shop shop shop shop Retail / E-commerce Turning Big Data (and Little) Into Actionable Intelligence and Customer Profitability Part 3 in a series of 5 ebooks on intelligent customer engagement Case Study ebook Unlocking Profitability. One Customer at a Time.
Increasing the Value and Profitability of Your Customer Base In our first ebook, 5 Steps to Maximizing the Profitability of Your Retail Customers, we provided an overview of intelligent customer engagement and how this innovative data-based marketing approach helps retailers / e-commerce companies drive higher acquisition, retention and lifetime value from their customers. With customer data and insight being the foundation of any intelligent customer engagement program, our second ebook, Accessing the Customer Data You Need to Maximize Your Profitability 4 Practical Steps, outlined the four key best practices that will enable you to capture the right type and level of data to ensure that you are gleaning the intelligent customer insights needed to maximize the profitability of your customers. This third ebook in our 5-part series will focus on how you can turn that data into actionable intelligence, intelligence that will help you identify your customers behavior gaps (valuable behaviors that your customers are not performing), quantify the profitability you are missing and capitalize on these opportunities by using individualized incentives to drive incremental, profitable, customer behavior. Behavior Gap Turn data into actionable intelligence Full Potential Transforming Data Into Actionable Insights Today, customer engagement and loyalty programs have become an essential part of many organizations enterprise strategies and, if executed properly, can help a business achieve differentiation and competitive advantage. That said, most loyalty programs fail to achieve their true potential or to maximize the value they deliver to organizations due to a number of factors: Their inability to incent and reward incremental behavior change on a customer-by-customer basis The irrelevance of their offers The low perceived value of rewards and Their inability to create real customer engagement. In fact, in the report The State of Loyalty Programs 23, Forrester analyst Emily Collins found that of the 45% of customers who typically enroll in a loyalty program, only 35% end up redeeming the rewards offered. 25 Exchange Solutions Inc.
On the other hand, intelligent customer engagement programs are programs that work smarter to ensure that every Value Exchange between the customer and the company is relevant, engaging and always economically rational, resulting in an increase in value for both sides. Intelligent Customer Engagement Programs Quicker Results, Better ROI, and Deeper Customer Engagement Intelligent customer engagement leverages the power of big (and little) data to help companies identify and understand each customer s behavior gaps (the valuable behaviors that customers are not currently performing), determine how much incremental profit will be generated by closing those gaps and decide how best to target each customer with relevant incentives to drive profitable behavior change. In contrast with traditional loyalty programs which simply give away margin, intelligent customer engagement programs ensure that the proportion of value that is shared with a customer is directly related to the incremental profitability that they are able to drive for the organization, allowing companies to both mitigate risk and drive measurable performance and ROI. What is Value Exchange? Value exchange is a way to describe an interaction between a company and its customers. When a company wants a customer to perform a behavior that has value to the company (e.g. write a review of a product, invite a friend, check-in to a retail location, buy a product or service), they can offer incentives that have value to that customer, in exchange for performing that behavior. This is a value exchange. IN SUMMARY: By enabling you to effectively leverage your data so you can deliver relevant, targeted benefits on a one-to-one basis, intelligent customer engagement programs deliver substantially greater ROI than traditional loyalty programs which push one-size-fits-all offers out to segments of customers. The Challenge While achieving the full profit potential of each customer relationship is the fundamental goal of every business, the gap between most customers current performance and their full-potential performance is enormous. Why are many companies not realizing their customers full profit potential today? Challenges exist, including: The business models that drive decision-making in many organizations were developed before the capabilities necessary to be able to maximize profitability from customer relationships were in place Although many organizations have massive amounts of data, they don t have the internal resources or expertise required to transform that valuable data into truly intelligent customer insight 2 25 Exchange Solutions Inc.
Customer intelligence is often stored in multiple data silos across multiple lines of business involving multiple touch points. This disconnect prevents organizations from obtaining a clear holistic understanding of their customers current behaviors and the opportunities to capitalize on any key behavior gaps Customers often use a plethora of channels to interact and transact with a company. Despite the challenge this poses to many organizations, customers expect a seamless, cohesive experience regardless of the channel. Today, the data, the expertise and the technology necessary to process and deliver relevant, targeted benefits on a true one-to-one basis are available and the companies who are leveraging the principles of intelligent customer engagement are reaping significant rewards. These organizations aren t evaluating their performance by comparing them with last year s numbers. Instead, they are enjoying measurable improvements in customer acquisition, retention, and lifetime value by using data to develop a clear understanding of each customer s current behaviors, quantifying the current and full potential value of these relationships, and using every opportunity to close the gap between the two. Here s how you can put your data to work to achieve the same. Putting Your Data to Work Set Benchmarks Customer data capture should help the organization gain a deep level of insight about its customer base as it stands today. The customer attributes, activities, historical behaviors and trends that are key (most insightful) for your organization are likely to be uniquely different from those of any other organization, even organizations within the same industry or close competitors. However, some standard data analysis models and techniques will stand you in good stead in the quest to better understand your customers. This analysis will help you to level set your insights in terms of understanding the status quo and setting some benchmarks. Correlation Analyses: Real Life Example While working with one of our national clients we were able to correlate a customer s email opt-in with other variables and quantify the value of this behavior to be worth $8 to the organization annually. Your customer data analyses may include: Segmentation analyses. All attributes about your customers, including demographics, geo-location, transactional history, and channel engagement can be used to classify them into groups with unique and distinguishing characteristics. There are multiple segmentation approaches cluster analysis or linear regression, for example that can define the present state for the customer thus allowing you to set objectives and identify behavior gaps for that customer. 3 25 Exchange Solutions Inc.
