Predicting your company's future
Understanding predictive marketing
Published: April 26, 2006
By Paula Jacobs
Predictive marketing helps organizations derive fresh insights about customer behavior to plan for their next wave of products and services.
In Summary:
| • | Predictive marketing helps businesses better understand customer desires, needs and behaviors for a greater return on investment. |
| • | Predictive marketing can help improve customer service practices. |
| • | While attractive, using predictive marketing to define new products and services is still in the concept stage for many industries. |
Imagine gazing into a crystal ball to determine exactly which products or services your customers will want in the future – that’s predictive marketing. In a highly competitive global economy, where the landscape shifts on a dime, making accurate predictions and responding accordingly to customer demands are mission-critical. Business leaders face ever-mounting pressure to demonstrate accountability for marketing dollars. Yet educated guesswork and traditional marketing metrics are not enough to increase market share and achieve greater return on investment (ROI).
A subset of customer relationship management (CRM), predictive marketing software helps marketing and sales executives determine customer needs. By analyzing customer feedback, it can help product and marketing managers better understand perceived product issues or other customer requirements, which they can then refine and validate using market research. In the pharmaceutical industry, for instance, predictive marketing solutions from vendors such as Bridgewater, New Jersey-based marketRX can indicate what physicians may prescribe in the future based on historical data or the anticipated response of medical practitioners to a specific marketing promotion.
Predictive marketing has evolved considerably in the past two decades. The first and second waves focused on reaching the right customer and personalizing marketing messages, respectively. The third wave, although still in its infancy, promises greater customer interaction, and is beginning to play a role in the development and marketing of new products and services.
The current generation of predictive tools, such as modeling and data mining software, no longer runs exclusively on high-end computing platforms, nor do these solutions impose predefined generic models. Many feature built-in analytics using real-time data to drive insights with actionable information.
Predictive marketing in action
The use of predictive marketing offers particular competitive advantages in a global marketing environment where businesses must sell, market and service across multiple worldwide channels, involving strategic business partners, third-party vendors and the Web. In this complex multi-channel environment, delivering the right mix of products in response to customer requests and feedback depends on innovation.
For example, a system called PowerTrack, from Axonom, Inc., a Microsoft Gold Certified independent software vendor (ISV), uses a predictive marketing model based on the marketing principle of "recency, frequency and monetary (RFM) value"—that is, customers who have bought more recently, frequently and spend more are worth more. Integrated with Microsoft Dynamics CRM, PowerTrack provides a sales history of customers, using dashboards that provide real-time analytics. The software also can track the more extensive features that many customers request, and can direct to the right people such customer feedback as the number of requests for certain product functions.
Improving customer service
The latest wave of predictive marketing tools and techniques can help businesses develop appropriate customer-centric marketing strategies aimed at improving customer service. For instance, a company might use a tool to evaluate whether a customer complaint deserves immediate action, whether the customer is a top prospect for a product or service, or whether the customer is likely to defect to the competition.
"You can now take the opportunity when the customer comes to you and do the right thing—give the customer what they are looking for," says Mark Smith, executive vice president of Portrait Software, a Microsoft Gold Certified Partner based in Boston, Massachusetts.
Portrait Software's customer interaction management software allows business managers to create rules for specific customers based on their history, and collect feedback to improve customer service processes. For instance, Nationwide, a U.K.-based financial services provider, implemented a Portrait Software solution to capture deeper customer information (including personal details, account relationships, contact and feedback history), so employees can meet customers' individual needs at the point of interaction.
How far can predictive marketing go?
Leveraging predictive marketing to define product and service requirements is immensely attractive. However, because of the complex set of variables involved in product development and marketing, its use there is still limited.
Gareth Herschel, a Gartner research director based in Atlanta, Georgia, sees two evolving areas where these tools are practical today: to predict the likely adoption of new products and services where something comparable has existed in the past, and to understand some of the variables that make a new product or product launch successful.
Smith adds: "Right now, predictive analytics is not heavily used in the product development side of most businesses, but to predict who will buy it and why. There are some examples, such as industry-leading investment management companies. They use predictive techniques to look at profiles of the customer base … and which areas of the customer base [they are] not servicing well, and how they can best meet those demands by tailoring a product that fits those criteria."
While accurately forecasting the direction of products and services is still an emerging science, for now, predictive marketing will continue to help organizations improve customer service, identify new marketing opportunities and create a customer-focused organization.
Paula Jacobs has written about technology for more than 15 years for such publications as CIO, InfoWorld and NetworkWorld.
