Customer Centric Marketing Seminar 4 04 06v3

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Why move to customer-centricity and how to overcome the barriers to success

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  • Customer Centric Marketing Seminar 4 04 06v3

    1. 1. Building Customer Equity in Your Organization Mark Price, Managing Partner April 4, 2006
    2. 2. Agenda <ul><li>Introductions and why we are here </li></ul><ul><li>Workshop goals </li></ul><ul><li>Customer-centricity – what it is, why it is important </li></ul><ul><li>MSG Research into Customer-centric Marketing </li></ul><ul><li>Roundtable Results </li></ul><ul><li>Participant Discussion </li></ul><ul><ul><li>Barriers to customer-centric marketing </li></ul></ul><ul><li>Application to your organization </li></ul><ul><ul><li>Where you are? </li></ul></ul><ul><ul><li>Where you can go </li></ul></ul>
    3. 3. To start… <ul><li>Introductions </li></ul><ul><li>Why are we here? </li></ul><ul><li>What are Your goals for the workshop? </li></ul>
    4. 4. Overall Objectives <ul><li>Establish a knowledgebase around data-driven marketing and customer-centric business practices </li></ul><ul><li>Provide you with a “real-world” glimpse into how other organizations evaluate themselves and the barriers they face </li></ul><ul><li>Enable you to go home with the outline of an action plan to grow customer equity </li></ul>
    5. 5. Data-driven Marketing and Customer Centricity <ul><li>Data-driven Marketing is a critical component to Customer Centricity </li></ul><ul><ul><li>Involves the leveraging of customer data to drive sustainable revenue across all channels </li></ul></ul><ul><ul><li>Not just outbound, includes call center, service, delivery, product development, etc. </li></ul></ul><ul><ul><li>Tends to be segments rather than 1:1 </li></ul></ul><ul><li>Customer Centricity is the structuring of the organization around customer segments to facilitate the personalization of the customer experience </li></ul>Not synonymous terms, but critically related. Both aspects must be in place to drive customer value consistently
    6. 6. Building Value the Customer-Centric Way Background and Approach
    7. 7. Customer-centricity in the news <ul><li>For the past several years, “customer centric marketing” or “customer centricity” has been in the news repeatedly </li></ul>Giving Voice to Customer-Centricity Reaps Big ROI for Barclays ( CRM Today) Whether bull or bear market, the Royal Bank of Canada is piling up the ROI; and its customer-based strategy gets all the credit. (Inc. Magazine) Best Buy has what it calls a &quot;customer centricity&quot; initiative, a strategy being rolled out that's designed to increase sales and market share. ( WSJ)
    8. 8. Customer-centricity On The Bookstand Angel Customers & Demon Customers by Larry Selden and Geoffrey Colvin © 2003 Return on Customer by Don Peppers and Martha Rogers © 2005 Managing Customers As Investments by Sunil Gupta, et. al. © 2005
    9. 9. Customer centric management – why? <ul><li>All stem from 1 critical observation </li></ul><ul><ul><li>“ A company’s value is simply the discounted cash flows resulting from a customer revenue stream” </li></ul></ul>The only source of the “fuel that runs the engine” is revenue that comes from selling to customers Plants don’t make earnings for the company Products don’t make earnings for the company Locations don’t make earnings for the company Employees don’t make earnings for the company Consultants don’t make money (just kidding)
    10. 10. Customer centric management Customer Concentration <ul><li>Not only does all company value come from customer-supplied revenue streams, but … </li></ul><ul><ul><li>Frequently all customer-supplied revenue streams come from 20% of a company’s customers </li></ul></ul>% of Customers % of Gross Profit 20% 80% - 100%
    11. 11. Customer centric management Segmentation <ul><li>Not only does all company value come from 20% of a company’s total customers, but… </li></ul><ul><ul><li>The 20% of customers is not homogenous, but is composed of multiple, very distinct, groups </li></ul></ul>% of Customers 20% Heavy Hitters Stock-ups Shells & Line Hunters Anglers Camp & Hiking Boaters
