Exploiting Response Models – Optimizing Cross-Sell and Up-Sell Opportunities in Banking


The banking industry regularly mounts campaigns to improve customer value by offering new products to existing customers. In recent years this approach has gained significant momentum because of the increasing availability of customer data and the improved analysis capabilities in data mining. Typically, response models based on historical data are used to estimate the probability of a customer purchasing an additional product and the expected return from that additional purchase. Even with these computational improvements and accurate models of customer behavior, the problem of efficiently using marketing resources to maximize the return on marketing investment is a challenge. This problem is compounded because of the capability to launch multiple campaigns through several distribution channels over multiple time periods. The combination of alternatives creates a complicated array of possible actions. This paper presents a solution that answers the question of what products, if any, to offer to each customer in a way that maximizes the marketing return on investment. The solution is an improvement over the usual approach of picking the customers that have the largest expected value for a particular product because it is a global maximization from the viewpoint of the bank and allows for the effective implementation of business constraints across customers and business units. The approach accounts for limited resources, multiple sequential campaigns, and other business constraints. Furthermore, the solution provides insight into the cost of these constraints, in terms of decreased profits, and thus is an effective tool for both tactical campaign execution and strategic planning.


Database marketing, Cross-selling, Up-selling, Profit Optimization, Assignment Problems, Constrained Optimization. Response Models.


The new mantra of database marketing in banking and financial services is “the right product to the right customer at the right time”. However, a practical and effective implementation of this goal is not easy to accomplish. What makes this particularly difficult is that companies have multiple products and operate under a complex set of business constraints. Choosing which products to offer to which customers in order to maximize the marketing return on investment and meet the business constraints is enormously complex. This paper outlines a framework for solving this problem and presents an example using data from Scotiabank.

Scotiabank is one of North America’s premier financial institutions; it is comprised of Domestic Banking, Wealth Management, International Banking and Scotia Capital groups. The Domestic Bank employs more than 23,000 people and has over 6 million customers. The Wealth Management Group incorporates key personal investment and advisory activities within the Scotiabank Group. Scotiabank is the most international of all Canadian banks, its International Banking Group has more that 21,000 employees and provides retail banking services in over 50 countries. The Scotia Capital Group provides corporate and investment banking on a global basis. Because of its breadth, Scotiabank is able to offer a full suite of financial products to its clients.

Scotiabank has made a deliberate effort to become a customer- focused institution, as opposed to a vertical product driven company. The bank’s formally stated goal is “to be the best at helping customers become financially better off by providing relevant solutions to their unique needs”. A direct consequence of this goal is that marketing campaigns are multiple product campaigns as opposed to single product campaigns. This transforms the data mining and campaign targeting process from a fairly simple application of individual response models into a significantly more complex problem of choosing which product, if any, to offer to which customer and through which channel. The benefit is that campaigns are more customer-focused than in the past.

1.1    Business Problem

The database marketing community has changed significantly over the last several years. In the past, database marketers applied business rules to target customers directly. Examples include; targeting customers solely on their product gaps or on marketers’ business intuition. Marketers have also applied RFM type analysis where general recency, frequency, and monetary measurements as well as product gaps are used to target customers for specific offers. The current approach, which has widespread use, relies on predictive response models to target customers for offers. These models accurately estimate the probability that a customer will respond to a specific offer and can significantly increase the response rate to a product offering. However, simply knowing a customer’s probability of responding to a particular offer is not enough when a company has several products to promote and other business constraints   to consider in its marketing planning.

Marketing departments also face the problem of knowing which product to offer to a customer, not just which customer to offer a product. In practice, many ad hoc rules are used. Prioritization rules based on response rates or estimated expected profitability measures have been used; business rules to prioritize products that can be marketed are sometimes used; and product response models to select customers for a particular campaign are also used. One approach that is easily implemented but, for reasons outlined later, may not produce optimal customer contact plans relies on a measure of expected offer profitability (the estimated probability of response multiplied by the profit given customer response less direct costs) to choose which products to offer customers. However, a shortcoming of this approach is its inability to effectively handle complex constraints on the customer contact plan.

1.1    Business Constraints

Database marketing departments face several types of business constraints. Typically, there are

  • restrictions on the minimum and maximum number of product offers that can be made in a campaign,
  • requirements   on   minimum   expected   profit   from product offers,
  • limits on channel capacity,
  • limits on funding available for the campaign, and
  • campaign return-on-investment hurdle rates that must be met.

These are a sample of the constraints that marketing departments must meet when executing a campaign. Ad hoc approaches are also typically used in an attempt to meet these constraints.

The opportunity costs of the business constraints are generally not known. Constraints are usually negotiated between marketing, product lines and delivery channel management. If the cost of a constraint was known, then the company could choose to tighten or to relax the constraint by removing or adding more resources. For example, channel capacity could be increased if it were known that there was a significant return on the investment by doing so. Knowledge of the opportunity costs could help evaluate these management decisions. Applications of this will be discussed in the “STRATEGIC USAGES” section of this article.

Ultimately, the database marketer needs a concrete framework to effectively act on “the right product to the right customer at the right time” mantra. The approach we take is to transform the database-marketing problem into an optimization problem that is designed to generate the maximum incremental profit from a limited amount of resources subject to the necessary business constraints. This paper will describe an actionable framework that will satisfy this business problem.


It is helpful in understanding the solution framework to understand the data that are available for marketing campaign planning. Understanding the data will help make the problem more concrete.

2.1    Data

We assume that there has been a thorough analysis of historical marketing campaigns and that accurate response probability models exist for all products in question. The result of these data mining exercises is a data set that contains an expected profit for each product for each customer, where the expected profit is derived from the customer specific probability of response and the profit generated given a customer response. Needless to say, these data sets can be rather large. It is not unusual to have over 5 million customer records in such a data set. Let’s assume that there are 10 products and 1 million customers, and that for each customer and product we have an estimate of the expected profit given that each customer is offered each product.

2.2    Ideal Approach

The ideal approach to solving this problem is to model it as a specialized type of assignment problem. This type of problem is an integer program. It can be unambiguously expressed with a mathematical formulation. Let xij = 1 if customer i is offered product j, and 0 if not; let rij the expected profit of offering customer i product j; let cij the cost of offering customer i product j; let R be the corporate hurdle rate. Then, a very simplified version of the problem can be expressed as finding the xij that satisfy

This formulation captures only the bare elements of the problem. It does not account for multiple campaigns composed of different products, multiple channels, and channel capacity constraints just to name a few possibilities. However, the model can easily be extended to cover most typical business constraints encountered in practice, but the basic formulation remains the same. It is important to note that this ideal formulation is difficult to solve because of its scale. For 1 million customers and 10 products there are 10-million integer variables xij, this yields 210,000,000 possible customer-offer combinations. Using standard optimization methods a problem of this size can, in principle, result in a branch and cut tree of as many nodes. Because of this problems of this size are extremely difficult to solve, so we propose an alternative approach. While not providing a strictly optimal solution, the alternative approach does provide an approximately optimal solution that in preliminary studies has shown to be a good approximation.

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2.3    Practical Approach

Although it is not practical to solve problems formulated in this ideal way, it is possible to approximate the ideal formulation and arrive at a formulation that is practical to solve. There are numerous ways to approach this approximation; one approach is to sample from the customer base and use that sample as representative for the optimization. Another approach (and the one that we take) is to aggregate customers based on coefficients rij in the ideal formulation. Aggregation can be considered natural in this setting particularly when we understand that much of the data is consistent and estimated. For example, the cost data cij are most likely to be consistent across customers for a given product. Similarly, the estimated expected profit rij is most likely the result of data mining techniques such as predictive response models. As long as the customer/offer specific response models. As long as the customer/offer specific response rate is represented as a probability, the proposed framework can handle it. Scotiabank uses standard, accepted statistical and data mining approaches to obtain these estimates.

The aggregation process we use involves conversion of the raw data into a form that can be used naturally in a linear programming optimization model. The key is to cluster the raw data rij and use the clusters as the aggregate. Unlike the usual use of clustering, the purpose here is not the identification of customer segments or to differentiate groups of customers, but to aggregate customers into similar groups. This is an important distinction to keep in mind since clustering is most frequently used to distinguish, not to aggregate. If the clusters are internally consistent, then the cluster centroids can be used as representative of the data for all the customers within a single cluster.

This aggregation enables the problem to be reformulated as a linear program so that rather than assigning offers to individual customers, as the ideal integer program does, the program identifies proportions within each cluster for each product offer. This can be accomplished with similar constraints to those of the ideal formulation. Moreover, the linear program is much smaller and much easier to solve. Note however, the solution may require that multiple products are offered to proportions of customers within a single cluster. When that happens, a new problem is defined that is a simple assignment problem at the level of the cluster, where multiple offers are to be assigned within the cluster, and it is relatively easy to solve.

It should also be noted that preliminary experiments solving the approximation with varying numbers clusters indicate that as the number of clusters increases the value of the objective quickly rises then slowly converges to the integer relaxed solution. Further study is needed to identify a good number of clusters that work in a “typical” setting.

2.3.1          Formulation

Consider the following variables defining raw data as input into the solution algorithm. Let yij be the number of customers in cluster i that are offered product j; let r’ij be the estimated expected profit given that customer in cluster i is offered of product j; let c’ij be the cost of offering a customer in cluster i product j; let R be the corporate hurdle rate. Then, a very simplified version of the problem can be expressed as finding the yij that satisfy

Once the yij that satisfy the formulation are found, the optimal proportions that they give must be applied to the customers within the specific clusters. For example, suppose that yij is the total number of customers in cluster i. Then, every customer in that cluster should be offered product j. Alternatively, suppose that for a given i, yij > 0 and yij’ > 0 for j ! j’. Then, yij of customers in cluster i must be offered product j and yij’ of customers in cluster i must be offered product j’. The optimal way to do that is to solve a simple assignment problem using the estimated expected profit rij for the individual customers and not the clusters. It is important to note that some of the constraints may be violated as a result of solving this assignment problem particularly if the cluster centroids used in the linear program formulation are involved in a tight constraint and not consistent within the cluster.

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We demonstrate this approach with data from Scotiabank and using existing procedures within the SAS system to implement the formulation described above. The details of the SAS code will not be given.

Eleven unique offers were to be considered: five investment, three lending and three day-to-day banking offers. The investment offers included GICs, mutual funds, Registered Education Savings Program (RESP) and two unique discount brokerage offers. The lending offers included a mortgage and two credit card offers. The day-to-day banking offers included one of two Scotia online banking service offers and a deposit account acquisition. The term campaign is used here to imply one large pro-active customer contact campaign that it comprised of eleven distinct offers, it can be thought of as eleven single product campaigns that are being offered at generally the same time to a non-overlapping set of customers. For the purposes of this paper the detailed product offer descriptions have been suppressed. Approximately 2.5 million customers were included in the potential universe for the campaign.

Ultimately, the goal of marketing campaigns is to produce a positive return on investment for the company that exceeds the corporate investment hurdle rate. Although the timeframe upon which this investment should be measured may be debatable, the goal is fundamental to the bank. To achieve this specific objective, the bank can execute marketing campaigns that are designed to maximize the expected incremental profit through making one of several offers to some of its customers, or potential customers.

3.1    Response Models

The expected incremental profit of a specific offer to a customer is an estimate based on response models and detailed product profitability calculations. These response models are used to estimate the probability that a customer will accept a specific offer. Scotiabank’s data warehouse has detailed account level profitability calculations for all of its products. This profitability information is used to estimate the near term incremental profit given that the customer accepts the specific offer. Once a specific offer is made to a customer there are two possible outcomes: the customer can accept or reject the offer. Using the offer specific response models the probability of both states is known for each customer. The incremental profit for both states is also known; it is zero if the customer rejects the offer and the mean near-term profitability for new accounts of the specific type if the offer is accepted. With this information, the expected incremental profit of the offer can be calculated for each customer/offer combination. The cost of making each offer is also known and is largely dependent on the channel through which the offer is made.

3.2    Channels

Scotiabank has several distribution channels through which campaigns can be executed. The main channels for direct marketing are direct mail, retail branch centres and call centres. For this example we assume that leads sent to the branch officers and call centres are follow-ups from a direct mail piece and that offers designated as direct mail are direct mail only. The use of the branch and call centres for follow-ups has been shown to have a positive effect on the probability of response to the offer when compared to direct mail alone. Of course, the lead delivery costs vary with the channel used. In this example we have used costs per lead of $3.00, $1.50 and $1.00 for the branch, call centre and direct mail only channels respectively.

3.3    Business Constraints

Several practical issues surround the campaign execution process that affects the customer/offer selection process, for this application to be acceptable for implementation these business constraints must be maintained. The following business rules have been translated into constraints that can be applied to the optimization model:

  • Campaign costs cannot exceed $1 million.
  • The campaign must have a return on investment of at least the corporate hurdle rate. In this example we have used 20%, which is not necessarily the bank’s actual corporate hurdle rate.
  • The branch and call centre channels have a certain capacity constraint for timely processing of campaign generated leads. In the example, the call centre can accept up to 500,000 leads, the branch can handle up to 250,000 leads and direct mail is unlimited.
  • Product offer minimums are also required to satisfy internal bank objectives. For the purposes of this example we set all offer minimums to 20,000 with two exceptions. The RESP offer, which has an extremely limited eligible universe, had a lower bound of 2,500 and one of the Scotia online offers had a lower bound of 5,000.
  • Cannot offer products to customers who already have that product at Scotiabank.
  • The standard marketing exclusions, such as credit risk or do not solicit, must also be strictly adhered to.

3.4   Solution

The estimates for customer/offer expected incremental profit, costs and business constraints serve as inputs to the profit optimization phase of the campaign design. The profit optimization phase is independent of the construction of these inputs. This means that as response models, profit estimates or costs are refined as long as the results are represented in the same manner, the optimization phase will be able to accept them as inputs. This property is important as the bank is constantly testing and refining these inputs as the marketplace is ever changing.

3.4.1       Results

The result of this algorithm is an allocation, of a specific offer, or no offer, to each customer. Also output is the associated expected incremental profit by customer making that offer. This solution is a SAS data set that has a customer identifier, the expected return, offer and channel designation. The full data set is 2.5 million records; the table below shows the first 25 records.

