Metrics

Top 10 Business Questions to Ask While Optimizing Your Site

I find that each eCommerce site should be looked at as a unique business to its industry, audience, site design, inventory and so forth. It has so many variables that drive its sales a certain way that even a similar competitor site would be an orange to an apple comparison. Similar analogy would lie within comparing a given human being to another, even if we try to narrow them down to, let’s say: male, 30-40 year old, highly active athletes – both would have a different optimal cardio (metabolic) rate. Thus, Overstock.com and Walmart.com would enjoy different conversion rates too. Feel stuck? Puzzled and have an urge to go back and keep digging in the data? Great, but before, you do, take a pause and re-focus a few levels up.

These are 10 business questions that you might want to ask initially to get a sense on the site specifics and keep asking further while you started refining what works best for your site. They are also good indicators how well you use your data to make any actionable sense. They are the only reason why to do any data analysis for your site. Some of the answers can be pulled from your clickstream data (to the “what” and “where” and some limited ”why” questions), some you might look for via other tools (user testing, panel studies or surveys).

1. Why people buy products at your site? With so many options where to buy, your site should provide an incentive, a differentiating value proposition why to start searching or shopping there. Why should I buy from you directly vs. a distributor that might have volume discounts or one of your competitors? Tell them why via your product positioning through repeating the reason why buy here. Southwest.com does a great job with its value prop branding during the checkout process. It reminds you why you chose to go with them in the first place “1 ticket. 2 bags. zero fees” and reinforces your content at the end. You can also glance into the top converting keywords and see some customer intent.

2. What are the alternative products/or methods to buy similar products? I am a savvy shopper, due to the industry or personal choice and I might go to several sites or a comparison engine to look for stuff to make sure I get the most for my money. Having a good understanding of your competitive landscape helps to not to get obsessed about conversion metrics but get on top of how others lure shoppers in via messaging to make sure you are truly different. You can use some of the search intelligence tools to gain an idea of where else people are buying the same products and what terms they are using to find what they want.

3. What is the buying process for your audience? Each business has its own segments that behave and make decisions within their own patterns. The specifics of your audience, and reasons why they buy your products are great reminders of why you are in this business in the first place. Are you still focusing on their needs? Do those needs change or remain constant? How do they get to your site? This question should help you paint the context where your customer and your product coexist, not the actual site experience.

4. What is the buying process for each specific product/category? Shopping for a dress is so  much different than shopping for a fridge. Do you cater to the product shopping experience as it is “in nature”, using searchandising techniques that matter for each specific product or do you keep them all in general terms? Does your product page change per each category as much as it makes sense for a shopper? Path analysis report with common top 10 paths taken to conversion should aid with nuggets on what is currently happening on your site. It does not show what could make it faster or easier though! You can also segment your site traffic by tasks accomplished before conversion and see what feature/content adds value.

5. What are the external events that drive people to buy your products? If your business is season or experience driven (a wedding, a graduation), you might want to be aware of the thinking process, ideas and thoughts your audience might have, places that would be relevant to the stage and a whole bundle of other products that might trigger the purchase on your site. This is primarily important for your acquisition marketing efforts and site design (in relation to the display ads/merchandising banners). One way to gain insights is to use competitive intelligence tools (Hitwise, Compete, Google Insights) to find related search terms, top most rising searches and their demographic or geographic positions.

6. What are the typical personas for your site audience? From all of the site traffic that you get, only a few people come with the intent to buy. Moreover, a mere intent is not enough to close the sale. Here, it is all up to your magic of merchandising, available options to buy/pay with and your persuasive messaging. Some people shop comparatively, those are known as “competitive” shoppers, others rely on reviews mostly and go by “humanistic”. The third type is rather “impulsive” or “spontaneous”, followed by the fourth – a methodical persona. Now, drilling further, out of those 4 shopping behavior styles, what else can you add into the psychographic and demographic profiles specific to your markets? Segmenting your site traffic might help to see the percentages of various actions, percentage of ones that convert and the ones that do not.  Following up this exercise with a survey, can also validate the numbers.

