Webinar summary Capturing Customer Value in a Multichannel World SAS Marketing Automation at Northern Tool + Equipment Webinar summary
Northern Tool + Equipment Co. began as a mail-order catalog for the construction trades. It has evolved to include 27,000 products offered through three primary channels: direct mail catalogs, 65 retail stores in 11 states and its website. The master catalog more than 500 pages mails twice a year. Between this big book and various specialty and sale catalogs, Northern Tool + Equipment mails more than 70 million catalogs a year. The website serves more than a million unique visitors per month and generates more than 550,000 orders a year. Retail stores generate approximately 40 percent of total sales. Growth and expansion have been very good stories for Northern Tool, but as the company grew and expanded into new contact channels, its marketing team faced some very real challenges. Marketing decisions were based on outdated data. An external service bureau updated the database every seven or eight weeks, and required two to three weeks to process updates. This time lag led to less-than-optimal database selects and analysis. By the time names were selected for a campaign, the segmentation was no longer current, said David Hildebrandt, Database Marketing Manager. When reports were two months out of date, customers who ordered during the time the company was waiting for its report but who hadn t placed an order in the previous 13 to 18 months would sometimes get dropped off the catalog list. I think everyone would agree that faster and more frequent updates really mean better decisions. More timely data would have been too expensive. We wanted more frequent updates, but that would have cost more, said Hildebrandt. Database updates were already costing us about $230,000 a year. We were spending $40,000 a year on model scoring, and we weren t updating the models as much as we would have liked. We were spending about $80,000 a year for basically very traditional name selects. To take it to the next level of sophistication would have been a lot more money. Finally, we were spending about $150,000 a year on ad hoc analyses, basically for just touching our own data. This last one was a real sore point and it was very limiting. After all, it was our data, but any time we wanted any type of report, we had to pay for it. Marketing became hesitant to ask a lot of questions. We found we had 131 million promotion history records, but we weren t utilizing them. 1
There was little visibility across sales channels. The company had very good knowledge about catalog customers but no good data about the 3.5 million retail customers who represented 22 million transactions a year. Because many customers shop through more than one sales channel, Northern Tool knew it was missing opportunities to market more effectively. Databases and marketing for each channel retail, Internet and catalog were managed in isolation. For instance, if you didn t buy from the catalog, you stopped getting it. However, for some customers, the catalog drives them to visit the retail stores. Bringing marketing data and analytics in-house The direct marketer s No. 1 asset is the customer database, said Hildebrandt. At Northern Tool + Equipment, we had to decide whether this key asset was best managed internally or externally. With a $500,000 annual price tag on the service bureau, the decision was easy. Our objectives were quite clear, said Hildebrandt. In addition to decreasing dependencies on the service bureau, we had to be able to use analytics to make better and faster decisions. We needed to be able to capture and summarize all customer activity across retail, catalog and Internet operations and have a richer understanding of customer by channel, by category and by promotion. Finally, we wanted to get a handle on the lifetime value of each customer. These are all really important metrics. The power of analytics for cross-channel marketing In today s multichannel world, it is essential to interact with customers in the way that they want you to, said Larry Mosiman, Customer Intelligence Product Marketing Manager at SAS. How you handle this stage of the process determines your success. You don t want to inundate customers with irrelevant offers, Mosiman noted. It s all too easy to overcontact your customers and drive them to opt out. It is also too easy to overlook valuable clues that a customer offers up in the natural process of browsing your website, clicking an e-mail link or scanning items in the store. Mosiman summarized the eight key steps of the marketing cycle where analytics can have an influence. Savvy marketers will exploit customer analytics to excel at each step of this continuous, closed-loop process. 2
Step 1: Manage quality customer data. Data that currently resides in functional silos across the organization must be integrated and transformed by analytics into proprietary customer intelligence that is made available to marketing decision makers. Mosiman described a casino that included a number of businesses hotel, spa, shops and the casino itself all under one roof but maintaining separate data. A single customer could patronize all of those businesses, and the business didn t keep a consolidated record of it, Mosiman said. After consolidating and aggregating it, they had a better view of their patrons and could really use that information for better marketing and customer service. This concept applies to most any business. Step 2: Create customer insight. Exploit predictive analytics to truly understand customers not just past behaviors, but likely future preferences and purchase patterns. This knowledge enables you to anticipate customer needs, improve customer