Rational Marketing

This is a continuation of Target Marketing Magazine’s article about customer segmentation.

Modeling for Performance

Behavioral models can help you refine campaigns and follow-up marketing by allowing you to predict the likelihood of profit-driving behaviors such as payment, multiple orders and renewal. Model-based, predictive segmentations can be applied in the following ways:

• Refine descriptive segments to increase campaign impact.
• Manage campaign costs by eliminating lower-performing groups.
• Expand market reach by targeting the top-performing groups.
• Segment incoming orders for fulfillment and upsell by profiling for profitable behaviors.

As an example, imagine that your descriptive Segment Y is statistically more likely to respond to a given offer, but the payment rate for the group is only 50 percent. Let’s say your business requires a 60 percent payment rate on new orders to be profitable. A net payment model can help you identify the individuals (or households) who are more likely to respond and pay within the segment. By subsegmenting the group, you can see that targeting only the top 80 percent of the file is likely to achieve your 60 percent cutoff.

Building a solid model requires that you have results from previous campaigns to that segment and that the modeler has access to a large source of relevant data. The resulting model can dramatically expand the reach of your marketing campaigns and significantly increase ROI by helping you identify and target only the most profitable groups. The result? Your overall mail costs go down because you don’t promote to the entire file, but your net response stays more or less the same and payment goes up. You deliver higher ROI.

Models also can help you expand list populations by letting you mine segments that you haven’t been able to work with before. If you’ve been using on a 60-day selection, the model should let you expand to a 90- or 120-day selection, providing larger universes.

Finally, your models also can work for you in untargeted media or other channels. Models can be applied to responders—or in real time on your site—to help you make decisions about fulfillment, upsell targeting and future marketing contact.