    12. 12. Customer centric management Cost Allocation <ul><li>If a company’s value is composed only of customer-generated net cash flows, then… </li></ul><ul><ul><li>All costs need to be allocated back to those cash flows to create the “Net” number </li></ul></ul>Customer-driven gross margin (really all there is) <ul><li>Costs allocated down to the customer segment </li></ul><ul><li>Facilities </li></ul><ul><li>HR </li></ul><ul><li>Sales </li></ul><ul><li>Finance </li></ul><ul><li>Marketing, etc. + </li></ul><ul><li>“ The Company Holiday Party”  </li></ul>= “ True” customer-level P&L’s minus Forces all expenses through the lens of “customer value” and creates accountability to shareholders for spending
    13. 13. Customer centric management Valuation <ul><li>So if customers can be tied to a revenue stream, they can also be tied to a public company’s stock price or a private company’s valuation </li></ul><ul><ul><li>Changes in customer value will change that valuation and either add or detract from shareholder value </li></ul></ul>Price ------- Earnings = Expectation of future growth in customer-driven revenue streams ------- Current results from customer-driven revenue streams (less costs)
    14. 14. Implications Value comes from customer-driven revenue stream Most to all revenue comes from a concentration of customers That concentration of customers is made up of distinct segments The discounted customer-driven revenue stream can be directly tied to company valuation or stock price Customer focus is the most important function of a company That limited number of customers actually make up all of your company’s value Understanding those segments (and integrating a value proposition into those groupings) is critical <ul><li>Investors need to understand customer management to gauge value </li></ul><ul><li>Customer treatment has far- </li></ul><ul><li>reaching implications </li></ul>Implication Learning
    15. 15. <ul><li>Business environment increasingly competitive: </li></ul><ul><ul><li>More competitors </li></ul></ul><ul><ul><li>More channels </li></ul></ul><ul><ul><li>More price pressure (transparency of information) </li></ul></ul><ul><ul><li>Wall St. less forgiving </li></ul></ul><ul><li>Marketing, and customer spending in general, under increased scrutiny for accountability </li></ul><ul><ul><li>#1 CMO issue </li></ul></ul><ul><li>“ Do more with less” </li></ul>How did we get here? Business Environment Once cost-cutting has been achieved, improvements in performance become increasingly hard to come by
    16. 16. How did we get here? Technology <ul><li>Several key technology trends now permit measurement of customer value: </li></ul><ul><ul><li>Moore’s Law in action – data storage capacity continues to increase while prices for capacity continue to decline </li></ul></ul><ul><ul><li>Increase in computer processing speeds permit near-real-time decision making </li></ul></ul><ul><ul><li>Drive of “computer-related” devices into point of sale, warehouse, vendors, HR, etc. </li></ul></ul><ul><ul><li>Development of accurate, actionable, “somewhat” affordable software </li></ul></ul><ul><ul><li>The Internet </li></ul></ul>
    17. 17. How did we get here? CRM <ul><li>Customer Relationship Management software offered a technology solution to increase customer revenue at the 1:1 level </li></ul><ul><ul><li>Biggest issues in CRM turned out to be business process and customer data management, rather than software </li></ul></ul><ul><ul><li>Spectacular flameouts in the late 1990’s highlighted the gaps between software process and business process </li></ul></ul>
    18. 18. How did we get here? Data Warehousing <ul><li>Critical issue in understanding customers is ability to consolidate and analyze customer data (behavior, service, demo/firmographics) </li></ul><ul><li>Also need to organize cost data in order to allocate all costs down to the customer level </li></ul><ul><li>Applications have sufficient data available and technology now permits consolidation </li></ul><ul><li>Software enhancements now simplify the data warehouse challenge (though it is never easy) </li></ul><ul><li>Customer data warehouse now transforms into the company’s most valuable asset </li></ul>Customer-driven gross margin (really all there is) Costs allocated down to the customer segment = “ True” customer-level P&L’s minus
    19. 19. How did we get here? Business Process <ul><li>Business process reengineering has been the leading buzz words in the past 3-5 years </li></ul><ul><ul><li>Focus on streamlining costs, eliminating headcount and reducing time to market </li></ul></ul><ul><ul><li>Has lacked a primary business value driver </li></ul></ul><ul><ul><ul><li>Difficult to make efficiency a motivating “vision” of customer value </li></ul></ul></ul><ul><li>Lack of clear compelling value drivers will result in the passing of yet another fad </li></ul>
