The First 10 Metrics – Part II Where Intelligent Marketing Begins
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In the last lecture, we started In the last lecture, we started looking at the metrics that drive our marketing successes… k ti
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We learned about the modern W l d b h d purchasing funnel and why it fits today’s marketing scenario better than the original g
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Then we started talking about the first Th d lki b h fi three metrics – brand awareness, brand equity and the “test drive” – and how each effects our marketingg
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If you weren’t missed the previous If ’ i d h i lecture, please download and review it
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Metric 3 ‐ Churn The Percentage of Existing Customers Who Stop Purchasing Your Product
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Churn is the essential loyalty metric because it measures the percentage p g of existing customers who stop purchasing your products/services purchasing your products/services each year
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Customer churn is an interesting g metric and impacts some industries more than others more than others.
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For example, the U.S. cell phone p , p industry, for example, has a churn rate on average of 22% per year rate on average of 22% per year.
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That means in 4 years, a firm could Th t i 4 fi ld p potentially lose all of its customers. y
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In South Africa, h fi the churn rate is 50%.
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When we talk about loyalty When we talk about loyalty marketing, there is again a significant time delay between the i ifi t ti d l b t th marketing activity and the g y repurchase, especially if the product is a high end appliance is a high‐end appliance.
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This is part of the reason why churn This is part of the reason why churn is such an important metric – reducing the average annual churn d i h l h rate over the product life cycle can p y be directly translated to improving annual sales annual sales. http://emagine‐group.com
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Where do we start?
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Firms that do not know who their Firms that do not know who their customers are often don’t know what their churn rate is. h t th i h t i
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My friend Bob y & hi L his Lexus
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Bob lives in an old house in the Chicago area with a garage door that g g g is somewhat small. One day, he scrapped the side door of his Lexus scrapped the side door of his Lexus while pulling into the garage.
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Now, we all know how much it costs to get a small dent fixed and for a g Lexus that price can easily be tripled, so Bob went to the Lexus dealership so Bob went to the Lexus dealership expecting the worst…
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When he got the dealership, the d l dealer took the keys to his Lexus and k h k hi d g gave him a free loaner car and told Bob to return at the end of the day.
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When Bob got back, he asked “How much do I owe for the repairs?”
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“There is no charge sir. Touch ups “Th i h i T h are free.”
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How much does that H hd th t improve customer loyalty?
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In the auto industry, Lexus has i incredibly loyal customer – dibl l l approximately 70% of Lexus owners pp y repurchase a Lexus as their next car.
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So how do we calculate h d l l Lexus’ churn rate?
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Lexus Churn Rate ¾
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If we assume that a car is purchased every 5 years, th t that means Lexus has a L h churn rate of 30% over 5 years Since churn is calculated on an annual basis, in one year Lexus loses 6% of its Lexus loses 6% of its customers
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6% x 5 years = 30%
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How does Lexus keep d k their churn rate so low?
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Loyalty marketing initiatives for Lexus include – a free loaner car, free car washes, free breakfast on , Saturday morning at certain dealerships a free subscription to dealerships, a free subscription to the Lexus lifestyle magazine and of course, free touch‐ups. http://emagine‐group.com
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Free touch‐ups are important to Lexus because so many Lexus b owners trade in their old Lexus for a new one.
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This low This low‐cost cost service prevents rust service prevents rust and increases the resale value of the “ “pre‐owned” Lexus after trade‐in. d” L ft t d i
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This is the best type of loyalty marketing yp y y g because it is low‐cost to the company, high perceived value to the customer high perceived value to the customer and creates opportunity for the sale of additional high‐margin dditi l hi h i products/services, building loyalty & increasing retention. http://emagine‐group.com
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Loyalty marketing reduces churn!
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Most business Most business‐to‐consumer to consumer (B2C) (B2C) companies have direct access to customer data. t d t
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For these companies, a loyalty card For these companies, a loyalty card and/or branded credit card is often th k t the key to measuring and tracking i d t ki churn, and frequent flyer point q y p rewards or card‐only discounts incentivize continuous purchases incentivize continuous purchases.
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Churn measurement may seem challenging, though, especially for h ll i h h i ll f B2B companies, if you do not know p , y who your customers are.
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How do we get started?
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First, measure your customer churn , y rate either by tracking repeat purchases or through surveys purchases or through surveys.
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More likely than not, the churn is M lik l th t th h i higher than you think. g y
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Implement loyalty marketing campaigns to the highest value p g g customers and run experiments on a small sample to measure the small sample to measure the effectiveness of the campaigns
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When we talk about awareness Wh lk b marketing measurement, we are missing a key metric that greatly affects future sales…
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Metric 4 – Customer Satisfaction Customer Satisfaction Measured by Asking
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CSAT is not the same as awareness and is more closely related to loyalty di l l l d l l – loyalty feeds awareness in the y y behavioral impact model
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Brands have established customer bases and these customers have experiences with the product/service that defines their product/service that defines their perception of the brand
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For example, a major automaker measured CSAT and brand purchase p intent finding a one‐to‐one connection between CSAT and connection between CSAT and repurchase intention
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They found that customers who had p problems with their car was more satisfied and had a higher repurchase intent than those who repurchase intent than those who did not have any problems at all.
