Target your Message, Widen your Profits

Use uplift modeling to predict the difference a marketer's actions will make to customers' behavior.

Over the past year businesses across most market sectors have grappled with the challenges of reduced revenue and increased budget cuts.These financial roadblocks have impacted marketing departments in terms of reduced headcount and resources. A survey conducted by the Association of National Advertisers (ANA) in July and August 2009 found that 62 percent of marketing respondents had experienced budget cuts since the beginning of the year, and 32 percent had maintained flat budgets. In the midst of such dire economic conditions, marketers need to be conscious of their campaign spend and find ways to improve the results it yields them in return.

By integrating customer analytics into their campaigns, marketers can reduce money wasted while simultaneously increasing campaign ROI. Blanket, untargeted marketing campaigns can be costly and ineffective, and in some cases they can even be detrimental to sales. The latest generation of customer intelligence approaches can, however, help marketing departments overcome these challenges, and avoid the costly mistakes of targeting the wrong customers. A relatively new technique called uplift modeling is an analytic approach to marketing that predicts the difference a marketer's actions will make to the behavior of customers as opposed to predicting customer actions that would have happened with or without the marketing treatment.

Segmenting your Audience

Uplift modeling segments customers based on their predicted responses to a marketing campaign when compared to a control group. With uplift, your audience is divided into four segments: Sure Things, Lost Causes, Persuadables, and Sleeping Dogs. Insights like these allow marketers to focus efforts only on the Persuadables, those who are likely to respond to marketing by buying (or renewing), but wouldn't have if you hadn't contacted them. Similarly, uplift modeling prevents businesses from wasting time and money targeting customers who are already a Sure Thing and will buy regardless, as well as those who are a Lost Cause and will never buy in response to the current campaign. This approach also helps marketers avoid the Sleeping Dogs - those customers who don't want to be disturbed and are likely to react negatively to marketing. Using this next level of customer response segmentation helps reduce a company's cost of fulfillment, as it prevents marketers from giving away special offers or incentives to customers who were going to buy or renew anyway.

Increasing your Results

The insights uplift modeling provides dramatically increase campaign profitability by allowing businesses to target fewer people and still produce a higher response rate. US Bank, for example, was able to reduce its program costs by 40 percent by integrating uplift modeling into its marketing campaigns - a significant savings for any company looking to decrease spending without negatively impacting results. A Fortune 50 retail electronics company uses uplift modeling to increase the incremental revenue delivered by monthly catalog mailings compared to existing response and value-based targeting. Through this process, the company is able to increase its revenue by $2.5M per month with a reduced volume of better targeted mailings. Uplift modeling helps organizations maximize the impact of their marketing campaigns by providing them with a clear understanding of which customers will react most positively to their outreach.

When it comes to reducing marketing costs, ensuring that your campaign is relevant is an overarching theme. Blanket, untargeted marketing campaigns can be extremely costly and will fail to produce impressive results. Incorporating intelligent analytics into your marketing strategy ensures the right message or offer is targeted to the right person, which helps to ensure higher campaign ROI and lower customer churn. Predictive analytics deliver valuable insight for streamlining marketing campaigns and reducing overall costs, a welcome tool in any economic climate, but especially critical when budgets are slim.

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About the Author: Mark Smith is executive vice president of sales and marketing at Portrait Software.