retention and identify opportunities to cross-sell and up-sell. Analytic insight at this stage can deliver as much as a 30 to 35 percent gain in retention, said Mosiman. Step 3: Profile and segment customers. Analytics makes it possible to develop customer profiles and segments based on a customer s historical behavior, profitability and future potential. Historically, segmentation has been used only to support product-push marketing models, but today many companies are using it to more closely understand customers and drive customer-centric strategies, even in a product-centered organizational structure. Step 4: Develop and optimize segment strategies. What unique treatments should each customer receive? What s the best bundling of price and promotion? What is the best strategy for up-selling, cross-selling and retention efforts? Armed with richer customer insight and targeted customer segments, marketers are becoming more selective about where they invest resources and in some cases, which customers they will even accept. They can now accurately determine how much time, effort and resources to put into each segment a mathematical optimization of revenue, profit, price, channel capacity, budget and other factors. And they can track relationships on a one-to-one level and as they evolve over time. Mosiman told of a German bank that applied this kind of optimization to improve their contact strategy and saw a 55 percent return in campaign response rate and a 500 percent return on its software investment. 3
Step 5: Engage effectively with customers. Naturally, marketing success stems from targeting the right customers with the right offers at the right time even in real time while prudently avoiding spending on unprofitable prospects. With deep customer insight and the right supporting technologies, marketers can effectively manage the customer dialogue across multiple products and channels, balancing the realities of budgets, sales capacity and other constraints. It is very important to have the process and technology to support this engagement across all contact channels, said Mosiman. He told of an online company that used analytics to increase its retention rate by 10 percent and attract 20 million new customers in three years. Step 6: Measure and report on all aspects of the marketing organization. Deliver the information that marketing team members need, in a form they can use to support decisions and understand their contributions to overall success. If you can t measure it, you can t improve on it, said Mosiman. It is critical that you measure all the parameters and metrics that are important to your business. Only with credible metrics can organizations align activities to strategies/goals, and improve the performance and accountability of marketing, sales and service. Step 7: Optimize investment across direct and indirect marketing. Analyze and optimize marketing mix elements, such as advertising, promotion and pricing; media plans by medium and market; and customer segmentation and treatment strategies. Juggling all these elements used to be an act of faith and intuition, patched together manually from many internal and external inputs. In today s world, marketers should have ready access to quantifiable evidence to make those decisions without days or weeks of detective work. 4
Step 8: Continuously learn and improve. The results from campaigns are fed back into the system in a continuously selflearning, closed-loop process. Figure 1. Analytics can strengthen every functional area and step of the marketing cycle. Analytics in action at Northern Tool + Equipment After researching many possible solutions, we chose SAS Marketing Automation, said Hildebrandt. The Northern Tool solution includes campaign management, database modeling and segmentation, business intelligence and data integration. The solution has delivered the following key capabilities: A unified view of customers that incorporates information from all touch points and channels. Customer segmentation and profiling capabilities to consolidate insight at the customer level. Multichannel, multimedia communication management to deliver more meaningful customer interactions. Clear marketing campaign reporting to understand the full financial return on each marketing initiative. Support for the needs of executives, business users, database marketers, quantitative analysts and IT. 5
When SAS came out and talked to us, these were the kinds of capabilities they promised us, and we got them, said Hildebrandt. The company also expected to see a good return on investment. By eliminating the $500,000 bill for outsourcing data analysis and improving customer segmentation, Northern Tool paid for the purchase of the software with the first three different catalog mailings it sent out. Since then, response rates have increased by double digits. Expected and unexpected benefits The company expected the promised capabilities. They expected to be able to costjustify the investment. What we didn t expect at the outset was all the additional benefits we would get from bringing our marketing database and analytics in-house, said Hildebrandt. The results were immediately apparent. More sophisticated segmentation Our selects now are more sophisticated than we ever imagined and exceed what the service bureau could ever do, said Hildebrandt. We converted from traditional RFM [recency/frequency/monetary] modeling to incorporating multistep regression models. Before, we had a couple of models; now we have more than 36 models, and we re using multiple models in a campaign. We re modeling things we never thought we would be doing, and our results are impressive. Hildebrandt described a case where multistep regression modeling