Scoring your customers

Companies must continue communicating with their customers through a consistent strategy that is driven by customer insight. Rating current customers is not solely based on how much they spend but has as its basis the classic RFM (or RFV in the UK) model that creates a score based on recency, frequency and monetary value. My recommenation is not to stop there but to add more elements such as Returns, Complaints, number of enquiries, length of time they have been a customer and create a contact plan that reacts to the dynamics of these scores.

Often we will identify cohorts of customers that represent bad business. The solution can either be to review the business process for how you do business with them, e.g. relegating them to an ‘exclusive’ on-line relationship where the cost of managing them is reduced rather than taking up the time of a salesman or telephone agent; alternatively the bullet might have to be bitten and you resign the account.

However, building segmentations or communities of valuable, profitable customers by profile and comparing their behaviour will also drive the communication; but don’t just use it to determine when to make contact. Customer insight should also drive the ‘next best proposition’ for each customer so that the sales person can be proactive in establishing opportunity. What you know about your customers can also be used to drive new customer acquisition by comparing prospects’ profiles with your customers and determining the best proposition.

Customers rate companies with whom they deal by the quality of the communications and this means relevance, personalisation and timeliness.

The Power Of an MBA (Market Basket Analysis)

Businesses can find tremendous benefits from analysing the vast amounts of data they collect finding hidden nuggets of information among their data, once they know how to go through it systematically and leverage the effect on profitability.

In practice, all too often marketers are concerned with using data to drive promotion, but true insight into customers has impact on all the elements of the marketing mix.

The knowledge to be derived out of customer data can be used outside the selling or marketing communications environment. Knowing what products different types of customers prefer is fundamental in planning range, in stock control and in driving cross-selling or up-selling opportunities. Being able to compose and analyse the combination of products that customers buy, either at one visit or over time, will enable the marketer not only to determine how best to develop the business with those customers, but, by extrapolating this information, estimate the buying potential amongst the remainder of the customer base.

The often-cited (and some say apocryphal) “beer and nappies” story is an illustration of what can be achieved. Those that don’t know the story can read it at www.dmcounsel.co.uk. A notable example of this concept took place in a Spanish airport duty free shop. Analysis of the EPOS data showed a significant trend of purchases that comprised solely either brandy and cigars or whisky and cigarettes. When the airport data was matched by flight number (remember, each duty free sale has the passenger’s flight number on the transaction record) it became apparent that the first transaction type related to passengers en route to Germany and the second type related to passengers with the UK as their destination. What was also noted was that these purchases were all made within 10-15 minutes of the scheduled departure time for the respective flights. This meant that people were passing through the shop quickly at the last moment, just picking up the two most important items on their shopping list.

The management therefore put sales points for the respective combinations of products actually in the gate area for the German and UK flights, thus generating incremental sales amongst the passengers who really felt they had no time to make a purchase at the shop.

This type of analysis is certainly not the exclusive domain of duty-free shops, supermarkets or Amazon.com (we’ve all encountered their ‘people who have read this book have also bought this other book’).

If a company can identify a customer as having purchased a product then market basket analysis such as was applied here can deliver cross-sale opportunities by making the right proposition in communications, positioning complementary products together on the shop floor or on the website or catalogue page or driving the pitch made by a telephone sales agent.

You can use such techniques to determine the real cost of being out of stock of key items and the implications on supply chain. But, by combining market basket analysis with customer profiling, you unleash powerful techniques that can generate significant increases in sales.