Updated: Sep 21, 2020
Truth be told – most businesses have had access to their customer’s data for an extensive amount of time; the prevalence of this fact, however, is that only in the new digital age that volumes of this data can be processed to provide reasonable insight into consumer behaviour. Recently, a large of portion of start-up businesses have indicated their scepticism regarding the implementation of a formalised data-based approach in their customer acquisition process. A data driven approach is essentially analysing the present purchasing patterns of our target market and/or the general purchasing pattern of an individual in-order to sell products that they are more likely to buy.
How is data captured?
The process of collecting consumer/ customer data is collected and subsequently employed by most businesses, including large corporations to the average data vendor and start-ups. Methods for potential customer information acquisition include:
1. Indirect sources – Often without even realizing it we agree to and subsequently provide several permissions to applications on both our desktops and mobile devices without being fully aware that said application is constantly analysing our behaviour and gathering data points about us. This includes but is not limited to our location, online spending patterns, key personal information like age, sex, and so on. This form of indirect collection while legal has posed serious ethical questions.
2. Direct sources – Many times we volunteer our information with full knowledge that we are passing on personal information. We do this when trying to access a service or purchasing goods and more often than not we volunteer all sorts of personal information to big corporations by doing this. For example, while purchasing movie tickets we give over information such as our movie preferences, possible income bracket, where we are going to be on that particular date etc.
3. Data Vendors – Many companies simply purchase your data off the data marketplace. The data of higher income consumers are generally more expensive, while larger corporations also have the capacity and financial means to employ companies that are able to differentiate based on consumer behaviour, in any case this is a thriving marketplace and it isn’t going anywhere.
How data acquisition changes the consumer experience.
Through the ability and capacity to purchase or acquire your data, large business corporations are now able to process specific information and allow them to understand meaningful patterns in your individual behaviour. While human beings come with inherent limitations, computers can work 24*7*365. These algorithms analyse millions of data points in-order to recognize specific patterns in the data. This type of analysis wasn’t possible until recently because computers lacked the processing power to analyse data at this scale and because it simply wasn’t financially viable to hire people to do this work.
As machine learning and data analytics improve, the speed and efficiency of these models also increase to unrivalled levels. Applications and advanced technology are now able to process more data and identify patterns that couldn’t be recognised previously. Now, with advanced Artificial Intelligence being in-built into machine learning, programs are now able to recommend suggestions to improve profitability, further cutting out human intervention.
What do corporations do with your data?
There are several ways that this impacts the life of everyday consumers:
1. Improving Customer Experience
Corporation are able to better understand what parts of a product you enjoy and what parts you don’t, all of this enables corporations to improve their products and services to better benefit you as a consumer. While the basic idea is to improve the bottom-line, the pursuit of profit in capitalism does lead to better products and services.
2. Refining marketing strategy
Corporations are able to identify what works in marketing and what doesn’t, wherein the company identifies what you like and advertises accordingly. Such advertising which is targeted yields a higher Return on Investment on the advertising dollars which is why companies constantly use data to refine their marketing strategy. The user experience is personalised not just on the company website but also on social media platforms like Instagram, Facebook etc. The availability of data will exponentially increase the reach of your social media marketing by targeting relevant and potential customers.
3. Data into cash
Selling your data on the thriving data marketplace is another avenue of revenue for many companies. Data often changes hands and is bought and sold by large corporations as well as by smaller companies and data vendors. This data derives its value from the person it represents. Several factors contribute to the value of data like, age, sex, income, present consumer spending pattern etc.
Why are new businesses not adopting a data driven approach?
A data driven approach isn’t being adopted by small businesses and the reasons for this are manifold. Primarily, up until recently, the tools that were necessary to create a data-based approach in customer acquisition were prohibitively expensive for small businesses. Therefore, only large corporations used them extensively. However, this has changed and there are several tools now available that enable small businesses to analyse the data available and in addition make sense of the facts and figures in-order to boost sales. Therefore, expense can no longer be cited as a reason for not providing your business with the cutting edge of sales and marketing.
Here, we face our next common objection to the adoption of the data driven approach, which is that the techniques adopted by the bigger companies are not applicable to smaller companies. There are numerous examples that can be cited to show you that this line of thinking isn’t reasonable, let us take the example of Woolworths.
Woolworths was one of the first companies to adopt a data driven customer acquisition and retention strategy, they used existing data to position their products, and design rewards programs, to decide what products to place at the checkout counter, which product should go on sale at what time, the list is quite endless. Your entire shopping experience at Woolworths is designed from the ground up to maximise your spending and to encourage you to return to the store as soon as possible.
Now, the question that needs to be asked is whether or not Woolworths needed to be a National level chain of stores to carry this out?
Obviously, it’s not necessary to be a large chain of stores to implement this, any small supermarket owner can and should implement a data driven sales and marketing infrastructure to optimize their revenues. The data required to come up with such a system is available online and is quite cost effective to implement once you make sense of it. Any expenditure that goes into creating and developing this model quickly pays for itself when customers start increasing their spending.