7. How do shoppers choose one product over another on your site? What content, information piece closes the sale for your product? Is that a self-generating parts diagram or an outfit combination? A price or free shipping? Once you found it, display it prominently to encourage conversion. Some of the product “usage” data that you can pull from reviews can become a very compelling reason to buy (be that “most durable product for kids”, “best for its value”, “top seller”, or “works best with clarifying serum”) that you can display/provide as a search/navigation/narrowing down criteria. Event tracking also can add some insights on what is going on your pages. Or you can also try to walk in your shoppers’ shoes and perhaps unveil some navigational challenges with a review of top pages within the click density/site overlay report. 

8. Why do people come back to buy from your site? This is my favorite question. It does remind the # 1, but it opens more information on the experience shoppers had with your site and can shed light on your strong and weak parts. Is it a service or a one-click buy that keeps customers coming back? Or is it mostly for the cash their reward program provides that makes them tolerate your 7 step checkout process (which should not be that long in any case in 2010 at least)? Knowing the answers to those questions helps crafting compelling messaging for your offsite ads and onsite branding. It can also reveal opportunities on where/how you can expand your differentiating value or reasons why your competition cannot provide the same. And of course, if you can display some of that data, it might help methodical and competitive personas pick your product faster (“45% of people who viewed that product, bought it in relation to other 2”). In addition, visitor recency and loyalty reports that show latent conversions can help you identify the effectiveness of your online marketing campaigns. Your top 25 keywords might also give some insight on how they come about your store. Or visits to purchase ratio, days to purchase can uncover what it takes to convince people to buy on your site.  Focusing on your converting traffic only can assist you in seeing what makes them buy.

9. What will make your customers buy more/use more of your product? Another good one that might open the gate to consumption patterns of your audience that you can use as opportunities for increasing average order size. Impulse buy based on 3rd party reference, powered by reviews, efficient product description and free shipping makes Amazon Books profitable for 5 years from my own behavior. It is always the same pattern, automatic and easy that if the frequency of marketing is dialed up, makes me transact more often without much thought.

10. What makes your customers delighted to share their site experience with their friends and more? The answer to this question taps into a fountain of potential free marketing that you can dig into. Does your site make your heavy users so happy that they volunteer to spread the wealth? What are the scenarios when they would benefit more out of sharing?

Most of these questions come from marketing or business strategy framework and seem to get lost in the process when we plug in ourselves deeply into the operations data and speak in metrics terms only. These business questions should drive your metrics drilldown and up and sideways, while also painting a holistic picture of complex, but functioning organism (your site)!


Getting The Most Out Of Your KPIs

It is ironic how things in life come back to you in a spiral manner sometimes. The same happened to me in relation to the KPI topic. I have explored it briefly in 2007, and today I am able to share a few more good practices that any emarketer will find effective. 

So what are the top 3 things you need to know, or rather do to make the most of your KPIs?

1) Clearly distinguish a KPI from all other metrics you collect.  Many of times, it gets confusing with all the data we pull from a web analytics tool, to what focus on, because every count brings out a unique information piece. Simultaneously, the raw data is much easier to grasp rather than the one hidden through a formula. Thus, any metric can become a part or a standalone KPI depending on your objective. You probably would think now – “Well, that’s not making it any easier to understand!”. Which is exactly the same thought that tortured me for about a week till I discovered work by Steve Jackson so generously shared with all of us in his Cult of Analytics book. I felt like Amerigo Vespucci on that day – cause I cracked (found) the definition of a KPI. His 4 attributes on p. 50 served me very well to progress further while developing new and refining the old.  “Every KPI should have the following attributes:

1) The metric has a timescale associated to it (is reported weekly, monthly, quarterly).
2) The metric has a benchmark.
3) The metric has a reason to be reported to the actor.
4) The metric has an associated action that can rectify the situation.

