Customer Profiling – Where to start and how far to go

In a perfect world every retailer would know every last detail about their customers; their names, the date of their last purchase, their total life time spend, even down to what they had for breakfast each morning. In reality though bricks and mortar retailers traditionally knew very little about their customers and tended to focus more on the likes of branding, merchandising, advertising and promotions.  It’s only in the last few years that they have begun to think about customer profiling due to the threat posed by the rise of the on-line retailer.

These traditional retailers could never hope to compete with e-commerce stores when it came to their low fixed costs or their customer reach but they are starting to fight back on the third big advantage that on-line always maintained over their high street competitors – Customer Profiling.

When most retailers think about customer profiling it tends to generate images of big data and massive server farms which house customer data for the likes of Google and Facebook. This fear of big data and what is involved in harnessing it is exactly how companies purporting to help them comprehend big data can commit such highway robbery when it comes to charging them for their expertise. The truth is though that the Pareto Principle (better known as the 80/20 rule) very much applies to customer profiling and the need for exorbitantly paid consultants is really only ever necessary when you are looking to go to the nth degree of data driven marketing. As much as 80% of the actionable insights can be easily gained from about 20% of the right customer data and 80% of the insight is a great place to be for the vast majority of retailers.

What is Customer Profiling?

Traditionally customer profiling is utilised for two distinct goals:

1. To understand who your potential customers are so that you can market to them where they live, work, play and surf the internet; as well as to understand how to talk their language in order to appeal to them and create a need for your product or service. It is in this area that large marketing and advertising agencies tend to focus on in order to create ads and campaigns for their customers that appeal to the correct demographics, in the correct language, on the correct platforms and channels at the correct time.
2. To understand buying patterns and purchase history to allow you to treat each customer differently in terms of how often you should market to them and with what offers at what time. It is in this area that data driven marketing technology companies like ZinMobi tend to focus on for their customers in order to drive value and profits from the existing customer transaction data.

The lifeblood of customer profiling is of course data. Roughly speaking customer profiling data can be broken up into three distinct groups:

Purchase Data – Last transaction date, last transaction amount, total transactions, lifetime value etc

Demographic Data – Age, Gender, Ethnicity, Personal Interests etc

Product Data – Which products, services, upgrades or combination of each has a customer bought.

Where Should We Start?

Each customer data point can unlock different insights and allow you to market in an ever more targeted and effective way. In our opinion however the single most important piece of customer profiling data that a retailer should be tracking is each customer’s ‘Last Transaction Date’. With this single data point you can plot the Recency (time elapsed since last purchase) of every customer as well as plotting a Recency Graph of your entire customer base in order to understand the health of your business. The more recently each of your customers have bought from you the more likely they are to purchase from you again, and healthy businesses will have Recency Graphs where the majority of their customers have low Recency values.

If the only thing you are tracking and recording is each customer’s Last Transaction Date, then that along with some sort of contact details for them (mobile number, email etc) can give you massive power in terms of how and when you market to them. This is especially true when you consider the fact that with Last Transaction Date you can then begin to infer transactions in order to track Total Life Time Purchases and Day of the Week Most Likely to Purchase which is crucial for understanding and prompting impulse buys.

Lao Tzu said “The journey of a thousand miles starts with a single step” and we believe that the first step on the customer profiling journey should be with Last Transaction Date and Mobile Number.

How Far Should We Go?

The real question here should be where do we start, or where do we progress to next, as opposed to how far should we go? The laws of diminishing returns and the 80/20 rule will always govern how much further you should go. Every step along the journey will bring benefits to your business and it should always be a step by step process where you measure, learn and then optimise before making or even deciding upon the next step.

If you are a retailer just starting out, then acquiring contact details for your customers and tracking their last transaction date is a great start that will generate many profit driving insights. If you are a retailer already at that stage then moving onto layering demographic data and product information on top of that will allow you to do RFM analysis that will quantum leap your customer profiling efforts. For retailers at the very advanced stages of customer profiling there is always a next step that will drive further and further profits… how far you decide to bring your organisation is completely up to you, but rest assured that every step you take will be a highly profitable one.

Ready to learn more?

Join us on November 5th 2014 for a free webinar on how to put this into practice. The webinar builds on the information given here to give you a practical view of how to implement the insights gathered into your marketing and sales efforts. Register here today!