Customer Id

Product Channel Return














Offer 2 Direct Mail 0.0005






00410488 Offer 10 Direct Mail









Offer 5 Call Center 13.0782












Figure 1. Sample of the solution dataset.

To better understand the solution, it is useful to look at several charts that summarize the solution and a report that is produced by the algorithm.

3.4.2         Offers

The Offer Frequencies by Channel chart, Figure 2, provides a graphical representation of the distribution of offers by channel and is useful for understanding the solution. This figure shows that few of the contacts have a branch follow-up treatment, some have call centre follow-ups and most have just the direct mail treatment. Offer 10 has the largest quantity of contacts and is spread across the direct mail and call centre channels. The Constraint Report, Figure 3, provides significantly more insight into the nature of the derived solution.

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3.4.3         Business Constraints

The Constraint Report summarizes the constraints applied to the problem as well as outlines the chosen level and marginal costs associated with each constraint.

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  •  The last line of the Constraint Report in Figure 3 shows that the objective function, expected profit, was maximized at $3.58 million from an expenditure of $1 million. This results in a 258% return on investment for the campaign.
  •  The first two lines in Figure 3, Branch Capacity and Call Center Capacity, summarize the results of the branch and call centre capacity constraints respectively. The branch capacity for follow-up contacts was limited to 250,000 and the call centre to 500,000. In the solution, only 2,180 contacts were assigned to the branch, and 202,258 to the call centre, for follow-up calls. This low quantity of follow-up contacts, at either the branch or the call centre, is due to the conservative estimate of the increased response rates resulting from the follow-up and the significantly higher cost, $3.00 for branch and $1.50 for call centre, as compared to direct mail only, $1.00.
  • The third constraint, Campaign Cost, limits the total costs   for the campaign to $1 million. This constraint is in fact tight, meaning that the optimal solution was restricted by the condition.   The marginal value of the constraint is $1.53, this means that an additional $1 spent on the campaign would result in a $1.53 increase in expected profit.
  • The offer constraints show the lower bounds for each of the specific offers. Notice that 5 of the 11 products were limited by their lower bounds. In the solution, Offer 9 was only made to 20,000 people. If that constraint were to be decreased by one unit, e.g. to 19,999, then the objective function, expected profit, would be increased by $1.48 – so the cost, on expected profit, of this business constraint is clear.

3.4.4         Profitability

The estimated Profitability by Channel report, Figure 4, clearly reveals the quality of leads that are sent to the respective channels. The branch follow-up leads have a significantly higher expected incremental profit than for call centre follow-up leads or direct mail alone. The call centre is also sent leads that are more profitable than direct mail alone. A few comments about the way that the channel effects were modeled are necessary to fully understand this result.

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The differential effects of the various channels enter the response models as a main effect. A call centre follow-up treatment increases the probability of response as compared to no call centre follow-up treatment. The branch follow-up treatment has the same directional effect as the call centre, although larger. As such, everything else the same, the expected profit from making an identical offer to a customer with a branch or call centre follow-up is greater than without the follow-up. As such we would expect to see a higher expected rate of return when applying the additional follow-up treatments, although not at this magnitude. There is some other factor driving the higher rate of return, in fact, it is the channel selection by the optimization routine.

Recall that the channel costs are fixed at $1.00, $1.50 and $3.00 for direct mail only, call centre follow-up and branch follow-up respectively. The incremental expected profit enters the equation through an increase in response rate. For a branch follow-up to be more profitable than an offer made without a branch follow-up it must be the case that:

Prob Branch – Profit – Cost Branch + Prob DM – Profit – Cost DM

. Profit – (Prob Branch , Prob DM ) + Cost Branch , Cost DM

. Profit – (Prob Branch , Prob DM ) + 3 – 1

. Profit – (Prob Branch , Prob DM ) + 2

Either the profit given that the customer accepts (Profit) or the incremental effect on the response probability of the Branch follow-up (ProbBranch – ProbDM) is large enough to overcome the $2 increase in contact costs (CostBranch – CostDM). The greater the difference in this inequality the more beneficial the follow-up contact is. The difference can be large if a highly profitable product is being offered, or the increase in the probability of response is high. For reasonable values of the probability of response from the direct mail (ProbDM), the increase in response rate due to a branch follow-up (ProbBranch – ProbDM) will rise with an increase in the probability of response from the direct mail (ProbDM). From a business perspective, this means that either highly profitable offers and/or customers who are most likely to respond to the offer will tend to be given a follow-up treatment. This is a particularly important result when dealing with the business owners of the call centre and branch channels.

3.5    Summary of Tactical Example

In summary, the solution provided an approximately optimal solution to the ideal capacitated assignment problem. The output is a decision, for each customer as to which, if any, product to offer and through what channel. The campaign expected profit is $3.58 million on $1 million invested, for a return on investment of 258%. Using an ad hoc approach, that utilized response models and near term profit, and met all the business constraints the most profit that could be generated was $2.65 million on $1 million invested for a campaign return on investment of 165%. The boost in the campaign return on investment of 93% is entirely attributable to the quality of the solution produced by the optimization process as opposed to the ad hoc approach.


Although this technique was developed primarily for its tactical application, as described above, it has some significant strategic applications too. The strategic applications are in the area of capacity planning. Two insights will be discussed, one dealing with campaign budgeting and the other with channel capacity planning.

4.1    Campaign Budget Allocation

In general, campaign budgets are determined prior to the campaign design. The degree of analysis that goes into determining specific campaign budgets, or annual campaign budgets, can vary greatly from institution to institution. As a strategic tool, the optimization technique provides an opportunity to determine the effects of making different budget allocations – in the budgeting process.

For example, in determining how much money to invest in a campaign, it wold be useful to know the marginal return on an additional dollar investment. This is reported at $1.53 in Figure 3 as the marginal value of the $1 million cost constraint. Given the campaign definition, all of the other constraints and the current customer base, investing one more dollar would result in an increase in profit of $1.53. If marginal return on investment is greater than the corporate hurdle rate then that supports an argument to increase the investment.

This technique provides a compelling and empirically based process for altering, positively or negatively, the campaign budget. Of course, other considerations go into budget allocations but the technique could shed light onto the impact of such decisions.

4.2    Channel Capacity Planning

Similarly, channel capacity planning can benefit from this technique. It is understood that in the short run, channel capacity is fixed, although in the long run, or planning mode, channel capacity can be changed.

Again, from the Constraint Report, Figure 3, if it appears as though a specific channel is used to capacity, then we can look at the marginal value of the constraint. The marginal value of these constraints gives the increase in profit, the objective function, given a one-unit increase in channel capacity. With the cost of this increase in capacity quantified, one can determine if the additional investment in the channel is warranted. This also helps to quantify the opportunity costs of having branch staff shift away from non-campaign related work. Again, this is from the perspective of campaign execution, there are other benefits to channel capacity augmentation that would also have to be taken into account, but at least the campaign benefits would be understood.

4.3    Sensitivity Analysis

In addition to using the solution for capacity planning the approach lends itself to analyzing the sensitivity of the solution to changing assumptions. This is particularly useful for evaluating the solution to changes in the business constraints.

For example, a scenario can be optimized with several alternative budget constraints. Figure 5 shows the results from solving a model that is very similar to that discussed above. Each row in the table corresponds to a different limit on the total cost of the campaign. All the other constraints and data in the model are held constant. The first scenario allocates at most $1,000,000 on the campaign, the second $1,250,000 and the third $1,500,000. For each of these scenarios the optimal solution is calculated and the expected return from that solution, the number of offers through the branch, and the ROI, are also shown in the figure.

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It is interesting to note that for each of these scenarios, as for the example above, the branch capacity is 250,000 offers. However, until the size of the campaign, as measured by the cost of the campaign, reaches $1,500,000, the branch channel is not used to

its capacity. This means that for campaigns with a budget less than $1,500,000 there is excess capacity in this channel and its value is lost. The additional $500,000 expenditure results in an additional $670,000 return with a 34% ROI and no excess branch capacity.


The shortcomings of this approach can be broadly classified into two categories: business and technical. From a business perspective there are three perceived shortcomings of this solution. These shortcomings are related to the required inputs to the solution, changes in the types of campaign design decisions, and post analysis, which are performed by the business user. From a technical perspective there are two general shortcomings of this approach. The first is related to the constraints, and the second is related to the acceptable problem size.

5.1    Business Perspective Shortcomings

The approach requires as an input the expected incremental profit associated with each offer and customer combination. Fundamentally this implies the creation, and maintenance, of offer specific probability of response models and detailed profitability measurements. Both of these inputs require ongoing maintenance and enhancement, as the marketplace is ever changing. This requirement does not seem to be too onerous as most organizations that would consider implementing this solution are likely already are producing these inputs.

The types of decisions made by business users will be altered with the adoption of this approach. The business users will be making decisions that affect the objective function and constraints but not directly about how many offers to make of each type or through which distribution channel. At first the business users might resist this solution, as the decisions that are being made by the business are more abstract than those made during the business as usual campaign design process. Although the business users are making more abstract decisions about campaign design, they are actually gaining more effective control over the campaign. Thus the successful adoption of this process would likely involve some amount of business user education with respect to the design of the optimization problem.

The solution was designed to explicitly maximize the expected incremental profitability from running a campaign, not to maximize the overall response rate of the campaign. For instance, a customer might have a higher estimated response probability to a low rate credit card offer than a high rate card. However, the profitability given offer acceptance could be substantially higher for the high rate card. If the goal were to maximize the response rate, then the low rate card would be offered. Whereas, if the goal were to maximize profitability then the offer with the greatest expected profitability would be made. This is only a shortcoming in the sense that business users’ expectations have to be managed as campaign response rates are more easily and quickly measured than is campaign profitability.

5.2    Technical Perspective Shortcomings

As this solution was developed in a linear programming framework the constraints must be expressed as linear functions of the choice variables.   A couple of examples of plausible business constraints that are non-linear and therefore do not work with the linear programming approach are:

  • The number of credit card offers must be greater than 20,000 or equal to zero.
  • The cost of a specific offer is a function of the number of those specific offers being made.

The scalability of this approach has not been exhaustively explored. Tests have been run on data sets with 2.5 million customers, 11 offers and 3 distribution channels and the solution is generated in an acceptable amount of time and resources. The solution was explicitly designed to scale well to the number of customers. Scalability in the offer and channel dimensions is significantly more expensive than along the customer dimension. Although, the number of distribution channels that a company can utilize in an automated campaign is not too large; the number of possible products that could be offered could grow well beyond eleven.


This offer optimization approach provides three significant improvements over other, more standard, approaches to the problem of campaign design.

  • First and foremost, the developed solution produces significantly more incremental profit than competing solutions. As demonstrated in the tactical example, the campaign incremental profit is almost twice as high as that of the standard approach.
  • Secondly, this technique is designed to implement multiple constraints and therefore affords the business more control over the direct marketing process. Attempting to satisfy several business constraints simultaneously using ad hoc techniques is a very labor-intensive task and generally produces poor results.
  • Finally, the additional information that can be presented as a part of this solution can provide the business with more insight into the customer base, product offerings and the effects of the constraints.

This insight can be used to guide the company to craft better investment decisions in order to make future campaigns even more successful.


Our thanks to the three anonymous referees whose suggestions helped clarify our discussion.


Campell, D., Erdahl, R., Johnson, D., Bibelnieks, E., Haydock, M., Bullock, M., and Crowder, H. (2001), “Optimizing Customer Mail Streams at Fingerhut,” Interfaces, (31), 77-90.

Cohen, M. (2000), “Offer Optimization, Optimizing customer value,” SAS Internal Technical Paper. May 2001.

Cohen, M., and Parks, J. (2000), “Optimizing the Allocation of Cross-Selling Effort,” Proceedings of the DiamondSug 2000 Conference, San Francisco.

Cohen, M. (2000), “Targeted Marketing, Optimizing the customer/event/channel assignment,” SAS Internal Technical Paper. December 2000.

Nemhauser, G., and Wolsey, L. Integer and Combinatorial Optimization, John Wiley & Sons, New York, 1988.

Software review The role of social networks in marketing

Abstract   Social network analysis is not new, but its business application in marketing is a relatively new area. This paper describes what social network analysis is and how it     is being applied to solving marketing problems around segmentation, targeting and campaign design. In particular it describes how the social network can be defined, the   role of the influencer and how this information can be used to improve marketing insight and communication effectiveness.

Journal of Database Marketing & Customer Strategy Management (2007) 15, 60–64. doi:10.1057/palgrave.dbm.3250070


In order to create marketing strategies suitable for our customers, we must first understand what the customer is influenced by during the decision-making process. This might be the most important way to learn how and where to correctly invest our marketing efforts. Recent research shows that more than 75 per cent of customers will consult a friend before deciding on the purchase of a certain product or service. But the main issue here is whether organisations know how to utilise this fact to their advantage.

In recent years, it has become evident that large organisations are beginning to appreciate the importance of word-of mouth marketing. We are still, however, nowhere near effectively utilising this information resource.

This paper describes what social networks are, what the best way of creating such  networks is, and how an organisation can utilise these networks in order to create effi cient marketing strategies for its customer base.


We will examine what would make a customer feel confi dent enough to purchase a certain product according to a survey conducted by eMarketer, in which each participant could choose multiple answers

  • A friend ’ s recommendation (76 per cent)
  • Previous experiences you had with this company (68 per cent)
  • A recommendation in a newspaper / magazine (22 per cent)
  • Advertisements (15 per cent)
  • The company ’ s website (8 per cent).

In other words, most of our customers will consult a friend prior to making a decision about a certain purchase.

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This type of promotion is called word- of-mouth marketing, and can take place between any two or more connected people, that is, via a social network.

Conversely, companies invest millions of pounds annually in an attempt to market their products, although most of them neglect to consider the influence of word-of-mouth. Moreover, even the companies who have already taken notice of this matter are usually doing so based on a gut feeling, rather than a statistically based analysis.

A good example is current word-of- mouth marketing tactics, such as viral campaigns. As the organisation does not, however, properly map the social network itself, it is very difficult for it to track and measure the results of such campaigns, and recognise its successes and its problems.

Consequently, as an initial step in the road to an optimal solution, we should map the social network accurately. But we must first understand what a social network is.


A social network is a collection of interconnected people.

