Using Customer Analytics in Price Sensitive Markets
One key to analyzing how consumers will spend is affordability data, which includes hundreds of influential variables.
By Jed Mole, European Marketing Director, Acxiom
How do you know which consumers can or cannot afford to spend in today's economy?
After a recession with changeable recovery outcomes -- we're only just seeing apparent green shoots now -- catering for customers across the affordability spectrum has been a challenge for marketers in recent years. A shift in consumer spending behavior was identified just prior to the recession -- so "affordability" has been a useful data asset since pre-recession times, helping markets adapt more effectively.
Causing consumer behavior to be unpredictable, unstable financial climates cause individuals to reevaluate purchasing priorities, motivators, and habits. As consumers become reluctant to spend, how can businesses retain loyalty, identify their most stable prospects, or know how change to adapt?
Altering Perspectives with Affordability Data
To find security in unpredictable times and markets, businesses need multidimensional insights. An intelligent perspective of the consumer is integral. Understanding people's reasons for buying -- why as well as the what and how -- plus how habits may change in the future, is more important now than ever.
How an organization perceives its consumers affects the value and potential it assigns to them. Recent analysis shows that certain segments have weathered the recession well (in fact, some segments have hardly been touched) and are already back to pre-recession spending. Others, however, bore the brunt of downturn; their behavior has been permanently (adversely) shifted. To accurately examine the precise worth of a consumer base, all of the varied influencers affecting consumer spending must be distinguished. Only then can organizations utilize data to react accordingly. In-depth, varied, and multifaceted information is a must -- a one-dimensional viewpoint is not enough.
The key is affordability data. Collated by data providers, affordability data incorporates hundreds of influential variables from consumer expenditure to income. It includes assessments of debt, risk, disposable income, and level of affluence all of which affect how unique consumers spend. Such data allows brands to intricately understand their consumers and evaluate the effect the economy has on spending habits.
How Can this Data be Used?
The unique consumer portraits that affordability data creates enhance current customer marketing databases when put to practical use. Effectively this makes it a protector, facilitator, and concise clarifier, saving time and profit. Enabling organizations to target prospects quickly and evaluate their purchasing potential and loyalty based on the factors above effectively future-proofs pricing against financial fluctuation, good or bad.
How is this achieved? Affordability data analyzes and identifies consumer levels of economic commitment. For example, research conducted by Acxiom [see note at end of article] shows that UK households spend an average of 19 percent more per year than their overall annual income. Knowing data such as this means marketers can prioritize customers based on their levels of financial commitment. Out of a database of over 46 million UK individuals alone (more than 23 million households), marketers can assess which households are overspending and will continue to struggle -- making them risky and unstable prospects to target -- and identify consumers who are more stable, act within their financial means, and will continue to afford to consume.
Affordability also accounts for the varying income needs of households. For example, two households may have identical income, but one may be a family of four and the other an individual. The individual will have a much larger disposable income and is more likely to spend it, so may be a more valuable prospect than the family.
Data providers have also recently identified new segments in the data -- young people are living at home much longer (or moving back home) and this is changing the household's overall spending. That's even more reason to ensure your best use of customer analytic data at an individual level to measure all the components of a household's outflows.
Once organizations possess a complete consumer affordability profile, you can create detailed what-if scenarios (involving multiple variables that affect future economic fluctuations) to ensure continued positive ROI. This protects both customers and corporations from financial change because it means prospects can be better managed and appropriately targeted by their level of affluence. Encouraging customers to remain loyal and secure, this also ensures brands don't price themselves out of the market.
Finding Success in Unpredictable, Price-Sensitive Markets
Through enhancing customer analytics with affordability insight, marketing investments can be better optimized, audience value can be better perceived, and all financial and purchasing influencers can be reactively considered.
Reducing risk, businesses are protected, targeting strategies are better aligned to cope with economic change, and the retention of the most valuable segments of a consumer base is ensured -- meaning successfully utilized affordability data is key to enhancing success in today's cost sensitive, unstable markets.
Jed Mole is the European marketing director at Acxiom, an enterprise data, analytics and software as a service company; he is based in London. You can contact the author at [email protected].
NOTE: Information sourced from Acxiom, Do You Know Which Consumers Can Afford To Spend In Today's Economy?, 2013.