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Can You Grow Short-term Revenue with a CLV Focus?

Posted by: liftpoint | On November 12, 2014

Customer Lifetime ValueChandni Vyas, in a post in Forbes, recently highlighted a study that Forbes has conducted with Sitecore, on the use of analytics to improve customer value.  This post focused on customer lifetime value (CLV) as a key metric used to “identify the value of a customer.”

“Using data and analytics has become a popular way to retain customers. This type of technology enables companies to collect data on an individual level. The customer lifetime value (CLV) metric is often used to identify the value of a customer.  It allows companies to balance the costs of acquisition and retention against future spending, and helps identify those customers that represent the highest future value.”

I have found that many companies struggle with how to focus on CLV in a way that helps grow the business in both the short and long-term.  CLV is by definition a long-term strategy (i.e. “lifetime”).  While these companies understand the strategic value of CLV, they need to concentrate on customer value in the current year to make their goals.

Their goal for marketing analysis is to improve the effectiveness and efficiency of their marketing budget; i.e. spend more money on customers with the greatest potential to increase value this year. While such an analysis can ignore long-term potential, our research has suggested that customers with improving 1-year value often tend to be customers who increase their long-term value as well.

Read more from the source: Forbes

Improving Customer Engagement with Big Data

Posted by: liftpoint | On November 12, 2014

Big Data Customer Engagement

In a CMSWire blog post titled How Big Data Can Make You a Better Marketer, Svetla Yankova uses the opportunity of Big Data to focus the conversation on how to improve customer acquisition by focusing on the right metrics, such as conversion of the right customers.

“Big data is everywhere these days. Among other things, it’s created some big expectations for marketing — especially when it comes to mining information. And while it may have the potential to change the game when it comes to data driven marketing, the reality is that it has yet to fully deliver due to a myriad of marketing methodologies clogging the funnel. What does this mean? Let’s back up for a minute. Before we can tap the results of big data, we need to examine the perspectives that are used to fill the funnel — growth and sales — and think about some of the fundamental shifts that are taking place. Then we’ll more clearly understand how big data fits in.”

While I agree with her discussion with regard to new customer acquisition, she fails to address one of the real opportunities of Big Data though.   Big data provides an important opportunity to increase engagement with current customers.  As much research has shown, retaining and growing current customers is easier and more profitable than large-scale acquisition efforts.

By leveraging Big Data (e.g. weather forecasts or construction) marketers can provide valuable services to their customers (particularly their Best Customers) in a way that will increase stickiness and long-term value.

Read more from the source: CMSWire.com

5 Reasons to be a Minnesota Cup Mentor

Posted by: liftpoint | On October 28, 2014

If you spend any time with me, you will know these three things:

  • I get excited when our team at LiftPoint Consulting (formerly M Squared Group) figures out how to use a new approach to help our clients solve a tough problem.
  • I get pumped about new technology.
  • I enjoy helping young people get started in their careersMinnesota Cup

This summer, I was able to combine all three of the things I value by serving once again as a mentor for startup or early-stage companies entered in the prestigious Minnesota Cup competition, the largest new venture competition in the country.

After 5 years of serving in this role, and a little reflection, here’s why I enjoy serving as a mentor and what I’ve learned along the way.

The 5 benefits I’ve gained from being a Minnesota Cup mentor include:

1.  LEARN SOMETHING NEW

Every time a new entrant selects me as a mentor, I’m guaranteed to learn something new. Last year I learned about the need for modest clothing among women of certain religions. This year took me to Southeast Asia (not literally) to learn about business card printing on palm leaves and water security/drip irrigation for rural farmers in India. These entrepreneurs show me a world outside of my normal life and open up my thinking for new possibilities. Often the most successful innovations in one industry come from another, and the techniques I see internationally have potential to help my clients here in the United States.

2.  RENEW MY EXCITEMENT

I have been running my company for over 13 years. We focus on the same industries, although with different strategies and technology.  But when these entrepreneurs tell me their stories, their businesses are both similar and REALY different!  They are so smart, so passionate about their mission and opportunity. It’s impossible not to have that excitement rub off. I leave my mentoring session excited for them and for with renewed excitement for my life and business.

