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Measuring Customer Flow
Using data to drive customer strategy is not a new idea - everybody talks about it - but practical
implementation is more difficult than the actual concept. The reason is simple; whilst being an
overwhelmingly logical thing to do, there are some practical limitations. For one thing, the sheer
volume of information generated by the analytical process often creates more confusion than clarity.
This generally leads to development of an experience driven strategy with a few analytically based
gems thrown in for good measure.
Our data driven approach (through the application of our Customer Flow™ methodology),
is a thorough way of using customer data to create a high level customer strategy. Customer Flow™
identifies product adoption pathways (e.g. from home insurance to mortgage, via credit cards or
savings accounts), detailing both the rate of flow and expected potential of any pathway. As well as
an historical analysis, it identifies cross-sell opportunities for each customer and differentiates
between high and low value marketing opportunities.
Personal Bias
Comfort zones
Past activities
Beliefs
Assumptions
Planning
Validation and prioratisation
Data collection and analysis
Business understanding
CVO modeling
Experience driven Experience driven

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Priority and focus
Most companies have survived to date without the need to delve deep into the customer base and
measure customer flow.
Why do it now? Customer FlowTM
provides an opportunity and means to overcome challenges faced
by many marketing organisations:
An unfocused or disjointed marketing program
Competing internal priorities with no common basis for choosing one over the other
CRM implementations that have not lived up to expectations
Marketing plan being driven by last past activity
No cohesive plan for dealing with
Cross sell
Up sell
Retention
Acquisition opportunities
Marketing is campaign driven not customer focused
In natural systems elements follow natural pathways: rivers flow downhill and around mountains,
wind rushes through corridors not walls. Customers also follow natural pathways - they exhibit
product preferences, purchase in sequenced patterns, and are most likely to “move” during discrete
time windows.
Understanding customer flow is about finding the downhill runs and avoiding the walls.
Our research has shown that:
There are nearly always entry products that customers buy first
Unaided the conversion from single product to multi-product relationships is patchy and
haphazard
Some product relationships naturally lead somewhere valuable and others lead nowhere
The path to being a high value customer is often through a series of intermediate
low value products
Combining products into one customer relationship often leads to combination profits,
which are greater than the sum of the parts
Business Context
Logical Framework
Measuring customer flow

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Theunderlyingassertioninapplyingcustomerflowisthatitiseasiertoleveragevaluefromacustomer
base by applying stimulus (sales and marketing effort) to a pathway that customers naturally head
down rather than one they do not.
Figure 1 is an example of a pathway node. There is an important point to be made from this node:
There is a natural pathway from Transaction account only to the Transaction,
Savings and Mortgage bundle
i.e. more customers move to the profit centre of the node through the intermediate sale
of a savings account
Natural adoption pathway
Unnatural adoption pathway
TRAN
TRAN
SAV
TRAN
MORT
TRAN
MORT
SAV
In estimating and evaluating opportunities it is necessary to understand the flow in terms of:
Rate: the speed at which customers move from feeder to target segment
Momentum: the strength and magnitude of the flow
Value: the financial value being created or destroyed by the flow

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Experience as validation
Experience is a key input to the strategy development process. We make most use of it at the
beginning to create a context for the analysis and then at the end during the validation stage.
There is a fine line between creating working understanding of a business and maintaining an open
mind on the outcome. To do this we question and test rigorously, separating facts from assertions.
We do not get paid to rehash ideas and experience. We create value by helping to create a new
understanding.
Consistent metrics
Customer FlowTM
is a mathematical model that:
Applies the laws of natural systems and quantum mechanics to measure customer
dynamics
Measures the size and velocity of customer value flows
Uses rate of flow not static segment size to identify opportunities
Measures the value effect of up selling, cross selling and other activities
Provides a uniform metric base for prioritising competing opportunities
Assumption reduction
Whilst assumptions are unavoidable and necessary, it is important to rigorously reduce the number
of assumptions being used and stress test the ones that are.
By driving insight directly from the data, Customer FlowTM
has moved the application of assumptions
to the validation stage of the strategy process. This allows us to minimise the number of assumptions
used in building up the strategy, ensuring that the analysis at least has a solid foundation.
This approach helps to avoid the dangers of assumption layering where individual assumptions that
are valid and logical in isolation fail when applied together.

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Allocation of scarce resources
Invariably, in marketing, the number of marketing opportunities far exceeds the capacity to execute
them all.
The application of Customer FlowTM
identifies opportunities and then provides an evaluation process
prioritised based on the established uniform metrics.
Optimised Opportunity Matrix
A unique customer understanding
Each customer base is unique. They are influenced by brand, acquisition strategy, channel structure,
product and pricing, organisational culture and geographic spread.
Even organisations in the same industry will have customer bases with unique characteristics.
Competitive advantage is created by understanding the unique customer dynamics of your
organisation and developing programs that leverage unique strengths and mitigate weaknesses.
Because Customer FlowTM
is a method for understanding customer dynamics, with few underlying
assumptions and constraints, it applies to all organisations uniquely.
About Digital Alchemy
Digital Alchemy Limited (DA) is Asia Pacific’s leading Database Marketing Services Provider. DA’s
team of professionals are dedicated to working with clients to improve their marketing efficiency
and to capture latent customer value. Established in 2003 and operating in Sydney, Melbourne,
Auckland,Bangkok,HongKong,Nanjing,andSingapore,DAhasbeencontributingtothesuccessofan
expanding breadth of clients including leading companies in financial services, telecommunications,
motoring services, media and other industry sectors.
“This document has been prepared for the purpose of providing general information and should not be relied on in substitution for individual
professional advice. Copyright in this document is owned by Digital Alchemy Consulting Pty Limited, and except as permitted under the Copyright
Act 1968, no part of it may be reproduced by any process, electronic or otherwise, in any material form or transmitted to any other person or stored
electronically in any form without the prior written permission of Digital Alchemy Consulting Pty Limited.”