Consumer Dynamics Case Study

Charles Laffiteau

Equitec

MissionEquitec is a business solutions provider dedicated to optimizing client growth and productivity on the basis of consumer data by working towards a "do more with less" solution. Equitec sets a mission to:• Improve market share value with a shrinking consumer

population• Boost operational effectiveness while cutting overhead

expenses • Bring the greatest value to consumers and businesses at the

lowest possible cost and• Reach out to customers with an unprecedented number of

purchasing options.

ObjectivesEquitec's production-based solutions are a result of the multidimensional data obtained from Consumer Dynamics, the company's proprietary information platform. By incorporating the consumer decision process (CDP) model with the Consumer Dynamics platform, similar variables can be recognized and analyzed to provide solutions for firms to improve:• Targeted promotions• Store locations• Store inventories and supply chain management and• Return on marketing investmentIn addition to helping marketers achieve their goals, Equitec must also determine the retailers or organizations that would be the best target clients for the company.

Situation Analysis

• Nature of Consumer Demand– Who are Equitec’s Consumer Dynamics customers, what are their

customer (buyer) behavior data needs, when do they decide to purchase data analysis software and where would they install this software?

Equitec’s current customers include industry leading demand chains such as Home Depot, Proctor & Gamble, General Electric and Sabre Systems (for Travelocity.com and other travel related services)

Equitec’s existing and potential customers are marketing and retail organizations that use a wide variety of internal and external consumer behavior data to:

♦ Identify supply chain efficiencies ♦ Increase revenues and decrease operational costs ♦ Improve incremental sales, profits and return on investment (ROI) ♦ Target their marketing efforts at the household or business level

• Nature of Consumer Demand (continued) Equitec customers will consider purchasing Consumer Dynamics information

software when they have a desire to use a combination of their own internal point-of-sale (POS) data, other internal customer sales data and external consumer information in order to create specific marketing strategies to target the consumer segments that they believe are most profitable and or responsive to their strategies

Equitec installs the SAS advanced analytics software in its Consumer Dynamics proprietary information platform at customer locations or in those information intensive areas of their clients business operations where clients determine they want to integrate their existing processes and systems for collecting and compiling their internal customer’s consumer behavior data with the external consumer data Equitec has collected through its other partnerships with multiple data contributors

This is a consumer behavior data processing and analysis technique which is often referred to as Data Mining

Situation Analysis

• Nature of Consumer Demand (continued) Consumer Dynamics Database vs. Consumer Decision Process Model [CDP] -In Market and Behaviors = Purchase -Propensities = Pre-Purchase Evaluation -Attitude = Search for Information -Lifestyle, Clustering/Segmentation, Demographics = Need Recognition

CDP

Need Recognition

Search for Information

Pre-Purchase Evaluation of Alternatives

Purchase

Post Consumption Evaluation

Consumption

Divestment

Situation Analysis

• Nature of Consumer Demand (continued) − Why do marketing organizations and retailers need to purchase and implement

the Consumer Dynamics information platform and how will using it benefit them? Equitec’s multiple data contributors provide Equitec with the ability to identify

approximately 160 variables of multiple characteristics of consumers for most of the nation’s households based on a consumer’s phone number, street or e-mail address

Equitec customers can use the pyramid of links and relationships between their own point-of-sale and other consumer behavior data and the consumer data from Equitec’s other data contributors (that are correlated and developed using the Consumer Dynamics information platform pyramid shown on the previous slide), to quantify consumer demand, locate that demand and to identify:

♦ potential new market locations and prospect opportunities ♦ merchandising trends by local markets ♦ actionable market segments as well as optimal marketing and advertising

channels Instead of directing promotions to all consumers on a general mailing list, companies

benefit by both targeting promotions in a more cost effective manner to smaller groups of more likely consumers (based on variables developed by using Consumer Dynamics database and analytical techniques) and by simultaneously increasing the consumer response rates to these more targeted promotions by as much as 500%

Situation Analysis

• Extent of Demand Target organizations that view data as a strategic competitive advantage and as an integral

part of their business decision making process-Fortune 1000 companies such as healthcare, insurance, credit cards, financial services, consumer packaged goods (CPG), automotive, media, utilities, and manufacturing

Growth Opportunities and Drivers-Integrated digital marketing solutions for marketing campaign management across multimedia channels: personalized emails, targeted websites, banner ads, search engines-Help clients better understand their customers and prospects with analytical tools, household segmentation, customer acquisition, customer growth and retention, multi-channel integration, respond to shifts, demographics and life style changes-Consumer empowerment by helping customers choose and set preferences to refuse or opt out to obtain salient information and targeted personalized marketing-Consumer preference in channel include research online; purchase in store