3.  RE-IMAGINE POSSIBILITIES

When I spend time with entrepreneurs who are planning for explosive growth of their businesses, ideas come to mind for LiftPoint – ideas to serve our current and future clients in new and evolutionary ways. When I work with these startups, anything is possible.  Exponential growth is expected. How will they scale marketing, sales, production to accommodate dramatic growth in a short time period?  If growth is possible for them, why not also for me, our company, and our clients?  As a mentor I get a new set of glasses to look at my situation and re-imagine what might be.

4. SEE MY OWN BLIND SPOTS

As a mentor, it’s easy for me to see the shortcomings of these young business plans. Is the market big enough?  Is the expertise deep enough? Is the personality the right kind to attract investors?   My role as a mentor is to infuse additional confidence and point out spots that need more polish.

The examination of their business leads me to examine ours. What are our blind spots?  What is holding back our explosive growth?  How are my blind spots like those of these entrepreneurs?  If it weren’t for this mentor experience, I might not be asking myself these questions.

5. APPRECIATE MY COMMUNITY

The Minnesota Cup rallies successful entrepreneurs from the Minnesota area. These professionals serve selflessly as judges, hosts for networking events, and, like me, as mentors.  During the six months of this competition, the entrepreneurial community is alive with excitement about the many new business ideas, and anticipation about which team will win the $300,000 prize.

What other business community in this country or the world rallies around young business dreamers the way Minnesota does? Sometimes I just have to take a deep breath of appreciation for where I am planted and the caring and selfless professionals around me. My Minnesota Cup mentor role fills me with such appreciation.

The next time you have an opportunity to “pay it forward” by mentoring a young person in their career, I urge you to do it.  The person you help will benefit from your wisdom, and in more ways than you can imagine, you will benefit too.

Bringing Marketing Analytics to a “Gut-Feel” Culture – 4 Approaches

Posted by: liftpoint | On October 28, 2014

Marketing analytics is today’s business oxygen. It’s ever-present, virtually invisible and the force underlying economic activities.  It’s so valuable that you’d think everyone would use it. But they don’t.  Only 32% of marketers use marketing analytics in any formal, routine way. *

For the other 68% of data-deprived marketers, a different thinking is prevalent.Data In Gut Feel Culture

“I trust my gut.”   “I know what works.”  “I’ve been at this a long time. I know what to do.”  “Data will only confirm what we already know.”  

Hmmmm. Really?

If that sounds like your organization, here are 4 ways to start breaking down that “gut feel” tendency.

1.  Use visualization to bring data to life

You may hear that data is too hard to understand or that rows of numbers are boring and confusing to everyone but quantitative marketers (and accountants).   Create charts and graphs that make those numbers easy to understand.  Trends and other patterns become readily apparent in a chart when they can be difficult to see in a table.   And popular Infographics are particularly effective at telling a data story.

2.  Preview results with key stakeholders

When you’re a data-driven marketer, you make decisions based on insight. But your approach can appear complicated and confusing to non-technical managers. Don’t surprise them in a meeting with data insights or results they have never seen.  To succeed, find time to share your data strategy and results in informal meetings with key stakeholders before big meetings. In these 1:1 interactions, it is easier for your stakeholders to ask questions and “kick the proverbial data tires,” without appearing confused in public. This approach makes data approachable (and you too!). And you might even create a data advocate in the process!

3.  Use test-and-control to show statistically significant lift

Marketing leaders are looking for measureable results.  MarketingSherpa’s 2014 E-COMMERCE BENCHMARK STUDY shows that marketers who test are more likely to have business success. Let me say that again: when you test, you improve your results.  So start testing!

Use control group to prove incremental behavior for your data-driven programs. Keep the timeline short. Analyze results for statistical significance. Base your next test on what you learn.

Test the position of different elements on your website. Test times of day, day of the week for sending emails.  Test colors, calls to action, headlines – every component of your marketing materials you think might impact results.  You’d be surprised how something like the position of pricing information on a web page can change results generated by that site.