Social networks comprise of points (people and potential customers) and connections between those points. These connections may be manifested in many different forms. Examples include

  • E-mail exchange
  • SMS exchange
  • Purchases
  • Telephone

Figure 1 illustrates how a social network is formed.

Each of us has a personal contacts list.

For instance, if we examine e-mail exchange, each e-mail I send will create a connection between me and the recipient   of that e-mail. That recipient can, in turn, forward that e-mail to his contact list, thus creating another connection between him and his recipients. Consequently, a network of personal connections is created or in its official title, a social network.


Now we know what a social network is. So what is the next step?

It is important to understand that the   first step towards a solution is our ability to identify the existence of a social network within our potential customer base.

Once we have identified the social network, we can move on to the next stage.

Identifying a social network

This is quite a tall order, but no longer an impossible one. There are quite a few technological tools developed for the sole purpose of efficiently and quickly identifying social networks, without having to invest any additional resources.

So now that we have identified the social network, what is the next step?

The second step is isolating those network members worth investing our marketing efforts in. In other words, out of the potential customer base, we need to determine who the opinion leaders are.

Identifying opinion leaders

Opinion leaders are network members regarded as having relevant knowledge, and who are probably the first ones to be consulted in regards to purchasing decisions.

Usually, most opinion leaders possess one or more of the following characteristics:

  • Part of a social network
  • Good communicators
  • Usually early adopters of products or services
  • Information

There are different technological tools that can help identify the opinion leaders among our customers.

Now that we have identified the opinion leaders and their connections within the social network, we can divert all of our marketing efforts to focus on those specific customers, assuming that they, in turn,

will spread the word to other network members. This way, we can reduce marketing costs and refocus our resources more effectively.


Word-of-mouth marketing is no novelty.

It is actually one of the earliest forms of marketing, going back as early as biblical times, when Eve suggested that Adam taste the apple, because it was very sweet.

Nowadays, there are a number of ways in which we can utilise word-of-mouth to effectively meet our marketing objectives:

  • We can use technological innovation to effectively detect social networks and opinion leaders.
  • It is a well-known fact in our world that the customer is in control, deciding for himself what the right product is, and when and how to buy it.Therefore, traditional marketing no longer suffices for answering our customers’ constantly changing
  • The rapidly evolving world of internet created a whole new game plan, for example, online forum debates, blogs, etc, which, in turn, produce new forms of word-of-mouth marketing.


Once we fully understand the social networks surrounding us and learn to identify the opinion leaders within those networks, we will be able to establish suitable marketing strategies that will spontaneously produce word-of-mouth marketing.

Additionally, we will also be able to allocate our financial resources towards strengthening connections with opinion leaders and recruit them as advocates for our business.


This case study is based on a fashion retailer in a European Market.


The client provided the analysis team with data from the loyalty scheme on 500,000 customers.

These data included:

  • Customer name and address
  • Date they joined the loyalty scheme
  • Summary purchase behaviour
  • Primary branch details
  • Purchase history at a product level
  • Coupon and voucher redemption data
  • Attendance at special events
  • Marketing contact history
  • Response to previous communication and promotional activities.

The data set covered

  • All customer included in the loyalty scheme both active and dormant
  • Transactional data since the scheme was introduced (nine years worth of history).

The team merged this customer data with relevant reference data on

  • Product and product groupings
  • Stores and store hierarchy
  • Branch and customer

The data were then refined and data quality problems removed.

The data were then processed through a social network analysis solution that was able to cope with the data volumes.

The basic stages were as follows

  • Extract social networks
  • Calibrate the connections between the parties in the network
  • Measure the flow of information/ behaviour through the network
  • Use the social network parameters to drive predictive analytics (eg churn).

The key output from the social network analysis was a set of attributes describing social effects for each individual. These included:

  • Total number of parties in the friends
  • Number of friends a customer has who are at risk of churn
  • Number of friends a customer has who are very loyal
  • How many opinion leaders in the customer network are influencing him/her to churn
  • How much cumulative influence (depending on connection quantity and strength) is the customer under to churn
  • How many of the customer’s friends have joined/left the network over any time period.

The following example illustrates the power of the social network analysis

  • A customer (Lucy) started shopping on her own in 1998
  • Within eight months she was shopping on a regular basis
  • Over the next 18 months, we identify eight other people who become part of her social network
  • The purchase behaviour of the network shows that the initial customer (Lucy) is the opinion leader
  • Three people in the network have the same second name
  • Over the next few years, we see a consistent purchase behaviour pattern across the customers (Lucy) network
  • The opinion leader stops purchasing
  • Within three months all other members of the social network stop

In order to understand what triggered the change in purchase behaviour of Lucy and the social network, a number of the members were contacted (including Lucy) and their purchase behaviour discussed.

It appeared that Lucy had purchased a blouse that had lost its colour in the wash. When she took the blouse to the store, the   sales assistant badly handled the situation and refused to make a refund. Ever more damaging she claimed with it was not defective and that Lucy had incorrectly washed the item.

Lucy has been so upset that she told all of her friends including those in the social network not to purchase at the chain any more.

As a consequence of this and other examples the retailer changed its refund policy.

This and other analysis show that opinion leaders can represent 7–20 per cent of the total customer population.

The retailer then went on to develop a range of marketing communication that focused on either the opinion leaders or the network as a group. These have proven to be very successful.


Social network analysis, although well proven in other disciplines is only starting to be applied with rigour to solve marketing problems. The initial results are proving to be valuable. As we see a growth in the use of this approach, I have no doubt that is will see the emergence of new marketing disciplines that focus on marketing to the social network and the influencers.

Software review: Using short message services as a marketing tool

Abstract The year 2000 saw an explosion in the volume of short text messages being   sent to mobile phones. Originally the sole realm of the telecommunication providers, this communication medium is starting to be used by other types of organisation to deliver messages to consumers. Marketers are starting to recognise the potential of this medium for marketing communications. This paper explains how the technology works   and explores potential business applications in marketing.


To date much of the discussion around the wireless Internet has concentrated on the application of Wireless Application Protocol (WAP) technologies. But a survey by Forrester Research1 showed that many WAP sites have a long way to go in meeting the requirements of the consumer for reliability, access and navigation. Short message services (SMS) available on GSM mobile phones on the other hand have grown from strength to strength. Unlike WAP, SMS can be used as a two-way communication vehicle, allowing people or organisations to send and receive short text messages from a mobile phone in near real time. The ready uptake by consumers of SMS will ensure that it becomes an integral part of the marketing mix.


The SMS service is actually a network of SMS centres that are connected to each other and can interchange text-based messages. The SMS centres are specially written software packages that can:

  • send messages to mobile phones
  • receive messages from mobile phones
  • receive messages from the Internet
  • send messages to other SMS centres
  • receive messages from other SMS centres.

SMS centres tend to be owned by telecommunication companies that want to offer SMS services to their customers. The software for the SMS centres is designed and developed by specialist IT companies including Logica, CMG,


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Nokia and Sema. There is no single standard protocol for messaging systems and each of the SMS centre solution providers uses its own protocol.

The SMS business is a key part of their profitability. In fact, for some of these companies the majority of their profit growth came from their SMS divisions.


The volume numbers for SMS services exploded in 2000. Upwards of 10 billion messages a month are sent globally using the SMS service (see Figure 1).

The key reason for the rapid growth lies in the fact that only recently has the service been truly global. Before 1998, most services were limited to the mobile operator network only. Mobile users could only send messages to other users on the same network. Clearly, that is a very limited service. Mobile operators at that time began to negotiate peering agreements that would permit the SMS centres to send messages to each other when the users were on different networks. Once these agreements were in place, the service multiplied its reach dramatically.

In addition, text messaging was associated with children and students, mainly because the cost of messaging was much cheaper than the cost of voice calls. As more people began to get messages though, especially messages alerting them to new voicemail, they began to understand the non-intrusive, but highly pertinent and time-sensitive information that could be received (and also stored in memory) using SMS.

As people became more comfortable with the service its use soared. Simple applications were deployed, including e-mail notification, information services (lottery numbers, sports scores, etc.), and other time-sensitive applications. Most of these new SMS services were deployed by the telecom operators themselves but the situation is changing as other organisations recognise the potential of this new communication vehicle.


The mobile telecommunication operators typically charge from 2p to £1 for each message sent, with 10p being the average charge. This cost structure may prohibit some organisations from using SMS for marketing purposes. The pricing model will change as other organisations recognise the revenue potential of SMS and move into the market.


The ability of SMS centres to send and receive messages from the Internet means that creating the necessary technical infrastructure to deliver SMS is within the capabilities of most technology-orientated organisations.

There are three key options that are being explored by the early adopters:

  • developing static applications that talk to one SMS centre
  • sending messages to a service provider that is connected to various SMS centres
  • installing a messaging application that talks to all of the SMS

There are a number of key factors that influence the choice of delivery method for the early adopters. These include:

  • up-front cost
  • ongoing operating costs
  • flexibility of platform
  • availability of internal IT resource
  • quality of service desired
  • volumes of messages to be sent/received.

Most have tended to opt for the   service provider option and have then migrated to a messaging platform or gateway once the SMS has proved its worth.


Mid-1999 saw the mobile operators beginning to offer simple services over the phone. These services included:

  • welcome messages
  • e-mail notifications
  • voice message notifications
  • sports results
  • lottery

These services were relatively straightforward and lent themselves naturally to SMS. The ability to connect directly to SMS centres via the Internet has allowed a much more extensive range of services to be developed. These new services exploit some of the beneficial features of SMS. These include their:

  • personal nature: the fact that people carry a mobile phone as a personal communication device means that short text messages can be sent directly to an individual at almost any time
  • near real-time delivery; a short text message can be sent to a mobile phone almost in real time, if the phone is switched on the individual will immediately be informed about the receipt of the message
  • unobtrusive nature: text messages can be read when recipients want and do not therefore interrupt their current activity
  • relative low cost: depending on the service provider, the cost of sending an SMS communication (2p–£1) to an individual is much lower than for more traditional media such as direct mail (25–75p) or telephone marketing (£1.00–£2.50)
  • simplicity: receiving and sending short text messages from a mobile phone are simple operations that do not require additional software or specialist hardware
  • support for two-way communications: unlike WAP, SMS allow messages to be sent both ways
  • message forwarding (ability to forward messages to peers): most SMS services allow messages to be forwarded to other individuals and, in some cases, groups of individuals
  • location-based potential: the mobile technology allows the location of the phone user to be identified, opening up the potential for location-based

The key to success will be in developing SMS that are timely, relevant and pertinent.


As with e-mail, the potential for unwanted messages or SPAM is great. This will become particularly true as SMS become more widely available to third parties. The fact that most customers pay directly to retrieve text messages means that the potential impact will be even more pronounced. There is   a strong move by telecommunication companies to move to a self-regulated permission-based approach to SMS.

The sanctity of the mobile phone as a personal communication tool could easily be violated by inappropriate communications. Filtering technologies are already being developed to address this issue.


There are six main types of services (as defined by the eigroup), but that does not mean that there are not many   more variations on the theme of timely, relevant information delivered directly to the user.2 The six ‘SMS’ types are:

  • Send Me Stories
  • Save Me Somehow
  • Search My Server
  • Sell Me Something
  • Sort My Socialising
  • Send Me

Send Me Stories provide a marketing message to a mobile phone user that contains information that is relevant and time sensitive, for example sending details of an in-store promotion to a loyalty card customer.

Save Me Somehow provides a marketing message to a mobile phone user that acts as coupons allowing discounts on specified goods. For example, sending details of a discount on a television to a store card customer. Or   a marketing message to a mobile phone user that reminds them about an important event. For example, confirming that a large transaction has been lodged in a bank account and recommending most appropriate action.

Search My Server provides messages to customers with the objective of stimulating access to a WAP site. For example, stimulating usage of a financial information WAP site after usage has declined or service has been revamped.

Sell Me Something provides messages to customers selling a product or service and allowing them to purchase items directly through text response. For example, sending details of a new CD released by a customer’s favourite band, using previous purchase or customer preference data and allowing the customer to send text message as response and   initiate purchase process. As location tracking becomes widely available, the combination of time and location will prove very compelling in offering products or services to the consumer. Bell Mobility in the USA are currently   exploring location-specific digital couponing, offering discounted products and services to subscribers within a certain radius of participating merchants. The commercial roll-out is expected in 2001. The technology will allow identification of location to within 50   feet.3

Sort My Socialising provides messages that can be forwarded to a customer’s peer group. For example, sending a customer details of a concert or webcast in a form that can be forwarded to friends and including a response mechanism that allows peers to register on WAP or website. Ensuring compatibility with the Internet messaging facilities (e-mail and ICQ), is essential if a full service offering is to be provided.

Send me Signals provides a marketing message to customers that signals an action is required. For example, a local motor dealer sends a message to a customer warning that the customer’s vehicle is due a service, suggesting possible availability.


The technology associated with modern cellular communications allows the location of the mobile device user to be identified to within 50 feet. This has led to the development of a number of location-based services. Although there are a number of data protection and privacy issues that will need to be addressed, a number of organisations in Europe are running pilot projects where the information is being used to drive marketing communications. If this technology becomes more widespread the application of location-based data may become the norm in some sectors, for example the automotive sector.


Bluetooth (a technology named after a 10th century Viking king) is being developed by Ericsson, Nokia, IBM, Toshiba and Intel to allow wireless communication between electronic devices. This technology, which will not really be available until 2002, should increase the power of SMS by facilitating more integrated communication between the mobile phone and other devices. In particular it could facilitate the payment for goods and services using the mobile phone.


SMS will grow in popularity as a marketing communication vehicle over the next few years. Its potential is only just being realised within the telecommunications industry and is still relatively unknown outside the sector. But with the creation of a global infrastructure and subsequent explosion in the use of SMS by consumers, it will not be long before other parties start to explore the opportunities that it avails.

The current pricing model used by the telecommunication companies will inhibit SMS use for marketing in the short term. But the revenue potential of the SMS market will attract other providers who will increase the competition and bring down prices. The unique qualities of SMS will make it a powerful weapon in the modern marketing mix.

