What Counts in Customer Analytics

In the art materials retail biz, every customer (and customer’s opinion) counts. Every customer interaction counts. Certainly, every dollar spent on keeping customers happy and coming back counts. “Once upon a time, your store may have been able to shake it off if you threw a promotional idea against the wall and found it didn’t stick, or brought in a line of products customers didn’t seem to like,” notes Jeff Sauro, author of the new book, Customer Analytics For Dummies. “That’s simply not true anymore.”

“The success of your business and even its survival depends on attracting customers and keeping them happy. Proceeding on guesswork and assumptions just isn’t a viable strategy,” he adds. “Everything is measured and evaluated these days. That means decisions must be made using solid research and cold, hard numbers – and business owners must understand that data.”

The bottom line? If you know what those numbers/metrics are, and how to evaluate what they mean, you will increase your understanding of what drives your customers. You’ll also be better equipped to meet their constantly evolving needs.”

Sauro’s book explains how to evaluate analytics to better understand customer behavior and make key business decisions. Here, he lists some important goals your store is probably working to accomplish, and shows how customer analytics can help.

Figuring out what customers want and what they will purchase is the holy grail of retail. Customer analytics offers several methods to help you choose what products to carry. One of these methods is a technique called “follow me home,” which Suaro learned while working at software company Intuit. You would literally follow a customer home or to his studio, and then spend the day watching him work. By looking for pain points and problems, you can spot product opportunities.

In Sauro’s case, his research team noticed that Intuit’s retail customers were exporting their transactions from their point-of-sale cash registers into QuickBooks to manage their books. The extra step took time and caused problems if done incorrectly. As a result, product developers integrated Quick- Books with a cash register that eliminated a step for customers.

Touch points are the places where customers find out about your store and the kinds of products it carries. They include commercials on TV and radio, ads on social media sites, newspaper coupons, brochures, word-of-mouth recommendations, and more. Customer analytics can help you pinpoint the number of potential customers each touch point reaches, how well the message resonates, and if the touch point motivates people to buy your product or service.

Here’s an example: Sauro once worked with a national advertising agency that placed ads in weekly newspapers. They wanted to find out if a coupon for Pier 1 Imports increased (or decreased) revenue. “Controlling for differences in markets, we found that sales in cities that received the coupon did increase in a statistically significant way that weekend,” he explains. “We were also able to determine that the discount from the coupon was offset by the increase in sales.”

In this case, it’s about understanding each phase the customer goes through when she first engages with you, your staff or other parts of that business, to when she becomes a loyal customer. You may think you understand, but how much of your “knowledge” is based on assumptions, incomplete impressions and wishful thinking?

Let’s say your store sells professional airbrush systems. You’d like to increase sales and believe that price is the biggest barrier. When you analyze data, however, you may find that 30 percent of your prospective customers aren’t aware of your store in the first place, or that more than a quarter of them feel your airbrushes are too complicated. “The point is,” says Sauro, “if you do not evaluate and measure each stage of engagement, you’ll miss vital opportunities for damage control, improvement, and innovation, or waste resources trying to alleviate pain in the wrong places.”

As its name suggests, customer lifetime value (CLV) is the total profit that a customer generates for your business between his first and final purchases. This metric is important because, among other things, it can help you evaluate how much money can reasonably be devoted to customer acquisition.

“If it costs $1,000 in marketing and sales to acquire one new customer, but that customer generates only $750 in revenue over the typical lifetime, it’s obviously bad for business,” Sauro says. “The longer the customer lifetime, the less likely you are to come to this conclusion organically. Sounds simple, but unless you proactively gather the numbers and weigh acquisition costs against CLV, you might not realize you have a losing strategy until it’s too late.”

You may think that once a potential customer becomes an actual customer, your job is done. Not so! Now you have to ensure that the customer will return and (ideally) recommend your store to others. One of the most effective ways to understand what drives customer loyalty, says Sauro, is to use customer analytics to conduct a key driver analysis. Key drivers are things like quality, value, utility and ease of use.

“A key driver analysis tells you which features or aspects of your business have the largest statistical impact on customer loyalty,” notes Sauro. “It can be conducted for all customers, but also for each of your different customer segments. At the end, you’ll be able to identify the most popular or unpopular features of your business, and then have customers rate that experience as well.”

How does it feel to pay the check at a restaurant where you had terrible service and bad food? Or how about paying $150 to change your airline ticket reservation? In these examples, companies financially benefit from their customers’ negative experiences. However, they’re “bad profits” because they lead to resentment, a decrease in customer loyalty and, eventually, they impact profits negatively.

“Customer analytics can provide an accurate picture of your company’s bad profits,” Sauro says. “Even if you don’t have access to financial data for your company or a competitor, you usually can estimate the percentage of bad-profit revenue.”

Some customer segments are more profitable than others – you probably have “regulars,” as well as other customers you see only rarely. Have you ever drilled down on what your regulars may have in common?

“An examination of revenue by customer segment usually reveals that the Pareto Principle holds true: A minority of customer segments create the majority of profits,” notes Sauro. “Identifying more profitable segments allows you to focus your efforts on keeping these customers happy while increasing their purchases. What’s more, segmenting can reveal underserved customers you can reach with special services or art materials. (For more reasons to segment your customers, see the sidebar on page 23.)

“Good customer management comes from good customer measurement,” Sauro concludes. “The more you know about collecting and interpreting data, the better decisions you’ll be able to make about, and for, your customers.”

By grouping your customers into segments that share certain characteristics, you’ll not only gain a better understanding of your current customer demographics, you’ll also discover hitherto- untapped opportunities for better marketing and product development. Here, Jeff Sauro lists just a few things that thoughtful and thorough segmentation enables you to do.

Segments often have different interests, values, tastes and reasons to purchase what you offer. Vastly disparate segments may not respond to the same marketing messages or promotions. Learning more about what makes each of your customer segments unique will help you to fine-tune your marketing to meet their needs and expectations.

Knowing that certain customers are more likely to purchase other products based on past purchases helps with planning and marketing. Think about what happens when you watch shows on Netflix or purchase books on Amazon. These companies tap into segmenting to predict and encourage future purchases with their “recommended for you” lists. This practice is called predictive analytics, and when done well, it can be quite accurate.

Why lose money by reducing prices if some customers (especially your most profitable segments) aren’t motivated by price? By acquiring an in-depth knowledge of customer motivations and gauging how much they are willing to spend (price sensitivity), you can develop more effective pricing strategies, says Sauro.

Fully meeting customer expectations with both service and products helps build customer loyalty. In addition, segmentation may reveal what kinds of incentives cause each segment to choose your store over the competition again and again. For instance, your younger customers may love your wide assortment of urban art products, while your professional artist customers appreciate the discount you offer when they buy canvas in bulk.

A persona is a fictional person who represents the characteristics, needs and goals of a customer segment. They are used to improve product development and marketing decisions. For instance, a persona named Riley might represent a target segment you’d like to grow. Considering Riley as you develop, pricing, and marketing strategies will help you focus your thinking. Many questions you run into can be answered by considering: Would Riley do this? Would Riley prefer something else? What is Riley going to use this product for? Personas are powerful when they are specific.

Jeff Sauro is a statistical analyst and pioneer in quantifying the customer experience. He specializes in making statistical concepts understandable and actionable. He is the founding principal of MeasuringU, a customer experience and quantitative research firm in Denver. For more information about Customer Analytics For Dummies visit the book’s page at wiley.com.

by Tina Manzer

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