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Thursday, May 17, 2012
Feature: April 2006
Prying for Profit
Data mining, though controversial, can be invaluable
Story by Michael P. Scott
From the outside, Admail West, located in a small industrial complex in the Richards Boulevard Corridor, seems like a typical direct-mail business. A trip inside, however, unveils a sophisticated, technologically advanced company at the forefront of a growing movement known as customer intelligence.
Admail’s burgeoning business comes on the heels of huge investments from Capital Region companies wanting to capture, analyze and apply customer information to their strategic planning efforts.
Often obtained in a manner transparent to the consumer, this information offers key insights into customer decision-making patterns and behaviors; the competition; industry conditions; and economic, technological and cultural trends.
As president of Admail West for more than 10 years, Kathy Pescetti has seen a steady evolution in the customer-intelligence industry from the use of static demographic data that describes customer segments to behavioral data that allows companies to better identify the interests, lifestyle characteristics and personal preferences of their target market.
“With the emergence of the Internet, a company’s ability to define their market has profoundly changed over the years,” says Pescetti. “Organizations are increasingly recognizing that through a better understanding of their target market, they are able to more effectively attract new opportunities.”
Take, for example, the banking industry. Studying patterns and trends may allow bank-marketing executives to better predict how customers will react to interest rate hikes or new product offers. It can also help banks identify which customers are most likely to stay current on a loan, as well as those who have the highest propensity for default. Banks also look at live-teller transactions, ATM-usage rates and product inquiries to determine what new products, services or fee adjustments may be warranted.
According to a benchmark report released in early January by the research firm the Aberdeen Group, improving customer-intelligence practices allows organizations to profitably define, identify and respond to high-value customers. The report shows that companies that exemplified “best in class” customer-intelligence practices improved revenues as well as customer acquisition and retention.
“Companies have much greater access to lifestyle and purchasing-habit information these days, which was a lost opportunity in years past,” says Pescetti. “Now, organizations ranging from casinos to financial establishments to trade associations are able to effectively capture customer information, measure return on investment and make their database more intelligent.”
Solid customer-intelligence information is often acquired through data mining, the analysis of large volumes of information to detect patterns and trends that allow a company to better predict how customers will react to its product or service.
Data mining has become a common strategy for clothing establishments, bookstores and other traditional and online retailers seeking to assess buyer tendencies. By tracking customer purchase histories, stores are able to extrapolate future buying preferences, which can be used as a part of an integrated marketing strategy.
Online retailer Amazon.com regularly captures information on customers. Visitors who digitally browse books via the Web site are often surprised when a return visit yields book recommendations consistent with their interests.
As the strategies for gathering and analyzing information grow more sophisticated, consumers and their advocates are raising questions regarding privacy. Many consumers note that inquiries from retailers seeking personal information have become more intrusive. Concerns also exist about identity theft and third parties.
“Organizations are increasingly recognizing that through a better understanding of their target market, they are able to more effectively attract new opportunities”
— Kathy Pescetti, president, Admail West
“We are growing increasingly concerned about the collection of personal information, particularly at point of sale,” says Chris Hoofnagle, director and senior counsel for the West Coast office of the Electronic Privacy Information Center. “Retailers are not telling consumers how this information is being used and are essentially relying on people’s trust when they ask them for it.”
According to Hoofnagle, most consumers fail to realize that they are relinquishing their rights to a mountain of information about themselves and their families. By contacting a reporting agency with what is known as a universally unique identifier, the most common of which is a telephone number, a retailer can identify hundreds of household attributes.
“As an advocacy group, our concern is not with diminishing the importance of data collection as a part of the free commerce system,” says Hoofnagle. “Rather, we would like to see companies strike a better balance between using the information for legitimate business purposes and respecting consumer rights.”
Many Capital Region businesses are turning to third-party providers to augment their intelligence-gathering capabilities. Such is the case with Sacramento’s American River HealthPro Credit Union, which, with the help of a number of firms over the years, has made major inroads in understanding its member base.
A 2002 survey sought to hone in on the desires and preferences of the credit union’s members, many of whom are in the healthcare field.
“Contrary to our initial thinking, which would have involved expanding our face-to-face interactions with members, we were astounded to discover that our healthcare customers preferred doing business with us via the ATM machine,” says Patty Moore, the credit union’s president.
“We discovered that our healthcare workers are utilizing the ATM machine an average of eight times per month, as opposed to three times per month for our standard members,” says Moore. “That told us an awful lot about how to tailor our efforts towards this target market.”
The credit union has also developed its infrastructure around what Moore refers to as “life-driven” member events.
“Significant events in a member’s life, such as marriage, the birth of a baby, career change or college, represent meaningful opportunities for us to support them,” says Moore. “As a result, our marketing efforts are targeted towards offering life-events solutions versus product offerings.”
Companies are recognizing that customer intelligence extends well beyond simply gathering data. Many are capitalizing on traditional methods as well as technological innovations to extract knowledge hidden in large volumes of raw data for the purpose of identifying and retaining customers, leveraging cross-selling opportunities and personalizing options.
