Direct and database marketing are morphing into a new form of marketing: information intensive marketing. Although it has not arrived yet in its final form, there is sufficient evidence to show that it won't be long.
Marketing strategy is all about creating a “win-win” value exchange between the customer and the company through the creation of products, services and value propositions that meet customers' current and anticipated future needs. This starts with understanding and anticipating customer needs.
Traditionally, the use of customer data has been limited to making specific campaigns more efficient. For instance, a company may use customer data to decide which customers should receive a planned offer, given a marketing budget for the direct mail campaign. More recently, however, detailed customer transaction data is being leveraged to develop multidimensional customer segmentation schemes that allow companies to group customers based on the intensity of their product (including credit products) and channel usage style, as well as their tenure, profit contribution, lifestage, wealth and share of wallet.
This type of segmentation — coupled with survey-based insights about segment members' attitudes about the product category, the company's products and the industry — forms the information platform for developing an actionable marketing strategy. Specifically, the information platform can be used to design new products or product/service bundles, as well as to create entire customer experiences that are differentiated based on segment membership. Leveraging customer information to understand and anticipate customers' needs and then offering the right products, services and customer experiences to meet those needs, is a key emerging trend in information intensive marketing.
Integration of analytics and marketing activities into marketing processes. Streamlined marketing processes are absolutely necessary to efficiently and profitably run marketing campaigns. These marketing processes are created to acquire the right new customers, develop those customers, retain the customers, and win back key customers when they lapse. Ultimately these processes are designed to enhance the magnitude and duration of incremental customer-generated cashflows. An integral part of all such processes is the use of economic decision rules, which bring the discipline of capital budgeting to marketing investments. Marketing processes help a company institutionalize its marketing approach and model. They ensure that the strategy is actioned and is directly linked to its execution.
Use of decision rules for marketing action. The need for efficient, streamlined marketing processes is contributing heavily to this trend. Leading companies are now using customer behavioral data for more sophisticated purposes than merely ranking customers on some expected behavior. Now model scores are combined with customer-level revenues, operating costs, margins and risk to develop decision rules that determine the right marketing action, customer by customer. Companies use these decision rules to decide which customers should get what sequence of marketing treatments (if any) to maximize net profits after marketing costs.
Decision rules allow companies to make decisions based on expected returns, not just spend dollars most efficiently given a certain budget. In other words, all customers who can be profitably marketed will be, and all who cannot be will not be. Furthermore, customers are targeted with the sequence of specific treatments most profitable for them. Decision rules, when used today (even in a primitive form) are typically applied in batch mode at the time of selecting customers for a mail or phone campaign. What is rapidly emerging is the desire to apply them in real time.
Application of decision rules in real time. An area where there is a great deal of interest is the application of decision rules based on customer information at the point of customer contact. For example, when customers call in to call centers, their record is accessed and after the service is provided, an optimal product is pitched by a product expert. Although the decision rules are developed in research mode, they are applied in real time when the customer calls in. A similar approach is used to present the right screens and messages to customers when they visit the company's e-commerce site. The ability to invoke decision rules in real time enable the company to match marketing treatments to customer profiles so that expected profits are continuously maximized.
Next generation loyalty programs. To date, almost all loyalty programs have been designed on a contractual usage basis. As a customer uses more of the company's products, they accrue points based on their usage. Then, depending on the number of points accrued, they reap certain benefits.
A key question for a number of companies who have developed such loyalty programs is, what is the incremental payoff from the program? Unfortunately, very few programs have been designed to answer this question. The incremental payoff is surely linked to the relevancy of loyalty program benefits to the customer — yet few if any programs have been designed by segment, nor are benefits matched to customers. There is a great deal of interest in revamping loyalty programs so that they create incremental profits through customization of benefits and the application of decision rules.
Looking forward. These five trends represent the next step forward in modern information intensive marketing. All are dependent on the collection of customer behavioral data, and are the culmination of many currently accepted database marketing practices. Companies that adopt these trends are the companies that will lead the way in enhancing customer value.
Behram J. Hansotia a co-founder of Infoworks, Chicago, a member company of Rapp Collins Worldwide and the Omnicom Group.