A Road Less Traveled in

Customer Analytics
Four Differentiating Initiatives

July | 2009
Get a Free List of Your Competitors’ Best Customers, Today!

Many companies already own the right

data for targeted acquisition from their
competitors, yet most aren’t aware of it. Is
your company one of them? What you
think you don’t know but actually likely do
regarding your competitors’ customers
represents a huge untapped potential that
could create substantial impact to your
company’s bottom-line.

What?

A number of industries, especially telecommunications and finance, are

facilitators of interactions between people – be it, for example, a phone
conversation, or, a financial transfer.. These types of interactions allow such
industries to have a unique ability in terms of marketing: direct access to
competitors’ customers. When a telecom operator’s customer makes an off-net
call, or when a bank’s customer makes a money transfer to another bank, they
provide precious bits of information for the company – the phone or account
number of a potential customer as well as behavioral information about that
potential customer. Using a blend of traditional and unconventional tools of data
mining and direct marketing, it’s possible to reach out to these potential
customers and make very specific and targeted offers to them.

But, Why?

The utilization of analytics in designing and conducting marketing activities has

become a de-facto standard among the best of the best, providing significant
benefits to those organizations wise enough to realize its potential. Mainly until
now though, most of the analytics-driven marketing activities have focused on the
existing customer base - for retention, for internal growth, and sometimes, for
win-back. Many of the companies in the aforementioned industries have thus far
wasted the opportunity of using analytics for acquisition. If data mining
techniques have been useful for identifying untapped potential in one’s own
customer base, why not use them to get a better understanding and targeting of
the competitors’ customers interacting with one’s own?

Using already accessible internal data to cherry-pick the competitors’ customers

provides a highly cost-effective means for acquisition. It also allows companies to
select targets for acquisition that are most related to its own customer base,
hence increasing the loyalty of its existing customers through the building of a
closer-knit community.

So, How?

Similar to most customer analytics initiatives, competitor customer acquisition

starts with preparing the data required for analysis and targeting. A competitor
customer data mart – a data set including one potential customer on each row as
well as summary of his/her interactions with your customers – is best-suited for
this job. In this competitor customer data mart, you would have:

Telecommunications (from CDR data)

 A unique identifier: Phone Number of the Competitor Customer

 History: A field regarding the length of time in years the phone number
has been appearing on your network as a called individual.

 Value determinants: Fields regarding count, duration and value of

interactions with this customer from your network (e.g. different number
of your customers calling the number / total MoU for calls to the number)

 Behavior determinants: Fields regarding time and type of interactions

with this customer from your network (e.g. SMS interactions mostly /
weekend-heavy users)

Finance (from Transactions data)

 A unique identifier: Account Number of the Competitor Customer

 History: A field regarding the length of time in years the account number
has been involved in financial transactions with your customers.

 Value determinants: Fields regarding count and monetary value of

interactions with this customer from your customer base (e.g. different
number of your customers transferring / total $ of transactions with this
account)

 Behavior determinants: Fields regarding nature and type of interactions

with this customer from your customer base (e.g. small and frequent
quantities / currency used in interactions)
Once such a data mart is ready, the next step involves the use of traditional
analysis and data mining techniques – such as value and behavior based
segmentation – to identify the best targets for acquisition (in addition to business
case modeling to understand the potential revenues and impact on cost of
acquiring a given customer)Usually, the competitors’ customers with the highest
amount of interactions with your customer base would turn out to be the most
valuable customers of your competitors, hence the best targets for your
acquisition purposes. Other factors of course need to be examined (i.e. the
benefits of not paying an interconnection fee in telco, for example). Based on the
behavior segments in your target base, you can approach them with value
offerings that are most relevant for their needs (e.g. offering weekend discounts
to potential customers who interact with your base most frequently during
weekends).

Of course, the natural question at this stage would be: “Now that we know whom
to target and what to offer, how can we communicate with them?” Two
alternative answers exist for this question:

1. In countries where rules and regulations allow such actions and the local
culture is such that the potential customers would not be irritated, the
most effective approach would be to reach out directly. In
telecommunications, this means calling them or sending an SMS to their
phone numbers – which is already known in CDR data. In finance, this
would mean either making use of contact details provided by your own
customers when performing their transactions, or making dummy
transfers towards your potential customers – such as a $0.0001 money
transfer to their account with a personalized message and offer as the
description of the transaction.

2. When existing regulations or local culture does not allow for direct
communications with your potential customers, the next best alternative
is using your own customer base for contact, through the leveraging of
referral programs. Once you know which potential customers you desire,
it’s easy to identify which of your own customers interact with them the
most. Using highly targeted referral offers – such as ‘get the last customer
you’ve called on to our network and you both get 200 free minutes’ –
your customers would literally work as your intelligent acquisition
channel, grabbing the most valuable customers from your competitors.