Most of the times it is a ratio.”  Now, that makes it much easier to set the KPI definition in stone. And though, you can still show your site performance from the user interaction through visits, clickthroughs,  add-to-cart clicks and ultimately all the way down to the placed orders, adding the ratios contributes so much color to the overall picture. If both are displayed separately – it creates more unnecessary questions, while placed together (general sequential metrics and ratios) allows for focusing on the right piece of data (a ratio KPI) while the raw data next to it, validates its accuracy.

 2) Slice and dice your KPI – aka segment it by campaigns, traffic source, etc. This advice is not new and has been declared many times to anyone who faced data analysis.  At the same time, it is also not very much followed. Similar to the exercise prescription in addition to the diet, data segmentation gets a lower follow through. But, if you do it once, you will never take data any other way! By segmenting, you are able to find trends since you put data in a context.

3) Get to know your KPIs better on all levels to learn what is normal and what is not in terms of their behavior. In this respect, you view your KPIs as predictable subjects. In the same manner as criminal investigators or psychologists observe people and get to know what behavior is normal for a given individual and what is out of the line, you can practice the same with your KPIs to get the most out of your reporting. Avinash Kaushik has a great insight on how to do just that – use the statistical tools of upper and lower controls to define the normal playfield for your data.

The only question that I am yet to resolve is – what are the best practices of calculating those controls for various KPIs and metrics? Some suggest to use 3 standard deviations to calculate controls, some make sense to use just 1 (as in Visits per Page as a Lower Limit possible). If I use 3, I will be expanding a range of behavior too wide if my data fluctuates frequently. If I use 1, it creates a too narrow field.  I hope to get the answer very soon and for now I plan to watch all three scenarios.

Measure Your Marketing with These Handy Metrics

Measuring your marketing expenditures and re-evaluating what you have accomplished can be rather daunting and rewarding at the same time. But the most crucial benefit is how your actions are to be affected based on your findings. It is not the news that measuring your actions is followed by better decisions, however it is so common that most of us (marketers) are mostly 99% focused on just launching our campaigns, accomplishing the laundry lists of the pre-planned roadmap and creating new one before we can catch a breath and take a minute to look back. Metrics can help us maximize our effectiveness and identify our strengths and weaknesses on both strategy and execution. And of course, there are no perfect models to assess our actions. However, when I was reviewing my recent readings on marketing metrics by Paul W. Farris et al, I chose the following top eighteen (because ten is not enough) to adopt into the arsenal.

From the category of shares (hearts, minds and markets)
Loyalty – measures future revenue streams. Usually, includes a combination of share of requirements (a.k.a share of wallet, a given brand’s share of purchases in its category), willingness to pay premium, willingness to search.
Top of Mind – I love this one = The 1st brand that comes into a customer’s mind when he or she is asked about a category. The percentage of the customers who the given brand came out on top can be measured.
Willingness to Search - implies the likelihood that customers will settle for a second-choice product if their first choice is not available. ( I know I do that for my dining experiences).
Willingness to Recommend – includes a percentage of customers surveyed, who indicated that they will recommend a brand to their friends.
Sole Usage Percentage – measures the proportion of a brand’s customers who use only the given brand’s products and do not buy from the competitors in relation to total brand customers.

From the category of margins and profits
Marketing Spending – includes total expenditure on marketing activities (advertising and non-price related promotions, can include sales spending). Very useful metric. It is advised to have 2 formulas for it: fixed and variable marketing spending. Fixed marketing spending includes sales force salaries and support, major advertising campaigns, marketing staff (our salaries!), sales promotion materials and cooperative advertising allowances. Variable marketing costs comprise of sales commissions, sales bonuses, bill -backs for local campaigns, rebates, early payment terms expenses. To calculate the latter, you should use your revenue number multiplied by the percentage of variable selling cost. Total marketing costs is a basic sum of both.

