Acquisition Cost

The cost of signing up a new customer.  Customer Lifetime Value (LTV) is often used to compute the maximum allowable acquisition cost.

 

Affinity  
The tendency for people who are similar in some respect to behave similarly in a statistically significant way in terms of future purchases.

 

Affinity Analysis
A process of finding non-obvious relationships between customer purchases. For example, people who buy snow skis may also tend to buy snow tires.

 

ANI
Automatic Number Identification. A system whereby you can learn the number of a person who is calling you on the telephone. Can be linked to a database to find the person's name and address.

 

Attrition Model
A model that predicts which customers are most likely to defect (i.e. to stop buying from your company). Usually expressed as a percentage of likelihood.

 

Attrition Rate
The opposite of retention rate. The percentage of customers [this year] who are no longer buying [next year].  The definition of [year] in this context may vary from calendar year to season-to-season or even some other interval when appropriate.

 

Average Order Value
The total revenue generated [from a marketing campaign, customer segment, etc.] divided by the total number of orders received.

 

Break-Even
The point in a business initiative when income equals expenses. Cell
In reference to lists, a cell is a group of individuals selected from a file on a specific basis and is typically used to provide a statistically meaningful unit for comparison to other cells in a given analytical context.

 

Churn
The practice of customers switching to another supplier based on special discount offers. Particularly used in the cell phone, utilities, banking and credit card industries.  Sometimes used interchangibly with defection and attrition.

 

Control Group

A group of customers who were not exposed to a particular promotion but are otherwise identical to those who were.  Control groups are critically important as the success of the promotion is measured by the difference in response rate of the promoted group to the control.

 

Conversion
The process of turning a prospective customer into a first time buyer or a first time buyer into a repeat purchaser

 

Conversion Rate
The percentage of responders who become customers.

 

Cost Per Inquiry (CPI)
Formula derived by dividing the total cost of a mailing or advertisement by the number of inquiries received.

 

Cost Per Order (CPO)
Formula derived by dividing the total cost of a direct marketing campaign by the number of orders received.

 

Cross-Selling
Selling related goods and services to a customer.

 

Database Marketing
The systematic application of analytics to customer data to build customer relationships Data Mining
The process of finding hidden patterns in data using analytical tools designed to detect subtle relationships from which rules for predicting future behavior or results can be inferred.

Decile

One tenth of a population, typically a mailing list.

 

Decoys (aka seeds)

Addresses placed on a list, often covertly, for the purpose of determining what promotions are mailed to the list, the time to deliver the mailing, and the delivery rate.

Demographic Segmentation 
Dividing the market into groups based on demographic variables such as age, sex, family size, family life cycle, income, occupation, education, religion, race, and nationality, for example. Direct Marketing
Marketing through various advertising media that interact directly with consumers, generally calling for the consumer to make a direct response such as making a purchase.

 

Direct Response Advertising
A promotion that seeks not just to provide information, but to generate an inquiry, order or visit.

 

Discount Rate

The amount by which any future dollar amount must divided to produce the net present value of the amount. The formula is DR = (1 + i)ⁿ where i = market rate of interest and n = number of years. The interest rate is often doubled in the formula to account for risk.

 

Frequency
The “F” in RFM.  The number of times an individual has (re)ordered over a certain period of time

 

House File

An organization's own file of active and inactive customers.

 

Key Code

A code a mailer assigns to a list, printed on each promotional device, for tracking purposes.

 

Latency 
The numbers of days that have elapsed between events (typically purchases).  It is calculated separately for each reorder (frequency), e.g. the latency between the first and second order is calculated separately from the second to third, third to fourth, and so on. 

 

Loyalty Program
A program to reward customers who continually use a company’s products or services

 

LTV
An abbreviation for Customer Lifetime Value.  The total profit or loss estimated or realized from a customer over the active life of the customer’s record.  The contribution to overhead and profit made by a customer during her total relationship with your company.  Used interchangeably with the acronym CLV.

