Millions of ones - letting customers drive targeted strategy
Increasing loyalty by executing customer retention and acquisition promotional campaigns has been one of the main marketing objectives for the last decades. While marketing and commercial teams work hard to deliver the best value to customers, the brand-customer relationship is becoming more dynamic and multi-layered with customers having increased competitor awareness and preferring to use proximity stores to cherry-pick shopping baskets.
Whether on retail, banking or any service companies, the strategical planning of loyalty targeting and promotional activity is becoming a very complex task which, if not built upon solid profitability evidence, quickly turns into a resource-usage and margin-diminisher managerial problem.
While the promotional strategy is typically enforced on a top-down matter, the customer response complexity and dynamicity urge a bottom-up approach that manages to ensure one-to-one ROI focused on real customer needs and basket growth opportunities.
A broad analytical vision of the customer behavior history and future response predictions are the most valuable assets towards ensuring the promotional value proposition is suited to customers’ needs and ready to drive long-term profitability.
Embracing the dynamic customer’s lifecycle
A typical promotional strategy is usually defined over some sort of low-dimension customer lifecycle segmentation, more often than not based on the core RFM variables (Recency, Frequency, and Monetary value). However, both customers and companies are engaging in a multitude of ways, in which different products and channels are tailored to target specific customer needs, such as convenience, large-basket destination stores and online retailing.
In this era, the increasing customer price awareness along with the emerging promotional make loyalty a much more dynamic and hard to acquire concept. While RFM models have very valuable predictive power and provide a simple but effective way of segmenting customers, they fail to pick up on the necessary consumer behavior detail to fully optimize the marketing relationship.
One could dive even deeper and find such different behaviors within the same customer, perhaps across different product categories. Multi-product companies typically face very different competitors across their assortment range, and customer retention and churn measurements should also include this diversity dimension. Otherwise, the company may never extract the full potential from its customers and may be losing more money than they even realize.
Broad lifecycle segmentation is no longer enough to respond to the evolution of customer loyalty, as companies need to figure out the driving needs for customer shopping and understand their true potential value and, ultimately, profitability.
The pursuit of one-to-one ROI
Figuring out the customer level ROI is all about the understanding potential for customer improvement and the relationship between customer investment and expected probability of growth activation.
Analyzing customer potential is two-fold. It involves computing detailed customer-need specific lifecycle segmentations and also mining association rules to estimate them for customers with insufficient transactional data. Customer level information is obviously extremely rich on providing information for this value.
The next step is to get answers on how to acquire that value potential. Past promotional campaigns and extremely frequent A/B testing should be deployed to accurately analyze the efficiency of each promotional vehicle, communication channel and promoted products on converting customers’ potential value into loyal recurrent transactions.
Developing these predictive models enables companies to avoid the most common mistakes of promotional planning:
- Focusing on quantity instead of quality: Having too many promotions will, at most, maintain customer’s cost perception while eroding most chances of sustainable profitability;
- Ignoring customer data on the promotional definition: Suppliers are the main source of promotional funding, but the value of such mass promotions are limited regarding the impact of customer growth and acquisition.
When strategic guidelines are spread down from general segmentations, customers may end up getting targeted for promotions they don’t need, on channels they don’t respond to, and with a disproportionate value regarding their potential brand engagement. The only way to avoid this issue is to strategize not on the promotion and channel usage, but on how different customers should be targeted.
Before deciding on what to offer to each customer, companies should strategically define:
- Which segments to invest and disinvest in?
- What is the target ROI to decide on whether customers should be contacted?
- What impact will the available campaigns have on customers’ shopping patterns?
- How much will each customer segment, if targeted, increase market share or profitability?
Then, by compiling all the type of discounts and promotions that may be included in campaigns, companies should be able to look at the expected response for each pair of customer-promotion and figure out the expected customer response in shopping behavior.
Overcoming organizational challenges
Effectively planning promotional activity across the company, making sure both customer needs and supplier funding opportunities are being considered, poses three main challenges to large companies:
- Managing and navigation huge amounts of data;
- Building a robust promotional planning process that brings all stakeholders’ needs and capabilities on board;
- Ensuring the customer-level promotional portfolio is correctly planned instead of having promotional silos that may have cross-promotional effects and thus erode profitability.
There is no point in devising the ultimate promotional campaign for the customers if the commercial teams can’t fund it and there is also no point in engaging in non-profitable promotional activities that contribute little towards achieving the targeted customer value proposition. Overcoming these difficulties requires developing all the processes and frameworks that enable all stakeholders to work together during promotional planning stages.
Having the ability to plan, control and evaluate mass and customer-specific promotional activities is the only way to ensure marketing investments have sufficient returns and to avoid them turning into a margin-consuming spiral activity. Only then can companies pursue purposeful customer marketing strategies and develop promotional proposals that leverage customer knowledge into sustainable growth.