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Divide & Conquer
Using Predictive Analytics to Segment, Target and Optimize Marketing




                           February 2012
                     Trip Kucera, David White



                      ~ Underwritten, in Part, by ~
February 2012
Divide & Conquer: Using Predictive Analytics
 to Segment, Target & Optimize Marketing                                                                                   Analyst Insight
Data collected by the Aberdeen group in August 2011 (Predictive Analytics for                                              Aberdeen’s Insights provide the
Sales and Marketing: Seeing Around Corners) found that companies using                                                     analyst's perspective on the
predictive analytics enjoyed a 75% higher click through rate and a 73%                                                     research as drawn from an
higher sales lift than companies that did not use this technology. However,                                                aggregated view of research
new research published here (based on data collected in December 2011)                                                     surveys, interviews, and
shows that even among users of predictive analytics there are significant                                                  data analysis
differences in the level of business performance achieved. These
performance differences accrue from subtly different applications of
technology, as well as different capabilities within the organization. This new
research reveals the best practices sales and marketing organizations can
                                                                                                                           Defining Leaders & Followers
adopt to maximize their return on investment (ROI) in predictive analytics.
                                                                                                                           Aberdeen measured the overall
                                                                                                                           performance and effectiveness of
Leaders Deliver Significantly Higher ROI
                                                                                                                           marketing organizations that
Leaders (the top-performing 35% of companies) outperform Followers (the                                                    participated in our survey, based
remaining 65% of companies) in several aspects of marketing performance.                                                   on their aggregate performance
Figure 1 illustrates three of these metrics.                                                                               on 4 criteria. The top performing
                                                                                                                           35% of companies (Leaders) were
                                                                                                                           segmented from the remaining
Figure 1: Marketing Leaders Outperform Followers                                                                           65% (Followers) using the 4
                                                                                                                           criteria below. The relative
                                                                                                                           performance of Leaders and
                                                                                                     13.0%                 Followers is also shown:
      Y-Y change in lifetime
            customer value                    2.3%                                                                         √ Average uplift from a
                                                                                                                             marketing campaign - Leaders
                                                                                                                             6.7%, Followers 3.3%

          Average response                                            7.1%                                                 √ Year-year change in the
                       rate                                                                                                  average value of a sales
                                                          4.8%
                                                                                                                             transaction - Leaders 13%
                                                                                    Leaders                                  increase, Followers 2% decline
                                                                                    Followers
                                                                                                                           √ Year-year change in customer
                                               2.6%                                                                          retention rate - Leaders 4%
        Average opt-out rate
                                                      3.9%                                                                   increase, Followers 1%
                                                                                                                             increase

                                                                                                                           √ Year-year change in operating
                               0%        2%          4%       6%        8%        10%       12%        14%
                                                                                                                             profit margin - Leaders 3%
                                                          Percentage, n=112                                                  increase, Followers 0% change
                                                             Source: Aberdeen Group, December 2011

Although both Leaders and Followers use predictive analytics, leaders use
this technology to drive much greater business impact on sales and
This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and
represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc.
and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 2



marketing problems. In addition to the three performance criteria shown in
Figure 1, Leaders also outperformed followers in four other metrics that                     Predictive Analytics Definition
were used to define the two groups (see sidebar).                                            Predictive analytics creates a
                                                                                             sophisticated mathematical
Considered together, these metrics show the chain of events leading from                     model to use as the basis of
excellent marketing performance to improved business results. For                            predictions. Feeding this model
example:                                                                                     are potentially hundreds or
                                                                                             thousands of pieces of data
     •    The lower opt-out rates Leaders experience during marketing                        collected on each individual.
          campaigns contribute to the higher customer retention enjoyed by                   This model gives marketers
          those organizations.                                                               insight into the characteristics
     •    In turn, higher customer retention rates and larger growth in the                  and behaviors of buyers. The
                                                                                             richness of the data and the
          average value of a sales transaction contribute to greater increases
                                                                                             rigor of the mathematical
          in lifetime customer value, and higher growth in operating profit                  modeling distinguish predictive
          margins.                                                                           analytics from business
                                                                                             intelligence.
Competition for Capital
The macroeconomic climate of the last few years has fueled increased
competition for capital. As a result, a tougher competitive environment and
the competitive pressure to differentiate are the business pressures most
cited by survey respondents (Figure 2). At the same time, channels like
mobile and social media create new opportunities to interact with buyers,
but also new pressures to incorporate these channels into existing
marketing processes.

Figure 2: Pressures Driven by Competition for Capital

  Tougher competitive
                                                                                     41%
         environment


 Competitive pressure
                                                                             36%
      to differentiate


 Proliferation of sales /
                                                              29%
   marketing channels


      Need to improve
                                                              29%
          productivity


    Increasing cost of
                                                             28%
  customer acquisition


                        0%   5%   10%   15%    20%   25%     30%       35%     40%     45%
                                    Percentage of respondents, n=112

                                              Source: Aberdeen Group, December 2011

Organizations adopted several strategies to address these challenges:


© 2012 Aberdeen Group.                                                                            Telephone: 617 854 5200
www.aberdeen.com                                                                                        Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 3



    •     Customer segmentation and offer targeting. The strategy
          most cited by respondents is to improve the targeting of marketing
          offers (55%). Of course, this requires understanding the offers'
          targets. It comes as no surprise that 29% of respondents are
          building unique customer profiles and buyer personas (i.e.
          segmentation) to support targeting.
    •     Customer Experience. 46% of respondents are adopting a
          strategy to improve customer experience through a 360 degree
          view of the customer. Whether the goal of this approach is to
          increase customer retention, cross-sell, and up-sell, or to identify
          new customer acquisition opportunities, a 360 degree view of the
          customer can help companies address the pressures cited above.

Figure 3: On Target - Improved Targeting of Marketing is a Top
Strategy


   Improve targeting of
                                                                              55%
      marketing offers




 Obtain a 360º view of
                                                                      45%
         the customer




 Build unique customer
                                                   29%
 profiles and personas



                      0%    10%       20%        30%        40%         50%     60%
                                   Percentage of respondents, n=112

                                            Source: Aberdeen Group, December 2011



Data collected as part of Aberdeen's research Analytics for the CMO: How
Best-in-Class Marketers Use Customer Insights to Drive More Revenue
(September 2011) reveals that 24% of companies have adopted predictive
analytics for marketing, and an additional 33% of respondents plan to
implement this approach within the next 12 months. While predictive
analytics may not be required to execute the strategies listed above, this
study considers the strategies and capabilities of all companies using
predictive analytics. What emerges is a picture of how companies can most
effectively apply predictive analytics to achieve superior marketing results.




