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MARKETING DECISIONS ARE DIFFICULT. Financial performance, careers and even the existence of the company can depend upon making good decisions about marketing strategy. Business analytics help make good choices. Nevertheless, many managers are uncomfortable using data-driven strategies -- especially if they have been using general "rule of thumb" or "conventional wisdom" marketing techniques for a long time. |
If you start asking by the right questions, useful and productive answers follow. See how many of the following questions you can answer with precision. Good management decisions depend upon having answers to these questions. Business analytics can give you the answers you need.
QUESTIONS ABOUT NEW CUSTOMERS:
- How much does it cost to acquire a new customer?
- How much are new customers worth in the 1st year, 2nd year, and so on?
- How much can you afford to invest in acquiring new customers?
Most companies don’t know the Lifetime Value (“LTV”) of a new customer. As a result, they can only guess at how much they can afford to spend on prospecting. Some, like the now long-gone dot-coms, spent far too much. Other companies calculate customer value upon overall averages but don’t separate new from ongoing customers. They can’t tell if their revenues are coming from newly-acquired customers or from a few loyal long-term customers. Check out Using Lifetime Value to Prospect to learn more about how data-driven techniques can provide precise LTV information to guide your spending decisions.
QUESTIONS ABOUT PEOPLE AND COMPANIES:
- Who are the best people to contact?
- Which are the best locations?
- Which are the best multi-location or multi-contact customers?
Most business-to-business ("B2B") marketers track their customers only one way, usually at the contact level, the location level, or the corporate level. Such “one-way” tracking leaves many questions unanswered. For example, are there non-buying influencers at locations with big buyers? A marketer tracking at the contact level would view them as non-customers. Is a corporate customer buying from many locations? A marketer tracking at the location level would see only several small customers, not one big one. A marketer tracking at the corporate level may be ignoring key contacts at specific locations. Check out MAG's Selling to Both Businesses and Consumers to learn more about how to track your B2B customers in more useful ways.
QUESTIONS ABOUT PRODUCTS:
- Which products are most profitable?
- What products do my best customers buy?
- Do my best customers buy many products or only certain products?
Many marketers make assumptions about product-by-product profitability that are incorrect. Few sales tracking or contact management systems carry accurate cost data at the item level. As a result, profit margins are often only a guess and product managers are usually unconcerned or unaware of multi-product buying patterns.
In one of our case studies, an organization selling a “loss leader” product to retain its best customers found the customers seldom bought the low-margin item. Another organization whose product managers each wanted a separate catalog found crossover buying exceeded 80% and loyal customer always bought multiple products. Check out ABT Analysis - The Super Model! to learn more about understanding the buying behaviors of your best (and other) customers in more useful ways.
QUESTIONS ABOUT TRANSACTIONS:
- What is the average order amount?
- What is the median (typical) order amount, and is it near the average order?
- How many of transactions are so small they are done at a loss?
Marketers often ignore transaction costs and assume an average order is a typical order. For example, one organization with a $500 average order found 80% of its orders were $50 or less. A few very large orders inflated the average. Given their costs of processing and shipping an order, this represented a loss of about $2 for a typical order. They were losing money on nearly every sale... and trying to make up the difference with voume! Check out Profiling: Seeing Customers in New Ways to learn how to avoid being mislead by your "average" customer.
QUESTIONS ABOUT THE 80/20 RULE:
- How many of “best” customers comprise 80-90% of sales?
- What behaviors do "best" customers have in common?
- Are we gaining or losing “best” customers?
Most marketers are shocked to learn how few customers really keep them afloat. In one extreme case, a farm chemical manufacturer found only six farmers comprised over 90% of sales for a particular “niche” chemical (after years of general advertising market wide!) Best customers are the ones organizations should seek to have, not more average customers. Take a look at Segmentation - Finding Your Best Customers to learn how to avoid being mislead by your "average" customer.
QUESTIONS ABOUT PROSPECTS:
- Do prospects “look like” best customers?
- How many prospects exist that “look like” best customers?
- How valuable is prospecting compared to retention?
Many organizations have lists of prospects that look nothing like their best customers. For example, one organization selling components to manufacturers had a $1,000+ average order, and their prospect list was end-users who had an average order below $50. Another organization selling to pharmacists sought out a list of “fresh” names, only to find they already were selling to well over 90% of the market. Commonly, marketers that emphasize prospecting learn that if they did a better job of retention, they could afford to spend a lot more to gain new customers. Take a look at Clustering - A Dynamic Difference to learn more about how to use the data you have to find new prospective customers.
QUESTIONS ABOUT LOYALTY:
- Which customers can I absolutely not afford to lose?
- Which established customers are drifting away and may stop buying?
- How much can I spend on "at risk" customers and what can I do to keep them?
It is much easier and more profitable to sell to existing customers than it is to find and sell to new customers. Everyone knows this. Yet most sales and marketing efforts are focused almost exclusively upon finding new customers -- and too often ignore existing customers who have established strong buying habits. The result is that customer retention, a.k.a., "customer loyalty" suffers. Many companies struggle to grow because they are losing customers "out the back door" at about the same rate as they gain new customers through the "front door." Check out MAG's Retention - Closing the Back Door to learn how to spot the customers you need to keep -- and how to find more like them.
WHAT'S THE BOTTOM LINE?
Can you answer these questions? If you can, you are already taking advantage of data-driven marketing tools. If not, you need to!
Don’t be afraid to seek help getting started. Management Analytics Group offers mid-sized and smaller companies a way to start benefitting from data-driven techniques at very low cost. So low, in fact, that the immediate increases in revenues much more than recover the cost of using data-driven tools.
We start with the data you already have in your existing systems. No new investments in computers, software or staff are needed. You can learn more about how to find and work with an expert consultant in Consultants - Getting Your Money's Worth.
Making good marketing decisions is a challenge, but but data-driven business analytics tools will make your job much easier and your decisions much more profitable!
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