Analytical Crm

Analytical CRM PRESENTED BYABHISHEK DUBEY BALRAM VAIBHAV GUPTA JAY KUMAR NAHATA

Topics covered in the presentation ■

Segmentation and selection

■

Retention and cross-sell analysis

■

Effects of marketing activities

■

Reporting results

Every customer is unique

Every customer is unique

One-to-one marketing justifies this fact Concept not realizable Problems in approaching customers separately

Reasons Capacity and customer insight to do this are lacking Benefits do not appear to justify the costs

Segmentation

Segmentation

Dividing customers into Distinct homogenous groups Can be approached in specific ways

Common aspects Needs and wants Purchase behavior Communication consumption

Segmentation criteria

Used to divide up the market Basis to identify or assign into groups

Groups are not profiled at this time Buyer User Individual Organization

Kotler 1. Geographic Postal code

2. Demographic Age / Sex

3. Socio-economic Social class / Education / Income

Kotler

4. Behavior Purchase Communication

5. Psychographic Lifestyle

6. Buying motives & purchase

considerations

Anna 35 years old Married Two children Owns home Home value $175,000 $100,000+ HH income Reads Business Week & Sports Illustrated Plays tennis and golf

Drives a minivan Works at home Subscribes to Sunday newspaper, buys occasional single-copy Newcomer Interests: Food, Wine Parenting Travels out of state three times a year, international travel once a year

Bonoma & Shapiro

1. Demographic Industrial classification / Co. size / location

2. Operating variables Technology / User status / Customer support

3. Purchasing approaches Organization / Nature of relationships maintained

Bonoma & Shapiro

4. Situational factors Urgency / Specific applications / Order size

5. Personal characteristics Values and norms of employees Risk attitude of customers Loyalty to company

Segmentation technique Markets can be segmented in a number of

ways Basis to identify or assign into groups

Choice Number Specific criteria

Kotler 1. Measurability Size / Purchase power/ Characteristics

2. Substantial Segments are large and profitable Largest homogenous group for a tailored marketing program

3. Accessibility Segments can be reached and served effectively

Kotler

4. Differentiable Conceptually distinguishable Respond to different marketing stimuli

5. Actionable Effective programs can be made for attracting and serving customers

Cluster solution 10 9 8 7 6 5 4 3 2 1 0 0

1

2

3

4

5

6

7

8

9

10

Clustering

The art of finding groups in data

Objective Gather items from a database into sets according to (unknown) common characteristics Much more difficult than classification since the classes are not known in advance (no training)

Profiling a segment How to develop Accurate Complete Current Unique customer profile

Important Identification Enriching profiles

Developing Marketing service concepts for each segment

Segmentation Aids in formulation of marketing strategy

Goal Approach customer groups in differentiated manner They become more satisfied and loyal They spend more with the supplier

Marketing service

Differentiation Product range Service Price Communication

Service concept can gain in quality Who is the person ? What motivates them ?

Segmentation research

Objective Who do we want to approach for a certain marketing campaign activity

Segmentation research

Three techniques RFM : Recency Frequency Monetary Value CHAID : Chi Squared Automated Interaction Detection CART : Classification And Regression Trees

Recency Freq Monetary Value

Background Historic behavior is better predictor than purchase intention and attitude Customers who spend most during certain period may not do so during a new marketing campaign

Recency Freq Monetary Value

Scores on three aspects Last purchase date Purchase frequency Amount spent

Last purchase

Scores ( weight 5 ) < 3 months

:

20

3 – 6 months

:

10

6 – 9 months

:

3

> 12 months

:

1

Purchase freq / Amount

Purchase frequency ( weight 3 ) No. of purchase in last 2 – 4 years x 4 Maximum score of 20

Amount spent ( weight 2 ) 10% of sum of purchase amounts in the last 2 years Maximum score of 20

RFM Example

RFM

Advantage Past behavior is more accurate predictor Uses transaction database

Disadvantage Best buyers selected for promotion They will experience excessive ‘Mail’ pressure

