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Product Description

The addition of the Internet as a commerce and communications channel has forced many companies into direct contact with their customers for the first time, and kicked off the accumulation of transactional information companies have never had access to before. This situation spawned a tremendous amount of demand in the marketplace for "solutions", including CRM, the newer CLM (Customer LifeCycle Management), CRP (Customer Relationship Planning), and all the related approaches such as 1-to-1 Marketing, Relationship Marketing, Customer Retention Marketing, and Customer Loyalty Marketing.

This is a very confusing situation for most people, because they lack experience using customer data for marketing, and have been led down the wrong path before. For example, the rush to capture demographic data completely ignored what experienced database marketing people know - behavioral data is much more powerful as a marketing tool than demographics ever will be; it is also more accurate and easier to capture. If you want to know the answer to behavioral questions like "will they buy or visit again?", demographic information won't help.

This fact may make things clearer for you: all of the data-related marketing hype boils down to tracking and understanding the customer LifeCycle. If you can understand this root LifeCycle idea, you can mold it to your needs and available resources and leave the marketplace noise (and costs) behind.

What is a customer LifeCycle? It is simply the behavior of a customer with your company over time. Customers begin a relationship with you, and over time, either decide to continue this relationship, or end it. At any point in this LifeCycle, the customer is either becoming more or less likely to continue doing business with you, and demonstrates this likelihood through their interactions with you.

If you collect data from these interactions (purchases for commerce, page views or log-ins for publishing) you can use this data to predict where the customer is in their LifeCycle - more or less likely to do business with you. If you can predict where customers are in the LifeCycle, you can maximize marketing ROI by targeting customers most likely to buy, trying to "save" customers who have declining interest, and not wasting money on customers unlikely to continue doing business with you.

Remote selling companies like TV Shopping channels and catalogs have been using a LifeCycle approach for years, and have developed methods for using LifeCycle information to increase profitability by driving customer sales higher while reducing marketing costs. It's a proven method, and it works with interactive customers very well. I know; as VP of Marketing and Programming for Home Shopping Network, it was my responsibility to maximize the value of TV, Internet, and Catalog customers. If you understand and can predict the LifeCycle of a customer, you can answer a lot of other important questions, including:

How can we compare the long-term effects on customer value of our different advertising approaches and product selections / pricing?

When will a customer stop buying or visiting and how can we most cost effectively delay this event?

How can we measure the impact on customer value of operationally oriented changes such as the implementation of CRM or changes in web site design?

What is the Lifetime Value of a customer compared with other customers and how do we increase it cost effectively?

My book (with free software application, more on this below) outlines a very simple method for creating and tracking customer LifeCycle metrics, and using these metrics to increase sales while reducing costs. There are no special requirements for implementing this method; you will use an Excel spreadsheet as the tool, and no programming skills are required. All you need are dated customer transactions, each having a customer ID.

The book explains in very simple terms exactly how to take your customer transactions, create a database of them in an Excel spreadsheet, and "score" each customer with LifeCycle metrics. These scores literally tell you where the customer is in their LifeCycle relative to all the other customers. Then the book shows you how to use these scores to dramatically improve the ROI of your customer marketing by choosing customers to target and customizing offers based on their LifeCycle scores.

Small companies (under 65,000 customer transactions, the limit of an Excel spreadsheet) can score all their customers by hand in under 30 minutes using an Excel spreadsheet. For larger companies (up to 100,000 customer transactions) or smaller companies with light technical capabilities, a MS Access application is included free (as a download) with the book. The application will import all your customer transactions and create the LifeCycle scores for each individual customer. You can then view the scores for each customer, choose customers to target for a campaign, and export the targeted customers for campaign execution.

If you run a larger business (over 100,000 customer transactions in the database), the business rules for scoring customers are described in detail and can be put into action with a simple query system. Customer LifeCycle scores will help you solve the "drowning in data" problem by allowing you to organize your customer data/reporting around the LifeCycle and future value of customers.

This approach paves the way for any CRM efforts you may be considering, because the scores allow you to establish LifeCycles and project Lifetime Values for your customers, two metrics critical to the success of CRM and forecasting the ROI of CRM implementation. Using the methods in this book, you can get your company "half-way there" and "practice" analytical CRM before you install it. No vaporware, no compatibility issues, just a proven behavior-based profiling method you can implement yourself and use to start making more money with customer marketing. Call it "CRM Lite".

For years TV Shopping and catalog companies have organized their marketing activities around the LifeCycle of a customer, and now they are paving the way on the Internet with very high success rates and profitability. Find out how they are doing it (and start doing it yourself) with this book.