What Next?

Using internal data for competitor customer acquisition may seem to be an

unorthodox method for most traditional marketers. Yet, as long as regulations
allow and you avoid invading privacy of customers, it can generate quick profits
and build an avalanche impact, as the more customers you get, the more visibility
you will have over your competitors’ base through their interactions. If you are up
for it, we recommend that you start with some quick-wins and test the concept in
your market.
BI on a $0.99 Budget

Many well-established Business Intelligence

teams run on software budgets of hundreds
of thousands to millions of dollars, which is
considered as a significant barrier for highly
budget conscious and smaller scale
companies, especially in the times of
economic downturn. The good news is; it is
possible to establish a considerably scalable
Business Intelligence practice with a software
budget of just 99 cents.

What?

As the harsh times are calling for desperate measures across the world, not all
companies are willing to invest considerable amount into software licenses. And,
since commonly perceived as non-operational technology components, business
intelligence software are not the easiest sell to CFOs nowadays. On the other
hand, under current circumstances of the economic downturn, companies need
to be more agile than ever, which means increased need for faster access to the
information. Does it sound like yet another management dilemma? Not
necessarily… Don’t hold back from business intelligence if only you think it is
costly. You can run your business intelligence on a $0.99 software budget…

But, Why?

How many times have you heard about a company that has invested millions into
reporting infrastructure, where almost all reports are still developed manually and
using spreadsheets? What about those invested in hundreds of thousands in data
mining software yet still don’t possess a solid customer segmentation model? In
fact, a recent NCC survey in the UK found out that 87% of business intelligence
projects do not live up to expectations when compared to investments. You can’t
simply blame it on the technology, since these technologies create wonders
elsewhere. These are cases of overinvestment in technology, where simpler and
cheaper solutions could be sufficient for the needs and capabilities of the
companies.

The right way of investment into BI software, like any other technology, should
start with a well defined strategy, as well as an implementation roadmap, which
includes the portfolio of reports and data mining models answering key business
needs. Software investment should only then follow, evaluating alternatives
based on the actual complexity of needs. During this evaluation, companies
should keep an open mind about the free open-source alternatives to maximize
their ROI from BI investments. And don’t think that these alternatives are for only
SME-sized companies, as the references of some of these tools include names
such as IBM, Ford, HP, Cisco, Nokia and Miele.

If you have recently established your business intelligence unit or started

structuring one, consider free open-source business intelligence alternatives, test
the concept with them to make sure that it adds value to your business and move
to commercial solutions to scale up later. More importantly, if you think that
business intelligence is expensive, think again…

So, How?

Using common office software and free open-source solutions, companies can
build their back-end data systems, process it effectively and present it with a user
friendly front-end. In this section, we provide the list of common functions within
business intelligence scope of operations and some alternative solutions which
would not cost a dime in terms of software licenses. Please note that many other
free viable alternatives exist and the software listed here are provided as
examples only.

Front End

 Reporting: A number of features are critical in development of business

dashboards, scorecards and reports for any reporting front-end:

o Ability to automatically retrieve data from a database server

o Ability to work with reporting cubes
o Ability to design reports with a developer-friendly interface
o Ability to customize reports by end-users
o Ability to develop graphs in various types and formats
o Ability to copy and print reports
o Ability to work online and offline
Aside from comprehensive and relatively expensive reporting solutions such
as Business Objects, Cognos or Microstrategy, there is a tool which possesses
all these functions, and has much higher user adoption: Microsoft Excel. It is
possible to link Excel charts and tables to database servers through SQL
queries over ODBC connections or OLAP servers using pivot tables, making it
a user-friendly reporting interface, at no additional cost. Upsides are your
savings from end-user training and adoption programs as well as integration
into all your spreadsheet activities. And if you have a number of power users,
it can give you great flexibility using VBA coding. Many companies already
use Excel for some of their reporting needs. All you need to do is to establish
live connections with your data warehouse and you have your reporting
interface already.
Processing

 Data Mining: When it comes to data mining, many companies evaluate

solutions such as SAS versus SPSS and KXEN, but very few actually ask
whether a viable free alternative exists. The truth is; such free alternatives
exist, like Rapid-I, and are similarly effective when it comes to traditional
data mining algorithms. These algorithms (e.g. K-means clustering, C4.5,
logistic regression) are implemented in quite similar fashion in most
solutions since they are based on publicly available academic publications.
And many companies stick to them even when they have more options
available. The commercial solutions are commonly superior in terms of
performance and scalability, and provide a wider range of algorithms for
advanced users; however, unless your intention is to mine data of millions
of customers with highly sophisticated techniques, you may not be in dire
need of them.

