Spending rate,-Acquisition cost,-Discount rate,-NPV calculation,-Referral rate,Customer Lifetime Value,Ridgeway Fashions is in fashion retailing,Wants to test idea of a Birthday Club,Women provide their fashion preferences and their husbands business address.Ridgeway sends husbands a reminder and hints for gifts before wifes birthday,We will look at Ridgeway before and after the Birthday Club,Look at 20000 customers over a 3 year period,Customer Lifetime Value,Retention rate,-,The single most important number in the lifetime value table,-,Is calculated by a simple formula:,RR=year X customers/year 1 customers,eg RR=8000/20000=40%,-Year X customers represent those Year 1 customers who are still buying in the later year,Customer Lifetime Value,Spending rate,-Average amount spent by the average customer each year,-Calculated by dividing total sales for group being studied in a given year by the number of customers in the group,-Year 2 rate represents revenue,from customers who are still active,out of the original year 1group,-Typically the longer customers are with you,the more they will spend per year,per visit,per order,Customer Lifetime Value,Acquisition cost,-Add up all money spent on advertising,marketing and sales efforts during the year,-Divide this by the number of new customers who actually make purchases from you each year,Discount rate used because profits are received from customers over many years,Customer Lifetime Value,Net Present Value,-Once you have the discount rate for each year,each of your profits must be discounted by the corresponding rate,-NPV profits=gross profits/discount rate,-Add up NPVs of all profits to get cumulative NPV,Customer Lifetime Value,Lifetime value is simply the cumulative NPV profit(CUM-NPV)in each year divided by the original group of customers,CLTV=CUM-NPV/acquired customers,3rd year CLTV in above example is$1202157/20000=$60.05,Represents the average profit that you can expect to receive,after a given number of years,from the average new customer whom you can sign up,Customer Lifetime Value,Referral rate,-Management assumes that the Birthday Club will be successful enough that 5%of its customers will recommend Ridgeway to friends/relatives,Usually referred people are more loyal and have higher retention and spending rate than the average new acquisition,RFM:The Workhorse,Key variables to consider for contact strategy:,R,ecency,F,requency,M,onetary Value,Additional help comes from,Promotion History,Demographic Data,Survey data,RFM definitions,Recency,How recently has a customer bought?,Frequency,How frequently does a customer purchase?,Monetary Value,How much does a customer spend on each purchase?,How does RFM work?,Rank Customers according to each variable into say 5 groups.,Give preference to contacting customers who are in the top groups for each variable,Give the most preference to contacting customers who are in the top group for all the variables,How does RFM work?,An RFM chart depicting the groups and the response rates for each group,How does RFM work?,An RFM chart depicting the groups and the response rates for each group,How does RFM work?,An RFM chart depicting the groups and the response rates for each group,Purchase History Information,Time or Tenure of being a customer,Treat new and old customers differently,For new customers send welcome packages,For old customers send offers that recognize their tenure,Offer special privileges to long life customers,Purchase History Information,Total Sales Dollar or Total Sales Dollar over Time,Calculate Revenue Velocity,Revenue Velocity(RV)=total amount customer spent,total time customer has been purchasi