Product Details

• Amazon Sales Rank: #2912503 in Books
• Published on: 2001-04
• Format: Illustrated
• Original language: English
• Number of items: 1
• Binding: Paperback
• 196 pages

From the Publisher
Here's some Frequently Asked Questions on Jim Novo's book:

Q: You say these techniques work for "any size business". How can that be? What kind of business does it work for?

A: The Drilling Down approach uses customer activity profiling. Online customer behavior is pretty much the same in a small or large business scenario; if visits or purchases are important to the profitability of the business, the Drilling Down approach works.

The tools used by each size of business are different, not the ideas driving their use. For example, a small business may be using MS Excel or Access to keep track of customers, and a large business would be using a CRM app. The small business would be exporting targeted customers to a file; large business would be using the Drilling Down ideas to build rules for the CRM engine.

That said, the Drilling Down approach is probably least useful in very high ticket B2B shops, where sales cycles are quite long and usually handled by salespeople. Drilling Down is a "direct to customer" approach, and works particularly well in online content publishing and retailing.

Q: What's an "activity-based" profile, and why is it important?

A: Activity-based profiles or models are more powerful than demographic profiles because they are about "action", they attempt to predict the future. Will the customer visit again? Will they buy again? Will they respond to a promotion? These are the types of questions activity-based profiles answer. You will not get these answers from knowing a customer is 45 years old, lives in New York, and likes cats.

That said, adding demographics to an activity-based profile can be very powerful, because the demos supply some of the answers to "why" the customer may behave in the way predicted by the activity-based profile. This allows you to write better copy for promotions and more carefully target groups of customers.

Q: What kind of customer data do I need?

A: The least data you need is a group of customer transactions from a single source (purchases or page views, for example) having a date of the activity and customer identifier of some kind. Any data you have beyond this just improves your ability to profile your customers.

Q: What methods does Drilling Down use?

A: Drilling Down uses derivations of the RFM method developed in cataloging and TV shopping for predicting the likelihood of a customer responding to promotions and judging a customer's value to the company. There are three important differences though. First, the original RFM model is a "one shot" model, taking a snapshot of customer behavior at a point in time. The Drilling Down method looks at customer behavior over time (Customer LifeCycles), which greatly improves on the original model. Second, interactive customers behave differently than offline customers, so the "classic" RFM approach has to be modified for use on the 'Net. Third, the original RFM model is difficult for people without a background in database marketing to deal with. The Drilling Down method simplifies the process to make it easy for people new to data-driven marketing to use, and adds the capability of using visual displays (graphs and charts) of customer behavior to aid in decision making.

Q: Why is the Drilling Down approach unique?

A: Most books or articles on using RFM techniques are difficult to digest and hard to follow. They show you the theory but don't teach you how to actually construct and implement it yourself. This book shows you how to actually profile and score customers, step by step, in simple language, with a spreadsheet (or any other program you want to use or write yourself to do the scoring - the business rules are provided). Then it shows you how to use these profiles like the big guys do!

RFM is just where it starts, though. This book extends the basic theories of RFM into a number of tools you can use to improve customer retention, measure the effectiveness of content changes to your site, put a valuation on your business and more.

Along this journey you will also learn how ROI, LifeTime Value, customer LifeCycles, and all the other little gems of data-driven marketing link together for a total picture of how marketing with customer data works.

Q: What's the output of all this, what do I get in the end?

A: In the most simplistic case, each customer gets a "score" to start off their profile. This score ranks the likelihood of a customer to respond to a promotion relative to all the other customers, and is a measure of a customer's future value to your business. The score allows you to rank your customers by where they are in the customer LifeCycle. As the book advances, you see how to use these scores in a lot of different ways, both alone and in combination with any other customer data you may have. The actual "physical" output favored in the book is graphs and charts, so you can "visualize" customer retention and defection, and pick targets for marketing campaigns by looking at these graphs and charts.

Q: What if I don't sell anything on my site? Can the book help me?

A: Absolutely. Any activity a customer generates (a page view, for example) can be used in profiling. Content only sites can benefit from using profiles to determine who their best customers are, what parts of the site they visit, and what areas could use improvement. Just because a page has high traffic doesn't mean your best customers are using it. What if you found out your "stickiest" customers actually hang out more in a low page volume area? This would have tremendous implications for the site design and content. Profiles can also be used to assess the effectiveness of changes made to the site. There are solid examples of these approaches provided in the book.

From the Author
Got customer data? Have you figured out how to turn it into increased profits for your company? If the answer is no, this book was written for you.

It doesn't matter if you are large company with lots of resources or a small start-up, whether you are an IT or marketing person, whether your tool of choice is a data warehouse or a spreadsheet, the toughest part about using your customer data to increase sales or reduce costs (or both) is figuring out where to focus your efforts. What data is most important to evaluate? How do I organize the data into reports that make sense to people and are actionable, reports that drive profitable business decisions?

