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Article : Lapsed Customer Re-Activation

In today's competitive marketplace, the scramble for high-value profitable customers has never been so marked. The recent economic and financial markets instability has reinforced how vital it is to encourage repeat purchase and exploit cross-selling opportunities. Alongside this trend is the renewed understanding of the value of the lapsed customer. This article will draw on the findings of CDMS' latest research which discusses how key industry sectors are re-recruiting and re-activating lapsed customers.

Some organisations maintain that customers who have churned no longer represent an opportunity. Yet, studies show that there is at least double the opportunity to sell to a lapsed customer than to a new prospect. Indeed, often the best prospects for an organisation will be customers who have lapsed – anything from a consumer who has made a one-off transaction in the past to a historically frequent purchaser who has wandered over to the competition. Some may be customers that have been inactive for some time. This is particularly of true financial services customers who may be sitting on a dormant bank account or a credit card kept in the bottom of the drawer in case of emergencies.


Ian Hubbard
Director Of Data & Document
Services, CDMS


Or it might simply boil down to having forgotten to renew the annual non-mandatory insurance policy. Whichever category the customer falls in to, and wherever they fit on these sliding 'relationship' scale, lapsed customers are a valuable target group for the marketer.

So How Do The Different Industry Sectors Stack Up Against Each Other?
Telecoms companies emerged as the outright stars of this research: 41.9% of companies were believed to be highly effective at lapsed customer re-activation/recruitment, nine percentage points more than the next best sector. High customer mobility rates may partly explain the large proportion of telecoms companies that have succeeded in refining their win-back strategies since the consumer will perceive fewer obstacles to mobility. Rapidly maturing communications companies were blighted by churn rates. But simply grabbing serial switchers on the back of blanket advertising attractive introductory offers proved not to be a sound business strategy. Having had their fingers burnt, companies have adopted a more strategic – and clearly successful – approach.

Less than a third (29.2%) of credit card companies were thought to be highly effective at re-activating or re-recruiting lapsed customers. However, this proportion is likely to increase significantly over the next few years in a crowded market that offers little opportunity to differentiate on the basis of price. With a fifth of consumers opting out of making their electoral register details available to marketers, blanket mailers relying on very high prospect volumes for campaign returns are likely to find their business model adversely affected. Increasing competition will make it more important than ever for credit card companies to devote resources to winning back customers and encourage credit card use amongst the occasional user. New customer acquisition through rock-bottom introductory APR rates may prove imprudent, since existing customers will undoubtedly become disgruntled that their loyalty is seemingly unvalued and goes un-rewarded. This strategy is likely to lead to high defection rates as customers chase introductory offers. While consumers have been relatively apathetic in seeking competitive credit card deals, increasing publicity about meteoric customer debt coupled with rising interest rates will almost certainly push consumers to be more demanding in their selection of financial products.

With over a third (33.6%) of top retailers having implemented a highly effective re-activation/re-recruitment strategy, this sector ranked second only to the telecoms sector. Loyalty data provides retailers with detailed insights into the customer base, simplifying the process of spotting profitable customers (and those with strong potential), and focus marketing resources on re-activating them. Indeed. Some retailers may choose to ignore non-profitable or loss-making customers, effectively managing them out of the business. Retailers have been working hard in recent years to extract useful, actionable insights from the data generated by the ubiquitous retail loyalty scheme. The case of the supermarket that launched a loyalty scheme only to find that the data was not usable illustrates how crucial it is to have the data infrastructure to handle the additional data generated.

Banks were the least developed in the re-activation of lapsed customers; less than a quarter (23.8%) was thought to have a successful strategy in place to re-ignite faltering relationships. For too long banks have rested on their laurels when it comes to their customers. A minority has developed relatively sophisticated cross-selling strategies to lift individual customer value and increase consumer reliance on a single supplier of multiple products. As new entrants invade the market, the consumer has a far greater choice of banking supplier and product, and many will be prompted to become more financially aware – and consequently more selective. The recent spate of mis-selling allegations has hit banks where it hurts. Heavily publicised reprimands from the OFT, coupled with new legislation designed to make it easier for banking customers to switch, suggest that customer inertia towards financial services is unlikely to remain so marked. Banks would do well to pre-empt the inevitable rise in switching rates by acting now to improve customer retention strategies, while re-opening the communication channels with lapsed customers. Recent reports highlight growing customer dissatisfaction with the 'recruit then reduce' tactics used by some banks to attract new customers on the basis of an attractive rate, only to then slash the rate a few months into the new relationship.

The benefits of self-service (telephone and internet banking etc) are undoubted, yet over-reliance on remote channels reduces interaction, and makes it more difficult for frontline staff to spot likely defection. As remote media gain a firmer foothold, it will become essential for banks to analyse customer behaviour and pre-empt defection or inactivity. According to Booz Allen Hamilton research, 90% of relationships are made, and lost, in the branch. Such findings may prompt banks to take action to reverse the perception of branches becoming increasingly 'de-skilled'.

Well under a third of insurers were believed to have in place an effective win-back strategy (29.5%)With products generally due for renewal on an annual basis, one would expect a high proportion of insurers to be adept at re-activation. If a lapsed customer can be lured back with a tempting premium or enhanced service promise, they are likely to stay loyal for several years. And with the mergers and acquisitions in this sector rising, returning customers may represent significant cross-selling opportunities. Failure to pay sufficient attention to the crucial business of re-recruitment and re-activation is symptomatic of a lack of intermediary support from the underwriter. It is frequently observed that insurers have only a short window of opportunity to make a sale; lose that chance and there will not be another opportunity to recruit that prospect for a full 12 months. Despite this, and despite the fact that it is the broker that has the relationship with the lapsed customer, post quote follow up support (such as automatic prompts to re-approach prospects for whom quotes have been generated) is not widely provided.

