Recent data compiled by my company, Optimove, concluded that, across different types of online businesses, former customers who returned to spend money on a website after a significant time away offered an economic potential very similiar to that of first-time customers.
Marketers can—and should—take advantage of this by identifying these “back from churn” customers and giving them special treatment (e.g., special offers and bonuses) just like companies commonly do with their new customers. That approach holds great potential to improve customer retention and maximize the customer lifetime value of this currently untapped (but very valuable) customer segment.
Here is how we came to that conclusion.
Tracking Customer Lifecycle Stages
Tracking the behavior of individual customers over time is one of the foundations of customer analytics.
Another is segmenting customers into relevant, trackable segments. One core type of behavior-based segmentation is customer lifecycle segmentation, which allows marketers to relate to their customers on the basis of the timing and intensity of customer interactions with the brand.
Marketers will typically divide their customers into lifecycle stage segmentations similar to the following: (Note: Names may vary.)
- Registered—potential customers who have registered on the site but have not yet made a purchase or deposit
- New—customers who made a single purchase/deposit during the past period
- Active—customers who made multiple purchases/deposits over a number of past periods
- VIP—customers who made the most purchases and/or spent the most money over a number of past periods
- Churn—customers who had been in the New, Active, or VIP stages but have not made any purchases/deposits during the past number of periods.
- Back from Churn (or FromChurn)—customers who have abandoned the business and later returned
Insight Leads to Opportunity
Within the data, the future lifetime value predictions for new customers and FromChurn customers were almost identical.
Therefore, a former customer who returns to the website after a period of inactivity offers the company an economic potential similar to that of a recently converted first-time customer.
The similarity of future value figures in the New and FromChurn groups reflects the fact that those customers tend to move among lifecycle stages in a very similar manner. This is the data on their average lifecycle stage changes from the same period:
That insight offers marketers and retention experts an opportunity to increase the retention and spend rates of these FromChurn customers. Just as you run marketing campaigns on New customers to improve their experience and provide incentives for them to continue spending, do the same for your FromChurn customers. The similarity in future value numbers indicates that those efforts will provide a similar ROI to this group as well.
Putting this insight into use, an Optimove client recently created a series of incentives aimed specifically at its FromChurn customers. These “re-incubation” campaigns were very similar to the offers it sent its new customers.
The result was a 23.5% improvement in FromChurn customers becoming Active rather than churning once again.
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Marketers and retention experts should start leveraging this insight by identifying their “back from churn” customers and giving them special treatment (e.g., special offers and bonuses) just like they do with their new customers.
This approach will help improve retention and spend rates, and ultimately maximize the lifetime value of a currently untapped but ultimately very valuable customer segment.