Customer Targeting

Describing the Environment for Promotions

• As an overview, the environment for promotions can contain:

  • Consumers: People consuming a good (e.g. end customer)
  • Retailers: People selling to consumers (e.g. Kroger)
  • Wholesalers: People selling to retailers (e.g. General Mills)
  • Manufacturers: People selling to wholesalers or retailers (e.g. General Mills or farmers)

• A retailer owns marketing channels

  • Promotions are communicated to consumers via marketing channels
  • Promotions can also be communicated via marketing channels of wholesalers and manufacturers too

Defining the Benefits of Promotions

• Promotions stimulate return shopping trips
• Promotions increase basket size
• Promotions improve loyalty to the retailer

Introducing Customer Targeting

• The goal of promotions is to provide incentives to consumers
• By doing this, promotions will improve sales and build better relationships

• As a reminder, promotions have the following major problems:

  • Customer targeting
  • Product discovery
• For now, we'll just focus on customer targeting

• Customer targeting must answer these problems:

  • Who are the right recipients for a promotion?
  • What are the right promotional properties?
  • What is the optimal time to offer it?
  • What is the right delivery channel?
• The best method for customer targeting is targeted campaigns

Motivating the Use of Targeted Campaigns

• The best method for customer targeting is targeted campaigns

• A targeted campaign involves the following steps:

  • Plan something
  • Execute that something
  • Measure that something

Defining Business Objectives for Promotions

• Business objectives of promotions should focus on maximizing ROI

• Each campaign should have a positive ROI

  • ROI is defined as the difference between gains and costs

• The ROI should be:

  • Predicted before campaign execution
  • Measured after the campaign is fully or partially executed

Defining the Gains and Costs of Promotions

• The costs of a campaign include:

  • Distribution costs

    • Coupon design and printing costs
    • Marketing agency fees
  • Coupon-redemption costs
  • Clearing-house costs
• The gains of a campaign include sales

How to Maximize the ROI of Campaigns

• Targeted campaigns have the following purposes:

  • Testing something
  • Measuring something

• As a result, targeted campaigns act as:

  • A lesson teaching us if something is effective
  • A tool for acquiring, maximizing, and retaining customers
• In order to maximize ROI of campaigns, we must focus on each of the three phases of the customer lifecycle

• Meaning, each campaign should analyze each phase of the customer lifecycle:

  • Customer acquisition
  • Customer maximization
  • Customer retention

Defining the Goals of Customer Lifecycle

• Customer acquisition focuses on the customers never interacted with the brand
• Customer maximization focuses on the customers who interact with the brand
• Customer churn focuses on the customers who stop interacting with the brand
• The goal of customer acquisition is to increase new customers
• The goal of customer maximization is to increase the number of products purchased by existing customers
• The goal of customer retention is to increase the number of potentially lost customers
• Increasing each of these three phases will maximize the ROI of a campaign

Illustrating the Customer Lifecycle Model

• The goal of a customer lifecycle model is to model the sales customer's gain at each phase of the customer lifecycle

• To do to this, the lifecycle model contains two components:

  • Predicting customer propensity
  • Predicting customer sales gain
• Here, customer propensity refers to the customer's chance of gaining
• Here, customer sales gain refers to the sales generated by the customer

• In other words, we must:

  • First, predict a customer's sales gain
  • Then, predict the customer's propensity
• We should target high-propensity customers with large sales gains
• Meaning, we'd like to find the customers we're certain will generate the highest expected sales

Defining a Framework for Customer Lifecycle

• A campaign model must predict the customer's sales gain by comparing:

  • The expected sales gain without a campaign
  • The expected sales gain with a campaign
• These must predict customer propensity and customer sales gain

References

• Textbook about Algorithmic Marketing