• by Brian Myers , Kevin O'Donnell , November 23, 2011

Got engagement? You’d better hope so. Customer engagement is an important indicator of marketing and value proposition performance. It takes on increased urgency in a recessionary environment that demands businesses get more value from existing customers (especially given the cost of acquiring new ones).

Effectively influencing customer engagement takes understanding how they engage, and what drives their behaviors, like the business’ and its competitors’ actions, natural customer characteristics, and changing category dynamics.

Typically, most businesses try to grow this understanding of customer engagement through more static, point-in-time approaches. They tend to classify present customers in segments based on here-and-now behaviors as revealed by database information captures.

But it’s more telling to dig into customer behavior longitudinally, to understand the variations in engagement patterns that occur over time. Moreover, first impressions are critical: customer behaviors in the initial stages of their relationship with the brand are key predictors of their future engagement. That makes it valuable to study behaviors of specific, defined sets of customers – cohorts – rather than merely the current base.

Consider this three-step process:

Step 1: Diagnose customer engagement. Pick a representative cohort of your customers to follow over time (e.g., three years). Use a simple, easy-to-understand customer engagement metric, such as revenue or number of transactions. Determine the patterns of engagement that exist in your customer base, using advanced analytics.

Step 2: Identify opportunities to improve engagement. With engagement patterns identified, you can grow your understanding of what makes customers tick by amassing information about those falling into specific patterns: attitudes and motivations; category behavior with your brand and competitors; experience across your channels; service experience; transactional behavior; and exposure and response to marketing efforts.

This all can be gathered through various forms of primary research and by leveraging various internal databases. It’s also important to understand how category dynamics have evolved over time. Analytics can also help determine the relative importance of different elements in driving improved levels of customer engagement. This, combined with inspired ideation, can lead to a host of tactics to improve customer engagement.

Step 3: Start realizing results and develop a test and learn agenda. Step 2 will typically reveal low hanging fruit that can be acted upon right away, but you’ll also come up with more complex ideas that will need to be tried out and evaluated. Develop an efficient test and learn plan that prioritizes the ideas and helps build a business case for the most effective ones

Here’s how a digital photo services provider put the steps into play. Facing intense competition, changing category dynamics in photo sharing, high levels of customer churn, and a growing reliance on price promotions to maintain the top line, it was under intense pressure to do more with its marketing dollars and improve customer engagement.

Customer engagement analytics identified eight different patterns that helped them better understand current customer engagement, and also dispelled some long-standing myths. For example, because significant revenues were produced during the holidays, it was assumed that a large portion of its customer base shopped only during the holidays. Yet, pattern analysis showed these shoppers represented only 7% of the total customer base.

The company also needed to gauge the relative effectiveness of its various digital marketing campaigns to enable greater customer engagement while reducing the marketing spend. Although campaign effectiveness was tracked, the reports utilized by the marketers didn’t provide the analysis that would yield deep insights. Gaining them required a longitudinal view of campaigns and how they drove business results via multivariate modeling.

For the first time, the company united marketing and customer service data to understand the impact on customer engagement. Not only did this quantify the likely business impact of customer service improvements, but also informed the marginal value of a dollar when invested in customer service versus marketing.

Customer engagement insights have allowed a 35% reduction in marketing campaign investments, yet resulted in a 10% increase in annual revenue. Non-performing investments were cut, and strong performers were bolstered through better targeting and focus on the most engaged customers. All told, the changes significantly enhanced customer engagement and topline results – making this a highly effective marketing approach. By organizing around the customer lifecycle versus acquisition channels, the company embraced a more effective marketing approach.

Smarter marketing is something all businesses want to see, especially when the economy is lackluster.  Taking a closer look at customer engagement, and across the lifecycle of the brand relationship, will yield deeper, more actionable insights that help make customers more valuable – and those marketing dollars work harder.