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Why?
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Excellent customer service if there was a problem with the new car bl ith th measurably changed perception positively toward the brand
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Therefore, CSAT is the “golden” marketing metric that bridges both g g loyalty and brand awareness – and can be used as a leading indicator of can be used as a leading indicator of future sales
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So how do we measure it?
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On a scale of 1 to 10, would you , y recommend this product/service to a friend or colleague? a friend or colleague?
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In a CSAT environment, only the , y people who answer 9 or 10 matter, everyone doesn’t everyone doesn’t
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So here is my question to you – What product or service would you p y recommend to a friend?
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“Would Would you recommend to a you recommend to a friend?” is the essential question to d fi define satisfied customers ti fi d t
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But does that matter to us – B td th t tt t h how many people would recommend us? yp p
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Fred Reichheld used this question to d fi define another essential marketing th ti l k ti metric known as – The Net Promoter Score
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The Net Promoter Score is a better The Net Promoter Score is a better metric than the CSAT because it is more accurate t
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To get the Net Promoter Score – we subtract the average number of bt t th b f detractors (score 0 – ( 6) from the ) number of promoters (9 – 10).
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The difference is one word in the question – recommend becomes satisfied
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Why is this a better metric?
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For actionable metrics, it is better to For actionable metrics, it is better to ask a few simple questions that f focus the consumer’s attention th ’ tt ti
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LLet me give you a t i couple of examples p p
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A major waste management company in the United States used i th U it d St t d to call up customers and ask a series p of survey questions
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These questions started with These questions started with discussions about customer garbage, pickups, cleanliness of the garbage i k l li f h b trucks, friendliness of the workers , and ended with a question about satisfaction http://emagine‐group.com
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Not surprisingly, the detailed di discussions made the customers i d th t neutral (5 – ( 7) in terms of ) satisfaction
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Had they started with the question – “How satisfied are you with your y y waste management?” – the satisfaction numbers would be much satisfaction numbers would be much higher
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DSW is a $1.4 billion discounted b d brand‐name footwear retailer that f il h focuses primarily on women, but p y , also sells men’s shows
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DSW offers more than 2,000 styles DSW offers more than 2 000 styles of dress, casual, and athletic shoes, and in addition sell handbags, hosiery, and accessories. DSW os e y, a d accesso es S operates 300 stores in more than 35 states and also sells online states and also sells online http://emagine‐group.com
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They are opening stores at a pace of 10 per year through 2010, and also p y g , operates more than 375 leased departments inside stores operated departments inside stores operated by other retailers
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When DSW decided to measure their CSAT, they asked some interesting survey questions interesting survey questions
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How likely would you be to recommend.. d All things considered, how satisfied..
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Then they checked future spending
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Thinking about the past 4 months, approximately how much have you i t l h hh spent on shoes for yourself at DSW and other stores?
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Now, thinking about the next 4 months, approximately how much h i l h h do you plan to spend on shoes for y p p yourself at DSW and other stores?
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To the first question – 37% of DWS customers said they would highly t id th ld hi hl recommend, while 45% said that they would recommend
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Why such high levels Wh h hi h l l of satisfaction?
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DSW has an award DSW has an award—winning winning rewards program which is offered f free to all store and online shoppers. ll d li h Customers build up points to get pp g reward certificates giving them discounts on purchases discounts on purchases. http://emagine‐group.com
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The DSW award program has a 68% h d h % satisfaction rate
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More importantly, when customers were asked about future shopping, pp g, these same shoppers anticipated increasing their spending at DSW increasing their spending at DSW over the next 4 months
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The ultimate for a marketer is when your customers are so excited about i d b y your products/services that they p / y recommend to friends or colleagues
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Customer evangelists and fans Customer evangelists and fans demonstrate their emotional connection to your brand, so they ti t b d th become the marketing department g p – everywhere! Their passion adds authenticity!
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A customer’s recommendation is the best compliment your customer can ever give your brand ever give your brand
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But customer satisfaction is a But customer satisfaction is a double‐edged sword – ask this question instead ti i t d
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What product/service would h d / i ld y you not recommend to a friend?
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This question can elicit a strong response – simple maintenance i l i issues, incorrect billing, and terrible , g, customer service
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When people talk more about bad experiences – i customer satisfaction if i declines decreasing future sales and g damaging the brand
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We call this metric the golden marketing metric k ti t i because it links b it li k brand and loyalty in the behavioral y y impact model
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What do we learn?
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CSAT is a leading indicator of future sales and is measured through a g simple question. By adding related questions we can also judge future questions, we can also judge future purchasing intent
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You have to manage CSAT as actively g y as you do sales revenue to have a successful brand and company successful brand and company
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