Here is the secret. No matter what your company calls this use of customer data to increase profits - CRM Analytics, Relationship Marketing, Database Marketing, Behavioral Targeting - the three step path to success is:

1. Track customers using simple customer value metrics that really mean something to the profitability of your business, now and in the future

2. Set up early warning reports or automated "trip wires" to alert you to positive or negative changes in these metrics affecting your future sales and profits

3. Launch a marketing or service action with the specific customers flagged by your reports to either increase your sales, reduce your costs, or both

The Drilling Down book teaches you how.

Jim Novo

From the Inside Flap
I spend a lot of time in marketing-oriented discussion lists. If you do, you probably also sense the incredible frustration of people who keep asking about using their customer data to retain customers and increase profits. Everybody knows they should be doing it, but can't find out how to do it.

Consultants and agencies make this process sound like some kind of "black magic", something you can't possibly do yourself. I disagree. I think the average business owner can do a perfectly decent job creating profiles and using them to retain customers and drive profits. That is why I wrote the book.

This book is about the down-and-dirty, nitty-gritty art of taking chunks of data generated by your customers and making sense of it, getting it to speak to you, creating insight into what types of marketing or general business actions you can take to make your business more profitable.

We'll be talking about "action-oriented" ideas you can generate on your own to drive sales and profits, ideas that will reveal themselves by analyzing your own customer data, using only a spreadsheet.

We have all heard how important it is to collect customer data, to "know" your customer. What I don't hear much about is what exactly you DO with all that data once you have collected it. How is it used? What exactly is Drilling Down into the data supposed to tell me, and what am I looking for when I get there? For that matter, what data should I be collecting and how will I use it when I have it?

The key to answering these questions (and many more) is the Customer LifeCycle.

What is a customer LifeCycle? It is simply the behavior of a customer with your company over time. Customers begin a relationship with you, and over time, either decide to continue this relationship, or end it. At any point in this LifeCycle, the customer is either becoming more or less likely to continue doing business with you, and demonstrates this likelihood through their interactions with you. If you collect data from these interactions (purchases for commerce, page views or log-ins for publishing) you can use this data to predict where the customer is in their LifeCycle - whether they are becoming more or less likely to do business with you. If you can predict where they are in the LifeCycle, you can maximize your marketing ROI by targeting customers most likely to buy, trying to "save" customers who have declining interest, and not wasting money on customers unlikely to continue doing business with you.

The following outlines what you will learn and be able to do after reading the Drilling Down book:

What data is important to collect about a customer and what data is not

How to create action oriented customer profiles with an Excel spreadsheet and use these profiles to plan marketing promotions

How to use these profiles to define the future value of your customers

How to use these profiles to measure the general health of your business now and in the future

How to use these profiles to encourage customers to do what you want

How to increase your profits while decreasing your marketing costs

How to design high ROI (Return on Investment) marketing promotions

How to predict when a customer is about to defect and leave you

How to blow away investors with accurate predictions of the future profitability of your business

Before we get going, let me make some suggestions. Take it easy. Read the book slowly. Make sure you understand each section before you move on to the next, because each section builds on the concepts of the previous section. Important concepts are underlined or in boldface type. There are plenty of examples provided; please take the time to understand them.

Once you internalize these concepts, you won't believe how profitable your marketing will be when you do some Drilling Down. This book

covers decades worth of Data-Driven experience, valuable techniques from the beginnings of catalog marketing up through state-of-the-art techniques used in interactive retailing. It's a lot of serious material and no fluff; take your time reading it.

And if you like the book, tell your friends about it.

Customer Reviews

Excellent beginners guide to statistical marketing technique
This is truly a great guide. The author assumes no prior knowledge and walks you through many examples about how to do Recency and Frequency (RF) scoring, hurdle rates, Lifetime value and how to apply it to your direct marketing campaigns. I got a lot out of this book as is deals with the scientific nature of transaction and customer analysis.

A little pricey, but you can get the pdf from the website...

Priceless treasure
This is one of the most actionable book on Analytics I have seen in the market. Lots of specifics around scenarios which tell a layman how interplay between recency , frequency across various industries can be used to derive simple insights. One word of caution though. The RFM metrics have to be seen in the context of the business process cycle and the different rhythms of the industries they apply in. In short Jim makes the complex , simple .

Excellent resource for anyone who wants better customers
I've been pulling customer data since 1999, working it, extracting details about customer segment, but haven't realized how primitive my practice was until I picked up Drilling Down. Now I'm discovering so much more about my customers and those of my clients.

The only drawback is now my dissatisfaction with available Customer Relationship Management, Order Management, and related software, while Drilling Down makes it easy to get results; sometimes it seems the databases don't want to give it up. Thanks Jim!