Back in his days as director of member services at Daviess-Martin County REMC, Ken Frye was a marketing visionary. Among other things, his leadership helped pull several co-ops together to begin customer database marketing programs several years ago, contracting with Inside Information to provide database services to them.
Now the General Manager at Daviess-Martin, Frye is responsible for the co-op’s overall service to nearly 8,000 customers around Washington in southern Indiana, but he still has a vision for the co-op’s marketing and customer service.
“Co-ops have always said that each individual customer-member is important,” said Frye. “That’s why we got the database marketing effort going, so we could identify characteristics of each unique customer and communicate with them. Plus, it’s helped us take an even more professional approach to our marketing by quantifying the lifetime value of our customers.”
In 2001, the average residential customer at Daviess-Martin paid $1,063 in electric bills, based on RUS Form 7 filings. Projected out over a 25-year period and discounted to net present value, the average residential customer is worth $18,517 in lifetime gross revenue to the co-op.
Frye says calculating customer lifetime value (LTV) is extremely important, because it helps demonstrate how marketing in order to achieve satisfied, long-term customers is a valuable investment. He recommends that every co-op include the LTV calculations as part of their strategic database marketing planning.
As part of its database marketing services to Daviess-Martin, Inside also quantifies the payback from individual co-op products and services.
For example, a targeted direct mail letter campaign conducted during the first quarter of 2002 resulted in the installation of 24 new security lights. Each unit has a fifteen-year net margin value of $777 to the co-op, meaning that the database marketing campaign returned $18,648 in lifetime margin value — a ROI (return on investment) of more than 8 to 1!
What’s more, based on the overall LTV calculations, those 24 customers are worth $444,408 in lifetime gross revenue to the co-op.
To take that a step further, the co-op’s database surveys identify 4% of residential customers who would switch power suppliers if given the opportunity. The loss of even that small 4% group would represent a revenue decrease of $313,585 per year for the co-op — or nearly $5.5 million in lost lifetime revenue.
