Bonobos is a US men’s apparel brand launched in 2007. Bonobos has become the largest apparel brand ever built on the Web in the USA. Bonobos is a data-driven, customer-focused retailer that has always recognized the importance of making business decisions around customer lifetime value (CLV). Initially the marketing team had used Excel to compute CLV metrics but, as the company experienced rapid growth and its customer base grew substantially, this became prohibitively time-consuming and tedious and the analysis was not completed as frequently as the team would have liked.
Not having access to real-time CLV insights made it difficult for Bonobos to make agile decisions about customer acquisition. Bonobos then began to use analytics to compute the lifetime value of customers acquired through every marketing channel. This allows Bonobos to understand which acquisition channels are bringing in the most valuable customers, and optimize their acquisition strategy accordingly.
For example, Bonobos discovered that its Guideshops, service-oriented e-commerce stores that enable men to try on Bonobos clothing in person before ordering online, were bringing in customers with the highest CLV across all of its marketing channels. This insight encouraged Bonobos to expand its marketing efforts to support the Guideshops.
Bonobos also uses predictive analytics to identify their highest CLV customers as early as their first purchase. Bonobos then uses this information to ensure these highly valued customers get the attention they deserve. ‘Top customers’ receive additional services, such as handwritten thank-you notes from the Bonobos customer service team. Bonobos measured the impact of these notes on incremental revenue and repeat purchase rate, and saw a positive lift. Top customers also receive perks such as exclusive event invites and early access to new merchandise.
CASE STUDY 3.3
CUSTOMER ACQUISITION
prospects’ satisfaction with competitors’ offerings into their sales call records. Those who are less satisfied will likely show a higher propensity to switch, and may be worth targeting with an offer.
Affiliation data can also be used to guide customer acquisition. Customers may be members or otherwise associated with a number of organizations: a university, a sports club or a charity. Affinity marketers recognize membership as an opportunity. Banks like MBNA have led the way in affinity marketing of credit cards. MBNA, the organization and the member all benefit from the arrangement. MBNA offers a credit card to members of the organization. The organization receives a fee for allowing the bank access to its membership data. Members enjoy a specially branded card and excellent customer experience from the bank. Affinity groups include members of the World Wildlife Fund, fans of Manchester United and congregations of the Uniting Church.
SUMMARY
Customer acquisition is the first issue that managers face as they attempt to build a profitable customer base. There are three major decisions to be made: which prospects to target; how to communicate with them; and what offer to communicate to them. New customers are of two kinds. They are either new to the product category, or new to the company. In principle the best prospects are those that have potential to become strategically significant customers, but any customer that generates value over and above their acquisition cost is a net contributor. You will certainly want to recruit new customers that generate more profit than they consume in acquisition and retention costs.
Business-to-business prospects are generated in a number of ways, including referrals, interpersonal networks, online including social media, promotional activities such as exhibitions, trade shows and conferences, advertising, publicity and public relations, canvassing, telemarketing and email.
New customers for consumer companies can be generated from much the same sources as B2B prospects, but much greater effort is put into advertising, social media, sales promotion, buzz or word-of-mouth marketing and merchandising.
Operational CRM applications such as lead management, campaign management and event-based marketing are useful tools for customer acquisition.
CRM analytics underpin the success of these applications. The transactional histories of current customers can be analyzed and the cost-effectiveness of different customer acquisition strategies can be computed. By analyzing customer data, companies are better informed about which prospects are most promising, and the offers to make.
Predictive modelling can determine relationship-starter products, such as automotive insurance that is used to acquire customers in the personal insurance market. When sales have been made and the customer’s permission to use their information has been obtained, other products can be cross-sold, turning acquisition into repeat purchase and subsequently into customer retention.
UNDERSTANDING CUSTOMER RELATIONSHIPS
NOTES AND REFERENCES
1 Peppers, D. and Rogers, M. (1997). Enterprise one-to-one. London: Piatkus.
2 Hofmeyr, J. and Rice, B. (2000). Commitment-led marketing: the key to brand profits is in the customer’s mind. Chichester: John Wiley.