 

LTD
An abbreviation for Customer Lifetime Duration coined by Deltalytics and used to describe the expected or observed lifetime of a customer or customer segment.  Within Deltalytics, LTD is treated proactively as a determinate value (patent-pending) rather than as the fallout from survival analysis. 

 

Mailing List
Names and addresses of individuals or companies with a common interest, activity or characteristic. Market Segmentation
The process of classifying customers into groups with different needs, characteristics or behavior.

 

Monetary  
The “M” in RFM, i.e. the [amount of money] spent on purchases.  This amount can be defined different ways to best serve any particular scenario.  Among others, monetary is sometimes treated as total lifetime purchases, total lifetime gross profit, or total spending or profit over the last x years.

 

Multis
Customers that have been purchased two or more times from a particular company, also referred to as multi-buyers.

 

Outlier

A value far from most others in a set of data; an observation that lies outside the overall pattern of a distribution (Moore and McCabe 1999); an observation that lies an abnormal distance from other values in a random sample from a population (where it is usually up to the analyst, or consensus process, to decide what is considered abnormal).   

 

Predictive Model
A model for predicting the likely response to a promotion.  A statistical exercise using transactional (sometimes in conjunction with demographic) data to forecast customer behavior (e.g. those most likely to defect).  Typically quite expensive, predictive modeling can be used to dramatically increase customer response rates and reduce attrition. Methodologies for doing so include Regression Analysis, Genetic Algorithms, Neural Networks, CHAID, CART and Deltalytics.

 

Predictive Modeling
Algorithms used to forecast consumer behavior. Product Category (aka Product Class)
An important element for segmenting and analyzing customer (initial) purchase behavior.  Customers whose first purchase was from a given product category tend to behave more like others who did the same than the general population.  This affinity can be used to more accurately predict future customer behavior.

 

Psychographic Segmentation
Dividing a market into different groups based on social class, life style, or personality characteristics such as wealth, sexual orientation, hobbies and interests.

 

Reactivation Program
A program which encourages lapsed customers to start buying again.

 

Recency

The “R” in RFM, it refers to how recently a buyer made a purchase.  It is usually the single most powerful predictor of future purchasing behavior.

 

Relationship Marketing
The process of building a relationship with customers which results in the customers becoming more loyal, buying more, and staying as customers; a marketing philosophy and associates practices designed to treat customers as individuals, build loyalty, and measure a program’s results on the basis of its contribution to long-term profits. Also called database marketing. 

 

Response Rate
The number of responses received as a percentage of total prospects mailed. A typical direct mail response rate to prospects is 1.5 to 2%.

 

Retention Rate
The percentage of customers who continue to make purchases from you in a second period, such as a year. If you had 1,000 customers who bought from you last year and 750 repurchased again this year, your retention rate would be 75%. Retention is closely tied to LTV. For example, a small boost in the Retention Rate can result in a very large increase in LTV.

 

Return on Investment (ROI)

The percentage of profit or revenue generated from a specific investment; a key measure of the success of any direct marketing activity, it is the total net profit divided by the total cost of the operation. ROI from an initial offer is often negative and, thus, entirely misleading. When long-term (customer lifetime) value is taken into account, it often becomes positive.

 

RFM (recency, frequency, monetary)

A method to predict the probability with which a selected group of customers will respond to a particular marketing campaign.  It does so by examining their recency (how recently they have purchased), frequency (how often they purchase) and monetary (how much they spend). Your best customers tend to be those who have bought from you recently, buy many times, and in large amounts.

 

Singles

Buyers who have only purchased once from a particular company.  Also referred to as one-time (1x) buyers and “one-shots.”

 

SKU

Stock Keeping Unit.  A warehouse term for the products that a company produces. Each product has its own unique SKU number.  Often used interchangeably with ITEM ID and ITEM NUMBER.

 

Universe
The total number of records on a list; or the total number of records within a requested segment.