© 2012 Aberdeen Group.                                                                Telephone: 617 854 5200
www.aberdeen.com                                                                            Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 4



An Offer You Can't Refuse                                                                 Fast Facts
Companies have adopted a number of offer-related capabilities to improve                  Ease-of-use of a chosen
the targeting of marketing offers. While most survey respondents (57%) -                  solution is a key contributor to
both Leaders and Followers - are able to customize offers for a specific                  the superior performance of
                                                                                          Leaders.
market segment, Leaders differentiate themselves in their superior ability to
customize marketing offers for individuals. As indicated in Figure 4, Leaders             √ Ease of integration with
are 70% higher than Followers (56% of Leaders v. 33% Followers) to                          existing applications or
provide individualized marketing offers. Leaders are also more likely to apply              business processes. The
behavioral scoring to customer data (49% of Leaders v. 38% of Followers).                   insights generated from a
These capabilities are important not only because they help target offers,                  predictive model are rarely
but they're also differentiating in their own right. In a competitive                       used in isolation.
                                                                                            Commonly, the findings are
environment, companies that personalize marketing can be more effective in
                                                                                            incorporated into an existing
creating a perception of product differentiation among buyers. Leaders have                 business process or
demonstrated their ability to do this. As Figure 1 shows, Leaders have much                 application. 46% of
higher response rates and lower opt-out rates than Followers.                               Leaders can perform this
                                                                                            integration easily, only 26%
Figure 4: Leading Offer Management Capabilities                                             of Followers can.
                                                                                          √ Business users are able
                                                                                            to use predictive tools
                   Ability to
              provide offers                                               56%              directly without
              customized to
                                                                                            statistical experts. By
                                                         33%
                 individuals                                     Leaders                    placing tools directly in the
                                                                                            hands of business managers,
                                                                 Followers
                                                                                            organizations are more likely
             Ability to apply                                                               to be able to manipulate and
                    behavior                                       49%
                                                                                            update models in step with
                   scoring to                              38%                              the business need and
             customer data
                                                                                            interpret results more
                                                                                            rapidly. 49% of Leaders
                                0%   10%    20%    30%    40%    50%       60%              have such tools, only 38% of
                                     Percentage of respondents, n=112                       Followers possess them.

                                                                                          √ Library of different
                                                  Source: Aberdeen Group, December 2011     modeling templates. By
                                                                                            providing templates and
Informing Conversations                                                                     examples as part of the
                                                                                            solution, organizations are
The value of predictive analytics extends beyond outbound offer                             likely to be able to deliver
management to include support for real-time decisions and interactions.                     value faster whenever a new
Thirty-two percent (32%) of Leaders use a predictive model to support                       model is required. 42% of
decisions in real-time, compared with 18% of Followers (Figure 5). Leaders                  Leaders have such libraries,
are also able to make proactive inbound offers in similar proportion (29% of                only 30% of Followers do.
Leaders compared with 20% of Followers). With these capabilities,
companies can optimize web content with "next best action / offer" based
on customers history and / or online behavior (for example).




© 2012 Aberdeen Group.                                                                          Telephone: 617 854 5200
www.aberdeen.com                                                                                      Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 5



Figure 5: Predictive Analytics Inform Real-Time Decisions

      Customer-facing                                                 50%
      skills understood
     and grown / hired                                    37%


     Predictive model
         used to drive                              32%
     decisions in real-               18%
                  time                                          Leaders
                                                                Followers
       Ability to make                          29%
         proactive in-
        bound offers                   20%


                      0%    10%     20%       30%     40%          50%      60%
                               Percentage of respondents, n=112

                                            Source: Aberdeen Group, December 2011

Such real-time capabilities can be used to route incoming calls in a call
center to ensure each call is handled by the appropriate staff member.
Leaders excel here in their ability to use insights gained from predictive
analytics to enhance customer experience. Fifty percent (50%) of Leaders
have identified the critical skills required by customer-facing employees, and
nurture or hire for them accordingly, while only 37% of Followers do the
same. By understanding and growing the skills required by different roles or
tiers within a contact center, Leaders can maximize their gains from using
predictive models to route inbound calls. Aberdeen's prior research in this
area from September 2010 (Predictive Analytics – Driving Sales with Customer
Insights) offers a detailed example of this approach.

Fueling the Database of Intentions
Since data is the fuel of analytics, one would expect data-oriented
capabilities to be widely adopted among users of predictive analytics, and
indeed they are. Aberdeen's last benchmark report on this topic, from
September 2010 (Predictive Analytics – Driving Sales with Customer Insights),
found that top-performing organizations (the Best-in-Class) were more
likely to have access to a wider range of data than their more poorly
performing peers. The same holds true in Aberdeen's most recent survey.
Leaders outpace Followers in several categories. Figure 6 below illustrates
that a larger percentage Leaders have access to both customer behavior
data and transactional data. Access to this data allows the marketing
organization to build richer predictive models. Behavioral data is also key to
supporting real-time proactive management of offers (see above). Access to
transactional data is also vital to modeling aspects like basket size and
developing next best action scenarios. These data sources provide a more


© 2012 Aberdeen Group.                                                              Telephone: 617 854 5200
www.aberdeen.com                                                                          Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 6



granular, adaptive predictive model and are essential for improving
predictive models - and hence improving business performance.

Figure 6: Data: The Fuel for Your Predictive Model

            Access to
                                                                   81%
             customer
                                                          63%                        “To a large extent, the quality
         behavior data
                                                                                     of the model is only as good as
          Access to all                                                              the quality of the data that you
              customer
                                                               78%                   have.”
                                                            71%
     transactional data                                                                             ~ CRM Manager,
                                                                                                     European Utility
              Access to
                                                  49%
                internal
                                            33%
      unstructured data                                     Leaders
                                                            Followers
       Access to social                       41%
           media data                 24%


                           0%   20%         40%     60%         80%      100%
                                Percentage of respondents, n=112

                                             Source: Aberdeen Group, December 2011

Leaders are also more likely to have access to social media data, as well as
access to internal unstructured data, such as call center transcripts, emails,
instant messaging records and wikis. While we're in the early days of
exploiting social media feeds to gain predictive insight, this data can provide
intriguing and actionable insight based on sentiment, volume, and content.
Aberdeen's survey indicates that 55% of Leaders are using social network
analysis tools, compared with 36% of Followers (see Enablers below). It's
said that Google search data can be used to make fairly accurate predictions
about the outbreak and spread of flu based on search topics and volume. In
a similar way, social network feeds provide a public database of intentions
and sentiment. Aberdeen's data shows that marketing departments are
paying closer attention to social data as a source of predictive insight.

Enabling Technologies
In the course of our research, Aberdeen found a number of applications and
technologies that support, extend, and enhance the power of predictive
analytics (Figure 7).