3 CEOExpress.com (Accessed 7 February 2014).
4 Godin, S. (1999). Permission marketing: turning strangers into friends and friends into customers.
New York: Simon and Schuster.
5 See discussion at: http://www.frankwbaker.com/adsinaday.htm.
6 Herbert Krugman claimed that three exposures was enough. See Krugman, H.E. (1975). What makes advertising effective? Harvard Business Review, March–April, p. 98.
7 Ehrenberg, A.S.C. (1974). Repetitive advertising and the consumer. Journal of Advertising Research, 14, 25–34; Barnard, N. and Ehrenberg, A.S.C. (1997). Advertising: strongly persuasive or just nudging? Journal of Advertising Research, 37(1), 21–31.
8 Lodish, L., Abraham, M., Kalmenson, S., Livelsberger, J., Lubetkin, B., Richardson, B. and Stevens, M.E. (1995). How TV advertising works: a meta-analysis of 389 real-world split cable TV advertising experiments. Journal of Marketing Research, 32 (May), 125–39.
9 Abraham, M.M. and Lodish, L. (1990). Getting the most out of advertising and promotion.
Harvard Business Review, 68(3), 50–6.
10 Buttle, F. (1998). Word-of-mouth: understanding and managing referral marketing. Journal of Strategic Marketing, 6, 241–54.
11 Groeger, L. and Buttle, F. (2013). Word-of-mouth marketing influence on offline and online communications: evidence from case study research, Journal of Marketing Communications, 20(1–2), 21–41.
12 Haenlein, M. and Libai, B. (2013). Targeting revenue leaders for a new product. Report no. 13–101.
Cambridge, MA: Marketing Science Institute.
13 Deloitte Digital (2013). Mobile Influence 2013: the growing influence of mobile in store. http://
www2.deloitte.com/content/dam/Deloitte/ie/Documents/ConsumerBusiness/2013_mobile_influence_
deloitte_ireland.pdf (Accessed 10 February 2014).
14 Naumann, E. (1995). Creating customer value: the path to sustainable competitive advantage.
Cincinnati, OH: International Thomson Press.
15 Buttle, F. and Kay, S. (2000) RAFs, MGMs and CRSs: is £10 enough? Proceedings of the Academy of Marketing Annual Conference.
16 LBM Internet, UK. Personal communication.
17 http://www.sglc.com/images/sia_sample-email.gif (Accessed 22 January 2008).
18 http://www.pqmedia.com/globalproductplacementforecast-2012.html (Accessed 12 February 2014).
19 http://www.pqmedia.com/ppsm2005-es.pdf (Accessed 20 October 2007).
20 Buttle, F. and Kay, S. (2000) RAFs, MGMs and CRSs: is £10 enough? Proceedings of the Academy of Marketing Annual Conference.
21 Lee, J. (1999). Net stock frenzy. Fortune, 39(2), 148–51.
22 Gurley, J.W. (1998). The soaring cost of e-commerce. Fortune, 138(2), 226–8.
23 Villanueva, J., Yoo, S. and Hanssens, D.M. (2006). The impact of marketing-induced versus word-of-mouth customer acquisition on customer equity. Working paper 06–119. Cambridge, MA:
Marketing Science Institute.
24 https://www.custora.com/customer_results/bonobos_predictive_customer_lifetime_value (Accessed 12 February 2014).
CUSTOMER ACQUISITION
INTRODUCTION
In the last chapter we explained that the customer lifecycle is a representation of the stages that customers go through in their relationship with a company, as seen from the company’s perspective. The core stages in the customer lifecycle are customer acquisition, customer retention and customer development. In the last chapter we explored customer acquisition.
In this chapter, we turn to customer retention and development.
The major strategic purpose of CRM is to manage a company’s relationships with customers profitably through three stages of the customer lifecycle: customer acquisition, customer retention and customer development.
A customer retention strategy aims to keep a high proportion of valuable customers by reducing customer defections (churn), and a customer development strategy aims to increase the value of those retained customers to the company. Just as customer acquisition is focused