Effective Marketing To Maximise Customer Lifetime Value

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Competition in the telecoms industry is building daily, putting excessive pressure on marketing departments to entice, maintain, and up-sell customers. The savvy consumer market is driving price wars and diminishing the effectiveness of existing promotional techniques.

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Effective Marketing To Maximise Customer Lifetime Value

  1. 1. An Acxiom White Paper Effective Marketing to Maximise Customer Lifetime Value Acxiom UK June 2008 In conjuction with
  2. 2. Table of Contents 1 Executive Summary 3 Introduction/Context 5 Key Drivers of Lifetime Value 7 Efficient Marketing Spend 8 A Multi-Channel Marketing Strategy 10 Solution: Understanding the Customer 15 Summary and Conclusions Table of Figures 3 Figure 1: Marketing Effectiveness Dichotomy 4 Figure 2: Trends in Customer Spending Loyalty 5 Figure 3: Customer Lifecycle: Matching marketing initiatives to the phases 6 Figure 4: Examples of Effective Marketing Approaches 7 Figure 5: Customer Lifetime Value: How value is dependent on the acquisition costs and churn rates and ARPU 8 Figure 6: Multiple Marketing Channels 8 Figure 7: Customer Lifecycle: Matching marketing initiatives to the LifestagesC 9 Figure 8: Customer Lifecycle: Matching marketing initiatives to the individuals position on customer lifecycle 11 Figure 9: Technology Platform and Best Practices 14 Figure 10: Marketing Learning Cycle
  3. 3. Acxiom | White Paper Competition in the telecoms industry is building daily, putting excessive pressure on marketing departments to entice, maintain, and up-sell customers. The savvy consumer market is driving price wars and diminishing the effectiveness of existing promotional techniques. Couple this with a change in the consumers attitude to receiving marketing communication, now the time is ripe to reconsider the fundamental premise on which marketing strategies are based. In this paper, we promote a marketing approach which tailors campaigns to three stages of the telecoms customer lifecycle: acquisition, retention, growth. At the heart of these three stages lie three corresponding economic drivers – acquisition costs, retention costs and Average Revenue Per User (ARPU). We demonstrate how a slight manipulation in the drivers has a significant impact on the economic value. 1
  4. 4. Acxiom | White Paper Telco marketers are faced with a vast range of channels spawning from new digital media, viral effects, and elaborate loyalty schemes, along with more traditional print and ‘above the line’ media techniques. Our experience shows that consumers are treating a wider variety of marketing communications as information collateral resulting in the creation of a significant gap between the measurement of contribution and the overall effectiveness of their marketing communications. The new marketing challenge is to manage the effective mix of concurrent marketing touchpoints such that the consumer chooses to ‘push’ towards an organisation. Electronic communication is giving customers a new kind of power over the telecom giants. They are able to search, compare and select from an abundant source of data at lightning speeds. This ‘Google-will-find-it’ mentality and viral communication trends has led to a need to focus efforts more on customer initiated, ‘pull’ marketing practices. We urge Telcos to balance efforts from ‘push’ techniques A Marketing Opportunity Telcos generate a huge in favour of customer driven approaches as these are amount of personal significantly more cost effective, more targeted and more customer information: measurable. Pull based marketing empowers customers effectively harnessing this will ensure more and rewards marketers for being relevant. A successful targeted campaigns marketing organisation finds the correct balance between across multiple marketing channels ‘push’ and ‘pull’ marketing practices. Alongside banking, the Telecoms industry has access to one of the richest sources of personal data on customers. By adopting an optimal multi-channel strategy with the right tools, proactive operators can turn these sources into a marketing opportunity. Understand customer life stages Approach Focus on key economic drivers This approach necessitates significantly improved customer understanding than is typically the case. Gathering, analysing and applying this information thus becomes a vital starting point Match campaigns to life stages for an effective marketing strategy. The solution requires both a series of internal initiatives to achieve best practices and a technical platform (intelligent database and customer data integration software), which we describe in Section 5. Develop process to implement customer database solution 2
