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How Small Businesses Can Increase Customer Loyalty Using Data Science

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You need to keep your existing customers.

I don’t have to tell you that most businesses lose 45 to 50% of their customers every five years.

And according to Basecamp Support Pro, Chase Clemons, gaining just one new customer can cost you up to ten times as much as retaining one of your current customers.

“Think of all the marketing dollars you can save by keeping customers rather than trying to find new ones all the time,” Clemons says.

For a small businesses especially, your rate of churn can be the difference between life and death. “Increasing retention and reducing churn ensures a stable source of revenue and increases a company’s share of the market,” Team Support reminds readers. “Customer satisfaction should drive product development, sales, marketing, and support efforts to keep customers engaged and prevent them from leaving.”

Alright, so you need loyal customers. But how do you actually go about increasing customer loyalty? Data science!

Read on to learn more about data science and how you can use this tool to keep your customers by providing an enhanced customer experience (CX).

What exactly is data science?

According to my colleague Geoff, who runs Capterra’s Business Intelligence (BI) blog:

Data science is a tool for gaining insights from data.

It uses a combination of statistics, computer science, graph theory, business, economics, machine learning, artificial intelligence, and marketing tactics to collect, clean, and analyze data to better inform your business decisions.

Data science can help you increase customer loyalty by offering insight into your customers’ thoughts and feelings by analyzing their behaviors.

And when you understand what your customers want and need, you’re better able to provide them the kinds of experiences that keep them coming back again and again.

Data science: Big business that can help any-sized business

According to the 2017 “Magic Quadrant for Data Science Platforms,” the market for data science platforms was $2.4 billion in 2015, 20.8% more than the previous year. It grew almost twice as fast as the overall BI and analytics software market (full content available to clients).

You may be assuming that a tool such as data science is only for big companies with huge budgets.

Tom Davenport teaches analytics and big data in executive programs at Babson College, Harvard Business School and School of Public Health, and the MIT Sloan School. In an interview with Inc., Davenport says:

“The history of information systems and business is that the rich tend to get richer. There are big companies that could afford it, and so prospered more than the smaller ones. [But now,] there’s nothing that says you can’t do this as a small business, too.”

In part, this new opportunity for small business has come about because the cost of data collection, storage, and analysis keeps going down. Better chips, cloud infrastructure, and even machine learning algorithms are all better and cheaper than they were five to ten years ago.

6 ways small businesses can use data science to improve CX

Here are six things you can do today—on any budget—to increase customer loyalty using data science.

1. Consolidate customer data into profiles

Understanding your customers is the key to loyalty, and the key to gaining that understanding is data.

And having all that data in one place makes everything easier. For any person who has ever made a purchase, opted in to receive emails, or created an account online, you need to have a profile that includes:

  • Contact information
  • Demographic information
  • An activity log
  • A notes option

This information should flow in and update automatically in real time. All sources of customer data, including your CRM, POS software, eCommerce platform, web analytics, and email marketing software should integrate with minimal manual effort.

2. Group customers into segments based on similar attributes

For instance—deal-seekers, high-spenders, loyals, high-risk, etc.

Heineken increased their volume and revenue, and saved more than 15 million euros, through a cost-to-serve approach, according to Gartner’s “Supply Chain Brief: Heineken’s Journey to Improved Customer Service and Collaboration” (full content available to clients).

Heineken used cost-to-serve analytics to improve its customer service. Instead of offering more customer service across the board, Heineken broke their customers down by how profitable they are on net.

For Heineken, it’s based on how much money the company was spending on freight, warehousing, storage, and order processing costs for each customer, and taking into account any discounts the customer was taking advantage of. This was subtracted from their revenue to give them cost to serve.

While Heineken is a large company, smaller companies can do the same thing. Just calculate the total cost of serving your customers, using the same applicable factors Heineken does in the example.

Then, they started offering different levels of service to premium customers versus standard-level customers.

3. Find out how much poor customer service is costing you

One of the first things Heineken did was find out what drove customer loyalty for them. After digging into the data, they discovered that customers were four times less likely to switch to another brand if the service they received was good versus poor.

This motivated the team to make customer service a priority.

4. Listen to your customers

Heineken set up feedback sessions in order to better understand their customers’ expectations and experiences with the brand.

Another way to listen to your customers is to search out what they’re saying online. For example, Womply is a tool that helps collect all online reviews and display them in one dashboard. The program will notify you when someone reviews your business on Yelp, Facebook, or other sites.

Alternatively, you can set up Google Alerts or a similar tool to let you know when you’re mentioned on the web.

5. Find your repeat customers

To retain current customers, a business needs to truly understand repeat customers’ needs and motivations, according to MarketingProfs.

Through data analysis, you can find out who these customers are and how they differ from less loyal customers. This can be done manually or through customer data software such as a CRM.

6. Lower prices (without sacrificing profit)

Twiddy, a short term vacation rental site, originally used spreadsheets, so the homeowners who used the site to rent out their homes could track the dates their property was rented out.

But then, the company dropped the spreadsheets and started using software that allowed it to suggest what the homeowners should charge, based on the market conditions, seasonal trends, and the size and location of a home. For example, they found out that the week after the Fourth of July usually had a lot of vacant homes, so they suggested that homeowners lower prices for that week.

In the three years since Twiddy started making these types of recommendations, overall bookings have increased, more homeowners recommend Twiddy as a property management site, and the company now manages 10% more inventory.

Twiddy used SAS’s business analytics tools to accomplish this level of insight. But there are many apps which will take the data out of your spreadsheets, consolidate it, analyze it, and present it in useable dashboards.

To easily compare your options, check out our business intelligence software directory or our list of free and open-source BI software tools.

Are you ready to start using data science for your business?

“The bottom-line value of personalization is increased conversion, reduced churn and improved customer loyalty,” writes Gartner’s Christi Eubanks in “Innovation Insight for Understanding Customer Data Platforms (full content available to clients).

So, the ability to create an enhanced customer experience makes the difference, especially for smaller businesses.

According to Gartner’s Magic Quadrant, organizations often start out building their data science knowledge and exploring the possibilities with open-source data science platforms.

They often later invest in commercial data science software when they need to tackle broader use cases, team collaboration, and deploy and manage models in production environments.

The key is to get started now, whether you use open-source or paid data science software. To compare your options check out our data science software directory.

Looking for Customer Loyalty software? Check out Capterra's list of the best Customer Loyalty software solutions.

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About the Author

Cathy Reisenwitz

Cathy Reisenwitz helps B2B software companies with their sales and marketing at Capterra. Her writing has appeared in The Week, Forbes, the Chicago Tribune, The Daily Beast, VICE Motherboard, Reason magazine, Talking Points Memo and other publications. She has been quoted by the New York Times Magazine and has been a columnist at Bitcoin Magazine. Her media appearances include Fox News and Al Jazeera America. If you're a B2B software company looking for more exposure, email Cathy at cathy@capterra.com . To read more of her thoughts, follow her on Twitter.

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