Successful Analytics for
Retail Marketers Best practices for integrating analytics into your marketing strategy
Background In the highly competitive retail marketplace, there is always a need to try and stay one step ahead of your competitors. Excellent merchandising, product sourcing, branding and marketing play a large part in success; however one area that can make you stand out but is often overlooked is Smart Analytics. At Infogroup Targeting Solutions (ITS), we work with many retailers who’ve been able to make a real difference in their performance, by answering some key business questions using analytics. In our experience, many users of marketing databases haven’t had any training in identifying the questions they need to ask of their data to support better decision making. This best practices paper designed to help; it encapsulates some of the principle areas we’d recommend a retailer to focus on to gain insight into how their customers behave, and where issues and opportunities exist.
Seven tips for success Start on the big picture and big issues first. It is easy to get drawn into all of the detail when you start to analyze your data and it can lead to a lot of useful information, but in doing so, you might miss some of your biggest opportunities. It is always best to start looking at the big issues you want to solve and drill down into the detail later.
Question, Question, Question The best analysts are those who have la lot of questions to ask. Once you establish the questions that are most important to your business, you can create the questions that you want to answer. Many people new to analysis tend to come at the challenge primarily focused just on data and technology. Though these are clearly important because they enable you to answer your questions, the starting point should always be centered on what you want to find out. We recommend that you start with the following questions: • What percentage of our customer base is most important? • Where do we have a problem – acquisition, retention, reactivation or development? • Is our current marketing working?
By focusing on these “big picture” big questions you will start to get value out of your database faster and create a roadmap of the data that will best support your business goals.
Automate your analysis Within a typical retail database, you will find there are more questions that could be asked than you have time to answer. This is where it becomes vitally important that you create standard reports and analysis that can be checked quickly. By using these reports, you can rapidly see if there are any issues; perhaps by including a traffic light system in your reports. By setting up your standard reports, or using standard reports provided by your database supplier, you can get the answers you need, without having to spend hours each day, week or month, checking if there is a problem.
Drill down when you need to When you do spot an issue in a report, you want to be able to drill down quickly to find out more. For instance, if you can see that you’ve got an increase in customer retention rate then you want to be able to rapidly analyze some of the reasons why. Is there a different profile of customers who have stopped buying from you? Are they from particular age groups, genders or locations? Are they customers who’ve been with you a long time? Have you been communicating with them regularly?
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By drilling down you can start to uncover patterns in your data, and then use the results to take immediate action, perhaps adjusting your campaigns to reflect what you’ve learned.
Share and use results The most successful organizations are those who share knowledge about the business. Therefore, if you’ve discovered some interesting patterns in your database then it is important to make them available to your colleagues. This can often be done via a regular ‘knowledge share’ session with your peers, or by saving results as dashboards that your colleagues can access themselves. This also helps break down any silos of data or data analysis that might be present in your organization.
Take action with what you learn Analysis on its own is very useful and helps you as a business better understand a specific situation. However, unless you use the results to take action, much of this knowledge is wasted. For instance, if you discover a group is at risk in your database, then why not develop a campaign to retain them as customers? Ideally you’ve got technology in place which enables you to drag a selection from your analysis straight into a campaign template. Smart retailers certainly start their campaign planning by looking at their customer base, and then use the insight gained to shape and plan out their marketing tactics.
Keep it customer centric Many retailers have a wealth of information on store, product and channel sales. However, the one thing often missing from this is knowledge about the customer. For the marketing team, the customer is the essential ingredient in any analysis. Colleagues in other departments can focus on stock and distribution questions, while you can look for patterns in customer behavior, and understand how they are engaging with your stores, your marketing activity and which products they buy.
Ideas on what retail marketers should analyze Where does the revenue come from? One of the most essential things for a retailer to understand is which group of customers are the most important. While any customer who is profitable is valuable, some are clearly more valuable than others. The starting point for any analysis is a solid understanding where the revenue or profit comes from among your customer base. One easy way to do this is to use a Pareto Analysis. By dividing customers into equal spend bands, either deciles or quartiles, you can quickly plot which percentage of your customer base generates the most revenue.
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In the table above you will see that the top 10% of customers generate over 49.8% of the revenue of this retailer. These people are clearly important and would be worth spending money on to ensure that they continue to spend. Equally, those in the bottom 10% group may have some potential diamonds in them, but your marketing strategy should probably look to spend less on this group.
0.01 - 9.16
9.16 - 18.27
18.27 - 25.86
25.86 - 34.55
34.55 - 46.40
46.40 - 60.58
60.58 - 80.38
80.38 - 112.27
112.27 - 184.52
184.52 - 41995.61
Recency, Frequency and Value. An extension of the Pareto analysis is to look at your customers by Recency, Frequency and Value. By combining these three items together you can build a picture of customers and how they behave. Some people like to create a single RFV score for each customer, but it is recommended that you keep the attributes separate so that you can visualize the overlaps between the groups. The grid below shows the value and recency of a retail customer base. Total Value vs. Days Since Last Order Customers by Total Value Banded Days since Last Order Banded
1. 0 to 25
2. 25 to 50
3. 50 to 100
4. 100 to 250
5. 250 to 1000
6. 1000 to 5000
7. 5000 plus
0 to 30 days
30 to 60
60 to 90
90 to 180
180 to 360
360 to 720
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It is easy to see that there are a high number of valuable customers who haven’t purchased for more than a year. Losing these customers is a major threat. This helps to guide potential marketing strategies, such as win-back strategies, retention programs or campaigns and loyalty programs.
