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Competitive Advantage or Necessary to Compete?

Originally published January 13, 2009

Information is the currency that companies have used for competitive advantage in business since the earliest beginnings of barter negotiations and commercial commerce. Success in barter commerce often depended on knowledge of sources of food, labor or materials that could be exchanged. In today’s highly competitive global economy, knowledge of consumer and business behavior, socio-economic, lifestyle and/or demographic information can be transformed through information analysis (known as decision science, marketing science or customer analysis) into actionable insight. It is this insight that provides key decision-making support to companies that seek to enhance profitability and/or gain a competitive business advantage.

Walmart, American Express, Coca-Cola, Staples, Best Buy, Harrah’s Entertainment, Procter & Gamble, Toyota, Hilton International, AOL, IBM and Oracle are among numerous blue-chip companies that believe leveraging business and consumer data is necessary to compete in today’s economy. What used to provide a “secret sauce” or competitive advantage to companies savvy enough to exploit the value of customer data within their own proprietary databases has now become a rather lucrative service business for vendors able to provide these key components:

  • List and data enhancement (demographic, life cycle, behavioral, transactional, etc.)

  • Customer analysis/customer scoring/cluster analysis

  • Packaged models or solutions templates (e.g., customer retention, propensity, credit risk)

  • Web-based subscription to analytical database (by industry or product category)

  • Custom information analysis services

  • Customer data integration, data quality/hygiene and infrastructure services

  • Database marketing services: design, production, fulfillment

Two trends have emerged within the last few years. Approximately 50% of companies surveyed by Hypatia Research prefer to create an internal center of excellence comprised of statisticians, analysts and database marketing experts that provide customer analysis services across the organization. These companies use information service vendors for tactical services such as list enhancement, data hygiene and/or prospecting. Other organizations, preferring to focus on critical core competencies such as sourcing and producing products, tend to outsource most of the aforementioned capabilities by partnering with a full-service marketing and information services provider (MSP). The benefit of this approach is to gain key expertise in multiple disciplines without incurring the overhead and maintenance of hiring employees internally. This flexible approach is especially attractive to companies that provide seasonal products or services. Expertise is easily sourced and available per project, per season or on an annual service basis. Customer-centric organizations that strive to deliver anything, anytime, anywhere to their own customers now demand this same granularity and knowledge from information and decision science vendors that service them.

Customers Create the Information

If customer expectations for historical knowledge, service and support, and value-added products and services seem high, it is because they are aware that industry is tracking them at a granular level – by brand preference, warranty card registrations, product and service transactions, online behavior, demographic information and lifestyle stage. Moreover, advances in online and telephone self-service and support coupled with a rapid reduction in services serves to shift costs from a company’s bottom line to both business and consumer customers. In turn, customers expect that information gathered will be used to personalize the next interaction or communication they receive from businesses from whom they regularly purchase. Figure 1 illustrates the nature of demand and supply creation by providing an overview of how consumer information is captured, managed, analyzed and utilized by various information service providers and purchasers of consumer information.

Sources of Business Information

By virtue of federal tax and state tax laws and financial reporting regulations, business or professional license application and vehicle registrations, numerous public and proprietary data marts capture information on businesses in the United States.1 Moreover, credit history, incorporation documents and business transactions between partners, suppliers and customers are both taxable and, thus, traceable. Many of the information analysis and services providers also rely on subscriptions to professional and industry-specific publications, online business purchases (for example, office furniture or computers purchased on corporate accounts), legal filings or complaints to reporting agencies such as the Better Business Bureau.

Business to business industries such as telecommunications, software, manufacturing, professional services (law, accounting and advertising agencies), retail office suppliers, financial services and insurance rely on this type of data to ensure company contact records are up to date, companies are credit-worthy, and that service and transaction histories are accurate. Typically, B2B information analysis services are utilized by organizations that seek to optimize their investments in business development and marketing initiatives.

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Figure 1: Supply & Demand Chain: Information Services & Decision Science
Source: ©2008 Hypatia Research, LLC

Sources of Consumer Information

Similar to business information, consumer information is sourced through multiple channels, consumer touchpoints, proprietary and public information. Moreover, consumers are very aware that industry is tracking them at a granular level – by brand preference, warranty card registrations, product and service transactions, online behavior, demographic information and lifestyle stage. In fact, customers expect that information gathered will be used to personalize the next interaction or communication they receive from businesses from whom they regularly purchase. At a high level, Figure 2 illustrates the most common avenues used to capture information.

