Tuesday, September 16, 2008

Customer Recency

There is a site called the KPI Library that lists Key Performance Indicators for a range of business areas.  It's a community site of sorts so the KPI suggestions largely emanate from users (as far as I can tell).

It is somewhat of a strange concept - a whole bunch of unrelated business areas submitting performance management goals - yet seems to work.  Although the 'community' aspect has a way to go as I can't seem to find a lot of discussion about the KPIs on the site.

Which is a shame, as some of them merit more of a debate.

One that caught me eye was Customer Recency, defined as:
Recency is defined by the number of days or weeks since the customer has performed the action (purchase, visit, etc.) you are profiling. The more recently a customer has engaged in an action, the more likely they are to repeat the action, especially when encouraged to repeat by some kind of promotional effort.   
The definition is a little wonky, but it gets to an important aspect of customer engagement - how often they interact with you.

To use it properly, you need to normalize it by expected interaction time - so your goal as a food retail outlet is different to your goal as a vacation resort.  Yet in both cases more recency is generally better.

And as the definition points out, you can use the KPI for anything from a purchase, to a visit to a web site, to a phone call, etc.  Any point of contact.  

In fact, throwing all these contact points into a segmentation model and defining behavioral groups based on recency for certain activities is a powerful way to think about loyalty.  This type of analysis give you a window on your customer's 'expected relationship'.

An 'expected relationship' is the relationship your customer thinks they have with you.  They are calling you weekly, buying weekly, using your website daily - they really like you!  Do you know who they are and do you reciprocate in like?  If not, you run this risk of making them feel like the dork in school who chased the prom queen and got embarrassingly rejected.  

On the flip side, does someone log into your website once and give you an email address only for you to start treating them like a long lost friend - sending multiple emails with multiple offers etc.  An equally embarrassing situation and definitely not cool.

Managing the 'expected relationship' through interaction recency (and type) is a powerful way to connect with your customer base.  Or at the very least, managing it so the above embarrassing situations are less likely to happen. 

In the absence of asking customers what type of relationship they want - which is always awkward and not something you do to strangers so why do it to customers - measuring 'recency' is a core component of a Permission Marketing plan. 

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1 comment:

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