    20. 20. So what’s involved? <ul><li>Dramatic changes to all aspects of corporate culture and functionality </li></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Processes </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><li>The hardest part is NOT the technology </li></ul><ul><li>The hardest part is change management </li></ul>
    21. 21. Organization <ul><li>Build business teams around different customer segments, with full accountability </li></ul><ul><ul><li>Force previously siloed functions into alignment around the critical driver of value – customer short-term and lifetime value </li></ul></ul><ul><ul><li>Team leaders understand customer requirements and drive those requirements across every function that touches that customer </li></ul></ul><ul><ul><ul><li>Products and services </li></ul></ul></ul><ul><ul><ul><li>Pricing </li></ul></ul></ul><ul><ul><ul><li>Marketing </li></ul></ul></ul><ul><ul><ul><li>Sales, etc. </li></ul></ul></ul>
    22. 22. Crossing the Chasm Early Adopters Early Majority Late Majority “ Never Mind” Need Mavens + Connectors to help bridge the chasm and let the Early Majority know the product is ready – “Social Networks”
    23. 23. Segmentation <ul><li>Lifeblood of customer-centricity is an understanding of customer behaviors and attitudes for the most critical segments </li></ul><ul><ul><li>80/20 rule </li></ul></ul><ul><ul><li>Must drive to attitudinal data, not just to purchase behaviors </li></ul></ul><ul><ul><li>The “why” + the “what” combine to create customer loyalty in a segment </li></ul></ul><ul><ul><ul><li>Why customers behave as they do </li></ul></ul></ul><ul><ul><ul><li>What do customers actually do </li></ul></ul></ul><ul><li>Permits efficient targeting of segment benefit </li></ul><ul><li>Change in customer lifetime value becomes the most critical metric in the company </li></ul>
    24. 24. What gets measured is what matters… <ul><li>Critical to customer-centricity is a measurement system to provide accountability for segment-level performance all the way from Sales through Marketing to Finance etc. </li></ul><ul><li>Compensation must be changed to synch with the measurement system </li></ul><ul><li>Remember – employees will do: </li></ul><ul><ul><li>What they are compensated for </li></ul></ul><ul><ul><li>What is measured </li></ul></ul><ul><ul><li>Exactly what they used to do </li></ul></ul>
    25. 25. Customer-driven Business Processes <ul><li>The critical connection between customer data, marketing analysis and sales execution is the Business Process </li></ul><ul><li>Handoffs and tracking must be seamless to ensure that: </li></ul><ul><ul><li>Customer experience is enhanced by leveraging behavioral data </li></ul></ul><ul><ul><li>Changes can be made to marketing and sales as a result of changes in customer behavior </li></ul></ul><ul><ul><li>Smooth handoffs between departments or divisions </li></ul></ul>
    26. 26. Is Customer-Centricity Another Fad? <ul><li>Possibly. Depends on level of commitment by management </li></ul><ul><li>The equation customer value = the “E” of the P/E ratio cannot be disputed </li></ul><ul><li>For Customer-centricity to succeed: </li></ul><ul><ul><li>Must become executive metric </li></ul></ul><ul><ul><li>Shared by Board Members, shareholders and private investors </li></ul></ul><ul><ul><li>Be a long-term commitment – will clearly require some upfront investment to succeed </li></ul></ul>
    27. 27. What Your Peers Say… <ul><li>M Squared Group is conducting a research study to determine progress in using customer information to drive business performance </li></ul><ul><ul><li>Both clients and non-clients </li></ul></ul><ul><ul><li>Primarily marketing director, VP and CMO </li></ul></ul><ul><li>Objective is to identify the most critical business issues involving customer centricity and to gain a “real world” sense of progress to date </li></ul><ul><li>Next steps will be to follow-up to identify the constraints that are preventing organizations from leveraging customer information </li></ul>
    28. 28. Research Review
    29. 29. Summary of Findings <ul><li>Overall, respondents are somewhat dissatisfied with how their companies are using customer information to drive growth </li></ul><ul><ul><li>B2B companies are much more dissatisfied than B2C companies </li></ul></ul><ul><li>The biggest gaps tend to be in the use of customer information for improved retention, leveraging RFM and share of wallet </li></ul><ul><li>In addition, over 38% of respondents lack a customer data repository </li></ul><ul><ul><li>Issue for both B2B and B2C </li></ul></ul>
