In December, we talked about the life cycle that organizations go through to transform data into action: data, information, insight, strategy and action. (See the December issue of DM Review, p. 46 or www.dmreview.com/article_sub.cfm?articleId=1014621.)

This month's column focuses on the strategy aspect of the life cycle. Strategy refers to the idea of developing actual business strategies based on the information that your customers are generating. Customer information helps you understand customer needs and wants. The information helps you understand what products, messages and tactics are working and which ones should be decommissioned.

Strategy lays out the plans that you will execute to do all the things that customer relationship management (CRM) promises - profitable retention and acquisition. Customer intelligence supports strategy through customer valuation, dashboards and predictive modeling.

Customer Valuation

When you invest your money in mutual funds, you typically look at the one-, five- and 10-year returns on those funds. This way, you can decide where the best return for your money will be. Using customer valuation algorithms and metrics, you can decide within which customers to invest sales, marketing and service dollars based on the return you think you will get.

Determining customer value can be extremely complex depending on the degree of customer profitability you are trying to approximate. One financial services organization had 16 different categories for assessing customer value, more than 40 different metrics, more than 35 ETL (extract, transform and load) mappings and the largest data mart in the organization. Customer value helps you clearly define goals for your customers in order to move them from lower value categories to higher value.

Several vendors (such as SAS, Teradata and Siebel) are starting to get traction in analytic applications for customer valuation.

Dashboards

Every six months, we all want to be evaluated fairly at our performance evaluations. Fairly typically means that you want objective, quantifiable metrics that can measure improvement and show ranking among colleagues. Picking the right metrics to evaluate your people, your customers, your products, your sales force or your marketing tactics is an often-overlooked critical success factor. These metrics drive goals, behavior, compensation and accountability.

Customer intelligence supplies dashboards to allow us to easily view strategic metrics in order to honestly assess company performance, gaps and opportunities. These dashboards illuminate problem and investment areas in order to help executives place their bets.

Figure 1: Customer Value Migration

Predictive Modeling

In the movie Paycheck, Ben Affleck could see the future and was able to plant clues for himself to avoid making big mistakes. Though Ben Affleck does not have many fans left, many marketing and sales departments are big fans of predictive modeling. Predictive modeling helps us estimate who may respond to a promotion, what products will sell best together or what the right promotion may be to lure a customer to renew.

Organizations that have developed robust data architectures can truly start to move beyond paper reports and help guide the organization based on quantifiable evidence. This will help firms stay one step ahead of their competition.

Winners

Subscription-based businesses are starting to become the most sophisticated users of predictive modeling. Telecom, media and nontraditional subscription-based businesses such as OnStar or satellite radio are not just using one predictive model to help understand customer behavior. They are linking acquisition models to retention models to understand how likely a customer is to stay and what value they will produce in the long run. They link winback models to retention models in order to understand how long they will stay after being lured back.

GE is famous for balanced scorecards and using quantitative measures to evaluate people and businesses. GE creates dashboards with strategic metrics that allow them to accurately assess company performance. These intuitive interfaces allow them to be a nimble company, moving as fast as companies a quarter of their size in order to react to market conditions.

Losers

The press is full of issues that are hounding the pharmaceutical industry. From shallow drug pipelines to FDA issues to accounting issues, pharma companies will need to do more than just make a good drug in the next five to six years. Understanding customer value and where to place sales investments (the biggest pharma companies have thousands of sales representatives) will become as important as investment in R&D.

Fact-Based Decisions

Ben Affleck makes $20 million a movie, but most of us do not get that type of return for a few months of work. We need to optimize every dollar we spend in order to maximize our return. Customer intelligence can identify the right opportunities, the most profitable strategies and the most interesting customers.

By leveraging customer valuation methodologies, visually intuitive applications and predictive modeling, organizations can make fact-based decisions on where to place their bets. 

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