Friday, July 27, 2007

“Walking Dead” Customers – Recall or Abort?

Guess the seemingly consistently inconsistent behavior of irregular blogging has been all the more apparent, and it has more or less been a norm for me to start my entry with this comment. Though I have been rationalizing this for some time now, I seem to have run out of reasons now…..traveling, work pressure, partying, net connection….anything else?

Nonetheless, I am glad that finally, something goes out at this place once again….and hopefully this one should make sense for the customers…er..readers of this blog… :)

Talking of customers, for every marketer, they are the source of bread and butter for him. He would do anything, and I mean anything, to keep them happy, to keep them coming, to keep them buying whatever he wants to sell….

Having said that, if that may be the case, are there a set of customers a marketer shouldn’t bother about, anymore? A set who you think you would not want to talk to anymore; if they need something, they would come themselves, and if they leave, so be it? Strange, isn’t it?

Surprisingly, there IS a class like that…at least for those who have this written in BOLD BLACK on their annual planner documents… “its either the bottom line or your bottoms!

So who are these step-kings, after all? These are those customers who you know are consistently disinterested in the big flashy pitches you have been making to them, who stare at your face with a expressionless discontent, a set who are still using your services, but today they are, tomorrow…might not be!

The “borderline customers” who are ready to defect to some other service providers, and are not keen to take any more services from you….or a more refined interesting term coined by the experts – “Walking Dead”. That’s what they are called, defined as …"customers who currently maintain service but whose next action will be to discontinue all services, an important economic consequence to the firm"

According to a recent article in Knowledge @ Wharton - "Beware the 'Walking Dead': Analyzing Customer Data from a Multi-Service Firm", this particular class of customers might just suck up your additional advertising and marketing dollars, without giving even a single penny back….they are still using your services, still there holding on to what WAS offered to them some time back, but don’t find anything that is being offered recently interesting, and just might be on the lookout for something “better” (the dangerous ambiguous word this is!)

Summarized from a detailed paper on how Customers manage their service portfolios "Modeling the Evolution of Customers' Service Portfolios" by Marketing professors David Schweidel (University of Wisconsin), Eric Bradlow and Peter Fader from the Marketing Department of University of Pennsylvania, this concept is akin to the basis for CLV, or Customer Lifetime Value, where the measure of putting customers in the “Walking Dead” category is nothing but the remaining CLV for them.

Few years back, Knowledge@Wharton had published another article by Wharton marketing professor Peter Fader on Customer Lifetime value “Which Customers Are Worth Keeping and Which Ones Aren't? Managerial Uses of CLV” Some of the learnings from that article are still applicable today.

“The goal is not only to identify customers, but to reach out to them through cross-selling, up-selling, multi-channel marketing and other tactics – all of which are tied to metrics on attrition, retention, churn and a set of statistics known as RFM – recency, frequency and monetary value

I wouldn’t delve into the details of the customer equity management as of now, but in a nutshell, though consumer profiling is based on strong assumptions and is highly intuitive, a basic framework can be built, based on the market segmentation, consumer purchase pattern and RFM measures – all critical to any CRM exercise; accordingly, marketing investment can be optimized. As part of this optimization exercise, the “Walking Dead” have been identified.

Coming back to the original paper, it classifies the customers according to the level of engagement they have with the service provider.

The first level is when you just start using the services of the company – you aren’t really sure about the credibility of the company and its offerings, so you want to try with the “minimum” risk, yet you explore what are the options with you, and what are the pros and cons of moving further with the offered services, etc.

Once you build some trust in the company that is when the customer enters the second level. It is here that the customer looks at the company more like a partner, as he/she intends to engage with the company on a long-term basis. So premium offerings are taken, and additional services are purchased. The relationship/partnership goes to a next stage – the state every marketer aspires to be in, with his customers, and wants this way all the time.

Alas, the story doesn’t always end the “Happily Ever After” way – and some customers start getting uncomfortable with their current portfolios. They either believe in something better outside, or something worse inside…..that is when they move into the final level….the state that is considered one state before they are “dead” (for the company) and so are called the “Walking Dead” - Services are dropped, scales are reduced, no more initiatives are taken, no new experiments or offers lure them…

When do you know which customers are “Walking Dead”?
According to the paper, these customers might want to shift, but maintain their current portfolio due to inertia. This is when their service levels get more or less constant. Consequently, it’s a matter of time when they would drop all the services.

A major flaw in most of the companies’ assessment of their customers is the assumption of customer behavior life cycle as a pattern – that customers are linear in their purchase pattern and move from one level to the next, and then the next. This is generally not valid, since customers skip levels and may also use multiple services at the same time. Thus, predictability of services should add another dimension for companies and factor these as well.

Interestingly, to address this behavioral predictability, Fader defines a concept of “co-purchasing map”, wherein all the services offered to a customer should be evaluated, and not each of them in isolation. (For Technical details on the calculations, please refer to the paper!). Thus, there might be services (offered by the same company or other companies as well) that act as complements rather than substitutes, since customers tend to take all services together

More so, it is important to view customers in terms of their entire history of purchasing decisions, not a single recent decision, since "the entire sequence of portfolios is informative of his current lifecycle state and future behavior," the paper states.

Coming to the point, with all this understanding, what are the options that we, as marketers, have with us, to get out of this, and get back to our numbers?

Marketers attempt to retain customers in Level 2 itself, and in a way, slow down the aging process (transition to level 3). For this, they use tactics like cross-selling, upselling and multi-channel marketing to augment customer lifetime value. Additionally, the findings in this paper state that such services should be extended ONLY to those customers, “who are likely to adopt new services, as well as those customers who are at risk for discarding some or all of the services to which they currently subscribe.

This “Risk for discarding” factors in the level of dependency on the existing operator/supplier/vendor. If the “switchover cost” for the customer is high, then inertia keeps him tagged to you. Else, there is an instant transition. At this stage, marketers have two options – either overwhelm the customer with attractive offers and appease him to sign up, making him further dependent on your services. Or, leave him to his own, until he says goodbye to you completely.

To conclude, when customers start unsubscribing to your services, an orange signal is triggered. But what is important to note (and inferred from the article) is that when such a thing happens, it is not automatically implied that the customer is moving out, or transitioning to another service provider. One needs to assess if he has taken up some other services from the same provider only through the “co-purchasing map”….If that is the case, he is not a “defecting” customer – he simply is exercising his options with you..

But even after all the optimistic assessment, if the customer seems to be looking for alternatives and does not seem to get too impressed with your dance, maybe its time to bid him goodbye….and show the walking dead…the path to the grave!

Marketing is mean, isn’t it!!! ;-)

[Photo sources: Choices, Walking dead pic and Child in Pumpkin patch. Special thanks to Steve for allowing me to use the pic of his daughter Melody, for the purpose of this entry – depicting the choice consumers have today! Thanks Steve!]
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