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-------------------------------------------------------------- This story was printed from ZDNet Australia. --------------------------------------------------------------
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Get inside your customers' heads (and their wallets too) By Kayte VanScoy and Anna Raciti, Webhead December 28, 2000 URL: http://www.zdnet.com.au/news/business/soa/Get-inside-your-customers-heads-and-their-wallets-too-/0,139023166,120107918,00.htm
Your company's most valuable asset is sitting right under your nose. It's not your inventory or your brand, your trade secrets or your newest product line. The key to coming out on top in the new economy is hidden in your data. From daily receipts to banner ad click-throughs, powerful new software and services can take advantage of the one natural resource every business has: information.
This process of putting your customer information to work is called data mining, and it's powering the shift toward personalised customer service across every industry. Forget broad demographics; the name of the game is winning--and keeping--individual customers. You need to know their favourite colours and whether they prefer paper or plastic just as surely as you know what was on their most recent order. Why? So you can read their minds, anticipating what they want and turning them into loyal customers. Sound complicated? You'll be surprised at how much you already know. But successful data mining means walking the fine line between serving your customers and encroaching on their privacy. We'll show you how to do it right. Mining for gold"It used to be that the most important thing you could make was a product, and you went looking for customers for that product. In the Information Age, the most important thing you make is a customer. Then you find products for the customers you have," says Martha Rogers, analyst and cofounder of Peppers and Rogers Group, a US-based consulting company that specialises in customer relationship management. The best example of this strategy comes from Amazon.com, which quickly moved from selling books to offering CDs, toys, videos, electronics, and even auctions. What Amazon is selling became less important than the fact that Amazon is the one selling it. Customers who are already comfortable buying there are likely to stick around and buy more. "The emphasis is shifting from who can sell more products to who can sell a customer more products over their lifetime," Rogers says. The secret to Amazon's success is an old technology exploited in a new marketplace. Data mining used to mean dusty, academic algorithms that were too arcane for the world of business. But with technology and automation sweeping into every business sector, the amount of data available to individual companies has exploded. Today companies can customise and tailor their products to improve their relationship with their customers. "It's all about customer relationships. Companies have to believe that the customer is critical," says Gary Lloyd, Business Development Manager at Sybase. Direct mail companies have long relied on targeted marketing, using early data mining solutions to track repeat customers' transactions by way of catalogue and coupon codes. At the heart of those campaigns were highly specialised knowledge workers manipulating complex software and monolithic hardware. Today's data mining tools run on desktop PCs and are easy enough for a call-centre operator, regional marketing manager, or chief technology officer to use. The range of data mining products available is broad--from complete inventory-management packages to services that send out personalised broadcasts to handheld PCs. For example, say you know a customer's wedding anniversary is July 12--info you gathered from an online survey. Before you can turn that fact into a sale, it may go through a half-dozen software packages: from a database like Oracle or Sybase, to a data-analysis package like the SAS Institute's Enterprise Miner to a customer relationship management (CRM) package like E.piphany E.4, and finally into a Web content management platform like Vignette StoryServer. Once it makes its way there, it could automatically launch a greeting card and sales promotion that's sent by regular mail, e-mail, pager, or even a personalised greeting on your home page. It could also trigger banner ads from other companies where people celebrating anniversaries might want to shop. Most data mining software claims to address every one of these steps, but in fact most businesses rely on several solutions working together. Know your optionsThe first step in choosing the right data mining solution is figuring out what kind of data you want to work with and what you hope to accomplish. E-commerce and Web server information is the most obvious. But also look at the data you collect in other areas of your business: records of transactions made at your call centre, sales receipts and customer information from point-of-sale transactions, and mailing lists of your company's brochures and catalogues. If your company offers a shopping card that customers use to receive discounts, like those used in some photo processing labs, you have another valuable asset. These cards let you track data about purchasing patterns. Also consider buying third-party information to help you more thoroughly analyse your own data. Buy a list of potential customers with good credit from a credit bureau. Partner with a company that has a complementary business--an auto-repair shop located near your car dealership, for example--and get access to its customer data. Then feed it all to your data mining software. Without implementing data mining and CRM software useful data is ignored or even abandoned while customers are inundated with information they don't want. Mark Camilleri, Managing Director of Onyx Software in Australia says it's all about relevancy for your customers. Camilleri uses most banks as an example of what not to do to your customers. Monthly statements are often mailed to customers along with a variety of special offers that are usually of no interest. "If they set up a Web survey and asked me to fill in my interests, I'd get sent information that's important to me, not irrelevant papers". Even new businesses, especially e-businesses that haven't collected much information yet, can leverage data mining. Purchasing the right list of prospective customers makes more sense than taking the time to build up your own list over time. That's what More.com did, quickly becoming one of the top pharmacies on the Web. "There are ways to acquire customers other than brand advertisement," says Peppers and Rogers' Martha Rogers. Get startedPersonalisation is really the end game for data mining. "I start with what I know about this customer and figure out what the customer needs from me next," says Rogers. "Ideally, there is a single person whose job it is to get more business from this customer." Gathering more information isn't always a straightforward process. You could ask the customers to tell you more about themselves, but that can backfire. People are very sensitive to your collecting information about them, so start with what you already know. When visitors come to your Web site, you can tell what types of computers they are using, what browsers they have, and who their Internet service providers are. Also look at batch data, which is collected across broad demographics--in the early stages it can make the difference between simply getting to know your customer and actually making the sale. It works: Amazon uses shopping-cart analysis to predict a customer's next purchase