Software review A strategy for self-service in a telco environment

Abstract As the cost of servicing the customer relationship grows, more and more organisations are looking at how technology can slow down and in some cases reduce     the costs of managing the customer relationship while at the same time driving up customer service. The result has been the growth in self-service technologies that aim to address both the cost and service quality issues. This paper illustrates how a telco organisation developed a strategy for the deployment of self-service within the organisation. It is based on a real project but has been modified to include lessons from a number of other similar projects.

Journal of Database Marketing & Customer Strategy Management (2007) 14, 315–321. doi:10.1057/palgrave.dbm.3250062


The Telco used as the basis of this paper was the number two in the local market. The market was very competitive and margins on the core business were being squeezed. As part of an overall review of CRM activities, self-service was identified as a key focus area for the business. The primary focus was on reducing cost to serve as call centre costs were growing at a faster rate than revenue.

But as the project moved forward other objectives surfaced and became important. These included:

  • Increasing customer choice
  • Increasing customer service satisfaction levels
  • Re-enforcing brand perception around innovation

The following paper describes the process that led to the development of the self- service strategy.


In order to determine the scope of the self- service activities, a series of workshops with senior management were organised. During these sessions, a variety of tools were used to stimulate ideas and help create vision.

These included:

  • Best Practice Case Studies
  • Technology demonstrations
  • Market research results

Local and international

The workshops and several other activities were facilitated by an external consultant

The purposes of the workshops were to:

  • Show global best practices
  • Show what the current technology are capable of
  • Show trends in internet usage in the local and international markets
  • Show customer perception of self-service as a concept
  • Discuss leadership vision
  • Discuss and agree on strategy for the development of self-service
  • Discuss and agree on quick wins development for the self-service project

Several key people from Marketing, Service and IT took part in the workshops.


The output of the workshops was encapsulated into an initial strategy document.

The document covered the following:

  • Self-service market trends
  • Self-service business objectives
  • Self-service vision and strategy
  • Quick wins and the scope of the self-service project
  • Project time table

This initial strategy document acted as the primary input into the self-service business and system requirements documents for the project and provided a framework for the development of the business case.

The following section describes some of the key elements in the strategy document.


The following section describes the evolution of self-service in the cellular market.

It will provide understanding on:

  • Role of self-service
  • Drivers for self-service
  • Current and future trends
  • Self-service in the cellular market
  • Self-service in the local market

Role of self-service

Although cost savings have traditionally been the key drivers for the development   of self-service environments, it is becoming generally agreed that the long-term role of self-service is to increase the customer’s satisfaction by providing them with more choice.

By increasing customer’s satisfaction we should be able to:

  • Reduce churn
  • Increase sales
  • Increase customer advocacy:

Advocators are people who would be happy to promote our products to friends, family and colleagues.

The difference between successful and unsuccessful companies is the way they respond to customer needs and strengthen the positive relationship that they build with the customer.

Successful businesses want to provide customers with choice and increased customer interactions. In the changing world, internet interactions with customers provide a real opportunity for positive customer experience by empowering them to manage their self-service requirements in the way they want.

So how do self-service environments support customer choice?

Choice of channel

Some customers find the internet a conve- nient way to interact with an organisation. Each of the available channels has advantages and disadvantages. Customers want the ability to choose the right channel for them. The internet and other channels that support self-service provide valuable choice.

Choice of when (time of day, day of week)

The self-service channels, in particular the internet allow a customer to access an organisations 24/7, 365 days a year. Customers want the ability to choose when to access an organisation.

Choice over type of transaction

Self-service environments can support most of the sale or service transaction types that can be supported in the live person channels. In many cases these self-service environments can also deliver capabilities that cannot be achieved in live channels.

For example, the use of streaming video with stop, start and pause capability — explaining how to use functionality on a mobile device. These and other unique self-service capabilities can provide the customer with significant choice of the type of transaction that they can execute in a self-service environment.

Choice over nature of interaction The internet and other self-service channels provide customers with the ability to avoid face to face or over the phone interactions. In some cases, this is a desired state by customers, particularly as call centres more heavily cross-sell during service transactions. In the case of the self-service transactions control is passed back to the customer.


There are number of issues that are driving the adoption of self-service, these include:


Customers are becoming more familiar and conformable with the internet for commerce and other activities. This change in attitude is being driven by:

  • Wider availability of broadband access that addresses performance issue
  • Improved ease of use through better technology and web site design
  • Organisation are allowing more transaction types to be executed over the internet
  • Reliability of transactions on the internet
  • Improvement in perceptions of security

These changes in attitude are making self- service a more viable option.


One of the key drivers for the development of self-service environments has been the potential to reduce the cost of sale or   service transactions. By migrating customers from a live person channel to self-service environment, unit costs per transaction can be significantly reduced.

This is further facilitated by the fall in the costs of the underlying technology resulting from main stream adoption and competition in the market.

Service centre staff costs and associated overheads represent a significant cost in most companies so the business benefits of self-service can be high in these organisations.


As with the effective use of self-service call centres the internet is providing a great opportunity for incremental revenue generation. In the self-service environment this cross-sell and up-sell can be fully automated and highly targeted.

Although not a key driver in many cases the potential for incremental revenue generation through automated cross-sell and up-sell should not be ignored.


For this particular client the local market presented a number of additional opportunities:

  • The high penetration of the internet in the local market provided a large target audience for self-service activities
  • The local consumers had been early adopters of the internet

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  • Most competitive sites were portals with little or no e-commerce support. Even fewer supported self-service
  • Opportunity to re-enforce position as innovative and providing customer with choice
  • The high penetration of broadband internet enabled the use of advance technology options like video streaming, online offer management that can be used to support the self-service activities
  • The popularity of use of chat rooms and instant messaging in the local market meant that these tools could also be used as part of the self-service environment


The following sections show how the self- service environment would align with the client’s current business objectives.

The following are key objectives for the client business:

  • Improve quality of service to customers
  • Increase revenue from existing customers
  • Reduce churn
  • Reduce costs
  • Acquire new customers
  • Make more effective use of the internet

Table 1 outlines how the client’s key business objectives could be supported by th einternet channel

The following are key objectives for the self-service project.


The following functionality is implicated:

  • Manage existing products and services relationship
  • Support for the use of the cient products and services
  • Access to information on how best to use the client products and services
  • Resolving product and service queries
  • Accessing general information on the client organisation


The following functionality is implicated:

  • Purchase client products and services
  • Recruit new customers


The following functionality is implicated:

  • Management of information on the customer
  • Name and address
  • Contact details
  • Profile data
  • Customer preferences

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The following functionality is implicated:

  • Identification of visitors to the site
  • Web analytics
  • Alignment with CRM road map

Table 2 represents examples of self-service activities and how those activities support the overall business objectives.


The client established a set of targets for the project that covered the following items (Table 3).


The following section describes the long-term vision (3–5 years) for the self-service environment in the client organisation:

  • Self-service will become a significant customer interaction channel
  • Self-service will become a major source of incremental revenue
  • Self-service will account for 20–25 per cent of all customer interactions for target segments
  • Self-service will reduce the average overall cost of serve by 15–20 per cent
  • The client will be the leader in self- service customer experience over all channels

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  • Self-service will support most (98 per cent) of all sale and service transactions types
  • Self-service will be delivered through all available and relevant channels, including:
    • IVR
    • Email including alerts and notifications
    • SMS/MMS
    • Mobile device including WAP
    • Intelligent kiosks
  • A wide range of technologies will be used to support the self-service environment (including real-time offer management).

The following technologies are implicated:

  • Real time decision offer management
  • IM (IM robots)
  • Voice over IP
  • Video conferencing
  • Knowledge management systems
  • Remote diagnostics
  • Supported selling The self-service environment will integrate seamlessly into the live person channels and provide the customer with real choice on how to interact with the client organisation


The workshop raised and discussed the importance of a clear strategy and objectives to create sustainable competitive advantage. Current market sectors were discussed as set out within this document and potential areas of growth that could be stimulated by a focussed self-service strategy were uncovered.

In the context of the meeting, the following strategy principles were discussed at high level:

  • The self-service environment should be used to create sustainable competitive advantage
  • The self-service environment should provide real customer benefits, build a sense of community and provide additional customer touch points
  • The self-service environment should create increased customer satisfaction
  • The self-service environment should put the customer in control
  • The self-service environment should facilitate increased market share by providing access to new customer segments
  • The key segments will be:
  • SOHO and business markets
  • Professionals
  • Young, inspirational market
    The self-service environment should help improve overall business and individual customer profitability by:

0            Providing cross-sell and up-sell opportunities

0            Reducing the cost to serve


In order to ensure focus, the client self- service processes are to be owned by one dedicated business unit that will commit to delivering the business plan.

In this case, the marketing business unit took ownership of the self-service environment. In most cases it comes under the service organisation.

The marketing team was responsible for:

  • Project establishment
  • Project management
  • On going management of self-service environment when it is up and running.
    This included:

    • Updating marketing materials
    • Working with relevant marketing and service teams to initiate new services and offers
    • Working with MIS of future enhancements
    • On going marketing promotion development


As the cost of servicing the customer relationship grows, more and more organisations are looking at how technology can slow down and in some cases reduce   the costs of managing the customer relationship, while at the same time driving up customer service. The result has been the growth in self-service technologies, which aim to address both the cost and service quality issues.

The primary focus is often on reducing   cost to serve, but organisations are recognising that self-service can support a number of other business objectives. These include:

  • Increasing customer choice
  • Increasing customer service satisfaction levels
  • Re-enforcing brand perception around innovation

Developing a clear strategy for self-service in the telco and many other industries is essential if an organisation is to realise the potential business benefits that self-service affords.

Software review: Rules-based engines or statistical optimisation: The intelligent way forward

Abstract The paper explores the advantages and disadvantages of rule-based engines and optimisation techniques in supporting marketing communication decisioning.


In the past, determining which marketing communication a customer received was easy as the choice of channel was very limited. With the growth in active (eg e-mail) and passive (Web) communication channels and the increase in the volumes of campaigns facilitated by marketing automation technologies, however, this simple choice is becoming more difficult to make.

To address this complexity two new classes of technology are emerging — optimisation and rules engines. This paper explores some of the advantages and disadvantages of rules-based engines.


This type of technology breaks the communication decision into one or more simple rules that when applied determine the most appropriate marketing communication(s) for a customer. It does not use any specific statistical process, although one or more of the variables used by the rule(s) may   be behavioural model scores.


The following section describes rule-based engines in more detail:

A rule is the smallest unit of business logic. It generally captures a test condition and identifies the action to   take, based on the test evaluation, eg if a customer is male then send communication.

A rule set is a collection of rules, generally grouped together because they relate to a common task, eg if a customer is male and aged between 20 and 30 years then send communication.

A rule flow shows the order in which a particular rule set or series of rule sets are executed. These rule flows are normally represented graphically. The order in which rules or sets of rules are applied can significantly affect the outcome. For example, if gender is male, age is 25 to 30 years, marital status   equals married (rule set 1) then if   product code equals loan, and loan status equals open (rule set 2) send standard cross-sell communication.

Many of the new rule-engine technologies are based on object-orientated programming techniques, in which case the concepts of classes and objects are used to represent various business entities and ease rule definition. They also allow the rule developer to connect the rules with some outside calling application and pass information back and forth.

Variables are used to maintain and pass information within the rule, eg gender.

Enumerations allow the rule developer to define a limited set of values for some object. In some cases, there may be some unit of business logic that involves executing a series of steps in a   rigid, pre-defined order. While this could be implemented as a rule, the function   entity is designed to capture this form of business logic.


The following section explores some of the business applications of rules-based engines in a customer relationship management   (CRM) context.

Perhaps the most common use of business rules-based engines is the processing of applications for products and services, where there are a large number of complex business rules that have to be applied and where these rules change frequently. For example, processing complex lending rules as part of personal loan application.

For delivery of context-specific information the business rules are used to determine when context-specific information is to be provided to a client or employee as part of a standard process. For example, providing context-specific data in a telemarketing script.

In order to provide personalised content on websites the business rules are used to determine the specific content to   be presented to a customer as part of an interaction on the website. This personalisation could be based on the customer’s segment, attributes profile or behaviour on the site.

For supported selling the business rules are used in combination with product purchase propensity score to determine the ‘next best offer’ as part of a supported selling process at the point of sale.

In the case of lead allocation in   channels the business rules are used to determine how a sales lead is to be allocated to a specific channel or sales agent within the channel. This approach facilitates a consistent treatment of a sales opportunity while ensuring effective use of channel resource. For example, allocation of mortgage sales leads between a retail branch, direct sales force and third-party agent where the individual is not account managed.

Rules-based engines work best when the:

  • process is well defined, complex, uses a large number of rules or rule sets and is executed in real time
  • business policies or procedures change frequently
  • business users want to control changes in the business rules


Modern business rules-based engines have the following benefits, they:

  • allow non-IT users to create, maintain and monitor the impact of business rules on processes
  • allow organisations to automate and streamline processes
  • allow organisations to ensure consistency of process
  • allow organisations to increase the efficiency of the processes
  • provide a clear audit trail of the decisioning processes.


The following section explores some of the problems associated with rules engines.


Where the business process requires the application of a large number of rules or rule sets, performance of the decisioning process can be significantly affected. This is particularly true where the rules engine   is being used in real time and has to access data from an associated data repository (eg operational data store) rather than from the customer interaction (eg Web page interaction).

Batch processing

Most of the recent rules engine technologies have been developed with real-time application of the rules in mind: one of the consequences is that they have been poorly designed for large volume batch processing.

Perhaps one of the obvious potential applications of rules engines was as a core component of campaign management technology, but their success to date has been limited.

Understanding implications of change

Most business rules engines allow the user to change individual rules with ease but it is difficult to assess the impact of these changes. A simple change in one rule or rule flow can radically change the outcome. This can cause significant problems where the rule engines are being used to drive real-time core business applications, eg instant   credit processing.

In some cases the ability to test the impact of changes in the rules, rule sets or rule flows has been achieved by allowing the user to change the rules and to process the same series of events or data. The user can then identify the ‘ideal’ set of rules and rule parameters.

Effective change control and/or authorisation procedures are essential if the business is not to be adversely affected by any changes.

Integration with other business systems

For rules engines to be effectively deployed they often need to be integrated with other operational systems, eg call centre or branch teller systems. In some cases this can be quite difficult, although this issue has been recognised and the newer technologies have addressed the integration issue well. A range of different deployment models is becoming available.