    30. 30. Usage of Customer Data by Type of Business <ul><li>In general, respondents are relatively dissatisfied with how their organizations use data to drive revenue </li></ul><ul><li>Biggest issue appears to be segmentation, where most organizations are not pleased with their current efforts </li></ul>Business to Consumers Business to Business All Respondents 3 No 7 No 6 7 11 No 15 2.36 2.79 2.43 2.50 2.50 Yes 1.79 We use customer segmentation for targeted campaigns to prospects We use customer segmentation for targeted campaigns to existing customers Our company uses customer data to target customers for cross-sell/up-sell opportunities Our company uses customer data to prioritize accounts based on overall customer value We use our database to guide us in making complementary product offerings to customers We have a customer database that consolidates basic transaction and other customer touchpoint data (call center, web, etc.) I am satisfied with how we use customer data to drive incremental revenue for our company 2.54 3.15 2.81 2.69 2.65 Yes 2.15 2.89 3.78 3.56 3.00 3.00 Yes 2.67 7 6 5 4 3 2 1
    31. 31. Usage of Customer Data by Type of Business <ul><li>Overall, the lowest levels of satisfaction are with attrition modeling and the use of “share of wallet” in campaigns </li></ul><ul><li>Largest discrepancies between B2B and B2C are in share of wallet, using campaign results, and reviewing marketing campaigns </li></ul>Business to Consumers Business to Business All Respondents 4 8 No No 5 6 12 14 No 3.29 2.14 1.50 1.57 2.21 Yes We review marketing campaign results We change our customer campaigns based on customer response data We calculate our share of our customers' total category spending (share of wallet) and use this data in our campaigns We use attrition modeling to identify customers for special retention programs We use customer RFM (recency, frequency, monetary value) for specific campaigns We have established marketing roles responsible for specific customer segments 3.81 2.58 2.00 1.81 2.27 Yes 4.44 13 3.33 12 2.89 2.33 2.44 Yes 11 10 9 8
    32. 32. Question # 1 - I am satisfied with how we use customer data to drive incremental revenue for our company (all respondents) A significant portion of respondents are not satisfied with how their organizations are addressing the challenges of customer data 100% 26 Total 0.0% 0 Extremely Satisfied 7.7% 2 Very Satisfied 26.9% 7 Satisfied 38.5% 10 Somewhat Satisfied 26.9% 7 Not at all Satisfied % Count  
    33. 33. Question # 1 - I am satisfied with how we use customer data to drive incremental revenue for our company (B2B respondents) The respondents that are not satisfied with how their organizations are leveraging customer data are primarily within B2B organizations 100% 14 Total 0.0% 0 Extremely Satisfied 0.0% 0 Very Satisfied 21.4% 3 Satisfied 35.7% 5 Somewhat Satisfied 42.9% 6 Not at all Satisfied % Count  
    34. 34. Question # 1 - I am satisfied with how we use customer data to drive incremental revenue for our company (B2C respondents) In contrast, the B2C respondents have the only group that answered very satisfied with their use of customer data 100% 9 Total 0.0% 0 Extremely Satisfied 22.2% 2 Very Satisfied 22.2% 2 Satisfied 55.6% 5 Somewhat Satisfied 0.0% 0 Not at all Satisfied % Count  
    35. 35. Preliminary Conclusions <ul><li>Overall level of satisfaction with leverage of customer data is low </li></ul><ul><li>Key issues are often not the “fancy moves” but the basic segmentation and campaign analysis </li></ul><ul><li>Significant barriers to moving to a customer-centric business model </li></ul><ul><li>B2C companies appear a bit farther along than B2B at this stage </li></ul>
    36. 36. Discussion <ul><li>At your table, please discuss: </li></ul><ul><ul><li>How your organizations use customer data to drive revenue, profitability and accountability? </li></ul></ul>
    37. 37. Roundtable Results <ul><li>M Squared held an executive roundtable on March 23, to discuss how customer-centricity and data-driven marketing was being executed in both B2C and B2B organizations: </li></ul><ul><ul><li>Patterson Dental </li></ul></ul><ul><ul><li>Fargo Electronics </li></ul></ul><ul><ul><li>Best Buy </li></ul></ul><ul><ul><li>Lifetouch </li></ul></ul><ul><ul><li>North American Membership </li></ul></ul><ul><ul><li>Deluxe </li></ul></ul><ul><ul><li>PeopleNet </li></ul></ul><ul><ul><li>General Mills </li></ul></ul><ul><ul><li>Govdocs.com </li></ul></ul><ul><ul><li>United Health Group </li></ul></ul><ul><ul><li>Katun </li></ul></ul><ul><ul><li>Cambria </li></ul></ul>
