Wednesday, 12 November 2008

When is a lapsed customer not a lapsed customer?

What defines a lapsed customer? Tricky question isn’t it, is it a customer that hasn’t bought from you in last six months, twelve months, or eighteen months even? Now I know some of that comes down to what your company produces, (for electrical retailers for example, it’s probably not that unusual to see “regular” customers who purchase once every eighteen months), but surely there must be a way of actually quantifying which of your customers have actually lapsed or are in danger of doing so?

And then there’s the question of how best to reactivate those lapsed customers; or more importantly, stop customers getting to the lapsed stage in the first place.

Something as simple as a personalised email can be the solution - but if you’re thinking of sending bulk email campaigns to all your “lapsed” customers, stop right now. Treating everyone the same is not the answer! And here’s why…

Imagine your business sells electrical components to the repair industry, supplying buyers from the one-man-band, TV repair man to big household name electrical retailers.

You have a considerable pot of loyal customers who purchase regularly but who each have quite unique purchase patterns. The big electrical retailer buys large quantities of components on a weekly basis whereas the small TV repair man buys the odd component once or twice a month. Both are loyal customers and both purchase regularly - in their own way.

And this is the key point to make. If the TV repair man went for a month or two without purchasing, it wouldn’t be too far outside of his usual behaviour but if the big electrical retailer didn’t purchase for two weeks that would be a problem. Treating both the same when it comes to being lapsed (i.e. contacting them after six months of no activity) would mean potentially losing a lot of revenue as you would have six months without the big electrical retailer buying from you. Also by this stage, they’d have most likely gone to your competition so trying to reactivate them would be nearly impossible.

So as you can see, treating each of your customers as individuals is absolutely key to managing any lapsed customer programme. It removes the broad-brush approach and means that whenever a customer lapses or looks like they might, you’re on the case immediately and can hopefully stop them going elsewhere.

So how do you go about implementing a programme to address the issue of lapsed customers? Well one way would be to consider EWA’s “Critical Lag”.

Critical Lag is a programme designed and developed by EWA’s Customer Insight team to identify customers whose buying habits show the potential to lapse. It can then deliver customer specific communications to significantly improve retention, reduce churn and help to build brand loyalty.

In a nutshell, Critical Lag is a set of business rules and algorithms which can be deployed to a marketing database and used to determine when a customer has fallen outside of their usual or expected purchase behaviour. This will trigger a communication to the customer. The key thing to remember is that Critical Lag looks at each customer’s unique purchase behaviour and only triggers a communication when they cease – or change - that behaviour.

The communication that follows can be sent in a number of different ways, that’s really down to you and the type of products you sell; but as with all marketing campaigns, relevance is key. So perhaps an email designed to encourage customers to return or to promote relevant products. Segmenting your customers by value is also worth considering so the most valued customers (in terms of their value to you) would perhaps receive a phone call with an incentivised offer whilst other medium value customers might receive a simple “we miss you” email or text message.

To give you an example of where this programme has been successful, Critical Lag has been implemented by EWA for a retailer as part of their customer communication programme. Over a three year period the programme has increased annual revenue by around 7%, generated approximately £1,100,000 of additional orders and has increased customer retention by 20%.

So, as I’m sure you’ll agree, a lapsed customer may not always be truly lapsed and treating your customers as individuals will always deliver better returns than lumping them in with the herd.

But what are your experiences, is customer churn a major problem for your business, and are you acquiring fewer new customers than those that you lose? We’d love to hear your thoughts.