A good customer relationship management (CRM) tool tracks each and every touch point between the customer and the firm, including the exposure of customers to marketing campaigns.
Current CRM tools, however, often produce static segmentation, which assigns customers to different loyalty levels such as not loyal, somewhat loyal and very loyal. These tools are limited in their ability to capture dynamic segmentation — or how the firm’s marketing efforts influence the customer’s movement between those levels over the lifetime of a customer’s relationship with the firm.
Professor Oded Netzer, with coresearchers James Lattin and V. Srinivasan of Stanford University, devised an econometric model for an improved CRM tool that analyzes a customer’s history with a firm and recognizes customer movement between levels of loyalty in response to marketing efforts.
The researchers observed alumni donations at Stanford University over a period of 27 years, identifying three levels of loyalty based on the frequency of donations: dormant, those who never donate; intermediate, those who donate infrequently; and active, those who donate frequently.
Universities focus the majority of their marketing efforts, such as reunions and e-mails, on active alumni. The researchers’ results showed that active alumni are likely to donate frequently even when their attendance at events or frequency of contact from the school is low, suggesting that increased efforts to cultivate this group would not lead to additional gains. Alumni in the intermediate state are more likely to donate after an interaction with the university — when interactions increase, so do their frequency of donations.
By capturing dynamic segmentation, firms can avoid misdirecting marketing efforts and can, instead, target the optimal customer — one whose loyalty can increase with targeted marketing efforts.