The more information you have about your customers and their plans to buy, the more effective your marketing results. Let me give you an example. I have a special event to attend, so today I’m thinking about buying a pair of slacks to go with my existing sports jacket. My favorite store is Nordstrom’s. If they knew of my need they could send me a relevant offer. Plus they could suggest some other things to go with my slacks because they also know my purchase history. So, in my case they would recommend I check out some new Façonnable shirts that just arrived.
A recent Harvard Business Review article by Ian C. MacMillan and Larry Selden confirmed my thinking about the power of capturing customer purchase intentions and segmenting customer information. But it also got me thinking about the importance of mining customer data to identify segments based on profitability as well. While most of us know the old adage about 80% of business comes from 20% of customers, in their article MacMillan and Selden talk about the top two deciles of customers representing 150% of profitability! So if in the example above, I only buy during the twice yearly men’s sale they would avoid sending me the offer for two reasons – I’m not a highly profitable customer and the twice yearly sale doesn’t happen for two more months, so I’m not likely to buy.
But how does Nordstrom’s learn about my need? We can use tools like surveys and a company’s CRM system to capture pertinent information about the buyer that then can be combined with sales and profitability information. With this data we can segment customers into target groups such as likely to buy by profit segment (most profitable, least profitable and average) and do the same with both less likely and unlikely to buy segments. With these kinds of tools, you can fill your customers needs better – giving you higher profits now and higher customer loyalty later. These are the kinds of tools we're currently developing for clients right now, including using transactional data to predict what they'll want next.
So by knowing my purchase intention, Nordstrom’s knows how to target me with relevant message about slacks for my upcoming event. With profitability they know if they should focus their efforts on me (for real!). Combined they have a more effective and efficient marketing program. And if they got info from my wife as well they’d know it was a done deal.
Michael Morin, Yaffe Direct
