Life-Cycle Analytics May Change Acquisition Thinking: Forrester

By Aug 11, 2011

Marketers who focus their analytics efforts on prospecting are falling into a trap, argues Forrester Research's Srividya Sridharan. They place too much emphasis on channel-focused metrics, while giving short shrift to retention and long-term value measurements.

"Over a period of time, customers start generating revenue and value in different forms," says Sridharan, an analyst with Forrester's customer intelligence team. "They make a reference, or talk about a product in a social network."

Or even continue to make purchases, either of items they've bought before or new products and services. The flaw in many marketers' thinking is organization analysts evaluate the cost to convert a lead against the sales generated from a specific campaign or channel, without looking at the customer's total value.

Such a skewed focus causes marketers to rely on volume growth, rather than long-term profitability. There are several problems with this: First, it is more expensive to acquire than retain a customer. Second, concentrating on increasing the sheer number of customers requires that marketers expand their downstream operations, such as fulfillment and service. Not only does expanding these require outlay, but if the supply of new customers dries up, these operations will be underused.

Third, focusing on channel metrics, as opposed to customer metrics such as satisfaction and loyalty, means marketers may miss clues regarding business opportunities, such as the timing of incentives or service upgrades. And these activities feed into extending a customer's longevity.

Marketers can take several steps to bring a long-term focus to their operations. These include:

* Aligning the metrics used to track a customer's value with the way the customer views the company. Customers do not think of themselves as passing through acquisition, retention, upselling or winback phases: They think of themselves as having an ongoing relationship with the company's offerings. Analyzing their behavior should be an ongoing process, and not just brought to bear when there is a significant change in their behavior. According to Sridharan, an analytics program can help improve a customer's experience, influence how competing brands are viewed or build loyalty through other means. "Weighting [the focus on each of these options] is tied to goals," she says.

* Assessing the maturity of their analytics operations, and determining realistically what they can obtain from inside the organization and what they need to obtain from a marketing service provider.

* Uniting an organization's focus on customer value by providing a common set of long-term value measurements across the enterprise.

A few industries already do long-term customer thinking well, says Sridharan. Telcoms, for instance, usually have contracts with defined periods. This forces them to focus on renewal and expanding the relationship with existing customers.

Customer Analysis Influences Prospecting
All this is not to say long-term value calculations can't influence acquisition. Sridharan mentions an online grocer which had been using home-delivered fliers as an acquisition technique. The fliers were successful in building the customer base, but the customers they generated were unprofitable over the long run. The grocer has since begun to rely on social media efforts, which, as they appeal to an audience already used to online interactions, have prove much more viable.

Analytics can also identify which prospects are specifically in the market for a given product category or brand, allowing marketers to focus their higher cost/higher return efforts on this group—and this, when coupled with medium and message analysis, is doubly powerful.

"It's time to bury the marketing funnel," says Sridharan, quoting an earlier Forrester report. "The funnel-based approach is from when we were thinking about products. We wanted to get people to consider, have a preference and ultimately make a purchase. But putting the customer at the core of the decision journey changes the approach regarding how we think about the funnel."

In an ideal world, Sridharan adds, an organization might have a head of customer analytics who would advocate for strategies focused around how customers think of the marketer's offerings. Doing so would help marketers provide offers appropriate to each group, based on communications preferences and message resonance.