Download The Value of True Marketing Optimization

Marketing Optimization
The Value of True
Marketing Optimization
Gerry Grealish
Amartya T. Bhattacharjya
Marketswitch Corporation
http://grealish.CRMproject.com
Marketing optimization provides the hard-dollar economic payback
from your demand chain process.
G
oals have changed for today’s enterprise marketing organizations. While
once measured by the sheer amount of
marketing activity they were generating,
these groups are now expected to be profit
centers, executing only those activities that
will truly maximize the profit returned to
the corporation.
Marketing departments, in general, are
not adequately prepared to function in this
profit-driven environment. The size of the
potential set of offer-customer-channel combinations that they could execute against is
mind-boggling. How is a marketer to decide
what the optimal subset of combinations is
that will maximize profit?
Marketswitch has developed a mathematical approach to solve this financial economic problem. This white paper describes
how Marketing Optimization can be used to
develop campaigns – based on the interdependencies of individual customer characteristics, potential promotions or offers,
available channels, and business constraints – that will deliver the maximum
amount of profit back to the business, raising ROIs to a previously unattainable level.
It also describes how Marketing
Optimization can be used in coordination
with other marketing technologies to maximize the effectiveness of overall marketing efforts. The final section illustrates how
Capital One, a leading U.S. credit card
provider, experienced a 10% lift in NPV and
significantly reduced the cycle time in its
marketing campaigns by employing
Marketswitch’s solution.
Introduction
In recent years, traditional target marketing
strategies have enabled marketers to organize data, discern data patterns relevant to
consumer’s purchasing behavior, and auto-
mate the campaign execution process. While
valuable, these traditional approaches fall
short in the following ways:
• They limit you to one-dimensional
techniques, such as personalization.
These techniques look at each product
in a silo, determining customer interest
for each. But you market many products simultaneously. Additionally,
each product typically has its own goals
and constraints, such as minimal
acceptable revenue or maximum
budget, that may conflict with one
another. These issues cannot be
addressed one-dimensionally if one
seeks to maximize productivity across
the marketing mix.
• You have millions of customers, but
you cannot treat them as individuals.
The best you can do is treat them as a
part of a larger grouping or segment,
and make the leap of faith that all
members of the group act the same
way all of the time – and more importantly, that you would want to treat
them the same way all of the time.
• You don’t have the ability to pick an
overall campaign goal, such as profit, to
maximize. The best you can do is make
educated guesses or follow general ifthen rules to increase your profitability.
• Automation tools allow you to boost the
level of marketing activity in your
organization, but not necessarily the
level of your results.
Drawing from historical approaches used in
the management of the manufacturing
supply chain, airline revenue yields, and
financial investment risk assessment, it was
determined that mathematical optimization
technology could be applied to address the
limitations associated with traditional
marketing techniques. In fact, if you could
bring optimization technology to the
“demand side” of the supply and demand
equation, you could fulfill a desire of all leading-edge businesses – a fully optimized
Commerce Chain1 (see Figure 1) – with companies such as i2 and Manugistics optimizing
the supply side of the Commerce Chain and
Marketswitch optimizing the demand side.
Making optimization practical on the
demand side required pure mathematical
breakthroughs since the marketing
environment is characterized by unique
complexities in scale, dimensionality, and
time sensitivity (real-time customer interaction). Years of original research and
development by Marketswitch produced
the required advances. As a result of these
efforts, true mathematical Marketing
Optimization software is now available
for enterprise marketing. This software
can allocate marketing resources across
multiple channels, business constraints
and marketing scenarios to target the right
customer with the right product through
the right channel at the right time, all while
maximizing the customer’s financial return
to your business.
Commerce Chain Optimization
True Optimization
Business value
Gerry Grealish is Senior Vice President of Marketing and Business Consulting at Marketswitch
Corporation, the industry leader in marketing optimization. Amartya T. Bhattacharjya is Vice President of
Product Management at Marketswitch.
