How Averages Can Be Dangerous
We use averages in our business life all the time, and they are usually pretty straightforward. However, when it comes to making business decisions involving customer data, averages can be misleading.
Let’s say that we had a sample of 100 gamblers from your customer re wards system. From your current database analysis tool you can learn that their average income is $55K per year. So from that information, you might assume your typical customer has an income of $55K and act on that assumption, by building a marketing campaign targeting customers with an income of $55K. When you imagine averages, you probably think about a curve like this:
The problem is there are other kinds of curves with the same average as the one above, but they have wildly different distributions and implications for your marketing campaign. For example this chart shows a flat or what statisticians call a uniform distribution which would be bad news for your marketing campaign.
If you are an optimist about your gambling population, you might think you have a narrowly grouped base around $55K like this chart.
And if you are unlucky, some day you might experience this unfortunate distribution and none of them have an income of $55K as seen in this troth shaped bi-modal chart.
The important thing to note here is that all these graphs have the same averages, so if you were relying on averages alone to make decisions for your business, your success would be at risk. With misleading data, you may be spending thousands of dollars marketing to unprofitable customers and overlooking potentially valuable ones.
Distributions Matter
Averages don’t matter as much as the distribution around the averages, when it comes to finding ideal customers. Distributions give you a fuller picture of where your customers are and just as importantly― where they are not.
The way to the right people is to use more information, specifically, to use all of the distribution and not just the average. Predictive analytics is the clear winner for making more profitable decisions, because it uses all of the information in the distribution. Predictive analytics is a more complex way of looking at potential consumers, taking into account their past behavior and predicting whether or not they would be receptive to the product or service you have to offer.
To use predictive analytics, you could start studying distributions, send your staff to statistics classes or start benefiting immediately from Stics. The professionals at Stics have made it easy for people who aren’t knowledgeable about statistics to get the important information they need for their company. Stics has predictive models that can give you valuable information about your customer information― which will lead to more profitable marketing campaigns.
Why Data Segmentation Is Not Enough
People Are More Complicated Than Their Data Segmentation Parameters
When evaluating customer wants and needs, there are many ways of looking at data from the sublime to ridiculous. Commonly accepted ways of looking at customer data include generating a “gut feel” from experience, sampling at random,looking at exceptions, reviewing periodic totals, and SQL selection. SQL, the most common tool used by database marketers, stands for Structured Query Language, but what it boils down to is averages or data segmentation. It gives you general information about groups of people, often by age or income.
Let’s say, for instance, that you want to find people that fit a certain category, such as empty-nesters. To use data segmentation to find these people, you might search for people in the 50 – 60 year age range and within a certain income bracket. SQL would look at your data to find the people who fit both of these parameters.
The problem with SQL is that you’re potentially overlooking the right people. In this example, your data segment would be missing all of the empty nesters who are under 50 as well as those who fall outside your chosen income range. SQL is just a fancy way to put people into buckets. The problem is, not everyone you seek is in the obvious bucket.
People are more complicated than just their income or age, but when analyzing populations, you can become trapped by these segmentation tools and rules.
Where Your Customers Really Are
The truth is that you’re not really looking for empty-nesters within certain parameters (shown in brown on the chart) or even empty-nesters in general. You are looking for people who will be receptive to what you have to offer (shown in yellow on the chart).
To find these potential customers, you need to stop relying on buckets and start looking at the bigger picture. And to do that, you need statistics. Statistics can help you find the best people that correspond to your potential customer base.
Predictive Analytics: Better than Buckets
The most effective form of selection would be to use the most information and use it optimally. With this light, predictive analytics can be seen as the clear winner for selecting target prospects or customers.
Predicative analytics looks at the bigger picture of marketing. It has the capability to consider all kinds of factors, rather than just one of two. It also looks at patterns in behavior, and makes predictions about future behaviors. This lets you more accurately pinpoint your potential customers, as well as stop marketing to people who are not interested in what you have to offer.
That sounds like a much more effective way to do business, right? The problem is that you can’t do it by yourself. Predictive analytics is a science, and it can take years to develop accurate predictive models. You don’t want to make the top 10 mistakes a novice with predictive analytics would make. That’s why turning to a reputable predictive analytics provider can save you time and money.
At Stics, we have spent year’s fine tuning our software and processes so our customers get extremely accurate predictions. We can take your data and give you insightful information about potential customers and the effectiveness of future marketing campaigns. With Stics predictive analytics solutions you can make your business more efficient and cost-effective.