4.  Create stories to bring the data to life

Many marketers are creative types who are experienced in storytelling.  Instead of showing trends, identify specific, personal examples and make them into stories supported by data. For example:

  • James is middle-aged father of 4 from St. Louis, MO who likes to do his own car and home repairs, but doesn’t have a lot of time or money. He is a one-stop, big-box shopper.
  • Jill is a 20-something professional who shops online for her office attire and furnishings for her Lincoln Park, IL studio apartment. She wants an online reservation system to schedule her car repairs.
  • Steve and his wife are empty nesters who drive around the Midwest to see their grandkids. Personalized, rapid car service is more important than cost to him.

Tell the story of “Mrs. Simpson in Biloxi, MS” who has been buying your product faithfully from her favorite drugstore for 15 years. Another consumer could be just-out-of-college, suburban-Chicago resident named Amanda who shops only online and is trying your product for the first time.  This approach puts a “face on the data” and helps managers visualize real customers in real-life situations.  Make data fun by using stories and watch the walls of resistance fall.

Now is the time for you to take a deep breath, try some new strategies and see those anti-data biases fade away. When you do, your whole organization will breathe easier, enjoying the success that a data-driven approach brings.

* marketingsherpa, E-commerce Benchmark Study, 2014

5 Reasons Why Marketing Segmentation Projects Fail

Posted by: Mark Price | On July 18, 2014

It’s an uber-personalized world out there.  Which means customer segmentation is the name Customer Segmentationof today’s marketing game. But if segmentation is so essential, why does it fail over 50% of the time?

First a quick review.  Segmenting your customers means dividing them into smaller groups that are more alike than the rest of your customers.  This process yields critical insights about your best customers and helps you identify other segments that can become best customers over time. With this information, you can customize messaging and provide offers that appeal to smaller, more valuable groups, increasing engagement, retention and ultimately customer value. While customer segmentation has been accepted as a critical marketing tool for over 20 years, more than 50% of these efforts end up in failure – wasting hundreds of thousands of dollars and much of your sponsor’s goodwill.  Make sure your customer segmentation initiative is a success by avoiding these five common roadblocks and landmines:

  1. No strategic goal
    Good journeys begin with a clear focus on the destinations.  If you do not know the overall business driver behind segmenting your customers, you will not succeed. Many companies start a segmentation project because someone else did it. But what is the strategic need in your company — is it more efficient lead acquisition or reduced attrition of best customers?  Do you know who your best customers are (not your highest revenue, but your best)?
  2. Lack of buy-in from the teams responsible for sales
    Ultimately, the “peddle hits the metal” when someone has to sell something to someone else.  If the teams that sell to your customers — whether web site development, Sales or telemarketing — will not support a segmentation pilot, then you will not succeed.  Segmentation must reach customers to matter, and marketing cannot win this battle alone.
  3. Lack of an executive sponsor
    Eventually, all segmentation efforts face pushback from other departments whose goals and metrics are not the same as those of marketing.  The only way to ensure buy-in is to have an executive sponsor who can intercede with Finance, with the Creative team, with e-commerce, to make sure the pilot program can see the light of day.  An executive sponsor, in our experience, is critical to your success.
  4. No ROI/success parameters
    Another key factor contributing to segmentation failure is a lack of quantification of potential value.  What are your success metrics?  Without a forecast of potential upside, supporting groups (and potentially Marketing as well) can get sidetracked meeting their own metrics or senior management special requests.  Identifying the potential upside, based on company performance and best practices from similar companies, gets you through the hard times, when everyone else would like to abandon your initiative.
  5. Inability to link data to individual customers
    The most common mistake of all is a focus on an “attitudinal” analysis rather than a behavioral one.  This approach is useful to provide insight into customer beliefs and needs, but you can’t use it to target specific customers for database marketing efforts. It simply doesn’t work.  Build your segmentation on parameters that you want to change — behaviors, and you will be quickly on the road to success.

Yes, segmentation can be transformative to an entire organization.  Viewing your customers as groups, rather than a single “she” or “he”, allows the company to better tailor products, services and communications to your critical customer classifications. Since any customer segmentation effort can easily be derailed, keep these five factors in mind, and success will be on the way.