    38. 38. Barriers to Customer-centricity Roundtable Results <ul><li>Executive Support </li></ul><ul><ul><li>70% of a change initiative’s success can be attributed to visible executive support </li></ul></ul><ul><li>Vision </li></ul><ul><ul><li>No clear need articulated to the organization with consequences for failure outlined in detail </li></ul></ul><ul><li>Compensation </li></ul><ul><ul><li>Compensation structure can encourage sales to push unneeded products on customers, reducing retention </li></ul></ul><ul><ul><li>No clear customer-centric metrics, leads to lack of sales support </li></ul></ul><ul><li>Fiefdoms </li></ul><ul><ul><li>Product management organization traditionally held P&L </li></ul></ul><ul><ul><li>Customer-centricity evolves those teams into more staff than line roles </li></ul></ul><ul><li>“ Old tried and true” </li></ul><ul><ul><li>Organization built around processes that encourage repeating past campaigns </li></ul></ul><ul><li>Data is difficult to obtain and analyze </li></ul><ul><ul><li>Multiple silos of data, difficult to relate, combine, and analyze </li></ul></ul><ul><ul><li>IT resources already over-committed </li></ul></ul>
    39. 39. What are the Barriers to Change? Recap <ul><li>Executive Support </li></ul><ul><li>Vision Development </li></ul><ul><li>Compensation </li></ul><ul><li>Fiefdoms </li></ul><ul><li>“Old tried and true” </li></ul><ul><li>Data Challenges </li></ul>
    40. 40. Rate your organization <ul><li>Using the sheet that has been distributed, please rate your organization on barriers to building a customer-centric organization </li></ul>
    41. 41. Plan of Attack <ul><li>To succeed at building customer-centricity, you need </li></ul><ul><ul><li>A compelling vision </li></ul></ul><ul><ul><li>An executive who stands to gain from leading such a charge </li></ul></ul><ul><ul><li>Simple, slam-dunk business objectives </li></ul></ul><ul><ul><li>The ability to skunk-work a project at low cost, fast </li></ul></ul><ul><ul><li>Tracking strategy </li></ul></ul><ul><ul><li>“Early adopters” to assist in execution </li></ul></ul>
    42. 42. Build your own company plan <ul><li>Worksheet designed to simply help identify the single initiative that can move your customer-centric marketing effort ahead </li></ul><ul><ul><li>Critical to identify a compelling vision and an achievable business objective </li></ul></ul><ul><ul><li>Finding the right sponsor and early adopters accelerate initial initiative and increase chances for success </li></ul></ul>
    43. 43. Questions <ul><li>Additional questions? </li></ul><ul><li>Thoughts? </li></ul><ul><li>Challenges in using this base plan? </li></ul>
    44. 44. Thank you! Mark Price Managing Partner, M Squared Group 952-484-0501 [email_address]
    45. 45. Appendix
    46. 46. Key Principles of Data-driven Marketing <ul><li>“ All consumers are not created equal” </li></ul><ul><li>Marketing spending should be allocated proportional to the consumer value </li></ul><ul><li>“ Timing is everything” </li></ul><ul><li>Consumer acquisition exceeds costs of current consumer marketing, by lots! </li></ul><ul><li>Data-driven marketing has implications for product development, investments and overall business planning </li></ul>
    47. 47. Key Principles of Data-driven Marketing Benefits <ul><li>More repeat sales </li></ul><ul><li>Reduced cost of sales </li></ul><ul><li>Less volume sold on promotion </li></ul><ul><li>Increased employee retention </li></ul><ul><li>Better referral opportunities </li></ul><ul><li>Higher margins </li></ul><ul><li>Increased sales over time </li></ul><ul><li>(Fred Reichheld, The Loyalty Effect ) </li></ul>
    48. 48. Key Principles of Data-driven Marketing Differentiated Marketing <ul><li>Why discriminate in consumer marketing? </li></ul><ul><ul><li>Consumers have differing relationships with a company </li></ul></ul><ul><ul><ul><li>20% of consumers = 60-80% of revenue </li></ul></ul></ul><ul><ul><ul><li>Bottom 20-30% of consumers usually cost you money to market </li></ul></ul></ul><ul><ul><ul><li>Note: mass media is an inherently inefficient way to reach the 20% of relevant consumers who are/can become Best Consumers </li></ul></ul></ul><ul><ul><li>Many consumers do not have the capacity to significantly improve their spending </li></ul></ul><ul><ul><li>Your best consumers are likely to be the best consumers of the competition as well </li></ul></ul><ul><ul><ul><li>Additional upside potential even in best consumers </li></ul></ul></ul>