Many rule engines can be run as a service (ie using threads provided by the container application in which it resides) or as a server (ie where it needs to use its own threads since there is no container application). They can be deployed in most environments that support Java including: EJB; J2EE; LDAP,   MTS; RMI; CORBA; JSP,   ASP and MQS series.

A few vendors supply standard deployment APIs that handle the interaction between the rule engine server and the calling application, eg call centre application.


A number of vendors have positioned rules engines as optimisation technologies for managing customer communications, following in the wake of statistical optimisation products like those from niche player Market Switch and mainstream players SAS and SPSS.

With the wider availability of channels that can be used to communicate with and receive communication from customers, has come a significant increase in the complexity of the communication-decision process. The key thing that the optimisation technologies are trying to do is to maximise mathematically the profit generated from marketing and other communications, removing the guesswork from the campaign management process. The problem is that with dozens of potential offers, many communication channels and thousands or millions of potential customers, there could be billions of different offer–customer–channel combinations to choose from.

Optimisation technologies use mathematical algorithms to determine the best combinations of customers, products and communication channels to maximise profit, while at the same time taking into account real-world business constraints such as limited budgets or channel capacity. The output of the optimisation process can then be used to drive communication with a customer. Analytical and modelling tools can be used to understand the customer and build behavioural models. For a given marketing offer, these models can be used to determine a customer’s likelihood of responding to that offer.

The use of product or offer propensity models is becoming commonplace. But these single dimensional models do not take into account the impact of concurrent offers, channel or business constraints. This is where statistical optimisation techniques can help to resolve the problem of maximising return on investment (ROI) across all planned communications. The better solutions take into account interdependencies of financial goals, business constraints and customers’ needs to deliver the offer that is best for the business and satisfies the customers.

The   optimisation   technologies   allow the user to define simply the business constraints, input customer response data and specify which offers and communication channels to consider. The software automatically selects the appropriate   combination based on specified objectives, such as maximising profit, then rolls up the projected results and scores the database for offer distribution via the correct channel.

Business rules engines and other ‘best guess’ solutions that were invented to try to address this problem do not mathematically maximise the profit. These techniques do not consider the complicated interdependencies of multiple offers, are not easily updated with new information and cannot scale to the magnitude of the problem.

The following example compares the results of a rules-based approach to offer optimisation and a statistical optimisation approach. In this scenario:

Customer 1 has two potential offers: Offer A through call centre with an expected value of $100

Offer B through direct mail with an expected value of $75.

Customer 2 has two potential offers: Offer C through call centre with an expected value of $90

Offer D through direct mail with an expected value of $20.

Due to channel capacity constraints only one call-centre contact can be attempted.

Using a typical rules-based approach the following would result:

Customer 1 would receive Offer A through call centre with an expected value of $100.

Customer 2 would receive Offer D through direct mail with an expected value of $20.

Hence the expected return from a rules-based approach would be $120.

Using a statistical optimisation approach seeking to maximise the expected value, the following would result:

Customer 1 would receive Offer B through direct mail with an expected value of $75.

Customer 2 would receive Offer C through call centre with an expected value of $90.

Hence the expected return from the statistical optimisation approach would be $165.

Within the rules-based approach, the process selects the first customer from a ranked list; this does not necessarily deliver the optimal solution. Within the statistical optimisation approach, the process selects the best combination of offers to maximise the optimisation function.

Hybrid solutions for communication optimisation

The emergence of hybrid solutions has been seen where rule-engine technology has been combined with other technologies such as statistical optimisation or neural networks. This approach seems to take the best of both approaches and is gaining in popularity.


The use of rules-based engines is gaining ground in a number of areas as they allow business users to manage the evolution of the rules and are simple to understand. Their application in communication decision making is being proposed by a number of vendors and in some cases these technologies are being positioned as optimisation solutions.

They do have a role to play in a number   of areas but they come a poor second when compared to statistical optimisation for communication decision making.

Software review: Communication optimisation — The new mantra of database marketing. Fad or fact?

Abstract This paper describes the key components of analytical customer relationship management (CRM) and then explores the introduction of optimisation technology as a key component of an analytical CRM solution.


It is interesting to see that like the youth of today, an industry such as marketing can be just as big a fashion victim. In   the past it was campaign management, then marketing automation and now customer relationship optimisation. The term, originally used by NCR as a product name for one of their customer relationship management (CRM) solutions has now become the new mantra of the database marketing industry. It even has its own Gartner

quadrant and associated acronym, ‘CRO’. The same vendors appear as before, it is just the positioning that appears to have changed. No wonder many on the client side are confused by the marketing hype.

This paper hopes to blow the froth off   the hype and see if there is some real advance in optimisation technology that can make a material difference to the effectiveness of database marketing.


There is no doubt that analytical CRM solutions can help organisations intelligently manage the customer communication process more effectively. This benefit is augmented when deployed across multiple channels. In many cases this increased communication effectiveness is achieved while balancing channel capacity and other business constraints/objectives. This balanced approach ensures the channel resource is focused on the most valuable interactions.

It is only through this intelligent and balanced use of customer communications that an organisation can enhance the value of customer relationships while optimally exploiting the use of valuable resources.

These new analytical CRM solutions use optimisation technologies to allow marketers to deliver the most effective

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mix of messages and offers to each customer based on priority and the availability of resources within a particular time period.

In some cases this communication decisioning process is happening in real time.


The following section explores how optimisation technologies fit within the analytical CRM solution framework.

There are typically six areas of functionality found in comprehensive analytical CRM solutions. These are:

  • analysis
  • modelling
  • communication
  • personalisation
  • optimisation
  • interaction

These areas of functionality allow an organisation to analyse, model and predict customer behaviour while planning and automating personalised communications with individual customers across all channels. The following sections look at these functional components in more detail.


In order to manage customer communications more effectively it is essential that an organisation can analyse the characteristics and behaviour of its customers. This analytical capability needs to be embedded into the campaign management process if intelligence is to clearly drive these and other activities.

This analytical capability is concerned with allowing an organisation to:

  • understand the profile of customer groups
  • compare the profile of different groups (respondent–non-respondent comparison)
  • understand customer behaviour
  • analyse transaction patterns
  • create segmentation systems
  • monitor segment involvement and migration
  • identify the drivers of customer and/or product profitability
  • understand the spatial dimensions of a business
  • understand the role of channels
  • understand sources of business


In order to manage customer communications more effectively it is essential that an organisation can predict the behaviour of customers. This modelling capability, as with analytics, needs to be embedded into the campaign management process if intelligence is to drive marketing activities. This modelling capability is concerned with allowing an organisation to:

  • predict product or service purchase propensity for up-selling and cross-selling activities
  • predict value of product purchase (use to create gamma scores that factor value into product purchase propensity scores)
  • predict response time bands (used to manage outward bound calls)
  • predict customer and/or product profitability (actual to date, planned and potential)
  • predict enquiry potential (used for filtering opportunities)
  • predict product or services cancellation
  • predict product or service usage dormancy or inactivity
  • predict channel preference
  • predict customer response to communication activities (single or multi-stage, single or multiple channel).

The modelling environment should support the development, validation, deployment and re-calibration of these models. Fully automating the modelling development process is still fraught with problems so it is not generally used.


Central to the success of any customer relationship strategy is proactive communications with customers. The communication management component of analytical CRM is concerned with the overall management of communications with customers. Traditionally, this type of

technology has focused on proactive marketing communications (campaign management), but more and more it is being used to manage other customer communication activities (eg mortgage arrears collection). This is because these technologies can bring structured control and monitoring processes to all customer communications.

This communications management capability is concerned with allowing an organisation to:


  • maintain communication reference data, including target key performance indicators (KPIs)
  • identify target audiences for communication activity
  • prioritise communications across campaigns
  • establish control mechanisms such as test and control groups
  • initiate communication through the appropriate channel
  • maintain communication contact history
  • determine direct or inferred responses to communication activities
  • monitor campaign and/or communication performance
  • automate the communication activities.


This communication management technology is used to support a wide range of communication activities including:


  • strategic
  • tactical
  • customer life stage
  • product lifecycle
  • trigger event
  • statutory
  • operational

The integration of the communication management solution with the other communication channels has led to an explosion in integration technologies, which allow real-time, or near real-time, initiation and management of customer communications or dialogue (dialogue is the term used to describe interactive communications, often real or near real time).

Technologies that search out trigger events using sophisticated analytical techniques have emerged. These are sometimes called trigger agents.


There is an expectation by customers   that communications should be personalised. Gone are the days of starting a letter with ‘Dear Valued Customer’. This means that communications need to exploit the information that an organisation has about the individual customer (corporate memory) to ensure that communications are timely and relevant. The ability to personalise communications and to respond appropriately to inward bound communications from a customer are essential if companies are to gain their respect. This personalisation capability is concerned with allowing an organisation to:

  • select the most appropriate medium for the message and the customer
  • use the correct copy style for the customer or segment
  • include core (static) or derived (dynamic) data from the corporate repository in the communication
  • facilitate call to action
  • measure response through effective close loop mechanisms across all the response

Typical features of this type of personalisation technology include:

  • personalisation templates
  • personalisation

Generally this type of personalisation has been concentrated in the electronic channels, but advances in printing and content management technologies are allowing personalisation techniques to be applied to all communication media including print and voice.


In the past the focus of attention has been on the management of proactive communications management

(outward-bound marketing communications). This is changing as organisations start to recognise the importance of effective management of response to proactive communications or, even more importantly, customer-initiated communications. There is a growing desire, particularly with the real-time electronic channels, to manage this dialogue more effectively. This interaction management capability is concerned with allowing an organisation to:

  • add intelligence to the management of inward-bound customer communications
  • standardise and personalise the dialogue, especially when it is electronic
  • ensure that any dialogue takes into account other interactions (especially recent ones) that the individual has had with the organisation
  • monitor the effectiveness of the dialogue
  • support the sales process, through visual prompts
  • align the nature and tone of the dialogue to the customer or segment profile
  • maintain details of any dialogue and outcome.


With the wider availability of channels that can be used to communicate with and receive communication from customers, has come a significant increase in the complexity of the communication decisioning process, ie deciding which customer gets what communication, when and by what channel. This has led to the development of a new range of optimisation technologies specifically for marketing. This optimisation capability is concerned with allowing an organisation to:

  • define global contact rules that manage the number of communications that a customer will receive within a defined period and the time period between communications of a similar type
  • determine the optimal product offering to be made to the customer at a point in time. This opimisation process is typically being driven   by   behavioural models
  • determine the most appropriate channel for the customer communication, taking into account customer preferences and channel and/or business constraints, eg budget
  • ensure that the ‘best’ opportunities are sent to the channel, thereby maximising the productivity of the channel
  • allocate opportunities to individual agents within a given channel
  • distribute opportunities to primary and secondary channel assignments based on daily channel capacity and number of communication opportunities.

It is this last element of the analytical CRM solution that the rest of this paper explores in more detail.


The key thing that the optimisation technologies are trying to do is to mathematically maximise the profit generated from marketing and other communications, removing the guesswork from the campaign management process.

The problem is that with dozens of potential offers, many communication channels and thousands or millions of potential customers, there could be billions of different offer–customer– channel combinations to choose from.

So how can the combination that mathematically maximises profit be found?

Optimisation technologies use mathematical algorithms to determine the best combinations of customers, products, and communication channels to maximise profit, while taking into account real-world business constraints such as limited budget or channel capacity. The output of the optimisation process can then be used to drive the communications with a customer. The optimisation process therefore becomes a crucial step in the communication decisioning process. It allows marketing communication activities to be tuned for maximum financial payback (ROI) across all campaigns. Figure 1 shows how optimisation technologies fit within the marketing communication process.

Data warehousing solutions allow companies to store, organise and retrieve valuable customer data. Analytical and modelling tools can be used to understand the customer and build behavioural models (single dimensional models). For a given marketing offer, these models can be used to determine a customer’s likelihood of responding to that offer. But these modelling techniques do not take into account the impact of other concurrent offers, channel or business constraints. This   is

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where optimisation techniques can help to resolve the problem of maximising return on investment (MROI) across all planned communications.

The optimisation technologies can maximise an organisation’s overall ROI, or any other specifically defined business objective, by using sophisticated optimisation techniques to do what previously has been impossibly complex: matching the optimal product among many with the optimal customer among thousands, or even millions.

The better solutions take into account interdependencies of financial goals, business constraints and customers’ needs to deliver the offer that is best for the business and satisfies the customers.

The optimisation technologies allow the user to define the business constraints, input customer response data and specify which offers and communication channels to consider.

The software automatically selects the appropriate combination based on specified objectives, such as maximising profit, then rolls up the projected results and scores the database for offer distribution via the correct channel.

For the first time these optimisation technologies allow an organisation to optimise the value of their integrated marketing campaigns to achieve the maximum financial return. Key features of optimisation technologies include:

  • user and pre-defined mathematically definable goals
  • interactive expectations analysis
  • user-defined constraints using an underlying menu of metrics and variables to determine the most profitable campaigns before execution
  • multi-level optimisation at either customer or segment level
  • incorporating behavioural changes or triggers into the decisioning process
  • integration with existing modelling and communication management technologies
  • rapid

The linear programming optimisation techniques used to manage the supply chain in manufacturing industries, airline yield management, and financial investment risk assessment can only handle relatively small-scale problems and do not work for marketing optimisation.

Business rules and other ‘best guess’ solutions that were invented to try to address this problem do not mathematically maximise the profit.

These techniques do not consider the complicated interdependencies of multiple offers, are not easily updated with new information, and cannot scale   to the magnitude of the problem. A new class of non-linear optimisation techniques is being developed to meet   this current business problem.

It is clear that these new optimisation technologies are adding a new intelligent dimension to the process of managing customer communications. They are likely to add value to the analytical   CRM process and will therefore stay.

The key vendors to watch in this area are

  • Marketswitch,
  • NCR and
  • SAS.


Customer   relationship   optimisation (CRO) as a phrase is starting to be seen more and more in the industry. Its use is gaining popularity, particularly among the CRM software vendors, as they try to differentiate their technology in an increasingly homogeneous market. Its

adoption by the technology market analysts such as Gartner is giving CRO further credence. The phrase itself causes confusion by not clearly defining what the technology is meant to do.

