Back to Gartner for Marketers Blog

Feel The Churn –Value Segmentation And The Art Of Knowing When You’ve Been Ghosted

By Ewan McIntyre | April 06, 2017 | 0 Comments

Ghosting: the practice of ending a relationship suddenly without explanation, withdrawing all communication

I’ve never been ghosted. Sure, there are people I’m not in contact with anymore– you lose touch with people for all kinds of reasons over the years. But no, I’m pretty sure I’ve never been ghosted.

Or have I?

Thinking about it, there was that time. I invested time and energy (and money) wooing that certain someone. And just out of the blue… nothing! In fact this has happened time and time again. It’s likely I’ve been ghosted thousands of times. And it’s always the same – you think everything is going great, and just out of the blue, you’re left for dead.

You may say this is, at best unlucky. I say, such is the life of marketing leader in charge of a digital commerce channel. The difference is, we don’t call this ghosting, we call it churn.

Dealing with Churn

You will lose customers, fact. Some of your customers never intended to have a long-lasting, meaningful relationship with you. Others lose interest over time. Others just get a better offer. Whatever the reason, the reality is that loyalty and longevity cannot be taken for granted, especially in digital commerce, where the opportunity to transact elsewhere is only a mouse click (or a voice search) away.

The trick is understanding the differing value profile of your customers – building a picture of those who are just interested in a hit and run, and differentiating them from those who are in it for the long haul. To do this, you need to do two things:

  • Understand the lifetime value of your customers
  • Build segments based on their value

Calculating Customer Lifetime Value

In “Understanding Value Segmentation — How to Identify and Build Strategies Around Your Highest Value Customers” (subscription required) I walk through the steps to calculate customer lifetime, and how to apply this to value segments. Here’s a very top-level summary of the process – you will need to determine:

  1. The cost of acquiring customers –measured by the total costs of marketing efforts to engage and convert new customers
  2. Lifetime value – evidenced by patterns of purchase behavior – how much customers spend, and how often
  3. The cost of supporting customers – for example, the cost of dealing with returns, or aftersales support
  4. Customer retention – the propensity for customers to churn, looking at patterns of behavior and satisfaction metrics

Calculating customer lifetime value extends beyond the traditional parameters of marketing. For example, data relating to the cost of servicing customers post-sale may sit in another function. To get an accurate measure of true value, you must collaborate to build a holistic picture of value.

Build Value Segments to Target Your Marketing Investments

Understanding customer lifetime value takes effort. And you’re already pretty busy, so why bother? Well, by understanding the differing value profiles of customers you can:

  • Build segments of existing customers that clearly differentiate short-term customers from long-term, loyal customers, and profitable customers from those that are a drag on profit
  • Use your segments to better direct your marketing efforts for existing customers, for example, minimizing efforts trying to build long-term loyalty with customers who are simply not interested in being loyal
  • Find new customers, using what you know about your segments to build lookalike audiences, so you can focus acquisition efforts on finding long-term, profitable customers

Want to Know More? See You in San Diego

If you’d like to know more about value segmentation, register for Gartner’s Digital Marketing Conference in San Diego on 10th to 12th of May 2017, and check out my session “Value Segmentation: Target the Right Customer to Improve Marketing Results”.

Leave a Comment