252 • Defying the Limits
Figure 1 – Commerce Chain Optimization
Marketing Optimization
Marketing Optimization – Benefit
The goal of any business is to maximize
profit. In theory, maximizing profit is simple
– simply achieve the full profit potential of
each and every customer relationship. But
with millions of customers, many different
products and product lines, and multiple
communication channels, how can you find
the right set of customer-product-channel
combinations that will maximize overall
profitability while simultaneously satisfying
all of your unique goals and constraints?
There is only one solution to this complex
problem – Optimization.
True mathematically-based Marketing
Optimization can be used to answer questions such as:
which offer through which channel to ensure
your overall business goals are met. You can
also examine multiple “what if” marketing
scenarios prior to campaign launch to
determine the appropriate course of action to
accomplish your business goals before
committing marketing resources.
In today’s marketing environment, with
customers surfing to your website and dialing into your call center, you need the ability to optimize your customer interactions
on the fly. Marketing Optimization technology can operate in real-time, allowing
your website to serve up the right offer and
your call center agent to reference the right
promotion during each customer interaction to ensure your goals are achieved. It
your campaigns. Your data modeling tools
divide these customers into segments and
determine each segment’s propensity (likelihood) to respond to certain promotions. But
there is a problem; your budget allows you to
target only a limited portion of your customer
base, and you have infrastructure requirements that limit the use of one or more of
your communication channels (email, direct
mail, telemarketing, wireless, and Web advertisements). Additionally, your company has
an overall profitability goal as well as specific
business unit or product level revenue goals
that need to be addressed. The software runs
different “what if” simulations, using data
inputs from your modeling activities, to
derive your campaign’s optimal marketing
Demand Chain
Telecom
Offer
Credit card
Offer
Email
Phone
Web
Mail
Wireless
Travel Offer
Data Warehousing
Analytical/Modeling
Optimization
Campaign Execution
Figure 2 – How Marketing Optimization fits into the existing Demand Chain.
• Should certain customers get one product offer through your call center and
should others get a different product
offer through email such that your
overall profit is maximized?
• Did the purchase made by the last
customer on your website achieve your
overall profit goals on a specific
product line, thereby affecting how to
market to the next customer?
• What is the maximum possible profitability of a multi-offer campaign with
limited budget?
• What is the optimal mix of offers to
send to each customer so that the
minimum number of sales for selected
offers are met?
With Marketing Optimization software you
can select an overall goal, such as profit, and
specify all of the constraints of your marketing campaign, such as budget, customer
acquisition cost, or product specific volume
requirements to name a few. The software
then determines which customers should get
scales to cover communication channels
such as email, Web advertising, wireless,
direct mail, and outbound telesales, giving
you the breadth needed to optimize all of
your customer touch points.
Marketing Optimization –
In Practice
Marketing Optimization enhances and
exploits all of the modeling, data warehousing, and automation systems you have
in place today. In fact, since it fine-tunes
your activities for maximum financial
performance, it quickly increases the hard
dollar returns from those other Demand
Chain investments (see Figure 2).
Optimization is the key ROI component of
your marketing process. For example, assume
your company is planning a number of
different marketing campaigns that will take
advantage of all of your communication
options, including your website, call center,
and wireless channels. Your data warehouse
provides the customer data required to target
scenario to achieve your overall business
goals. This optimization simulation can be fed
into your campaign management program to
build and launch the campaign. The result is
a campaign that is mathematically proven to
deliver optimal performance and maximize
an economic function such as profit.
Figure 3 shows some of the inputs that
are required for Marketing Optimization.
All of these variables are typically available
from the marketing analysts designing the
various campaigns. Where specific models
are not available, average values can be
used as proxies to complete the optimization process.
Just as optimization technology revolutionized the management of the manufacturing supply chain, airline revenue yields, and
financial investment risk assessment,
Marketing Optimization software is revolutionizing how marketing activities are being
managed and executed by leading-edge
companies. This software, which allocates
finite resources across multiple marketing
Defying the Limits • 253
Marketing Optimization
opportunities, can be used by your marketing
department to achieve the maximum value
and profitability from your marketing efforts.
