eCommerce Analytics

I had planned to write about new businesses and business concepts that I observed at the unConference last week. But given the economic meltdown that only seems to be accelerating, I thought that I’d better continue along the lines of Chris and Doug the last two days and address how multi-channel retail businesses can profit from customer analytics in an economy where consumers are wary of spending money. The truth: customer analytics will better help you protect your customer base from larger retailers who dangle lower prices.

Read Protecting Your Customer Base in Bad Economic Times »

With today’s news that the retail sector is experiencing a slowdown, now is a better time than ever for multi-channel retailers to do two things: turn to cheaper forms of advertising (email) and use quick-return customer analytics to compete with gargantuan discounters like Wal-Mart that threaten to swallow retail whole. The truth is that Wal-Mart will continue to invest in analytics during the tough economy because they will see immediate ROI from understanding which customers are poised to buy, which items they want, and how much those customers are willing to spend. I can think of two, good reasons for smaller multi-channel retailers to follow suit.

Harvest your current customers
Most would say that the thick of a poor economy is a poor time to invest in new marketing projects. If these projects are tied to new customer acquisition, I might agree. It’s damned expensive to acquire customers and you tend to forget what you already have while you’re out prospecting, buying lists, etc. Sometimes, the answer is in front of you. In a poor economy, isn’t it imperative that you retreat to your base? Multi-channel retailers need to figure out ways to:

A. Not lose your current customers to competition (like Wal-Mart)
B. Harvest your existing customers by making them feel as though you understand them

Really, achieving B is the answer to question A. A redoubling of your customer service effort will always make your customers more loyal and less likely to jump ship. But we have to remember that larger players can always offer deeper discounts in an effort to combat your superior customer understanding. One way around this is to deepen your customer understanding on the marketing front with timely, personalized emails to your customer base. Ultimately, if you can address your customers’ needs first - make your customers offers at the cusp of when they need those products - then you are likely to win their business. This is the advantage that predictive models based on your customers behaviors provide you: the ability to beat your larger competition on timing as opposed to discounting.

Quick ROI
Customer analytics like those that Istobe proposes are great because the analysis takes advantage of data that you, as a multi-channel retailer, already possess. You’ve already got a record of your cusotmers’ purchases. In other words, there is no up-front infrastructure or talent investment. What this ultimately means is that your ROI emerges quickly. How quick? Well, let’s just say that you’re in the black (or, green) around month two. This is especially true if you’re already used to sending your customer data to a co-op database (like Abacus or NextAction); you’ve already made your data collection and transfer investment. Now it’s simply about turning those investments to a different use - customer development not acquisition - by focusing how that data helps you pull in the monetary margins in your current customer base.

At Istobe, we’ve clearly been preaching the virtues of customer analytics for some time now, so it makes us happy when we read new research that shows an increased interest in customer centric software solutions to make better use of existing customer data. Specifically, a new report by AMR (The Customer Management Market Sizing Report 2007-2012) shows that spending on customer management applications and software has increased by double-digits for the first time since the 1990’s.

The report talks about how “an almost universal trend around customer-centricity and customer experience management will fuel continued customer management investments regardless of economic conditions” and how in the next five years “the customer experience will be the most important potential competitive weapon.”

Additionally, the author specifically singles out marketing analytics as being “even more critical in a more challenging economy as insights into customer behavior provide better visibility into future demand and the effect of promotions and campaigns” and also notes that marketing organizations “are feeling more pressure from executives to demonstrate better insight into return on marketing investment. Today’s marketer needs to rely more on technology to aggregate demand data, analyze customer behavior and close the loop on campaigns.”

The report goes on to talk about the growth in SaaS and other industry trends, but the biggest takeaway I found was that the current economic recession is a great opportunity for companies to gain ground on competitors by implementing customer analytics solutions that better focus on increasing customer retention (see our other post about that here) and improving marketing response rates. While many organizations have already planned for or implemented cost cutting measures in light of concerns over the future, I definitely believe the measure of success between firms in a given industry over the course of the next few years will largely be determined by how effectively they use their existing data to manage their business.

Many of the companies we have talked with recently have expressed concerns over the coming recession. Consumer spending will continue to decrease while costs for everything from power to supplies are expected to rise. While the road ahead may look tough for many businesses, I believe the recession offers an opportunity to refocus on getting more value out of your existing customers.

A new report released by the CMO Council (“Business Gain From How You Retain: Addressing the Challenge of Customer Churn and Marketing Burn”) supports these thoughts. The CMO Council in conjunction with IBM, Dun and Bradstreet, and CSC surveyed over 450 marketing professionals about how they “‘operationalize’ customer intelligence” to make better marketing decisions and increase customer retention.

How important is this? Well, they point out some well-known facts:

• The average company loses more than 10 percent of its customers each year.
• Acquiring new customers can cost five times more than satisfying and retaining current customers.
• A two percent increase in customer retention has the same effect on profits as cutting costs by 10 percent.
• Loyal customers are 15 times more likely to increase spend than high-risk, intermittent customers.

Unfortunately, knowing that retention importance is increasing is not enough.  Most marketers do not know their customers well enough to increase customer retention and take advantage of cross-sell and up-sell opportunities. Only 7% of marketers in the survey said they had excellent knowledge of their customers; only 8% said their companies are doing a good job of making customer data easily accessible. More importantly, over 75% of respondents had not implemented some kind of customer intelligence or data integration system to make use of their information.

So what’s the solution to reducing churn? Well, many BI and customer intelligence providers would have you believe that implementing a full scale package will provide you with the reports you need to make informed decisions about your customers. Reports and dashboards are nice, but they provide little insight into the reasons behind why customers are churning. As the CMO article points out: “the reasons for churn are wrapped around the customer experience” and it’s hard to understand this from a bunch of reports.

I believe that the key to customer retention is effective and sustained one on one interaction with customers and to find the best ways to reach out and engage the existing customer base. The CMO Council report makes it clear that understanding your customers is one part of solving the “churn” problem, but I believe the second part of that puzzle is figuring out how to use that information successfully. In the months to come, I hope to offer some tips to make your customer data more understandable, and more important, actionable.