 

10 Reasons to Personalize Email Marketing and 1 Way To Get Started

Posted by: liftpoint | On June 20, 2014

It still surprises me today when I run into retail marketers who are sending the same email to all their customers.  They are the ones who are surprised at the low levels of their open and click rates.Top 10 Reasons to Personalize Email Marketing

While there are probably a 100 reasons to begin to personalize email marketing today, here are the top 10 reasons to start now. Remember, in digital marketing, time is not your friend!

  1. Your customers are receiving personalized emails from your competition.  As personalized emails become more common, consumers will begin to shift their spending to brands that seem to know them the best.  That better be you!
  2. Your customers don’t know many of the products that you carry. Often, even best customers do not know your entire product assortment.  By highlighting products that analysis suggests they might be interested in, you both intrigue and reward your better customers with more information.
  3. Your retail experience is largely unpersonalized. No matter how much training you give your store associates, regular customers are seldom recognized, and their service experience is often generic.  Email campaigns give you the opportunity to add a personal touch not available in-store.
  4. Your customers may be running out of your products right now.  You do not know what the consumption/usage patterns of your products are and cannot easily anticipate when customers may need a refill.  Every time they run out of a product, they have to make the choice to repeat or seek out other alternatives.  Help them make the choice to come back by letting them know that you know who they are and care about them.
  5. Email personalization does not require programming knowledge any more. “Back in the day,” you often needed a combination of HTML and SQL skills to execute personalized email marketing.  Today, the new generation of email marketing tools allow you to “point and click” your way to basic email customization (images, offers, text).  Don’t let software installation stop you, either.  Most of these new tools operate in the cloud.   You can get up and running quickly.  You can load your email list, host your images and copy and build your campaigns as you need.  In addition, you can download open/click files for further analysis as you wish.
  6. Your customers think you don’t really know who they are.  Why should they?  Do you?  If you knew that the patterns of a mere 10% of your customers would determine not only your bonus but whether you stay in business, how different would you act?  You can identify those customers with some basic analysis and then focus on them for your targeted marketing.  Begin to convince those customers that you know them by referring to their prior purchases and other things you know about them, and follow-up with other programs, both online and in-person.
  7. Your customers are angry that they don’t receive the discounts “the other guy gets”.  Why is it that companies give the largest discounts to prospects, who they don’t even know, and the lowest to their prize customers, the ones who “keep the lights on”?  By the way, if you think your best customers do not know what other customers and prospects receive in offers, you are wrong.  The Internet takes care of that.  Preempt those concerns with special offers for Best Customers, based on their unique needs.  That approach will help with retention.
  8. Bored customers try the competition.  “Hey, the other guy has some shiny new bells and whistles!  I think I will go try them out!” And there goes your Best Customers, trying the competition’s new offers or products while you send the same mass boring emails to them over and over again.  Use your customer knowledge to customize the offers in ways a competitor can’t.
  9. Personalized emails make you more money.  Over and over again, we see in our clients that personalized email subject lines and offers drive up to a 50% higher lift in open rates, click through rates and conversions.  Yes it takes more work.  Yes it will make you more money.
  10. Personalized emails contribute to customer retention.  Customers, simply put, want to return to places that know them, speak to them as individuals and would miss them if they were gone.  That is the goal of all marketing.  Personalized emails are one small step in that direction, but they are a clear step, one you can’t afford to miss.

You probably realize by now how critical personalized email marketing is to the growth of your business.  Now, how to start?

In our experience, the one place to begin with personalized offers is to offer customers exactly the same product category they purchased before.  That approach may be counter-intuitive, but in client after client, the last product category purchased shows up as one of the products categories the customer is most likely to purchase again, even for categories with longer purchase cycles.  So take the shortcut, and offer your Best Customers a product from the same product category as before, with personalized communications and subject lines.  Sometimes the easiest approach is the best.

Personalized email marketing is a critical link to retaining and growing relationships and business with your Best Customers.  Don’t wait to start.  Your competitors already have.

Data-driven Lead Scoring: What Makes a Best Customer?

Posted by: liftpoint | On May 28, 2014

Lead ScoringB2B Sales and Marketing  always seem to be disagreeing about lead quality.   Marketing claims that the leads are “highly targeted” and Sales claims that the leads aren’t accounts that can help them meet their revenue and growth goals.  Either they are too low in value, or not well qualified.  Lead Scoring can help resolve those issues, but carries some unforeseen risks.