 ETL Suite: Extraction, transformation and loading… The three letters

which commonly make up the most time consuming part of any business
intelligence initiative. As business applications move from legacy file
formats to accessible database structures for data management, ETL
process becomes more of a database development capability. Under such
trend, even a simple SQL editor can be used as an ETL environment,
decreasing the need for high-cost ETL studios, although falling short in
terms of working efficiency. Yet, companies looking for free alternatives
to ETL platforms can do even better than SQL editors, as free open-source
options such as Talend Open Studio are available, providing comparable
functionality to commercial applications. Free alternatives are feasible
options especially for companies which do not transform terabytes of
data every day or extract data from tens of different systems each of
which have different legacy interfaces or file formats that are not
necessarily supported by free solutions. Similar to data mining, scalability,
performance and variety are not among freeware forte, yet not
necessarily all companies have the need for them.

 Scheduling: Scheduling is an integral part of business intelligence

automation, where ETL processes need to be run in certain order and at
specific times of day and data mining models need to follow, scoring
customer segments and risks. So, if you don’t own a commercial data
mining server license or a commercial ETL studio with scheduling
functionality, how do you automate your activities? Luckily, you don’t
have to stand all night to run your programs in order, as most operational
systems today have the task scheduling functionality, which would enable
the automation regardless of the software you utilize. Such functionality
can even be configured to e-mail freshly updated reports to selected
recipients after all your month-end business intelligence activities are
executed automatically.
Back End

 Database Server: A free database server is nothing new, with alternatives

such as MySQL being around for many years. However, a new trend has
emerged in recent years, with big commercial players offering free
database servers, such as ORACLE, Microsoft and more recently IBM with
DB2 Express-C. For small to medium-sized databases and data
warehouses these alternatives are workable options, on top of which one
can deploy business intelligence applications. You do not necessarily get
the more advanced functionalities such as performance tuning, load
balancing, etc. but if your data size is not calling for them, you could as
well be better off without them.

 OLAP Server: An OLAP server is not an indispensable part of a business

intelligence ecosystem, if your reporting needs are pretty straight
forward, limited and static. However, it is always a good practice to have a
flexible reporting environment, allowing your end-users to filter, slice and
dice their data across various business dimensions, which calls for an
OLAP server. So, if you are up for it, the good news is you can get a fairly
effective one for free. There exist various free and open-source OLAP
server alternatives in the market, such as Palo OLAP server, which can
even integrate with Excel - your free reporting software - through OLE DB.

So how are these solutions available at no cost? Well, there is a catch after all:
these solutions do not necessarily provide warranties or support functions for
free, which means that you are basically dependent on your self-service skills
when it comes to problem resolution. Additionally, as mentioned before,
scalability and performance might be limited when compared to some
commercial solutions. For some companies, these mean that cheap is expensive.
But if your needs are relatively less complicated, less performance dependent and
you are eager to experiment on your own, they could well be worth a shot.

By the way, you might still be wondering what would cost you the 99 cents, when
everything listed is for free… It’s the cost of coffee you would drink while reading
this article…

What Next?

We recommend that companies who are holding back their business intelligence
operations because of the software costs assess the free alternatives for their
needs. Others looking for some cost savings should also evaluate the benefits they
get out of their current software providers and assess viability of the free
solutions in their environment. Some of the large scale organizations which have
already invested in commercial solutions would realize that the cost savings in
migration to free solutions would not necessarily be justified for them considering
their complexity of needs and attached human resource training and adaptation
costs. Others might realize a sizable opportunity out of this exercise…
Now, Who Can Sell to This Customer?

Most analytical models developed for customer

acquisition, retention or growth do not take into
account that it is the human that does the
marketing, and miss a great opportunity to boost
return on investment. Every call center agent and
sales representative is different, as is every
customer and without a good matchmaking
between them; it is not possible to maximize the
conversion rates.

What?

Today, most business intelligence activities in the direct marketing and sales focus
on building the ideal list of prospects to sell to, identifying the right channel and
offer to use, and in some limited cases, finding the right script to communicate.
Although all of these are almost compulsory for effective operations, they leave
one very decisive element out: THE HUMAN FACTOR. Ideally, in addition to
optimizing all those listed elements, companies should also discover who can sell
best to whom and optimize the matchmaking between their sales representatives
and call center agents with their prospects.

But, Why?