The debacle over endowment mortgages has seen the industry come under fire for focusing on short-term sales with insufficient appreciation of their long-term duty of care to customers. This short-term approach is evident in the relatively low proportion of insurers that have in place effective re-recruitment strategies. Assuming the risk profile is sufficiently developed, historical customer records allow the insurer to quickly spot profitable ex-customers. The most pioneering firms have started to append a value score to customer records in order to segment the base with a view to offering terms and offers according to likely customer worth and potential.

A third (33%) of travel and airline companies were thought to be highly effective at lapsed customer re-activation. Travel and airline companies have come a long way in recent years and are now far more customer-centric in their product development and service delivery. The explosion in the number of budget airline carriers operating has evidently prompted a large-scale reappraisal of standards. Even the traditional up-market airlines have to compete on price in order to give the budget players a run for their money.

Similarly, the proliferation of online travel companies appears to have had a significant impact. Online travel research and bookings is one of the most common uses of the internet, and this had made the travel industry far more price transparent. One might surmise that those organisations that cannot achieve rock bottom process are investing in winning back previously profitable customers and conducting campaigns to remind past travellers of their latest offers and services.

The last two years have been a bleak year for the hotel industry and travel market as a whole. Foot and mouth, SARS, the Iraq war and the black cloud of terrorism have impacted heavily upon the industry. Declining bookings have made customer re-activation more pressing. As one of the greatest proponents of loyalty schemes it seems remarkable that so few (24.7%) hotels are putting the customer information gathered through such schemes to use in formulating re-activation and re-recruitment strategies.

Given that business customers make up such a large proportion of hotel bookings, it is imperative that more effort be expended in re-activating business customers. As business customers often travel regularly the opportunity to encourage re-activation and repeat business is the greatest here. Hotels with multiple branches will see an even greater uplift from a co-ordinated re-activation campaign. Room discounts, complimentary use of luxury leisure facility, free night offers, are all useful incentives to encourage a lapsed customer to reveal why they have not returned, proving a subsequent opportunity to remedy any cause for dissatisfaction.

Despite the much-publicized switching phenomenon, only just over a quarter of utilities companies (26%) were adept at re-recruiting customers, suggesting they are concentrating efforts on cross-selling to known profitable customers. Utilities companies now operate in a crowded market with a highly commoditised core product. This is feeding the ambition of utility companies to become suppliers of bundled home services. And, with the regulator actively encouraging consumers to switch energy supplier in order to get the most competitive deal, utilities companies may well have virtually abandoned the quest to win back serial switchers. As utilities move into the bundled home services market, they are apparently devoting more marketing resources to cross-selling ancillary products and services, rather than chasing lapsed customers of the core (low margin) energy products.

We have seen that industry sectors differ markedly in their approach to lapsed customer re-activation. But what measures are needed to successfully re-ignite flagging relationships? The fundamental prerequisite to any lapsed customer reactivation campaign has to be a solid understanding of the customer base, and that relies on rich, accurate data. Improving the quality and depth of the data held is the driving force behind an effective and efficient campaign management solution. This solution will deliver serious dividends in the form of an extended customer base. With these building blocks in place, marketers are then in a position to assess the customer inactivity and defection drivers. If the organisation has taken the decision not to expend marketing resources on loss-making or unprofitable individuals, lapsed customers may in fact be a product of this laissez faire approach. Database analysis may reveal lapsed customers are likely to be more effort than they are worth, in this case re-activation would be unproductive and even damaging. However, third party data could reveal some surprises; personal circumstances do change, and it may be that previously unprofitable customers now show far greater promise. Interrogation of historical customer records will reveal which customer segments are profitable, allowing marketing resources to be directed only at high value prospects. A satisfied lapsed customer is a 'warm' prospect and therefore represents much better value for each marketing pound. Incentivised response will go a long way to encourage lapsed customers to provide feedback. Astute marketers may choose to tie incentivised response in with re-activation, for example, by offering discount vouchers for their own product or service. In this way, not only is it possible to monitor response and log the data gathered, but also track voucher redemption as an early sign of re-activation. Product and service improvements are also a good 'excuse' to strike up a dialogue with dissatisfied customers. Market research has shown that well-handled complaints can pay off in spades, and re-recruited customers often become the most loyal customers of all.

The combination of dwindling prospect pools, fiercer competition and tighter budgets is forcing marketers to become smarter in their marketing activity. Businesses that channel a portion of their efforts into re-igniting relationships with potentially profitable lapsed customers will not only find their marketing budgets stretch further but will attract more loyal, and therefore more profitable, customers.


About Ian Hubbard:
Ian Hubbard is a Director of data and document services specialist, CDMS. Prior to joining CDMS, Ian gained extensive experience of sales, business development, delivery and management through senior executive positions with other organisations such as Acuma and Hewlett-Packard.

About CDMS:
With a 45-year pedigree in the direct marketing industry, CDMS is committed to helping businesses extract maximum value from their direct marketing communication: from data cleansing and enhancement to hosted campaign management; from billing and invoicing to fulfillment, CDMS provides the whole range of direct marketing services to ensure maximum campaign return on investment. CDMS has a diverse client base spanning many industry sectors.

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Published: Monday, November 29, 2004

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