Below the froth of this marketing hype there are a few companies developing new technologies aimed at optimising some aspect of the marketing communication process. These solutions are still embryonic and are evolving as the nature of the business problem becomes better understood. It is these technologies that warrant close monitoring and, in the cases above, serious investigation.

Software review Social network analysis in the Telco sector — Marketing applications


This paper explores the use of social network analysis in the Telco sector. Rather than focusing on the analytical techniques (many of which are proprietary and covered by patents), it focuses on the types of results that have been achieved to date and their business application in marketing.


My previous paper,‘The role of social networks in marketing’ in the JDM, stimulated many enquires about the subject, and as a result I have decided to focus this paper on the use of social network analysis in the telecommunications sector. Based on my international experience, this is probably the sector that is the most   mature in the business application of social network analysis in marketing.


For the purposes of this paper

Social network analysis

Social network analysis is concerned with the analysis of the influence of an individual within a social network on product purchase and service usage.

Social network

A social network is a group of people who are connected through their use of mobile communication services.


A concept is a behaviour, for example, new product usage or an idea, that moves through the social network.


A wave is the measured way in which a concept flows through a social network.


A connection is the link between two individuals within a social network. The link may have a number of attributes to describe it, for example, direction, strength and concept fl ow speed. An individual may be connected to one or more individuals within the social network.


An influencer is an individual who stimulates a concept (eg behavioural change) to flow through a network.


The use of social network analysis is not new; it has been used in a number of areas including social science for more than 80 years. But it is only in the last few years that social network analysis has been seen in marketing. I have been working with US and European cellular service providers that have been experimenting with the subject for the last 18–24 months. It is only in the last few months that I have seen solutions going into production, often after pilot programmes.

One of the reasons that we are starting   to see production deployments of social network analysis in the Telco sector is the emergence of technology designed to meet the specific needs of marketing. In many cases this technology was originally developed to meet the needs of the anti- terrorist organisations in the military and security sectors. A natural step for these vendors has been to move into the fraud sector. A few have targeted the marketing arena from the start.


There are two key business reasons why the Telco sector has been an early adopter of social network analysis. These are

  • Availability of data
  • Business pain

The following section explores these in more detail.

Availability of good data

The mobile telecommunication sector is unique in that they have access to detailed call records made between individuals. This call data includes

  • Caller number
  • Caller handset identifier
  • Receiver number
  • Start time of the call
  • End time of the call
  • Day of week of call
  • Time of day of call
  • Duration of call
  • Caller cell location
  • Receiver cell location
  • Receiver on or off network status

Similar types of data are available for text messaging.

This call data significantly simplifies the definition of the social network and influencers.

In addition:-

In the case of the caller (or receiver if on network) the organisation has access to

  • Customer profile data
    • Comprehensive for contact customers, limited for pre-paid
  • Account data
  • Handset data
  • Product involvement data
  • Services usage data
  • Inbound contact history, for example, call centre
  • Marketing contact history and response data

This data allows us to understand the flow of concepts through the social network.

This breadth of data makes the Telco sector data rich for social network analysis.

There is one issue that still has to be addressed by most of the vendors and that is the volumes of data that need to be processed. To effectively analyse the flow of concepts through a social network means the solution has to process years worth of call data. In the US this means billions of call records.


The second reason that the Telco sector has been the incubator for social network analysis in marketing is the presence of significant business pains.

These include

  • Persistent problems with churn in the contract customer segment

Much work has been done to manage churn in the contract customer segments, in terms of both predicting customers who are a risk and developing effective marketing tools to address the churn. But there are still persistent problems with churn.

  • Rapidly rising churn in the pre-paid customer segment

The last two years has seen a significant rise in churn in the pre-paid customer segment.The general decline in the price of voice services is further contributing to this problem. Unlike the contract customers the Telcos often have limited and in some cases no personal data

on these pre-paid customers.This has significantly reduced the available retention tools. It has also made it difficult to measure real churn in this sector because customers swap phones within the same provider.

  • Need to increase revenue (ARPU) from data and other value added services

As price pressure from the competition on voice services is driving down revenue, the Telcos are looking at data and other value added services to grow monthly revenue per subscriber.

Managing the cost of selling these new products and services is becoming pivotal to success.

These two factors — available data and business pain — have driven the Telcos to explore the use of social network analysis in a number of areas.


The following section explores how social network analysis is being used in this sector.

My colleagues and I have been involved in a number of social network analysis projects and the following are examples of how social network analysis is being used in the Telco sector across the world.

The business applications include

  • Improving churn prediction
  • Improving customer value management
  • Improving churn measurement
  • Improving up sell campaign performance

The business applications are described in more detail below.

Improving churn prediction

In this case, the following data types were used to identify the social network for contract customers. A wide range of data were used that included

  • Customer
  • Account
  • Handset
  • Product and service usage data
  • Detailed call record data
  • Event history
  • Channel usage

Historical data covering a number of years was used.

The social network analysis process generated a range of social network parameters at the customer and social network level. These parameters were then used as input variables in the current churn modelling process (regression).

The social network parameters

  • Increased the model performance by a factor of ten or more
  • Appeared in the list of top ten predictive variables in the model
  • The retention campaigns saw and even better uplift (10–25 times)

The new model was then used to enhance the churn retention process.

This process was repeated for pre-paid customers and produced even better results.


In this case the Telco had a complex process to calculate the historical and near-term future value of a customer. This customer value had been embedded in a number of key business processes including

  • Customer retention
  • Customer recovery
  • Customer experience management in call centre and stores
  • Price plan development

As in the previous example a wide range of data were used to define the social networks and to identify customers who where influencers for a number of key concepts.

The customer values for the individual customers were combined to produce a customer level social network value. The customer and social network values were compared for customers on the base. The results showed that over 18 per cent of the customers in the current lowest customer value band were actually part of high value social networks. In addition about 7 per cent of the low value customers were identified as influencers. Across all segments the penetration of influencers varied between 7 and 18 per cent.

The Telco is now in the process of embedding the new social network value and influencer indicators into a number of core customer management business processes. The initial results of the changes in the retention management processes are proving very valuable.


It had proven hard in the pre-paid segment to accurately measure ‘revolving churners’. These are customers who cancel one product and then replace with a new   product from the same network. In the case of contract customers name and address data can be used to monitor a customer’s purchases over time. In the case of pre-paid customers many organisations do not collect personal details and therefore find it very difficult to track these revolving churners.

One vendor I worked with has developed what they call ‘social network finger printing’, it this case they build the social networks and look to map new customers into existing social networks where one or more individuals has left (cancelled or gone dormant).

In one case they were able to identify 26 per cent of the churning customers as revolvers. The organisation has now created a new category of customer that they monitor on a regular basis.

The consulting partner is currently working with the organisation to develop more effective retention marketing tools for these revolving churners.


In this case the Telco has used information on influencers to target a range of direct marketing campaigns to influencers only. These campaigns included

  • Hand set upgrades
  • Price plan migration
  • Data packages and bundles
  • New hand set launches

The basic principle is not new to anyone who has run viral marketing campaigns. But in this case the proposition is sent to influencers only. The other members of the social networks receive no communication.

In some cases incentives are used and in other campaigns no incentive is used.

The influencer has effectively been used to promote the product or service to other members of the social network.

The results have been quite surprising.

The influencers do promote products and services even if they do not buy themselves

  • One influencer stimulates between 2 and 17 other individuals in the social network to respond
  • On average one influencer stimulates five–seven individuals in the social network to respond
  • The campaign lifecycle (length of time people respond) doubles
  • In some cases the response curve is bi-modal as concepts flow through the social network

The overall impact was that return on investment was more than five times better than the current campaigns.

Influencer campaigns are now becoming a standard part of the marketing mix in the Telco.

They are also looking at how to market   to the social network as micro-segments but they are in early stages.

These activities are now being called one to one to many marketing.


The marketing teams of the telecommunications sector have been an early adopter of social network analysis, primarily because of the availability of rich data and the desire to address key business pains.

The emergence of new technologies from the anti-terrorist industries that can be scaled to meet the data volumes and demands of this industry is now allowing social network analysis to become a production solution.

It is still early days and there is little experience globally in business applications in marketing. I, however, do see a time in the near future when social network   analysis, social network finger printing and one to one to many marketing are all common terms that we use. I believe social network analysis will have made a positive contribution to marketing in both the Telco and other sectors.

Software Review: The role of workflow and marketing resource management technologies in supporting marketing − the last bastion for technology in marketing


The development of technology to support marketing over the last ten years has predominantly focused on the analytics, campaign management and reporting (collectively marketing automation).The last two years has seen the release of a number of technologies aimed at supporting marketing workflow.

These solutions classified by Gartner as Marketing Resource Management (1) are starting to address the management of the complex marketing processes that exist in today’s multi−channel, multi−brand marketing functions. This paper looks at how marketing processes are getting more complex and how MRM could provide a valuable tool in helping us manage this complexity. It also explores some of the issues affecting delivery and the potential business benefits of MRM.



In the early nineties at Intrinsic we received a Request for Information (RFI) from a Building Society in Birmingham UK, for workflow technology that could be used to support the processes in marketing.

Neither Intrinsic nor any of the other mainstream campaign management vendors had any propositions in this area. Since then marketing workflow has appeared every now and then, mainly when the larger consultancies are involved in marketing transformation projects. It is only in the last few years that we have seen a focused attempt by vendors to address this area and release commercial solutions. The initial results appear to be quite positive although there is still a long way to go for this type of technology to become mainstream.

In the case of the building society they tried to deploy a standard enterprise work flow solution but the lack of clearly defined standard processes in marketing, the complexity of the interactions of the organization both internally and externally and the limited functionality of the selected solution led to a failed project.

Things have moved on since the early 90’s. Our understanding of the importance of process in marketing has significantly improved and a whole class of new technologies has started to be released. Some of these represent extensions to existing marketing automation solutions (e.g. Unica Corp) whilst others have evolved from the agency sector as stand alone solutions (e.g. Smartpath). We know the technology has come of age as Gartner has even introduced a magic quadrant and associated acronym − Marketing Resource Management (MRM).

The rest of this paper looks at these new technologies, the issues associated with deployment and the potential benefits. I think this is likely to be the last bastion for the deployment of technology in marketing.

What is Marketing Resource Management? 

Marketing Resource Management (MRM) is most commonly defined as a set of processes and capabilities that aim to enhance an enterprise’s ability to orchestrate and optimize the use of internal and external marketing resources. MRM involves the definition and adoption of processes and software applications to transform and enable an enterprise’s ability to plan, budget, execute, and measure the impact of enterprise−wide marketing efforts. (2)

What is driving the evolution of MRM? 

The primary driver for the evolution of MRM solutions is the increasing complexity of managing marketing in a large enterprise.

The following factors have combined to create a step change in the complexity of marketing in today’s business environment:

Improved targeting

The adoption of statistical techniques to targeting outbound communication activities has led to a drop in the average volume of communications per campaign. In many cases the resulting saving has been re−invested into running more campaigns. The result is that the overall volume of campaigns is increasing. In my experience of implementing marketing automation solutions we typically see a 3−5 fold increase in campaign volumes.

Adoption event based marketing

There has been a wider adoption of event based campaigns that are triggered by changes in customer behavior. These event campaigns are characterized by frequently run campaigns which have varying volumes. The ultimate impact on marketing is an increase in the number of campaigns. Where our clients implement event based marketing activities then the increase is more pronounced, a 5−8 fold increase is common in the first year.

Availability of more communication channels

The availability of more communication channels and their integration in multi−channel campaigns has increased the complexity of the campaign planning, prioritization and execution. This is often in addition to the increase in volume associated with the previous items.

Move to real time communications

In the past database fresh cycles meant that there was more time for planning. The move to real time marketing with databases that are refreshed in real or near real time means that the planning cycle has been reduced.

Increased legislation

There has been a big increase in the legislation controlling what can be included in a communication. This has meant that the compliance process has become more complex and now has to be factored into the campaign planning process. More people now have to be part of the sign off process. This can be an administrative nightmare, especially if combined with increased campaign velocity.

Increased industry consolidation 

Increased industry consolidation has led to the development of enterprise marketing functions that have to support multiple brands and/or business units. This increases the complexity of the marketing process.

Lack of process support in marketing automation solutions 

The wider use of marketing automation technology has help to automate many activities particularly support for the campaign management, analytical and reporting activities but there has been limited support for other processes such as:

  • Project management
  • Supplier management
  • Product management
  • Competitive analysis
  • Planning

The introduction of these technologies has tended to be a catalyst for process review and enhancement but there has not really been any appropriate technology support for the wider process issues or a commitment by the business to address the wider process issues in marketing.

Continuous business pressure to increase productivity 

In addition to increased complexity there is always a business pressure to improve the productivity of the marketing team..

How does MRM address these issues? 

The core technology that underpins MRM is work flow. In simple terms these technologies allow:

  • Processes to be decomposed into a series tasks
  • The tasks to be linked together in a sequence
  • The tasks to be linked to an individual or role

Once created, these process maps allow the technology to prompt a user with a list of tasks to be completed. As the user completes a task the system records the status. The user is then prompted with the next task.

The underlying data that is created as part of each task is then used to drive management reporting.

In addition these technologies allow users both internally and externally of the organization to be able to share objects e.g. documents

Note: In reality the technologies are more complex than described above but the basic principles apply.

What are the potential business benefits of MRM? 

The following are some of the potential benefits of MRM.

MRM allows an organization to:

Standardized processes in marketing 

The introduction of MRM forces organizations to standardize marketing processes. This ensures a consistent approach to each process supported.

Note: It must be recognized that it may not be appropriate to implement MRM for all marketing processes. 

Define and share best practices

The review process during the development stage allows an organization to critically review current processes and determine best practice. These can then be encapsulated in the delivery and applied across the business.

Once deployed the MRM solution provides valuable metrics that can be used to refine existing processes and develop new processes.

Monitor processes

One of the key benefits of the latest MRM technologies is that they produce a wide range of metrics that allow management to monitor the execution of one or more processes. These metrics can ensure effective management of the business.

Reduce errors and re−work 

One of the consequences of the MRM is that the number of errors made and the amount of re−work can be reduced. This is primarily the result of system supporting what would normally be a manual process.