Internet-Ideal one to one marketing channel; Delivery of customized message to a defined audience and measurement of response to specific message; Make immediate changes based on behavior and response to message; Much more cost effective than traditional media

Situation Analysis

• Nature of Competition– Compete against data content providers, database marketing service providers, analytical data

application vendors, Enterprise Software Providers (ESP), list brokerage/list management firms, data warehousing and database services, mailing list processors

– In-house information technology departments, geographical niche or National/International companies that act as single source providers including Acxiom, Harte-Hanks, and infoGroup

– Data Sector: consist of two types: Data Providers and List Providers-technical expertise/innovation– Equitec’s Competitive Strength and Value Proposition: Uniquely positioned to deliver high value Transforming data to information to business critical Insight and Intelligence

-The right data at the right time to enhance customers marketing and business decisions CRM-Single view of customer that drives one-to-one marketing

-synergizing disparate databases across customers business and makes possible personalized real-time CRM at every customer touch point to analyze, identify, acquire and retain customers which improves the speed marketing campaigns are introduced to quickly seize market opportunities

Data Integration, Data Management, Data Delivery-Leverage proprietary knowledge of industry to transform and integrate massive amounts of data into rich customer defined information

Situation Analysis

• Environmental Climate (P.E.S.T-Political, Economical, Social, Technological) Changes to legislation/regulation of consumer privacy or data collection

-Non U.S. locations already restricts collection and use of personal data-Consumer privacy issues could result in the restriction of collection, management, aggregation, and use which could result in increased costs-In U.S., non-sensitive data is usable as long as individual does not ‘opt out’ of collection. This is the opposite in Europe. If the European model were adopted, this could lead to less data collection with increased costs-Could be prohibited from collecting certain types of data and therefore not meet the clients expectations or requirements

Rapidly changing technologies requires capital investment to stay ahead of the curve-Longer sales cycles due to enterprise wide solutions-Need to protect proprietary information and confidentiality while providing safeguards to customer privacy

Data suppliers limit or withdraw access-Data is compiled from third parties by license and public records so should they not allow access, there is no business whether due to competition or legislation

Rising postal costs and/or green initiatives-Customers regular mail costs increasing with inflation on an annual basis so leverage digital communication and mail fewer direct marketing pieces

Situation Analysis

• Narrower identification of base of clients and prospects• Results will be more effective targeting and lower marketing

costs• More accurate representation of 20% of customers who are

80% of your sales• Pros: Will allow you to strengthen your knowledge of most

important customers, while being able to more effectively serve their needs. Lower costs can lead to increased margins and more focused growth.

• Cons: Might overlook promising growth segments. Sometimes can lead to an over dependence on a few major customers.

Evaluation of Alternatives: Targeted Promotions

• Develop true customer loyalty program– Loyalty discounts or special offers based on interest, lifestyles,

attitudes, spending habits, etc.

• Interpolate data on existing customers to develop more focused marketing campaigns to attract new customers.

• Pro: Can be accomplished with customer sales and loyalty program information

• Con: Can be copied by competitor

Targeted Promotions (cont’d)

• Capture the synergies between demographic data and enhanced consumer dynamics to determine geographic placement – On the macro level

• Identify populations of target shoppers using demographic data• Use sales information of similar population segment to determine store stock

– On the micro level• Able to pick locations in traffic patterns of target customers

Store Locations

• Identify, through customer’s tastes, what items should be stocked and work to predict the success of new products based on previous purchase histories

• Combine demographic and attitudinal data to customize store stocks to meet needs of customers in specific geographic or metropolitan areas

• Affect the flow of products through the supply chain by using attitudinal information to adjust time demand and avoid both stock-outs and overstocks

• Pro: Expensive to combine this information• Con: Attitudes and tastes can change quickly so it

could be difficult to anticipate certain changes

Inventories & Supply Chain

• Create a combination solution of targeted promotions and supply chain systems

• This is a case of minimizing volatility and taking the guess work out of knowing your customers; minimizing risks. Building on their software and constantly developing new and better tools will greatly assists them in not only lowering costs, but increasing the value of their service. – Customer information such as tastes, habits, attitudes, etc. can be

combined with demographic and sales data to better determine consumer preferences.

– Customer attitudinal data can be used to create baseline stock levels which can be further customized based on geographic location thus reducing or eliminating overstocks of slow moving items.

– Supply chain systems will ensure timely deliveries and prevent stock-outs.– Constant evaluation of attitudinal data can be used to anticipate changes in

styles and consumer attitudes that affect merchandise.

