The added value of good information
By Philip Delves Broughton
Published: March 7 2011 23:07 | Last updated: March 7 2011 23:07
Long before focus groups or marketing surveys or loyalty programmes, businesses knew their customers because they saw them face to face.
The corner shop owner knew who liked a particular brand of jam and kept it in stock for them. He knew when people tended to come in and kept his shop open to accommodate them.
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Stuart Aitken, the chief executive of Dunnhumby USA, a leading force in the growing field of data analytics, says he keeps this vision in mind as he uses the latest technology to provide companies with insights about their customers. “This is back to basics,” he says. “What we’re seeing is that businesses have driven out costs, they’ve got the scale in their operations, but they’ve forgotten who their customer is. What we do is allow businesses to reconnect with their customers, to become the corner store on a large scale.”
Data management might sound like a dry field, where statisticians and computer programmers haggle over terabytes and p-values. But as it becomes more sophisticated and yields ever richer portraits of customers and their behaviours, helped by social networking, it is increasingly becoming central to executive decision-making.
“Historically, companies used data for transactional purposes, to make sure they had an accurate customer record, or to calculate employees’ vacation balances,” says Tom Davenport, professor of information and technology at Babson College and author of Competing on Analytics: The New Science of Winning. “But once they had that down cold, they thought, ‘Gee, maybe we should analyse this to make better decisions.’ ”
The pioneers have reaped tremendous rewards. Sir Terry Leahy, former chief executive of Tesco, leaned so heavily on the customer portraits delivered by Dunnhumby that he ended up buying the company. Dunnhumby ploughed through the data yielded by Tesco’s Clubcard programme to build ever more detailed customer profiles, to the point where, according to Prof Davenport, it now has 12m unique profiles of its 15m customers. Its work is widely credited with helping Tesco open a wide lead over its UK supermarket rivals.
In the US, the lender Capital One built its business on rich consumer profiling through tracking buying habits and credit scoring. Universal banks like Citibank and Bank of America can use data on their customers’ spending patterns to make bets on equities, fixed income and currencies. There are risks, however, to exposing too much of this kind of activity. A few months ago, Prof Davenport says, it leaked out that American Express was lowering credit limits and raising rates for people who had moved to Florida and were paying divorce lawyers, on the grounds that they would soon be involved in a costly divorce. The negative publicity forced the company to drop the policy.
Confidentiality issues, and the enormous competitive advantage yielded by good data analytics, means that Dunnhumby restricts its work to one client per sector per geography. Its US operations are 50 per cent owned by Kroger, the supermarket chain, which hopes to replicate Tesco’s success.
Purely online retailers have the advantage of easily gathering the browsing and purchase history of every one of their customers. Amazon demonstrates the power of this with its recommendation features. Zappos, the retailer bought last year by Amazon, goes even further, suggesting products based not only on what you looked at last time, but how long you have been away and the time of year. They use a third-party recommendation engine – ChoiceStream, based in Cambridge, Massachusetts – to do the work.
New fronts in the battle for customer data are opening every day. Apple announced last week that through its iTunes, App Store and iBooks retail platforms, it has 200m customers with Apple ID accounts, linked to credit cards and one-click purchase access. And this is not the kind of data set Apple is going to give up easily. It is now battling publishers who sell content through Apple for control of customer information. Many publishing companies are weighing up the advantages of staying on the iPad platform with the cost of yielding so much control over their customer data. Competitors such as Google’s Android and Amazon’s Kindle see an opportunity here to dig into Apple’s lead in the tablet sector.
“When I hear the term data management, what resonates with me is the collection of data,” says Mr Aitken. “The growth in that field has been enormous. But where companies fall down is in leveraging all that data, and how strategically they change all the decisions made in an organisation based on that data.”
Treating customers more respectfully, so that they reward you with loyalty and thus higher profits, should be the primary purpose of all that data gathering. And yet often companies use data the wrong way. Mr Aitken gives the example of US cable and satellite providers who publicly pester new subscribers with tremendous incentives, in the process “slapping their loyal shoppers in the face”.
“The technology to do all this is easy and cheap,” says Prof Davenport. “The hard thing is getting people who are both good at analytics and at working closely with decision makers. Someone once called them PhDs with personality. It’s a pretty small intersection of people.”
Matt Keylock, senior vice-president for client solutions at Dunnhumby, says that amassing consistent data from the various fragmented systems and databases run by companies is just the first step. “The whole technical landscape can lead you down a path which makes it actually harder to be customer-centric,” he says, because acquiring ever more technology can distract you from the real goal, which is a proper view of your customer, right down to the one who comes in late, once a fortnight for that unusual jar of jam.
Copyright The Financial Times Limited 2011.