Given that leads are the lifeblood for growth of B2B companies, what is the solution to this dilemma?  How do you get targeted leads that actually close?

One approach is to use lead scoring software.  These software companies provide a solution that allows you to “score” leads based on factors such as their stage in the buying cycle, SIC code and the prospect’s level in their company.  Those scores will help you find prospects that resemble your highest revenue customers.

But what if your highest revenue customers aren’t really your best today, or the best customers for the future of your business?

To identify the best prospects for the company’s future, you need to start with your past.  

  1. First, identify current customers who are “right” for the company as it grows.
  2. Then you use data about those companies to determine what they have most in common.
  3. Once you have found those common elements, it is not difficult to identify and rank prospects on those same factors.   

The hardest step is the first one — actually determining what customers you would consider to be “your best.”

To identify best customers, I recommend incorporating the following data:

  1. Depth of Product Purchases
    How many of your product lines does a given customer buy? Your BEST customer buys across your product offerings.  Customers, who buy a lot of the same product, don’t share that distinction.  By ranking customers according to range of their purchases, you begin to build a customer profile with an insight that a simple “who bought how much” analysis doesn’t give you.
  2. Retention
    How long has a given customer been your customer?  Chances are, the longer the relationship the better the customer.  By measuring the time between the first and last purchase, you gain valuable data in building your best customer profile.
  3. Loyalty
    How many channels does a given customer use to access your company?  Has this customer written positive reviews on social media?  By taking a cross-channel look at your customer database, best customers will rise to the top – providing another insight in fine-tuning your best customer profile.
  4. Strategic Fit
    How does a given customer fit with your company’s strategic direction?  Does a given customer’s demographic profile match your corporate “voice of the customer”?  What psychographic data can you append to your customer database?  If you’re selling tractor equipment, your best customers probably aren’t lawyers.

Combine all of this data and you’ll have a pretty clear profile of your best customer.  Analyze those customers to determine common elements — that is the key to the most effective type of prospect targeting.

Once you have determined the commonalities between those best customers, you can apply a lead scoring algorithm to rank your prospects based on those factors.

You see, the hard part of this process is not the lead scoring itself; rather, it is the thinking and analysis that helps you lock down who are your real best customers.  That insight can be company changing, both in how you treat your current customer base and how you target.

Companies who have used this approach have seen double digit improvements in revenue from new leads.  The insights from understanding what really makes a best customer also helps the company better target new products and services to that base.

So before you score your prospects, make sure you are scoring them on the right factors — your “true” best customers — those that meet the needs of your company now and for the future.  Otherwise, as they say, “be careful what you pray for, you just might get it!”

Read some of my previous posts about Sales and Marketing alignment:

Sales Alignment – An Essential Link to Build Marketing Credibility

Grow Your Marketing Credibility Before It’s Too Late 

Is Privacy the End of Database Marketing?

Posted by: liftpoint | On May 22, 2014

Why can’t customers and companies just get along?

These days, when there are so many stories about data security breaches and privacy, effective database marketing is at risk as well.  To succeed, marketers need to make the case, more convincingly than ever, why it is beneficial for consumers to share information about  preferences and interests.Privacy and database marketing

And the case is not hard to make.  We can make it from our personal experience.  How many times have you been swamped by web ads that have nothing to do with you?  We are graduating our last child from high school this year — please do not send me diaper ads!  I love to ski and play tennis — why are you sending me golf offers??

We are awash in irrelevant offers wherever we turn, yet  consumers balk at providing the very information that could improve their experiences and perhaps give them some valuable offers on things they are interested in.  When companies genuinely ask, consumers are often proud of refusing.

When companies try to make the case, their communication can be so full of legalese that it serves to frighten consumers even farther away!  It is more critical than ever that companies today, when asking customers to take a perceived risk (whether true or not), to be authentic, to talk as real people, one to another, to acknowledge the fears that consumers have and to make genuine promises.

Once you have made the promise, what do you have to do to succeed?  Keep on promising.  Like they say with shampoo, “repeat as necessary.”  And you should assume a lot of repeating will be necessary, with examples and support, to build up credibility that has been damaged for the marketing industry.

