The Data Dilemma: Mining, Privacy, and Other Concerns


Xplor Lunch & Learn Series

I will be a panelist on the Xplor.org Lunch & Learn webinar scheduled for August 19th. The topic is “The Data Dilemma: Mining, Privacy, and Other Concerns”

Space is limited, so reserve your Webinar seat now at:
https://www2.gotomeeting.com/register/485313730

We’re all encouraged to make our marketing more relevant, add personalized marketing to transaction documents, and target direct mail more strategically. That requires using data, and that gives some people pause. Especially privacy advocates. What do you really need to know before you jump in the pool?

Our panel will include industry experts and will be hosted by Pat McGrew of Kodak.

Title: The Data Dilemma: Mining, Privacy, and Other Concerns

Date: Thursday, August 19, 2010

Time: 1:00 PM – 2:00 PM EDT

After registering you will receive a confirmation email containing information about joining the Webinar.

System Requirements
PC-based attendees
Required: Windows® 7, Vista, XP, 2003 Server or 2000

Macintosh®-based attendees
Required: Mac OS® X 10.4.11 (Tiger®) or newer

Advertisements

“Have you seen my glasses?”


Glasses Graphic With the obvious evidence that I was actually growing older, I finally accepted my fate and was recently fitted for a pair of “reading” glasses. Now and for evermore, the phrase “have you seen my glasses” will be part of my vernacular.

This got me thinking about how many businesses out there have been putting off “getting glasses” when it comes to looking closely at their customers and prospects. Or, for those that do have glasses, when was the last time they had the prescription checked and adjusted? In one of my previous articles, “Who are your best customers“, I explored the ways to take a closer look at your customers and why it’s important to do so regularly.

Over the years, I have spoken with many business owners and sales & marketing leaders, and I have found that the smaller the company, the more likely it is that they have not recently examined their customers (and have no plans to do so!). I find this interesting because the small business is probably the least likely to afford marketing to the wrong audience.

Building on the concepts I discussed in “Who are your best customers“, I am writing an article on calculating the Return on Marketing Investment (ROMI)and would like to hear your answers to the question “How do you decide how and what to spend on marketing?”

POLL: Which Lead Generation channel has been MOST effective for YOUR business?


Who are your BEST customers?


When this question is posed to a small business owner, a sales associate, or a marketer, it often results in a firm, clear answer like seniors, baby boomers, or soccer moms. Or if in B2B circles, something like “mid-market manufacturers of durable goods”. If you then follow with a simple “Great, but how do you know that?” this is where the blank stare comes in, followed by “I’m in the store all day and I greet all of the customers” or “I personally perform all of the quotes for new clients”. So it must be true – you CAN judge a book by its cover!

Wrong – everyone knows that not all soccer moms are created equal!

Data Rules
The reality is that in order to truly understand who your best clients are, you need data. This data can be transaction level data from point of sale systems, historical, summarized sales data from your accounting package, and even third parties in the form of demographic, psychographic, and behavioral data that is appended or added to your customer records. If you don’t have sophisticated systems for collecting and managing all of this data, do not fret for there are some simple ways to get started. And it is important that you get started!

Why is identifying my BEST customers so important?
There are two major reasons why it is important to identify and recognize your best customers.
1. The first is supported by the now mythical adage that “it is cheaper to keep the customers you have than it is to acquire new customers”. This statement has been spewed more ways than I can count and is credited to more sources than I can name, but the fact is that there is truth to these words and understanding who your best customers are enables you to strengthen the relationship and their loyalty through personalized customer service as well as relevant & timely communications and offers.

2. The second reason understanding your best customers is important, is that the insight gleaned from analyzing your current customers can be leveraged to find prospects that exhibit the same demographic, psychographic, and behavioral characteristics, which through deductive reasoning tells us they are good candidates to potentially become one of your best customers. Or in other words, “birds of a feather flock together”. Doesn’t marketing to those with a higher propensity or likelihood to become customers verses marketing to everyone make sense? The cost of acquiring a new customer will improve, contributing to an overall improvement in the return on marketing investment.

Getting Started
Whether you sell directly to consumers or to other businesses, there are several low-cost ways to get started. Assuming you already have a database of your customers and have some access to transactional or historical sales data, below are several approaches that with a little elbow grease will yield great results:

1. Use the Pareto Principle; “Roughly 80% of the effects come from 20% of the causes”. I used to work in the paper business (no, not Dunder Mifflin – but close) and one of the primary sales management tools was the “80/20 report” which simply showed us who our top clients were from a revenue and gross profit standpoint – ie where sales should be spending their time and attention. The inverse was also true – the accounts at the bottom of that report might be candidates for direct efforts to stimulate growth, or even all together pruning. Firing a bad customer is often worth more on the bottom line than landing a new one.

2. Use of a “20/50/30” approach to isolate the “best, middle, and worst” – this is an extension of the above and segmenting customers into three (or more) categories might enable more precise prescriptive actions per segment, drive pricing tiers, etc. My aforementioned experience in the paper business had an answer to this as well – all clients (client being defined as having a minimum number of purchases or a minimum value of purchases in a rolling 12 month window) were categorized as Platinum, Gold, Silver, Bronze and Lead, with new accounts and “up and comers” or those with high potential falling into the Nickel segment. This is a very eye-opening exercise, because depending on the metrics chosen to rank and segment, you may find that who you thought was a great client could be very average or worse yet unprofitable.

3. RFM Analysis (Recency, Frequency, Monetary) – This method will highlight several “groupings” of clients in a stack/rank fashion – see the sample RFM Analysis in Fig. 1 below. This type of analysis is especially valuable since it takes into account multiple factors such how recently a customer purchased, how often they purchase, and lastly how much they have spent. Those that find themselves at the top of this list, should find themselves at the top of your marketing list as well. I employed this method when working with a marketing service provider that focused on small businesses. We were able to create a list of 150 great clients that were on autopilot. By proactively engaging with them we saw an immediate increase of business from this group by simply offering them an incentive to “upgrade” to a higher level service package. They were already satisfied clients, we just needed to give them a reason to show us more love.

Fig. 1 Simplified RFM Analysis

Metrics for all three of these methods might include things like Revenue, Gross Profit, Number of orders, Average order size, and even returns, issue escalation, or other inbound requests. It depends on your industry, but these metrics along with questions like “Do the clients use self-service tools or are you providing full service to all clients?” can provide valuable insight into who your best (and most profitable) customers really are.

4. Product/Service Consumption Matrix – Lastly, another way to slice and dice your customers is to look at them from a product or service perspective to identify the products and services that are consumed by each client and isolate segments based on your ability to cross sell and up sell clients to expand your relationship with them.

Building on your Effort
So now that you have worked on one or more of the above methods for segmenting and ranking your customers, imagine taking a deeper look at the top performers based on 3rd party data like demographics, psychographics, and behavioral data to define the ideal criteria for who you should be prospecting – talk about super charging your marketing efforts. Demographics are things like age, income, home ownership, marital status, presence of children, ethnicity, etc. and can be very telling in and of themselves when looking at who your best prospects are. Psychograhics are more about the underlying motivations, values, interests, and attitudes of people, and these can add another layer of insight in determining a prospect’s intent or likelihood to respond. Lastly, behavioral data is available in many forms. This might be actual click stream data from your website or perhaps licensed data from third parties who aggregate point of sale data by SKU. For example, believe it or not, it is possible to identify individuals who are male homeowners with six-figure incomes, who travel for pleasure >5 times per year, and have purchased golf clubs in the last 6 months.

Sound like a great prospect for a golf getaway… When do we leave?

%d bloggers like this: