By Jim Novo
Using Latency to Map the Customer LifeCycle
Let’s say you look at average behavior across all customers, and end up with a “Latency Sequence” that looks something like following:
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 manage it in a positive way, and determine the results of your efforts. Second, you now have a series of seven “trip wires” you can use as described above 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 4th event, something significant happens to change customer behavior in a very noticeable way. The customer accelerates into the 4th event (the time between events gets shorter and shorter), and then begins to decelerate in terms of behavior (the time between events gets longer and longer). Depending on your business, this may be positive or negative.
How do you act on 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. 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 up-sell or cross-sell the customer are decreasing over time. It depends on your business. The important thing to recognize is this: there was a change in behavior, and you should 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” after 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. This reversal of momentum, fellow Driller, is evidence of a change in friction. Changes in friction can be positive or negative, depending on what activity you are measuring and the nature of your business and relationship with the customer.
In most business cases, more activity is better; you want more sales, more visits, more downloads, etc. In this business case, customers demonstrating a slowing in the rate of their activity means friction is rising; you need to find out why and do something about it. In some cases, primarily in service-oriented settings, less activity is better (think trouble calls). Under these circumstances, slowing activity can be viewed positively (through the eyes of the customer and business, fewer trouble calls is good) and this means friction is falling.
Let me say this another way to make sure you have the point: rising friction is always bad for the customer and the business because it indicates the likelihood to continue the relationship and potential value are both decreasing; falling friction is always good for the customer and the business because it indicates the likelihood to continue the relationship and potential value are both increasing. Whether a particular behavior is indicative of rising or falling friction depends on the business situation, as demonstrated with the case above.
About the Author:
Jim Novo has nearly 20 years of experience using customer data to increase profits. He is co-author of “The Guide to Web Analytics” and author of “Drilling Down:Turning Customer Data into Profits with a Spreadsheet”. If you want more visitors to take action on your web site, try using the free conversion metrics calculator, downloadable here. If you need to sell more to customers while reducing marketing expenses, get the first nine chapters of the Drilling Down book free at http://www.drillingdownbook.com.
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