Believe it or not this is just one of the many ways that a data driven approach can aide a new business owner. Other areas include tracking of profit margins on individual products, profitability as per product segments, proportion of returns made… the list is absolutely endless.
If you aren’t leveraging data you will be left behind in this race
Corporations have effectively been leveraging data for years now, they have (quite literally) millions of data points that they routinely use in-order to predict future consumer behaviour, they use this to drive more consumer spending at their establishments and this cycle goes on, with one level feeding the other. The more data points they have the better they can predict consumer behaviour, the better they can predict behaviour, the better they can boost consumer spending and thus create more data points to fuel their business. One of the reasons that new businesses do not take up a data-based approach is because of the inherent perception that data analytics and developing a data-based approach is quite complicated and therefore will require more effort than the perceived gain. It is true that implementing this would be quite complicated in terms of recruiting talent, migrating your existing sales and marketing processes, and it can turn out to be quite expensive if you do it on your own. However, there are numerous firms you can outsource the implementation of your data analytics to and they will effectively aide you in making sense of the data at your disposal, and so easing the perceived burden of the process.
How will the collection and analysis of consumer data aide your business specifically?
The first step in the process of data analytics is the collection of meaningful data points. Depending on your industry you need to collect specific data points, for example, if you are in finance, you need to know the existing income of a consumer, frequency of financial transactions, existing loan portfolio among other financial variables in-order to benefit your marketing strategy and user acquisition approach.
This data then undergoes complex data modelling wherein the data is first packaged into a format that can be easily read and processed by the system. After this the data is analysed and meaningful patterns are derived from it.
This will let you know what kind of a marketing approach helps businesses like yours, what kind of a customer acquisition strategy makes the most amount of sense and why. This information will help you in three specific ways:
Sales are the life blood of any business, and you need to ensure that your salesmen have the right information at their fingertips. A data driven sales strategy will enable you to boost your sales by adopting digital sales techniques that have resulted in a greater conversion rate in the past. This will boost your revenues and the earnings contributed by your individual online visitors and your overall revenue will go up manifold.
Countless dollars are wasted every year in advertising and marketing on mediums that the target market does not view. Data has significantly optimized this by giving advertisers an accurate picture on what their target audience wants to see. Those commercials you see on YouTube that you think “are just brilliant”, that didn’t just happen, that was the result of endless hours of research into consumer behaviour to design the perfect advertisement and then further analysis to pinpoint the type of person that kind of an advertisement should be shown to for maximum chances of a conversion or action. You can replicate what they have been doing and analyse existing data on the customers of your industry and derive meaningful insight into what drives them to make that purchase. This will greatly increase the return on your advertisement dollars.
3. Work on the product or service
A data driven approach to product research will let you design the type of product your customer wants. You will be able to understand their likes and dislikes and vertically or horizontally integrate your product or service offerings to give the consumers what they desire.
How can data vendors help you?
A common apprehension in your mind could very well be how to gather this data, the bigger corporations have all this data on file but you don’t, moreover it’s even more difficult to obtain data regarding your target audience. However, do not let this deter you from going ahead; there is a whole industry of data vendors and a thriving international market place for all this data. Remember the data vendors that were mentioned earlier in this piece. These data vendors accumulate large amounts of data by purchasing data from those who collect it. Just like any other good or service this can be bought at the market place for a reasonable price and can be used for data analytics. The acquisition of good data isn’t a pain point in this day and age. Most often the firm that you have hired to do your data analytics should ideally be the one that also negotiates a good deal from these data vendors.
How should you use data collection?
While the above data will enable you to get started it is always better to collect data straight from your customers and the earlier you implement such an approach the better it will be for your business. Data collection models can be easily scaled up as the business expands and it is ideal to have one in place when you are starting up. A common example of a data collection system would be having a good landing page that encourages people to leave their contact information so that you can follow-up and get a conversion. Other common examples include online tools that let you know at what point the visitor left your website. You need to develop an organization from the ground up that learns from consumer data this will greatly help you in the long run.
The implementation of a data-based approach is important to use from the start
The implementation of a data-based approach when you start up your business is crucial during the beginning stages of product development. As your first customers buy your product or service, they will have valuable insight that can greatly help in developing and improving the product. In-order to fully capitalize on this you need to have a robust data collection and analysis apparatus ready from day one.
What happens when you start using data is that you will start seeing results like the large-scale corporations. You begin sculpting your product and process around customer feedback and responses; you begin designing a marketing strategy that has maximum impact versus one that wastes dollars. All of this culminates in a better product, happier customers and a rosier bottom-line. So, as you start a business today, make sure to take a page out of the Corporate best practices hand book and build a data driven company from the ground up.
Having a data-based user acquisition strategy exponentially improves your odds of conversion since you’re selling to people that are either already interested in your product or exhibit patterns that suggest the same. So, begin taking full advantage of the plethora of data around you today and design a well-defined data-driven sales and marketing strategy at your company. You won’t regret it!