From the category of product and portfolio management
Brand Equity Metrics – helps to monitor health of the brand. This is the hardest metric and has a number of models, true moneymaker for the agencies and consultants. Interbrand and Young & Rubicam are the leaders in evaluating brand monetary values. The Y&R evaluates a given brand based on the perceived differentiation on the market, relevance to consumer lifestyles, the esteem the consumers hold due to the brand and the perceived knowledge about the brand those consumers possess. Strong brands show higher degrees across all four values. Growing brands illustrate high levels of differentiation and relevance. Declining brands show relatively higher degrees of esteem and knowledge. Personally, I like the Brand Equity Methodology (a.k.a Moran), that calculates brand equity based on the multiplication of effective market share, relative price and loyalty index. Loyalty index can be calculated by a percentage of brand customers that will repurchase the brand in the next year.

From the category of customer profitability
Customer Lifetime Value considers the present value of the future cash flows attributed to the customer relationship, allows to budget acquisition and retention initiatives. Very useful metric for contractual customer relationships, where you have a projected timeline, average usage/purchase number, price, retention and frequency values. If margins and retention rates are constant, you can calculate the CLV as follows: multiply margin into the retention rate divided by a difference of (1+ discount rate) and retention rate. Valuable metric to identify the limit on acquisition spending.
Acquisition vs. Retention Spending -the former represents the average cost to acquire a customer and is the total acquisition spending divided by the number of new customers. The latter illustrates the cost of retaining a customer (your retention spending and number of the “saved” customers).

From the category of sales force and channel management
Direct Product Profitability includes the adjusted gross margin of products, less direct product costs.

From the category of the pricing strategy
Price Premium implies the percentage by which the price of a brand exceeds a benchmark price.
Reservation Price means the maximum amount an individual is willing to pay for a product. It is a key metric to predict the demand for your product.

From the category of promotion
Average Deal Depth – comprises of sales via coupons divided by total sales. Quick and easy metric to see brand dependence on promotional efforts.

From the category of advertising media and web metrics
Cost per Thousand Impressions (CPM) Rates is our standard advertising basics- is calculated as cost of advertising divided by impressions generated. My only concern and eternal question – how much is the noise or extra in the total impressions number and how much is the actual working range?
Share of Voice quantifies the advertising presence of a brand, in relation to total advertising in a given market. Helps to evaluate the strength of the advertising program.
Visitors – implies the number of unique web site viewers in a given period. I still trust only this web metric, love it for its ability to measure the reach of the website, identify its loyal visitors and content effectiveness during the time you were testing your messaging.

From the category of marketing and finance
Return on Marketing Investment is different from the common return on investment due to the fact that we take a risk and expense our initiatives in the current period. The formula suggested: (incremental revenue attributed to marketing multiplied by contribution % minus marketing spending) divided by marketing spending. In other words, you have to attempt to identify the revenue piece you brought divided by total invested marketing resources.
Project Metrics: Payback, NPV, IRR are our favorites from the finance departments. I mostly prefer the payback and NPV as applicable models to justify your spending.

To sum it up, various measuring models might evolve over time: some will be rejected, some will be re-established, and some will be invented. However, the more you are aware of various metrics, the better you are in your decision-making process, the more accuracy and tangible benefit you will receive for your marketing programs. It is just a challenge at times not to forget to apply them. However, imagine the benefits of testing various metrics and seeing through practice what makes sense and what does not?

P.S. Forrester Research folks have recently posted a video on marketing metrics. There are more metrics discussed outside the above list, like customer advocacy related to customer-centric marketing. Check it out for your listening pleasure yourself!

Website ROI: Getting Key Performance Indicators Right

You got a project on a web site redesign and somewhere along all the project planning deliverables you reach the point when the key performance indicators (KPIs) are to be defined. Where do you start and what would you pick up on the way to the ultimate metrics portfolio?