Customer Journey Focused A good guide to planning out your analysis is also to employ a typical customer journey. Within retail environments you may have prospects in your database you wish to acquire, customers who’ve made a first purchase from you, customers who’ve bought more regularly and finally some who’ve left. By breaking your customers into groups based on where they are in the customer journey can help you shape key questions to ask. Acquisition The types of questions that you should focus on here include understanding where your new customers are coming from and which campaigns/channels and media seem to be best for recruiting them. Any analysis, as well as looking at the activity which works to first of all bring them on board, should also look beyond the first purchase, to understand the activity which recruits the best types of customers. The Second purchase. One of the most important pieces of analysis is knowing how to move your customers from a single purchase to those who buy a second time with you. Most of the retail databases we analyze have a huge pool of customers who’ve only ever made a single purchase. Analysis to understand if there is a ‘golden’ window when a customer is likely to make that second purchase, which activity works best at prompting that purchase, and also the key products that work are all important.
Development. Once your customers have bought a second time from you, then it makes sense to look at previous behavior to understand what products you should sell them, how frequently you should be communicating with them and whether your focus should be on increasing their value or keeping them from leaving. As you build up purchase and interaction behavior then you can begin to model which products, channels or messaging will work best for every single customer on your database. Reactivation. Unfortunately, you will always have customers who stop buying from you. The smart marketer will want to know which customers they are losing, how they differ and if there are any behaviors which trigger them leaving. For instance do they suddenly start returning more goods, do they have complaints or do they simply stop opening your emails? You will also want to focus your efforts on reactivating those customers who’ve spent the most with you previously.
Customer and Product Analysis Most marketers want to be able to understand product purchasing behavior among their customer base. In particular they want to understand which products particular customers are likely to purchase. For retailers whose typical baskets frequently contain a single product or a small number, then understanding the individual products which appeal to a customer will be most important. For retailers where a typical basket is much larger and complex, your analysis should focus on the types of purchased products in a category.
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Depending upon your business, you’d expect different types of returns to occur. For instance in fashion, you might find that customers purchase a particular item, but in a couple of different sizes. This gives them scope to choose between each, and hopefully keep one and return the other. However if this is standard practice, have you factored this into your costs?
Group R 14.61%
Group K 48.41%
Group N 8.79%
By keeping a check on the balance between sales and returns for each customer, you can quickly understand if there are some customers who are going to cost you more to service than others, and some who it might not be worth continuing to do business with.
Campaign performance Orders containing top product groups Either way it is good to know for each customer which product or product category tends to drive behavior. When armed with this knowledge, you can promote similar products to your customer base in your future marketing activity. Another area which is useful to understand for particular segments of your customer base are the combination of products which tend to get purchased together. If there are key combinations of products featured in many of your buyer’s baskets you have the chance to promote these combinations in your marketing, on your website or by designing packages containing these mixes.
Challenge of Serial Returners If you’ve got customers who regularly purchase, but then return most or all of their purchases, the postage, processing and administration costs can very quickly eat into your bottom line.
The final area for retailers to focus is an understanding of which campaigns are delivering value to the business. By looking at program performance (examples are; you’re welcome, development, and reactivation programs) you can gain a broader insight into what you might need to adjust. From here, you can examine and modify individual activities within these programs, ad-hoc or tactical campaigns you may run. Standard campaign metrics will be at the forefront of this analysis, so cost per sale, average order value, response rates and open rates will all be important measures. Campaign Name
Responded Response Rate
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However, it also is worthwhile to understand for each customer your overall level of engagement. Are there customers you are hitting too frequently, or are there segments who you havenâ€™t communicated with at all? Also, are there groups who seem to have lost interest in your brand, and simply stopped responding? A combination of standard reports and drill down analysis will reveal lessons to share and ultimately help improve your future campaigns.
To find out more To find out more about putting data analysis to work for you, please contact ITS for more information. We have a team of retail specific consultants who can help you turn your ideas into best practice. For more information on our solution, visit: www.infogrouptargeting.com
Good luck and get started We certainly hope that by reading this article that you are inspired to engage in data analytics to enhance specific areas of your marketing campaigns. The sooner you configure your marketing programs to benefit your customers, the sooner you will see changes in how your customers interact with you. Just remember to follow these seven tips for success and key elements for analysis and youâ€™ll soon enhance your customer understanding and be able to drive campaigns and sales more effectively.
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About Infogroup Targeting Solutions Infogroup Targeting Solutions (ITS), a division of Infogroup, offers precise solutions for specific challenges through innovative, data-driven services and solutions. As the leader in data-driven results, we enable retailers to engage and connect with millions of consumers on a daily basis. We understand that todayâ€™s consumer drives your marketing conversations and realize it's about providing the right data at the right time through the right channel. Delivering real-time consumer data, and equipping retailers with a complete, tailored solution that streamlines marketing operations, ITS is committed to your goals and knows that powerful, accurate data drives incredible results.
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