Are you asking the right questions from your customer data?

24th Apr 2009

Because behavioural insight is about understanding the customer, many think its only benefit is in using marketing to influence the customer. But there are many other retail levers that you can target to affect customer behaviour.

By Paul Alexander, Beyond Analysis

One of the biggest myths is that companies must have a customer loyalty scheme that creates a unique communication bond between business and consumer in order to derive customer data insight that can be actioned. Not true.

In August 2005, investment bank Cazenove produced a report on Tesco, the summary for which was titled '10 Ways Clubcard Data Helps Tesco Win'. These were:

1. Identifying customer trends.
2. Targeted communication.
3. Promotions: Better targeted and more accurately measured.
4. Basket building analysis of shopping trends - enables identification of 'holes' which provide lucrative like-for-like sales growth.
5. Defence against competitive activity.
6. Ranging.
7. Supplier negotiating power: Tesco collates and analyses transactional data that is gold dust to suppliers; no other UK retailer can provide this quality of information to suppliers.
8. Cross-selling services: Tesco Personal Finance and Tesco Mobile.
9. Site location.
10. Seasonal peaks.

However, in reality, 90% of the benefit to a retailer can be realised by using electronic point of sale (EPOS) data alone to inform decisions across the key retail levers. The most talked about benefit that Clubcard gives – the ability to communicate directly to the consumer – is actually the icing on the cake. And when baking a cake, the icing is typically the last thing to do. You first need the cake and the right ingredients.

Because behavioural insight is about understanding the customer, many people therefore think its only benefit is in using marketing to influence the customer. But there are so many other retail levers that you can target to affect customer behaviour, from the overall customer experience to ranging and project localisation.

Both direct and abover the line marketing has a lot to gain, not just by improvements in credibility as return on marketing investment (ROMI) can be better measured by analysing customer data, but also as at its heart it is an industry which is fed by getting clients to push more customer communication out of the door. A loyalty programme is, therefore, more often than not used as an excuse to direct more information at consumers, rather than to understand their needs so businesses can serve them better.

The game is much bigger and far more valuable than marketing alone. If we take two important business issues being faced today, it is easy to illustrate how insight driven from EPOS data alone can have a huge impact on the way businesses think about their customers and respond to customer demands:

Driving sales and business economics

If we use a firm's transaction data to understand what is and isn't driving it forward, we can see step changes in business performance:

  • What are the most important products for my most loyal customers?
  • What gaps exist in my range?
  • How much space in each channel should I allocate to each range or product?
  • On which products does price perception matter most to my customers?
  • What promotions should I run, which should I remove?
  • What are the right services to offer my customers?

Once these questions have been answered (although it is typically an unending cycle of learning as the customer needs we can identify will continue to evolve), the business must determine how to change in order to respond. We recently undertook a programme of work for a UK based retailer. By looking at EPOS data alone we were able to identify the top 20% of customers most loyal to the business and we outlined £500m of incremental opportunity to be gained by small shifts in the retail economics of the business to better serve them.

Customer driven investment strategy

In these tough economic times, how do companies ensure that the investments we make are the right ones, setting us up to succeed rather than overstretch the business and the budget? The questions you need to ask are:

  • Which stores are performing and underperforming?
  • Which stores might be suited to a different layout?
  • How do I optimise layout for new stores to maximise sales per square foot?
  • Which stores exhibit similar catchment area characteristics to my new site?
  • What are the key product groups for my customers in these stores that I should consider for my new store?

Customer behaviour analysis and insight can satisfy all of the above questions and more. Businesses need this level of insight in order to make better informed and less risky capital expenditure decisions. But there are two main lessons to be learned: Firstly, that you can achieve both marketing efficiency and also (more importantly) operational efficiency without necessarily having a loyalty card or scheme but by using the transactional data that your business already generates. The second is that if your business does have a loyalty card, there are many benefits outside of marketing which are often overlooked.

In either case, businesses should be viewing data-driven insight as a business wide function, using it to identify and validate the key business priorities they should focus on and direct it to the most useful place of the business. Above all, it should not just be the domain of the CRM part of the business, where it can get lost or wasted in micro management and no real value will be obtained from it. The leading organisations that use insights don't have the capability locked into the marketing function, as this is the last place it should be.

Paul Alexander is CEO of Beyond Analysis

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