© 2012 Aberdeen Group.                                                                  Telephone: 617 854 5200
www.aberdeen.com                                                                              Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 7



Figure 7: Applications to Enhance Predictive Analytics


                                                                                           71%
   Customer segmentation
                                                                                                       Fast Facts
                    tool                                                    59%
                                                                                                       The most common obstacles to
                                                                                                       the adoption of predictive
   Campaign management                                                            63%                  analytics:
               software                                           51%
                                                                                                       √ Lack of understanding of the
                                                                                                         benefits - 57%
   Social media monitoring                               39%
         and analysis tools
                                                                                                       √ Lack of appropriate skills -
                                             27%
                                                                                 Leaders                 45%
                                                                                 Followers
 Marketing automation with
                                                                                                       √ Data that could be used with
                                                   34%
     embedded predictive                                                                                 predictive analytics is not
                 analytics             20%                                                               clean - 39%

                          0%   10%   20%     30%     40%       50%         60%       70%         80%
                                       Percentage of respondents, n=-112

                                              Source: Aberdeen Group, December 2011

Overall, almost 2/3 of marketing organizations that took part in our survey
(63%) were using predictive analytics to aid in customer segmentation.
Grouping customers and potential customers according to shared
characteristics is foundational to sales and marketing. Some organizations do
this more formally than others, and some segment to a much finer level of                              Use Cases for Predictive
detail. It is clear that organizations with the best marketing performance                             Analytics in Marketing
(Leaders) are 20% more likely than Followers to use predictive analytics to
assist with segmentation. By applying predictive technologies to the task,                             √ Segmentation
marketers can gain more telling insights into the products and services that                           √ Cross Sell / Up Sell
are likely to appeal to each market segment. They will also be able to
forecast future revenue expectations and use this information to improve                               √ Offer Management
the targeting of marketing offers.                                                                     √ Campaign Management
Both campaign management software and marketing automation software                                    √ Channel Management
help bring rigor and consistency to the planning, management, and execution
of marketing campaigns and tactics. The use of campaign management                                     √ Online advertising yield
software can provide senior management with a comprehensive view of                                      management
marketing activities. It can ensure marketing plans are developed and                                  √ Pricing & Forecasting
executed consistently. Finally, this class of software can provide a central
repository to capture all campaign performance-related information. This                               √ Loyalty & Customer
centralization and standardization can help marketers evaluate the                                       Experience Management
effectiveness of campaigns, and determine their return on marketing
investment (ROM I). As noted earlier, Leaders are more likely to be able to
measure the effectiveness of individual marketing campaigns than Followers.
They also have a greater propensity to feed campaign results back into
predictive models, refining their performance over the long-term.
Thirty-four percent (34%) of Leaders also ensure predictive analytics
capabilities are embedded within their marketing automation solution. Only
© 2012 Aberdeen Group.                                                                                    Telephone: 617 854 5200
www.aberdeen.com                                                                                                Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 8



20% of Followers do the same. One perennial problem that dogs any
analytics project is "lift-and-shift"—the need to lift data from one
computerized system, and shift it to another before it can be analyzed. Such
processes are costly, time-consuming, and error-prone. Embracing a
marketing automation platform that allows analytics to be performed in situ
eliminates this barrier. As a result, there is a higher probability that analysis
can be performed in a timely fashion, more frequently, and with fresher
data. All these factors strengthen the impact of predictive analytics on
marketing performance.
Finally, Leaders are more likely than Followers to be tapping into the wealth
of social media data to direct their marketing campaigns, and are selecting
appropriate tools to do so.

Organizational Alignment is Imperative
The fastest, most accurate analytical engine on the planet is worthless unless
the insights it produces can be acted on in a timely way. For this to happen,
roles and responsibilities within the organization must be clear. Often,
organizational changes are needed to get the most from analytics. As Figure
8 shows, Leaders are more likely to make these changes than Followers.

Figure 8: Leaders More Likely to Have a Mandate to Act

                 Business
            managers can                                           45%              “Analysis was just the
            take action on                                                          beginning, it helped us identify
                 predicted                           30%                            where we needed to focus. But
                                                             Leaders
                   insights                                                         changes to the organization and
                                                             Followers
                                                                                    to business processes are
            Able to align to                                                        necessary to benefit from the
                execute on                                         45%
                                                                                    findings of the analysis.”
                  predicted                        28%
                 outcomes                                                                   ~ Derlin Mputu Kinsa,
                                                                                           Corporate Strategy and
                           0%   10%      20%      30%      40%      50%              Business Intelligence Manager,
                                                                                                    Wolters Kluwer
                                Percentage of respondents, n=112

                                            Source: Aberdeen Group, December 2011

Using predictive analytics to support the sales and marketing function is
different from using predictive analytics to support strategic planning. When
sales and marketing initiatives are supported by this technology, insight from
the solution can be injected into customer interactions. That means that
employees lower down the management ranks must be empowered to act
on those insights. Leaders are 50% more likely than Followers to be willing
to delegate this decision-making.
Leaders are also more willing than Followers to reshape the organization to
make the most of analytic insight. As the case study below illustrates, when
predictive analytics is used to support a customer retention strategy,

© 2012 Aberdeen Group.                                                                    Telephone: 617 854 5200
www.aberdeen.com                                                                                Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 9



changes to operational processes will often be needed. Changing a process
changes the roles, responsibilities and reporting structure of the people
involved in that process. That can be a challenge for some organizations. For
example, a formal customer retention program is likely to require some or
all of the following:
    •   The formation of a "win-back" team that specializes in reacquiring
        defecting customers.
    •   The formation of a team dedicated to managing high-value
        customers.
    •   The creation of a virtual team that engages the customer at various
        points in the lifecycle, rather than a solitary account manager being
        the primary point of contact.
Each change can lead to bruised egos and office politics. Companies differ in
their willingness, ability, and expertise to make such detail changes.
However, Leaders are over 50% more likely to be able to do so than
Followers.
                     Case Study — Wolters Kluwer

 Wolters Kluwer is a global provider of information, software, and
 services that help professionals do their work more quickly and
 efficiently. For 175 years Wolters Kluwer has provided professionals with
 necessary information in the fields of legal, business, tax, accounting,
 finance, audit, risk, compliance, and healthcare. The company has
 approximately 19,000 employees in over 45 countries, and customers
 in more than 147 countries. Annual revenues for 2010 were just over
 €3.5 billion.
 Wolters Kluwer has been using predictive analytics for the last three
 years to drive improvements in customer retention. Three years ago, the
 company decided to launch a customer retention program in Europe. In
 devising and implementing this program, one of the major goals was that
 it be fact-based. Initially, this project was tightly focused on understanding
 and distilling key learnings. But, after demonstrating success in Europe,
 the initiative has expanded in two ways. Firstly, the program grew to
 include the United States. Secondly, the scope expanded to embrace the
 entire customer lifecycle: improving the lead generation process,
 improving the customer acquisition process and also customer
 development - cross-selling and up-selling.
 The program started with a straightforward analysis to understand which
 segments of the customer base were most affected by high rates of
 customer defection.
                                                                      continued




© 2012 Aberdeen Group.                                                            Telephone: 617 854 5200
www.aberdeen.com                                                                        Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
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Page 10



