a division of Carlson Marketing Worldwide
The Customer-Driven Innovation Series: Part 1
The Predictive
Enterprise
white paper | 2007
magine you are a high-end retailer with
over 300 stores. What if you could predict
how many customers would walk through
the door on a given day? Based on that insight,
what if you were able to staff your retail floor
with the right number of sales associates, and
even assign associates to individual, high-
value customers so the best customer experi-
ence was delivered at the right time? And as a
result of those insight-based actions, you could
predict how many transactions you would gen-
erate and how much sales you would capture.
If you had all this in place, would your compa-
ny be an innovator?
You bet it would. But it isn’t just a pipe
dream. At this moment, Coach, the global
retailer of fine gifts and accessories, is
putting the pieces together. “To get sales
right, you need the right people in the right
place at the right time,” says Patraic Reagan,
Director of Business Analysis at Coach. “But
to do that, you must be predictive rather than
reactive. You have to design the best cus-
tomer experience ahead of time so that at
every location and at every customer interac-
tion, impeccable service turns into long-term
relationships.”
More and more companies like Coach are
realizing the benefits and return of becoming
“customer innovators.” They’re tapping into a
wider range of different data sources to uncov-
er predictive insights about customers, using
the insights to identify the right customer
experience ahead of time, then delivering that
experience at the right moment. In the follow-
ing white paper, we explore this topic in depth.
We unravel the traditional definition of inno-
vation and explain why customer interactions
represent innovation’s new battleground. To
help you gauge your company’s “customer
innovation readiness,” we detail four attribut-
es of the predictive enterprise and how data
mining and analytics can be used to enable it.
Also included are the customer innovation sto-
ries of two esteemed international brands,
Coach and Debenhams.
©2007 Carlson Marketing. Peppers & Rogers Group is a division of Carlson Marketing Worldwide. All rights protected and reserved.
2
White Paper in Brief
Who:
Senior marketers and decision
makers across the enterprise
What:
Strategies and tactics for
enabling a more innovative,
predictive enterprise that
maximizes the value of every
customer interaction to “get,
keep and grow” customers
How:
• Expands the definition of innovation beyond
products to include customer interactions
• Documents why companies must become
predictive enterprises
• Outlines four core attributes of the predictive
enterprise, and how you can attain them
• Shows how Coach and Debenhams use data mining
and predictive analytics to achieve customer
innovation, strengthen brand and lift sales
The Customer Innovation Series: Part I:
The Predictive Enterprise
Executive Overview
Executive Overview ____2
Customer Interactions:
Innovation’s New Battle
ground ________________3
Case Study:
Debenhams____________4
Attributes of the
Predictive Enterprise__5-8
Case Study: Coach _____9
React or Predict:
It’s Up to You _________10
>contents
i
Geoffrey Moore, marketing expert and author,
once wrote: “Failure to innovate equals failure to
differentiate equals failure to garner the profits and
revenues needed to attract capital investment.”
i
Most executives would agree, and they’ve long
placed innovation near the top of their to-do lists.
In a 2006
BusinessWeek
survey, 70% of respon-
dents cited innovation as one of their company’s
top three strategic priorities.
ii
Expanding understanding
For decades, innovation has been most closely
associated with the ability to launch new prod-
ucts. But, capturing competitive advantage
through product innovation alone—much less
sustaining it—is getting tougher. No matter what
product you sell today, in a few years it will likely
be a commodity. Consider that, according to
some reports, as much as 80% of the 36,000 new
products brought to market in 2005 are destined
to fail.
Companies like Coach are expanding upon the
traditional definition of innovation. They recog-
nize that innovation extends beyond products and
back-end processes to include how, when and
where they interact with customers. “The concept
of ‘product’ itself has been expanded beyond the
tangible item itself to include the customer inter-
actions that happen before, during and after its
purchase,” says Colin Shearer, Senior Vice
President of Market Strategy, SPSS. This is the
new battle- ground for innovation as channels
continue to proliferate and as the quantity of
customer interactions explode. This view is
shared by innovators such as Credit Suisse, Puma
North America, GE aircraft and British Telecom.
They know that the customer experience is about
more than products.
It means being predictive
Achieving customer innovation depends on
becoming a more predictive enterprise. Your cus-
tomer-facing personnel must know
ahead of time
which customer will be on the telephone or the
retail floor and which experience is the best one
for
that
customer at
that
moment. The predictive
enterprise knows which experience is right for a
specific customer before the interaction actually
occurs. It seeks to innovate by anticipating and
enhancing different customer interactions priori-
tized by their impact on building and maintaining
profitable, long-term relationships. It might be the
decision to route a high-growth customer to the
most knowledgeable service rep, to
not
approach
a high-value customer the second she hits the
retail floor, or to give a disgruntled customer a dis-
count on his next purchase.
What’s the payoff? An IDC report found that the
median ROI for projects that incorporate predictive
capabilities and technologies was 145%.
iii
The
benefits that help to drive this ROI can come in a
range of different forms, says Nucleus Research.
They include direct savings due to a reduction in
marketing campaign costs, lower acquisition and
retention costs, or even lower equipment and
staffing costs. The ROI can also come from using
predictive analytics to increase productivity,
improved service levels or higher profits as a
direct result of more targeted cross-selling and up-
selling. A final ROI source: greater visibility across
the enterprise that enables more efficient process-
es and operations.
iv
How can you become a more predictive enter-
prise capable of real customer innovation? It starts
with data. Lots of companies have plenty of data,
but most are not taking advantage of the insights
and predictions it can offer. For example, accord-
ing to a 2006 survey by SPSS and Yankee Group,
only 50% of organizations are applying advanced
analytics to their data to drive predictive insight.
v
Even fewer take the next, innovative step of using
the insight to maximize the value of each cus-
tomer interaction by delivering a great customer
experience. But this is the new frontier of innova-
tion—where leaders will distinguish themselves
from laggards.
©2007 Carlson Marketing. Peppers & Rogers Group is a division of Carlson Marketing Worldwide. All rights protected and reserved.
3
The Customer Innovation Series Part 1: The Predictive Enterprise
Lots of companies
have plenty of
data, but most
are not taking
advantage of
the insights and
predictions it
can offer.
Customer Interactions:
Innovation’s New Battleground