Who is typically impacted?

This really depends on how extensive the MRM technologies are deployed but typically the functions that would be impacted include:

With the marketing function:

  • Product management
  • Marketing communications
  • Competitive intelligence
  • Database marketing
  • Marketing analysis
  • Marketing executive

Within the wider organization:

  • Legal (compliance)
  • Finance (budget)
  • Channel management (e.g. call centre management)
  • Sales management
  • IT

Externally of the organization:

  • Advertising agency
  • External telemarketing agency
  • Print house
  • List brokers
  • Data management suppliers

While MRM embraces a variety of different aspects of marketing, its greatest effects are felt by the core group of marketing staff that is focused on daily execution: production and fulfillment workers, compliance managers, and suppliers. Using MRM, they can get a personalized view of their daily tasks and deliverables, the status of document review and approval, and manage resource and schedule changes. MRM typically addresses all of the tasks involved in day−to−day marketing operations, unifying them and embedding efficiencies.

What processes are typically supported?

The following processes are typically supported by MRM

  • Manage marketing plan
  • Manage campaign plan
  • Manage campaign
  • Manage product development
  • Monitor competition
  • Manage brand development
  • Monitor marketing performance

What evidence is there that MRM works? 

It is fair to say that MRM is in the early adopter stage, with few companies having fully implemented solutions and run them for long periods of time.

When Gartner surveyed companies with MRM implementations, 100 percent reported improved efficiencies, and 93 percent, improved effectivenessthe highest level of improvement ever reported for a new software category. (1)

Specifically, better use of marketing assets resulted in a £2 million savings in annual agency fees for one insurance company; an auto parts manufacturer reduced its packaging design cycle from 3−to−4 weeks to 1−to−3 days, and a pharmaceutical company decreased the time required for marketing campaign creative development approvals from 14 to 2 weeks. (3)

Which sectors have been early adopters of MRM?

According to industry analysts (1), the key driver for MRM is the increasing complexity of marketing. The need cuts across all industries and affects those organizations that have experienced consolidation, brand proliferation, and heavy regulation. The following sectors have been the early adopters:

  • Automotive
  • Consumer packaged goods
  • Pharmaceuticals
  • Financial services
  • Retail
  • High technology companies

What are the likely deployment issues? 

The following are some of the key issues that will need to be addressed by those looking at deploying MRM technologies:

Lack of documentation of current processes

Many organizations do not have well documented processes in marketing. This will be a hurdle for rapid deployment and will have to be addressed as part of the project. I would suggest you used external resource that is experienced in this area.

Complexity of marketing processes

The number and complexity of the processes in marketing means that tackling all processes from day one is going to be fraught with danger. Focus on a few key processes, then expand into other areas. Look for processes that provide quick win financial benefits.

Impact on organization and supplies 

Implementing MRM will have an impact on a wide audience both internal and external of the organization. Make sure that all parties fully involved and are committed to the project. Take an evolutionary approach rather that a big bang approach it will take time to get the delivery process smooth.

Lack of product stability

There are a number of MRM vendors in the market place and there will be a number of other new entrants over the next year or so. There have been a number of problems with product stability and this is likely to continue as new players rush products to market. Make sure due diligence is rigorous particularly with new players.

Vendor viability

This will be an issue while the market is immature, as with product stability due diligence should be exhaustive.

What to look for in MRM technologies?

The following are some of the key things to look for in selecting a MRM technology partner

  • Ability to configure the product
  • Absence or limited use of customer specific code
  • Proven scalability
  • Modular design and architecture
  • Simple deployment capability

Who supplies MRM technology? 

The following are examples of MRM technology vendors

  • Aprimo
  • Smartpath
  • Unica
  • Elateral
  • Veridiem

As high lighted earlier in the paper, due diligence is always required when selecting any vendor.


The increasing complexity of marketing in a multi−channel, real time environment and the business pressure to increase the productivity of marketing teams means that we have got to improve the support in marketing for business processes. Marketing Resource Management (MRM) technologies appears to address some of the key issues. I expect that this last bastion for technology support in marketing, process support: will be addressed over the next few years. In selecting a possible vendor for MRM look for financial viability, product stability and functionality.

I believe that MRM will be most appropriate for large organizations with high volumes of campaigns (>100/year), but as this technology becomes a commodity it will become a standard part of the technology framework that supports a typical marketing function.


  • Marketing Resource Management − Magic quadrant Feb 2003 (M−19−3829). Claudio Marcus, VP Research, Gartner. 2003 gartner.com
  • Marketing Resource Management. Bill Marjot, Managing Director, The Delivery Partnership. May 2003 thedeliverypartnership.com
  • www.smartpath.com case studies, 2003

Software review: Measuring the overall effectiveness of marketing (Part 1)

Abstract This paper, which has been divided into two parts, explores how the uses of measurement systems have been evolving in marketing. The first part starts by looking     at the impact of implementing corporate strategies on marketing and the development of marketing customer communication strategies. The second part of the paper looks at   the types of metrics that are being used to monitor the impact of these communication strategies and issues associated with implementing these measurement systems and the types of technology that are being used to underpin the business requirements.


The author has spent the last two years travelling around the world, working in the USA, Europe, Asia and Australia on analytical customer relationship management projects. One of the things that has been most apparent is the   general lack of a coherent approach to the measurement of marketing communication performance and the integration of marketing strategy with corporate goals. This paper attempts to illustrate an approach that represents a combination of ‘best practices’ that the author has seen in companies around the world. The two parts of the paper cover the following areas:

  • corporate strategy
  • marketing customer communications strategy
  • measuring of marketing communication performance
  • metrics used to monitor performance
  • key performance indicators
  • customer balance scorecard.

It then explores some of the change management issues that have to be addressed as part of any project looking at implementing a more integrated approach to the measurement of marketing communication effectiveness.


The following is an example of a corporate strategy, in this case for a European bank:

  • corporate vision: to be the leading business and consumer financial services company in the country
  • company purpose: to make it easy for customers to manage their finances so they achieve their dreams and protect the things that are important to them
  • corporate goals: grow revenue faster than the industry (12 per cent a. over the next three years), improve productivity by 8 per cent, achieve No. 1 status in employee satisfaction and achieve world-class customer satisfaction.

It is still surprising how many organisations do not have a simple statement of corporate strategy that is reasonably stable over time. In the case of this bank the strategy had been well communicated within the organisation and most members of the marketing team could quote the details almost verbatim. The issue was that no one had really looked at what this strategy meant to marketing other than to sell more products and services. A series of workshops were organised with senior management to determine the implications of the strategy for marketing.


The following section explores some of the conclusions of the marketing management team. The author has tried to pull out some of the salient points and has blended in work from other organisations to ensure anonymity.

The corporate vision

Marketing needs to:

— position the bank so that it is seen as a supplier of a wide range of financial services products; currently perceived to have a bias to one product category by customers

  • develop a brand equity that aligns with corporate vision
  • develop brand awareness in the target audience across the whole of the country, not just the southern metropolitan districts
  • reflect the geographic aspirations of the company in all marketing communications and activities

The corporate purpose

Marketing needs to:

  • understand what their customers dreams are
  • understand what their customers think is important and want to protect
  • make it easy to buy products and services
  • position the bank’s products and services in line with corporate strategy.

The corporate goals

Growth goal

Marketing needs to:

  • Increase the size of the business and consumer/customer bases by acquiring new customers, retaining existing customers, recovering ex-customers
  • increase product holdings of customers
  • increase return on marketing spend by increasing the revenue per campaign, reducing the cost per communication
  • improve the use of targeting techniques
  • improve the use of channels
  • reduce time to market

Productivity goal

Marketing needs to:

  • improve measurement of marketing activities
  • increase productivity of the marketing team by increasing campaigns, communication and revenue per full-time employee
  • improve use of channels
  • increase automation of processes using technology
  • strive to continuously refine the marketing processes and activities
  • effectively utilise resources both within and outside the marketing function.

Employee satisfaction goal

Marketing needs to:

  • measure and monitor employee satisfaction
  • monitor performance against internal targets and compare performance against external benchmarks
  • create world-class leadership in marketing, so that people want to join and stay at the bank
  • empower marketing staff with the ability to deliver measurable business benefits
  • recognise and celebrate success
  • support growth and development of staff
  • create a positive culture that respects all parties
  • treat people as equals.

Customer satisfaction goal

Marketing needs to:

  • focus marketing on customers and their needs
  • better understand customers’ needs and share this knowledge in the bank
  • promote relevant products and services in an appropriate manner
  • exploit the most appropriate channels to communicate with customers
  • facilitate customer dialogue with all Bank parties
  • listen to customers
  • remember what the customer has said.

This exercise represented the first time the marketing team had really thought through the implications of corporate strategy on what they did. In the case of the goals, a number of targets were set and action plans agreed collectively as a group so that priorities and activities plans aligned.


The marketing team then wanted to develop a marketing customer communication strategy and a set of guiding principles for what they did. The team concentrated on marketing communications as they had an immediate need to focus on marketing, but this piece of work then became the basis for a corporate customer communication strategy, which covered all customer communications. The following describes the final version of the marketing customer communication strategy:

  • vision: position the bank as the leading business and consumer financial services organisation in the country
  • purpose: to make it easier for customers to understand and respond to timely and relevant marketing communications
  • goals: facilitate through the use of effective marketing communications an increase in the size of the customer base and an increase in product holdings per customer; increase the effective use of marketing and other company resources; create a culture that focuses on continuous improvement and that strives for leadership in marketing; ensure that all marketing communications are timely and relevant, building on an understanding of the customer and their needs.

Key themes

A set of key themes was developed that was used to develop an approach to all marketing communication activities:

  • understand customer needs
  • listen and learn from the customer
  • determine appropriate communication based on customer understanding
  • determine timeliness of communication
  • determine correct style, branding and/or context for communication
  • execute effective communication
  • monitor response and feedback from customer.

The marketing team then reviewed current marketing processes against these key themes. The results showed a significant lack of consistency in the current processes with measurement and understanding of the customer being quite poorly executed. These are the two areas most commonly neglected in organisations, particularly measurement; if an organisation cannot measure it cannot manage.

Roles of key processes

The marketing customer communication strategy helped the team to clarify the role of some key processes, which for political reasons were not well aligned.

Role of segmentation in marketing It was agreed that the role of segmentation would be to:

  • understand the dynamics of the customer base
  • develop an understanding of groups of customers and how they behave
  • develop channel strategies by segment
  • provide input into product development
  • provide a context for development of customer communication activities
  • help to develop an understanding of the impact of marketing strategies
  • plan allocation of marketing resources across

Role of profitability analysis in marketing

It was agreed that the role of the customer and product profitability analysis would be to:

  • develop an understanding of the customer–business relationship from historical profitability, planned profitability and potential
  • prioritise the allocation of resources within segments, eg retention activities and marketing spend for recruitment.

Role of behavioural modelling in marketing

It was agreed that the role of behavioural modelling would be to:

  • develop the following types of models: propensity to purchase product or service; propensity to use a particular channel; propensity to default on financial product and propensity to cancel product or service
  • target communications activities
  • determine the most appropriate product or services proposition based on customer need
  • prioritise activities in the channels, eg time band codes for call centres and propensity to respond.

Role of measurement in marketing The review of the marketing processes highlighted a number of significant weaknesses, correspondingly the following objectives were agreed by the marketing team:

  • ensure that measurement is central to the management of marketing communications
  • make sure that appropriate key performance indicators and metrics are developed and deployed
  • implement processes that ensure that these measures are produced in a consistent and timely manner
  • provide training and support structures that ensure that all parties understand the metrics and have the skills to take actions to enhance the performance of the business
  • create a culture where testing and experiment design is a central part of the campaign management

Implementing the changes necessary to achieve these objectives took nearly a year but the result exceeded all   expectations.


It was agreed that the focus of measurement in marketing was to be:

  • monitoring effectiveness of marketing activities, in particular, campaigns both proactive (eg direct mail) and passive (eg web-based communications). In the end a portfolio of metrics was used to monitor the performance of campaigns. Some were common to all campaigns while others were product or channel specific. The resulting common metrics ensured consistent measurement of performance across all campaigns and facilitated optimal resource allocation. The standard marketing return on investment (ROI) metrics based on marketing spend were enhanced to take into account non-marketing business costs (channel). This allowed marketing to monitor the consumpiton of resources outside the marketing function
  • monitoring the impact of marketing communication activities on brand development. The bank had a well-structured set of measures for measuring brand awareness and perception. These were extended to cover the full customer product life cycle (prospects, customers and ex- customers). The presentation of the results was modified to allow the data to be viewed in different perspectives, eg segment, customer life stage, geography
  • monitoring the efficiency of the marketing teams, particularly those managing and supporting campaigns. A series of metrics was developed to monitor the efficiency of the marketing teams, eg campaigns per FTE. This was not a popular exercise   as time sheets were introduced into the   marketing department.

Employee satisfaction

In line with the marketing goals, a set of metrics was put in place to measure the enhancement of the role of marketing   employees.   It   was   agreed that the   metrics for employee satisfaction   would   be   based   on corporate   standards,   although   in   the end some modifications were agreed to allow   adequate   granularity   for marketing. In addition, some marketing specific   external benchmarks were introduced to allow market comparison. A number of standard human resources tools were used, these included:

  • 360° reviews
  • employee skill audits and development programmes
  • monitoring employee churn rates
  • monitoring Investment in People (internal and external).


The development of the employee satisfaction metrics highlighted an important issue and that was the misalignment of the remuneration framework, particularly bonuses. This element is being addressed, but the sensitive nature of the changes means that some phasing has had to take place.

Customer satisfaction

The primary focus was to measure the impact of marketing communications specifically on customer satisfaction. This was achieved by:

  • building on existing measures of customer satisfaction to ensure that the impact of marketing communications could be isolated
  • providing an environment that allowed direct feedback from the customer in response to marketing customer communications (initially web-based)
  • developing a ‘voice of the customer’ approach.

This programme of activities aims to continuously poll the customer so that all key decisions have a customer dimension. There were a number of examples highlighted where the company internally thought an issue was important but, when asked directly, it was proved to be unimportant.