2. CHAID

CHAID Chi-squared Automated Interaction Detection

Produces a tree diagram Creates categorization within each group

CHAID

N = 240000 Response 4.36%

0-30 Min

30-60 Min

N = 80000 128% Registration Duration < 12 Years

> 12 Years

N = 55000 150%

N = 25000 80%

N = 160000 86% Folder Share < 50% N = 60000 105%

> 50% N = 100000 75%

CHAID

3. CART analysis

CART Classification & Regression Trees

Produces a tree diagram Segment A is separated from Segment B Segmentation variables applied to sub-divide

Retention and cross-sell analysis

Retention & Cross selling

Retention & Cross selling

Retention question Which customers run an increased risk of ending relationship

Cross selling Customers may be stimulated to buy another product

Why retention ?

Customer satisfaction ?

Why retention ?

Retention

Opportunity Greatest gains may be realized Closing back door costs less than enticing customers with designer front door

Benefits More than a cross-sell or a deep-sell exercise Life time value is secured

Retention

Meaning Holding on to the customers

Determinant Definition of former or current customers Does someone become a departing customer at the moment he / she no longer buys a certain product Eg. Fairness cream

Retention

MarketWhysTM The Disposition Scale INSIST

The only brand consider using

Proportion of Preferrers

PREFER

One of the brands I prefer using

INTEND

Not one of the brands I prefer but would like to

ACCEPT NO OPINION NOT AWARE REJECT

try it I’d use it in certain circumstances only Heard of it but don’t know much about it Never heard of it Would never willingly buy it

Example - FAL

Leakage analysis Last 12 Base : All random resp (503) mnts Any Fair & Lovely 90% Fair & lovely Multi vitamin 75% Fair & lovely Ayurvedic 27% Fair Ever 12% Fair One 12% Fair One Plus Five 1% Ponds white beauty 14% Vicco Turmeric 16% Any Garnier 10% Fair & lovely Skin clarity 5% Fair & lovely Active sun-block 3% Emami natural fair 2%

Last 6 mnts 88% 72% 20% 7% 6% 0% 9% 11% 8% 3% 1% 1%

Last bght / Last Last 12 Bought MOUB mnts 77% 76% 85% 61% 60% 81% 11% 10% 43% 4% 4% 37% 4% 3% 31% 0% 0% 25% 4% 4% 26% 5% 3% 29% 5% 5% 54% 2% 2% 38% 1% 1% 31% 0% 0% 9%

Share of usage Last Bought Vs Next Purchase Base:All FAL Ayurvedic FAL Multi Vitamin Fair Ever Fair One Garnier

FAL Ayurvedic 53 91 9 0 4 2

FAL Multi Vitamin 303 1 96 0 3 0

• FAL Multivitamin is successful in attracting users of other brands.

Fair Ever 21 0 0 95 0 0

Fair One Garnier 80 31 1 3 3 3 1 0 98 13 0 87

Variables

Need of reliable data Only name, address etc. will not be enough Intense interaction required During relationship, need is to think of data that will predict churn

Data availability and quality plays a critical

role

Reasons for not continuing use of Fair One Base: Respondents who have used in the last 1 yr, but not bought on last occasion Product Issues

62%

Skin remains dry Doesn't make skin soft Smell is not good Oiliness remains on face Face is not clean after using it Has more bleach Gives patch look Cream stick on the faces Cream is not soft

27% 5% 5% 5% 3% 3% -

Causes side effects

24%

Causes rashes Causes wrinkles Causes side effects Does not make you fair Causes Pimples/Acne/Spots Have skin problems after using it Causes spots on face

14% 5% 3% 3% 3% 3%

Others

22%

Satisfied with my regular brand Causes sweat New Cream Does not suit my skin

11% 5% 5%

Prefer Other Brands

37

Page 47

Investment company

Data requirement Investment behavior Number of different products purchased by customer Financial climate Rate of return Customer satisfaction Investment objectives Communication behavior

Examples

Loss in stock market Investor 1 - Invest in bank FD Investor 2 – Invests more in equity