The main question to ask is why you are doing that? What are the top 3-5 goals you want to achieve? What do you visualize your customers and other visitors do while engaging with your content? Provided that you have a pretty clear segmentation map and are in tune with your customers and industry, it would be quite a simple exercise to go through. Add from 3 to 7 discussions with the top stakeholders, be it a small company or a mega corporation, and you are good with the prep work to move to “the main dish”.

While perusing through your notes, Googling the terms and scanning the top 5 web strategy sites or blogs for that matter, you might get lucky to be enlightened by the following folks that made it all simple for us:

1) Avinash Kaushik at his blog and published work suggests to use an always referenced conversion rate but take careful look at what info it might provide. Even a slight move by a point in the conversion rate might translate into millions of profit for a business. At the same time, obsessing with this metric might become a short-term focused strategy that takes away from the quality of a user experience. Moreover, it also focuses only on small portion of the site visitors, that might not be even interested in all that content and interactivity. What about the rest…that stumble upon purposefully or not? You lose them. Thus, he advises to use an alternative metric: “task completion rate by primary purpose”. Thus, you start driving your efforts to develop a site that helps all potential users/visitors to accomplish their “missions” .

2) Jason Burby with ClickZ, identifies the KPIs as ” indicators that help organizations achieve organizational goals through the definition and measurement of progress”. He also suggests that the KPI include organizational goals to make them applicable to your business. They must help your business to reach success. They must be measurable over time and agreed upon the organization. The latter piece is so true, never try to skip that one!

3) Various experts, including Aurelie Pols state “unique visitors” to be the best web analytic metric as it allows to be more accurate in defining visitors’ behavior. You know they came once and viewed your content. “Cookies never lie”.

4) Cost per Customer/Lead Acquired helps you to test if your customers are worth the cost of their acquisition through this new/re-established channel- similar to the customer lifetime value. I think it is one of the best KPI’s so far and directly relates to the bottom line.

5) Cost per Order allows you to determine the cost-effectiveness of an ad that you placed outside to drive that visitor to your site. I like this metric as it helps to track and measure the return on the external placements in a more relevant way than clickhroughs and CPC.

Overall, I think it is useful to pick top 5 metrics that are most relevant and more accurate to your business activities and customer interactions and stick to them to gain consistent insights overtime. It goes without saying that they also should be interpreted into user experience/user behavior patterns and trends to make impact on your further marketing investments.

My Lifetime Value (LTV) as a Customer for Amazon


 

Last three weeks of the MBA…cannot wait till I am done and ready to pursue my next adventures! However, I promised to share my recent learning on calculation of lifetime value in the database marketing class. My individual project required the calculation of my LTV to a service I have an extended relationship with. Amazon was my choice.

Relationship and Frequency Data:
– Length of active relationship = 9 months
– Average purchase over 6 months is $ 36.57
– Average frequency: 1.5 per month
– Average order: 3 books
– 99% of orders are books

Assumptions:
– Acquisition costs = $ 25
– Variable costs = 18 %
– Retention rates: 95.9% for first 6 months, 97% for the next 6 months, 98% for the next 24

There are 4 levels of customer engagement:

Level 1: Beginner (Free Super Saver)
Level 2: Purchase Patterns Captured (Buy 4, Get 1 Free)
Level 3: Heavy User, Hooked (Amazon Prime)
Level 4: Heavy User is Rewarded by Savings (Amazon Visa Card)

Each level of marketing programs reinforces continuous purchasing behavior, increases frequency and average purchase value that are paramount for increasing overall LTV.

Presently, I am a consumer on Level 3, as Amazon Prime Buyer. With the assumption of 3 years as my projected life experience with Amazon, the LTV amounts to $634. My switching costs are quite significant at this point and comprise of $79 of annual fee, ease of use, loss of automated purchase process, brand equity, security and trust that the service of the competitor might or might not be delivered.