                     Case Study — Wolters Kluwer

 This allowed Wolters Kluwer to focus its efforts and start to improve
 some of its internal processes. In particular, analytics was used, both to
 identify those customers, but also to identify key events that led to
 customer defection. Once the root causes were identified, steps could be
 taken to address these issues. For example, many cancellations occurred
 at the seed phase during customer acquisition. Consequently, the
 company focused on improving the targeting of customers so that
 professionals were not offered products that were unsuitable for them.
 Likewise, the customer onboarding process was fine-tuned to include a
 thorough introduction to the product, and provide a series of touch
 points during the introductory phase. “Analysis was just the beginning, it
 helped us to identify where we needed to focus,” noted Derlin Mputu
 Kinsa, Corporate Strategy and Business Intelligence Manager at Wolters
 Kluwer. “But changes to the organization and to business processes are
 necessary to benefit from the findings of the analysis.”
 Once up and running with their products, Wolters Kluwer continues to
 work proactively with the customer. Here, a different approach is used
 based on the value of the customer, the products they have, and the way
 they use those products. Based on the data they collect and the insights
 they gain, the customer may be offered alternative products, or simply
 additional training and workshops to help them realize the full value from
 their existing subscription. Predictive analytics is also used to prevent
 defecting customers. Before customers show signs of dissatisfaction, the
 firm uses predictive analytics to identify them and to determine what
 offer or action they should make to maximize the odds of keeping the
 customer. In the longer term, analysis of canceled subscriptions is used to
 shape product development and pricing strategy.
 “This retention process has become a key part of our business. In one
 division last year we improved retention by 1%. That may not sound like
 much, but when the product portfolio is very large, it adds up to a lot of
 money,” concluded Derlin Mputu Kinsa. “The success of the retention
 program isn't just in building analytics. It's mainly due to reshaping
 operations so that business managers can take advantage of the insights
 from analytics at critical touch points with the customer.”


The Virtuous Cycle of Performance Management
Two themes emerge from the way Leaders adopt performance
management. The first is the importance of measuring marketing
performance in a granular way.




© 2012 Aberdeen Group.                                                         Telephone: 617 854 5200
www.aberdeen.com                                                                     Fax: 617 723 7897
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Figure 9: The Performance Management Virtuous Cycle

        Ability to track KPIs
            associated with                                          84%
                    customer                          57%                           Fast Facts
                performance
                                                                                    Building and refreshing
                     Measure                                                        predictive models is a time
             effectiveness of                           59%                         consuming process:
        individual marketing                                  Leaders
                                                  49%                               √ After the business need has
                  campaigns                                   Followers               been identified, it takes a
                                                                                      total elapsed time of 37 days
                  Ability to
               incorporate                           54%                              on average to build a
           campaign results
                                                                                      predictive model
                                          33%
               into models                                                          √ It takes an average of 10
                                                                                      days to refresh a predictive
                            0%   20%       40%       60%       80%         100%       model when necessary
                                  Percentage of respondents, n=112

                                            Source: Aberdeen Group, December 2011

Leaders are 47% more likely than Followers (84% v. 57%) to have the ability
to track key performance indicators (KPIs) associated with customer
performance. Fifty-nine percent (59%) of Leaders also track the
effectiveness of individual marketing campaigns, compared with 49% of
Followers (Figure 9). While valuable as a means of tracking and trending
marketing performance over time, the ability to capture these metrics gives
marketing leaders critical data with which to refine segmentation and
marketing offers. In fact, 54% of Leaders say they have the ability to
incorporate campaign results into their statistical models, compared with
33% of Followers. This ability to incorporate results from previous
campaigns back into predictive models so their accuracy can be improved
and enhanced creates the potential for a virtuous cycle, where marketing
performance continues to improve over time.

Key Takeaways
Based on Aberdeen's research, marketing organizations currently using - or
considering using - predictive analytics should note:
    •     Leaders significantly outperform Followers in marketing
          and related business performance. For example, the average
          marketing response rate of Leaders is 67% higher than Followers,
          and Leaders also grew their customer retention rate four times
          faster than Followers. The ability of Leaders to gain deeper
          understanding of customers and prospects, target marketing offers
          more precisely, and deploy the skills at their disposal more wisely all
          contribute to these significant differences in performance.



© 2012 Aberdeen Group.                                                                 Telephone: 617 854 5200
www.aberdeen.com                                                                             Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 12



    •   Followers are planning action to close the performance
        gap. Followers are planning to invest in many of the capabilities
        that have helped Leaders differentiate their marketing and business
        performance. In the next 12 months 43% of Followers plan to add
        the capability to customize offers for individuals (not just segments).
        A similar number of Followers plan to improve their ability to
        estimate lifetime customer value - an important factor in providing
        the right offer to the right person at the right time.
    •   Unstructured data is growing in importance. Leaders are
        more likely than Followers to be employing tools to analyze social
        media already. However, both groups recognize the important of
        social data. Both Leaders and Followers are planning to invest in
        social network analysis tools within the next 12 months (25%
        overall). However, Leaders distinguish themselves from Followers
        when it comes to future investments in text mining and sentiment
        analysis software. Thirty-seven percent (37%) of Leaders plan to
        invest in this emerging technology over the next year, compared to
        just 24% of Followers.
    •   Further automation can improve the performance and
        impact of predictive models. Survey respondents report that
        many areas concerned with the use of predictive models are labor
        intensive. For example, 58% of all survey respondents report that
        preparing the data to feed predictive analytics models is either all or
        mostly a manual process, with little automation. Similarly, model
        building is mostly or entirely a manual process at 55% of companies.
        Manual processes are time consuming and error prone. By bringing
        increased automation to bear on the predictive modeling cycle,
        marketing departments can increase the rate at which they build,
        refine and deploy predictive models. This should, in turn, let chief
        marketing officers bring more precision to their inbound and
        outbound marketing activities.
For more information on this or other research topics, please visit
www.aberdeen.com




© 2012 Aberdeen Group.                                                            Telephone: 617 854 5200
www.aberdeen.com                                                                        Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 13




                                            Related Research
 Predictive Marketing for Sales and                          The Marketing Executive's Agenda for
 Marketing: Seeing Around Corners;                           2012: Uncovering the Hidden Sales Cycle;
 January 2012                                                October 2011
 Customer Experience Management:                             Analytics for the CMO: How Best-in-Class
 Using the Power of Analytics to Optimize                    Marketers Use Customer Insights to Drive
 Customer Delight; January 2012                              More Revenue; September 2011
 Sales Performance Management 2012:                          Future Integration Needs: Embracing
 How the Best-in-Class Optimize the Front                    Complex Data; July 2011
 Line to Grow the Bottom Line;                               Predictive Analytics – Driving Sales with
 December 2011                                               Customer Insights; September 2010
 Author: Trip Kucera, Senior Research Analyst, Marketing Effectiveness and
 Strategy, (trip.kucera@aberdeen.com), David White, Senior Research Analyst,
 Business Intelligence (david.white@aberdeen.com)