Differences Active & non-active customers Loyal & disloyal customers

Sedtec

Managing complaints

Cross-selling

Cross-selling

Definition Sale of products to current customers who are already purchasing one or more products

Growth phase Engaging in cross-selling ensures continuity and further development of relationship

Cross -selling

Opportunity Reduces likelihood of a customer ending the relationship prematurely

Benefits Transaction profit Boost to relationship

Cross –selling - POV

Product List of existing customers with history of purchasing certain offering

Client When customer contacts organization, it is possible to estimate which product has best chance of being cross-sold

Cross-selling over time

More than one of same product in

contact 2 life insurance policies

Two or more of different products in

contact Home insurance Life insurance

Howz that ?

Effects of marketing activities

What response ?

What response ?

Basic question

How do we measure response of

marketing activities How many people respond to a mail, a phone call or an invitation on a website ? Did it have a positive effect on customer value ?

Different responses ?

Marketing activity

Selection of customers critical for Cross-selling Retention

Goal : Serve customers Standardised marketing approach

Sales process analysis

+/- 180

Data base

Select Call for appointmen t

10

1st Visit

Sales lead time – 10 weeks

3

Quotation Call Negotiation

1

Order

Sales – Transaction perspective

Data base

■

Select Call for appointmen t

1st Visit

Quotation Call Negotiation

Critical 

Logic of step in the sales process



Conversion between the steps through time



Allocation of resources at each step



Marketing or sales cost of transaction

Order

How to increase value

Increase effectiveness of sales /

marketing Ways to shorten throughput time of the sales process ? Eliminate one step to speed up the process ? Can we make better selection of prospects ? Will training of sales people help increase conversion rate ? Have we applied the appropriate channels ?

Effectiveness of targeting

A step to relationship marketing Who do we select for a specific sales process ?

Benefits Allocation of marketing and sales resources to segments, products, acquisitions of new customers and retention of existing customers

Effectiveness of targeting

Lifetime value

Each interaction Takes relationship one step further Influences future interactions Direction of relationship

Type of interaction A welcome call A complaint Reward for continuing relationship Price discount during sales week

Learning organization

Dialogue with customer is important Knowledge about him Used in developing relationship Knowledge created from experience gained

Timing In a real time market, short response times are a pre-condition to success

Examples

Low business from long term customers Additional acquisition efforts required

New prospects Offer incentives to become customers

Learning

Agent in contact centre

Learning

Service repairman in contact with the

customer

Learning

Learning

Account manager

Learning

Marketer

Learning

Database manager

Learning

Task of management

Encourage learning process and not

punish it Motivation and inspiration must come from individual

Agents in call-centre Unable to convert numerous experience into knowledge Share it internally / externally

Mental models

Construction of an image of reality Bring reality to surface Hold it up to light Open for discussion Images of others should not be renounced

Shared vision

Common answer to ‘why are we doing

things this way’ to be developed Every department should have a goal to

achieve together Service employees are not to minimize cost Salesmen are not to maximize turnover Finance is not limited to reduction of WC

Team learning

Develop vision and knowledge into

actions Act collectively and learn from experience

Dialogue Assumptions removed Free exchange of information becomes possible Eg. A slow agent in a call centre may not make much sales but can give valuable customer information

Team learning

Life Time Value

What matter is …

Not transaction profit One transaction is not sufficient

… but lifetime value Customer’s profit contribution Very few companies arrive at reliable calculation of LCV

Issues

Difficult to calculate Economies and market changes Loyal customers become less loyal and profitable Investments designed results in losses

Necessity More MIS Insights into factors that bring final results

Lifetime Value

Definition Net present value of the future contribution by a customer to the overhead and profit of a company

Accurate calculation All income and expense are allocated to each customer

Example

The sum of the future profits yielded is 523 Assuming a discount rate of 10%, the CLV at moment 0 is 398

CLV

Prospects

Customers

$

Retained Customers

$

Retained Customers

Retained Customers

$

$

Discount Factor Divide by Number of Initial Customers

=

Customer Lifetime Value

Lifetime Value

Formal definition: The total net incoming a company can expect from a customer

Abstract definition: Future profit from a customer OR how much the customer is worth now

Depends on many factors Subscriber (telecom) vs. visitor (e-commerce)

Business Uses

Numbers are of interest for marketing

For effective decision support need LTV

before and after marketing activities Retention, incentive allocation, acquisition etc.

