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Finding the person hidden in the data

Management theories come and go, but experience shows that it can cost many times more to acquire a new customer than it does to retain an existing one. Savvy businesses understand that their ability to compete successfully in a global marketplace depends on attracting new clientele while continuing to nurture and grow their core customer base. At the same time, common wisdom indicates that 20 percent of customers account for 80 percent of sales, so it's imperative that successful firms identify their most valuable customers and target their efforts toward boosting their satisfaction. With those axioms in mind, companies are turning to IBM Research Services - a collaboration between IBM Research and IBM Global Business Services - for assistance in sifting through massive amounts of data to learn what motivates and influences consumers' choices and buying patterns, and which customers are likely to prove most lucrative. IBM Global Business Services then assists clients in transforming that information into the knowledge and insight necessary to optimize their customer relationships. In concert with IBM Research, IBM Global Business Services offers clients a wide range of expertise, techniques and tools geared toward devising customer relationship management (CRM) strategies that will help cement customer loyalty at the highest levels and provide a competitive advantage over rival firms.

Customer experience modeling

One key to motivating customer loyalty lies in understanding consumer purchasing behavior and identifying the critical success factors that drive sales. In one engagement with a large U.S. retailer, IBM took a multidisciplinary approach to developing a state-of-the-art model of consumers' decision-making processes using an innovative, scientific methodology that integrated techniques from ethnography, psychology, psychometrics and advanced statistics.

Unlike traditional "predictive" marketing models, the new IBM model targets cause-and-effect relationships rather than correlations. Examining more than 1,500 variables reflecting every aspect of the retailer's customer experience - including location, advertising, salespeople and pricing - the model calculated the ability of each one to boost sales and zeroed in on ten top success factors. By applying the results to a series of new marketing strategies, the retailer boosted sales and was even able to double sales in one product category. In addition to removing much of the guesswork in designing marketing campaigns, the model also provided side benefits, including insight into consumers' mental models that helped the client understand its target audience, product-positioning, and whether up-selling strategies were likely to be successful.

Customer lifetime value management

Cross-channel marketing via lifetime value modeling enables a retailer to leverage the full potential value of its existing customer base to drive long term profits across all of its contact points. When Saks Fifth Avenue sought to optimize its cross-channel marketing, it turned to IBM Research/IBM Global Business Services, which developed a novel methodology to help track a customer's response on one channel as a result of contact on another, and expand the overall customer value. Our approach is unique in the way it provides marketing rules that are optimized with respect to long term profits throughout the lifetime of a customer, and across different channels that the retailer may use. This capability was realized by an intricate blending of advanced predictive modeling technology and mathematical modeling (using the so-called "Markov Decision Processes") of the dynamics of retailer customer interaction. The system was benchmarked against Saks' existing CRM methodology for managing its direct mail and store channels, and initial results suggest that using the IBM approach could help boost store revenues.

Customer equity and lifetime management

IBM's customer equity and lifetime management (CELM) tool offers clients further insight into customers' long-term value and helps them devise strategies to manage, support and nourish customer relationships. CELM uses specialized algorithms and analytical techniques to capture and analyze customer dynamics in order to model and improve long-term customer relationships in a way that can help boost the value/risk ratio of the overall customer portfolio. Companies may reallocate marketing budgets dynamically to help maximize their return on investment and increase customer lifetime value and loyalty. When Finnair wanted to redesign and improve its customer loyalty management process, it asked IBM for assistance and ended up being an important partner in the practical development of CELM. Using CELM's analytical capabilities, Finnair was able to establish profiles of its high-value customers and focus its marketing strategy on passengers fitting those profiles. As a result, the airline reduced market costs by more than 20 percent and improved response rates by up to 10 percent.

In another engagement, IBM Research, IBM Global Business Services and IBM Retail Store Solutions teamed with Cuesol, an IBM Business Partner, to help turn customer information into useful, profitable action for a large retail grocery chain. The company sought a solution that would promote customer loyalty by enabling them to better manage their time in the store. The grocer also wanted to hone its marketing efforts to reach shoppers with relevant, targeted promotions as they traversed the aisles. The solution was the IBM Personal Shopping Assistant, which consists of a data management system, wi-fi network, infrared technology and Bluetooth transmissions centered around touch-screen computers mounted on shopping cart handles. Customers scan in their loyalty cards to activate a familiar, Web-style screen with a variety of display options, such as sale items or a list of products shoppers buy most frequently. The Personal Shopping Assistant creates a map of the store and displays a suggested route. A location-tracking system monitored through ceiling-mounted beacons enables the retailer to pinpoint shoppers' locations and deliver relevant real-time information as they move through the store. Based on a successful trial, the retailer is planning to extend the technology to as many as 150 locations.

Text mining

Businesses typically produce massive amounts of unstructured data related to customer interactions, and sophisticated tools are needed to analyze the information and put it to use in improving the customer experience. The IBM Business Insights Workbench (BIW) can help clients mine these enormous collections of unstructured data to help companies meet competitive challenges. Unlike more conventional search and retrieve tools, BIW creates natural classifications (taxonomies) of the data objects and analyzes them in conjunction with structured information to find trends, co-occurrences and other insights. Clients use the BIW tool to help improve customer retention by identifying and remedying causes of dissatisfaction. The tool can help pinpoint underlying problems through analysis of common customer complaints and phone calls and may lead to improved product design as a result.

In an engagement with a large insurance and financial services company, the BIW tool was used to assist in analyzing e-mail messages sent by customers regarding their credit card and online banking accounts. As a result, the company was able to separate out the e-mails from dissatisfied customers and identify common problem areas for resolution. Similarly, a major life insurance firm used BIW to help analyze interactions between its call center help desk and customers. Transcripts of each call were mined to look for patterns, such as repetitive calls from the same person, that indicated an issue was not being resolved. Both companies are developing strategies to use the BIW tool on an ongoing basis to help them target inefficiencies and problems before they develop into major crises.

Meeting competitive challenges with CRM

In today's speed-of-light, information-saturated business climate, a company's success often depends on turning mountains of data into actionable knowledge that can be used to identify and profile its high-value customers and their buying patterns. IBM Research Services offers clients an assortment of powerful CRM tools designed to assist in analyzing data and generating the information and insight needed to focus business strategies and marketing efforts on retaining and expanding this core customer base, while gaining a competitive edge in the global marketplace.