Counting customers to monitoring firm performance in attracting and retaining customers

Recently, many marketers are being worried about developing metrics that focus on individual customers. Increasing usage of CRM tools are indicator of such efforts/worries.

In order to begin thinking about managing individual customer relationship, a company must be able to count its customers. Definition and counting of customers will be different in contractual versus non contractual situation.

In contractual situation, it is relatively easier to find out how many customers are under contract at any point of time. Typical example could be a mobile company who are able to report almosyt exact number of direct customers. However, even such situation involve some amount of complication specially in situations where a contract covers two or more individuals. For example, does a family plan that inclused five phone but one bill be counted as one or five? Does a b2b contract with one base fee and charges for each of 1000 phones in use counted as one or 1000 customers? Does answer to these previous two questions depend upon whether individual users pay to vodaphone, to their company, or pay nothing? In such situation firms often select a standard definition of a customer (policy holders, members) and implements it consistently.

Another complication arises when an individual has multiple relationship with a single firm. typical example could be on individual having multiple insurance policies with same company. Many companies tend to give a unique membership number to a customer for all his relationship with company. This allows a company to know how many members it has at any given point of time. At the same time there are organizations who are interested in counting policies than actual number of customer although they do have personal informations of policyholder and they can derive actual number of customer. This depends upon strategy of the company - for example companies reporting (and maneging by) number of policies are more interested in selling policies than building customer relationship. A company has to prioritise as per their situation/strategy.

Another example of double counting could be electricity suppliers counting number of meters than number of customer. Counting number of meters could be good if your job is to install meter. But for a marketer that may not be the good way to view things. You market to customer and hence need a customer centric view.

In non contractual situations, the ability of the firm to count customers depends on whether customers are identifiable. If customers are not identifiable (like many retail store), firms can count only visits or transactions. This is somewhat similar to website page visits. Such transaction are not good representative of acual number of customers. In some instances firm do try to identify number of customers through various means - loyatly card, frequent flyier cards, websites that require registration. Even this is not free of problem - purchase behaviour of a customer in this kind of situation is sporadic. A web visit not necessarily mean transaction, person coming to store may not purchase each time and also quantity purchased may not be consistent. Defining current customers in such cases is very very difficult.

In non contractual situation, firms instead count how many customers have bought within certain period of time. This is the concept of recency - length of time since the last purchase. Firms in non contractual situation with identifiable customers will count customers of various recencies. For example, eBay reported 60.5 million active usere in first quarter of 2005. Active users were defined as number of users who bid, bought, or listed an item in previous 12 month period. They went on to report that 45.1 million active users were reported in the same period last year. "active users" suites well in concept of recency. Increase in active customer from 45.1 to 60.5 million could be seen as a good measures of how well firm maintained existing customer relationship and also, that there has been good amount of customer acquisition.