Companies interested in using database marketing to personalize communications need to keep making a clear, effective promise and then ask customers about their needs and interests.  Once a consumer has told you what they want, the best way to keep the relationship is to use that information, and not fall prey to the tendency to send out blitz offers in the futile hope that they may change their minds.

Companies are also at fault for not using their data about what a customer opens and clicks on to improve the communications accuracy for an individual customer.  Campaign management software makes such personalization possible today, yet even when a company has that software, they often return to a modified version of “spray and pray” — barraging customers to see if they will click on anything.

What marketers fail to do is to take the extra effort and test — actually do the hard work of email optimization and analyze clicks/opens and ask for preferences, and then customize their communications based on that information.  Sure it is a lot of work, but consider the possibility that the results may be strong enough to reprioritize your entire approach to marketing.  That is what Amazon, Overstock and other best practice ecommerce companies have discovered, and you could too!

If anyone wants to know, I am interested in Crossfit, tennis, skiing, cooking, theater, science fiction, travel, European soccer (Go Liverpool!), holistic health approaches and Jewish education.  PLEASE use that information to send me the right offers  – I can sure use some vacation discounts right now!   :).

To read some more about database marketing, please check out these posts:

Fight Corporate ADD with Rapid-fire Analytics

Are Marketers Responsible For the Last Mile of Customer Experience?

 

Fight Corporate ADD with Rapid-fire Customer Analytics

Posted by: liftpoint | On December 2, 2013

MotivationDo you feel like you can’t get anything completed before the next “corporate priority” derails the effort?  If so, you are a victim of “corporate ADD” — the tendency of senior management to change priorities based on personal experience, something they read or in response to a business change that may or may not be a trend.

The symptoms of those suffering from corporate ADD include rapidly switching priorities, forgetting recent conversations or commitments and a high level of excitement around the latest “silver bullet.” Those who are responsible for dealing with such individuals also suffer from a host maladies: anxiety, insomnia and PTSD among them.

Intervention with Corporate ADD must be done swiftly and with consistency, and customer analytics can be a big piece of the solution.  If you can show progress towards your executive’s key metrics, your project will stay on the “top burner” and not be shelved.

The problem that most marketers experience when attempting to intervene with customer analytics is the time lag. From the start of an initiative, marketers often have to wait months before receiving the performance metrics that will justify the work.  In that time, marketers are at risk of another episode of Corporate ADD, taking them off of what they know to be important and moving their focus and resources to another of the CEO’s pet projects.

What’s a marketer to do, to keep focus on the most important initiatives in the face of the ever-changing corporate direction?

That is where “rapid-fire” customer analytics comes in.

Rapid-fire customer analytics is an approach that recognizes that there is no time to waste in reporting and analyzing the progress of marketing initiatives.  Whether number of customers participating, total revenue driven, increased AOV, etc. — each of these metrics, while not telling the whole story, suggest positive results and keep executive attention until you can get a more complete picture of results.

The best companies using this approach employ the following strategies:

  • Development of a list of 4-6 key metrics that will determine the success of the initiative
  • Identify where that data must come from (source system)
  • “Yank” sample data off the source system
  • Calculate the necessary metrics using Excel or a similarly easy tool to use
  • Create a “dashboard” worksheet to highlight the key metrics
  • Determine necessary frequency, and pull the report 1-2 times before the program launches to make sure you get it right

This approach is the easiest if you have fewer than 1million rows of customer data.  If you do not, then use a sampling approach to get you started, all in Excel.

Note:  Do all of this before the initiative launches, in order to have things in place when time gets tight.

Repeat as necessary.

This approach is seldom used in marketing departments, where measurement is an afterthought, once the big push to get the initiative launched is completed.  But following the “begin with the end in mind” approach, rapid-fire customer analytics will lay the groundwork for a successful program that keeps going, rather than one that falls by the wayside in the next reprioritization.

Not only will rapid-fire customer analytics feed management with performance metrics before the next onset of corporate ADD takes place, but this approach will also give you an early window into program performance, which can allow early course corrections to improve performance.