Behavioral analyses. In addition to a customer s demographic and socio-economic profile, their behaviors and how they interact with your organization are key to building a clear understanding of each individual. For instance, what do your customers historical transactional activities show? You may note that on an annual basis a certain customer routinely purchases a mass of back to school supplies around early or late August. This type of data will enable you to gain insight into the customer s life stage. It also enables you to target them with relevant cross-sell and upsell offers. Correlation analyses. Some behaviors are easy to value, such as converting a visitor to a purchaser. But other behaviors that are not directly attributable to revenue may influence a customer s profitability. For example, a retailer / e-commerce company may run analyses that indicate that customers who opt-in for corporate communications are 5% more profitable. Identifying such influencing behaviors can prove just as valuable as identifying behaviors that drive revenue. How We Do It To help our clients turn customer data into actionable intelligence, we create custom rules tied to each client s specific business needs by leveraging our Intelligent Rules authoring program. Our Intelligent Rules are based on a foundation of deep customer insight and analytics. The process of creating Intelligent Rules involves 3 critical steps. Step Customer data is collected on behalf of our clients either in real-time online via a Listening Post (a web beacon), via a mobile app, in-store from the POS, and / or via past customer records and analyzed to uncover each of their customer s behavior gaps (the valuable behaviors that their customers are currently not doing). By understanding these gaps, we are able to provide our clients with key insight into their customers profit potential if these gaps are closed. It also enables our clients to prioritize which specific customer behaviors they would most like to incent. Establish Goals and Objectives Once you begin to analyze your customer data, and identify patterns, trends and preferences, the next step will be to use modeling and further analysis to create various predictive models. As imperative as it is for you to use your customer data to understand historic patterns and trends, this insight will only take you so far. Next is setting your sights on the future to identify how you can turn this insight into actionable intelligence. 4 25 Exchange Solutions Inc.
While each customer s historical behavior is likely to be unique, the analysis you perform at the outset will lay the groundwork for determining how you can best motivate your customers to undertake more profitable behaviors in the future. For instance, let s use the example where customers opted-in for corporate communications are 5% more profitable than opted-out customers. This kind of insight would afford the company a prime opportunity to motivate their customers to perform this influencing behavior early in their lifecycle and also provide some insight into how much profitability a customer s email may translate into and therefore how much the company may be willing to invest to ensure they incent the customer to supply this valuable piece of data. Correlation Analyses: Identifying the Behavior Gap We referenced an example where we were able to value the email opt-in of our client s customers at $8. For this national company with 5 million customers, their current email penetration was at a mere 3%. Using this data, we helped our client identify a key customer behavior gap, and significant incremental profit opportunity. Some organizations strategies may involve placing a greater focus on deepening their customer engagement rather than driving transactional behaviors. In this case, a better use of your customer data and insights may be to identify influencers that can help to engage your core audience. Some Best Practices Step 2 How We Do It Based on each customer s behavior gaps and associated revenue opportunity we create Intelligent Rules to ensure customers are presented with targeted incentives, with the right value, to drive the most profitable incremental behavior. We use the data to ensure that our clients aren t spending precious marketing dollars incenting behaviors that their customers would have performed anyway. We help ensure that the incentives they offer to their customers are individualized, and that the value of each incentive is directly related to (and determined by) the value that specific customer can drive for the organization. Leveraging data-driven incentives, and the minimal viable amount to motivate the most profitable customer behaviors enables us to guarantee profitability for our clients. Don t Miss Key Opportunities. Many companies identify the high propensity, high value behaviors of their customers and focus on those. But don t miss out on other customer behavior gaps that could provide value to your company. The Pareto Principle may suggest that 8% of your business would come from 2% of your customers, but just think how much more profitability you could drive if you unlocked the profitability of the remaining 8% of your customer base! Variety is Key. Use various modeling approaches to identify these hidden pockets of opportunity. But quantify them too! This enables you to understand not only the size of each customer s behavior gap, but also how much you should invest to close that gap. http://en.wikipedia.org/wiki/pareto_principle 5 25 Exchange Solutions Inc.
