Know your customer: Using data to gain market insight
All businesses gain by knowing who is buying their products, so they can better satisfy customers.
Just look at supermarket giant Tesco. Over 12 million people have a Tesco Clubcard, giving the supermarket the right to know everything they buy on a weekly basis in return for vouchers worth 1% of their total quarterly spend. Its vast Crucible database processes five billion pieces of data per week to group customers into spending types and then sends them highly targeted promotions about new products, thus generating sales.
The benefits since the scheme was launched in 1995 have been well-documented, says Martin Hayward, director of customer strategy and futures at Dunnhumby, the marketing agency behind the loyalty card. Hayward says: “Tesco is now in a position where, in many ways, it’s being criticised for being too successful, growing too fast and owning too big a share of the market.”
Prior to the Clubcard initiative, Tesco was only the second-largest grocer in the country, so its success over the past 12 years has been “phenomenal”. Clearly, there are lessons to be learned from customer insight. The question is, what does your business need to know about customer data?
1 Keep it relevant. Only acquire the information you need. Purchase information can be extremely useful – knowing what your customers want and what they are buying is possibly the most valuable insight a business can have. With the Clubcard model, applications require only the consumer’s name and address so vouchers can be sent. All other data is optional. Hayward says the Tesco card provides much more value than a simple customer application. “The useful information is what comes from knowing what they buy, which is factual. We can see what they did, when they did it and if they changed brands.”
2 Recency, frequency and value. Three key dimensions you need to understand about customers. Who are your most valuable customers? How recently have they bought from you and how often? How much did they spend?
3 Learn as much as you can. Enhance information that is gathered at the point of contact with extra market research to gauge your customers’ attitudes on other issues, such as what they think about your pricing, your staff or your retail outlet. This is particularly useful for industries where there isn’t a frequent transaction, says Hayward. “If you’re selling cars, for example, you might see the customer once every fi ve years, so you need to work harder to talk to them as they’re not providing you with data. The more dialogue you can have, the better.”
4 But keep it compliant. If you’re contacting your customers by phone or email, ensure they have ‘opted in’ and given you permission to do so. This is particularly important with emails, says Peter Thompson, commercial director of Experian Marketing Solutions, a company which helps businesses get the most from their data and achieve targeted direct mail campaigns.
He says: “I encourage businesses to get email addresses because more people now want to be contacted this way. But give them the option and make sure it’s compliant, particularly with electronic communications. People are paranoid about spam.”
5 Buying data. If you are struggling to collect sufficient information to know who your customers are and what they want, or if you need a quick-fi x solution, consider buying information from companies such as Experian and TRG Strata (part of the REaD Group), which group UK citizens into catagories. Martin King, sales director at the REaD Group, advises businesses to ensure that any list broker used is a member of the Direct Marketing Association (DMA). This way, he says, “you know the data has been lawfully and compliantly sourced”.
6 Keep it accurate. Data needs to be maintained to be accurate. For customers to see you as professional, their names must be spelled correctly and their addresses up to date. Mistakes make you look amateur.
7 QuickAddress. Aka QAS, a subsidiary of Experian. Its downloadable products help to prevent human error. The idea is to make sure a consumer’s name and address is captured accurately at source using the software, which provides an address when a postcode and house number is input. Clearly, this is an imperative for deliveries.
8 Keep it clean. Inaccurate data is worthless, whi ch i s why it needs to be kept up to date. QAS estimates that every day in the UK, 1,600 people die, 18,000 move house, 1,800 register with the Mailing Preference Service and 18,000 add their name to the Telephone Preference Service. The result, says the data provision industry, is your database accuracy decays by 14% every year.
Products such as Experian Intact, Capscan Integrity and Postcode Anywhere let you upload a database online for a free audit of how clean your data is; if customers have died, moved or registered to say they do not want to be contacted. Based on this report, you can decide whether you want to pay for the service to clean your data.
Additional data sets can also be accessed to build up a fuller picture of your customers. David Reed, editor of Data Strategy magazine, recommends running a sample set of data through each product to find the one that best suits your company. “The higher the match rate between your customers and the underlying data set, the more likely that you will get value out of your investment.”
9 Inaccurate data can be costly. “Customer data can be a massive asset, but if handled badly it becomes a liability,” says Thompson. Every piece of direct mail that is binned, every email deleted and every product shipped to the wrong address wastes money. Tom Golden, director of corporate communications at Informatica, a company that offers data storage and management services to businesses, concurs: “It’s not just lost money, it’s a lost opportunity. If a small business sends out 5,000 biannual brochures and 20% of the data is incorrect then 1,000 will go astray.”
In addition, it is also vital to make sure data is not duplicated in your system.