As far as the effectiveness of this program, it did increase my frequency by eliminating time and quantity restrictions. I purchase twice as much on demand, increasing my total spending by 50 %. Simultaneously, it ensures committed 11-12 orders per year based on the annual fee that is a pre-paid shipping expense, thus increasing overall probability of purchase.

Retrospectively, I made a smooth transition from the prior 2 levels:

- Level 1 (Free Super Savor) made me buy in triplets manner which drove consistent purchase order to be roughly $28. At this stage, my LTV amounted to $348 over 3 year period.
– Level 2 (Buy 3 Get 1 Free) made me buy more books, increasing the level of frequency and ensuring that average order always amounts to $ 49. At that stage, my LTV was $ 507.
– Level 3 (Amazon Prime) increased my LTV to $ 634.
– Level 4 implies getting Amazon credit card. This could be a significant step transferring a heavy user, like me into a lifelong customer, however, the one time savings of $30 and the hassle of having another credit card is not enticing enough.

 


The 4 level approach works well while acquiring new users and transferring them into heavy users and ultimately into loyal customers.

Frequency of purchase, volume and average purchase value play a major role while affecting LTV, thus the following initiatives are advisable to expand into:

- Cross-selling is optimal to generate higher frequencies of purchase. Bundle packaging and offerings could be considered as alternative offerings based on the search data.
– Branding initiatives could help to seed awareness and repeat the message that online you can find it at Amazon: all the goods, ranked, recommended, traded – already pursuing community engagement
– Utilizing referral campaigns to potentially eliminate acquisition costs and carry the branding message (though the latter are quite low)
– Developing an alternative to the level 4 program (Amazon credit card), perhaps just a points card for customers that are not responsive to getting another credit card. It can still provide the same data, but alleviate the commitment factor implied in the financial decision of signing up for a credit card.
– Not sure how I missed it, but Amazon does a good job utilizing social media and web widgets to generate more interaction and customer involvement. Brian Oberkirsh has a great post on it here. I wish the design and usability of Amazon could be better and user friendly..too busy and too much going on for me when I sign up.

P.S. Just ran into a good chart on Bnet brought by iProspect on the Purchasing Power of Web Sites. Clearly, Amazon tops the score. (Added on May 15, 2007)
Purchasing Power of Web Sites (IProspect)

Why Some Loyalty Programs Work and Others Don’t?

Three week intensive course of CRM class uncovered the basics of customer loyalty aspect: loyal customers add more lifetime value (LTV) and we marketers should be focused on it and court them as they are less expensive (they are knowledgeable about your service and product and thus take less time and money to service, they might even educate your prospects and refer). Well, it all makes sense and this week we discovered the opposite! According to Werner Reinartz and V. Kumar article on “The Mismanagement of Customer Loyalty“, customer loyalty focus only can be a big mistake.

Studies show that loyal customers could be rather demanding and not willing to upgrade, buy more or pay a premium. How about the obvious resentment in some consumer industries that loyal customers experience when they are hogged or bombarded with upsell messages? I might buy the product more frequently, but why should I pay a premium or extra as I know exactly what the product value is. Why do I want to spend $70 a year just for 2 day free shipping if I can continue buying my books on Amazon in triplets to use a free shipping option of purchase order that exceeds $ 30? It works well, why change? Thus, loyal customers can be quite price-sensitive.

In business-to-business industries, loyal customers can be expensive to serve: as they buy in large volumes and dictate the terms. A closer look should be taken at the relationship between the loyalty and profitability. One of the solutions provided is time-driven activity-based costing. It allows to uncover the costs of business activities and all the time spent on them.

What about endorsement? Supposedly, loyal customers are your product evangelists. But, looking just at the purchase behavior is not enough. It is a combination of attitude and consumption that makes an average heavy user an endorser.

The bottom line is that the link between loyalty and lower costs = profitability is industry specific. Consistency in purchasing behavior and attitude/emotional connection to the product make the best referral agents from your customers. To choose an appropriate loyalty strategy, segment your customers by longevity and profitability.