    49. 49. Key Principles of Data-driven Marketing Differentiated Marketing (cont’d) <ul><li>Small percentage changes in performance for Best Consumers have significant upside </li></ul><ul><ul><li>E.g. a 5% improvement for a $2000/yr consumer equals a 100% improvement for a $100/yr consumer </li></ul></ul><ul><ul><li>Small behavior changes are easier to create than larger ones, if the larger changes are possible at all </li></ul></ul><ul><li>Some consumers have potential to be Best Consumers </li></ul><ul><ul><li>Large potential return </li></ul></ul><ul><ul><li>Pays out marketing investments many times over </li></ul></ul>
    50. 50. Key Principles of Data-driven Marketing Leaky Bucket Consumer Acquisition Consumer Attrition Expand the bucket <ul><li>Thru data-driven marketing, a company can: </li></ul><ul><li>Slow competitive momentum (particularly store brands) </li></ul><ul><li>Drive more revenue and margin from current consumers </li></ul><ul><li>In effect, growing the size of the bucket </li></ul>
    51. 51. Key Principles of Data-driven Marketing Harnessing the power of RFM <ul><li>“ The best predictor of future behavior is past behavior” </li></ul><ul><ul><li>RFM provides a handle on the “velocity” of the business </li></ul></ul><ul><ul><li>Expanding velocity is the key to business growth </li></ul></ul><ul><li>Frequency = How often does a consumer make a transaction? </li></ul><ul><ul><li>Primary indicator of usage, satisfaction, brand and relationship </li></ul></ul><ul><ul><li>Indicates amount of product usage (use-up) which requires re-orders </li></ul></ul><ul><li>Monetary Value = Measurement of current/future consumer value </li></ul><ul><ul><li>Defines profitable and unprofitable consumers </li></ul></ul><ul><ul><li>Usually aggregates net profit across transactions across a fixed time period </li></ul></ul><ul><ul><li>Can be combined with product mix to better optimize consumer purchases </li></ul></ul><ul><li>Recency </li></ul><ul><ul><li>Time since last purchase or communication </li></ul></ul><ul><ul><li>Indicates involvement of consumer – when trended identifies changes in consumer buying patterns and/or relationship </li></ul></ul>
    52. 52. Key Principles of Data-driven Marketing Harnessing the power of RFM <ul><li>How RFM can be used to assess business performance and identify issues? </li></ul><ul><ul><li>Shift marketing spending toward high spending, frequent consumers and high potential consumers </li></ul></ul><ul><ul><li>Examine market basket for top decile consumers and cross-sell other consumers towards that basket </li></ul></ul><ul><ul><li>Examine RFM to identify causes for declines (focus on high revenue consumers) </li></ul></ul><ul><ul><ul><li>If BC’s recency/freq. constant, then market basket is the issue </li></ul></ul></ul><ul><ul><ul><li>If BC freq. falls, then need to incent repeat purchase </li></ul></ul></ul><ul><ul><li>Adjust communication frequency to purchase frequency </li></ul></ul>
    53. 53. Summary of RFM Strategies
    54. 54. Key Principles of Data-driven Marketing Share of Wallet (SOW) <ul><li>Share of Wallet is a company’s Revenue/Total Revenue, for a specific consumer </li></ul><ul><ul><li>Quantifies the opportunity </li></ul></ul><ul><li>Share of Wallet identifies the monetary upside from the expansion of a current consumer’s business with a company </li></ul><ul><ul><li>Priority/investment should be given to Best Consumers with lower Share of Wallet </li></ul></ul><ul><li>E.g. If Best Consumers in small law firms purchase $750/yr in products, then a consumer who purchases $250 represents a SOW of $250/$750 (33%) </li></ul><ul><ul><li>The upside potential would be $500 </li></ul></ul><ul><li>Use this measure to concentrate marketing spending and, as importantly, resources (time, creative, etc.) that are spent addressing those segments </li></ul>
    55. 55. Key Principles of Data-driven Marketing Share of Wallet <ul><li>Goal is to increase share of wallet for a particular segment </li></ul><ul><li>Metric is based on growth of consumer spending, NOT growth of a business line </li></ul>100% 100% Today 2011 Share of Spending All Others All Others Share of Spending
