Techniques for managing customer activity and value

Within the online customer base of an organisation, there will be customers that have different levels of activity in usage of online services or in sales. A good example is a bank -some customers may use the online account once a week, others much less frequently and some not at all. Figure 6.9 illustrates the different levels of activity. A key part of e-CRM strategy is to define measures which indicate activity levels and then develop tactics to increase activity levels through more frequent use. An online magazine could segment its customers in this way, also based on returning visitors. Even for companies without trans-actional service a similar concept can apply if they use e-mail marketing - some customers will regularly read and interact with the e-mail and others will not. Objectives and corresponding tactics can be set for:

• Increasing number of new users per month and annually (separate objectives will be set for existing bank customers and new bank customers) through promoting online services to drive visitors to the web site.

• Increasing percentage of active users (an appropriate threshold can be used - for some other organisations could be set at 7, 30 or 90 days). Using direct communications such as e-mail, personalised web site messages, direct mail and phone communications to new, dormant and inactive users increases the percentage of active users.

• Decreasing percentage of dormant users (were once new or active - could be sub-categories), but have not used the service or responded to communications within a defined time period such as three months.

• Decreasing percentage of inactive users (or non-activated) users. These are those who signed up for a service such as online banking and had a username issued, but they have not used the service.

You can see that corresponding strategies can be developed for each of these objectives. Another key metric, in fact the key retention metric for e-commerce sites, refers to repeat business. The importance of retention rate metrics was highlighted by Agrawal et al. (2001). The main retention metrics they mention which influence profitability are:

• Repeat-customer base - the proportion of the customer base that has made repeat purchases;

• Number of transactions per repeat customer - this indicates the stage of development of the customer in the relationship (another similar measure is number of product categories purchased);

• Revenue per transaction of repeat customer - this is a proxy for lifetime value since it gives average order value.

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