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Turning Customer Data into Profits

 with a Spreadsheet

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Maximizing marketing ROI with customer behavior analysis

Data-Driven Marketing Program Descriptions

Likelihood to respond scores are used in a wide variety of customer retention marketing programs.  If you know how to use these customer scoring methods, you will know the "guts" of how all the programs below work.

The following is not an attempt to dissect all the nuances of each approach or all the sub-cultures inside each of them.  There is some overlap and similarity across all of them, and are listed in order of increasing complexity.

Direct Marketing

Frequently used as a catch-all term, direct marketing really is the big idea, the global reference to doing business with customers directly.  It takes many forms - catalogs, TV Shopping, DRTV, infomercials, direct mail, cold-calling, the Internet, even matchbook covers.  Anytime you try to sell something directly to the end user rather than going through some third-party distribution arrangement you are doing direct marketing.  Direct does not necessarily imply a customer database, although there are usually transaction records around - perhaps not actually in a "database."

Database Marketing

Using the customer database to market to customers. Hmm.  It can mean you have a list of customers and mail stuff to them, perhaps without doing any customer profiling at all.  Frequently uses characteristics of customers to customize promotions, but not always, depending on the business.  Technically, any marketing approach using customer data is data-based marketing, so all the following methods would be included.

"Punch card" marketing.  If you buy 6 sandwiches, you get the 7^th free.  Buy $100 worth of stuff and we’ll send you a $10 coupon.  Here you are using the database to figure out who isn’t buying enough and try to get them to buy more.  OK, I get it.  It’s really a crippled version of RFM, FM without the R, if you will.  Concepts like LTV and subsidy cost don’t matter as much; you just want them to buy more.  These programs tend to generate HUGE subsidy costs, because you’re always giving the most discounts to your best customers.  They are very common in offline retail, where the effects on customer valuation are difficult to measure.  Yuck.

Database marketing with a friendly, more intelligent face.  Many database marketing types just use the database as a list and mail things to it; relationship marketing implies a deeper knowledge of the customer and some kind of give and take.  In relationship marketing, there is acknowledgement of a customer LifeCycle, and marketing is viewed as a process rather than a series of seemingly unconnected events.

The process is usually defined as a series of customer stages, and there are many different names given to these stages, depending on the marketer’s perspective and the type of business.  For example, working from the beginning of the relationship to the end of the relationship:

Interaction > Communication > Valuation > Termination

Awareness > Comparison > Transaction > Reinforcement > Advocacy

Suspect > Prospect > Customer > Partner > Advocate > Former Customer

During this process, you try to customize programs for individual customer groups and the stage of the process they are going through; as opposed to some forms of database marketing where everybody would get virtually the same promotions, with perhaps a change in offer.  The stage in customer LifeCycle determines the approach used in marketing.  A simple example of this would be sending new customers a "Welcome Kit".  And in relationship marketing, you listen to the data and try to hear what it’s telling you.  OK, if you follow the techniques in the book, you are doing relationship marketing, no doubt about it.  

Keys to success in Relationship Marketing

Relationship marketing with a currency, a store of value that tries to keep the customer "locked up" with a company.  In well run loyalty programs, customer profiling is used extensively to promote to customers, except points are used instead of discounts as the incentive for activity.  Loyalty programs are expensive and difficult to do right, but can be effective, as long as these things are true:

The rewards are desirable to the specific customer base.  Generic loyalty programs with blah awards almost always fail.  If you’re doing a sports loyalty program and you offer tickets to great games instead of over-priced cameras for rewards, you’ll do OK with the customers.

The program is kept fresh and exciting, with a constant variety of things to involve the customer with, including refreshing of the rewards catalog, point auctions, etc.

The marketing does not focus on ideas creating subsidy costs among best customers.  In the ideal world, you want to use points to generate activity from low value customers, and you don’t want your high value customers spending down their points to zero all the time.  Some marketers encourage the opposite and bankrupt their programs.

If you would like to see an example of a well run, extremely profitable loyalty program in the consumer cellular area, click here.

Keys to success in Loyalty Programs

Relationship Marketing with a gentler hand on the communications issues.  It’s a superb idea, and concerns the protocol of communication between a business and their customers over the LifeCycle.  Permission marketing states when communicating with customers, you should be anticipated, be personal, and be relevant.  The customer’s definition of these three ideas would naturally change over time, so you have to listen to the customer and engage in dialogue.

This has the effect of upgrading the quality of your customer base, because in theory, only the people who really want something from you grant permission.  This is definitely solidly in the customer profiling camp, where the focus is on improving the value of customers and not spending money on customers who are not interested.  Other than communication protocols, customer profiling techniques would apply, as long as you make sure you refresh and keep the permission.

Keys to success in Permission Marketing

Outlined in a 1993 book "The One to One Future" by advertising guru Don Peppers and marketing scholar Martha Rogers, Ph.D.  The following 2 blurbs are from the book promotion:

"Most businesses follow time-honored mass-marketing rules of pitching their products to the greatest number of people.  But selling more goods to fewer people is more efficient — more profitable.  Welcome to a radically different business paradigm of 1 to1 production, marketing, and communication."

"The One to One Future" gives the best description yet of life after mass marketing.  A "1 to 1" competitor focuses on share of customer — one customer at a time — rather than just share of market, which is the Holy Grail of the mass marketer."

The One to One approach, as in relationship marketing, is looked at as a process with the customer.  It follows their unique IDIC methodology (Identify, Differentiate, Interact, Customize).

Hmmm.  Selling more goods to fewer people is more efficient.  Sounds like focusing your resources on your highest potential customers, and customizing your approach based on their profiles.  Sort of like what we’ve talking about in this book all along.

Additionally, their idea is much bigger than just marketing; it is about the entire business process.  They would like companies to literally design products and service for specific customers, instead of creating a product and then trying to find people who want to buy it.  As a customer of a true 1 to 1 company, you would let the company know what you need and they would provide it.  This is the "share of customer" idea in action.

In practice, the concept at this time, for most companies, comes down to understanding what people want and marketing to them in a customized way.  Customer profiling is right up the 1-to-1 alley, because it involves understanding behavior and reacting to it as an exchange with the customer, back and forth.

Keys to success in 1-to-1 Marketing

CRM 
(Customer Relationship Management)

In many ways CRM is the operational face of the 1-to-1 movement; CRM represents the business philosophy required to accomplish the 1-to-1 marketing vision.

Unfortunately, many people have come to equate CRM, which is really a strategy, with the tools and software which allow a firm to execute the strategy.  Along those lines, CRM has been divided according to the functionality of software tools:  

Analytical CRM - the use of data modeling and 
profiling to accomplish CRM goals

Collaborative CRM - the tools used to directly 
engage and interact with customers

Operational CRM - the "back end" systems
 which unify the business and deliver products

Once again, in practice, few firms have the CRM idea working as well as they would like.  The problem is one of lacking experience in using customer data to run a business.  Many people had expectations they could just "automate" their marketing, but working with customer data requires experienced human input as well.  It's a bottoms up, not top down process; many companies who started at the top are finding they should have gained experience using customer data with simple proven methods "pre-CRM" before they took on data mining and other very complex tasks.  Put another way: they're trying to get a Ph.D. without ever finishing high school.

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