Bring 'Em Back
By Lisa Yorgey Lester
Reactivation models can maximize your efforts to woo lapsed customers.
We've all heard the maxim that it costs more to acquire a new customer than it does to retain one. The same logic can be applied to winning back inactive or lapsed customers. The inactive portion of your customer file is low-hanging fruit ripe for the picking.
However, not all inactive or lapsed customers are equal. There is little value in marketing to inactive customers who are not likely to respond. Based on the information you already have on your inactive customers within your database, however, a reactivation model can help you focus your efforts on those individuals who are most likely to return to the fold. This helps you reduce acquisitions costs and leverage the investment you've made in acquiring these customers in the past.
Quantify Your Attrition
Before you begin to build your model, you must first quantify and define what you consider to be attrition. Is it all customers who haven't made a purchase in the past 12 months? Is it all customers who haven't renewed a contract?
Your definition of attrition will depend on your company and the industry it serves. A bank, for example, may define attrition as a significant decrease in balances or a closed account. In retail, it may be all customers who haven't shopped in the past 12 months, but shopped during the previous 12-month period.
"Generally, you look at the frequency of current customer purchase behavior to try to assess the length of time where you can indicate someone as an inactive," says Kurt Ruf, vice president and partner, Ruf Strategic Solutions. For example, he explains, "If your current active clients have a median transaction frequency of every three months and you've got a whole base of customers at six months of inactivity—that's where you might draw the line."