Unit-II

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Customer Database

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 A customer database is typically designed with one
record per customer.
 It may contain all the sales and/or activity records
for every customer.
 Customer database contains the identifying
information that can be linked to other database
such as a transaction database to obtain a current
snapshot of a customer’s performance.

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 Key elements in a typical
customer database
 Customer ID: A unique numeric or
alphanumeric code that identifies the
customer throughout his/her entire lifecycle.

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 Example: Credit card banks assign a new
account number when a card is lost or
stolen. The customer ID allows each
account number to be linked to the unique
customer , thereby preserving the entire
customer history. It is essential in any
database to effectively link and tract the
behavior of and actions taken on an
individual customer

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 Household ID: A unique numeric or
alphanumeric code that identifies the
household of the customer through his/her
entire lifecycle .
 This identifier is useful in some industries
where more than one member of a
household share products or services.

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 Account number: A unique numeric or
alphanumeric code that relates to a
particular product or service.
 One customer have several account number.
 Customer name: the name of the person or
business .
 It is usually broken down into multiple
fields: last name, first name, middle name
or initial.

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 Address: the street address, typically
broken into components such as number,
street, apartment number, city etc.
 With population mobility about 10% year,
additional fields that contain former address
are useful for tracking and matching
customer to other files.

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 Phone number: current and former number for
home and work

 Demographics: charatcteristics such as gemnder,

aage and income may be stored for proiling and
odeling
 Products or services: the number of products and
the product details are extensive, this
information may be stored in a aeparate database
with a customer and the household identifier

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 Offer details: the data, type of offer,
creative, source code, pricing, distribution
channel and any other details of an offer.
 Most companies look for opportunities to
cross sell and up sell their current customer.
 There could be numerous “offer detail”
fields in a customer record, each
representing an offer for an additional
product or services.

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 Transaction database
 The transaction database contain records of
customer activity.
 It is often the richest and most predictive
information.
 The transaction database can take on various
forms depending on the type of business.
 It must be summarized and aggregated to a
customer.

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 Customer ID
 Account Number: that realtes to a
particular product or service
 Sales Activity: the amount of the
transaction.
 Date of activity: date the transaction
occurred.
 Example :Credit card transaction database
 Phone number
 Offer detail 12
 Offer summary: date of first offer(for each
offer type ), best offer(unique to product or
service), etc.
 Predictive data: Includes any
demographic, psychographic or behavioral
data

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Solicitation Mail and Phone tapes
 Solicitation tapes are created from either a
customer database or a prospect list to
provide pertinent information for a
campaign.
 The tapes are usually shipped to a processor
for mailing or a telemarketing shop for
phone offers.

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 Customer or prospect ID: it can be used to
match to the customer or prospect database
 Predictive data: purchased from an outside
list company for the purpose of building a
model.

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Customer Profile Analysis

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 An in-depth knowledge of your customers and
prospects is essential to stay competitive in today’s
marketplace.
 Some of the benefits include improved targeting and
product development.
 Profile analysis is an excellent way to get to know your
customers or prospects.
 It involves measuring common characteristics within a
population of interest.
 Demographics such as average age, gender(percent
male), marital status(percent married, percent single,
etc.)
 And average length of residence are typically included
in a profile analysis 17
 Other measures may be more business
specific, such as age of customer
relationship or average risk level.
 Others may cover a fixed time period and
measure average dollars sales, average
number of sales or average net profits.
 Profiles are most useful when used within
segment of the population of interest.

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 Segmentation
 Targeting models are designed to improve
the efficiency of actions based on marketing
and/or risk.
 But before targeting models are developed,
it is important to get a good understanding
of your current customer base.
 Profile analysis is an effective technique for
learning about your customers.
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 A common use of segmentation analysis is to
segment customers by profitability and
market potential.
 Example: a retail business divides its
customer base into segments that describe
their buying behaviour in realtion to their
total buying behaviour at all retail stores.
 Through this a retailer ca assess which
customer have the most potential.
 This is ofetn called “share of wallet” analysis
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 A profile analysis performed on al loan or
credit card portfolio might be segmented
into a two-dimensional matrix of risk and
balances.
 This would provide a visual tool for
assessing the different segments of the
customer database for possible marketing
and/or risk actions.

