In the past analytics has tended to focus on what’s easy to measure. In E.ON’s case, this would mean measuring communications effectiveness against acquiring new customers only. Customer acquisition is however only half the story for E.ON (one of the UK’s biggest energy providers) – it is also key that communications work to retain customers as well.
E.ON’s marketing objectives are not based purely on customer acquisition; keeping customers is of equal importance. Unsurprisingly long standing customers are worth more to E.ON than new ones, and any use of econometrics would need to reflect this. Justifying a marketing budget on both the value of customer acquisition and retention should provide a much stronger business case, than new customer acquisition alone. What was needed therefore was an econometrics framework that would measure comms effectiveness against both sales and the more difficult measure of retention.
Despite the difficulty in doing so, we successfully created a robust econometric model of weekly customer losses. Econometric modelling of customer retention is not an established practice as it is for sales. Working closely with E.ON, MediaCom Business Science developed the model, capturing all the relevant drivers such as relative pricing, market PR, competitor advertising, and crucially E.ON’s own communications spend. We were successfully able to isolate the number of customers retained by E.ON’s communication campaigns, who without being exposed to the activity would have otherwise left. This model of losses sits alongside a number of more conventional sales models,
which quantify the equivalent effect on driving sales. The finance team at E.ON developed Life Time Value measures for both new customers and customers retained, enabling us to calculate each campaign’s ROI.
A new way of delivering the business case for communication budgets with ROI judged against both acquisition and retention objectives. Being able to quantify both the increase in new customers from its communications, plus the volume of customers retained, puts E.ON in a strong position. If we looked at the effect on new business sales alone, as many businesses would have, incorrect decisions would be made regarding the development of E.ON’s marketing strategy. Econometrics can now be used to make decisions that drive maximum overall value for the business, focusing on retaining E.ON's most valuable customers.