Not all customers are the same – their contribution to revenue and the cost to acquire or retain them varies. How then do businesses identify the right acquisition and retention strategy for their varied customers? Designing a marketing strategy without sufficient understanding of revenue/cost impact of each customer is like shooting at a target blindfolded.

 

Uncovering the economic value of each customer, also called Customer Lifetime Value (CLTV), is an effective first step to efficient marketing. Let us consider an example to understand this better. A health insurer that has customers’ CLTV and churn/lapse rate data can segment its existing customers. The four segments of this 2×2 matrix (X-axis: Lapse Rate, Y-axis: CLTV) will look like this:

Segment 1: High CLTV, High Lapse rate

Segment 2: Low CLTV, High Lapse rate

Segment 3: Low CLTV, Low Lapse rate

Segment 4: High CLTV, Low Lapse rate

 

Understanding the behavioral drivers of customers across these segments will allow us to develop marketing programs that drive profitable interventions with individual customers. For example, if there are more customers in Segment 1 (High CLTV & High Lapse), the organization should aggressively pursue a retention strategy to ensure they do not lose existing customers. Similarly, if there are more customers in Segment 3 (Low CLTV & Low Lapse), the organization should look at understanding the drivers of low CLTV to develop an appropriate intervention. In the case of this health insurer, low CLTV could be driven by high claims cost. This insight can help the organization focus on two specific interventions for customers in Segment 3 – Health and wellness programs for high-risk customers to mitigate claims risk, and differential product pricing to account for claims risk.

While any organization should prioritize interventions based on the spread across these segments, the interventions when rolled out may not resonate and gain traction as expected with customers. What could be wrong? Is there still a missing piece to this puzzle? The unequivocal answer is yes!

A simple segmentation exercise like this based on CLTV is a great start but does not throw any light on drivers of customers’ purchase behavior and hierarchy of needs. This means that any message delivered or intervention deployed may or may not resonate with customers as it is not aligned with their true behavioral motivations. To ensure customers engage with the marketing programs deployed, it is imperative for organizations to understand their expectations. Richard Thaler recently received a Nobel prize for his work in behavioral economics recognizing that humans can be nudged and the right nudge and the size of this behavioral nudge must be designed correctly.

Organizations can uncover customer expectations (or behavioral nudges) by doing a better job of understanding customer behavior. Behavioral analytics helps organizations go deeper into what truly matters to their customers, helping create actionable micro-segments based on customer behavioral profiles and the nudges they would best respond to. OSG’s Illuminate can accurately identify “how” and “why” customers make decisions and which nudges can help create better behavioral engagement. This hybrid data set results in a view that is not only reflective of past behaviors but is also highly predictive of future customer behavior. As a result, organizations can craft microsegment-based go-to-market strategies that are truly customer-centric and address segment specific needs. Stronger relevance leads to improved engagement from customers, enhancing success of interventions deployed.

A global insurance company saw 30% drop in churn and a 7% increase in revenue through growth opportunities identified by Illuminate.

We hope this information has been interesting and valuable to you. Please, feel free to share it with colleagues and other people in your network. We welcome discussing this topic further with you and understanding your specific challenges.

 

OSG Steps to Success

OSG is a “catalyst” that helps our clients be the best at decoding their customers’ decisions. Our clients have seen a minimum 20% improvement in customer engagement by implementing smart insights delivered using our behavioral analytics products.