This is the end of part one of this   paper. The second part of the paper looks at the:

  • types of metrics that are being used to monitor the impact of these communication strategies
  • issues associated with implementing these measurement systems and the types of technology that are being used to underpin the business requirements.

Software review: Measuring the overall effectiveness of marketing (Part 2)

Abstract This is the second part of a paper that explores how the uses of measurement systems have been evolving in marketing.

The first part looked at the impact of implementing corporate strategies on marketing and the development of marketing customer communication   strategies.

The second part explores the types of metrics that are being used to monitor the effectiveness of these customer communication strategies. It also briefly looks at the issues associated with implementing these measurement systems and types of technology that are being used to surface the   measures.


The author has spent the last two years travelling around the world, working in the USA, Europe and Asia Pacific on analytical customer relationship management (CRM) projects. One of the things that has struck him the most   is the general lack of a coherent approach to the integration of marketing strategy with corporate goals and the measurement of marketing communication performance.

This paper attempts to illustrate an approach that represents a combination of ‘best practices’ that he has seen in companies around the world.

The paper covers the following areas:

  • corporate strategy
  • marketing customer communications strategy
  • measuring marketing communication performance
  • metrics used to monitor performance
  • key performance indicators
  • customer balance scorecard

The second part of the paper looks at the:

  • types of metrics that are being used to monitor the impact of marketing customer communication strategies
  • issues associated with implementing these measurement systems and types of technology that are being used to underpin the surfacing of these measures.


The following section of the paper illustrates the types of metrics that could be used to measure the various aspects of marketing customer communication performance. It is not meant to provide   a definitive list, but to point the reader towards the key dimensions to measure.

The metrics are broken down into the following sections:

  • overall performance
  • customer performance
  • product performance
  • channel performance
  • communications performance
  • marketing team

Note: The measures are described by:

Objective function (What the organisation is trying to achieve) 

Metric (How performance is measured)

Overall performance

In most marketing organisations the primary measure of overall marketing customer communication effectiveness is return on marketing investment. The following types of metrics are typically used:

Increase return on marketing spend

Rate of return on marketing spend in period (%)

Total return on marketing spend in period (£)

The periods measured are typically month, year to date and, occasionally, rolling year.

In this case the metric only looks at marketing spend on the assumption that marketing is unable to influence spend in other areas of the business. In the past many organisations only measured the outward costs of the communication, but it is more common to see both the outward bound and response management cost being taken into account.

Where a multichannel strategy has been adopted there has been a move to take into account the indirect costs of marketing. That is, those costs that are not directly controlled by marketing but are influenced by marketing activity, eg response management through different channels.

The resulting metrics have led some organisations to steer customers to respond down preferred channels and/or refine the response management process, eg reducing hand offs through a sale cycle in a retail branch network.

The following types of metrics are becoming more common:

Increase return on corporate spend

Rate of return on corporate spend in period (%)

Total return on corporate spend in period (£)

The periods measured are typically month, year to date and, occasionally, rolling year.

Budgets have been common in most marketing departments for a long time, but they have not been tightly controlled in many cases. This is changing as   finance starts to tighten its grip on this area of spend.

The following types of metrics are common:

Improve budget process performance

Total marketing spend in period (£) Total spend by communication channel in period (£)

Total spend by business initiative in period (£)

Total spend by business unit/product area in period (£)

Total spend by segment in period (£) Total spend per customer in period (£) (average, max, min, mean)

The periods measured are typically week, month and year to date. Budgets are normally set and monitored for spend. In some cases a bid process drives allocation of budget on a campaign-by-campaign basis.


Understanding the dynamic nature of the customer base is essential in any organisation. The following metrics are used:

Increase number of customers

Total number of customers in base at start of period

Total number of customers in base at the end of the period

Net change in customer numbers in period

Rate of net change in customer number in period (%)

Number of new customers gained in period

Number of customers retained in period

Number of customers recovered in period

Number of customers lost in period Number of customers at risk during period

The periods measured are typically week, month and year to date. These numbers would also be expressed as a percentage of the base at the start of the   period.

Where customers are managed by business   units,   the   customer metrics above would be available by business unit. It is still surprising how many organisations are still unable to provide the metrics described above. Where a strategic   segmentation   system  is   in place   the   customer   metrics   above would be required by segment. Targets are sometimes set for acquisition, migration   and   retention   of   customers for segment managers. If this is the   case then there   would   be   measures against   these targets.

Migrate customer to optimal segment

Number of net new customers in segment in period

Number of customer acquisitions to segment in period

Number of net lost customers from segment in period

Number of lost customers in period from segment

Number of lost customers in period to other segments

Number of customers migrating between segments

The periods measured are typically month and year to date.

A key measure for most organisations is the value of the customer; a wide range of methods are used to determine value. These include:

  • total sales
  • total gross profit (contribution)
  • total net profit
  • net present value.

The choice of method would depend on the business.

In addition organisations may want to measure:

  • historical value
  • planned value (if customer keeps current product)
  • potential value (if customer grows product/service portfolio).

The following types of metrics are typically used:

Maximise value of customers 

Total value customers in period (£) Value of customer in period (£)

The periods measured are typically month and annual. These customer data may be aggregated by a number of dimensions including:

  • segment
  • business unit
  • source channel

A key driver of customer value is the number and value of product relationships. This leads to a set of metrics around this subject matter. The following types of metrics are used:

Increase value customer product holdings

Number of product involvements Number of products sold to existing customers

Value of products sold to existing customers (£)

Number of products sold to new customers

Value of products sold to new customers (£)

Number of products sold to recovered customers

Value of products sold to recovered customers (£)

Number of products at risk Value of products at risk (£) Period product held (max, min, average and mean)

The periods measured are typically week, month and year to date.

These metrics are normally available for the customer base, segments, customers and households if appropriate.

The issue with product holding is   often the definition of product, but this   is a business issue that has to be resolved if an effective measurement system can be put in place.

The value of a customer in many cases is driven by the period the product is held, so most organisations have some measure of product and customer tenure.

The following types of metrics are used:

Maximise length of customer relationship

Period as customer (max, min, average and mean)

The periods measured are typically week, month and year to date. These tenure data may be aggregated by a number of dimensions including:

  • segment
  • business unit
  • source channel.

In many organisations the cost of customer acquisition is a major driver of customer value so a variety of metrics is used to monitor these costs.

Reduce cost of acquisition

Number of customers by acquisition channel in period

Total cost of acquisition through channel in period (£)

Cost of customer acquisition in period (ave, max, min, mean)

Cost of sale by stage in sale cycle (£): enquiry; quotation; application; sale

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • business initiative
  • segment
  • business unit
  • source channel.

Monitoring the effectiveness of the sales channel in converting an enquiry into a sale is usually measured, as part of the sales process but these data are often valuable if the marketing department is to understand how to optimise the use of a channel.

Improve conversion rates

Conversion rates for stages in the sale cycle: enquiry; quotation; application; sale

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • product
  • business initiative
  • segment
  • business unit
  • source channel.

Product performance

In most organisations the metrics for measuring product performance are well catered for. It is the customer metrics, which are often difficult to get and integrate.

Increase value of product holdings

Total number of product involvements in base at start of period

Value of products in base at start of period (£)

Number of product involvements in base at end of period

Value of products in base at end of period (£)

Net number of products gained in period

Net number of losses in period Number of new product involvements in period

Value of new product involvements in period (£)

Number of lost product involvements in period

Value of lost products in period Number of products retained in period Value of products retained in period (£) Number of products recovered in period

Value of products recovered in period (£)

Number of products at risk at start and end of period

Value of products at risk at start and end of period (£)

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • product group
  • business unit.

Improve product acquisition by channel 

Number of products sold by channel Value of products sold by channel (£)

The periods measured are typically week, month and year to date.

In many cases it is difficult to measure product upgrades but it is important that measurement systems are put in place as they can increase the value of a relationship and reduce customer churn. The metrics are similar to those of product.

Increase product upgrades

Number of upgrades sales by product combination

Value of upgrades sales by product combination

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:


  • product group
  • business unit.


The whole issue of channel management is becoming more important as organisations try to manage the complex mix of communication channels available today.

Ensuring optimal resource allocation and utilisation is becoming essential if business and CRM objectives are to be met. The following metrics are typically used:

Reduce cost per communication in channel

Total number of communications by channel

Total cost of channel (£)

Cost of communications by channel (ave, max, min, mean)

Number of marketing communications by channel

Total cost of marketing communications through channel (£) Costs of marketing communications by channel (ave, max, min, mean) Marketing communication contact rate (success rate) (%)

Conversion rates by channel for stages in sale cycle (%)

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • channel
  • business unit
  • product.

Other metrics typically used include:

Maximise sales per channel

Number of sales by channel in period Value of sale by channel in period (£) Cost of sale by channel in period (£) Number of new customers by channel in period

Value of new customers by channel in period (£)

The periods measured are typically week, month and year to date.

Reduce cost per sale

Cost per sale by channel in period

The periods measured are typically week, month and year to date.

Improve channel ROI 

Rate of return on channel spend in period

Total return on channel spend in period

The periods measured are typically month and year to date.

In addition to standard metrics that allow cross-channel performance comparison, a number of metrics may need to be developed for specific channels, eg

  • telephone: length of call, missed call rate
  • e-mail: number of hard and soft bounce backs
  • web: period on web page.

Communications performance

At a more operational level, organisations will have to put in a series of metrics to measure the performance of marketing communications. The following metrics are typical:

Reduce cost per communication

Number of marketing communications in period

Cost per communication in period   (£)

The periods measured are typically day, week, month and year to date. These data may be aggregated by a number of dimensions including:

  • business unit
  • campaign manager
  • campaign
  • channel
  • product.

Perhaps the most commonly used measure for marketing performance response rates needs to be seen within the context of a range of metrics to improve effectiveness.

Increase response rates

Number of responses to communication by campaign in period Total value of responses to communication by campaign in period Response value by campaign in period (ave, max, min, mean)

Reduce cost per sale

Cost per response to communication by campaign in period (£) Conversion costs per stage in the sale cycle for campaign (£)

Improve conversion ratios

Conversion rate per stage in the sale cycle for campaign (%)

The periods measured above are typically day, week, month and year to date. These data may be aggregated by a number of dimensions including:

  • channel
  • business unit
  • product
  • business initiative
  • campaign
  • communication.

In some markets campaigns are planned, partially executed then cancelled. This often results in wastage, which needs to be measured.

Reduce cost of wastage in communications

Cost of campaigns aborted in the period

The periods measured are typically week, month and year to date.

Improve campaign ROI

Rate of return on campaign spend in period at campaign and communication levels

Total return on campaign spend in period at campaign and communication levels

The periods measured are typically week, month and year to date.

In this example a campaign may consist of one or more communications. The rate of return may be aggregated in a number of dimensions. These could include:

  • business initiative
  • product category
  • segment
  • business unit
  • campaign manager.

The important thing about this approach is that common sets of metrics are used     to monitor campaign performance. This allows cross-campaign performance and therefore resource allocation to be more effectively managed.

Other metrics may be used to measure the impact of direct communications on brand and customer perceptions. These include:

Improve brand awareness and consideration

Brand awareness levels in period Brand consideration index in period

Improve customer perception of marketing communications

Marketing communication satisfaction index


Organisations have started to monitor the effective utilisation of staff resource in marketing. This has not been popular, as it requires the keeping of time sheets and the allocation of time against specific campaigns. But those companies that have introduced these types of measure have found them very valuable, in many cases justifying an increase in staff resource. The following metrics are typical:

Reduce time to market

Period between key milestones in a campaign life cycle (days) (ave, max, min and mean)

These data may be aggregated by a number of dimensions including:

  • business initiative
  • type of campaign
  • campaign manager.

These type of data have helped in refining the campaign management and associated processes.

Reduce staff resource required to execute a campaign

Man days of resource required to execute campaign, broken down by campaign stage

These data may be aggregated by a number of dimensions including:

  • business initiative
  • type of campaign
  • business unit.

The main driver for improvement in this area has been improvement in marketing processes and the introduction of campaign management technologies which have allowed more of the process to be automated.

Increase the number of campaigns per full time equivalent (FTE)

Number of communications per campaign (ave, max, min, mean) Number of campaigns per marketing FTE

Number of communications per FTE Marketing spend per FTE (£)

The introduction of workflow and other planning technologies in marketing is facilitating these types of measurement.

There is a pool of evidence that shows that satisfied employees are more productive. The costs of losing skilled marketing staff have pushed some organisations into establishing more effective metrics for monitoring staff satisfaction. These include:

Improve marketing staff satisfaction

Staff satisfaction index

Number of days lost due to sickness Number of employees in department at start and end of period

Number of FTEs in department at start and end of period

Number of employees resigned during period by reason type

Number of employees recruited during period

Cost of recruiting new employees (£) Value of investment in employees

The periods measured above are typically month and year to date.


The previous section provides a list of the type of metrics that are being used   to manage a marketing operation. There are too many for a marketing manager to use effectively. There will be a small number (five to ten) that will provide key indicators of the team’s performance (KPIs). These should be surfaced to management on a regular basis in the form of a flight deck, with exceptions visually highlighted. It should then be possible for management to drill down into the supporting metrics when appropriate to investigate underperformance. This approach avoids data overload of management team.


There are a number of vendors that supply reporting or business intelligence technologies. The following are just a few:

  • Business Objects
  • Cognos
  • Hyperion
  • SAS.

The key issue for marketing is to understand what is being measured and how this integrates with the marketing strategy, before going out and buying a stack of reporting tools. It is important to look for both business and technical support from a supplier; many have developed industry-specific templates which will fast track the delivery process. When buying technology it is not only looks that count. It is substance. Things   to look for are:

  • financial viability
  • future vision
  • industry domain knowledge
  • richness of functionality
  • data integration capability
  • forecasting and predictive capability
  • delivery capability
  • references.


There is need for marketing organisations to align what they are doing with corporate strategy. Ensuring that there is a documented marketing strategy and marketing plan is just the first   step.

Putting in place the necessary measurement systems is the next. Few organisations that the author has worked in would claim to have a comprehensive set of metrics to monitor the performance of marketing. Even fewer have formulated these as a simple set of key performance indicators that can be used to manage the business on a day-to-day basis. If the right measures are not in place the business cannot be managed effectively. What cannot be measured, cannot be managed.