  5. 5. Acxiom | White Paper Introduction/Context The UK telecoms industry has been driven by mergers and Marketing Challenges acquisitions, product launches, technological advancements, • M&A regulatory requirements, aggressive marketing and fierce • New products competition, with non-traditional competitors emerging and • Technology advances new business models forming. Looking forward, we predict • Regulation further pains being caused by disruptive (i.e. free) IP-based • IP communication communcation models; customers are increasingly expecting • Bucket plans huge bucket plans, and subscribers to converged players Strong Competition such as Sky and Virgin Media expect heavily discounted line rental for multiple subscriptions. Telcos fight for market share by increasing subsidies, channel commissions and brand campaigns. The majority of marketing investment is focused on the acquisition stage, despite higher yields realised during retention and growth, where a customer’s ARPU can be maximised. This forms a sharp dichotomy between effort put in and value gained, reflecting an ineffective marketing strategy. Now that most markets are reaching saturation, it is time to re-balance the marketing effort to retain customers and grow revenues through increased usage and value added services. In this way the marketing effort will better reflect the customer value curve. Figure 1: Marketing Effectiveness Dichotomy High Customer Profitability Re-addressing the marketing effectiveness across the customer lifecycle Marketing Effort Low Acquire Retain Grow Customer Lifecycle 3
  6. 6. Acxiom | White Paper The need to redress the balance between acquisition, retention and ARPU is driven by the increasing gap between churn and ARPU, as shown in Figure 2 below. Figure 2: Trends in Customer Spending & Loyalty1 32 40% 35% Drivers of falling ARPU: 30 Average ARPU (Euros) 30% • Competition 28 Increasing gap • Regulation (e.g. roaming) 25% • New IP technologies 26 20% Drivers of churn: 15% 24 • Creation of MVNOs ARPU: monthly average UK mobile (Euros) 10% • Equalising of market share Churn: annual average UK mobile 22 5% • Number portability 20 0% • No brand loyalty 4 4 5 5 6 6 7 10 30 10 30 10 30 10 Q Q Q Q Q Q Q Despite these factors affecting the industry, Telcos have been slow to develop their customer insight strategy in line with their counterparts in financial services and retail. Banks and supermarket chains have shown with great success how adopting a customer- centric approach and understanding key drivers behind buying behaviour can increase the effectiveness of marketing campaigns and stimulate greater loyalty. 1 Analysys Mason Group 4
  7. 7. Acxiom | White Paper Understand customer life stages Key Drivers of Lifetime Value In the face of the market challenges, effective marketing can be achieved through re-evaluation of the approach taken to the three Focus on key economic drivers core areas of the customer lifecycle: acquisition, retention and growth. The key to success lies in pinpointing and manipulating the key drivers of these phases: acquisition costs, churn and Match campaigns to life stages average revenue per user (ARPU). Develop process to implement customer database solution In the diagram below, we show how the key drivers of lifetime value correspond to the stages of the customer lifecycle. Figure 3: Customer Lifecycle: Matching marketing initiatives to the phases2 CUSTOMER LIFECYCLE Acquisition / VAS / Additional / Brand Tariff Device Awareness Winback Content / Multi-play Upgrade Upgrade Bundle Service Phase 1 Phase 2 Phase 3 DRIVERS Acquisition Churn APRU Costs Analysys Mason Group 2 5
  8. 8. Acxiom | White Paper 1. Acquire: Grow market share through customer acquisitions SAC: Subscriber Acquisition 2. Retain: Reduce churn through upgrades Costs; total marketing and loyalty schemes spend divided by gross subscriber additions over 3. Grow: Increase revenue (ARPU) from core a given time period and add-on services Churn: We encourage Telcos to migrate from a traditional approach Customer turnover; proportion of subscribers to a fresh marketing model by ensuring efficient marketing leaving an operator during spend and producing better targeted campaigns. Below are a given time period some examples: Figure 4: Examples of Effective Marketing Approaches Phase Driver Traditional Approach Effective Marketing Approach Mass market land grab for Competitive pricing structures, 1. Acquire SAC market share for single e.g. bucket pricing plans Targeting communication service niche segments Activities to prevent churn to Address churn to substitute services, 2. Retain Churn similar competitors (fixed to e.g. VoIP, instant message, fixed fixed, mobile to mobile) mobile substitution Up sell new value added, entertainment 3. Grow ARPU Focus on voice and text and data services. Multi play converged approach, adding new core services 6
