Customer Analytics with Aurelie Lemmens
Today’s guest on The Property Management Show is Aurelie Lemmens, an Associate Professor of Marketing at the Rotterdam School of Management, Erasmus University in The Netherlands, and Academic Director of the Expert Practice on Customer Analytics at the Erasmus Center for Data Analytics.
Dr. Lemmens is an expert on the topic of customer churn and has written peer-reviewed papers on the topic.
Defining Customer Analytics
What does customer analytics mean, specifically to a property management company?
Here’s the general definition of customer analytics:
The idea is to leverage as much data as you can gather about your customer. You’ll want a good collection of data at the point of customer acquisition and even before that – when they’re visiting your website. You want data about the customer when they’re signing a management contract or filing a complaint. You want to collect data on that customer when they’re saying something positive or negative about you and when they’re canceling their contract.
Leveraging all that data with sophisticated analytics can help you decide what the best action might be for your customers at each of those points in time that we mentioned. You want to find the optimal action to reduce churn and increase profitability.
Mentioning data and analytics can sound pretty technical. But, these churn analytics can help you better understand why your customers are leaving and whether it’s worth your time and resources to try to keep them.
Studying Customer Analytics and Churn
Two main points are important to remember from the study conducted by Dr. Lemmens and her colleagues.
- First is the notion of incremental lift. What will be the impact of your marketing intervention on the customer? What will happen with the customer that would not have happened if you did not perform a certain action?
This sounds easy, but it’s actually pretty complicated because it’s hard to observe what’s happening based on what you didn’t do. How can you see the impact of choosing to take one action and not another?
- Second is the notion that all customers are different from each other. You have to recognize and understand all the different types of customers you are working with. Only then can you design an action that speaks directly to Customer A and not Customer B, who will have their own actions designed based on who they are and how they behave.
How should you choose which customers to work towards retaining? That’s another takeaway from this study.
Those Likely to Churn, Those Likely to Stay, and All the Others
When companies think about preventing churn, they tend to focus on identifying the people most likely to leave.
That’s the first step. Then, they’ll figure out what they should do to keep them from leaving.
But, if they’ve already made up their minds on some level to leave, can you really manage to keep them? Is it worth your time and resources?
This is a natural reaction. It’s tempting to try and prevent people from leaving when we’ve identified that they’re likely to leave. But, this strategy could have you retaining customers that are hard to retain or maybe not worth retaining.
There are also your customers on the other end of the spectrum. They are happy, and there is a low probability that they’ll leave. You don’t need to do much to keep them happy. They’re already there.
Those customers in the middle are where you should focus.
There’s no reason to believe they’re planning to leave but there’s also no reason to believe that they’ll be with you for the long term. You’re not really sure where they are in terms of staying with you. Maybe they’ll consider leaving, but there’s more of a chance you can keep them.
Those are the customers who you want to reach with interventions. Predict what their level of responsiveness will be to those interventions.
Basically, you’re studying the customers who are on the fence.
Some Customers are Sleeping Dogs
Research has shown that you have a negative impact on half of your customer base if you target them. Half of your customers want to be left alone. They don’t need intervention from you, and if you bother them with constant emails or offers – you’re just going to lose them.
Some of those customers might also have forgotten that they’re unhappy, but when you intervene, you remind them of that unhappiness. They’re sleeping dogs, and if you keep contacting them or you keep trying to ensure you’re holding onto their business, they’re going to resent it.
To reduce churn and increase profitability, you need to figure out which customers are worthy of your intervention without a high risk of waking up those sleeping dogs.
How can you do that?
- First, you need to define what KPI you want to look at. Maybe sending your customers a $5.00 gift won’t make a difference now, but it will contribute to a long-term relationship. Decide what you want to measure.
- Once you know the KPI, the easiest thing to do is to have a documented trail of your effort. So, you’ll put half of your randomly chosen customers into Group A, and you’ll give them something specific. Maybe it’s a thank-you email with a $5.00 gift card. With the other group of randomly chosen customers, you’ll do nothing.
- Once you get the data that tells you what kind of impact that had on whether they renew a contract with you or increase what they spend with you, you’ll be able to make some connections and see how that action impacts your customer lifetime value.
- Compare Group A to Group B.
This kind of test allows you to see, on average, if sending the thank-you email with a gift was a good action to take. Which customers reacted? Which did not?
Analyze Who is Responding to Interventions
With this type of test, you can analyze who is responding to interventions and how it impacts customer lifetime value.
The beauty of this testing is that you get an estimate of how much profit you can generate once you roll out the campaign on all your clients. Figure out how much money you want to spend retaining all of your clients or most of your clients or some of your clients. The A/B test can be done on a small scale, and it doesn’t cost a lot to find out what works best.
Find out what your customers are reacting to in a positive way.
Maybe you’re a property management company owner and you’re about to offer renewals to all of your owners. You can decide if you want to send an email asking for renewal commitments, send no correspondence at all, or send an email with a gift, asking them to consider renewing for another year. The way your clients respond will tell you which method might work best for your company.
Remember what was mentioned earlier: all customers are different. You might be able to create categories of customers based on their similar responses to a test like this.
As a property manager, you have different customer groups already. There are investors who come to your company and don’t want to have a lot of involvement with how their properties are run. This is a Business-to-Business relationship that you’re managing. But, accidental landlords who have a single home to rent might need a different type of strategy. They don’t think of themselves as business owners and they may need more nurturing in their Business-to-Client relationship.
Each of those customer groups will also have their own reasons for churn.
Communication Fatigue and Communication Quality
Communication fatigue is real, and maybe your clients are tired of hearing from you.
Dr. Lemmens says this is possible, and it depends on the quality of communication. She gave an example of a charity she worked with, where donors were able to decide which project to give money to. By doing that, they had a sense of agency when they donated money. They could decide how their own funds were being used, so the communication was relevant to them because it involved projects they cared enough about to fund.
For property managers, you need to think about the quality of your communication as well. Those annoying emails are bad. Meaningful emails are good. When you have quality communication, it will help you retain clients, not hurt you.
You can no longer rely on automated notifications and consider that to count as quality communication. You have to engage with your clients and be willing to experiment with communication in order to find out what works and who likes what type of outreach.
Customer Lifetime Value and Analytics
Churn impacts customer lifetime value, and you have to remember that customer lifetime value is a forward-looking metric. It estimates future revenues. Two things make up that lifetime value:
- The revenue a customer brings in.
- The amount of time a customer stays with you.
You don’t know how much a customer will spend with you in the future. And, you don’t know how long they will stay. It’s only what you perceive.
Lower churn increases customer lifetime value, but lowering the churn KPI is only a small part of the story. What’s important is this: how much money is there going to be left on the table after you try to keep that customer? What do you have to spend to keep them for long enough to make the spend worth it?
In a more realistic sense, the past is predictable. You know what they have spent. You can use that information and take action based on what has already happened. It will help you decide how much a customer is worth in the future and it will cut down your churn.
Know your numbers, and don’t be afraid to dive into the data and analytics behind your customers.
There is a lot more we could talk about on this topic, and if you have any questions about our conversation with Aurelie Lemmens, please contact us at Fourandhalf.