Data mining unearths CRM resources

Marianne Nosal

IQ2.net

Acable TV sales representative, a telecommunications sales representative and a utility sales representative all arrive at a customer`s door. The customer says, “I`ve really only got time to meet with one of you. What you can do for me?”

“I can give you access to an ever-changing world of entertainment, sports, and information,” says the cable rep.

“I can connect you with friends and relatives around the world and bring customers to your door,” says the phone rep.

“I can read your meter,” says the utility rep. With whom does the customer meet?

Certainly not the utility rep. Differentiation requires both money and time to build brand and educate prospects. In a regulated marketplace, neither have been good investments. Now, utilities have joined cable operators and telecom providers in the race to transform their relationship with customers from that of provider to that of partner.

Ratepayer loyalty is built on compliance, delivering a single product, whose profitability is regulated by the state, and whose delivery is meter focused. Customer loyalty, conversely, is built on choice, with multiple products targeting the right segments, marketed competitively, and customer focused. Making this transition effectively is the key to owning the customer relationship.

As deregulation eliminates protected service areas and decreases margins, utilities seeking growth must develop value-added products and services for specific customer segments. They are bundling new products-or whole new categories of products-in efforts to keep customers and acquire new ones.

So how does an electric utility company compete and win in this environment of new competitors, new alliances, new customers and new services? By using their wealth of proprietary customer data as a strategic marketing tool, and not just for sending bills.

Leveraging data

Savvy utilities recognize the keys to long-term growth and prosperity are in acquiring and retaining high-margin, loyal customers by effectively leveraging their access to and managing their relationships with those customers by:

– improving the value of their products and services;

– exploring new ways to showcase their products and services and reach consumers; and

– expanding their portfolio with complementary, targeted product and service offerings.

In the consumer marketplace, this process begins with identifying and acquiring the right prospect in a highly efficient and effective manner. At the heart of successful competition lies the ability to identify the best customers and prospects, to market intelligently with targeted messages, to cost-effectively implement marketing campaigns, and to measure effectiveness and apply insight from current campaigns to improve future efforts.

Success is measured by transitioning a likely prospect into a satisfied customer, and then using each subsequent interaction with that customer as an opportunity to maximize the relationship across all business segments. This includes offering new products and value-added services that meet customer needs. For many utilities, this can mean selling non-energy services, including home security systems, long distance, cable and Internet access.

Most utilities understand the importance of direct marketing as a vehicle to communicate these new offers and the importance of putting together retention programs for their existing customer base and to capture new customers.

Offering new products is only half of the solution, however, because they must be offered to the right customers at the right time. The most competitive companies are increasing response, gaining customer loyalty and maximizing revenue by creating products and promotions geared to individual customers. Advanced database marketing techniques have come of age thanks to customer-level target marketing. By using techniques such as data warehousing, predictive modeling and customer profiling, utilities can improve sales and control marketing expenses.

An effective marketing database provides the foundation for these efforts. Ratepayer transactions provide a strong foundation but do not tell the whole story. Adding key demographics, lifestyle, and technology consumption data, as well as predictive purchasing indicators for both energy and potential new products and services, provides utility marketers with the best information about their customers and prospects to most efficiently select and target offerings.

How does a utility begin transforming its rate base into a loyal customer constituency? By transforming customer information into a strategic marketing tool. The utility begins by defining existing customer information, evaluating the market, developing a retention strategy and reviewing organizational and structural considerations. This can be defined in five steps.

Inventory all internal data: The first step evaluates all information about customers and prospects from internal data sources to determine the full extent of each customer`s interaction with the utility. All possible data sources within a company, including customer service records, billing history, meter/energy consumption, survey data, and geographic mapping should be examined and consolidated to create a comprehensive view of a customer`s behavior.

In addition to helping determine the amount and nature of external data to acquire, this is the first step in the process of ascribing a value to a customer household and determining profitability.

Enhance with third-party data: By enhancing the accuracy of their customer and prospect data, utilities can pinpoint prospects and dramatically lower marketing costs.

Data hygiene is the foundation for all data enhancement and analysis. This includes eliminating duplicate data and researching non-matches and anomalies to provide better understanding of both information content and integrity. Suppression files can be created to eliminate undesirable customers, such as those with bad debt, from specific marketing efforts.

Compiled consumer and business databases can provide demographic information, such as age, income, length of residence, household composition and mail responsiveness. Lifestyle information can include leisure activities and interests, reading preferences and life stage events. Technology consumption data, such as online access, computer hardware and software purchases, and domestic and international phone usage can be particularly helpful in determining potential new products and partnerships.

Using in-house call center resources to further qualify records and survey customers ensures information accuracy and usefulness before applying expensive marketing resources. Also, data gathered during routine customer communications offers the possibility for further insight into customers, not just sales opportunities.

Develop profiles: Third, following data hygiene, a comprehensive profile illustrates the composition of a utility`s customers. This insight helps defines new opportunities for increasing revenue and market share.

This step can also provide extraordinary insight into the content and quality of a utility`s internal customer databases. Data integrity issues will surface, alerting them to future data processing requirements. Strengths and weaknesses in data content will be discovered, showing where external data can provide the most benefit. Additionally, profiling contributes to more effective future list, media and product offering decisions.

Identify segments: Analyzing a utility`s customer profile by value and needs will help develop relevant marketing segments to understand their customer base and identify those customers best suited towards a particular marketing approach. Data mining can then be used to discover patterns valuable to future marketing efforts. The segmentation process will uncover new opportunities, help new product development and reveal the lifetime profitability of the customer relationship.

Utilities must first distinguish between customers who are profitable and those who are not. In addition to consumption volume and rate plans, activity-based cost accounting and load profiling (to gauge peak and off peak usage) can be used to determine the cost to serve each segment. In addition to current profitability, the utility also must consider potential value, such as income that might be gained through future products and services.

Once value segments are identified, the key is to further segment those customers according to wants and needs. Are they most interested in service reliability or is price their biggest concern? Do they expect rewards for their loyalty? Is one-stop shopping-for energy, telecommunications and entertainment-the answer? Significant demographic, technology consumption and lifestyle segments will emerge, influencing the utility`s decisions regarding marketing partners, channels, and offers.

In a competitive market, customer churn is also an important consideration. If customers can switch, many will. Therefore, it is imperative that utilities market only to those customers who are least likely to churn.

To understand churn, utilities should conduct customer research, by survey or test offers, to approximate how customers will behave when faced with options. Customers are asked to choose between differing price discounts, service attributes and current and potential brands. These results can be used to develop models for customer churn risk to score and prioritize customer and prospect records. Several database companies offer churn models for other industries that might be adapted to provide a broad stroke.

Predictive modeling using customer and third party data increases targeting effectiveness. By using targeted, customized direct mail rather than mass media, utilities can cut their cost per sale and increase their sales.

Implement the payoff-CRM: These steps form the basis for developing a marketing information solution platform to optimize customer relationship management (CRM). Many organizations have been afraid to take these steps, seeing this as an unattainable goal-too much work and too much money for an uncertain outcome.

But each step builds on the other, and has immediate payoff and financial benefit. Developing CRM is a step-by-step process where each competency builds on the foundation of the last. Companies that tackle advanced CRM processes without solidifying their basic foundation risk failure of their CRM effort. CRM is a fundamental business strategy to deliver services and products consistently across an entire relationship rather than just within a particular product or business. It positions the business in a manner that views the customer as the center of that business. Using resources utilities already have-their customer file-in strategic ways is the first step. n

Marianne Nosal is sales director with IQ2.net in New York City, which provides data, technology and analysis services to assist companies` marketing efforts.

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