On Hold for 45 Minutes? It Might Be Your Secret Customer Score.
On Hold for 45 Minutes? It Might Be Your Secret Customer
Score.
Retailers, wireless carriers and others crunch data to
determine what shoppers are worth for the long term—and how well to treat them
By Khadeeja Safdar Nov. 1, 2018 11:04 a.m. ET
Two people call customer service at the same time to
complain about the same thing. One waits a few seconds before a representative
gets on the line. The other stays on hold. Why the difference?
There’s a good chance it has something to do with a
rating known as a customer lifetime value, or CLV. That secret number is used
by all manner of companies to measure the potential financial value of their
customers.
Your score can determine the prices you pay, the products
and ads you see and the perks you receive.
Credit-card companies use the scoring systems to decide
what to offer customers who want to cancel their cards. Wireless carriers route
high-value callers immediately to their most skilled agents. At some airlines,
a high score increases the odds of a seat upgrade.
Secret Shopper Score
Companies size up their customers by using data to
generate a score, called customer lifetime value. Optimove, a marketing
technology provider, developed a simplified model to show how a hypothetical
apparel retailer might rate various customers.
“There’s no free lunch,” says Sunil Gupta, a marketing
professor at Harvard Business School who has researched models for calculating
lifetime value. “The more profitable you are, the better service you will get.”
These days, companies are resorting to all sorts of data
and scores to size up consumers and predict their behavior. Retailers use risk
scores to try to limit merchandise returns and prevent e-commerce fraud. There
are scores to measure the likelihood a person will become sick, cancel a
subscription or bad-mouth a company.
Everyone with a bank account, cellphone or online
shopping habit has at least one CLV score, more likely several. And most people
have no inkling they even exist, let alone how they are used, what goes into
them or how accurate they are. Unlike credit scores, CLVs aren’t available to
consumers and aren’t monitored by any government agency.
“There needs to be a public conversation around the
accuracy of the scores being used,” says Pam Dixon, executive director of the
World Privacy Forum, a nonprofit digital-privacy research group. “You can
essentially be accused of being cheap or a fraudster, and it may not even be
true.”
To determine how the scores are compiled and how they are
used, The Wall Street Journal interviewed data scientists who develop the
models and employees of the software and analytics firms that help companies
put them to use.
Most CLV score users contacted for this article declined
to comment on how they score customers, citing competitive reasons. Many say the
scores make them more comfortable offering costly services and products in the
short term because they are confident they will pick up more business in the
long term. Some say they aim to increase each customer’s lifetime value by
encouraging repeat business.
In some respects, the scores are just a high-tech version
of what shopkeepers have done for generations—make judgments on a customer’s
value based on how they look or behave. As far back as 20 years ago, academics
were publishing models to calculate the future value of customers.
Now there are hundreds of analytics firms that calculate
customer lifetime value, each with its own approach. Some of them put a value
on shoppers based simply on what they spend, while others use hundreds of data
inputs, adding and deducting points for demographic information such as ZIP
Codes or behavioral details such as the number of returns they make or when
they shop.
“Not all customers deserve a company’s best efforts,”
says Peter Fader, a marketing professor at the University of Pennsylvania’s
Wharton School who helped popularize lifetime value scores. His scoring method
is based on transaction history, which he says is all companies need to
determine how customers will behave in the future. This year, he sold the firm
he co-founded, Zodiac Inc., which performs such analysis, to Nike Inc.
The data that goes into a score can come from transaction
records, website interactions, customer-service conversations, social-media
profiles and third-party brokers such as Acxiom LLC and Alliance Data Systems
Corp.’s Epsilon, which sell information on such things as the number of
bedrooms in a house and the type credit card someone carries. Each piece of
data is weighted based on past patterns and perceived level of predictability.
Marital status is often factored in, with some companies
assuming that singles are better customers, and others, the opposite. Age also
is a common input, potentially penalizing older people because of their shorter
projected lifespans.
Some companies deduct points from shoppers who exhibit
costly behaviors. Banks sometimes take into account the calls people make to
customer-service agents or the number of times they visit branches. Online
retailers track shoppers who buy things only when they are deeply discounted.
People expected to cost more than they spend can have a negative score.
Computer systems sometimes tag customers as high-value or
low-value. Marketing staffers or service agents gauge interactions based on the
status. Vendors such as Zeta Global and Salesforce Inc. can automatically offer
discounts and other incentives based on the scores.
