Are you using campaign lead or customer lead marketing?

July 4, 2010 By 1 Comment

This week I’m going to build on a recent post (“Why customer segmentation is not customer strategy”) by looking at a new approach to creating a customer strategy.

We will start by examining how most marketing departments use customer segmentation.  Over the past 10-15 years an evolution, a good evolution mind you, has overtaken marketing organisations.  In that time there has been an increased focus on maximizing the return on marketing investment.

The Campaign Lead Approach

Through improved customer data and analytical software, organisations have constantly increased their campaign return on investment.  One of the tools that they have used to do this is customer segmentation.  A high level view of the overall marketing process and how customer segmentation fits is shown below.

Starting with the company’s business goals, organisations create marketing plans to meet those goals.  The marketing plans then take into account product opportunities, high level customer needs analysis and a range of other company specific attributes to create campaign ideas that are turned into campaigns.

The next stage of the process is critical in driving up campaign ROI: the campaigns are matched with customer segmentation data to find the customers that are most likely to respond to the campaign.  This matching process often uses past campaign/ customer segment performance as a guide in the matching process.

Lastly, the campaign is run.  The customer segmentation is used to extract a list of customers to whom the campaign will be sent.  The list is then passed through a range of customer exclusion rules.  These rules can be as simple as a “do not contact flag” or “never contact a customer more than once every 60 days”.  The final list is then merged with the campaign creative details (call script, direct mail piece, e-direct mail, etc) and sent to the customer.

This process can be used to deliver a campaign with a very high return on investment but it does have it’s problems.

  • The approach puts the campaign at the center of the process not the customer.  The approach is “We have a campaign now who can we send it to?”
  • Customers are not engaged in a conversation they are targeted with product sells and as one banking CEO said to me the other day: “Product pushing destroys customer relationships”
  • It seems that the same 20% of customers end up in almost all of the campaigns.  This is the 80/20 rule at work.  All of the A/B demographic customers seem to be dragged into all of the campaigns.
  • The organization focuses on creating high ROI campaigns but may miss opportunities with large portions of the customer base
  • Campaign results are tactical feedback in that the organisation can optimise the campaign but it may not be optimizing the value of the customer or business.

The customer strategy lead approach

A different, and I would say better, approach is to rather start with a customer strategy and work down from there.  That way you are optimising the value of the customer and business while also maximizing the campaign ROI.    Below is a customer strategy approach, the blue boxes are the changes from the original approach.

In contrast to the campaign led approach, the customer strategy lead approach is “We craft a customer journey unique to each customer and then deliver it to them over their lifetime with us, making sure to react to changes in their needs and activity.”

This is a completely different approach that builds trust and value in the customer relationship rather than destroying it.

  • Using this approach (a customer strategy and customer life-cycle approach), the customer is taken on a planned journey starting at the time they become a customer and take up their first product.
  • The campaigns/messages they receive are pre-planned and event based triggers.
  • At a campaign level, the result is a larger number of smaller, targeted campaigns offering higher ROI.
  • It is at the business level that the real value is found.  Using this approach you maximise the overall customer lifetime value.

It is true that in order to implement this approach you need a way to develop and assign a customer strategy to each customer.  In our experience a customer value map is the easiest and most direct route to creating a tool that can be used to assign a customer strategy to each and every customer.

If you would like to assess the areas where the best return-on-investment can be found, by targeting customers with the right current vs. potential value contact us about cpMAP: the customer value based customer strategy approach.

By Adam Ramshaw

Filed Under: Customer Analytics, Marketing Automation Tagged With: , ,

Why customer segmentation is not customer strategy

May 30, 2010 By 1 Comment

This recent blog article really struck a chord with me:  Why Doesn’t My Market Segmentation Work?

The author makes some good points and I agree completely with them but I wanted to go one step further.  I believe that customer segmentation often “does work” in that the answers you receive are completely, technically, correct.  But in practice it doesn’t work because while it is correct there is often no way for the business to use the information generated.

Recently we started working with a major financial services firm who had just completed a six month multi-hundred thousand dollar segmentation exercise.  At the completion of the segmentation project the organization had a set of statistically perfect groups of customers.  The groups were inventively and aptly named, full sample profiles of each group were generated, and beautiful charts were created that showed the different groups.

The organization had successfully segmented all of their customers into groups of like customer attributes.  The problem was that the marketing group had no way of using this information to improve customer retention, cross-sell and overall customer lifetime value.

