Customer Analytics

The perception of direct marketing in the current market is that it is “many channels.” But that’s not the reality. In reality those many channels really boil down to just two: email and catalog. To make this “dual channel” approach work it needs something even simpler, which is a single view of the customer. In short, we have a brain with two sides, and of course that brain works best when one knows what the other side is doing. Additionally, we need to recognize that while one side of the brain has its strengths so does the other side.

 

The single view should enable analytics for the purpose of marketing. The focus of those analytics should always be our customer. Now, we all know that I am not like you and you are not like the person sitting next to you and so on. The analysis will show us how different we are. Yes, there are demographic differences and psychographic nuances, yet what really matters to your business is behavior. My behavior may be motivated by discounts (frugal Yankee) and you may be driven by quality (you want the best.) Knowing where a customer is along that specific lifecycle will also impact what they buy. If I’ve made 10 purchases and that person sitting next to you is another frugal Yankee, and they’ve only just made their first purchase, then we will most likely purchase something similar, yet different. The single view and the analysis will provide the strategic insight that can be translated down to actual tactics.

 

This insight gained from preference, lifecycle and actual behavior will also help to show which channel is optimum for marketing. Because of the price, we are tempted to use email for all customers, all the time. Sure, every campaign will generate an average level of incremental sales, while causing only “some customers” to opt-out. But that is a shortsighted and in the end economically inefficient way to view email for catalog marketing. Every customer that has engaged at the level of joining your email list is a good customer. When you lose a few because of an irrelevant email, those few build up over a short period of time. Eventually it will drive down your brand’s reputation. 

 

For catalogs the cost of printing and mailing does add up to a real number, often significant. Catalogs should be used only for those customers that are real buyers. Targeting beyond RFM is needed. Targeting should use the single view of the customer for segmentation, opportunity analysis, predictive customer and product modeling, and more. This will really show companies whether that print catalog represents value. It will also show who should receive emails echoing our catalogs, along with the appropriate associated offer level, the product to be featured, and the appropriate timing.

 

Now that we have dynamic catalogs and emails reaching out to targeted customers with different messages, offers, products and timing, we have cause to use both sides of our collective brains. Failing to do so will lead to a split brand personality. 

I saw another interesting research study today that reported that 50% of email users delete marketing emails within two seconds of opening them. That’s according to Litmus Analytics. I’d hate to be one of those companies. It means they’ve engaged half their customers powerfully enough to get them to take that necessary step. But it means the email content is failing.

Any company suffering from a high deletion rate has most likely made a critical mistake that relates to my June 19 post on improving retail email practices. That one pointed out the need to drastically improve your understanding of the customer lifecycle. All customers are not the same. They don’t buy the same products as their neighbor or colleague now, and they won’t have the same value to your company a year from now. Yet, too many companies send the same email to the same customer at the same time. That will crash your open rate for sure.

I’ll also bet that companies who have high deletion rates do not consider the value exchange inherent in email marketing. You, the retailer, are sending your customers much more than an email. You sending them communications that promises value. They provide value by giving you their money, and maybe even an ongoing stream of information. If you are not giving them a valuable communication in return, of course they aren’t going to you’re your email or share it. They’ll hit the delete button as a force of habit. And you have wasted precious time, effort, personnel and customer equity.

A commitment to value exchange means your company is going beyond asking a customer to join your list with the possibility that they will be invited to special events or extended a discount at some point. Retailing is much more immediate than that. You need to use email to make the customer feel special. And there’s no magic algorithm to do it.

Here’s three ways to improve what I call your value exchange quotient (VQ).

 

1. Base your frequency on customer data. If I say “buy” twice, that translates to “bye-bye.” Email cannot be yet another way to nag customers into a purchase or information-based relationship. Use customer data to understand how often different customers want to receive an email. It’s not about your email marketing program that says “blast the back-to-school discount every week starting August 15.” It’s about the customer data that indicates the email list members that have school-aged kids, and have responded to frequent emails in the past.
2.  Attach an offer. Even if you properly segment your list and send relevant timely messages, include a compelling offer. Just letting the customer know there’s a back to school offer is not enough. Offer a loyalty program if the customer has more than two kids, for example. Offer a discount for holiday purchases to keep the back-to-school customer coming back.
3. Work hard and work smart. I use the exercise analogy. The guy who’s 30 pounds overweight and drinking beer every night in front of the TV is not going to run a marathon next week. But he could go for a walk instead of drinking beer. If you have not been running an email program that extends value now, don’t expect that you will win awards for one next month. But you can begin to identify the communications that will be valuable to them and move customers toward higher value to your company. That takes hard work, rigorous analysis, and always striving for the next level of value. 

Talk about a dichotomy. On one side of the customer strategy we espouse at Customer Portfolios, we want clients to get as close as possible to the nirvana of true one-to-one marketing. Your marketing campaign’s message, timing and relevance should be as customized as possible for each customer. But on the other side of that coin, we’re in a business climate in which social networks have conditioned those customers to spread the word, even if that word was specifically designed for them. We start with one-to-one and the customers make it one to many. Even if it’s a simple email.