    56. 56. Key Principles of Data-driven Marketing The Importance of Time <ul><li>As RFM would suggest, Time is critical to database marketing: </li></ul><ul><ul><li>Measurement of consumer involvement requires sustained behavior over time </li></ul></ul><ul><li>Time is also a critical component of data-driven marketing delivery </li></ul><ul><ul><li>Consumers tend to purchase based on unconscious patterns (monthly, quarterly, etc.) </li></ul></ul><ul><ul><li>Marketing is more successful if directed to consumers at the time that they are ready to consider making a purchase </li></ul></ul>
    57. 57. Key Principles of Data-driven Marketing Event-triggered Marketing <ul><li>Event-triggered Marketing is the delivery of marketing communications/offers based on: </li></ul><ul><ul><li>Specific consumer behavior(s) </li></ul></ul><ul><ul><li>A “database trigger” (either a specific behavior or a “tickler” based on consumer-provided information) </li></ul></ul><ul><li>Five requirements of Event-triggered Marketing: </li></ul><ul><ul><ul><li>Targeted to specific behavior patterns </li></ul></ul></ul><ul><ul><ul><li>Based on consumer history </li></ul></ul></ul><ul><ul><ul><li>Measurable </li></ul></ul></ul><ul><ul><ul><li>Valuable to the consumer </li></ul></ul></ul><ul><ul><ul><li>Relationship-based, not just transactional </li></ul></ul></ul>
    58. 58. Key Principles of Data-driven Marketing Event Triggered Marketing (cont’d) <ul><li>1. Targeted to specific behavior patterns </li></ul><ul><ul><li>Communications timing based on a past behavior </li></ul></ul><ul><ul><ul><li>Consumer-driven behavior (consumer X purchases product Y) </li></ul></ul></ul><ul><ul><ul><li>Database-driven behavior (6 months since last tracked purchase) </li></ul></ul></ul><ul><li>2. Based on consumer history </li></ul><ul><ul><li>Consumer history in the database is the knowledge base for ETM – differentiation from mass marketing </li></ul></ul><ul><li>3. Measurable </li></ul><ul><ul><li>Measurement permits marketers to evaluate promotional effectiveness against different behaviors and different targets </li></ul></ul><ul><ul><li>Builds a foundation of knowledge to enhance future efforts </li></ul></ul><ul><li>4. Valuable to the consumer </li></ul><ul><ul><li>The offers and communication content must be truly valuable to the consumer, not just to the company </li></ul></ul><ul><ul><li>Cannot be seen as merely an excuse for more transactions </li></ul></ul><ul><ul><li>Does not require offers with every communication </li></ul></ul>
    59. 59. Key Principles of Data-driven Marketing Branding Implications <ul><li>Improved targeting of Better and Best Consumers actually enhances the Brand </li></ul><ul><ul><li>Balances price considerations with service delivery </li></ul></ul><ul><ul><ul><li>More personalized service </li></ul></ul></ul><ul><ul><li>Fewer “excessive” marketing communications </li></ul></ul><ul><ul><li>“ Products we want, when we want them” </li></ul></ul><ul><li>Enhances consumer relationships and provides perceived barrier to exit (stickiness) </li></ul><ul><ul><li>Creates a differentiating factor vs. competition </li></ul></ul>
    60. 60. Key Principles of Data-driven Marketing What about Consumer Loyalty? <ul><li>Difference between consumer retention and consumer loyalty </li></ul><ul><ul><li>Retention is a behavior </li></ul></ul><ul><ul><li>Loyalty is an belief </li></ul></ul><ul><li>Retained consumers can be loyal or not </li></ul><ul><ul><li>Some continue business by inertia, or price preference </li></ul></ul><ul><ul><li>Some continue due to a genuine sense of differentiation </li></ul></ul><ul><li>Shift from one type to another critical to long-term success </li></ul>
    61. 61. Consumer evolution and migration <ul><li>Consumers will change the depth of their relationship with a company over time </li></ul><ul><ul><li>Some businesses grow, diminish or sell off </li></ul></ul><ul><ul><li>Marketing, products, pricing, service will change depth of relationship </li></ul></ul><ul><ul><li>Competitive activity </li></ul></ul><ul><ul><li>“ Entropy” </li></ul></ul><ul><li>Identifying consumer migration patterns is critical to evaluating database marketing </li></ul>
    62. 62. Marketing Targets Best Consumers High Potential Consumers Remainder of Consumer Base High Potential Consumers Remainder of Consumer Base