According to Anna Vue, an account manager at Runyon Saltzman & Einhorn, a Sacramento advertising and public relations firm, an enormous window of opportunity exists for companies looking to capitalize on an increasingly diverse domestic and worldwide population. The fact that the Sacramento area was recognized as the most diverse city in America by Harvard University makes this an even more compelling proposition.
“Many of our companies are finding that they are having to be very strategic in how they approach these communities,” says Vue. “In today’s diverse marketplace, using just one mass-market strategy to attract new customers definitely limits your opportunities.”
Vue believes that, despite a great deal of assimilation, it is still difficult to reach diverse groups through traditional mass media. “When gathering customer-intelligence information, business leaders would be wise to consider talking to key leaders in these communities,” she says.
“By building relationships with groups such as the Asian, Hispanic, black and other chambers in the area,” says Vue, “they will gain access to key information that they can then tailor towards meeting the specific needs of these communities.”
The Sacramento Convention & Visitors Bureau recently created and filled a marketing-intelligence position to identify leads for the convention sales teams. This position involves the gathering of information through industry reports, tradeshow rosters, industry directories and other sources to examine trends, identify competing destinations and maximize Sacramento’s value as a convention and visitor destination.
“Our approach to marketing intelligence involves educating ourselves about the assets that Sacramento has to offer,” says Rebecca Fong, the bureau’s marketing-intelligence coordinator. “The convention sales team is able to more quickly identify qualified prospects to bid on, and it allows us to better focus our efforts on clients who would truly benefit by meeting here.”
While some companies are still using traditional approaches to gathering customer-intelligence information, many others are capitalizing on marketing innovations to accelerate the mining of data.
Elaine Starling, president of Starling Media Services, a Northern California marketing and media-strategy firm, believes the Internet offers a gold mine of information regarding customer values.
“All companies should be using a combination of search engines, information and news-aggregation services, automated Internet monitoring and Web-clipping services to gather valuable insights regarding their customers,” says Starling. “RSS [rich site summary] feeds, blogs and podcasts are particularly hot right now because they are among the fastest ways to gain feedback from people in a short amount of time.”
“Listening to what your target market wants
represents the suggestion box of the new economy.”
— Elaine Starling, president, Starling Media Services
“Listening to what your target market wants represents the suggestion box of the new economy,” Starling continues. “What’s key to remember is that your customers control the box in that they expect you to respond and be accountable to the information they have provided you with.”
Customer intelligence is arguably the most prized asset of a growing company. It’s this very attribute that makes this information highly vulnerable to tampering and theft. Dealing with this growing threat represents a major challenge to many Capital Region companies.
Up to half of all data crimes are inside jobs. Information-technology security experts say the vast majority of perpetrators are current and former employees as well as outside contractors.
“It’s amazing to me the number of companies that are spending huge dollars worrying about an outside Internet attack when the real threat lies internally within their organization,” says Tripp Kuehnis, president of Seismic Computer Management, a West Sacramento technology-management company that specializes in IT solutions for businesses.
“Theft of company information is a lot more common than most people think,” says Kuehnis. “What’s particularly astounding are the growing number of incidences involving terminated employees who are still accessing proprietary company information once they’ve left.”
Kuehnis points out that this threat should not be taken lightly, particularly by those companies whose customer databases represent millions of dollars to their bottom line.
“These days, it seems like virtually anyone in an IT, accounting or administrative role has access to key company information, and lifting this information is a no-brainer, with USB memory sticks and access portals often allowing the perpetrator to go undetected.”
Technology professionals like Kuehnis say timed logouts for unattended internal computers are as important as any firewall or outside intrusion-protection system. He also advises companies to have server activity monitored by an outside firm to determine who has been accessing files, to track print jobs, and to see if people are hacking into accounts.
“This is a very critical issue that every company with strategic-intelligence information should be concerned about if they want to avoid putting their company fortunes at risk,” say Kuehnis.
Many experts agree that we have only seen the tip of the iceberg regarding the future of customer intelligence. In particular, much progress is being made in behavioral-data tracking, which allows a company to capture customer behaviors and actions over time. Companies can utilize these stored interactions to determine likely spending and purchasing behavior.
There is also considerable buzz in the customer-intelligence community about the potential of radio frequency identification, which is being used extensively by Wal-Mart and others to inventory merchandise and track individual products through the lifecycle of consumer purchase, usage and sustainability, a practice already raising the ire of privacy advocates.
Elaine Starling believes that while the gathering of customer-intelligence information can be critical to the long-term success of a company, staying focused on the quality of the product or service holds even greater importance.
“While understanding your target market and what appeals to different audiences represents an important strategic investment, companies must ensure their marketing efforts are relevant and engaging. Having solid data supporting the unveiling of your next cool product or service is a good thing only if it will ultimately result in a sale.”