For more than tw o decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class.
Hav ing benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide
organizations w ith the facts that matter — the facts that enable companies to get ahead and driv e results. That's why
our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of
the Technology 500.
As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of
local, regional, national and international marketing executives. Combined, we help our customers leverage the power
of insight to deliv er innovative multichannel marketing programs that drive business-changing results. For additional
information, v isit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call
(800) 456-9748 or go to http://w ww.harte-hanks.com.
This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies
prov ide for objective fact-based research and represent the best analysis available at the time of publication. Unless
otherw ise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be
reproduced, distributed, archived, or transmitted in any form or by any means without prior w ritten consent by
Aberdeen Group, Inc. (2012a)
© 2012 Aberdeen Group.                                                                                                    Telephone: 617 854 5200
www.aberdeen.com                                                                                                                Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 14



                    Featured Underwriters
This research report was made possible, in part, with the financial support
of our underwriters. These individuals and organizations share Aberdeen’s
vision of bringing fact based research to corporations worldwide at little or
no cost. Underwriters have no editorial or research rights, and the facts and
analysis of this report remain an exclusive production and product of
Aberdeen Group. Solution providers recognized as underwriters were
solicited after the fact and had no substantive influence on the direction of
this report. Their sponsorship has made it possible for Aberdeen Group to
make these findings available to readers at no charge.




IBM SPSS Predictive Analytics software helps organizations predict future
events and proactively act upon that insight to drive better business
outcomes. Commercial, government and academic customers worldwide
rely on IBM SPSS technology as a competitive advantage in attracting,
retaining and growing customers, while reducing fraud and mitigating risk.
By incorporating IBM SPSS software into their daily operations,
organizations become predictive enterprises – able to direct and automate
decisions to meet business goals and achieve measurable competitive
advantage.
For additional information on IBM:
IBM Predictive Analytics SPSS
233 S. Wacker Drive, 11th Floor
Chicago, Illinois 60606
Telephone: 800.543.2185
www.ibm.com/spss
sales@ibm.com




© 2012 Aberdeen Group.                                                          Telephone: 617 854 5200
www.aberdeen.com                                                                      Fax: 617 723 7897
Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize
Marketing
Page 15




Quiterian helps leading companies to be more effective and competitive
through Visual Data Mining software that complements traditional BI, and
analyzes large volumes of raw data from multiple sources at record-breaking
speed. Quiterian Analytics software adds the power of advanced and
predictive analytics to the natural intuitiveness of the human mind, and gives
decision-makers instant access to valuable business insights for making faster
and better decisions. The ongoing international expansion through the
Business Partner Network has allowed Quiterian to provide solutions in all
areas especially in Marketing and Customer Analytics, to public institutions
and leading companies of different sectors around the world.
For additional information on Quiterian:
Address 1:
Quiterian
2655 Le Jeune Road, Suite 810
Coral Gables, FL 33134
USA
Telephone 1: 323.287.5520
Telephone 2: 305.442.4890
Address 2:
Quiterian
Frederic Mompou 5
Edifico Euro 3
08960, Barcelona
Spain
Telephone: 93.371.44.70
www.quiterian.com
info@quiterian.com




© 2012 Aberdeen Group.                                                           Telephone: 617 854 5200
www.aberdeen.com                                                                       Fax: 617 723 7897

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IBM - Using Predictive Analytics to Segment, Target and Optimize Marketing