    63. 63. Data-driven Marketing Best Practices Review #1 <ul><li>Leveraging RFM to Grow Share -- Patterson Companies </li></ul><ul><ul><li>Largest dental supply company in the world </li></ul></ul><ul><ul><li>Supplies office products to doctors, dentists, vets and chiropractors </li></ul></ul><ul><ul><li>Tracks RFM changes monthly and delivers segment specific communications and incentives </li></ul></ul><ul><ul><ul><li>Analyzes database to identify customers who are heavy purchasers and: </li></ul></ul></ul><ul><ul><ul><ul><li>Created expedited call center experience </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Direct bulk of communications to this segment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Dedicated outbound telesales to that segment, anticipate needs by preemptive contact </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Created bundles specific for different industries and “lifecycles” </li></ul></ul></ul></ul><ul><li>Avery Implications </li></ul><ul><ul><li>Enhanced consumer service for Best Customers </li></ul></ul><ul><ul><li>Industry-specific and lifecycle bundles </li></ul></ul><ul><ul><li>RFM-based promotions to maintain consumer on currently established purchase patterns </li></ul></ul>
    64. 64. Data-driven Marketing Best Practices Review #2 <ul><li>Personalizing offerings -- Office Max </li></ul><ul><li>Consumers are scored based on purchase patterns and product type concentrations </li></ul><ul><li>Specific segments receive customized mailings and web site personalization </li></ul><ul><ul><li>Segments and provides appropriate offers through the phone as cross-sell </li></ul></ul><ul><ul><li>Campaigns now personalized based on timing and product mix </li></ul></ul><ul><li>OfficeMax now receives 24% of revenue through web channel </li></ul><ul><li>Avery Implications </li></ul><ul><ul><li>Leverage phone channel as revenue source </li></ul></ul><ul><ul><li>Create communications stream based on purchases of value-added products </li></ul></ul>
    65. 65. Data-driven Marketing Best Practices Review #3 <ul><li>Building Lifetime Value -- Brother International </li></ul><ul><li>Developed Lifetime Value Calculation for consumers based on call center-obtained information </li></ul><ul><li>Created business selling accessories direct to consumers – “Return on Relationship” </li></ul><ul><ul><li>Leveraged call center as primary consumer acquisition tool (2mm calls annually) </li></ul></ul><ul><ul><li>Limit number of contacts per consumer per month to maintain freshness and relevancy </li></ul></ul><ul><ul><li>Identify when consumers are likely to need a new printer </li></ul></ul><ul><li>Avery Implications </li></ul><ul><ul><li>Possible to develop LTV for consumers based on lifecycle and product mix, even when consumers are purchasing through alternative channels </li></ul></ul><ul><ul><li>Established consumer relationship with limited channel conflict (focus on products not carried by retailers) </li></ul></ul><ul><ul><li>Implemented campaign management in a shortened timeframe </li></ul></ul>
    66. 66. Data-driven Marketing Best Practices Review #4 <ul><li>Leveraging Segmentation -- Best Buy </li></ul><ul><ul><li>Developed detailed segmentation for a limited number of key consumer groups (4 originally) </li></ul></ul><ul><ul><li>Identified key purchase characteristics </li></ul></ul><ul><ul><li>Conducted qualitative research to identify product gaps </li></ul></ul><ul><ul><li>Organized business units to maximize total company revenue from specific segments </li></ul></ul><ul><ul><ul><li>Product or category independent </li></ul></ul></ul><ul><ul><ul><li>Managed to an estimated P&L for that segment </li></ul></ul></ul><ul><ul><ul><li>Complete responsibility for communications, promotions and selling to that segment </li></ul></ul></ul><ul><ul><ul><li>Redesigned stores to feature sections that match the consumer base in that store’s trading area </li></ul></ul></ul><ul><ul><ul><li>Currently integrating web store personalization into process </li></ul></ul></ul><ul><li>Avery Implications </li></ul><ul><ul><li>Segmentation is both product and needs-based </li></ul></ul><ul><ul><li>Focus on limited number of opportunities </li></ul></ul>
    67. 67. Implications of Best Practices <ul><li>Success of industry and lifecycle bundles for B2B consumer management </li></ul><ul><li>Enhanced consumer experience for Best and High Potential Consumers </li></ul><ul><li>Increase cross-selling campaigns through call center operations </li></ul><ul><li>Possible to develop LTV measures for marketing prioritization even when indirect </li></ul>
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