Read ''Em and Reap: Customer Intelligence Spells Profits
Most companies understand that developing insights about individual customers is key to maximizing the long-term profit potential of customer relationships. However, few actually understand which insights are critical, how to effectively use them to drive value, and how to develop them. In this white paper, we identify six key insights that we believe are critical to driving intelligent acquisition, development, and retention efforts that build and sustain high-value customer relationships. Assembled into a framework, these insights enable companies to get a more accurate reading of their most valued customers - who they really are, their needs, and their wants. By understanding who to target, with what offerings and communications, companies can ultimately make more intelligent marketing decisions and allocate resources to maximize profitability across their customer base.
Deliver the Right Offerings to the Right Customers
Customer intelligence enables companies to identify high-value customers, offer the right products and services to the right customers, allocate resources rationally across their customer base, and drive value to and from customers. While building customer intelligence can significantly boost the profit potential of companies across any given industry, we have chosen to highlight examples from the financial services industry to provide a more in-depth look at how to capitalize on the opportunity.
Focus on these Six Key Insights
In many financial services firms, one-third of customers may account for nearly all of the profits. So how do you determine which customers to keep, and how can you successfully grow your relationships with those customers? There is incredible value to be derived from identifying where marketing, sales, and service investments will create the greatest return. Focusing on the six key insights below can help you glean a solid understanding of your customer base to enable one-to-one personalization that is simple to manage.
Figure 1 - The six key insights and their benefits
The following scenarios illustrate the impact that these insights can have on decisions you make about serving your customers:
Jason
Jason just finished grad school and is in the market for a new car. If Jason's bank knew his life stage, it could anticipate his next service need, and then make that information available across its marketing channels. The call center rep Jason calls with questions about his credit card account could talk with him about possible car loan options. His bank statements, the bank's website, and ATMs could further reinforce this message. So, while he currently only has a checking account with the bank and may not look like a very valuable customer right now, his life stage shows his value will most likely increase in the near future.
Monique
The return on Monique's relationship with the bank yielded a $50 net loss last year. And she is now calling to request a fee waiver. If the bank knew which of its customers were profitable, and which were likely to become profitable in response to marketing triggers, it could make customized pricing decisions rationally and communicate them consistently to customers like Monique. Armed with the wrong information, however, the bank may make poor pricing decisions at its branch or call center. In other words, the loudest customer should not necessarily get the best deal.
Lynda
Lynda's bank sees her as a very valuable customer, and she's looking for new services. Her stock options are about to vest, so she's in the process of deciding what to do with them. If Lynda's bank understood her full value potential and its share of that value, it could invest its efforts in ensuring she knows about its investment expertise and product range. The organization's bankers and brokers could reach out to her with relevant offerings. Qualified service reps could help to deepen the relationship with her as she interacts with the bank. As she uses the bank's online options calculator, it could serve her updated information about its offerings. Just because she's a valuable customer doesn't mean the bank actually has a high share of her value. She may also be a high value customer of a competing bank. Customers like Lynda are leaving clues about their value with every interaction, even as they move through their bank's website.
Richard
Generating $5,000 in annual profit for his bank, Richard is an extremely valuable customer. However, the bank's relationship with him is at risk. Richard is interested in investment options and is considering a new online brokerage. If Richard's bank knew his value and understood that he was contemplating a move to the competition, it could make him a priority for targeted retention efforts. While organizations often focus on retention at a customer level, they may not understand the importance of also focusing on the potential value at stake. For most organizations, a select group of customers has the power to move a large percentage of profit. Anticipating Richard's next service need, the bank would understand what to offer to retain him as a customer and, in turn, increase his value to the organization.
Leveraging Customer Insights to Drive Value
Companies can gain competitive advantage by developing customer insights and leveraging that intelligence to provide customized offerings that deliver real value to customers. Developing customer insights is about assembling a deeper understanding of a company's clients, their needs and their value to the company. Each customer interaction is subsequently driven by an understanding of the customer's preferences and the lengths to which the company should go - that is, how much it should invest in a given relationship - to satisfy those needs.