  9. 9. Acxiom | White Paper Understand customer life stages Efficient Marketing Spend Allocation of marketing budgets is a contentious and highly guarded topic. As such any spend must be justified by solid economic analysis Focus on key economic drivers and demonstrate physical returns on investment. By targeting just one of the three drivers outlined above, the impact Match campaigns to life stages of an investment can be tracked and quantified, and customer value optimised. The model below demonstrates how relatively minor adjustments to retention activity can lead to a significant increase in customer lifetime value. Develop process to implement customer database solution Figure 5: Customer Lifetime Value: How value is dependent on the acquisition costs and churn rates and APRU Standard Effective Phase 3: Grow Revenue / Cost Marketing Marketing Product marketing to ARPU €65 €70 stimulate revenue, Cost of Sale -€16 -€18 Increasing volume discounts Gross Margin €49 €53 ARPU Gross Margin % 75% 75% Phase 2: Retain Retention Costs -€5 -€6.5 Loyalty schemes, Operating Costs -€15 -€15 Lower churn churn prediction win Net Margin (pre SAC*) €29 €31 back activities Net Margin % (pre SAC) % 44% 44% Phase 1: Acquire SAC (One off) -€300 -€300 Increased Discount for bringing Upgrade Cost** -€300 -€500 acquisitions own handset, recommend Payback on SAC (months) 10.4 9.7 a friend offer, effective segmentation Churn 25% 15% Lifetime (Years) 4 6.7 Overall import: Lifetime Value (pre SAC) €1,380 €2,480 Higher Lifetime Lifetime Value (post SAC) €780 €1,680 Value Return on Investment calculation Increased retention upgrade cost -€200 Total increased cost -€715 Increased lifetime value €897 Increment from Effective Marketing €182 Return on marketing investment 22% In the effective marketing model, an additional retention upgrade and increased monthly retention activity is implemented. These relatively small actions have a significant impact: they increase the customer lifetime value over two-fold and give a high return on investment (35%). Strikingly, the analysis demonstrates how sensivitive the lifetime value is to these drivers: a 1% reduction in churn results in a 10% increase in lifetime value, whereas a 1% increase in ARPU leads to a 3% increase in value. Now that we have identified a focus for our campaigns, we can consider the channel options. 7
  10. 10. Acxiom | White Paper Understand customer life stages Focus on key economic drivers A Multi-Channel Marketing Strategy Within each of these three stages, marketers are faced with Match campaigns to life stages a plethora of marketing channels, see Figure 6 below. Develop process to implement customer database solution Figure 6: Multiple Marketing Channels CHANNELS EXAMPLES Customer Initiated Search engine inbound call centre, IVR, web browsing PULL Community Marketing Message boards, blogs, podcasts, customer reviews Viral Marketing Word of mouth, email, recommend a friend Mass Media TV, radio, billboard, magazine/newspaper, internet banner ads, sponsored links, production brochure, PUSH press release/conference, sponsorship Direct Media Message boards, blogs, podcasts, customer reviews Loyalty Word of mouth, email, recommend a friend The opportunity for Telcos to exploit these channels with effective marketing campaigns is demonstrated by the examples outlined below in Figure 7. Figure 7: Customer Lifecycle: Matching marketing initiatives to the Lifestages CHANNELS EXAMPLES • A customer searching for a contract from Orange on the Internet will be targeted with offers from Orange directly and resellers such as Carphone Warehouse PULL • Broadband comparison sites rate custoemrs service experience providing relevant insights for potential customers • Virgin Mobile’s “Fancy Free Airtime” scheme, rewarding customers to recommend Virgin as their mobile operator • O2’s music related sponsorship of the O2 Arena, events staged at the venue and promotion of unsigned bands • Mobile customers are sent ‘Vodafone paddport’ offers by PUSH SMS when roaming • T-Mobile’s ‘Flext’ campaign matches lifestyle branding with a tariff 8
  11. 11. Acxiom | White Paper Given the sheer number of channel options, it has become impossible and counter-productive to execute an all-encompassing campaign. As such the channel focus needs to reflect customer preferences. An increasing proportion of sales are a result of customer-initiated communications; marketing efforts need to reflect this trend. Figure 8: Customer Lifecycle: Matching marketing initiatives to the individuals position on customer lifecycle Phase 1 Phase 2 Phase 3 Acquisition / VAS / Additional / Brand Tariff Device Awareness Winback Content / Multi-play Upgrade Upgrade Bundle Service PULL Viral Marketing Community Marketing Customer Initiated d d d ren ren ren PUSH al T al T al T p tim p tim p tim Loyalty O O O Direct Media Mass Media We encourage marketers to migrate the channel mix from push media to customer initiated pull techniques. Pull marketing matches the marketing message so closely to the needs of the audience they do not see the marketing message as intrusive. 9
