Technology has finally advanced to the point where marketers can use real-time data in a way that is both meaningful to customers and profitable for companies.
We’ve come a long way from “people who bought this, also bought that.” Consider the experience of a representative customer we’ll call Jane. An affluent, married mother and homeowner, Jane shops at a national clothing retailer online, in the store, and occasionally via the app. When visiting the retailer’s website in search of gym clothing, she finds style choices based on previous purchases, the purchases of customers with profiles like hers, and the styles of gym wear most frequently purchased on weekends. She adds one of the gym tops on offer to her shopping cart and checks out.
Except for a follow-up email, most interactions with the customer stop there. But here’s what this example looks like when we activate Jane’s data: three days after her online purchase, the retailer sends Jane a health-themed email. Intrigued, she clicks the link and watches a video about raising healthy kids. One week later, she receives an iPhone message nudging her to use the store’s mobile app to unlock a 15 percent one-day discount on workout equipment. Though she has never bought such items at this retailer, Jane takes advantage of the offer and purchases a new sports bag. What began as a simple task of buying gym wear ended up being a much more engaging experience.
Such data-activated marketing based on a person’s real-time needs, interests, and behaviors represents an important part of the new horizon of growth. It can boost total sales by 15 to 20 percent, and digital sales even more while significantly improving the ROI on marketing spend across marketing channels: from websites and mobile apps to—in the not-too-distant future—VR headsets and connected cars.
Companies regularly experiment with testing the impact of varied customer experiences, but they do it in isolation. When they do try to scale up, they smack against the challenge of understanding what to prioritize.
This is a challenge that has continued to plague marketers, despite the promise of solutions such as customer-relationship management (CRM), master-data management (MDM), and marketing-resource management (MRM). These solutions can help companies consolidate and streamline data, manage segmentation, organize work flow, and improve customer relationships. But they don’t take full advantage of the digital signals customers provide. Instead, they rely on antiquated “list pulls,” basic segmentation, and campaigns, that all lack the automated decision making, adaptive modelling, and nimble data utilization to scale personalized interactions up.
Enter the Customer Data Platform (CDP)—a data discovery and “decisioning” (i.e., automated decision making) platform. The CDP makes it possible for marketers to scale data-driven customer interactions in real time. And while CDP hasn’t really broken into the Gartner Magic Quadrant or Forrester Wave, it is gradually becoming an industry-standard concept, with a small but growing cadre of third-party platforms emerging that will soon shape the category.
Incorporating a CDP into your organization—whether piggybacking on an existing master- data-management or customer-relationship-management system or starting from scratch— requires mastery of four areas:
Many companies have the elements of a relatively complete view of the customer already. But they reside in discrete pockets across the company. It is only when data is connected that it becomes ready to use. The CDP takes the data a company already has, combines it to create a meaningful customer profile, and makes it accessible across the organization.
“Feeding” the CDP starts by combining as much data as possible and building on it over time. Creating models that cluster customer profiles that behave and create value in similar ways requires advanced analytics to process the data and machine learning to refine it. Over time, as the system “learns,” this approach generates ever-more-granular customer subsegments. Signals that the consumer leaves behind (e.g., a site visit, a purchase on an app, interest expressed on social media) can then expand the data set, enabling the company to respond in real time and think of new ways to engage yet again. Furthermore, the insights gleaned extend beyond a customer’s response to a specific campaign, for example by driving more targeted product development.
The decisioning function enables marketers to decide what is the best content to send to a given customer for a given time and channel. Customers are scored based on their potential value. A set of business rules and regression models (increasingly done through machine learning) then matches specific messages, offers, and experiences to those customer scores, and prioritizes what gets delivered and when. This allows companies to make major improvements in how they engage with their customers by developing more relevant, personalized engagement, within a single channel or across channels, based on a customer’s behavioural cues. Those signals can be basic, such as “cart abandoned” or “browsed but didn’t buy,” or more nuanced, such as activity by segment and time of day, gleaned from mining customer data. In effect, these signals become triggers that invoke an action. A decisioning engine develops a set of triggers and outcomes based on signals and actions the company takes in response.
More sophisticated companies build up a decisioning model that works across all distribution channels. That requires advanced modelling and analytics techniques to identify the impact of one channel on another as a customer proceeds along his/her decision journey. A travel company took this approach recently and saw coordinating messages across channels drive a 10 to 20 percent incremental boost in conversion rates and customer lifetime value.
Effective decisioning is based on repeated testing that validates and refines hypotheses and outcomes. Over time, these can become increasingly sophisticated as models and algorithms build on each other.
Understanding your customers and how to engage them counts for little without the content to deliver to them. Designing great offers, however, is hampered by the fact that functions and departments within companies tend to operate as mini fiefdoms. The owners of each channel test and engage consumers exclusively within their own channel. Real benefits can only occur when companies shift to “war rooms,” bringing together people from relevant functions (marketing, digital, legal, merchandising, and IT/DevOps) who focus on specific consumer segments or journeys.
These teams have clear ownership of consumer priorities and responsibility for delivering on them. The cross-functional team continually develops new ideas, designs hypotheses for how to engage customers, devises experiments, and creates offers and assets. Analytics help size opportunities, test impact, and derive insights from tests. That content is then tagged so that it can be associated with a trigger and be ready to go when needed.
Distribution systems are simple “pipes” that send the ad or message that fed into them. Often, they can be quite manual and just blast out communications to wide segments of people with little tailoring. But connect the CDP engine, with its predetermined triggers and tagged content, to that distribution system and a formerly blunt marketing instrument becomes a far more directed one sending specific messages to distinct customer subsegments across all addressable channels.
That distribution system is often a platform itself that lives in the cloud. Other “point” solutions (marketing technology solutions for a specific task) can be connected into the CDP as well. The best distribution platforms create a feedback loop that sends customer response, engagement, and conversion data back into the CDP. That mechanism allows the CDP to grow and evolve (e.g., by responding to changing business rules or customer propensity scores), refining successful outcomes and eliminating unsuccessful ones. Remember Jane? If she received more than a specified number of touches over a period of a week, the business rules would suppress additional messages to protect her experience and sentiment toward the brand.
Unlike a wholesale IT transformation, deploying a CDP isn’t a replacement of current customer data systems, but rather an operational solution that can piggyback on existing systems. In our experience, many marketers already have a large part of the marketing-technology equation in-house; they’re just not using it properly. The promise of data-activated, one-to-one marketing is not only possible but is now increasingly expected by today’s customers. It is now the key to transforming simple customer transactions into enduring relationships.
Kai Vollhardt is a Partner at McKinsey’s European Marketing & Sales Practice, and coleads the global customer experience and personalization @ scale work. In this capacity, he serves clients primarily in Europe and North America on strategy, commercial transformations, and customer journey optimization.
*The author would like to thank Julien Boudet, Brian Gregg, Jason Heller and Caroline Tufft from McKinsey & Company for their contributions to this article.
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