DATA SEGMENTATION: UK vs. USA
by mark.higginson, Qbase, 14/8/2006
DATA SEGMENTATION: UK vs. USA
As markets constantly evolve, becoming more crowded and increasingly competitive, professionals face new challenges to improve direct marketing campaigns.
Data Management Bureau, Qbase, who recently expanded into North America, report an increased demand for more cost effective, high quality data, which provides improved return on investment for companies, is resulting in improved data segmentation techniques becoming more significant to deliver.
But what challenges face marketers, what help is on offer and does it differ between markets across the world? Qbase compares the role of data segmentation within the UK and USA marketplace and discusses the importance of improved techniques for successful campaigns.
Mark Robinson, Qbase UK’s Commercial Director comments: “The sheer size of the USA marketplace, compared to the UK, makes for some interesting differences in the role of segmentation and analysis in general.
“In the UK, we are seeing an increasing use of prospect scoring and propensity modelling to gain advantage with marketing campaigns. This technique aims to identify demographic similarities between prospects and the best customer segment. Through modelling techniques, prospects can then be scored based on their ‘similarity’ to customers.”
The UK often faces difficulties in achieving competitive advantage due to the comparatively low volumes of data available. This results in competitors using the same prospect data sources. Segmentation techniques such as propensity modelling are therefore becoming necessary for improving targeting.
The USA, however, is still gaining advantage through using available data before turning to modelling as there is such a huge quantity of new sources available. Although, the realisation of the further benefits these data segmentation techniques provide, is dawning on the USA market.
Chuck Backus, Qbase US Chief Technology Officer comments: “Competition in the USA is equally as high and there’s a quiet movement to involve more analytics and modelling in targeted selections. Marketers want advantage over competitors and we are finding increasing interest in exploring customer behaviour and then extending prospect definition through the use of external demographics.
“Our UK team has already proven the value of this approach. Our challenge and opportunity in the USA is to bring the costs of analytics and modelling into balance. Marketers are being forced to find better returns and Qbase US has a viable solution.”
Reducing costs for marketers in both the UK and USA is becoming increasingly significant with more pressure being put on marketers to find affordable solutions.
Propensity modeling is an affordable technique which results in companies using data more efficiently, to produce improved results and less wastage. The technique allows prospects to be ranked according to the likelihood to buy, based on whatever characteristics are available (e.g. demographic data, geographical area, transactional behaviour). Where previously, mass marketing with little targeting has been used, modelling allows individuals to be scored and ranked so marketers can spend more on the high propensity prospects and less on the low propensity ones. This technique means that marketing budgets and activity can be apportioned, less money and marketing material wasted and ROI improved.
The marketplace is becoming more educated to the benefits of modelling with the popularity of such techniques increasing in the UK and the USA.
Chuck continues: “In the USA, data is abundant. Cheap disk, fast processors and interactive online systems have given businesses more opportunity than ever to capture vital information at the point-of-sale. However, mining mountains of data hasn’t typically been a task within the reach of marketers but new, more affordable solutions with quick turnaround allow marketers to take advantage.”
Increases in other business expenses i.e. postal costs and a movement towards more environmentally friendly enterprises is also contributing to the exploration of new techniques.
“Postal rate increases in the USA have had a significant effect on the cost of direct marketing campaigns. By only targeting those people who are most likely to respond, companies are not only given advantage, but are preventing waste and reducing costs.” Chuck added.
The forthcoming changes to UK postal rates by Royal Mail will also have an impact. The change will take account of size as well as weight, (called “Pricing in Proportion” or PiP). PiP will mean some mail prices will go up – for example, bulky items that are light in weight – and some will come down - it will be cheaper to post heavy catalogues and books. As always, this will be a positive change for some companies but a hindrance to others, with improved targeting becoming even more important for some businesses as their postage costs increase.
Legislation differences between the UK and USA can also contribute to the challenges faced with data segmentation functions. Privacy laws in the UK mean that appending relevant demographic data to records is often not a possibility and can be expensive for those available demographics. In the USA, the opposite is true, with much greater volumes of demographics available at a lower cost.
More demographic information available within customer datasets will result in a stronger model being built. The future of modelling in the USA could therefore become even more cost-effective than the UK.
Mark comments: “In the UK, there are greater costs attached to finding and appending suitable demographics. Clients take a risk - a model can only be based on the data available so if the relevant information is not available, the model may not be able to significantly differentiate between high and low propensity prospects.”
Reducing costs for clients, helping them gain advantage over competitors and improving a company’s return on investment is the key requirement of data segmentation in the UK and USA. Although the methods, approach and value proposition are the same, varied contributing factors and challenges need to be considered to allow each country to deliver for a customer and meet their needs.
In the UK, there is an emerging trend whereby clients are moving towards modelling as a means of improving ROI because of the challenges faced – the small size of the marketplace, low volumes of data available and tighter legislation. Companies are becoming more responsive to testing the new techniques to help improve the business. In the USA, suppliers are working towards striking a balance between the use of the large volumes of new data sources still available to gain advantage while turning clients’ attention towards the benefits of such data segmentation techniques as a cost effective and more efficient tool.
