My love affair with data started at the dawn of the new millennium, working at a marketing research company. I was about to write my first research report and reviewed a set of data tables produced by the stats team. Hunched over, pencil in hand staring down at a sheet of printed papers, I started seeing the patterns emerge between answers to the different questions and different categories of respondents. The more I delved, the clearer the patterns became, and the story took on clear form. It felt mystical, and the moment was forever imprinted in my mind.
Data-Driven Strategy in Action
Fast-forward more than a decade later. Data-driven marketing was the buzzword, just before it was overshadowed by the Big Data buzz. Working at a reputable telecoms company, we were navigating the slippery slope of an incumbent significantly disrupted by a price war. Amidst the turmoil, a new marketing leader was appointed. He was a new breed of marketer, one who used data to inform tactical and strategic decisions with persistence and absolute ease and clarity.
An intense period followed. Every person in a small but gritty marketing team was allocated a Key Performance Indicator (KPI). Daily, at 12 noon we convened, with each member having to present the performance of their number, the reasons, and the resulting actions that needed to be taken.
Nowadays many commercial leaders and business owners are equally diligent about living and breathing the number that drives the business, so I suppose in 2023 this experience is not that unique and special per se.
Dissecting Performance Numbers Leads to Data-driven Strategy
The more important skill that I learned during this time, was to dissect performance numbers to understand the drivers, its health, and to quickly get to the actionable insights driving the next course of action.
For us as marketers, there is an abundance of analytics across the entire marketing funnel, or flywheel. Without knowing the right questions to ask, it can become like a maze, that keeps you walking, but lacks the clarity on how to reach your goals.
Of course, there are always specific challenges that require dedicated analytical questions to be asked. However, my starting point for a strategic review is to consider internal sales, customer profiling, and usage and behavior data, that inform these four steps:
- Identify and Understand Main Revenue Contributors
- Map your Revenue Health Matrix.
- Identify Actions to Mitigate Risk or Grow.
- Prioritise Actions for Implementation.
These four steps provide a valuable foundation for a strategic review especially when you are at the start of the planning period for a new year.
Step 1: Identify and Understand Main Revenue Contributors
As a first step, I like to have visibility as to the decile distribution of revenue across the customer base. The decile analysis reveals the revenue contribution of your customer base in 10% increments. A good starting point is then to identify three groups: The Top 20%, the Next 30%, and the Last 50%. The objective is to understand the overall revenue contribution of each of these groups. A typical distribution of revenue could be: Top 20% between 60% and 80%, the Next 30% around 15% – 30%, and the Last 50% around 5% to 10%.
The next step is to get a thorough understanding of each of these groups in terms of product usage and behavior, channel engagement, geographic distribution, and demographic profile (if available).
While a full understanding of all three groups is good practice, a solid starting point is the Top 20% since this is the biggest concentration of your revenue.
Step 2: Map your Revenue Health Matrix
From the previous step, you would get a clear sense as to which products and services are used by the Top 20%. Assessing the revenue health means looking at the competitiveness, profitability, and stickiness of those products and services. Are they stuck using legacy products that are overcharging them for their consumption, hence driving a significant revenue contribution? Alternatively, are they using an older product that doesn’t meet their needs as well as some of the other, lower-margin products? These scenarios could be big red flags for the sustainability of their revenue contribution. In this step, you will need to de-average and look at specific cohorts of customers to get the most salient insights and decide on the correct course of action on a case-by-case basis.
A 2×2 matrix that I’ve used in a multi-portfolio B2C business is shown below:
Step 3: Identify Actions to Mitigate Risk or Grow
From the matrix above you can see that there are principal actions outlined for each quadrant, and the specifics will be unique to your business.
The actions for each cohort could be reactive or proactive. For example, if a particular cohort is using predominantly one of your products, and price competition for this product is high, and margins very low, this requires consideration as to how revenue from that cohort can be preserved or replaced over time through cross-selling initiatives.
On the other hand, a customer cohort, using a more diverse range of your products, which has a stronger competitive position in the market may not present an immediate revenue risk, but proactive growth potential through selective up- and cross-sell initiatives.
Step 4: Prioritise Actions for Implementation
From Step 3, you will have a list of proactive and reactive interventions addressing specific threats and/or opportunities. The next step is to create a prioritization of your activities. Considerations for prioritization are:
- Alignment with the context of your overall situational analysis and business goals
- Size of the opportunity or threat
- The opportunity cost of not acting
- Ease of implementation (time and development complexity)
These prioritized actions will form a good foundation for the internal risks and/or opportunities inherent in your customer base. Add to this a strong insight-based perspective of your external environment, coupled with your growth ambitions, and your execution plan, and you will be on your way to having a solid Strategic Marketing Plan for your next financial year.
Getting into the detailed data of your business can be daunting, but the clarity that it gives is invaluable. If you need the help of an experienced Business and Marketing Strategist to guide you on this journey, I’d love to connect.