Simply stated, optimization is the key
ROI component of your marketing process.
It is complementary to other investments
that your company is making in the marketing organization, such as investments in
data mining software for modeling or marketing automation software for campaign
execution. Optimization provides the harddollar economic payback from your
demand chain process.
Like many companies today, Capital
One begins each marketing campaign with
an analytical process, attempting to determine which customers would be most
interested in each of its new offerings.
Capital One is acknowledged to be an
industry leader in this area and its marketing group was benefiting greatly from these
efforts – realizing strong results.
Unfortunately, the team was hitting an
internal resource limitation on its processes.
The preparation time on campaigns was taking almost seven full days of analytical pro-
constraints – all while maximizing the
marketing campaign’s financial return to
Capital One. Marketswitch’s software has
brought true mathematical optimization to
Capital One’s marketing activities.
The marketing team can now easily select
an overall goal, such as profit, and specify all
of the constraints of their marketing campaign, such as budget, minimum sales, and
maximum solicited offers per customer to
name a few. The software then determines
which customers should get which offers to
ensure that Capital One’s overall business
Offers
Ads, products
Offer Eligibility
Offer Economics
CPM Rate, Avg, NPV
Response and Profits Models
Visit Score or Avg. Rate
Max. Click-through Conversion
Score or Average Rate
Optimization Goal
Max. NPV, Max. Click-through
Conversions, Min. Budget
Optimization
Optimization Schema
Maximize business goals
and simultaneously satisfy
all constraints
Application of unique
mathematical algorithm to
generate optimization schema
Real Time
Campaign
Deployment
Figure 3 – Some of the inputs required for Marketing Optimization
A Case Study
How Capital One Employed
the Marketswitch Solution
Capital One Financial Corporation provides a
variety of financial products and services to
consumers. It has emerged as one of the top
10 credit card issuers in the United States,
currently managing over 27 million accounts
and executing strategies to continue to grow
at a very rapid pace.
Capital One has continually focused on
providing new and innovative products and
services for its customers. An important business strategy for Capital One is to maximize
the value of its existing accounts by providing them with access to these products,
which consist of mortgages, auto loans, telephone services, Internet services, and more.
Capital One actively markets these opportunities to its existing customers with a series
of cross-channel activities, investing a significant part of its annual marketing budget on
these efforts.
254 • Defying the Limits
cessing prior to launch and needed to be
reduced. Additionally, the team wanted new
capabilities, such as the ability to make optimized marketing decisions at the individual
customer level and the ability to input multiple sets of goals and constraints, such as maximum budget or minimum sales volumes,
and immediately see the effect on the bottom
line. The company realized that the limitations of its existing analytical process were
becoming the real constraint to its further
success. Capital One looked to the external
software market for a solution to this problem.
The company evaluated many software products, but chose Marketswitch, with its unique
marketing optimization software offering, to
add the value that Capital One sought.
With the Marketswitch software, Capital
One’s marketers now have the ability to look
at each customer individually and to select
the appropriate offer that will simultaneously satisfy each customer’s preference as
well as Capital One’s real-world business
goals are met and that its constraints are
satisfied. Capital One can also examine
multiple “what if” marketing scenarios prior
to campaign launch to determine the
appropriate course of action to accomplish
its business goals before committing
marketing resources.
Not only has the Marketswitch software
significantly reduced Capital One’s process
cycle time – from an average of seven days
down to 90 minutes, but its new capabilities
have delivered a dramatic increase in
results – approximately a 10% boost in the
NPV of its marketing campaigns.
Considering the number of campaigns
Capital One runs each year and the size of
its customer base, these results have added
■
tremendous business value.
Footnote
1 A Commerce Chain is defined as the endto-end process by which a company delivers products and services to its customers.