Profit estimate LTV after – LTV before – cost

Calculation

Calculation Customer turnover - Discount granted + Shipping cost passed on to customer + Supplier’s credit

Gross turnover - Turnover from returns

Net order sales - Cost of goods / service sold - Administrative / Physical Order processing cost - Admin / Physical Order cost of processing returns - Bad debt expenses - Cost of acquisition & relationship management

Customer’s contr’ to O/H and profit of organisn’

Example

Difficulties

Insights Actual expenses Reliable cost estimates Acquire, serve & manage relationships

Identify customers In order to arrive at actual calculation Intermediaries involved

Resolution

1. Value calculation Segment level instead of individual customer level

2. Restricted time period Expected income or expense only for first two or three years

1. Segments-based approach

1. Segments-based approach Segment is basic entity in marketing strategy Based on elaborate research and modeling Decisions (campaigns, incentives, channels) are done at segment level Segments implicitly assumed “homogeneous” for specific property considered

So for marketing purposes we really only

need LTV at the segment level

2. Time Horizon

2. Time Horizon

Theoretically, the horizon should be

infinite. It is unmanageable in the reality Long-term relationship is important Take a long horizon, e.g. 10 years

Short-term relationship is important Take a small horizon, e.g. 1 year

In the empirical application Use a horizon of 2 years

Estimating Future Value

This is a forecasting problem Seasonality effects Market changes, competitor activity

Common solutions “Leave to experts” Use current customer value from current data

Segment-based approach makes it easier Need only “average” correct forecast

RFM Variables

Recency the most recent date that the customer has requested for a service (usually a purchase )

Frequency The number of time the customer has purchased

Monetary Total dollar amount that a customer has spent

RFM Variables

3.0 2.5 Number of purchases per year

2.0 1.5 1.0 0.5 0.0 1

2

3

Years as a customer

4

5

RFM Variables

$70 $60 Average PurchasePrice

$50 $40 $30 $20 $10 $0 1

2

3

Years as a customer

4

5

RFM Variables

90% 80% Percentage Retained from Previous Year

70% 60% 50% 40% 30% 20% 10% 0% 1

2

3

Years as a customer

4

5

Why satisfaction is important ?

■

Study by Le Beouf: 

“The reasons why customers no longer dealt with a particular supplier”

Benefits of CLV

By knowing the CLV, one can Focus on groups of customers of equal wealth Evaluate the budget of a marketing campaign Measure the efficiency of a past marketing campaign by evaluating the CLV change it incurred Focus on the most valuable customers, which deserve to be closely followed Neglect the less valuable ones, to which the company should pay less attention

Pareto’s Principle

Buford Electronics

Details Electronics company US $ 350 Mio turnover Customers segmented into groups Acquisition and relationship management policies

Customer-Focused Initiatives Customer Champion Create a customer champion Director who is responsible for championing the voice of the customer through the organisation.

Customer Value Attache Nokia product engineer goes on-site with customer for up to 1 month to learn about challenges and show how Nokia can add value

Everyday Life Observation To gain deeper understanding of customer, send video crews & TV cameras into 80 households around world to capture customer daily routines

Customer Success Engineer Team Centralised group that diagnoses root causes of complex customer problems and implements solutions across business

Customer Charter & Advocate Independent customer advocate whose role is to resolve particularly difficult customer and business problems. Customer charter to improve customer experience with service.

Customer Partner Experience Organisation-wide customer and partner satisfaction index to provide a holistic view of business health and trigger specific corrective actions where necessary.

Conclusion

End result Development of relation and value Keeping customers is less expensive than attracting new customers

CLV A customer is an asset that represents value Cash contribution to profits and O/H