CUSTOMER

ACQUISITION
Contents

• Introduction

• Considerations for Identifying the Pertinent Metrics: Business Context

• Customer Acquisition

• Lead Generation Metrics

• Customer Activity Metrics

• Customer Value Metrics

 Section I
Introduction
 Introduction
Customer Relationship Management

• Customer relationship management (CRM) is a profitable business strategy that involves

combining internal firm processes with external networks in order to create and deliver value to
targeted customers.

• It provides high-quality consumer data that is made possible by technological advancements.

• The CRM is divided into three stages: Customer Acquisition, Customer Retention and Customer
Development.

Categories of CRM

Strategic CRM

It's a customer-focused marketing strategy for gaining and keeping successful customers.
Contd..
Operational CRM

Operational CRM is concerned with the automation of consumer-facing activities such as

sales, marketing, and customer service.

Analytical CRM

It focuses on the strategic or tactical use of customer-related data through intelligent mining.

Collaborative CRM

It employs technology to maximize the value of its company, partners, and customers across
organizational boundaries.
 Section II
Identifying The
Pertinent
Metrics As
Business Context
 Business Context For Identifying Metrics
B2B and B2C

B2B B2C

It focusses on the Quality of leads It focuses on the Quantity of Leads

It has a Larger Budget It has a Smaller Budget

B2B markets are characterized by individual B2C sales may be mass markets, where it is
businesses that deal in large more of a “volume” target,
value and volumes.
 Product Or Product + Service
• In the case of a Pure Product, such as software or apparel, the company makes a sale but does not
anticipate receiving any revenue. As a result of the particular transaction, the company receives a
one-time revenue.

• When a product and service are purchased together, the cost for the service component is one-
time, but the revenue stream associated with the consumption of the service component
associated with the product will be steady.

Product Life Cycle

• The Product's Life Cycle, which has many phases, should also be considered. Introduction,
Development, Maturity, and Decline are the four stages of a product's life cycle.
 Customer Life-cycle
• Acquisition, Retention, and Maintenance are the three phases of a customer's relationship with an
organization.

• Upselling and cross-selling are two techniques that the business will use to market
product/services to existing customers.

• Upselling refers to the practice of selling a consumer an improved product.

Ex: A customer who was looking to purchase a basic laptop, finally purchases a laptop that is from a
reputable brand with high-end computing, gaming and entertainment.

• Cross-selling is the practice of selling related goods alongside the main product.

Ex: A customer purchasing a refrigerator also purchases a stabilizer along with it.
Section III
Customer
Acquisition
 Customer Acquisition
••  It is primarily concerned with the acquisition of customers. Both existing and new customers are
involved in the acquisition process.

• Many factors must be considered when obtaining a customer, including profitability, likelihood,
customer value, promotional costs, and appealing schemes such as discounts.

• The following considerations that need to be carefully noted are:

Cost of acquiring the customer

Cost of maintaining the customer

The total revenue that will be obtained from the customer - R

The profit from the transactions undertaken with the customer - P

 Section IV
Lead Generation
Metrics
 Lead Generation Metrics
Click-Through Rate (CTR)

• CTR is a metric that determines how many people click on a call to action (CTA) and the percentage of
people who do so on any given ad, link, email, or landing page.

• CTR for advertisements, landing pages, and verification emails are only a few of the CTRs that need to
be monitored for Lead Generation.

• CTR can be calculated as:

(Total number of clicks/Total number of visitors) * 100

60 out of 120 clicks on the verification link in the email. CTR = 50%

Total Leads = 60.

(CTR) is an important metric in lead generation, particularly in paid ads.

 Conversion Rate (CR)
• The conversion rate (CR) is the percentage of leads/users who take a "relevant action” for
example, downloading a file, or making a purchase.

• It indicates the percentage of leads converted out of the overall advertising.

Example: The marketer had 60 leads from 5,000 advertisement viewers, the conversion rate would
be (60/5,000) = 1.2%

Costs

Costs associated with attracting customers or retaining CRM should be considered, since they are
difficult to monitor.

It is important to keep track of costs not only for acquisition but also for benefit estimation .
 Various Types of Cost
Fixed Cost which remains fixed over a period of time. Ex:- Investment in buildings, Developing a
website

Variable Cost which gets vary over the time. Ex:- Traffic acquisition costs, Electricity bills

Recurring Cost which keeps on repeating over a period of time. Ex:- Customer Maintenance Cost

Cost per Lead and Acquisition Cost The cost of a campaign, and the number of “leads” generated
will allow the marketer to understand the cost per lead.