based on the purchases of others with similar tastes. Not only can Amazon predict a purchase, it can nearly guarantee it when it offers the CD or book at a 20 percent discount. It sounds easy, but Rogers warns that it won't work if your company doesn't change its customer approach. "Until you shift the focus from the product to the customer, essentially what you've got is better targeted harassment, not customer relations" she says. Choose your solutionMany companies tend to buy first and ask questions later when it comes to the latest technology. You need to look closely before you jump. Ideally, you should ask the software providers for other customer success stories so you can see if the solution would work for you in a similar way. But getting that information is often tricky--many companies don't want to make public what software they use--lest their competitors gain an advantage over them. Price is a big consideration when it comes to purchasing your software. Packages can cost anywhere from AU$50,000 to $500,000 and beyond. This is high-precision analytical marketing. It's a different type of marketing than classic branding. For an investment that large, you'll want to make sure you've got the right people on staff to manage it. A marketing professional may not have the technical skills to handle the job, and yet an IT professional may have very little marketing or business sense. It takes an e-business leader who is business skilled but techie enough to take the challenge--people with these skills don't come cheap either. Watch your stepSo apart from the expense, what's the catch? You could land your company in deep water with privacy advocates. Privacy watchdog groups are keeping a close watch on data mining technology and are ready to pounce on any perceived abuses. In the absence of regulations or even guidelines, it is up to companies to find a balance between spooking customers with Big Brother technologies and winning them with promises of convenience. "Bribe them!" is the simple solution Rogers offers--and many businesses seem to agree. Many Web sites promise the chance to win holidays, prizes and more--the catch?--sign up and include your personal information. So if you want a stab at a trip to Bali, you'll have to include your e-mail address, sometimes even your home address--it's no wonder consumers are growing wary. "Our privacy laws and principles are based on the concept of a record that is retrievable only by a person's name. New technologies may mean that all those principles have to be reexamined," says Robert Ellis Smith, publisher of Privacy Journal. "Every privacy policy on the Net begins with the line, 'We're sensitive.' . . That's hollow. Just being sensitive is not enough anymore." Even if companies don't heed Smith and his privacy watchdog cohorts, the stock market certainly will. Witness DoubleClick's plunge after its privacy flap and Intel's dive after a threatened boycott over the tracking capability of its Pentium III chip. Don't expect your data mining software to make it any easier either. Consumers will always be a little wary of companies collecting data, says Onyx's Camilleri, but if the information is being used properly, customers will benefit. "You have to ask for consumers' permission, and then offer them products and services they're interested in, rather than nuisance mail," says Camilleri. The international privacy group Junkbusters offers some guidelines for fair information practices that sites can adopt as part of their privacy policy. First, give people access to information about themselves and allow them to modify it if they wish, says Junkbusters founder Jason Catlett, who has a Ph.D. in computer science. Second, use the information only for the purposes you specify. Third, keep the data secure from unauthorised use. Catlett and others stress the importance of moving to an "opt in" model, in which consumers must consent to having their data mined--a practice that may one day become law. Despite the controversies, though, your business' success depends upon data mining. In the immediate future, data mining will allow businesses to become more integrated and more effective. No longer will loyal customers be stuck in long queues when they try and make a large purchase over the phone. Businesses will also be more accountable than ever. Different departments need no longer argue over where a business plan went wrong. Businesses will know which products sell better and why, they'll know which advertising campaigns are making the most sales and which marketing campaigns are getting the most response. As a consequence, companies will know how to better spend their money. In fact, there's no telling what sort of benefits--to businesses and consumers--business intelligence software will produce in the future. Even academics have made predictions about a customer-information rich future. Here's what we can look forward to: a real person will pop up on your screen and say, "Can I help you figure out what is the best product for you?" They're not going to have to say, "What can I interest you in today?" That person will have available to them your immediate track record. They'll already have a scope, a context, of what you're interested in or what you're trying to find out about. Building blocksSetting up a data mining solution isn't a matter of buying just one product. Instead, you'll most likely use a handful of specialty applications that work together to give you the big picture. Here are five areas to consider.
Database
Knowledge-Discovery Tools
Customer Relationship Management
Content Management
Wireless Solutions
Step by step data mining
How it works: Data MiningData mining is a process that allows computers to look for patterns in information. It helps companies make sense of data they collect about customers to offer personalised service, anticipate consumer behaviour, uncover trends, and spot the unexpected. Here's how it works.
CRM advantageInchcape Motors is a great example of the success that can be achieved when a company takes CRM on board. Inchcape imports and distributes Jaguar, Peugeot, Subaru and Volkswagen vehicles for the Australian market. Eighteen months ago the company launched a customer-centric model of e-commerce to help cement relationships and provide relevancy for Inchcape's customers. According to Inchcape's CIO, Paul Morris, the rollout has helped to fuel growth of over 20 percent since 1998. New car registrations have grown from 33,000 in 1998 to a projected 40,000 this year. How did Inchcape do it? Inchcape's product of choice was Onyx Front Office, rolled out across each of its four franchises. "This type of approach has resulted in a more responsive attitude from our dealers, while our own staff are also better equipped to provide the best possible service because they know the customer's history with the organisation," says Morris. "Maintaining our service and support commitment is very important and the system supports this by allowing us to track every customer interaction to its final outcome, alerting us if acceptable response levels aren't met," he said. On top of improved service and support, customers also benefit through more relevant information from Inchcape. Marketing and promotional materials are targeted to fit customer interests. If you buy a Subaru from Inchcape, for example, you are asked to choose your interests from a list of topics. If you indicate you are interested in skiing, and opera, for example, when you are sent your free, six-monthly Inchcape magazine, your copy will include articles on skiing and opera--a solution tailored for you, the customer.
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