  12. 12. Acxiom | White Paper Understand customer life stages Focus on key economic drivers Solution: Understanding the Customer Understanding the customer, their needs, preferences and unique Match campaigns to life stages position in the lifecycle forms the basis of the effective marketing strategy being proposed here. Develop process to implement customer database solution Telcos can capture information on their customers from many sources, primarily: • Demographics (market data) • Usage history, communications preferences, location, presence (network monitoring) • Purchase behaviour (billing systems) • Direct interaction (via call centre and web) • Campaign responses It is essential to understand the customer’s purchasing journey and to capture information about the customer touchpoints centrally to quantify the interplay and effectiveness of each channel. Consumer browsing habits mean that an individual’s selection and purchase process involves cross-fertilisation from a variety of channels. Gathering, analysing and applying this information is crucial to being able to assess the relevant value drivers for each individual customer or group of customers. Despite this, manipulation of this data is often weak amongst telcos. Inadequate database and integration systems and poor working practices, lead to a lack of customer understanding and mistargeted campaigns, undermining the effectiveness of a campaign or entire strategy. To address this issue, we illustrate a marketing toolkit, with a technical platform at the core, supported by a series of critical success factors or best practices. 10
  13. 13. Acxiom | White Paper Best Practices The critical success factors, or best practices, for a winning marketing strategy are outlined below. These factors facilitate the implementation of a technical platform which consolidates customer and campaign information from the multiple touch points outlined in Section 2. Figure 9: Technology Platform and Best Practices 1. Channel interplay must ensure brand consistency and avoid product cannibalisation 8. React: the marketing tool selected must learn 2. Utilise purchasing from the campaign behaviour to select it supports marketing channel 1 8 2 7. Ensure there 3. Set up two-way TECHNICAL is a single view of each customer 7 PLATFORM Intelligent Database/ 3 communication to build a realationship CDI Software with your customer 6 4 5 4. Take more care over pull marketing - 6. Make customer it is cheap and data accessible at BEST PRACTICES highly relevant to all touch points the customer 5. Orientate marketing strategy according to the stage in the customer lifecycle Channel interplay must ensure brand consistency and avoid product cannibalisation An optimal multi-channel marketing strategy must begin and end with effective interaction between the various marketing channels and customers. Most importantly though, it needs to be tailored such that the consumers preferences are catered for. This can only be done if the data is centralised, accurate and available at all media touch points. Integrating customer information requires an internal initiative to encourage interaction and joint-planning between departments, as well as database sharing. Message consistency and relevence should be considered alongside achieving equal and appropriate exposure of customers to campaigns. 11
  14. 14. Acxiom | White Paper Utilise purchasing behaviour to select marketing channel Automated systems can indicate when a customer has been contacted, and how they have reacted to this and whether it would be suitable to contact them again. This kind of intelligence needs to be stored in a shared domain or central repository and drawn upon when choosing an appropriate channel for each individual. Set up two-way communication to build a relationship with the customer A recent survey demonstrated that 71% of people communicate with their service provider by phone; 25% at retail outlets; 4% on web/email 3. Being aware of this preference will contribute greatly to the effectiveness of a marketing campaign. Customer profiles should be referred to at every stage in the campaign planning and management to achieve the optimal content and channel mix. Feedback should be captured at each customer interaction point. Take more care over pull marketing – it is cheap and highly relevant to the customer Customer-initiated pull marketing tells you what your customers are interested in, providing instant profiling information. The key is to facilitate their research process in a way that brings your product to the foreground and highlights its benefits. Pull marketing works most effectively for an operator when the opportunity is taken to cross-sell or up-sell; for example the customer profile can inform call centre staff which products the individual will be most susceptible to. This therefore involves a mixture of software and training to ensure successful implementation. Orientate marketing strategy according to the stage in the customer’s lifecycle The marketing communication strategy will depend on the position of the individual in their customer lifecycle and the mix of previous marketing exposure. An intelligent database can detect at which point in the lifecycle an individual is and recommend a channel mix accordingly. Whilst being one of the most expensive marketing mediums, mass media is not always relevant for the majority of stages in the customer lifecycle. On the other hand, pull marketing requires far less capital investment, is highly relevant to the customer and applies to all stages in the customer lifecycle. 3 Wireless Profit: Empowering Mobile Channels to Cross-sell and Up-sell, November 2006 12