Due to various reasons, such as demographics, personal history, education and

social skills, every salesperson is different from another. Some can better
communicate with youth, others with elderly or women, businessmen,
expatriates, etc. If half of the sales is about the prospect and the offer to make,
the other half is how it is being communicated, which mostly relies on whether
the person communicating is equipped with the best skills. Ability to recognize
which salesperson is best equipped for which type of customer can lead to
substantial improvements in marketing and sales results. If one of the call center
agents can relate to and make wonders with the university student customers,
why continue randomly assigning middle aged businessmen and retired couples
to him or her, when another agent could be performing much better with them?

So, How?

Matchmaking between the marketing, sales teams and the customers follows a
similar approach to most optimization problems, with three main steps:
1. Preparation of Data: Understanding of the performance of sales personnel
with different customers requires historical data on personnel’s performance
as well as the profile of prospects each personnel has dealt with. Ideally, this
would mean availability of campaign management data (who offered what to
whom and when) as well as customer segments information based on
various dimensions such as demographics, needs, behavior and value. For
companies lacking such data today, even collecting it for the next couple of
weeks and months with short-term solutions can provide a usable basis for
analysis. Yet, ideally, these companies should revisit their data strategies and
start systematically collecting these key information elements.

2. Identification of Factors: Once data is available, the next step is doing a

preliminary analysis to understand what factors (i.e. characteristics of
prospects such as age, marital status, income level, needs) affect sales
personnel’s performance. Performing simple statistical tests or even charting
personnel performance across different prospect properties can reveal the
most important ones to focus on. For companies with capable resources,
building data mining models to identify the factors and segments most
correlated with personnel performance would generate better results.
Whichever method is used for analysis, a key success factor is the ability to
isolate the effect of offer and in some cases the time of offer. An agent could
be performing best with the high income prospects, but this could be due to
the fact that the agent has been used for communicating an offer only
relevant for these prospects lately. To isolate such cases, preferably, all
marketing and sales personnel should be evaluated based on the same
conditions (e.g. offer, time of day, script).

3. Optimization of Allocation: The final step is the actual matchmaking, where

based on the factors identified and the data prepared, optimal allocation of
prospects to representatives or agents is done. Although this is a matter of
allocating the best resource for the selected prospect group, it involves
simulation and operations research techniques to come up with the best
allocation. As the capacity is also a parameter – after all, the number of
resources is limited - an agent does not always get the prospects where
he/she would perform the best. It is a matter of maximizing the output from
overall sales team, not each individual separately. As an example; consider
the following scenario, where three agents have different sales conversion
rates for three different segments of customers. Ideally, it would be best if
both Agent A and C sells to the Youth prospects and B sells to the Middle
Aged. However, if each agent can make 100 calls a day and the lists of
prospects to sell to include 100 of each segment, this allocation does not
work out.
 Agent A Agent B Agent C

7%
6%
5%
4%
3%

1% 1% 1% 1%

Youth Middle Aged Elderly

Let’s consider three alternatives for this case:

A. Without Any Optimization: In this case, the prospects would be allocated to

the agents randomly, each getting about 33 from all segments. The overall
sales conversion rate in this case would be 9.7%.

B. With Best Performer Approach: Since Agent A is the best performer for
Youth, these 100 prospects would be assigned to Agent A. Similarly Agent B
would get the Middle Aged and Agent C would get the remaining, the Elderly
segment. In this case, the overall sales conversion rate would be 13%, a 34%
improvement from the random assignment.

C. With Actual Optimization: The optimization results in allocation of Youth to

Agent C, Middle Aged to Agent B and Elderly to Agent A. Even though both
the Youth and Elderly segments are served by non-top performers in these
segments, the overall sales conversion rate in this case would be 14%, a 45%
improvement from the random assignment.

As the example above demonstrates, the return from optimal allocation of

prospects to sales resources can create substantial impact on conversion rates,
which is worth the effort put in for analysis for most companies.

What Next?

We recommend that whatever the size of marketing and sales operations a

company has, it should initially perform a basic assessment of performance of its
frontline staff across different customer segments. In case significant variance
exists across these segments, the next step should be pilot testing the concept to
see how much of an improvement it would bring and do a full fledge optimization
and roll-out afterwards.

Companies should also leverage findings from these analyses in human resources,
recruiting agents and representatives who can sell to the underperforming
customer segments or training those who might have the potential to do so. After
all, the reason that a company can not sell to certain demographics groups might
simply be the fact that none of its sales personnel can click with those
demographics.
Your Customers are Changing, are you Following?