  • 1. Divide & Conquer Using Predictive Analytics to Segment, Target and Optimize Marketing February 2012 Trip Kucera, David White ~ Underwritten, in Part, by ~
  • 2. February 2012 Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Analyst Insight Data collected by the Aberdeen group in August 2011 (Predictive Analytics for Aberdeen’s Insights provide the Sales and Marketing: Seeing Around Corners) found that companies using analyst's perspective on the predictive analytics enjoyed a 75% higher click through rate and a 73% research as drawn from an higher sales lift than companies that did not use this technology. However, aggregated view of research new research published here (based on data collected in December 2011) surveys, interviews, and shows that even among users of predictive analytics there are significant data analysis differences in the level of business performance achieved. These performance differences accrue from subtly different applications of technology, as well as different capabilities within the organization. This new research reveals the best practices sales and marketing organizations can Defining Leaders & Followers adopt to maximize their return on investment (ROI) in predictive analytics. Aberdeen measured the overall performance and effectiveness of Leaders Deliver Significantly Higher ROI marketing organizations that Leaders (the top-performing 35% of companies) outperform Followers (the participated in our survey, based remaining 65% of companies) in several aspects of marketing performance. on their aggregate performance Figure 1 illustrates three of these metrics. on 4 criteria. The top performing 35% of companies (Leaders) were segmented from the remaining Figure 1: Marketing Leaders Outperform Followers 65% (Followers) using the 4 criteria below. The relative performance of Leaders and 13.0% Followers is also shown: Y-Y change in lifetime customer value 2.3% √ Average uplift from a marketing campaign - Leaders 6.7%, Followers 3.3% Average response 7.1% √ Year-year change in the rate average value of a sales 4.8% transaction - Leaders 13% Leaders increase, Followers 2% decline Followers √ Year-year change in customer 2.6% retention rate - Leaders 4% Average opt-out rate 3.9% increase, Followers 1% increase √ Year-year change in operating 0% 2% 4% 6% 8% 10% 12% 14% profit margin - Leaders 3% Percentage, n=112 increase, Followers 0% change Source: Aberdeen Group, December 2011 Although both Leaders and Followers use predictive analytics, leaders use this technology to drive much greater business impact on sales and This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.
  • 3. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 2 marketing problems. In addition to the three performance criteria shown in Figure 1, Leaders also outperformed followers in four other metrics that Predictive Analytics Definition were used to define the two groups (see sidebar). Predictive analytics creates a sophisticated mathematical Considered together, these metrics show the chain of events leading from model to use as the basis of excellent marketing performance to improved business results. For predictions. Feeding this model example: are potentially hundreds or thousands of pieces of data • The lower opt-out rates Leaders experience during marketing collected on each individual. campaigns contribute to the higher customer retention enjoyed by This model gives marketers those organizations. insight into the characteristics • In turn, higher customer retention rates and larger growth in the and behaviors of buyers. The richness of the data and the average value of a sales transaction contribute to greater increases rigor of the mathematical in lifetime customer value, and higher growth in operating profit modeling distinguish predictive margins. analytics from business intelligence. Competition for Capital The macroeconomic climate of the last few years has fueled increased competition for capital. As a result, a tougher competitive environment and the competitive pressure to differentiate are the business pressures most cited by survey respondents (Figure 2). At the same time, channels like mobile and social media create new opportunities to interact with buyers, but also new pressures to incorporate these channels into existing marketing processes. Figure 2: Pressures Driven by Competition for Capital Tougher competitive 41% environment Competitive pressure 36% to differentiate Proliferation of sales / 29% marketing channels Need to improve 29% productivity Increasing cost of 28% customer acquisition 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Percentage of respondents, n=112 Source: Aberdeen Group, December 2011 Organizations adopted several strategies to address these challenges: © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 4. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 3 • Customer segmentation and offer targeting. The strategy most cited by respondents is to improve the targeting of marketing offers (55%). Of course, this requires understanding the offers' targets. It comes as no surprise that 29% of respondents are building unique customer profiles and buyer personas (i.e. segmentation) to support targeting. • Customer Experience. 46% of respondents are adopting a strategy to improve customer experience through a 360 degree view of the customer. Whether the goal of this approach is to increase customer retention, cross-sell, and up-sell, or to identify new customer acquisition opportunities, a 360 degree view of the customer can help companies address the pressures cited above. Figure 3: On Target - Improved Targeting of Marketing is a Top Strategy Improve targeting of 55% marketing offers Obtain a 360º view of 45% the customer Build unique customer 29% profiles and personas 0% 10% 20% 30% 40% 50% 60% Percentage of respondents, n=112 Source: Aberdeen Group, December 2011 Data collected as part of Aberdeen's research Analytics for the CMO: How Best-in-Class Marketers Use Customer Insights to Drive More Revenue (September 2011) reveals that 24% of companies have adopted predictive analytics for marketing, and an additional 33% of respondents plan to implement this approach within the next 12 months. While predictive analytics may not be required to execute the strategies listed above, this study considers the strategies and capabilities of all companies using predictive analytics. What emerges is a picture of how companies can most effectively apply predictive analytics to achieve superior marketing results. © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 5. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 4 An Offer You Can't Refuse Fast Facts Companies have adopted a number of offer-related capabilities to improve Ease-of-use of a chosen the targeting of marketing offers. While most survey respondents (57%) - solution is a key contributor to both Leaders and Followers - are able to customize offers for a specific the superior performance of Leaders. market segment, Leaders differentiate themselves in their superior ability to customize marketing offers for individuals. As indicated in Figure 4, Leaders √ Ease of integration with are 70% higher than Followers (56% of Leaders v. 33% Followers) to existing applications or provide individualized marketing offers. Leaders are also more likely to apply business processes. The behavioral scoring to customer data (49% of Leaders v. 38% of Followers). insights generated from a These capabilities are important not only because they help target offers, predictive model are rarely but they're also differentiating in their own right. In a competitive used in isolation. Commonly, the findings are environment, companies that personalize marketing can be more effective in incorporated into an existing creating a perception of product differentiation among buyers. Leaders have business process or demonstrated their ability to do this. As Figure 1 shows, Leaders have much application. 46% of higher response rates and lower opt-out rates than Followers. Leaders can perform this integration easily, only 26% Figure 4: Leading Offer Management Capabilities of Followers can. √ Business users are able to use predictive tools Ability to provide offers 56% directly without customized to statistical experts. By 33% individuals Leaders placing tools directly in the hands of business managers, Followers organizations are more likely Ability to apply to be able to manipulate and behavior 49% update models in step with scoring to 38% the business need and customer data interpret results more rapidly. 49% of Leaders 0% 10% 20% 30% 40% 50% 60% have such tools, only 38% of Percentage of respondents, n=112 Followers possess them. √ Library of different Source: Aberdeen Group, December 2011 modeling templates. By providing templates and Informing Conversations examples as part of the solution, organizations are The value of predictive analytics extends beyond outbound offer likely to be able to deliver management to include support for real-time decisions and interactions. value faster whenever a new Thirty-two percent (32%) of Leaders use a predictive model to support model is required. 42% of decisions in real-time, compared with 18% of Followers (Figure 5). Leaders Leaders have such libraries, are also able to make proactive inbound offers in similar proportion (29% of only 30% of Followers do. Leaders compared with 20% of Followers). With these capabilities, companies can optimize web content with "next best action / offer" based on customers history and / or online behavior (for example). © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 6. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 5 Figure 5: Predictive Analytics Inform Real-Time Decisions Customer-facing 50% skills understood and grown / hired 37% Predictive model used to drive 32% decisions in real- 18% time Leaders Followers Ability to make 29% proactive in- bound offers 20% 0% 10% 20% 30% 40% 50% 60% Percentage of respondents, n=112 Source: Aberdeen Group, December 2011 Such real-time capabilities can be used to route incoming calls in a call center to ensure each call is handled by the appropriate staff member. Leaders excel here in their ability to use insights gained from predictive analytics to enhance customer experience. Fifty percent (50%) of Leaders have identified the critical skills required by customer-facing employees, and nurture or hire for them accordingly, while only 37% of Followers do the same. By understanding and growing the skills required by different roles or tiers within a contact center, Leaders can maximize their gains from using predictive models to route inbound calls. Aberdeen's prior research in this area from September 2010 (Predictive Analytics – Driving Sales with Customer Insights) offers a detailed example of this approach. Fueling the Database of Intentions Since data is the fuel of analytics, one would expect data-oriented capabilities to be widely adopted among users of predictive analytics, and indeed they are. Aberdeen's last benchmark report on this topic, from September 2010 (Predictive Analytics – Driving Sales with Customer Insights), found that top-performing organizations (the Best-in-Class) were more likely to have access to a wider range of data than their more poorly performing peers. The same holds true in Aberdeen's most recent survey. Leaders outpace Followers in several categories. Figure 6 below illustrates that a larger percentage Leaders have access to both customer behavior data and transactional data. Access to this data allows the marketing organization to build richer predictive models. Behavioral data is also key to supporting real-time proactive management of offers (see above). Access to transactional data is also vital to modeling aspects like basket size and developing next best action scenarios. These data sources provide a more © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 7. