Posts filed under ‘Analytical Services’

Customer Segmentation in Action

Q: I know that I should be including customer segmentation as part of my direct marketing strategy, but I’m not exactly sure exactly how to implement… Can you provide your approach?

A: We’ve spent a lot of time working on a winning segmentation strategy that our clients can implement and see fairly immediate results, and the right ROI. Here is our 3-phased approach:

Phase 1: It’s all in the analytics: RRW advocates a customized approach (as opposed to simply purchasing off-the-shelf’ tools such as the Claritas Prizm product.)

It’s important to find an analyst (either internal or external) who not only knows statistics, but who also has a good grasp on business needs and objectives. Since segmentation work is truly subjective (there are many “right” answers), experience and business savvy are key. Make sure that you take the time and effort to educate your analytical expert about your business, your products/services and your customers. The more info he or she is armed with will enable more intelligent clustering.

In addition to the analytical expertise, the right data is equally important. We’ve had the best success using a combination of readily available demographic data (inexpensive, reliable and comprehensive) combined with individual-level credit data (absolutely essential for financial services marketers). Never to be ignored is valuable customer transaction information.

The Process: High-Level Overview:
You’ll need to append a full suite of data attributes to your customer portfolio. Make sure that when you are negotiating the data costs that you tell your provider that you are purchasing the data for analytical use—usually this is about 1/2 the cost of normal data usage fees.

Then, your analyst will use profiling and clustering techniques to identify discreet customer groups, or segments. Typically, (depending on the customer diversity), you won’t want to identify too many segments. A good rule of thumb: after 10, implementation gets a tad unwieldy. Segments should be clearly defined and easy to explain. They should make sense and be logical. In this type of analysis, surprises usually aren’t welcome!

Phase 2: Making it work: We have seen segmentation systems that never worked because they were too complicated and complex. A deliverable from the analytics will be scoring algorithms that assign consumers to their segments.

As an aside—if you are lucky enough to house your data within a marketing database, you can truly realize the benefits of segmentation. However, while a marketing database helps with scoring and cluster assignment along with campaign planning, it’s not critical. Flat files can also be scored with the segment codes. You’d just treat the segment code as you do any other piece of selectable data.

Make sure that your chosen system will enable and facilitate a smooth implementation. As a concrete example of what not to do—we saw a project where any given consumer could be assigned to all of the identified segments. Talk about confusing for the marketing folks when they tried to use the segmentation! It was nearly impossible to determine which segment any individual consumer should be assigned to. So, the lesson learned, make sure that each customer or prospect can only be assigned to one segment.

Phase 3: Segmentation in Action: OK, so we’ve built a successful segmentation system. We’ve identified up to 10 discreet customer groups and we’ve figured out a way to score our customer database with the segment codes. Now what?

This is the fun part because this is (finally) where you get to realize the financial benefits of your data and analytical investment. The goal here is to use the segmentation learnings and translate them into actionable changes to your direct marketing campaigns. For example, you may develop new offers (or simply ‘tweak’ existing offers) that will best resonate with each cluster. Or, you may choose to alter your creative to match traits and demographics of your segments. The enhanced personalization (if done right) always equates to a higher response rate and more converted sales. You have come a long way in understanding the message and offer that your customers best respond to and your efforts are rewarded with improved results.

A good segmentation system will also positively impact your general (non-direct) marketing. For example, you may now be able to modify your media plans with your enhanced understanding of your customer groups. We’ve seen clients who were able to cut advertising expenses through a more strategic media plan—reaching their customer segments through a highly targeted approach. Using the segmentation results, they honed in on print, radio and television buys that reached only the right customer groups.

As a final note, remember that as the market changes, as the economy evolves and as time passes, your customer base changes, too. Therefore, it’s important to continue to evaluate and validate your customer segmentation work. We recommend validations to be performed minimally once a year. If your market is experiencing rapid changes (for example the mortgage industry), validations should happen quarterly.

We welcome more detailed discussions about segmentation and targeting. For even more information, visit our web-page devoted to Customer Segmentation.


May 5, 2008 at 5:12 pm 1 comment

Increasing Cost of Direct Mail

Q:  We have traditionally used direct mail as the channel for the majority of our direct marketing budget.  With the continuous rise in postal and lettershop costs, along with lower response rates, what are your ideas on how to get the most out of each direct mail campaign?

A:  You are right, direct mail isn’t getting any cheaper based upon all of the factors that you mention — and the increasing difficulty of getting your prospect to pay attention to your mail piece instead of all of the rest of them received on a daily basis.  It’s a tough order!

More and more, in order to get your message through and responded to, you have to insert intelligence in your direct marketing strategy.  When I say intelligence, I’m talking about increasing efficiencies in everything you do.  From the way you collect your data and clean it, to more effectively targeting those prospects who are going to be most highly likely to respond, to really stepping back and assessing your overall direct marketing strategy — you’ve got to not only think of it all but improve in as many areas as you can.

I’m not trying to make this sound like a daunting amount of work . . . it’s almost like taking a “Spring Cleaning” approach.  For example, how long has it been since you’ve really examined your data cleansing techniques?  I know it sounds simple, but with prices increasing across the board, ensuring that your customer data will absolutely be received  by whom you intend it to be received by.  And, make sure that whichever vendor you purchase your prospect data from practices good address hygiening techniques as well.

Next, take a look at how you determine your mail segments for each campaign.  Are you using a solid analytical approach?  Have you recently performed customer profile studies to really understand what those folks who are buying from you look like?  Performing such a study will give you the intelligence that you need to then target those particular prospects that look most like those customers who buy from you today.  In my humble opinion, it’s simply madness not to use an analytical approach — using analytics will not only increase your response rate, but it will decrease your mail costs because you’ll be mailing less — ratcheting in on only those who are most likely to respond to and buy from you.

