Techniques for managing customer activity and value
Within the online customer base of an organisation, there will be customers that have dif-
ferent levels of activity in usage of online services or in sales. A good example is a bank –
some customers may use the online account once a week, others much less frequently and
some not at all. Figure 6.9 illustrates the different levels of activity. A key part of e-CRM
strategy is to define measures which indicate activity levels and then develop tactics to
increase activity levels through more frequent use. An online magazine could segment its
customers in this way, also based on returning visitors. Even for companies without trans-
actional service a similar concept can apply if they use e-mail marketing – some customers
will regularly read and interact with the e-mail and others will not.
Objectives and corresponding tactics can be set for:
Increasing number of new users per month and annually (separate objectives will be
set for existing bank customers and new bank customers) through promoting online
services to drive visitors to the web site.
Increasing percentage of active users (an appropriate threshold can be used – for some
other organisations could be set at 7, 30 or 90 days). Using direct communications
such as e-mail, personalised web site messages, direct mail and phone communications
to new, dormant and inactive users increases the percentage of active users.
Decreasing percentage of dormant users (were once new or active – could be sub-
categories), but have not used the service or responded to communications within a
defined time period such as three months.
Decreasing percentage of inactive users (or non-activated) users. These are those who
signed up for a service such as online banking and had a username issued, but they
have not used the service.
You can see that corresponding strategies can be developed for each of these objectives.
Another key metric, in fact the key retention metric for e-commerce sites, refers to
repeat business. The importance of retention rate metrics was highlighted by Agrawal et
al. (2001). The main retention metrics they mention which influence profitability are:
Repeat-customer base– the proportion of the customer base that has made repeat pur-
chases;
Number of transactions per repeat customer – this indicates the stage of development of
the customer in the relationship (another similar measure is number of product cate-
gories purchased);
Revenue per transaction of repeat customer– this is a proxy for lifetime value since it
gives average order value.Lifetime value modelling
An appreciation of lifetime value (LTV)is key to the theory and practice of customer rela-
tionship management. However, while the term is often used, calculation of LTV is not
straightforward, so many organisations do not calculate it. Lifetime value is defined as
the total net benefit that a customer, or group of customers, will provide a company
over their total relationship with the company. Modelling is based on estimating the
income and costs associated with each customer over a period of time and then calculat-
ing the net present value in current monetary terms using a discount rate value applied
over the period.CHAPTER 6· RELATIONSHIP MARKETING USING THE INTERNET
Lifetime value (LTV)
Lifetime value is the
total net benefit that a
customer or group of
customers will provide
a company over their
total relationship with a
company.