Monday, December 17, 2007

Changing the Way You Look at Customer Data

Most analytic tools used by marketers take snapshots in time, giving you static pictures of customer behavior. Accordingly, it is difficult to use such crude tools to discover trends in the underlying data. Since customer behavior is always in a state of flux, traditional analytical tools are intrinsically limited in determining strategies to maximize your marketing ROI.

Lloyd Merriam, founder and CEO of CoLinear Systems, Inc. whose RESPONSE software has been an innovative order management system since 1986, has formed a new company, Deltalytics, to address the challenge of hitting marketing’s moving target.

Clever name, as the Greek symbol Delta means “change.” What Deltalytics does is look at changes in current customer behavior to predict future behavior across all customer segments. And it does this at a cost that small businesses can afford.

Many of the analytical techniques used are proprietary (and patent-pending), but Deltalytics also relies on such established tools as Markov Chain Models, and Cluster, Bayesian, Chaid and Regression analyses. What you get, in a nutshell, are current and projected customer lifetime value, behavioral segmentation analysis, customer defection prediction and intervention, sales forecasting, and customer-centric accounting.

A laser-guided “Smart Bomb”
Think of it as a laser-guided “smart bomb” for pro-active marketers, only this bomb doesn’t blow things up, it “pumps” them up, instead. Customers in decline can be identified and potentially salvaged. Similarly, customers who are ramping up the RFM scale can be readily pinpointed and encouraged to make further purchases.

Says Merriam, “Once you've mapped out the lifecycle of, say, seasonal shoppers who responded to the Christmas catalog, for example, you can predict how similar customers should perform in the future. When they don't, we look to other metrics to get a better handle on why and what the implications will be. For example, are they spending less/more? Ordering less/more often? And so on.

“Of course, the predictions (given a relatively stable business) will become increasingly accurate and confident over time. So what you might see, for example, is that lowering the price on a top-selling item may increase short-term revenue (and even profit), but the long-term effect – which Deltalytics will reveal pretty quickly ( in 30-90 days in most cases) – might be a serious decline in the quality of this new group of customers and a dramatic drop in their aggregate potential future lifetime value. We know from basic RFM, given an adequate population to work with, that group behavior is surprisingly predictable.”

Three Critical Metrics

Deltalytics hones in on three critical metrics:

1) Multi-buyer conversions: how many one-time buyers (who typically cost more to acquire than they yield in net margin) become multi-buyers?

2) Latency: the number of days between a customer’s orders (a variation on “frequency”)

3) Recency: the date of the customer’s last order, and the most powerful predictor of future behavior

Starting with Recency scores for the current customer population, Deltalytics measures the changes in Recency from period to period to tell you whether the percentage of recent customers is on the rise or declining, and at what rate. By excluding one-time buyers from the analysis, you are able to see how profitable customers (i.e. multi-buyers) are performing without skewing results from purchases made by new customer acquisitions.

Guiding you to motivate the laggards and boost the risers, Deltalytics helps you to:

• increase average customer lifetime duration
• predict the long-term financial impact of strategic initiatives much sooner
• determine which promotions yield the most profitable customers (in terms of their lifetime downstream value)
• identify which products attract the most profitable customers over the long-term
• assess how changes in company policies (pricing, product mix, etc.) will impact future sales and profit
• anticipate when imminent customer defection is likely (so you can prevent losing them)

Incredibly Affordable
The cost for this service is incredibly affordable. While still in its “beta” or testing phase, the cost for the "basic" Deltalytics service is currently $39.95 per month, but is likely to drop to $29.95 later on (note to Steve Jobs – this is called customer-friendly disclosure!). At this point, five different “editions” are planned, each with increasingly sophisticated features and reporting. They are:

ESSENTIAL - $19.95/mo, with fewer features than Basic, but still offering useful results
BASIC - $29.95/mo
STANDARD - $49.95/mo
PROFESSIONAL - $99.95/mo
ELITE - $179.95/mo
The Elite level will provide Multi-buyer Pattern Detection and Analysis, Latent Segment (cluster) Analysis, Forecasts of Future Business Value, Reports on Confidence Levels, and Self-Tuning Algorithms.

But even at the Basic level you are still getting a boatload of trend reports based on all RFM measures, plus Latency, Conversions, Customer Profitability analysis, and Business Strength (rate of growth or decline).

Analysis is based on data feeds using a generic field mapping tool for importing the requisite data from virtually any system, and system-specific “adapters” are planned to easily interface with any of the leading accounting and order management systems.

Deltalytics is designed to run in-house on MS SQL/Server, to assure optimum performance and stability (Deltalytics will supply the free "express" edition, if you wish). That means that all application data is stored and processed locally by the user. The application relies on an internet connection only to maintain the monthly subscription and to provide diagnostic and trouble-shooting support.

For more information, contact Lloyd Merriam at, or visit

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