Cost per Lead = Expenditure on leads/Total number of leads

Acquisition cost ($) = Acquisition spending ($)/Number of prospects acquired

Acquisition rate (%) = (Number of prospects acquired/Number of prospects targeted) * 100

 Section V
Customer Activity
Metrics
 Customer Activity Metrics
Defection Rate

Defection rate of customers is a function of the number of years that the customer remains with the company.

Average Defection rate (%) = 1/Average Lifetime Duration

Average Life time

The Average Life time duration may be calculated by following methods as follows:

Simple Average

The typical customer lifetime is the number of days between a customer's first order date and their last order
date.

Survival Analysis

Consider the group of customers who were acquired during a particular campaign and monitor the defection
rate of customers in that cohort to measure average customer lifespan .
 Survival Analysis
• Survival analysis is commonly used in management studies to construct credit scoring models
and estimate a customer's lifetime.

• A cohort is a group of people that are acquired during the same campaign and are used to
calculate the consumer defection rate.

• In the fields of biological sciences, sports, ecommerce, banking and finance, insurance, health
care, airlines, and telecommunication, where customer turnover is a major concern, survival
analysis is very useful.

• Event Timeline or Time Period, Time of Event Occurrence, Censoring/Censored Observation are
some of the terms that are commonly used in Survival Analysis.
Survival Analysis Contd..
Events

Occurrence of the event of interest. Example : Time to customer churn

Timeline or Time period:

The time that the customer was acquired till the end of the study period.

Time of event occurrence (T):

Random time at which the event may occur

Censoring/Censored observations:

During the study period, there is a fair risk that certain research participants will not experience/encounter
the event of interest. Censored participants are those who have been subjected to censorship.
 Survival Function
• The function is: S(t) = Probability (T > t)

when, S(t): The probability that a participant survives longer than a certain time ‘t’.

• When a customer has just been acquired then,100% of the customers will stay in the contract
just beyond t = 0. Thus,

S(0) = 1, at t = 0

S(0) = 1, at t = 0

It is assumed that T has the probability density function (PDF) f(t) and the cumulative distribution
function (CDF) as F(t). Thus, Survival function can also be defined as

S(t) = 1 − F(t) = P{T > t}

 Survival Function Contd….
•Hazard
  Rate It is also known as the Mortality rate that is, it gives the Information about the
Customers who are churned and leave the Company after acquisition. Hazard Function is :

h(t) =

Where, f(t) is Probability of Death

R(t) is Survival Function.

 The Kaplan-meier Curve
• With time on the x axis and Probability of Survival on the y axis, the K-M curve is a
downward sloping curve.

• When a Survival Function is not valid, the K-M Curve can be used to approximate it from
the observed data. The frequency of the event is indicated by a vertical decrease in the curve.

The KM Estimator which is used to estimate the Survival Function at time t, is given by
 Graphical Plot KM Curve
where,

ti = time when at least one event occurred;

di = number of events occurred at time t

di = number of subjects at risk at time t

 Cox Proportional Hazards Regression
• The Cox proportional hazards model is a regression model used in research to investigate the
relationship between consumer survival time and one or more predictor variables.

• The Hazard Function and the effect parameters, which describe how the hazard can change in
response to explanatory covariates, are the two parts of a survival model

• The hazard is exponentially related to covariates that are continuous

Mathematically, the Cox model is written as:

 Section VI
Customer Value
Metrics
 Customer Value Metrics
Size of Wallet

The Size of Wallet refers to the total amount of money spent by a customer on a product or service
category.

The sum of all sales made to the focal customer by all businesses that sell that form of product/service
is the size of the wallet.

Information on wallet size is difficult to come by and can only be obtained through primary market
research.

A broad wallet size denotes the probability of increased sales and benefit.

As an Instance, A consumer who spends an average of Rs.5,000 every month on groceries across
different grocery stores has a size-of-wallet that is Rs.5,000.
 Share of Wallet
The cumulative amount of money spent by a customer on a specific firm's product or service
segment is known as share of wallet.

The customer conducts transactions with a variety of companies, and her share of wallet is the
total sum she spends at each.

To understand Share of Wallet, the company requires two types of data: sales to customers and
wallet size.

Secondary sources cannot provide information on wallet size; only primary market research can
provide this information.

Information related to the sale made to the customer is available at the firm only
Example
Formula for calculating Share of Wallet is as follows:

Customer expenditure at a firm/Customer expenditure on a product category

A consumer who spends an average of Rs.5,000 every month on groceries across different grocery
stores has a size-of-wallet that is Rs.5,000. She spends Rs.1,000 at a specific store. Therefore, for
that store, her share of wallet is: 20%.

Share of Wallet is a very useful metric which is used for measuring the Customer Loyality.

The only Drawback is that it will not give information related to Future Revenue or Profit.
Share Of Wallet And Size Of Wallet
THANK YOU