Enhancing profits has to include both a short-term and long-term perspective. In the short-term almost any business can
increase profits simply by reducing costs dramatically. But our mid-market clients here in the Pacific Northwest are
generally not interested in merely short-term solutions. Longer term profit enhancement emphasizes the deep understanding of
customers over time.
Customer Understanding
Developing customer understanding really requires an ongoing committment to gathering and analyzing information about customers
and their behavior. This behavior changes over time.
- One of our retail clients saw their number of customer returns increase as their business increasingly shifted to the
Internet rather than retail locations.
- A telecommunications client saw their message processing volumes shift dramatically as their customers (telecom carriers)
experimented with different pricing strategies.
- A retailer of home improvement items saw customer buying patterns shift from home improvement to home repair
as the economic situation worsened in their region.
Customer Lifecycle
In addition to the behavior changing over time - it is important to understand customer profitability over an extended
period. The relationship between a business and any customer can be considered a lifecyle with different phases and opportunities
to maximize profitability.
Developing Awareness
The process of developing awareness starts from the very first communications with a potential customer and ends with that customer
being somehow motivated to actively pursue a particular product or service. The costs of identifying that potential customer and
delivering marketing and advertising messages to them accumulate over time. The overall profitability of this customer is
enhanced by properly identifying the customer as a prospect and shortening this period by getting them to the point of becoming
actively engaged in buying the product or service.
We've worked with many clients to better identify prospective customers and thereby shorten the process of developing awareness.
One of the most interesting examples was when we integrated commercially available data about aircraft arrivals and departures
with our clients prospect and customer data in order to give their sales force information on new prospects. This information was
especially effective because they could link it to a specific customer activity (a flight.)
The First Sale
Once the prospective customer is actively engaged the focus is closing the sales cycle quickly and maximizing the impact of
the first sale. This does not mean that the first sale necessarily needs to be a very large one. We've worked with customers in
different industries to identify the products and services for a first sale that are most likely to lead to follow-on sales
and a long-term relationship.
By providing multi-dimensional analysis (OLAP) of existing customers we can identify
what sales activities are most effective for particular channels, products and prospect types.
Customer for Life
It is only once that first sale is made that a customer begins to generate revenue. The challenge from that point becomes
to extend the period of time when they are generating revenue and to optimize the cost involved in generating that revenue to
maximize profitability.
There are a number of different techniques that can illuminate different aspects of meeting this challenge.
- Recency, Frequency and Monetary analysis looks at how recently a customer has made a purchase, how often they make purchases
and the total value of their purchases. All of these have been shown to be leading indicators of future purchases.
- Marketbasket analysis can be used not just in retail but in other industries as well. Examining the range of healthcare
service codes delivered during a single office visit can be a valuable predictor of future visits.
- Householding is commonly used in financial services to group together different purchases and accounts that may be
related to a single household.
- Demographic extension adds demographic information from either public data sources or customer surveys to help identify
future potential in customers. For example, a home located in an area known for mold problems in houses may not be a good
candidate for long-term profitability to an insurance firm.