From the AFP Conference–Customer Lifetime Value, Customer Retention and Value Segments
Posted: 11/13/2009 5:26:12 PM by
Carrie Urban Kapraun | with 0 comments
I attended the Association of Fundraising Professionals’ Midwest Conference on Philanthropy yesterday and although the content of the conference was not sponsorship focused, there were some insights that were very relevant to sponsorship.
The opening session was led by Adrian Sargeant, the Robert F. Hartsook Professor of Fundraising at Indiana University. Even though the content of the session was focused on driving donor loyalty, there were several topics covered that are pertinent, and three that I would like to highlight. The concepts of retention and defection, lifetime value, and value segments all have a place in sponsorship. Because of the limited information available on some of these topics within fundraising, during his research Sargeant turned to insights developed on the consumer side.
The concepts can be thought of from both the property and sponsor perspectives (e.g., sponsor retention and defection, customer retention and defection, or audience retention or defection). Additionally, properties that understand these ideas can have more robust discussions with their sponsors. Although these concepts aren’t necessarily new, and are an everyday reality for a lot of sponsors, when you delve into what they really mean and the impact that they have, they are worth revisiting.
(Customer) Retention and Defection
According to Sargeant, in the world of donors and fundraising, if donor attrition rates are improved by 10 percent, it can improve revenue generated between 150 to 200 percent. However the reality is in fundraising, after five years, less than 20 percent of donors remain (UK). It is one thing to understand that if you lose a customer, you lose money. It is another thing to be able to document and quantify the amount of that loss, or in this case the revenue potential.
In the world of sponsorship, properties need to be thinking about how they can help their sponsors retain customers and understand the value of those customers. It is not always about new customers. Properties should position themselves as tools that help sponsors with customer retention. A property can position the activation opportunities it offers as a means for sponsor customer retention. A customer that participated in a property-related promotion is likely to stick around, and properties can provide sponsors with additional opportunities for them to communicate with their audience, another way to help keep customers. Additionally, properties need to apply this concept, if they haven’t already, to their own audiences. When armed with this information, properties can create a plan to retain their audience. Lastly, this also applies to sponsor retention. Sometimes properties get caught up in selling the next big sponsor when they should put just as much focus on the ones that have.
Lifetime value
On the topic of lifetime value, Sargeant gave some examples taken from Domino’s Pizza and P&O cruises. Domino’s Pizza calculated that the lifetime value of each of its customers is in the ballpark of $3,000. That information enabled Domino’s Pizza to look at its marketing budget differently. Instead of the marketing budget being based on whatever is left over after all other expenses are paid, it could be based on the lifetime value of the customer. Domino’s used this information to help justify an increase in their marketing dollars.
Also, apparently there was a woman that had spent more than 4,000 days on a P&O cruise ship, and no one at P&O knew who she was. Clearly, P&O should have identified her earlier on and recognized her for her loyalty to P&O. If they had, it would have likely further increased the number of days that she spent on the ship.
Properties should try to gain an understanding of the lifetime value of their sponsors’ customers. Properties can play a role in helping sponsors recognize and reward key customers. Lifetime value can also be used to understand a sponsorship’s return on investment (ROI), by not only looking at the immediate value, but also the future value of that customer.
Value segments
There were a few messages here. The first was the 80/20 rule, the thought that 80 percent of the money comes from 20 percent of the people. The second was to look at the future value of current donors (customers) and realize that some of them could have negative lifetime customer values. He stressed that the focus should be on indentifying characteristics of the best donors (segmenting) and using that information to market more effectively. He also mentioned that value can be more than just dollar value. For example, donors that volunteer or refer a friend add value in other ways and this should be taken into consideration.
By understanding the audience characteristics that a sponsor is looking for, a property can highlight how its audience fits within those value segments. This can be especially helpful for smaller properties because although the raw numbers aren’t as big, the characteristics of the audience and the value that they bring can tell another story. This is also very relevant for properties when thinking about their sponsor relationships. It is true that a property should try to retain its sponsors, but segmenting sponsors to understand how the 80/20 rule applies to its sponsor relationships can be a valuable exercise.
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Filed under: nonprofit, research, selling, sponsorship ROI, activation