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 6 granular, adaptive predictive model and are essential for improving predictive models - and hence improving business performance. Figure 6: Data: The Fuel for Your Predictive Model Access to 81% customer 63% “To a large extent, the quality behavior data of the model is only as good as Access to all the quality of the data that you customer 78% have.” 71% transactional data ~ CRM Manager, European Utility Access to 49% internal 33% unstructured data Leaders Followers Access to social 41% media data 24% 0% 20% 40% 60% 80% 100% Percentage of respondents, n=112 Source: Aberdeen Group, December 2011 Leaders are also more likely to have access to social media data, as well as access to internal unstructured data, such as call center transcripts, emails, instant messaging records and wikis. While we're in the early days of exploiting social media feeds to gain predictive insight, this data can provide intriguing and actionable insight based on sentiment, volume, and content. Aberdeen's survey indicates that 55% of Leaders are using social network analysis tools, compared with 36% of Followers (see Enablers below). It's said that Google search data can be used to make fairly accurate predictions about the outbreak and spread of flu based on search topics and volume. In a similar way, social network feeds provide a public database of intentions and sentiment. Aberdeen's data shows that marketing departments are paying closer attention to social data as a source of predictive insight. Enabling Technologies In the course of our research, Aberdeen found a number of applications and technologies that support, extend, and enhance the power of predictive analytics (Figure 7). © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 8. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 7 Figure 7: Applications to Enhance Predictive Analytics 71% Customer segmentation Fast Facts tool 59% The most common obstacles to the adoption of predictive Campaign management 63% analytics: software 51% √ Lack of understanding of the benefits - 57% Social media monitoring 39% and analysis tools √ Lack of appropriate skills - 27% Leaders 45% Followers Marketing automation with √ Data that could be used with 34% embedded predictive predictive analytics is not analytics 20% clean - 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% Percentage of respondents, n=-112 Source: Aberdeen Group, December 2011 Overall, almost 2/3 of marketing organizations that took part in our survey (63%) were using predictive analytics to aid in customer segmentation. Grouping customers and potential customers according to shared characteristics is foundational to sales and marketing. Some organizations do this more formally than others, and some segment to a much finer level of Use Cases for Predictive detail. It is clear that organizations with the best marketing performance Analytics in Marketing (Leaders) are 20% more likely than Followers to use predictive analytics to assist with segmentation. By applying predictive technologies to the task, √ Segmentation marketers can gain more telling insights into the products and services that √ Cross Sell / Up Sell are likely to appeal to each market segment. They will also be able to forecast future revenue expectations and use this information to improve √ Offer Management the targeting of marketing offers. √ Campaign Management Both campaign management software and marketing automation software √ Channel Management help bring rigor and consistency to the planning, management, and execution of marketing campaigns and tactics. The use of campaign management √ Online advertising yield software can provide senior management with a comprehensive view of management marketing activities. It can ensure marketing plans are developed and √ Pricing & Forecasting executed consistently. Finally, this class of software can provide a central repository to capture all campaign performance-related information. This √ Loyalty & Customer centralization and standardization can help marketers evaluate the Experience Management effectiveness of campaigns, and determine their return on marketing investment (ROM I). As noted earlier, Leaders are more likely to be able to measure the effectiveness of individual marketing campaigns than Followers. They also have a greater propensity to feed campaign results back into predictive models, refining their performance over the long-term. Thirty-four percent (34%) of Leaders also ensure predictive analytics capabilities are embedded within their marketing automation solution. Only © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 9. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 8 20% of Followers do the same. One perennial problem that dogs any analytics project is "lift-and-shift"—the need to lift data from one computerized system, and shift it to another before it can be analyzed. Such processes are costly, time-consuming, and error-prone. Embracing a marketing automation platform that allows analytics to be performed in situ eliminates this barrier. As a result, there is a higher probability that analysis can be performed in a timely fashion, more frequently, and with fresher data. All these factors strengthen the impact of predictive analytics on marketing performance. Finally, Leaders are more likely than Followers to be tapping into the wealth of social media data to direct their marketing campaigns, and are selecting appropriate tools to do so. Organizational Alignment is Imperative The fastest, most accurate analytical engine on the planet is worthless unless the insights it produces can be acted on in a timely way. For this to happen, roles and responsibilities within the organization must be clear. Often, organizational changes are needed to get the most from analytics. As Figure 8 shows, Leaders are more likely to make these changes than Followers. Figure 8: Leaders More Likely to Have a Mandate to Act Business managers can 45% “Analysis was just the take action on beginning, it helped us identify predicted 30% where we needed to focus. But Leaders insights changes to the organization and Followers to business processes are Able to align to necessary to benefit from the execute on 45% findings of the analysis.” predicted 28% outcomes ~ Derlin Mputu Kinsa, Corporate Strategy and 0% 10% 20% 30% 40% 50% Business Intelligence Manager, Wolters Kluwer Percentage of respondents, n=112 Source: Aberdeen Group, December 2011 Using predictive analytics to support the sales and marketing function is different from using predictive analytics to support strategic planning. When sales and marketing initiatives are supported by this technology, insight from the solution can be injected into customer interactions. That means that employees lower down the management ranks must be empowered to act on those insights. Leaders are 50% more likely than Followers to be willing to delegate this decision-making. Leaders are also more willing than Followers to reshape the organization to make the most of analytic insight. As the case study below illustrates, when predictive analytics is used to support a customer retention strategy, © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 10. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 9 changes to operational processes will often be needed. Changing a process changes the roles, responsibilities and reporting structure of the people involved in that process. That can be a challenge for some organizations. For example, a formal customer retention program is likely to require some or all of the following: • The formation of a "win-back" team that specializes in reacquiring defecting customers. • The formation of a team dedicated to managing high-value customers. • The creation of a virtual team that engages the customer at various points in the lifecycle, rather than a solitary account manager being the primary point of contact. Each change can lead to bruised egos and office politics. Companies differ in their willingness, ability, and expertise to make such detail changes. However, Leaders are over 50% more likely to be able to do so than Followers. Case Study — Wolters Kluwer Wolters Kluwer is a global provider of information, software, and services that help professionals do their work more quickly and efficiently. For 175 years Wolters Kluwer has provided professionals with necessary information in the fields of legal, business, tax, accounting, finance, audit, risk, compliance, and healthcare. The company has approximately 19,000 employees in over 45 countries, and customers in more than 147 countries. Annual revenues for 2010 were just over €3.5 billion. Wolters Kluwer has been using predictive analytics for the last three years to drive improvements in customer retention. Three years ago, the company decided to launch a customer retention program in Europe. In devising and implementing this program, one of the major goals was that it be fact-based. Initially, this project was tightly focused on understanding and distilling key learnings. But, after demonstrating success in Europe, the initiative has expanded in two ways. Firstly, the program grew to include the United States. Secondly, the scope expanded to embrace the entire customer lifecycle: improving the lead generation process, improving the customer acquisition process and also customer development - cross-selling and up-selling. The program started with a straightforward analysis to understand which segments of the customer base were most affected by high rates of customer defection. continued © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 11. