Data driven customer intelligence is a fairly evolved science. Enterprises have sunk enormous investments in sophisticated data mining algorithms and the associated infrastructure in order to be able to identify the cream of their customer portfolio. As a result, these companies have a pretty good handle on who their high value customers are, what they like, where do they live, what will they spend on, when they will sneeze etc.
This information is leveraged massively to tease out the last dollar from the wallets of the high value customers by bombarding them with offer after offer, day after day. Alas, unable to withstand this battering, some customers run for the hills, never to return.
The other extreme is a carpet bombing of the entire portfolio. Insipid emails are rammed down the throats of the entire client base and almost always the offers do not make anybody bat an eyelid because the offer/ incentive budget has been spread too thin.
The central premise of this blog is that both the above strategies are grossly sub-optimal. As in most things, a thoughtful hybrid approach usually works best. It is true that the golden Pareto is not to be trifled with. The small sliver of customers who generate the lion’s share of the profits are to be zealously protected and pampered.
Once this is done, what next? The usual assumption is that everybody else who is not a “high value” is a commoner and is not to be taken too seriously. The marketing investment allocation followed here would resemble something like this:
This is such a pity because its not very different from throwing money down the drain. In most situations, the value dispersion among customers is like a steep pyramid. The key is to sharply define the level from which investment starts. This is where the art and science of high value customer prediction comes in handy. Only, in this case, it needs to applied in reverse.
Know your low value customers:
Simply put, there should be identification of the LOWEST value customers in the portfolio, using the same prediction and data mining techniques. This certainly deserves the same attention and effort as the identification of High Value customers because there is a massive potential to unlock value. Sounds odd? Let me explain:
As we go down the pyramid, there is a likelihood that the number of customers within each value band would exponentially increase. Therefore, even the most conservative estimate of LOW VALUE customers will yield a huge number of accounts. In our experience, more than a full 50% of customers do not transact anything in the future period. Expending marketing dollars on a vast majority of them will not lead to anything worthwhile.
Re allocate your budget to Next Best customers:
The planned marketing investments on this low value group should be re-purposed to meaningfully target the immediate next value band from the High Value group. We can call this group the Next Best Value Group.
Migrate Next Best customers to High Value Customers:
Usually used to getting relegated to the doghouse, they are bound to react very positively when they feel the warm glow of attention from the company. Who knows, a good proportion may even be energized enough to vault into the High Value Group as well. Even otherwise, the value which can be realized from Next best customers would be high when compared to low value customers at any point of time. A rigorous measurement paradigm to monitor value migration would also provide unprecedented visibility and insight into the customer behavior.
A dynamic customer segmentation, value prediction and value migration system will keep the customer base on the boil and not let stagnation creep in. Based on the value band, other value added activities like contextual contact, personalization and meaningful incentives should be part of the mix. This is guaranteed to bring about the maximum ROI. Furthermore, the ability to not just identify customers in key value bands, but also actually attach a numerical estimate will go a long way in planning for and realizing impact.
At BRIDGEi2i, we have superior capabilities to tease out the maximum ROI from your customer base. Our advanced analytics capabilities can come up with very sharply defined customer segments and predict value. Our endeavor is to enable enterprises bring about a virtuous cycle that traverses a bigger arc with every customer interaction.
This blog is written by Nandhini Giridharan, Analytics Consultant at BRIDGEi2i
About BRIDGEi2i: BRIDGEi2i provides Business Analytics Solutions to enterprises globally, enabling them to achieve accelerated business impact harnessing the power of data. Our analytics services and technology solutions enable business managers to consume more meaningful information from big data, generate actionable insights from complex business problems and make data driven decisions across pan-enterprise processes to create sustainable business impact. To know more visit www.bridgei2i.com
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position or viewpoint of BRIDGEi2i.