 

Want to Raise Prices? Customer Segmentation Provides an Answer

Posted by: liftpoint | On September 4, 2013

Customer_SegmentationIn an article in the Wall St. Journal entitled, “How Companies Can Get Smart About Raising Prices“, Professors Paul Farris and Kusum Ailawadi suggest that many companies will be forced to raise their prices in the coming years, since cost of goods and transportation costs have been rising steadily while prices have remained flat to declining.  Cost savings have been benefiting these companies, but now the cost savings are running out.

Since so many customers have become price-sensitive in the past recession, what’s a company to do?

Some companies try to “hide” their price increases through a number of strategies: cutting promotions, reducing quality, reducing package sizes, etc.  But all of those strategies have been shown to backfire, since consumers have a sense of what is a “good value”, and are sensitive to “price gaming”, when a few consumers figure out “the trick”, they let EVERYONE know.  Then the company has to deal with a negative reputation to go with the pricing issue.

So how can you raise prices right?

Professors Farris and Ailawadi recommend that companies use customer segmentation to target their promotions to the right customers.  As they write, “After raising prices, companies should rely on discounting to keep their coupon-clipping customers—the ones most likely to jump ship if they think they’re getting a bad deal. That means taking a close look at who their customers are and who should get what promotions.”

You don’t have to tailor promotions on a 1:1 basis, “It’s enough to group customers into segments based on things like their purchase history and how sensitive they are to price.”

The Power of Customer Segmentation

In fact, promotional sensitivity is one of a number of factors that can be customized through customer segmentation.  Product preferences, communication channels, offers, timing, seasonality, messaging/positioning and others also become clear when you group customers by their transaction behavior (see my post “Customer Segmentation: Using Behaviors to Drive Data-driven Marketing” for a deeper perspective on behavioral segmentation).

How do you gain a deeper understanding of your ability to increase price or conversely, reduce promotional activity, at the segment level?  Many retailers use some combination of the following three approaches:

  1. Analyze historical promotional response at the segment level to find out which segments show incrementality and profitable results to price promotions. By taking overall promotional analysis and drilling down to the segment level, it is possible to see which segments actually respond to a promotion at all as well as which segment’s purchases are actually incremental, rather than simply replacing existing purchases with a greater discount.  If you do not have control groups in your data, there are two ways to roughly estimate how a specific segment responds to different kinds of promotions. The first one is to examine customers using the promotion versus customers that are making purchases without the promotional redemption. Match them by their prior purchases to make them roughly equal and examine what happened during the promotional purchase and beyond. In addition, you can analyze customers who receive the promotion versus new customers who could not have received the promotion to see what the relative lift would be.
  2. Test and control your way into knowledge. If you want to make sure that your estimate of segment response to promotions is accurate, you can always take a subset of your customer database by segment, break that into a test and control group and run an email marketing campaign. You can even test different levels of promotion versus each other and versus the control group all by building a test matrix, executing the program and reading the results.
  3. Analyze past pricing actions at the segment level.   Identify markets where pricing has changed and evaluate customer purchase patterns before and after the announcement of that change. You will have customers ranging from those that abandon the product category after price increase to those who did not change their behavior at all. By understanding segment response to prior price actions, you can get a sense for what the net impact of a pricing change at this point would be as well.

Professors Farris and Ailawadi lay out a convincing case for retailers to increase prices after such a long period where the retailer (or the manufacturer) have been forced to manage the consequences of a highly price-sensitive market. Now that costs have risen over a number of years, it is appropriate for retailers and manufacturers to cautiously, carefully and deliberately increase prices to help to absorb those margin hits since 2008.

By varying promotions and discounts, the most valuable, most price-sensitive customer segments can be somewhat protected from the impact of these price actions. The strategy of segment–specific marketing programs also benefits the retailer or manufacturer because it communicates to consumers that they are known and cared for by the organization.

Price actions are very scary in today’s environment. Follow the guidelines in the Wall Street Journal article, and analyze and execute your marketing promotion and communication plan at the segment level – and you will be just fine.

In fact, customers in the highly protected segments may appreciate the personalized care and attention to their needs. In this way, counterintuitively, you may be able to grow the business while taking a price action at the same time.

Full disclosure, I studied under Prof. Farris at the Darden School of  Business at the University of Virginia, and we have kept in contact over the years.