Phone service
At wireless carriers such as Verizon Communications Inc.
and Sprint Corp. , lifetime value can determine marketing offers and other
perks. At some carriers, high-value customers who are at risk of switching to
another carrier are prioritized and get routed to a top-rated call center.
Verizon and Sprint declined to provide specifics about
how they assess customer value. “The predominant way we route calls is based on
the reason for the call,” says a Sprint spokeswoman. She says customer lifetime
value is “one of many ways we guide customer interactions.”
Zeta Global, whose clients include wireless carriers,
generates scores using data points such as the number of times a customer has
dialed a call center and whether that person has browsed a competitor’s website
or searched certain keywords in the past few days. The firm says it has a
database of more than 700 million people, with an average of over 2,500 pieces
of data per person.
When a person’s “churn” score, which predicts his or her
chances of switching to another carrier, exceeds a certain threshold, Zeta’s
system flags that customer to a customer-service agent. The higher the
customer’s lifetime value, the more likely that Zeta will recommend responding
to the customer more quickly and offering free phones and other perks, says
David Steinberg, Zeta’s chief executive. “Most of this comes down to how you’re
marketed to and how you’re treated,” he says.
Apparel
Apparel retailers often compare a shopper’s lifetime
value with the cost of marketing to that person before deciding whether to woo
him or her and how much money to spend doing so.
“What CLV does is allows us to see beyond the day-to-day
to ensure we’re focused on the quality of the new customers we’re acquiring,
not just the quantity,” says Ed Boyle, senior director of performance marketing
at Bonobos, an apparel retailer acquired by Walmart Inc.
In a research paper last year, ASOS, an online retailer,
said it scores shoppers on over 100 data inputs, including a customer’s age and
location. Since ASOS doesn’t recoup delivery costs for returned items,
“customers can easily have negative lifetime value,” the paper said. The
company declined to comment on the paper.
Brad Birnbaum, chief executive of customer-service
platform Kustomer Inc., says some of his e-commerce clients use scores,
including CLV, to respond to email inquiries. “If you’ve got an angry shopper
with a high lifetime value, you might want to bump up the priority,” he says.
Shoppers with higher scores, however, won’t necessarily
get the best deals all the time, says Jerry Jao, chief executive of Retention
Science, which has worked for companies such as Target Corp. and Procter &
Gamble Co. Retailers sometimes withhold discounts to high-value customers until
they are at risk of losing them. “Why waste a 25% offer when the person is
going to buy anyway?” Mr. Jao says.
Cars
At auto dealerships, a high score can mean access to
loaner cars, preferential service slots and special events, says Scot
Eisenfelder, chief executive of Affinitiv Inc., which uses lifetime value to
create marketing campaigns for dealerships. The scoring helps dealerships weed
out costly customers. “This is what you call grinders—people who visit 16
stores to get the absolute lowest price,” he explains.
Mr. Eisenfelder says his firm develops scores by
crunching data on things such as previous car purchases, whether a household
has a teenager, where else a person has shopped and ZIP Codes, which can be
used as a proxy for income. Someone who has a Neiman Marcus credit card is
going to be more valuable for a car dealership than someone with a credit card
from a discount chain, he says.
Air travel
At airlines, CLV scores incorporate frequent-flier
information and other data. A high score can increase a person’s chances of
getting seat upgrades or better service, says Laks Srinivasan, co-chief
operating officer of Opera Solutions LLC, which works with airlines, retailers,
banks and other companies.
The firm’s scores can draw from more than 5,000 data
“signals” per customer, Mr. Srinivasan says, translating them into
recommendations for flight attendants, gate agents and other personnel. The
company tracks, for example, the number of times a person calls to complain
over the prior 90 days, which can affect the CLV.
An airline can compare how often a shopper complains with
his or her lifetime value and customer experience score, which measures
inconveniences such as number of times in the middle seat, flight delays and
lost bags.
“A high-value customer who had a real service disruption
and never calls to complain should be compensated more quickly than someone who
is complaining and costing time and money,” Mr. Srinivasan says.
Credit cards
To calculate lifetime value, credit-card companies
analyze spending behavior, payment history and credit scores, among other
things. “Banks know what you buy, and where and when you buy it,” says Arpan
Dasgupta, head of financial services and telecom practices at Fractal
Analytics, which helps companies analyze customer data. “It’s powerful data
that can be useful for CLV.”
The score can determine which customers receive credit-card
offers and other incentives. When customers call to cancel at a card company
such as American Express Co., their relationship with the issuer and past
spending behavior are some of the criteria used to determine what perks will be
offered to retain them.
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