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 Lifetime value of Customer

 The lifetime value calculation looks at the customers from

the point of view of their lifetime revenue or profit
contribution to a firm.
 This concept is required when a company plans to bulid long-
term relationship with its customers.

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 The lifetime value of a customer
depends on:
 The length of an average ‘lifetime’
 The avg revenues generated per revelant
time period over the lifetime.
 Sales of additional product and services
during that time
 Referral generated by the customer over the
lifetime
 Lifetime value refers to ‘lifetime
profitability’ when cost data is a readily
available.
 Acquisition Cost
 Base Profit
 Profit from Revenue Growth
 Cost Saving
 Referrals
 Price premium
Segmenting by Customer
Profitability

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 Profit comes from Loyal customers
 If you’re still convinced that acquisition is a more
lucrative strategy for any organization than focusing
on the loyal customer.
 80/20 rule in marketing.
 The consultancy bain & company estimates that
increasing retention rates by just 5% can potentially
increase profits by 25%.
 To protect their single most important asset,
companies should seek to cultivate ‘stickability’ by
shifting their attention to customer retention as
opposed to acquisition.
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 Profit=Loyal Customers
 The best strategy that marketing investors can
abopt is to focus on building relationships with
their customers rather than on counting the no.
of business transactions.
 Imagine it as the difference between o one-night
stand and loving relationship.
 The more knowledge that companies can acquire
about their current customers- and the more they
can use that information when they are
communicating with them- the more likelihood
they have of buliding a relationship that will last.
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 Customer satisfaction=customer retention
 More than 40% of product/service constantly
vie for our attention, so loyalty is all about
creating such a strong sense of “pull” towards
a particular product that customers don’t even
reconsider or question their choice.
 Smart marketing investors know that their
most loyal customers should always receive
preferential treatment because they offer
much higher returns.
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 Segmenting by customer
profitability
 Marketers commonly segment their consumers
into behavioral or attitudinal groups built from
segmentation studies.
 For instance, a bread company uses descriptors
such as ‘health vigilantes’ to describe the
customer segments it want to attract.
 Segmentations such as these provide useful guides
that extend beyond demographics and can help
influence new product development, packaging
and communication.
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Identifying unprofitable customers
 Just as stock market investors weed out the
underperforming investments in their
portfolios, marketing investors need to per
form exactly the same task by segmenting their
customers in terms of their profitability.
 One advantage of segmentation is that it not
only allows profitable customers to be
indentified and targeted, but it also allows
companies to see which customers are more
trouble than are worth 30
 Unprofitable customers are bad news. They
don’t generate any profit for the company and
they drain resources, sapping the workforce
precious time and energy.

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 Segmenting by Customer
Profitability
 Fred reichheld(2001) sys that one reason why
companies have become so obsessed with
acquiring customers as opposed to retaining them
is because acquisition is much easier to measure.
 It is worht investing in segmentation tools that
divide up your customers according to their
profitability.
 Splitting up your consumer base into ‘loyal’ and
‘new’ limits how far you can go based on that
information.
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 Segment based on customer profitability, you
can allocate your resources accordingly,
reducing servicing and acquisition costs for
unprofitability customers
 Adding and enhancing value for more
profitable ones.
 This insight enables them to improve the
customization of the service available with the
intention of providing better customer
satisfaction and responsiveness.
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The 3Rs: Three steps to segmenting by customer
profitability
 Ranking: create a scale of 1 to 10 where you
can rank your entire customer base in terms of
their profitability.
 Use sales volume, margin or length of tenure
as your metric, but your rankling will ideally
be based on profitability of costs allocated to
customers versus revenue gained from them.
 Once ranked prioritize your highest-value
customers and invest in them. 34
 Develop segment profiles that note purchasing
patterns, media habits and demographics.
 This information will help inform and
influence your marketing communications
strategy

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 2. Relevance
 Target different ranks with the most appropriate
offers.
 Think of the different types of customer on the
same jumbo jet heading for the same destination
on the same plane.
 There are first-class, business, premium-economy
and economy customers and each segment has
different priorities: for some it’s comfort and for
others it’s getting the cheapest possible seat.