10 Don’t just throw technology at it. If you’re setting up a business, start as you mean to go on to ensure good practice when it comes to maintaining decent quality data, even if your database is merely an Excel spreadsheet. Staff need to be on board to ensure that customer information is up to date, advises Golden. “Someone should take ownership of customer data and part of their job should be to make sure it is of the highest quality.”
11 Use technology that suits the size of your business. Thompson says: “If you’re looking at under 100,000 customers, you can probably use off-the-shelf software products in the office, such as Excel.”
Services like Experian Intact, Capscan Integrity and Postcode Anywhere are useful for small businesses because they operate on a pay-as-you-go model, which doesn’t require you to fork out for a large licence fee. For more advanced analysis, products such as Experian Fusion are emerging, allowing you to access and manage your database remotely while also providing screening, profiling and matching, also on a pay-as-you-go basis.
12 Segmenting customers. Place them into groups with similar behaviours and pre-empt their needs, either yourself or using companies that offer profiling tools online or off. This information can be used for product management, development and marketing. The benefit of profiling tools, such as Experian’s Mosaic, is they let you define your most valuable customers, then find similar UK targets for future campaigns.
13 Intelligent marketing. Or offering the right products, at the right time, to the right customer. Returning to the Clubcard example, Dunnhumby’s Hayward says: “In the last version of the statement there were about nine million different variants. So what [intelligent marketing] means is, rather than send everyone one big brand promotion, we’re giving individual shoppers offers that are very, very relevant to their behaviour, based on what we understand about them.”
14 Give your customers what they want. According to Hayward: “Most businesses treat all of their customers in the same way because they don’t know enough about them to treat them differently. Data allows you to get beyond the average and to start treating customers in groups with like-minded behaviours, and if you’re lucky then to an individual level, which every business should aspire to.” It’s about identifying what customers want and giving it to them, rather than simply trying to flog them what you’ve got.
15 Return on investment. The more intelligence you have, the further your marketing budget will go. Hayward says: “The response rates Tesco gets to promotions and coupons is better than the average. The marketing industry thinks that if you get a 1% response to a mailing you’re doing pretty well. With Tesco we’ll get somewhere between 10 and 20%.” The lesson is don’t put undue emphasis on acquiring new customers at the expense of existing ones. RISKS
16 Keep it legal. The Data Protection Act has eight guiding principles that stipulate how you should handle personal information linked to an identifi able individual. The key provisions are that data kept on customers should be relevant, non-excessive, used solely for the disclosed use, kept accurate, up-to-date and secure. The Act also gives customers the right to access the personal information you process about them and to fi nd out where it came from.
17 Don’t share it. Quite simply, never ever pass on personal data to another organisation unless you have been given express permission to do so.
18 Consequences. Susan Mann, counsel at law fi rm Reed Smith Richards Butler LLP, warns that a breach of the Data Protection Act can be a civil or criminal offence. “Consumers can bring an action depending on the damage resulting from the breach.”
19 Keep it secure. To avoid falling foul of the law and upsetting customers, data must be secure. Consider encrypting it with passwords, so only designated staff have access and you are covered if it falls into the wrong hands, particularly those of your competitors. Lynton Stewart Ashley, channel sales director at GuardianEdge, a company that protects a mobile workforce, says this year the UK will probably follow US law in demanding that businesses come clean if they lose customer data. Having to admit as much to customers would not only cause serious loss of face, it could leave you open to prosecution. “But if the data is encrypted, it’s secure,” Ashley points out.
20 Back it up. Data loss can not only make a business’ operations slow to a halt, it can end them entirely. Store data on a separate hard drive, burn it on to a DVD, use a memory stick – no excuses.
Case study: Using customer data
Company: Firebox.com Ltd
Name: Graham Morrell
Graham Morrell is marketing director at Firebox.com, a retailer selling gadgets, games and gifts via the web, catalogues and order line. The company uses a number of tools to target its customers, he says, which need varying degrees of data. Such insight has helped create a ?10m turnover business.
The company communicates offers, launches and news to over half a million customers who have opted-in to receive a fortnightly newsletter. ?This allows us to test offers with a loyal customer base, split test design and format and understand our core audience in more detail,? explains Morrell.
Firebox collects further addresses through regular online competitions, often with partners. A catalogue mailer is used to reach customers and prospects, with an opted-in list that?s regularly cleaned, updated and de-duplicated.
?To track our catalogues effectively, we developed a unique voucher code system enabling us to analyse performance by customer segments, catalogue format and media channel,? adds Morrell.
The voucher code is also used for marketing campaigns to track customer behaviour, such as which geographical area is most likely to buy, and whether customers want money off or straight giveaways. ?We also survey customers after purchase to learn more about fulfilment and products, and have launched procedures following customer feedback.?
Firebox keeps information requests to a minimum, which means customers are more likely to engage, concludes Morrell. ?A balance is struck between critical information gathering and keeping the buying experience enjoyable.