Next-Best-Action Marketing: Creating the Segment of One
Information Management Special Reports, June 2007
Baseball sage Yogi Berra once noted that predictions are difficult, especially about the future. For marketers, the ability to anticipate a customer's decision-making process based in part on an analysis of that individual's past actions would be invaluable. While no one can yet perfectly forecast behavior, tools are increasingly becoming available that allow nontechnical users to intuitively combine predictive models that were once the province of statisticians with a completely new breed of user-oriented business rules that can significantly improve the customer interaction experience.
While marketers talk a lot about becoming customer-centric, most have been hesitant to take the steps to move their organizations away from traditional product-oriented customer communications. In the face of this reluctance, a new marketing approach has emerged on the scene with the demonstrated ability to leverage predictive technology and the power of distributed processing to increase marketing productivity and customer satisfaction while lowering overall costs and strengthening the brand. Known as next-best-action (NBA) marketing, it provides the intellectual, organizational and technical framework to quickly propel an organization toward true customer-centricity.
NBA marketing is built around a corporate decisioning hub that guides each inbound and outbound customer action and communications for every channel and line of business. It provides a number of important benefits to an organization, including consistency across channels, program collision avoidance, the ability to change a marketing program on the fly, and the tools for closely tracking the effectiveness of specific initiatives.
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Most importantly, however, it enables companies to make real-time decisions about their customers based on individual conversations, and provides the framework for the customer conversation to unfold "naturally." While this may sound obvious, it represents an historic departure from the traditional approach in which campaigns were built around selling a specific product or service, whether the customer was interested or not.
The advantages inherent to NBA are not just hypothetical. Consider the case of O2, a UK-based mobile telephone services provider and one of the first companies to aggressively roll out both the methodology and the technology behind NBA. Starting in 2004, O2 implemented M-B-A marketing for its 5,000 call center agents, two million monthly online visitors and 470 retail outlets. At the 2005 Gartner CRM Summit, the company reported a bill-value increase of nine percent, a response rate to its marketing programs of approximately 75 percent, a significant increase in customer satisfaction and reduced costs for retaining customers.
While the dramatic jump in customer response can be attributed in part to the nature of the solicitation (an inexpensive text-messaging subscription), the more telling metric was the increase in the conversion ratio compared to O2's traditional approach using the same propositions - a factor of 15.
If NBA is so powerful, why isn't the adoption rate faster? There are two major reasons for this. First, it is a multichannel proposition. Only recently has real-time customer analytics advanced to a level that can support the complexity of marketing across channels. Second, organizational structures, corporate experience and comfort with traditional marketing make such transformational change appear difficult and risky to some managers.
As NBA begins to build a following, more and more companies will recognize that the real risk to the enterprise lies in maintaining the status quo. The advantages that accrue to early converts as measured by increased productivity, cost savings, brand building and improved customer relationships will eventually compel wide adoption.
Migrating Offers to the Inbound Channel
There is no question that customers are increasingly fickle and easily annoyed, as evidenced by the popularity of the national "do not call" registry. In the 72 hours following its launch in June 2003, more than 10 million phone numbers were listed, and that number has continued to grow. The traditional bottom-up marketing approach will only further inflame this already testy relationship.
One solution is to use NBA to migrate more offers to the inbound channel. Equally important is to have in place the tools that allow call center employees to engage in a "natural" conversation with customers. Here, the decision hub is used to support the usual give-and-take style that is characteristic of human dialog. This requires a technology framework that allows the seller to understand the context for the call and to respond accordingly. More than just a simple prioritization of propositions, it is dynamically focused on the way the customer is thinking.
With NBA, each customer conversation is unique. Some prefer to be presented with the relevant alternatives and to reach a decision for themselves, while others prefer a consultative relationship in which they explain their circumstances and needs so the organization can recommend the appropriate solutions. Other customers may desire a mutually managed relationship in which they negotiate everything - the deal, the products it contains, the terms and the pricing. A natural conversation will mean something different to each customer. By capturing this consumer psychology and building it into the decision-making framework, the NBA decision hub supports the full range of iterative and interactive forms of communication that customers recognize as natural.
A Segment of One
The good news is that a fully implemented NBA program can help streamline marketing, increase productivity and manage costs. The challenge is that it must reach across much of the corporate organization to do so, involving multiple departments, including corporate and outbound marketing, call center operations and enterprise IT.
Marketing faces perhaps the most important challenge to its traditional way of thinking. While CRM vendors have long argued for a shift to a more customer-centric way of thinking, available technologies have made implementing this new direction difficult. The NBA approach now forces the issue. Historically, companies have used a bottom-up strategy, using segmentation to fit the customer to the campaign. With these strategies, it was not uncommon to see organizations define hundreds, if not thousands, of customer segments.
By way of contrast, NBA is top down and requires that organizations first address a single, critical question: What approach will maximize the relationship with each customer when contact occurs? From this flows a series of related queries: Is selling more important than retention? Is risk management more important than selling? Are there occasions when the next-best-action is no offer? Segmentation follows naturally from this line of questioning, providing a more functional customer differentiation model and establishing the basis for generating a wide variety of customer propositions.
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