Proposed Solution

Recommendation• Equitiec should narrow their client base and prospects.

– This recommendation is based on the 80/20 rule which suggests that 80% of your business (or profits) usually comes from 20% of your customers.

– By focusing on addressing the needs of a smaller but more sophisticated client base, Equitec will benefit by solidifying the most significant and profitable portion (or base) of its business.

– Narrowing its base of target customers will also permit Equitec to lower costs and focus its growth. – Focused growth involving its biggest customers will eventually allow for a trickle down effect linked

to the more sophisticated software capabilities Equitec has developed for larger companies being re-marketed to Equitec’s smaller (in terms of current and potential revenues) customers.

• Interpolate consumer behavior data from all existing Equitec customers.• Use this data to develop look alike models which can be used to target similar customers.• Equitec, as a privately held company, should partner or merge with a publicly traded company that has

aggregate data on the majority of American consumers such as Acxiom, a leading national provider of direct marketing and Customer Relationship Management (CRM) software.

– This would allow Equitec to realize economies of scale and enable this niche player to expand its customer base by leveraging the synergies with and superior resources of Acxiom, which has the largest collection of consumer mailing lists in the U.S. (This proposed merger happened in 2003).

Implementation: Equitec must provide on a macro level, an equivalent database analysis characterizing its potential clients in a manner similar to the services it provides to its customers

Four key roadblocks to developing a more robust consumer profile:

• Inability to efficiently process and analyze large amounts of customer data

• Lack of a integrated data system• Lack of access to data on non-customers which

could provide predictive capabilities when integrated with the existing sales profiles

• Inability to imagine the possibilities of targeted marketing because current thinking is constrained by prior experience

Plan Of Action

• Develop an understanding of which retailers and marketing organizations can benefit from its Consumer Dynamics software capabilities

• Target services to specific retailers and organizations that can benefit by utilizing the same POS and sales analysis techniques it offers to its current clients

• Leverage the existing sales data and company demographics to demonstrate to potential ‘look-alike’ customers the ROI for investing in a Consumer Dynamics analysis and characterization of the target market for that firm

Plan Of Action

Feasibility Analysis: Determine the growth potential available for the Consumer Dynamics market and the availability of essential data

Revenue Analysis: Combine current sales data with revenue estimates from external data sources to determine potential new revenues

Resource Optimization: Utilize these revenue predictions and other analytical data to create a plan for marketing Consumer Dynamics to specific customer segments

Steps to Leverage Data Driven Insights into Customers

Plan Of Action

• Acxiom 2007 Annual Report. Acxiom, 2007. 29 Oct. 2008 <http://www.acxiom.com/114240/Acxiom_2007_Annual_Report_FINAL.pdf>.

• Acxiom 2008 Annual Report. Acxiom, 2008. 29 Oct. 2008 <http://www.acxiom.com/167410/2008_Annual_Report.pdf>. • Blackwell, Roger. Consumer Behavior. 10th. Canada: Thomson Southwestern, 2006.• Gurley, Richard Maltsbarger,Spencer Lin,Steve Ballou. "IBM Institute for Business Value Study." IBM 18 05 2004 22 Oct 2008

<http://www-935.ibm.com/services/us/index.wss/ibvstudy/imc/a1002477?cntxt=a1005266>.• Henry, Mike. “Opening the Gateway to Growth: Combining Customer, Product and Market Data to Accurately Predict

Revenue Potential.” Acxiom.com. 2007 Acxiom Corporation. 24 October 2008 < http://www.acxiom.com/170574/Opening_the_Gateway_to_Growth.pdf >.

• Henry, Mike. “Intelligent Retail Solutions: Making Smart Inventory” Acxiom.com. 2007 Acxiom Corporation. 24 October 2008 < http://www.acxiom.com/74860/RetailClothing_Retailer_Case_Study.pdf >.

• Moorman, Christine. “Market-Level Effects of Information: Competitive Response and Consumer Dynamics.” Journal of Marketing Research (JMR) 35.1 February. 1998: 82:98. Business Source Complete. EBSCO, McDermott Library University of Texas at Dallas, Richardson, TX. 24 October 2008 http://search.ebsohost.com.

• Salmon, Rob, and Barry Leeson-Earle. “The customer is dead. Long live the prospect?” Data Strategy 3.8 September 2007: 6-7. Business Source Complete. EBSCO. McDermott Library University of Texas at Dallas, Richardson, TX 24 October 2008 < http://search.ebscohost.com >.

• SAS Institute Inc. "SAS Business Intelligence Software." (2008) 20 Oct 2008 <http://www.sas.com/>.

References