Four R’s of “Best Next Action”

There’s an old joke: Two wrongs don’t make a right, but two Wrights made an airplane. What, then, do four rights make? The answer is: a new era of marketing effectiveness. And that’s no joke.

The four R’s in this case are: right customer, right message, right channel, and right time. These can be viewed as a modern-day twist on the classic four P’s of marketing –product, positioning, place, and price. It’s an apt comparison, because while the four P’s orientation remains useful in certain contexts, it suffers from the fact that it represents a product-centric view of marketing management.

The four R’s predates the advent of customer data management and the natural outgrowth of that development: today’s large-scale migration to customer centricity. In a nutshell, customer centricity involves determining each customer’s value, as well as his individual wants, needs, preferences, interests, and situations, and then designing different sales, marketing, and service models to serve each customer with a winning value proposition.

The four R’s places people, not products, at the center of the marketing universe. This Copernican shift serves as a powerful mindset for companies to adopt as they seek to leverage new technology applications, organizational designs, and business processes in their incessant efforts to attract, retain, and leverage profitable customers.

By now, of course, the slogan “right customer, right message, right channel, right time” has become an industry-wide rallying call (if not a cliché). Numerous service providers claim to enable it. Some have even taken to invoking the four R’s mantra as part of their mission statements. For example: “We’re the interactive marketing agency that uses search-derived insights to deliver the right message to the right people at the right time.” Or: “We give marketers the power to deliver the right message to the right people through the right channel at the right time.”

A growing number of marketers have also come to embrace the four R’s as a strategy for driving increased shareholder value. This view is supported by some of the content themes at major industry forums. An upcoming retail conference, for example, promises to help you generate “personalized marketing strategies that get the right message to the right customer at the right time through the right channel.”

In reality, much of the talk is purely aspirational. Vendors and marketers alike have generally done a poor job of articulating the concept from a practical point of view. Their descriptions of the four R’s tend to be vague, with little attention given to the actual tools and methodologies required to accomplish the feat. Moreover, few companies (Best Buy being a notable exception) come close to implementing it in a way that harnesses the real power of customer data analytics.

Retailers such as Home Depot may boast of sending customized e-mails that assist customers with their specific areas of interest at appropriate times of the year – for instance, dispensing regional-specific soil composition, temperature, and growing information to Garden Club members. But that hardly qualifies as the type of analytical, data-driven approach to the four R’s that can deliver true business value in terms of increased customer lifetime value, increased spend per customer, and increased customer profitability.

Thinking in terms of Best Next Action
To bring the four R’s to life, it’s helpful to think in terms of a concept called Best Next Action. And while the major market research firms have yet to define a competitive arena labeled Best Next Action, I believe that’s soon to change, based on my conversations with leading analysts. Meanwhile, we’ll have to make due with related categories such as marketing optimization, customer relationship optimization, and contact optimization, the last recently introduced by Forrester Research.

Forrester defines contact optimization as “the mathematical approach to determining the best mix of messages for each customer in order to maximize marketing objectives while satisfying business constraints.” Suresh Vittal, a senior analyst with Forrester, notes that the technology is best suited for “high-volume direct marketers intent on transforming themselves from a product-centric organization to one that emphasizes customer need.”

According to Vittal, the best candidates for contact optimization are “high-volume direct marketing organizations that face the unenviable task of reconciling millions of combinations of customers, offers, and channels with customer analytics, business rules, and contact policies to deliver the optimal message to each customer.”

As he suggests, each “R” acts in concert with the other “R’s” and optimization revolves around the interconnectedness of all the elements within the context of a specific campaign strategy. For example, determining the right action to take, and the right time to take that action, depends on knowing some critical information about the individual.

The right individual
Here the basic idea is that companies need to allocate resources toward individuals who are likely to respond favorably—and profitably—to whatever action is directed toward them and away from individuals who are likely to respond unfavorably or favorably but unprofitably.

The right individual may be all customers with a specific value index to the company–and who, for example, may be elevated to higher levels of customer care or receive a special rewards package. The right individual may be all consumers who have a certain “passion score” for a sports team or a rock band—and who, in this instance, may be sent an offer for a cobranded credit card that reflects hisaffinities.

Following are some possible considerations regarding “right individual” decisions:

• Is the individual likely to respond favorably to the message/offer/treatment . In other words, is he likely to buy the product or service, appreciate the treatment, respond to the message?
• Is the individual likely to recommend the store/products/services to others?
• What is the customer’s decision-making process?
• What information/interactions are needed for the individual to make a purchase decision, and how long is the decision-making cycle?
• What key criteria (price, convenience, quality, brand association) are at the forefront of the individual’s purchase decision?
• How will the individual likely put the product/service to use once purchased?
• What type and frequency of support will the individual require after the purchase?

The right channel
Today there are more ways than ever to interact and transaction with prospects and customers, from direct mail and e-mail to in-store kiosks and sales reps to phone and mobile devices. The right channel for directing a particular action depends on any number of factors, including the nature of the action, the economics of using one channel over another relative to the potential value that could be realized, and both the inferred and the stated channel preferences (if known) of the individual being targeted.

