TheAdvisor - Actionable Intelligence from MasterCard Advisors
ISSUE 1 • 2007 Q&A
Using Real-World Data and Analytics to Deepen Customer Relationships
In the 1990s, when Internet-based e-commerce was just beginning, management gurus Michael Treacy and Fred Wiersema identifi ed companies that gain their competitive edge by generating detailed operational data and using it to make management decisions. A decade later, the data-rich Internet is part of the commerce mainstream. Advances in computing technology have dramatically lowered the cost and ease of collecting and storing data, and added powerful new capabilities to analyze it. All this has raised the stakes for using data to achieve competitive advantage. Excellence in data mining and analytics is not just the province of market leaders, it is a necessity for every company—especially for business-toconsumer (B2C) companies striving to gain an edge through innovative management of customer relationships.
MasterCard Advisors’ President Keith Stock explains how financial services companies and retailers can use data and analytics—and the insights into real-world consumer behavior they can provide—to develop strategies that take customer relationships to a new level.
The Advisor: Everyone talks about how information technology is changing the world, but nowhere are these changes more striking than in the world of B2C commerce. Can you describe what you see happening?
Keith Stock: Enabling technologies, real-time access to vast amounts of data, and the ability to use that data are changing the nature of the relationship between consumers and businesses. Consumers, increasingly pressed for time, are demanding greater convenience, as well as products and services tailored to their needs.
The Advisor: How is this demand for convenience, speed, and personalization changing B2C businesses?
Keith Stock: The boundaries between industries are becoming blurred. We see a redefinition of traditional industry categories, such as home furnishings, grocery, and restaurants, so that they revolve less around products or services and more around providing greater convenience and richer experiences. Think of the growing number of goods and services—across categories—that can be purchased in big box retailers and supercenters, driven largely by consumer demand for speed and convenience. At the other end of the spectrum, we see the consumer quest for rich experiences being met, for example, by upscale cafes and boutiques that provide food, music, gift items, and Internet access in comfortable, relaxed environments.
The Advisor: How are B2C businesses using new technology tools to respond to these changing consumer expectations and behaviors?
Keith Stock: Companies are fi nding more ways to anticipate consumer behavior and personalize the customer experience. Advanced data-mining, combined with algorithms to analyze the data, give marketers new insights into ways to compete for consumers’ discretionary spending. Over time, this capability will be the key to determining company winners from losers.
The Advisor: How well do you think banks and retailers are adapting to this new environment?
Keith Stock: Unfortunately, companies still lack insights from their data. Most traditional advertising and marketing fi rms, even direct marketers using traditional relational data-mining techniques and customer relationship management software, suffer from diminishing returns on their marketing investments. Banks and retailers market to a demographic stereotype, hoping that consumers who fi t the description, trade category, or geographic coordinates, will respond.
The next level of consumer intelligence is extracted by capturing and analyzing real transaction data. We use the term “Commerce Intelligence™” to describe such gamechanging marketing strategies.
The Advisor: How does Commerce Intelligence enable merchants to more accurately segment and reach their customers?
Keith Stock: We defi ne consumer populations that share similar demographics, preferences, behaviors, and purchasing patterns as “Purchase Clusters™.” This goes beyond consumer profiling to incorporate real-time transaction data gathered at the point-of-sale. We know specifically what products consumers are buying, where (which merchants), and when. Combining and analyzing this rich mix of transaction data and customer data lets us answer some questions with greater accuracy than ever before, while observing strict privacy standards. For example:
- Where and when do consumers spend their money and, in particular, which retailers do they favor?
- What drives these consumers’ buying habits, in terms of attitudes and channel preferences?
- Which consumers should we target?
- And finally, how do we optimize our customer contact approach?
The Advisor: Are there any game-changing strategies you might recommend to merchants?
Keith Stock: One very promising strategy is point-of-sale instant rewards, where customers receive cash back or other rewards at the time of purchase, thereby driving loyalty to that merchant and higher top-line sales. In about twelve countries, banks and retailers are already using this tool. It enables merchants to design a promotion based on the customer’s past purchase behavior and drives the customer to a specifi c purchase action within a certain month, day, week, or even time of day. The key to maximizing this approach is developing appropriate rewards for each segment targeted.
The Advisor: What’s the appeal to consumers?
Keith Stock: Consumers love instant rewards because they are relevant, immediate, and easy; customers don’t need to remember to bring coupons, mail in rebates, or call redemption centers. A retail bank might team up with a nationwide housewares chain, for example, to give a 2% cash reward redeemable on each purchase of a specifi c brand of electrical appliances. The cash reward would be credited to the customer’s account during the authorization process.
The Advisor: Are there other strategies that pair retailers with banks?
Keith Stock: One approach we have engineered is called a Commerce Coalition. To employ this strategy, card-issuing banks partner with a set of compatible merchants in different retail sectors you wouldn’t think had much in common. They’re compatible because they address the same clusters of consumers, but offer different products.
The Advisor: How do the merchants benefit from working together?
Keith Stock:The idea is to increase sales for each merchant in the coalition by developing marketing campaigns targeting consumers who spend a lot in the relevant categories, but not at the retailers in question. At the same time, the coalition aims to maximize card usage, loyalty, and account value for the bank through targeted rewards based on consumer behavior.
The Advisor: Can you give an example?
Keith Stock: In 2006, several leading U.S. banks participated in a direct marketing campaign with four complementary merchants representing the home supply, home furnishings, home entertainment, and restaurant categories. Our consumer analysts uncovered very precise groups—Purchase Clusters—of mass affl uent consumers that represented a signifi cant opportunity for each of these merchants. Within these clusters, we further defi ned different segments that would be receptive to specific offers.
The results of this direct response campaign were impressive. Overall, the four merchants saw spending rise 60% among consumers active in these categories but inactive at their stores; they also saw nearly a 20% lift in spending by their most loyal customers. (To learn more, read the Case Study in this issue of The Advisor, “Merchants Team Up to Boost Customer Loyalty and Sales.”)
The Advisor: You mention that the data analysis identifi es when customers make certain purchases; perhaps the time of day, a particular month, or an event is the trigger. What does analysis of real-time transaction data add to the picture?
Keith Stock: Being able to analyze real-time commerce data enables you to monitor performance at a granular level—for instance, breaking down patterns of spending weekto-week, day-to-day, or even hour-to-hour in a particular geography, or by retailer category. This level of detail is especially useful with marketing techniques such as instant rewards and mobile phone advertising. Our ability to manage real-time transaction data makes it possible to give a reward or place an advertisement that is timely and meaningful to a customer.
The Advisor: What’s the collective power of all these strategies?
Keith Stock: Over time, these strategies are likely to redefi ne the business models of the world’s leading retailers, as well as other merchants. Eventually, merchants will channel more of their marketing investments in broad-based advertising and traditional distribution channels into consumer-centric, data-rich marketing and sales approaches that generate a far higher return. Real-world, real-time data and smart data analytics are making this new era of commerce possible.
- Michael Treacy and Fred Wiersema, The Discipline of Market Leaders, (Reading, Mass.: Perseus Books, 1997).
Keith Stock is president of MasterCard Advisors, a global professional services firm that provides payments industry clients with consulting, information, and outsourcing solutions that strengthen their business performance. In October 2006, Stock spoke on “Reaching a Sophisticated Consumer Through Game-Changing Commerce Intelligence” at the U.S. Co-Brand Forum hosted by MasterCard Worldwide.
