The Customer Life Cycle - Part 1

Customer behavior will always change over time. The question becomes - can this behavioral change be monitored and translated into additional business profits?

The answer, of course, is a resounding yes! But before we get into the details, you should have a basic understanding of Recency, Frequency and RF Scoring. If you need a refresher on these concepts, please read the 3-part article on Strategic Database Marketing.

Scoring by Recency and Frequency will help you identify customers that are most likely to respond to a promotional offer. While this type of scoring is a quick and easy method of determining customer response, it does have minor drawbacks.

For one, it forces your customers into pre-defined quintiles. As new customers make their first purchase, older customers get lowered in their Recency scores. This can cause a customer in a lower recency quintile to seem less valuable than they might actually be.

Another drawback of RF scoring is it is simply a snapshot in time. No business is static and customers will naturally move around from quintile to quintile over a period of time.

Finally, RF scoring does not tell you when you should promote to your customers. It only identifies the customers most likely to respond.

These minor issues certainly do not negate the power of RF scoring to help target the best customers for promotions. However, looking at RF scores over time adds a powerful new dimension.

Monitoring RF Scores Over Time

If a customer's RF score is decreasing over time, you can work to reengage them before they defect. In the same way, if an individual's RF score is increasing over time, they are becoming more valuable to your organization and you will want to ensure they stay happy customers.

The rate at which an individual's RF score changes over time is also important to note. The more dramatic the change, the more important it is to take quick action. RF trends for website activities are typically more exaggerated than for offline transactions. This is simply due to the nature of online behavior, which can ramp up quickly and die off even quicker.

Customer Life Cycle Grids

Running RF scores will help you determine the customers most likely to respond to your marketing efforts. Running life cycle grids (using RF data) will tell you the best time to market to those customers.

You'll not only know which customers to market to, but when you should hit them. Assuming you have a compelling marketing message, you'll be able to send the right message to the right customer at the right time.

No longer will you have to market to all your customers the exact same way. Using customer life cycle grids, you will be maximizing your marketing dollars as well as your return on investment.

So just how do you run life cycle grids on your current customers? It's all explained in the next part of this series - Customer Life Cycle Grids - Part 2