The Numbers Don’t Lie: Competing on Analytics

Excerpted from Knowledge@Emory, “The Value and Benefits of Competing on Analytics”, November 13, 2008

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A lot of companies collect data. But it’s the ability to analyze and strategically act on that data that matters, notes Thomas Davenport, the author of the best-seller Competing on Analytics: The Science of Winning.. Most companies use data in a supporting role—not as the strategic weapon it can be.

At a time when competing companies offer similar products and have access to the same technologies analytical customer-facing processes are some of the only areas where businesses can differentiate themselves. “Analytical competitors” mine their data for every sliver of information it offers and then utilize that information in strategic ways. Firms like Harrah’s, Marriott  and Google that use analytical tools in a strategic manner are raising the bar in their industries when it comes to things like customer service, supply chain management and marketing.

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Companies are taking their metrics—marketing metrics, sales metrics and service metrics—and using them, among other things, to segment, cross-sell, forecast, target and study drivers of satisfaction. Rather than looking at what happened, companies are able to predict more precisely what will happen and to better understand how and why it happened. Decisions are based on facts, not hunches or incomplete information.

Historically there’s been as much “art” in advertising and marketing as there has been “science.” Davenport argues that science is more likely to be correct than “art,” and adds that science enables a company to experiment on a small scale before committing a slew of resources to a huge marketing campaign or program.

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Example: Harrah’s

In order to attract and retain customers, Harrah’s uses analytical tools not only to identify profitable customers, but to pinpoint its customers most likely to be wooed by competitors. Through well-designed marketing campaigns—created around information the analytical tools delivered—Harrah’s marketing methods can be strategically aimed at keeping those customers.

Analytical tools allowed the entertainment company to create a well-defined profile of its best customer, developing a beefed-up customer relationship management system anchored by a centralized data warehouse filled with pertinent information about how Harrah’s customers interact with the company. And given this information, Harrah’s marketing efforts are tailored to attract its different constituencies.

For instance, Harrah’s customers who live within driving distance of a casino receive different offers than those who do not. Frequent visitors to the casino in New Orleans are likely to receive different offers than frequent customers in Las Vegas or St. Louis. Harrah’s only targets customers likely to respond to such offers and it has more than 80 different segments for each marketing campaign.

One of the reasons Harrah’s has been so successful, notes Davenport, is because they focused on “one thing early” when it came to analytics. In Harrah’s case that “one thing” was customer loyalty. “In terms of marketing, companies need to think about target areas and about what they’re trying to accomplish,” adds Davenport. According to information available on Harrah’s website, nearly 50 percent of the company’s revenue is driven by marketing and the company’s analytical efforts have helped boost the company’s bottom line.

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In studying companies that use analytics successfully, Davenport crafted what he calls “The Ladder of Analytical Marketing Targets”—essentially a best practice guide. First up, build a centralized customer database so that the company can get a comprehensive idea about its customers. The company can then treat “different customers differently” and respond appropriately to a customer’s activity. Companies can keep track of who got what and better manage their marketing campaigns—to the point of personalizing them. Via predictive modeling, companies can answer with much more certainty what customers are likely to do next given what they’ve already done. As a result, companies can make real time, customized offers that make sense to their customers.

Edit by DAF

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Full article:
http://knowledge.emory.edu/article.cfm?articleid=1193#

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