Turn Intelligence Into Action The third step is to convert your customer intelligence into action. One of the most renowned examples of a major retailer using laser-focused analysis and targeting was, no pun intended, Target. By assigning every customer a Guest ID number tied to their credit card, name, or email address, Target was able to amass tons of transactional and demographic information about its customers. A look at the transactional data for all women who signed up for Target s baby registries in the past enabled the retailer to identify buying patterns that would predict if / when their female customers were pregnant. This was based on when women began purchasing larger quantities of specific items including unscented lotion, supplements, soap, cotton balls and wash cloths. Guest ID XYZ Guest ID XYZ Customer Intelligence Although Target came under fire for the way in which they used this insight when marketing to a young teenager, it was able to leverage its data to grow its revenues from $44 billion in 22 to $67 billion in 2 by using what Charles Duhigg of the New York Times called a heightened focus on items and categories that appeal to specific guest segments such as mom and baby. 2 The bottom line is, don t underestimate the profitability you may be able to unlock by tapping into your customer data and turning it into action! Companies today have a wealth of data at their fingertips customers POS data, visits to websites, frequency of visits (in-store and online), time spent on certain areas of the website and more. This places businesses in a prime position to leverage their structured and unstructured data to maximize their customers engagement and profitability. Rather than a pie in the sky wish list of what behaviors you would like your customers to perform, using such techniques as Propensity Modeling will help you drill into your customer data and convert it into actionable intelligence, in effect providing you a Roadmap of how you can best close each of your customer s behavior gaps. At scale, using Intelligent Rules to analyze and incent many different types of behaviors across an extensive customer base can become complicated to manage and optimize. But technologies and machine learning algorithms make it feasible to leverage data in this granular manner, while ensuring that Intelligent Rules continuously learn and adapt to the changing responses of customers. Some Best Practices Real Time and Right Time. The absolute optimal time to engage a customer to change their behavior is in real-time, at the exact moment they are already interacting with you, using the most recent information you know about that customer. Waiting to dissect analytics offline, and then constructing marketing campaigns around them, robs you of the opportunity to motivate and incent your customers when it matters most when they are already actively engaging with you. Don't Neglect the Customer Experience. In conjunction with your efforts to optimize your customer interactions, be sure to consider what are the best channels and media to reach each customer. Take into account customer preferences, best practices and any legislation or rules governing customer communication and outreach. 2 http://www.nytimes.com/22/2/9/magazine/shopping-habits.html?pagewanted=&_r=2&hp& 6 25 Exchange Solutions Inc.
Exchange Solutions Value Exchange Optimization TM approach and our team of experts can be a strategic partner to help with this process. We have 8 years of in-market experience and expertise and our Marketing, Analytics and Optimization work constantly throughout this process to help our clients optimize their customer interactions and incentive levels to unlock their customers profitability, one customer at a time. How We Do It Step 3 Clients of our intelligent customer engagement programs leverage insights and predictive modeling data to engage their customers, one at a time, in real-time, across multiple channels online, mobile, email, etc. By offering their customers a choice of individualized incentives in exchange for performing their gap behaviors, our clients have driven significant incremental profits. And because our programs are based on machine learning we re able to help our clients continuously leverage their customer data to optimize and adapt based on in-market results and program economics in order to maximize their ROI. Correlation Analyses: Identifying Incremental Profitability For the client with the 3% email penetration among its customer base, a campaign to increase their email opt-ins by just 5% is forecasted to generate an additional $4.5 million in profits per annum. IN SUMMARY: To identify and close behavior gaps, every single customer needs to be viewed holistically, as opposed to as a set of individual behaviors, and the customer experience context also needs to be taken into account. Next Steps Our next ebook will be the fourth in this five-part series and will consider the next chapter once a company understands its customers past and current behaviors and can identify each customer s full profitability potential, what comes next? What is the best way to engage customers to incent them to reach that potential, and to do so across multiple channels? Our experience demonstrates that enabling the type of interaction where customers are targeted individually, at the right time, using the right channel, with the right message, delivers substantially greater engagement and ROI. Check Out Our Quick Start Program 4 5 6 7 8 In just 4 weeks our Customer Engagement Roadmap can provide you detailed analysis and metrics to help you identify your customers behavior gaps, quantify the profitability you are missing and show you how to tap into that profitability. Contact us to find out if you qualify for a free 4 week assessment. Visit exchangesolutions.com/getstarted 9 6 7 2 3 4 8 5 9 2 2 22 25 26 27 28 29 23 24 3 3 7 25 Exchange Solutions Inc.
About Exchange Solutions Exchange Solutions designs, builds, and operates intelligent customer engagement programs that improve customer acquisition, retention and profitability by identifying and closing high-value behavior gaps. Intelligent Rules target each customer with a choice of economically rational incentives to drive that incremental behavior change. Exchange Solutions cloud-based platform permits rapid implementation in all channels, customized to each client's needs. Our proprietary approach and in-market experience deliver quicker results, better ROI, and deeper customer engagement than traditional engagement or loyalty programs. From our offices in Boston and Toronto, Exchange Solutions has been helping leading retailers, financial institutions and online businesses create sustainable and profitable communities of engaged customers since 996. Contact us to learn more For more information about the capabilities we provide and how to get started, please contact Exchange Solutions: Josh Marder Managing Director, U.S. Sales 78.693.326 jmarder@exchangesolutions.com Xavier Torres Head of Sales, Canada & Latin America 46.646.74 xtorres@exchangesolutions.com http://www.linkedin.com/company/exchange-solutions Twitter https://twitter.com/exchangesolns www.exchangesolutions.com 8 25 Exchange Solutions Inc.