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 You need to cultivate a similar approach
when you create customer offerings, if you
are going to increase the likelihood of
surpassing your customers expectations and
retaining them for future business.
 Forrester Research reveals that only 43
percent of 60 global companies offer better
service to profitable customers, so there is a
lot of scope for improvement.

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 3. Reshape
 Based on the information that you
accumulate about your customers, develop
an understanding of the different ways in
which your customers are acquired.
 Do they join up via the internet, through
existing customers or via telemarketing?
 How does it differ according to their
profile?

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 Armed with this information, you can ensure that
you invest more heavily in marketing that
delivers high-profit customers as well as
reducing or even stopping those executions that
don’t.
 This deliver much more efficient and productive
communication.
 More data and a more insightful understanding
will gently steer your business towards attracting
‘love’ ‘ems’ rather than ‘kill yous’
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 Maximizing customer
profitability
There are 10 steps to maximizing customer
profitability, according to blattberg and
deighton(1996):
 Invest in high-value customers first
 Transform product management into customer
management. This can mean creating a club
that offers high-value customers certain
benefits and that reinforces the brand’s appeal.
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 Consider increasing customer equity through
additional sales and cross-selling.
 Reduce acquisition costs. If you can acquire
customers in a more cost-efficient way, the
long-term pay-off from those customers
improves.
 Track customer equity gains and losses
against marketing programmes.
 Use customer-value statement reports to find
out whether marketing is building or eroding
the customer base.
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 Relate branding to customer equity
 Monitor the retainability of your customers.
Has anything in their circumstances changed
that might make them less inclined to purchase
from your product portfolio?
 Consider separating acquisition and retention
marketing strategies.

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 Identify the Customer
Three categories of customers
 External Customers, both current and
potential: A multiplicity of these customers
gives rise to variety of influences, depending
on whether the customer is economically
powerful and on its technological
sophistication. Each customers has needs
that must first be determined and then
addressed in planning a product.
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 Internal customer: these customers include all
functions affected by the product at both the
managerial and workforce levels.
 Suppliers as customers: Suppliers should be
viewed as extensions of internal customer
departments such as manufacturing.

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 Customer Behavior
 Customer needs are the basic physiological
and psychological requirements and desires
for survival and well being. A.H. Maslow is a
primary source of information on both
physiological and psychological needs. He
identifies a hierarchy of such needs as
physiological, safety, social, ego and self-
fulfillment.

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 Customer expectation are the anticipated
characteristics and performance of the goods or
service.
 Kano and Gitlow(1995) suggest that three level
of customer expectation are related to product
attributes.
 The expectation level of quality represents the
minimum or must be attributes.
 At the unitary (or desired) level, better
performance leads to greater satisfaction but
usually in small increments.
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 For the attractive(or surprising)level better
performance results in delighted customers
because the attributes or the level of
performance are a pleasant surprise to the
customers.
 Discovering and understanding customer needs
and expectations is necessary in defining
specific product attributes for market research
and product development.
 Customer satisfaction is the degree to which the
customer believes that the expectations are met
or exceeded by the benefits received. 47
 Customer expectation has a strong influence
on satisfaction.
 For Example: customer staying at a luxury
hotel expects perfection, and even a minor
inconvenience will result in low satisfaction.
A budget hotel can have poor features, but if
customers get a reasonable night’s sleep, they
will have high satisfaction because their
expectation is low.

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 Customer perception is the impression made
by the product. Perception occurs after a
customer selects, organizes and interprets
information on the product.
 Customer perceptions are heavily based on
previous experience. But other factors
influence perception, and these factors can
occur before the purchase, at the point of
purchase, and after the purchase.

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