The economic downturn is having a

substantial impact on the needs,
preferences and behavior of customers.
Companies need to tap into their customer
intelligence to ensure they adapt as well to
these changing conditions.

What?

An unintentionally overlooked area during this economic downturn by most

companies is customer intelligence, an oversight that can have severe
repercussions. Understanding the impact of the economic downturn on the
overall customer portfolio (such as on product and service usage behavior, brand
loyalty, or payments risk) is mission critical, considering how significant the
downturn has affected their lives. Companies should ramp up their focus on
customer intelligence during these turbulent times to minimize the impact of the
downturn on their customer portfolio while also identifying opportunities to scale
back costs.

Today, most leading companies make use of customer analytics on a regular basis.
When there is little change in the market, the task is relatively easy: by using the
proven tools and techniques, data mining experts produce fairly static segments
of customers and accurate predictions about them on a given basis. But, in times
like these, when the market is significantly volatile, companies need to rely on
more frequent and unique methods of assessing and utilizing customer data.

But, Why?

Here is a list of key reasons why companies should be revisiting their customer
insights and giving them more attention during the economic downturn:

 Reordered Priorities: The most effective customer intelligence is the one that
serves business priorities and strategies the best. As the downturn is changing
agendas, it is necessary to see if the new priorities are best served with
existing intelligence. For example, companies that never before invested in
financial risk or churn prediction models should consider doing so in light of
the changing market conditions.

 Downscaled Budgets: Inevitably, many companies are trying to find effective

ways to reduce their operational expenses. A detailed understanding and
analysis of customer intelligence can lead to a decrease in the cost of servicing
low value customers by allowing marketers to identify such segments; further,
 it also enables one-to-one targeted campaigning (below the line marketing),
thus leading to a significant reduction in the costs associated with mass
marketing.

 Volatile Customers: The economic downturn is causing customers to be more

frugal about their spending, directly affecting their consumption patterns,
and, sometimes, their likelihood of paying. Companies need to more closely
follow the behaviors of their customers so as to identify pattern changes and
allow for pre-emptive intervention (i.e. cancel customer account to prevent
an escalation of debt).

 Expired Facts: Most customer analytics models are customized and relevant
to given business models or market conditions, meant to serve best under the
conditions they were developed in. During major changes such as economic
downturns, new segments appear in the market and some become
insignificant; under such conditions, the models in place can become invalid.
This applies for models around such topics as churn prediction as well, as the
profiles and reasons of customers churning during a downturn can be
completely different than from the reasons presumed before.

So, How?

In order to make best use of customer intelligence during the downturn,

companies should simply; collect, understand, beware and refocus:

 Collect (tactical and critical info): As priorities and business needs change, the
customer data which should be considered as vital also changes. For example,
during a downturn, contact detail data becomes extremely important, as
churners can then be won-back after the crisis through various methods of
outreach efforts.

 Understand (changes in your customer portfolio): During the downturn, the

priorities of customers change, with new needs replacing old ones – all of a
sudden, a customer’s most important need becomes value rather than
quality. These changes in needs prioritization cause some customers to
migrate towards different segments or even require the creation of new ones.
Companies should reassess customer needs and behavior to be able to come
up with the most relevant offers under new circumstances.

 Beware (of the increasing risk): Most companies are fighting heavily against
three types of risks today: defaulting customers, increasing churn rates, and
decreasing value per customer. In order to be successful in this fight,
companies need measures for effectively predicting which customers carry
these risks, so that they can take proactive measures. And, once again,
predictive models built before the downturn can prove to be useless, as the
 factors used to predict such behavior as churn or payment default may no
longer be the right ones.

 Refocus (for new conditions): As business priorities change, companies need

to revisit which segments and profiles they should be focusing on. For
example, with increasing default risks, companies could consider focusing
more on silver customers with low financial risks rather than gold customers
with high financial risks. Similarly, changing priorities call for changing
reporting requirements. Companies need to follow additional and different
key performance measures these days, which calls for adapting their
dashboards and reports.

What Next?

We recommend that companies take a pragmatic approach in realigning their

customer intelligence practice in this downturn, creating impact from day one.
Instead of undertaking traditional large scale customer analytics initiatives which
would deliver results only months later, companies should follow cycles of
analysis and actions with a modular structure.
About Forte Consultancy Group

Forte Consultancy Group delivers fact-based solutions, balancing short and long term
impact as well as benefits for stakeholders. Forte Consultancy Group provides a variety
of service offerings for numerous sectors, approached in three general phases -
intelligence, design, and implementation.

For more information, please contact

info@forteconsultancy.com

Forte Consultancy Group | Istanbul Office

www.forteconsultancy.com