They knew which customer was similar to which other customer but they weren’t able to determine a customer strategy from this information.

What they had discovered is that all the segmentation in the world is of no use to you if you don’t have a customer strategy that lets you know what action to take.

My preference is to approach the problem from the other direction.  Determine a good customer strategy (by individual customer) and then use segmentation to help you deliver the message.

We use a customer value based customer strategy approach called cpMAP.  Using this approach gives you a direct way to attribute a primary and secondary customer strategy to each individual customer.  Perhaps the strategy is primary cross-sell and secondary retention or perhaps it is primary retention and secondary product migration.

Customer Value Map

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Now that you know what to do with each customer you can use the segmentation to craft a treatment with the maximum impact.

For example, you’re primary strategy for this customer could be cross-sell of a credit card account.  You then use your segmentation to influence the creative, channel and timing to maximize cut through.  One customer may receive an outbound email with one creative followed up by an SMS, another may receive a different creative via the mail followed by a telephone contact.

With this approach you have a customer plan and you use the segmentation to maximize the effectiveness of that plan.  The segmentation is NOT the plan.

By Adam Ramshaw

Filed Under: Customer Analytics, Customer Strategy Tagged With: , , ,

Using next logical product to maximise cross-sell

May 24, 2010 By Leave a Comment

Most of our clients see the ability to increase their cross sell rates as a good way to increase their overall share of the customer’s wallet and customer retention.  One of the better cross selling techniques is the next logical product approach.

(Wondering “what is cross sell”)

The next logical product approach to cross selling where you try to identify the product that the customer is most likely to buy next and then present them with a well timed offer to make the purchase.

It sounds very straight forward, and it is, but determining the next logical product (NLP) can take some time and effort.  There are several ways to determine the next logical product for your customer:

Based on current holdings

If you have a relatively defined set of products or services then you can often determine the NLP based on what that customer has not already purchased.  For instance consider an insurance company that sells building and car insurance.  A simple NLP approach would be to look for all customers that have car insurance but do not have building insurance and create a building insurance offer for them.

As you can see this is a very simple approach to implement but doesn’t take into account a customer’s needs.  You could very well be offering them a car policy when they have no car or a building policy when they are only renting.

Based on customer lifecycle

If you have a product set that lends itself, you can also generate your next logical product recommendations based on the stage of the customer lifecycle with your organisation.  For instance if you are a business to business software supplier your customer probably goes through several stages of need.

Firstly they will buy the software and some training.  After a few weeks or months they may need some implementation support to help them get the system in and operating correctly.  After a year or two them may need help to take the implementation to the next level of complexity and so need some advanced systems consulting support.  Lastly after 3 or 4 years you should be looking to have them upgrade to the next version of the software so that the process can start all over again.

At each of these stages you can clearly identify the customer’s next logical product and act accordingly.

Based on customer life stage

Another popular way to implement NLP is to try to guess where each person is in their overall lifestage (from birth to death) and select products that meet their needs.  Typical life-stages you might consider include: single, newly married, married with young children, empty nesters, etc.

The simplest example of this is pension and superannuation companies who use the age of their customers as a cue to the products that they might need.  For instance, the next logical product for a 30 year old customer is not an annuity based pension but it may be a college / university savings product for their current or future children.

On the other hand, a 63 year old customer may be thinking of retiring in the next few years, starting a conversation with them about an annuity pension product is probably just the right timing.

One of the major disadvantages of this approach is the increasingly complex nature of modern customer life stages.  Increasing divorce rates, the availability of late in life fertility treatments, people working long after the official retirement age, etc, have made this approach very difficult to implement reliability.

Based on customer activity

Lastly, you can look at customer transactions or other activity and statistically determine the next logical product.  Typically this requires advanced data analytics and a good volume of customer data and transactions.  Often through the process of data mining you uncover unusual or unexpected linkages that you would not have uncovered using the above approaches.

For one client, where extensive work on product purchase propensity had been done, we simply used the product with the highest sales propensity as the next logical product.  A very straight forward approach that worked very effectively for our client.

By Adam Ramshaw

Filed Under: Customer Analytics, Customer Strategy Tagged With: , ,

Cross-Selling: the why and how for successful companies

December 3, 2009 By 3 Comments

When casting around for ways to increase sales there are really only two options you can take: find new customers or sell more to the existing customers.  Of these two the second, sell more to existing customers, is often the easiest and the one with the highest ROI.   Today we’ll talk about why you should be focusing more efforts in this area and how you can improve your success rate.