Customer intelligence can then be used to drive the development and targeting of effective customer acquisition, growth, and retention strategies. By integrating insight into customer relationship management strategies, companies can more accurately assess the needs of customers at an individual level and leverage that understanding to make smarter, more rational marketing, sales, and service resource allocation decisions across the organization.
Developing Insights About Your Customers
Building customer intelligence, companies essentially move beyond targeted marketing campaigns to integrated customer insight leveraged across channels, developing an intelligent organization driven by customer needs. However, quick wins can also be achieved by applying customer insight to outbound marketing campaigns.
While it's important to aim for real-time insight leveraged across customer touch points, significant value can actually be derived well before reaching that level of capability. Pilot programs can demonstrate measurable value, as the insights generated become building blocks for more integrated insight.
Figure 6 - The development of the six key insights varies in level of complexity
and type of information required
Development of the six key insights varies in level of complexity and type of information required. However, as you develop these six insights - one by one - each can be used to drive interim activities. Furthermore, relatively rough estimates can be developed for preliminary applications with more refined and powerful insights enriching the framework over time. Let's take a more tactical look at what goes into the development of these insights:
o Current value is extremely complex to calculate, as it involves every product, every transaction, and even every point of customer contact. While good current value calculations are key to many applications, proxies for current value can be identified and utilized to drive cross-sell and retention initiatives. For example, in retail banking, total deposit balance tends to correlate highly with current value. That is, identifying the top percentage of customers by total deposit balance will go a long way toward identifying the top percentage of customers by current value. The point is that customer insight-driven applications need not wait for perfect data.
o Share-of-customer has been elusive to most organizations. It is extremely difficult to identify the nature and magnitude of customers' relationships with competitors. However, through a combination of demographic and market data, transaction analysis, and perhaps primary research, it is possible to estimate the total value of a customer in the marketplace and to calculate an organization's share of that value.
o Future value can be inferred from demographic data and event triggers, enabling identification of prospects within your own customer base. This, in turn, provides an inexpensive source of newly profitable customers to target for the future. By observing changes in income, or identifying clues that signal changes in wealth, companies can capitalize on opportunities to expand relationships with existing customers.
o Best next product can be fairly complex to predict, involving multiple product purchase propensity models combined with profitability projections and relevant decision criteria. However, preliminary product selection models can utilize existing product models, and models developed for the purpose of predicting best next service can be utilized within product-specific campaigns even before the complete set of core product models is built. Best next service predictions rely heavily on existing product ownership and usage patterns, as well as key demographic data.
o Attrition risk indicators are based on models that identify current customers that resemble customers who have recently defected. High-risk customer profiles are assembled, relying heavily on data around changes in account ownership and funding, as well as historical product purchases, and length and depth of relationships.
o Channel preference indicators are based on behavioral observations, assessments of the degree to which channels are used for different types of customer interactions, and paired with data regarding the cost of transactions via different channels. Companies can observe the channels through which individuals have been responsive and deliver future marketing messages appropriately. Channel preference indicators can also drive servicing decisions. For example, some customers may use the telephone for inquiries while conducting transactions via the web. By understanding such patterns, companies can provide more relevant information during transactions in order to minimize telephone inquiries. Combining preference indicators with an understanding of customer value, as well as the cost of interactions, companies can make intelligent decisions about which behaviors to encourage and which to discourage.
Reap the Benefits
Identifying, attracting, and retaining the most valuable customers remain the primary goals of Customer Relationship Management. By developing meaningful insights about customers to build customer intelligence, companies stand to reap these benefits:
o Understand how to cost-effectively allocate marketing resources.
o Measure the effectiveness of resource allocation decisions.
o Predict what customers need and want on a more personalized level.
o Understand how much should be invested in relationships to satisfy different customers.
o Drive intelligent decision-making across customer contact points.
o Align value delivered to customers with value generated from customer relationships.
The six key insights identified herein - 1) current value, 2) share-of-customer, 3) future value, 4) best next product, 5) attrition risk, and 6) channel preference - can drive one-to-one personalization that ultimately increases value for your company and for your customers. While each insight is valuable on its own, together they provide a framework that drives smarter marketing decisions for maximum profitability in allocating resources across the customer base.