Following are some possible considerations regarding “right channel” decisions:

• Which channel is the most effective and/or efficient in directing the desired action, based on previous campaign results, customer situation, etc.?
• What is the target individual’s stated channel preference, if any?
• What are typical customer response behaviors to the channel?
• What is the cost-to-serve relative to other channel options (tied also to individual customer value)?
• What is the optimal channel mix, if more than one channel, for interacting with the target individual?

The right time
An article titled “The Perfect Message at the Perfect Moment”, published in the November 2005 issue of the “Harvard Business Review,” made the following assertion: “When you talk to your customers is just as important as what you say.” The authors envisioned a computer model that communicates with customers “at the exact moments the customer deals with the company, be it during an address change or the purchase of a baby seat.”

Indeed, the most effective driver of right-time decisions lies in the area of event triggers. Put simply, an event trigger increases the probability of another specific event occurring in the near future. To cite a common example, a financial services firm might make a marketing pitch after noticing a customer made a large deposit or a credit inquiry.

The key to setting the event trigger dominoes in motion is pattern recognition. The moment a pattern changes is often the right moment to take action. Indeed, a deviation from a person’s normal purchase behavior can serve as an excellent early indicator of an impending event in his life. The detection and recognition of the deviation can then be used to trigger a specific action.

For example, in anticipation of the arrival of a new baby, parents-to-be naturally tend to make a significant number of baby-store purchases. Given the ability to detect and recognize this pattern, a financial services company would be in the enviable position of being able to put forward specific products geared to the new parent, such as a life insurance policy or an educational savings account plan.

Following are some possible considerations regarding “right time” decisions:

• When will the target individual have the greatest receptivity to the message/offer/recommendation/treatment – and be most likely to respond in a favorable way?
• What sequence of customer purchases (“purchase career path”) should inform the timing decision?
• What key event triggers should inform the timing decision?

“Just like hitting a baseball, timing is everything when talking to your customer” observe the authors of the “Harvard Business Review” article. “If you don’t provide the right message using the right delivery vehicle at the right time, chances are your customer is going to ignore your hard-crafted pitch.”

The right action
Directing an action can take any number of forms. These can include sending a message, making a recommendation, presenting an offer, extending an invitation, and providing a treatment. The different varieties and permutations of messages, recommendations, offers, invitations, and treatments are practically infinite.

Given Pareto’s Law, which states that most companies derive the vast majority of revenue and profits from a small percentage of customers, the right action may be no action. Indeed, doing nothing at all—and thereby preserving resources—may actually be the most appropriate action in many cases.

Following are some possible considerations regarding “right action” decisions:

• To what extent is the action customized to the perceived wants, needs, interests, situation, etc. of the individual?
• If an offer, does it make sense to bundle the offer with other products/services?
• What actions should follow, based on purchase sequence contexts?

Bringing Best Next Action to life
Getting to Best Next Action means continuously optimizing the trade-offs among objectives, constraints, and any number of other decision variables to achieve the desired business outcomes. By the way, it’s unfortunate that the term “optimization” has become such a buzzword. Most companies use it to mean “better.” In fact, it should be used to mean “empirically derived to efficiently maximize stated objectives with operational constraints.”

At least that’s how we use it at Fair Isaac, where we build decision models that map the relationship between multiple input variables to the range of decision choices available to the user and to the business consequences and drivers, such as losses and profitability. The goal is to find the optimal decisions under a stated set of business constraints in order to identify the optimal action to take on each prospect or customer.

Consider, for example, a decision model for pharmaceutical companies that takes into account a broad array of inputs to determine what set of marketing actions to take for each individual physician. The model allows companies to create profit curves that show what the projected increase will be in terms of prescriptions being written by individual doctors. By understanding each physician’s response, companies can understand how to move the needle in terms of prescription volume. The output of the decision model informs all four R’s: right individuals (which physicians to visit), right time (when to visit and how often), right action (the number of samples to leave behind), and right channel (which promotional levers to adjust).

The possibilities of marketing optimization are capturing the imagination of marketers, according to a recent survey from Forrester, which listed contact optimization technology as the number-two item on marketers’ wish list of enterprise technology. I’m willing to predict that the concept of Best Next Action will soon usher in a new era of marketing improvement.

Jeff Zabin is coauthor of “Precision Marketing” (Wiley, 2004) and a director in the Precision Marketing Group at Fair Isaac. He blogs at www.paretorules.com and can be reached at [email protected].

Previous articles by Jeff Zabin:

Precision Marketing Is a Green Initiative

A Nation of 300 Million Records

Cracking the Code on Next-Generation Code Promotions

Marketing Dashboards: The Visual Display of Marketing Data

Placing Sure Bets on Customer Knowledge

Visa: Life Takes Rebranding

Jim Brickman Plays the Music of Precision Marketing

The Netflix Paradox: Are Loyal Customers Sinking Your Stock?

Making Sense of Super Bowl Spots in the Age of Precision Marketing

When It Comes to Contextual Marketing, Think Like Chip Davis