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 10 Case Study — Wolters Kluwer This allowed Wolters Kluwer to focus its efforts and start to improve some of its internal processes. In particular, analytics was used, both to identify those customers, but also to identify key events that led to customer defection. Once the root causes were identified, steps could be taken to address these issues. For example, many cancellations occurred at the seed phase during customer acquisition. Consequently, the company focused on improving the targeting of customers so that professionals were not offered products that were unsuitable for them. Likewise, the customer onboarding process was fine-tuned to include a thorough introduction to the product, and provide a series of touch points during the introductory phase. “Analysis was just the beginning, it helped us to identify where we needed to focus,” noted Derlin Mputu Kinsa, Corporate Strategy and Business Intelligence Manager at Wolters Kluwer. “But changes to the organization and to business processes are necessary to benefit from the findings of the analysis.” Once up and running with their products, Wolters Kluwer continues to work proactively with the customer. Here, a different approach is used based on the value of the customer, the products they have, and the way they use those products. Based on the data they collect and the insights they gain, the customer may be offered alternative products, or simply additional training and workshops to help them realize the full value from their existing subscription. Predictive analytics is also used to prevent defecting customers. Before customers show signs of dissatisfaction, the firm uses predictive analytics to identify them and to determine what offer or action they should make to maximize the odds of keeping the customer. In the longer term, analysis of canceled subscriptions is used to shape product development and pricing strategy. “This retention process has become a key part of our business. In one division last year we improved retention by 1%. That may not sound like much, but when the product portfolio is very large, it adds up to a lot of money,” concluded Derlin Mputu Kinsa. “The success of the retention program isn't just in building analytics. It's mainly due to reshaping operations so that business managers can take advantage of the insights from analytics at critical touch points with the customer.” The Virtuous Cycle of Performance Management Two themes emerge from the way Leaders adopt performance management. The first is the importance of measuring marketing performance in a granular way. © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 12. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 11 Figure 9: The Performance Management Virtuous Cycle Ability to track KPIs associated with 84% customer 57% Fast Facts performance Building and refreshing Measure predictive models is a time effectiveness of 59% consuming process: individual marketing Leaders 49% √ After the business need has campaigns Followers been identified, it takes a total elapsed time of 37 days Ability to incorporate 54% on average to build a campaign results predictive model 33% into models √ It takes an average of 10 days to refresh a predictive 0% 20% 40% 60% 80% 100% model when necessary Percentage of respondents, n=112 Source: Aberdeen Group, December 2011 Leaders are 47% more likely than Followers (84% v. 57%) to have the ability to track key performance indicators (KPIs) associated with customer performance. Fifty-nine percent (59%) of Leaders also track the effectiveness of individual marketing campaigns, compared with 49% of Followers (Figure 9). While valuable as a means of tracking and trending marketing performance over time, the ability to capture these metrics gives marketing leaders critical data with which to refine segmentation and marketing offers. In fact, 54% of Leaders say they have the ability to incorporate campaign results into their statistical models, compared with 33% of Followers. This ability to incorporate results from previous campaigns back into predictive models so their accuracy can be improved and enhanced creates the potential for a virtuous cycle, where marketing performance continues to improve over time. Key Takeaways Based on Aberdeen's research, marketing organizations currently using - or considering using - predictive analytics should note: • Leaders significantly outperform Followers in marketing and related business performance. For example, the average marketing response rate of Leaders is 67% higher than Followers, and Leaders also grew their customer retention rate four times faster than Followers. The ability of Leaders to gain deeper understanding of customers and prospects, target marketing offers more precisely, and deploy the skills at their disposal more wisely all contribute to these significant differences in performance. © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 13. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 12 • Followers are planning action to close the performance gap. Followers are planning to invest in many of the capabilities that have helped Leaders differentiate their marketing and business performance. In the next 12 months 43% of Followers plan to add the capability to customize offers for individuals (not just segments). A similar number of Followers plan to improve their ability to estimate lifetime customer value - an important factor in providing the right offer to the right person at the right time. • Unstructured data is growing in importance. Leaders are more likely than Followers to be employing tools to analyze social media already. However, both groups recognize the important of social data. Both Leaders and Followers are planning to invest in social network analysis tools within the next 12 months (25% overall). However, Leaders distinguish themselves from Followers when it comes to future investments in text mining and sentiment analysis software. Thirty-seven percent (37%) of Leaders plan to invest in this emerging technology over the next year, compared to just 24% of Followers. • Further automation can improve the performance and impact of predictive models. Survey respondents report that many areas concerned with the use of predictive models are labor intensive. For example, 58% of all survey respondents report that preparing the data to feed predictive analytics models is either all or mostly a manual process, with little automation. Similarly, model building is mostly or entirely a manual process at 55% of companies. Manual processes are time consuming and error prone. By bringing increased automation to bear on the predictive modeling cycle, marketing departments can increase the rate at which they build, refine and deploy predictive models. This should, in turn, let chief marketing officers bring more precision to their inbound and outbound marketing activities. For more information on this or other research topics, please visit www.aberdeen.com © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 14. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 13 Related Research Predictive Marketing for Sales and The Marketing Executive's Agenda for Marketing: Seeing Around Corners; 2012: Uncovering the Hidden Sales Cycle; January 2012 October 2011 Customer Experience Management: Analytics for the CMO: How Best-in-Class Using the Power of Analytics to Optimize Marketers Use Customer Insights to Drive Customer Delight; January 2012 More Revenue; September 2011 Sales Performance Management 2012: Future Integration Needs: Embracing How the Best-in-Class Optimize the Front Complex Data; July 2011 Line to Grow the Bottom Line; Predictive Analytics – Driving Sales with December 2011 Customer Insights; September 2010 Author: Trip Kucera, Senior Research Analyst, Marketing Effectiveness and Strategy, (trip.kucera@aberdeen.com), David White, Senior Research Analyst, Business Intelligence (david.white@aberdeen.com) For more than tw o decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Hav ing benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations w ith the facts that matter — the facts that enable companies to get ahead and driv e results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliv er innovative multichannel marketing programs that drive business-changing results. For additional information, v isit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://w ww.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies prov ide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherw ise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior w ritten consent by Aberdeen Group, Inc. (2012a) © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 15. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 14 Featured Underwriters This research report was made possible, in part, with the financial support of our underwriters. These individuals and organizations share Aberdeen’s vision of bringing fact based research to corporations worldwide at little or no cost. Underwriters have no editorial or research rights, and the facts and analysis of this report remain an exclusive production and product of Aberdeen Group. Solution providers recognized as underwriters were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge. IBM SPSS Predictive Analytics software helps organizations predict future events and proactively act upon that insight to drive better business outcomes. Commercial, government and academic customers worldwide rely on IBM SPSS technology as a competitive advantage in attracting, retaining and growing customers, while reducing fraud and mitigating risk. By incorporating IBM SPSS software into their daily operations, organizations become predictive enterprises – able to direct and automate decisions to meet business goals and achieve measurable competitive advantage. For additional information on IBM: IBM Predictive Analytics SPSS 233 S. Wacker Drive, 11th Floor Chicago, Illinois 60606 Telephone: 800.543.2185 www.ibm.com/spss sales@ibm.com © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 16. Divide & Conquer: Using Predictive Analytics to Segment, Target & Optimize Marketing Page 15 Quiterian helps leading companies to be more effective and competitive through Visual Data Mining software that complements traditional BI, and analyzes large volumes of raw data from multiple sources at record-breaking speed. Quiterian Analytics software adds the power of advanced and predictive analytics to the natural intuitiveness of the human mind, and gives decision-makers instant access to valuable business insights for making faster and better decisions. The ongoing international expansion through the Business Partner Network has allowed Quiterian to provide solutions in all areas especially in Marketing and Customer Analytics, to public institutions and leading companies of different sectors around the world. For additional information on Quiterian: Address 1: Quiterian 2655 Le Jeune Road, Suite 810 Coral Gables, FL 33134 USA Telephone 1: 323.287.5520 Telephone 2: 305.442.4890 Address 2: Quiterian Frederic Mompou 5 Edifico Euro 3 08960, Barcelona Spain Telephone: 93.371.44.70 www.quiterian.com info@quiterian.com © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897