identified a very specific pocket of customers who had purchased more than five times. At face value, for customers who had purchased that much, we would have mailed them all catalogs, all campaigns. But on deeper analysis, we discovered that this little pocket of names only bought from sale catalogs. So now these customers receive only the sale catalogs, the inventory reduction specials. We saved money by not mailing them the traditional, 500-page catalog. Better understanding of customer lifetime value about a year into this, I was talking to someone at the service bureau who was curious about how the migration went. When I described what we were doing in our selects, he said, We never came close to that level of sophistication for you or possibly for any other client. So this has been a very significant improvement in a very short period of time. David Hildebrandt, Database Marketing Manager, Northern Tool + Equipment Using SAS, Northern Tool is using lifetime value models of customers to further refine its marketing efforts. Does the customer who buys a compressor have a better lifetime value than the customer who buys a wrench set? The company is now accumulating and analyzing this data. We have also introduced lifetime value into list-level prospecting to make better prospecting decisions, said Hildebrandt. How much we are willing to pay for a customer depends on how much they will subsequently buy from us. Using lifetime value calculations, we can see beyond initial performance of a list and adapt our strategy accordingly. 6
Greater flexibility to ask what if? Before, we had to write up all these instructions and give them to the service bureau, Hildebrandt recalled. But now, with the tool, it became a very interactive process. We have the marketing people right next to us, and we can do almost anything we want. This opens up a whole new level of creativity. The ability to try what-if scenarios really exceeded our expectations. Creating and testing new customer name pockets and test strategies became very easy. Creating new and custom variables is basically seamless. We have our data, the various transformations and we can try different combinations in almost any way we want. Northern Tool also has broader opportunity to explore external data sources. Before, we would have to buy the data [upfront], and there were problems with that, Hildebrandt said. But now we go to the various database vendors, and we can test the data for free or a nominal cost. If it works well in our modeling, then we purchase it. Faster processing What used to take weeks was reduced to days, and what took days was reduced to a couple of hours, said Hildebrandt. Where marketing particularly appreciates this is in the reruns. In the past, after the service bureau ran a campaign, the marketing team would refine it, and the service bureau typically took two or three days to rerun it. Now the marketing team gives us their changes, and we can have it to them within hours. That means we can try more things and make the campaign more flexible and more meaningful. Quality control Improved quality control ensures campaign integrity. Northern Tool created custom reports that uncovered potential problems quickly and eliminated issues they d had in the past. The new reports found problems way before the traditional service bureau report could have found them, and sometimes found potential problems that wouldn t have been discovered before, said Hildebrandt. We ve been using SAS for almost four years now, and we ve never had a campaign go out that was wrong. The whole process was better, faster and cheaper than we imagined. The time needed to create mailing campaigns was drastically reduced. What used to take the service bureau weeks to do now only takes us a couple of days. David Hildebrandt, Database Marketing Manager, Northern Tool + Equipment 7
Improved internal communication Working with the service bureau brought barriers of time, distance and cost in the working relationship. Now marketing and IT understand each other s goals and are more efficient at solving problems, said Hildebrandt. Everything flows much better and much more efficiently. Working collaboratively, we find better ways to make the test cells, create the campaigns and do anything else they re trying to do better. Closing thoughts In addition to the financial payback cited earlier, Hildebrandt said bringing database management and analytics-driven campaign management in-house has dramatically improved the quality of the company s marketing efforts. With this multichannel database and tools, we have significantly improved how we promote to customers across channels catalogs, e-mail and retail stores. Catalog promotions support retail and Internet. Internet promotions support retail and catalog. Retail promotions support catalog and Internet. Years ago, we didn t think it was possible to do the kind of cross-channel optimization we do now. With SAS Marketing Automation, we were able to do exactly what we hoped to do consolidate customer data, do more updates and do our own modeling, said Hildebrandt. But with the added sophistication and flexibility we have now, we are creating much better and more profitable campaigns. Response rates for our retail mailings have increased by double digits. As a result, our SAS solution has paid for itself multiple times over. To view this webinar recording, visit: www.sas.com/customervalue Our credo has always been: the right tool for the right job. SAS Marketing Automation is exactly the right tool we needed to grow our business. Chuck Albrecht, President, Northern Tool + Equipment For more information, visit: www.sas.com/marketingautomation 8
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