by Jim Lenskold
Justifying the ROI on Intelligence
Customer intelligence can be extremely valuable in driving marketing performance, when effectively applied. The problem many marketing organizations face is getting support and budget to capture the intelligence. With a clear vision for profitably converting intelligence into actionable insight, you should be positioned for justifying such investments that generate a clear ROI. Here are five steps to help organize your justification along with a perspective on the type of intelligence most likely to improve your marketing profitability.
1. Define the Intelligence Needed
Whether the objective is retention, acquisition, winback or cross-selling, the most significant profit driver for marketing always comes down to targeting. Insight that guides targeting toward customers with higher value and a higher likelihood to purchase offers the greatest return potential. When you consider capturing intelligence, don’t limit your thinking to just customer intelligence. Insight into effectiveness measurements, research, data analysis, and modeling must also be considered as intelligence that contributes to better decisions.
- Customer needs indicate what they are likely to purchase and their preferences indicate how they like to buy
- Share of customer indicates the potential profits that can be won from the competition
- Customer transaction history indicates trends in value and can also be used to model future value based on customer behavior patterns
- Customer demographics allow segmentation based on profiles of past high value customers
Likelihood to Purchase & Stay
- Modeling and profiling identify customer segments most likely to purchase as well as those most likely to be retained
- Competitive relationship information collected through customer contacts identifies competitors’ vulnerable and loyal segments
- Historical performance analysis guides the development of strategies and tactics
- Campaign ROI brings financial intelligence into the decision process
- Marketing mix modeling optimizes integrated campaign channels
- Brand attribute research establishes the connection to actual purchase behaviors so brand initiatives can be tied to sales contribution
2. Assess Sources of Intelligence
You must now categorize each source for the data and intelligence needed as 1) existing, 2) accessible, 3) desirable or 4) impossible. The “existing” and “accessible” sources should require minimal effort and cost. The “impossible” sources are those not likely to happen. Therefore you will focus your justification analysis on the “desirable” sources, which can improve your profitability but will require some effort and investment to implement.
Sources of data and intelligence that should be considered:
- Existing customer data from financial, sales, marketing, and customer contact systems. If this is not already cleaned and consolidated, it will be necessary to look closely at data integrity and quality issues.
- Third party customer data to append to your files.
- Touchpoint opportunities where you can capture specific information from customers and prospects.
- Marketing communications history.
- Marketing interactions including customer response, involvement, and inquiry information.
- Marketing spend and results history for effectiveness measures.
- Customer research to build profiles of customer behavior patterns, value patterns, and needs.
- Predictive modeling analysis to correlate marketing activities, brand attributes, targeting, offers, and channel mix to sales performance and lifetime value.
3. Identify Highest Profit Potential
Your investment to build greater intelligence may be a one-time initiative to capture insight for a specific purpose or a permanent change in the process or infrastructure of collecting intelligence. Preparing an estimate of the expense requirements is relatively easy. The challenge is estimating the potential impact on profits. By starting the process with a focus on improving the key drivers of marketing profitability, your analysis includes the value component.
For example, identifying your share of customer spend through call center and online contacts may have a significant impact on the 15% of the customers where information actually gets captured. This might be compared to a potential research study to understand which customer acquisition channels bring in customers with the highest retention rates or a modeling initiative that identifies which marketing channels are most effective.
You must determine what forms of intelligence can have the greatest impact on your ability to win more high value customers, reduce wasted marketing to unresponsive and unprofitable customer segments, and provide insight into marketing effectiveness. The ROI analysis provides a comparison based on the estimated returns for each intelligence initiative. To win the support of your CFO or senior executives, your business case must be based on generating incremental profits and cannot rely on non-financial metrics such as improved satisfaction or relationships. Assess your marketing impact through the entire sales and relationship cycle to determine the financial contribution.
4. Prioritize Investment Opportunities and Gain Support
Once you have completed your ROI analysis and prioritized the intelligence that offers the highest value, it is time to pitch the concept to the decision makers. Seeking additional budget is never easy. You’ll either have a compelling business case that justifies the increased funding or you will need to reallocate existing budgets. Some marketing executives incorporate research and intelligence collection into their campaign budgets so, for example, 10% – 15% of a campaign budget will be dedicated to capturing the intelligence necessary to improve future campaigns.
5. Test, Validate and Refine Profit Potential
Some initiatives may be first funded on a trial basis to validate the assumed impact of intelligence on profitability. For all funded initiatives, it is important to validate assumptions and focus on continuous improvement. The amount of intelligence that can be collected is endless so 1) make sure you continue to drill down to improve your decision-making precision and accuracy and 2) make sure you focus on the intelligence that has the greatest impact on results so you are not overburdened with excess information.
It is important to recognize that intelligence can be a significant competitive advantage when applied as insight into your strategies. Improving marketing profitability helps your marketing budget go further and deliver a greater share of customer profits while competitors continue to be misdirected by sales volume and share of revenue.
The original version of this article was published by CRM Today.