Download Automotive Services – Lifecycle Definition, Segmentation and Marketing Optimization CLIENT CASE

CLIENT CASE
Automotive Services – Lifecycle Definition, Segmentation
and Marketing Optimization
35 CORPORATE DRIVE, SUITE 100, BURLINGTON, MA 01803
T 781 494 9989 | F 781 494 9766
WWW.IKNOWTION.COM
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Lifecycle Definition, Segmentation and Marketing Optimization
Background
With the myriad of choices presented to consumers in today’s automotive market, domestic manufacturers
must meet or beat the competition on a number of fronts, including price, quality, and product design, to name
a few. These competitive pressures have made it increasingly important for marketers to create compelling
ways to drive traffic to the dealers and persuade consumers to choose their product.
Vehicle discounts in the form of cash-back incentives have been one way in which automotive manufacturers
try to influence consumer purchase decisions or brand consideration. Programs are developed to meet certain
objectives, such as sales volume for a particular line of vehicles, or improved gross margin. For this automotive
company, incentives were used as a standard mechanism to drive sales, although the incentives were
developed without much variation or customization, proven to be costly and inefficient. Therefore it became
apparent to our client that they needed to improve upon their “one size fits all” approach.
Client Objective
As our client was entering an era of change, with a critical shift in their business strategy, pressure was greater
than ever to improve profitability, and internal groups were being challenged to “do more with less.” Senior
management recognized that a new level of marketing sophistication could help the business achieve some
very challenging goals however they didn’t have the knowledge or insight about their customers they needed to
accomplish their goals.
In order to change from a product-focused to a customer-focused marketing organization our client knew they
needed to better understand their customers’ needs and preferences, as well as their behaviors over their
ownership lifecycle.
Our Solution
iKnowtion determined that the best way for our client to achieve a more effective and efficient method of
marketing was to embrace a customer-centric lifecycle marketing approach. This involved developing a
sophisticated set of analytic tools which included three major components: customer lifecycle, segmentation
schema, and an offer optimization engine.
The lifecycle would determine where the customer is in the vehicle purchase cycle, while the segmentation
would identify unique groups of customers with varying characteristics and profit-driving behaviors. The
optimization engine brought the two together with predictive models to send targeted offers to specific
customer segments.
Lifecycle
It was important to understand where a customer was in the purchase cycle. A customer who had recently
purchased a vehicle was treated very differently from one who was actively shopping for a replacement
vehicle, for example.
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Lifecycle Definition, Segmentation and Marketing Optimization
In order to determine the appropriate lifecycle stages, it was critical to reach consensus from the marketing and
executive teams on the following questions:
• What are the business objectives that the lifecycle should help achieve?
• What is the role and use of the lifecycle in the context of a broader segment development framework?
• What is the desired “go to market” approach?
• How can learnings from customer behaviors drive the lifecycle definitions?
The final lifecycle solution involved a number of discrete stages, each with its own set of marketing objectives.
Today, the lifecycle helps determine the focus of marketing communications, be it relationship building or
aggressive selling. It is a tool that helps: manage customers throughout the relationship, determine the right
communication mix (frequency, channel, message, etc.), and prioritize marketing investments in order to
maximize profit.
Segmentation
Our philosophy on segmentation development is that it must be focused and objective-driven in order to be
successful. To that end, objectives were clearly established up-front with respect to business and profitability
goals that the segmentation should help achieve.
After careful consideration of a number of potential segmentation approaches, we determined that the most
impactful solution was a behavioral segmentation that created segments with very strong differences in profit
driving behaviors. Since the business was focused on improving profitability, isolating behaviors that influence
profit and determining which levers should be pulled for each segment was a particularly effective solution that
helped turn business economics in the right direction.
Optimization Engine
Before we began our partnership with our client, they planned their marketing campaigns in a manual, ad-hoc
fashion. There was limited capability to run multiple “what-if” scenarios, and the same incentive was offered to
everyone.
With the help of our segmentation, we were able to take a scientific approach toward determining optimal offer
levels. To fill in the gaps on promotion response, together with our client’s marketing team we developed an
experimental design to determine price elasticity from a wide range of offer levels. By leveraging that data, we
were able to build an integrated system of probabilistic models that evaluated and optimized the impacts of
assorted offers.
Our system works like this: the marketer inputs a number of program related constraints, such as a total
incentive budget or number of mailings. Then, program goals such as sales volume or profitability are added.
Our system runs through all possible combinations of segment and offer until it arrives at the best solution that
meets program goals within given budgetary and other constraints.
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Lifecycle Definition, Segmentation and Marketing Optimization
The Bottom Line
Our client has now been operating within the lifecycle marketing framework for many years, and has employed
our optimization system for every direct marketing campaign, with great success. While the marketing team
appreciates the practicality of a data-driven approach to offer assignments, company executives value the
system most for its accurate forecasting ability – with a high level of confidence in the ability of the programs to
deliver on promised results. Campaigns continue to deliver profitable sales and typically generate a lift over
control populations, ranging from 10% - 60%.
In addition, the insight we provide continues to help our client in a number of ways, including prioritizing their
investments in customers with the greatest potential, tailoring marketing strategies by segment, and optimizing
incentive budgets.