CRM - May 2008 - (Page I-6)

6 May 2008 Sponsored Content GENERATING INCREMENTAL SALES: Maximizing the incremental impact of cross-selling, up-selling and deep-selling through uplift modeling There is a subtle but important difference between targeting people who are likely to buy if they are included in a campaign and targeting people who are only likely to buy if they are included in a campaign. It has become apparent that this single-word distinction is often the difference between a strongly profitable and severely loss-making campaign. We have seen many cases in which moving to targeting for incremental sales has more than doubled the extra sales generated by a campaign. Thanks to a radical new type of predictive modeling – uplift modeling –that allows campaigns to be targeted on the second basis, so that you maximize incremental sales from cross-sell, up-sell and other sales-generation campaigns. CUSTOMER MODELING AND MANAGEMENT IMPLICATIONS • TRADITIONAL ‘RESPONSE’ MODELS HAVE A STRONG TENDENCY TO DIRECT RESOURCES TOWARDS CUSTOMERS WHO WOULD HAVE BOUGHT ANYWAY MEASURING INCREMENTAL SALES IS NOT ENOUGH. THE GOAL IS TO MAXIMIZE INCREMENTAL SALES – EVEN WITHOUT MARKETING INTERVENTION; THIS OFTEN RESULTS IN COMPARATIVELY FEW INCREMENTAL SALES. • THE CUSTOMERS WHO SPEND MOST AFTER BEING SUBJECT TO A MARKETING INTERVENTION ARE NOT NECESSARILY THE ONES WHOSE SPENDING INCREASES MOST AS A RESULT OF THAT INTERVENTION • BECAUSE CAMPAIGNS ARE OFTEN LIMITED BY VOLUME (E.G. THE TOP 20% OF THE CUSTOMER BASE BY SCORE IS MAILED), THE PRICE OF MIS-TARGETING IS NOT MERELY AN INCREASE IN THE COST OF EACH INCREMENTAL SALE BUT ALSO A REDUCTION IN THE TOTAL VOLUME AND VALUE OF INCREMENTAL SALES TOTAL SALES). There are two groups of people that every marketer must be able to identify before launching a campaign- the Sleeping Dogs and The Persuadables. These groups are the difference between a successful campaign and a less than successful campaign. They make all the difference. Unfortunately traditional response or attrition modeling only focuses on ‘likelihood to respond” and cannot identify the “Sleeping Dogs.” On the flip side are The Persuadables. Marketers constantly find themselves in pursuit of this group. These are the people who respond in just the way a marketer hopes and makes the job of equating money spent on marketing to the bottom line more straightforward. The group of Persuadables are those that buy (or renew) but would not have done so had they not been recipients of a marketing campaign. Essentially, this is the only group a marketer should and want to target since they provide the greatest return on marketing investment (ROMI). Traditional response models effectively assume that all purchases, during or in some period after the campaign, are incremental, i.e. would not have happened if the campaign had not been carried out. They also implicitly assume that no purchases are lost as a result of the campaign. History has taught us that it is simply not true. So, when these assumptions are not correct, conventional response models will be misleading and new more sophisticated uplift models (a.k.a. incremental models) will be likely to perform much better. PREDICTING CUSTOMER IMPACT campaign, so you can target the Persuadables and leave everyone else alone. This helps dramatically increase campaign profitability by allowing you to target fewer people and get an even higher response rate – never mind the additional campaign resources it frees up. In short, you make more money for your company by spending less on direct marketing. This is a concept that seems like an impossibility to some. But as more and more companies adopt and validate uplift modeling, and leading industry analysts recognize its value, word is getting out on the street about the possibilities of this new generation of segmentation modeling. REAL-WORLD APPLICATIONS OF UPLIFT MODELING Use of uplift modeling allows companies to: • AVOID CONTACT COSTS FOR CUSTOMERS WHO ARE NOT STRONGLY AFFECTED BY THE CONTACT (AND FOR THOSE WHO MAY BE NEGATIVELY EFFECTED BY IT); • AVOID GIVING UNNECESSARY INCENTIVES AND DISCOUNTS TO CUSTOMERS WHO ARE LIKELY TO PURCHASE REGARDLESS; • SET MAILING VOLUMES ON AN ACCURATE ESTIMATE OF THE MARGINAL PROFITABILITY OF INCLUDING CUSTOMERS IN CAMPAIGNS, AND; • CORRECTLY PRIORITIZE THOSE CUSTOMERS FOR WHOM THE ACTION OR OFFER IS MAXIMALLY EFFECTIVE. (AND THEREFORE OF • PARTICULAR CARE MUST BE TAKEN WHEN ASSESSING AND OPTIMIZING THE FINANCIAL IMPACT OF INCENTIVE-BASED CAMPAIGNS. WHILE THERE MAY BE COLLATERAL BENEFITS, OFFERING AN INCENTIVE TO A CUSTOMER WHO WOULD HAVE BOUGHT ANYWAY HAS A – THE CONTACT COST AND (UNNECESSARY) INCENTIVE COST. • RESPONSE CODES, WHILE USEFUL INDICATORS, DOUBLE COST THE DO NOT ACTUALLY PROVE INCREMENTAL IMPACT AND CAN BE MISLEADING; THIS IS PARTICULARLY TRUE WHEN THEY ARE ASSOCIATED WITH AN INCENTIVE. Uplift modeling predicts the incremental impact – or uplift – a marketing campaign has on a customer and differentiates “The Persuadables” from the “Sleeping Dogs”. Uplift modeling measures the variation in the difference between a treated group and a control group. Sometimes discussed using different names – differential response analysis, incremental impact modeling, net modeling, incremental response modeling and “true” response modeling – uplift modeling separates “true” responses to campaigns from purchases that would have likely to have happen anyway. Uplift modeling identifies these critical customer response segments before you run a The next generation of marketing modeling is here with the uplift model. And although change is something so many of us resist, it behooves any marketer responsible for a significant direct marketing budget to consider the possibilities the uplift model offers. From saving money to targeting the most profitable customers, the opportunity to create efficiencies within marketing campaigns is here for the taking. ABOUT PORTRAIT SOFTWARE Portrait Software delivers customer interaction, campaign management and customer analytics solutions that helps best-of-breed companies deliver great customer experiences and increased sales. For more information about Portrait’s marketing solutions, email contactus@portraitsoftware.com or call us at +1 617-457-5200. www.portraitsoftware.com www.portraitsoftware.com

Table of Contents Feed for the Digital Edition of CRM - May 2008

CRM - May 2008 Contents Front Office Feedback Reality Check Customer Centricity The Tipping Point Is CRM Too Hard for Microsoft Vendors Go Virtual For Feedback Sense-sational Marketing How UGC Can Benefit CRM DestinationCRM Dashboard Price Check, Aisle 5 Required Reading The Moving Target The Excellence Myth Seven Steps to SOA Success And They're Off! Are You Ready to Party? Skin in the Game The Right Numbers Secret of My Success Re: Tooling Connect Pint of View

CRM - May 2008

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