The 24 Essential Techniques of Database Marketing

While, immersing myself into the knowledge of CRM and Database Marketing, I wanted to share a great checklist Arthur Hughes provides in his Strategic Database Marketing book.  This list will help visualize the breadth and scope of this approach. At the same time, it will allow you to serve as a great keyword framework while you are building your informational library about the subject.

  1. LTV (Customer Lifetime Value) = Net worth of your customers, almost like ABC marketing segmentation
  2. RFM (Recency, Frequency, Monetary Analysis) = allows to predict the success of your promotional efforts
  3. Customer Communications = personalized customer communications based on the data, love this part!
  4. Appended Data = all the demographics, psyschographic data we get from “zip code profiles” providers
  5. Predictive Models = one can build based on item 4 and communications, helps to increase response rate and decrease attrition rate
  6. Relational Databases = form of the database that allows instant useful info to make marketing decisions, something you have to have set up right from the start!
  7. Caller ID = helps CRMs to do their magic = boding experience via instant info and response
  8. Web sites = helps your customers to experience your product/service, bond with it and provide their behavior pattern data for good purposes obviously, allows engage into conversations. Jeremiah has loads of nuggets in this area.
  9. Email = allows effective communication, leads to retention and increased sales. Allows to reach your customers, still does!
  10. Tests and Controls = use test groups to see the effectiveness of your customer loyalty programs
  11. Loyalty Programs = customers are delighted to participate in those! Airlines are a good example
  12. Business Intelligence Software = allows you to have “hands on” your marketing activities before, during and after, well – anytime
  13. Web Access = for your relational database for all functions within your company (management, CRS, sales, marketing, operations, etc.)
  14. Rented Lists = allows to get direct response (mail) data easily than you think
  15. Campaign Management Software = speeds up your execution phase from the planning to doing
  16. Address Correction Services = made modern database marketing possible
  17. Profitability Analysis = allows you to change your pricing and marketing strategies to increase your profits
  18. Customer Segmentation = allows to create useful segments based on demographics and behavior based on the actual data, helps to create targeting communications!
  19. Status Levels = allows to provide special services for special customers (Platinum, Gold, Silver)
  20. Multichannel Marketing = more sales wherever your customers show up
  21. Treating Customers Differently = profits come from retaining the Gold customers and encouraging others to move up the higher status levels
  22. NBP (Next Best Product) = powerful tool to determine why one group of your customers buys and the other does not. Sales people and CRM will appreciate the info
  23. Penetration Analysis = helps to direct sales force and make them more effective
  24. Cluster Coding = helps to identify who is buying and who is not, creative tool that allows to improve both marketing and sales!

Behavior-Based Segmentation and Customer Lifetime Value

Shopping lately at Amazon and getting into Database Marketing class, my last term, made me rethink the whole notion of segmentation analysis. For decades, and just personally for me, for the last 5 years, I categorized target markets/customers by psychographic and demographic data.  While, people watching and further character studying always amused me with identifying their behavior patterns and action tendencies. At the same time, it never occurred to me how the two can be well-connected in the behavior-based segmentation process.

CRM (Customer Relationship Management, Customer Equity Management) concept is not a novelty, but today I started getting excited about the idea and its application. For the last 6 months, I have been buying books on things of interest for myself at Amazon in a “triplets” manner to use free shipping service. Oddly enough (not so oddly), now I get promotional messages to buy 3 with 1 free = total 4. And guess what, I started looking for the next 4 that I want to read. It works on me and everybody else! It changes my behavior and increases my usage. “Books that might interest you” feature is not even mentioned as we all are so used to it! I wish all my online clothing shopping experience got me personalized style advice based on my purchasing behavior!

What I most looking forward to is to actually being able to calculate my lifetime value to Amazon as a customer by the end of this class…and to other services that I might reconsider! Stay tuned…

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