It’s an element of uncontrolled marketing, but it also provides an opportunity. I call it the “brand amplification effect.” There is a way to plan for it. Look at your company in search results, social networks, and product review sites and you will see the chatter and link sharing that amplifies your original branding and marketing campaign. A few companies have developed specific solutions to try to add some planning and order to the situation. ExactTarget, in collaboration with ShareThis, provides a new way to engage with email subscribers. It enables subscribers to instantly share emails to their entire network of contacts with the click of a button. By using tools like this companies can understand the impact of social networking in the context of your overall marketing efforts. You can also quantify the results of your social marketing efforts and get actionable data to drive future marketing efforts. It also connects social media sharing activity and profile information with the email data mart to execute programs based on a holistic subscriber profile. 

We have our own take on the amplification effect. Customer Portfolios has partnered with hearforward to facilitate rapid integration of social media. If you haven’t heard of hearforward you will. It’s a pure-play social media firm focused on integrated analytics and is designed specifically to provide greater context for email marketing efforts and drive improvements in retention and engagement. It allows you to understand where the email and its message has been amplified through real-time data from thousands of sources including Twitter, Facebook, blogs, forums, news and video sites. It can reduce attrition by leveraging next-generation lights-out marketing programs and at the bottom line it measures, tests, and improves the viral distance of email communications.

I think many companies want to attack social media first. But that beast is hard to manage. All companies can do is plant the seeds for good social networking feedback by having an excellent customer experience and relevant communications. Email is easier to attack. What we need to measure is its effect. That effect is much louder than it used to be. The sound of one-to-one is now the sound of one-to-many. Companies need to listen.

With the economy still sorting itself out and the post-holiday period giving a chance to review 2009, I suppose it would easy for retailers, restaurants or any business to put customers in two segments. Those two segments: buyers and non-buyers. But retailing is never that simple and segmentation has never been more important.

We’ve been among those evangelizing segmentation for years. The more mainstream analytics business has caught up to the science of segmentation particularly behavioral segmentation.  Best-selling books such as Predictably Irrational  (Arielly, 2008) and Nudge  (Sunstein, 2008) detail the nuances of individuals’ behavior through the use of careful, controlled studies. Findings frequently run counter to popular understanding, and researchers in this space are uncovering a wealth of opportunities for understanding consumer behavior.  A recent article in TIME magazine recounts the team of behavioralists leveraged by the successful Obama campaign, and the likely implications of the behavioral revolution in American politics (Grunwald, 2009).

Behavioral segmentation seeks to identify discrete groups of people based on actual behavior.  To accomplish this, databases are often used to track and record customer behavior.  One of the most common ways that customer behavior is collected is through the use of loyalty programs.  Other ways that customer behavior can be tracked include responses to email campaigns, direct mail campaigns, or website activity through a website that requires its users to register in order to access content.

All of these data capture mechanisms provide insight into actual customer behavior, including but not limited to:

·         the products that a customer has purchased

·         the frequency with which a customer visits a store or website

·         the type of content a customer has accessed on a website

·         the average amount of a given customer’s transaction,

·         the number of emails that a customer has opened or clicked

·         direct mail pieces that a customer has responded to

Often, the sheer volume of behavioral data can be overwhelming.  A single table designed to record the history of email sends may easily result in hundreds of millions of records for medium to large list sizes. Some results from behavior-based loyalty will be easy to see. Incremental spending and profit cultivated from the targeted customer groups will grow. ROI for the overall loyalty program will spike with more efficient spending. Customers will become more engaged across all channels and more responsive to targeted offers. Companies can also expect some welcome unforeseen  consequences beyond these more predictable ones.

1)       Database growth: The overall size of a company’s database will grow if behavior-based loyalty is embraced. This will be rooted in a commitment to enticing the right customers to engage with the company and enroll in an exciting rather than predictable program. It will grow in strength from the continued interaction that customers have with your program, continuing to leave tracks of their purchase behaviors and evidence of their attitudes and emotions. Emotional connection with behavior-based loyalty will simply be stronger and the database will gain quality as a result.

2)       Segment strength: Because behavior-based loyalty starts from the standpoint of changing the behavior of a specific group, the company owns that knowledge. It knows how to get a specific segment to move their behavior and then move the needle on sales. “It’s not realistic to expect that you can move an entire customer base,” says MacCurrach. “But you can move the right segment of that customer base with the right knowledge and the right reward scheme.”

3)       Trackable programs: A company doesn’t have to guess about a loyalty program if behavior is at the center. It can use the knowledge gained to answer definitively questions such as did this offer work? Did the reward work? Did the customer respond with incremental behavior?

4)       Create buzz: It’s always one step tougher to predict and measure the word of mouth value created by a loyalty program, but it much more likely that customers and the press will advocate a program that surprises them rather than one that rewards them predictably.

Most importantly retailers in most every vertical need to embrace behavioral based loyalty to move from “I think I know my customer” to “I know my customer.” Knowing your customers is an essential competitive advantage. Knowing what will make them more profitable through a surprise and delight strategy is the next level of customer knowledge and the true cutting edge of customer loyalty. Without it a company runs the risk of being just another number among the 701 million retail industry loyalty programs. By employing it, retailers have a shot at making loyalty programs work for their customers and for a neglected part of their interests – the bottom line.