  15. 15. Acxiom | White Paper Make customer data accessible at all touch points In order to maximise the value of this information, it must be available in a comprehensible form at all touch points (including field sales, call centre and retail outlets), to allow customer recognition and ensure the utilisation of cross-sell and up-sell opportunities. Real-time transactions can be recorded so as to give almost instantaneous feedback. Ensure there is a single, up-to-date view of each customer Telcos should develop a single customer view, taking full advantage of the myriad of information available. Information must be gleaned from all customer touch points and can also be complimented by third party demographics to ensure a holistic customer profile. Once captured and enhanced, the data needs to be integrated across product, channel and segment to create a single view of the customer. This single view should include customer usage data, associated history, lifestyle and transactional data. Gartner claims that gaining a single view could result in a revenue increase of 48%4. React: the marketing tool selected must learn from the campaign it supports The outcome of the campaigns should be analysed and this information used to enhance the customer profiles within the database. In this way a learning cycle can be built into the marketing process. An automated Next Best Offers (NBO) solution allows the telco to capture the purchasing moment/opportunity. The best CRM solutions will allow the conducting of multiple, concurrent and highly targeted campaigns based on real time triggers and retention campaigns based on current usage behaviour and historic data. The value lies in following through on the initial campaign and refining the customer profile. Gartner: CRM Predictions Revisited (Jan 07) 4 13
  16. 16. Acxiom | White Paper This process is demonstrated by the marketing learning cycle: Figure 10: Marketing Learning Cycle The customer data integration tool learns Customer Data Integration from the marketing tool MULTI CHANNEL MARKETING STEPS New campaign design learns from the ROI of Design Select Gain Calculate past campaigns Campaigns Channels Customers ROI • Budgets • Stage in lifecycle • Target segments • Cost of CDI tool CONSIDERATIONS • Capabilities • Channel interplay • Customer value • Cost of campaign • ROI learnings • Brand objectives • Market share • Monitoring 14
  17. 17. Acxiom | White Paper Summary and Conclusions To date, traditional marketing techniques stem from allocating a budget and deciding upon the offer and medium before considering who might be receptive. It is clear that this trend needs to be reversed by creating smarter marketing solutions embracing customer-initiated techniques. This necessitates a step change in the way Telcos capture, manage and prioritise customer data. In this paper we have proposed best practices to implement an effective marketing solution, which will result in true channel integration from a strategic, operational and technological viewpoint. Once this has been accomplished, a suitable mix of channels can be chosen depending on customer preferences and position in the lifecycle. Customer data integration allows more than just an assessment of the effectiveness of a single campaign (i.e. retrospective information); it facilitates all of the steps needed to implement an effective marketing solution. A good return on investment is achieved through understanding the key drivers in the customer lifecycle and matching campaigns to each phase of the customer journey. We have demonstrated how, by focusing on just three indicators, highly targeted campaigns can have a significant impact on lifetime value. We recommend an effective marketing strategy should incorporate the following strategic initiatives: • Understand the customer’s position within the lifecycle • Understand the value drivers within each phase • Tailor campaigns to each phase • Migrate efforts towards customer-initiated, pull marketing • Capture data from all customer interaction points • Implement a well managed, learning database solution, providing a consistent single customer view As each Telco will be targeting differing segments with customer bases at various stages in the lifecycle, a diagnostic approach will help create a tailor made solution. 15
  18. 18. Acxiom | White Paper About Acxiom At Acxiom, we make information intelligent. As the global leader in customer information management, we transform data into actionable business insight – and we do it better than anyone else. Our enterprise information solutions help the worlds largest and most successful companies increase revenue, reduce cost, improve profit and lower risk. Working as a trusted partner, Acxiom provides not only outstanding service and results today, but also proactive ideas and innovative solutions to ensure our clients continue to succeed tomorrow. Powered by superior data, technology, services and industry expertise, these multi-channel, client-centric solutions enable better business and marketing decisions that enhance customer acquisition, retention and value. Our lines of business include: Customer Data Integration (CDI), Data Products, IT Services, Digital, Risk Mitigation, Direct Marketing and Consulting 16
  19. 19. For more information about Improved marketing solutions visit our website at www.acxiom.co.uk, email us at telecoms@acxiom.com or call: +44 (0)20 7526 5100

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