Finally, think about testing other channels to make your direct mail more effective.  For example, you may want to test e-mailing the message first (announcing that you will be sending a mail piece), then direct mailing the piece, then following up with an additional e-marketing piece.  Many clients that we’ve worked with have found this to be a good approach — it gets their mail pieces read more often than when you send out the piece without using any other channel.

We hope these ideas spark some good discussion in your business.  Best of luck!  And let us and our readers hear about your success!  Thanks for the question.

March 25, 2008 at 2:38 am 9 comments

Direct Marketing and the Economy

Q:  I head up marketing at a telecom provider in the US.  The last few weeks of economic news have been disheartening to say the least.  My budgets have been cut and I’m having to work with less resources.  Give me some ideas of what I can do to keep marketing efforts alive on a smaller budget.

A:  Yep, the reports have been disheartening.  And, it looks like it’ll be a while before the economy shifts back to an upward track again. The first thing to remember is that the economy (and history backs this up) is cyclical.  Right now, direct marketers need to dig in and lay the groundwork for the future for when the economy turns around. You can do things now that help right away, and will also position you better for the future, too.  Here are a few ideas to get you started.

Our first suggestion is to really focus on — and mine — your existing customers.  We always lead with analytics.  Take a look at what your customers look like — do some comprehensive customer profiling.  Once you have a clear idea of what your existing customers look like, then look at what telecommunications services that they currently purchase from you today.  Are these customers on the optimal calling plans?  If not, have your sales force spend their optimizing your loyal customers so that they don’t leave you for a better offer.

Next, take a closer look at what services you can offer your different customer segments.  For example (I’m not sure of your exact service offerings, but), if they are currently long distance customers and you also offer wireless services, see if you can get them to sign up for a combined package for both.  This way, you are increasing the profitability of each customer while increasing overall profitability for your company.  Utilizing analytics, you can determine what may be the next best product to offer these different customer segments, and attack them from a sales perspective in this way.  Your response rates will be higher using this type of modeling.

Also, look at economic ways to connect with your customers.  Using e-marketing, you can send out messages to them relatively inexpensively and almost immediately track your campaign success (which is why we love email — the tracking is so quick, so you can tweak relatively quickly to make your messaging more effective).  Along these lines, make sure that it’s easy to contact you with potential service issues.  How is your website?  Is it easy to do business with?  If it isn’t, this is the time to make changes and make it a good experience when your customers visit.

Let us know if these ideas resonate with you — and better yet, if you implement them, let us know of your success.  If you’d like some more ideas on targeting prospects, let us know.  We didn’t want to overwhelm you with too much information for one question. : )

March 19, 2008 at 10:33 pm Leave a comment

International Data

Q: I’m looking to expand my business internationally. I’m aware of the data compilers and list services here in the US. What’s the best way to find international data?

A: We recommend that you start with the folks that you buy domestic data from today. Normally, they can either provide you with the information by country on what their company compiles, or they can point you in the direction of a resource internationally. This varies by company but normally your normal sales person can help you determine available attributes, counts and costs for the data.

In addition, for internationally-based specialty lists, we recommend our friends at NextMark. They have both B2B and B2C specialty lists by country and by area of interest. We’ve seen great success using a compiled source along with some specialty lists to reach an international audience. Monitor campaign success to see which data are performing best for your particular product/service offerings.

Finally, we also recommend taking an analytical approach (you probably aren’t surprised to hear this if you’ve been reading our blogs for long). For some ideas on how to integrate an analytical approach into your direct marketing strategies, visit our relatively new blog: AnalyzeYourCustomers. We promise you’ll get some great ideas on how to effectively integrate an analytical approach into your direct marketing efforts for the greatest success!

February 29, 2008 at 10:29 pm 1 comment

Definition of Customer Segmentation

Q: I hear a lot about customer segmentation. Can you please let me know what the term means and what it means to me as a direct marketer?

A: Ah, one of our favorite topics! Segmentation simply refers to the practice of isolating different groups of customer groups within your total customer list. Once the distinct customer segments are identified, you then have the ability to market to those groups with the message/offer/tone that best resonates with the niche group. Done right, this practice will increase response and boost overall results.

We all perform segmentation intuitively in our day-to-day lives. Imagine the conversations you have with your grandmother and think about how they very different in tone, context, topic, etc. than those you have with your friends. Well, segmentation works on the same premise. Customizing your conversation increases the effectiveness of your communication.

If you have segmented your customer group and separated your overall customers into distinct niches, you now have the opportunity to develop offer and pricing strategies for each group. You can vary your creative (i.e.: use photos or language that resonate with the segment). If done well, you should see increased performance. Remember to always use a control group to test the effectiveness of your segmentation and the new treatment (offer, price, creative).

February 13, 2008 at 3:12 am 4 comments

How to Find a Direct Marketing Analytical Expert

Q: How do I go about finding a good analyst? I’ve been running our DM campaigns with what I know and the best data I can purchase. I really feel that I need to take it to the next level and get some analytical help. I’ve been reading your blog and I know that you are firm believers in the idea of using analytics with data. Can you give me some good pointers on finding a good analyst?

A: Ah . . . this is music to our ears! And you are exactly correct — in order to really hone in on your best customers or prospects, analytical modeling can be so very important to your DM campaigns. We suggest you take the road that we took prior to becoming modelers ourselves.

It’s really very simple. Find a statistician or analytical resource who (a) understands marketing issues/problems and (b) can listen to your needs/goals. You’d be surprised at how important these two points are to the success of your analytical project. When you interview a potential analyst, just make sure that you feel comfortable that who you choose really gets these two points. You’ll be quite happy with the outcome . . . we promise!

January 30, 2008 at 5:54 am 2 comments

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