At Quaero, we run into a number of clients who have large marketing budgets and staff but don’t have a commensurate strength in marketing analytics. When I dig deeper, I often find out that analytics has historically not been proven to be a significant driver of performance, value or differentiation. In these companies, analytics is often an outsourced activity, performed by contractors who are asked to deliver on specific end products, such as a predictive model for a particular campaign or a marketing mix allocation model. The organizations don’t view it as strategic but, rather, as something to be plugged in when needed.
This approach, unfortunately, leaves a great deal of value unrealized. Analytics, performed by the right people in the right place—i.e. smart business-minded marketers who have the ear of senior management, who can act on the insights—can be a very powerful driver of differentiation toward customers, allowing companies to price more appropriately and realize greater profits.
The real numbers
Here is an example. Recently, one of the largest Latin American hotel chains asked us to help the company revive its somewhat moribund frequent guest loyalty program. Executives told us the company had a million members in the program and wanted us to help them figure out a way to grow that member base, as well as to increase the loyalty and business with the existing base, through an aggressive, segmented marketing program targeted at this membership.
As a first step, we analyzed the existing member base to fully understand underlying segments. It turned out, the million members were not really a million members. Fully a third of the member base had never set foot in one our clients’ hotels; they got their points through a credit card affinity program. Of the other two-thirds, less than half had visited the company’s hotels over the past three years, so no definition of loyalty could be stretched to include them as loyal customers.
We were now left with a third of the original members, of whom less than half were reasonably frequent travelers who could be persuaded (at reasonable cost) to become more loyal and yield profitable additional business. Of this sixth, there were about a quarter (if you have been doing your math, we are now down to roughly 40,000 customers) that were truly valuable, stayed often enough, not only spent money on business trips but also visited on weekends and spent money on the hotel restaurants and bars. Of these, a few also spent money hosting meetings and other events; those were hugely profitable for the company.
Our advice to the company was to focus their loyalty and retention efforts and resources on these core 40,000 customers, while trying to build some additional loyalty among the other frequent travelers who were not already loyal customers. We also recommended that they modify the program and consider dropping the two-thirds of the nominal members whose profile and behaviors did not show any prospect of being in any way profitable to the company.
This was a pretty drastic response to the original request from the company, which was to help expand the program and deepen loyalty. As it turned out, we helped the company focus its efforts on the 4 percent of the customer base that was hugely profitable and needed tender, loving care as well as on the one-third who were real customers showing promise.
Sometimes less is better. The money the company had for its programs went a much longer way when focused on these audiences instead of being spread thin over the entire million-member base, most of whom had little familiarity and even less interest in the company’s products, offerings and messages.
The ROI on the marketing programs was extremely high. The company was actually able to spend significantly less money than had been budgeted but show results that exceeded expectations. A simple segmentation analysis highlighted a significant saving and profit opportunity in this case. There were a few people in the company who were disappointed that the myth of the million-member loyalty program was destroyed. These were folks who were taking credit for the size of the database rather than the value it generated. However, most of the management saw the value in this exercise and supported the redesign of the program.
Money saved, money earned. Chalk one up for marketing analytics.