Why cross-sell

You already know the customer

When heading out on the customer acquisition trail the first item of business is finding a likely looking customer so that you can start your sales pitch.  This can often be the most difficult and expensive part of the whole process. Just think about it, the whole advertising industry is based on this one problem of finding a likely prospect.  With cross-selling you already know your customer, and in many industries you know where they live, and some important data about them.

The customer already trusts you.

After finding a prospect, the first barrier in closing a sale is gaining the customer’s trust.  Countless “try before you buy”, money back guarantee and trialling campaigns are built and run in order to overcome this single hurdle.  However, when you cross-sell you’re already over this major issue: they’ve tried and they’ve buy’d so they (may) already trust you.

You know what they want and you’re sure they want it.

They’ve already purchased from you and just by looking back at the data you already know what they want, how often they want it, even what colour they like it in.  Plus, you’re sure they want what you sell because they’ve already purchased something similar.

Yes, I know that this is a bit of a simplification but the basic approach is valid.  When you cross-sell you already know that they have a need.

Cross-selling often drives increased retention rates

Many research studies, and our own experience at analysing our client’s data, have shown us that the more products a customer purchases from you the longer they will continue to purchase from you.  If you manage to cross sell to your customers you get the added advantage of keeping them longer (all things being equal) and a double bonus to the bottom line.

How to be successful at cross-selling

Okay so you’re convinced, cross-selling is a good thing to do! So how do you do it well?

Make sure you have happy customers

Yes, it’s sad but true, you need to have happy customers for those customers to purchase again from you.  It stands to reason that cross-selling will be easier if you’re customers are already loyal and you have provided them with products or services that are of value.

The lesson here is if you have dissatisfied customers the last thing you should do is try to cross-sell to them – it will just make matters worse.  First fix your customer satisfaction issue then move onto cross-selling.

Right message at the right time

Many organisations have transactional data that can be used to identify the next logical product to discuss with the customer.  Remember that you know more about the customer than other organisations.  If you’re not using this information you’re making life harder than it needs to be.

However, make sure that you don’t become a product pusher to your customers.  Too many times customers end up on the receiving end of a stream of direct mail that feels to them like non-thinking direct marketing campaigns.  Yes, we know that the easiest thing to do is a data extract of your “best” customers and send them the latest product that you’re trying to sell.  But, all that does is train them to ignore your messages and loses you sales in the long run.

A better approach is to look at the customer through a customer needs lens.  The chart below is a very simple example of how bank might change its view of a customer from a mortgage, credit card, and deposit customer to a “house buyer” or “holiday goer”.  By using this approach you are speaking to the customer in their own terms and are much more likely to cut through.

By the way this may require you to partially or completely re-organise some of the product silos that you have in your organisation but it will mean that you are much more successful long term.

Make sure it’s profitable

Sounds obvious, but it’s not always the case. For example, a bank might successfully cross-sell a money market account to an existing checking account holder, only to have the customer use her new account to hold surplus funds from her transaction account—thus increasing neither share of wallet nor profitability.

In fact, an analysis of customer holdings for 14 of the largest Australian financial institutions reveals no relationship between the average number of products they have per customer and their average share of wallet.

The message is clear – make sure what you’re doing is profitable.

Measure the correct drivers and KPIs

When you implement your cross-selling approach make sure that you measure the correct KPIs and business drivers.  As a start: products per customer, accounts per customer, policies per customer all sound good but can be very misleading and drive the wrong staff behaviour.  For instance we had one banking client who couldn’t work out why their profit was not going up.  They had a great customer cross-sell program, staff were incentivised based on accounts per customer and that figure was increasing nicely.  Everyone was happy except the CFO.

It wasn’t until we dug a bit deeper that we found lots of silent attrition, i.e, accounts that were open with just a few dollars in them.  Some more investigation and we discovered that when customers wanted to change the type of account that they had, front line staff were encouraging them to keep the old account and open a new account.   Great for the accounts per customer KPI, not so good for the company profit!

As part of cross-selling we really need to discuss product bundling but that is a big topic, and one I’ll address another day.

By Adam Ramshaw

Filed Under: General Tagged With: ,