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Wednesday, April 13, 2011
How to Wake Up Dormant Customers
Maintaining the relationship with a customer is a costly exercise, and not all the customers provide the same value to an organization. There are some customers who buy little, the value of their purchase is low and this is unlikely to change, regardless of the type of stimuli. The organization loses money by investing in this type of relationship.
Then, there are other customers with whom a stronger relationship and better customer interaction would result in more profitable relationship and higher value to the organization. These two groups of customers differ in their buying potential.
Recently, I was tasked with providing assistance to one financial company with the goal to estimate purchasing potential of about a million customers who have rarely been contacted in the past.
Due to the prohibitive cost of the acquisition programs, and the fact that it is cheaper to sell to an existing customer than to a newly acquired customer, this South African financial organization has decided to re-acquire a segment of their dormant base that was rarely contacted in the last 5 years. The intention was to use advanced analytics to separate customers whose buying potential was spent, from the customers who would still respond given appropriate marketing stimuli.
So, this was two-step process. On a first step we needed to quantify customer buying potential, through building simple “look-a-like” model, which would assign probability to purchase. So for customers with potential above a specific threshold we needed to produce cross-selling model which would give us a probability of purchase of specific product. After that was done, we were not only able to isolate customers who still had buying potential, but moreover – we were able to tell which product should be offered to which customer so that this potential is realized.
After modelling was done, we have done some pre-implementation testing which was successful, and that opened the door for full-on implementation. About 12 months later, collected numbers have indicated that 24% off dormant segment was re-activated.