As more and more “new media” marketers get involved with database marketing applications the more important it becomes to remember some of the key lessons painstakingly learned by our direct marketing predecessors. Remembering to measure the performance of cohort groups is one of those lessons. (A cohort group is defined as a group of individuals with one or more common characteristics. )
In the world of direct marketing an enrollment date, or more accurately an enrollment period defines the basic cohort group. For example, all of the new customers that came on the database in the month of August, would be a cohort group. Later we will expand the definition of cohort groups to include attributes other than enrollment period.
Measuring the performance of cohort groups, or let’s call them enrollment groups for a little while longer, is the best way to monitor the performance of any direct marketing business that continually acquires new customers, new members, or new subscribers and is concerned with possible attrition. For all practical purposes that means all direct marketers. Yet not all direct marketers have systems in place that monitor cohort performance.
The chart below shows monthly attrition rates for individual enrollment groups and the average attrition rate by month for all enrollment groups (the last set of bars). A marketer looking at this graph would immediately notice that enrollment groups 14, 15 and 16 are performing well below the average behavior of prior enrollment groups.
Without enrollment group reporting a marketer would have to rely on monitoring trends in overall or average churn rates. (The average churn rate is defined by the number of attriters in a period divided by the number of customers at the start of the period.) Measuring overall churn will frequently miss trends that are due to changes in acquisition strategy or competitive conditions.
To be continued…