Models, Maths and Customer-Centric Marketing

Researchers reckon that we are bombarded with over 3,000 marketing messages every day; on TV, on the radio, on billboards, through magazines and of course, on the Internet. The vast majority of them are ignored because they don't resonate with us; they offer the wrong product, or they offer it at the wrong time, or the creative isn't, well, creative enough to capture and hold our attention for long enough for it to register.

Rereading an old article called 'Expect the Unexpected' in The Economist reminded me that creative-driven marketing has an appalling track record. Research on the origins of successful new products by Lehmann and others found that 'mental innovations' by marketers produced three failures for every success. A little better was 'spotting needs' with two successes for every failure, 'market research' with four successes and 'solutions spotting' with seven successes. But easily the best was 'taking advantage of events' with thirteen successes for every failure. In other words, keeping a close eye on developments in your customer base and the larger market, and reacting quickly with just the right offer. In today's data-rich business environment this often revolves around the 3Ms of Models, Maths and Customer-centric Marketing.

• Statistical Models - The first M is statistical models. With the large volumes of data about customers most companies have today, it has become relatively easy to develop statistical models to predict the probability of customers behaving in one way or another. For example, the probability that a particular customer will defect from a company to another, or that they will buy a particular product. These are the basis of the now common Next Best Activity (NBA) and Next Best Product (NBP) options in many CRM systems. Models provide a solid foundation to narrow down exactly which customers to market to. If they are probably not in the market for a particular product, don't waste your marketing budget and their time by offering it to them. It's so obvious that marketers have ignored this simple rule for years!
• Simple Econometrics - The second M is maths in the form of simple econometrics. In many cases, statistical models by themselves are not enough. Knowing that a particular customer is likely to defect to another company is useful but what should you do next? What exactly should you offer to make them stay? This is where simple econometrics come into play. By looking in more details at their recent behaviour, it is possible to identify which products a customer might be most intererested in, whether it makes sense for the customer to buy it (will they breakeven on the purchase?) and whether it makes sense for you to offer it to them (will you breakeven on the sale?). Although this sounds daunting, it isn't. The golden rule is to use only the simplest models and maths you can get away with to achieve your goals. Anything more is a waste of time, effort and money.
• Customer-centric Marketing - The final M is customer-centric marketing. I know what you are thinking. Isn't marketing already customer-centric by its very nature? Well, No, it isn't. Look at most marketing communications and you will see that it is 100% product-centric, not customer-centric. The customer is just the target of the communication. But it doesn't have to be that way. With the insights provided by models and maths you can design offers specifically targetted at customers and what is driving their behaviour at any moment in time. The actual offer is often decided by business rules and modular products to enable just the right product to be configured on-demand for a customer. This is the best way to cut through the marketing clutter, with just the right offer, at just the right time, to each and every customer. And all at much lower cost too.

The companies that do this best are household names like credit card provider Capital One, supermarket retailer Tesco, casino operator Harrahs Entertainment and not so household names like Scandinavian telco Telia Sonera. All of these have mastered the 3Ms to achieve a significant advantage over their competitors.

So next time you see a marketing communication, think about the 3Ms. My bet is that it will still be the same irrelevantly glossly, product marketing that you ignored yesterday and that you will ignore tomorrow. But if you are really lucky, it will be the right offer, at the right time, with just enough creative to raise your interest.

What do you think? Is it time we brought more models, maths and customer-centricity into marketing? Or are we doing just fine with our current creative-driven pitches?

Post a comment and get the conversation going.

Graham Hill
Independent CRM Consultant
Interim CRM Manager

Further Reading:

The Economist on Expect the Unexpected
http://www.economist.com/science/tq/displayStory.cfm?story_id=2019853

Capital One
http://www.capitalone.com/

Tesco
http://www.tesco.com/

Harrahs
http://www.harrahs.com/

Telia Sonera
http://www.teliasonera.com/