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Figure 2: Sources of Consumer Information
Source: ©2008 Hypatia Research, LLC

Companies that Invest in Information and Decision Science Services

Virtually all mid- to large enterprise B2C companies, as well as most B2B organizations, leverage vendor-supplied information services and/or customer analytics in pursuit of corporate goals – it has become a required investment in customer knowledge for decision-support applied to customer management, risk/credit analysis, product development or launch and other business development, marketing and/or strategic initiatives.

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Create an Effective Decision Science Ecosystem

To create an operational foundation for data analysis and decision support, leading organizations most often take one of these three approaches in capturing, analyzing and utilizing consumer information derived from multiple sources of data:

  1. Self-Reliant: Create an internal center of excellence comprised of statisticians, analysts and database marketing experts for decision science services. Partner with the internal IT department to develop a cohesive customer data management process through utilization of a robust data warehouse and business intelligence platform (inclusive of ETL, data and text mining, data modeling and predictive analytics capabilities) in addition to select marketing automation, web analytics, customer relationship management, data integration and quality tools. Hypatia research revealed organizations taking this approach most often reported deploying software from vendors such as SPSS, SAS, KXEN, Business Objects, an SAP company, Informatica, Oracle and Teradata.

  2. Source Expertise: Partner with one or more providers of information services for flexible, on-demand expertise in:

    • Decision Science/Marketing Science/Information Analysis:

      • List and Data Enhancement (demographic, life cycle, behavioral, transactional, etc.)

      • Customer Analysis/Scoring/Cluster Analysis

      • Packaged Models or Solutions Templates (e.g., customer retention, propensity, credit risk)

      • Web-Based Subscription to Analytical Database (by industry or product category)

      • Custom Information Analytics & Consulting Services

        • Customer Insight: Profiling, Segmentation, Modeling, Product Affinity, Valuation

        • Contact Management Strategy & Optimization

        • Marketing Strategy: Loyalty, Media-mix modeling, Geospatial planning

      • Database Marketing Services: Design, Production, Fulfillment

        • Integrated Digital Marketing Services

        • Information Infrastructure: Customer Data Integration, Data Quality/Hygiene

  3. Hybrid Approach: Utilize in-house expertise combined with outsourced information services on a flexible per-project basis, annual retainer or subscription model.

Provide Higher Levels of Customization and Service

With new vendors and niche players entering an ever-maturing, expanding and evolving marketplace, opportunities for worldwide growth remain for those able to differentiate offerings while providing higher levels of domain-specific, value-added products and services.

Especially in consumer-rich industries such as retail, pharmaceutical, healthcare and financial services, opportunities could be quite lucrative. Larger financial service companies (in the category of Bank of America, Capital One or Citicorp) with numerous portfolio offerings that include credit cards, retirement, college and other life cycle stage products are reported to have spent $60M annually on consumer credit information, data enhancement and decision science or customer analysis services. Smaller, regional banks were found to have spent $5M-$10M annually.

Data-rich environments such as retail are not challenged by capturing consumer information. In fact, they are literally overloaded with multi-channel data from various sales and distribution channels such as online, catalog, call center, distributor and physical box store. Several retailers reported having more than 10 discrete data marts of customer information – each with different data schemas and dimensions. Opportunities with retailers are comprised of data infrastructure, integration, hygiene and enhancement in addition to customer analysis, modeling and scoring of their own proprietary data. Annually, larger retailers invest ~$1M while smaller retailers hold the line at ~$100-$300K.

Our assessment is that use of decision science and customer analysis will move from “competitive advantage” status to “necessary to compete” for the next decade. Organizations will either develop in-house capabilities or partner with service providers to capitalize on the customer intelligence derived from multiple sources of data. Likewise, we expect information analysis providers to partner in delivering greater capabilities and higher levels of customization to clients. 

End Note:

  1. Per the Shelby Act, certain companies mentioned do not collect vehicle registration and license data to compile demographic marketing databases. However, other sources of demographic data can come from phone directories, and other proprietary sources.

This article is an excerpt from “Decision Science & Customer Analysis: Competitive Advantage or Necessary to Compete?” by Leslie Ament

  • Leslie AmentLeslie Ament

    Leslie Ament, Senior Vice President and Principal Analyst at Hypatia Research Group is a customer intelligence management thought-leader and industry analyst who focuses on the business value of technology in regards to how organizations capture, manage, analyze and apply actionable customer insight to improve customer management techniques, reduce operating expenses and to accelerate corporate growth. Her research and advisory services include: Customer Analytics & Interaction, Advanced Analytics, Business Intelligence and Big Data Analytics, Social Media Intelligence/Text Analytics, CRM, Digital Marketing Automation, Customer Data Management/Data Quality and Governance, Risk & Compliance.

    Editor's Note: More articles and resources are available in Leslie Ament's BeyeNETWORK Expert Channel on Customer Analytics & Insight. Be sure to visit today!

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