Retailers worldwide have gradually brought order and efficiency to many of the most challenging aspects of large-scale operations. One by one, purchasing, supply chain management, inventory optimization, distribution logistics and transaction processing have given up their embedded inefficiencies to new technologies and standardized best practices. The latest target of process improvement initiatives is customer communication, particularly promotional offers to targeted consumers.

The limits of conventional communications
For generations, retailers have relied on direct mail and mass media advertising—newspapers, radio and television—as their primary channels for delivering promotional offers to current and prospective customers. But as retailers strive to forge stronger, closer customer relationships, these traditional channels are proving inherently ill-suited to personalized communication. Production and distribution costs are high, targeting efficiency is poor, and messaging personalization ranges from impractical to impossible.

Today, retailers are increasingly turning to direct communication channels that support dramatically improved targeting. New offer management solutions that combine powerful offer development capabilities with direct-to-the-customer delivery are coming to market. These solutions often bridge three types of mature and emerging technologies:

1	Powerful customer relationship management (CRM) applications let retailers track, analyze and understand consumer purchase behavior on an increasingly granular and personal basis. CRM systems simplify and streamline the development of new promotional offers, making it possible to have hundreds or even thousands of promotional offers in effect and available to drive targeted purchase behaviors.
2	Direct, personal communication channels include established technologies, such as mobile telephony, e-mail and instant messaging, and new, intelligent in-store touchpoints—point-of-sale systems, point-of-entry kiosks, point-of-decision displays and wireless personal shopping devices. In-store channels are particularly effective because they let retailers deliver timely, highly targeted offers during the shopping experience when the offers are most likely to influence purchase behavior.
3	Offer management systems coordinate and automate offer distribution across many separate communication channels. Often these are distributed systems with hardware and software components deployed in stores and headquarters, providing a bridge between back-office CRM functionality and front-line customer interaction points.

Too much of a good thing
Not surprisingly, offer delivery solutions that can target customers with an unlimited number of offers have their own drawbacks. Customers can become overloaded and will quickly tune out communications that aren't useful, timely or personally relevant. Retailers are learning that targeting alone, no matter how accurate, is insufficient for optimizing promotional efficiency and productivity. Effective offer management requires additional capabilities, including the ability to:

	Filter large volumes of available offers and identify, for each customer, a small subset that is most likely to positively influence purchase behavior and increase customer satisfaction
	Optimize offer delivery across available channels to engage the customer within the store environment as an integral part of the shopping experience
	Create a closed-loop offer-response-analysis cycle in which offer selection adapts to customer behavior in near real time to continually improve response rates and productivity

Because each of these requirements constitutes a significant analytical workload, retailers have found that offer management solutions are most effective when closely integrated with an enterprise data warehouse (EDW). An EDW provides instant access to customer, transaction, loyalty program and inventory data with granular detail and extensive history and is a high-performance platform for analytical processing.

Make CRM an operational system
By integrating a CRM suite with the data and analytical resources of an EDW, and with the multi-channel distribution capabilities of an offer management system, retailers are transforming these important back-office analytical tools into critical front-line assets for real-time marketing and customer interaction. (See figure below.) Where conventional targeting is limited to factors such as recent purchase activity, transaction values or product purchase history, offer management solutions with integrated CRM resources and advanced analytics dramatically extend the range and granularity of personalized offer selection. Marketers can apply libraries of business rules to large numbers of offers—and very large numbers of customers—to filter and prioritize the small set of offers most relevant to each shopper. They can assess the importance of a product category to a specific household, predict when those customers are likely to run out of stock and know which delivery channels they're most responsive to.

This potent combination of conventional targeting with advanced customer analysis and individual offer personalization is providing retailers with dramatic increases in response rates, sales and customer satisfaction.

enlarge An enterprise offer management solution provides personalized offer selection and optimized delivery for each customer, resulting in significant improvements in promotion response rates, increased sales and reduced marketing costs.

Optimized offers, obvious benefits
Enterprise offer management (EOM) solutions let retailers focus their marketing energy and investment on optimized sets of promotional offers delivered directly to customers through high-performance channels that reach them at or near the moment and physical point of decision. By significantly reducing retailers' dependence on expensive and inefficient mass media, these solutions cut marketing costs as they increase productivity. They improve response rates and increase individual spending, shopping frequency and basket size. With EOM solutions, retailers can centrally manage enterprise-wide marketing across many different customer contact channels and improve operational efficiency through predictive purchasing and stocking based on projected customer sales.

Another important feature of these solutions is their ability to automate complex and computationally intense analytical processes. Selecting an optimum offer set using algorithms that consider many different demographic and behavioral characteristics for large numbers of products and long purchase histories would be prohibitively labor-intensive without the processing performance of an EDW platform.

EOM solutions also provide continuous tracking of individual customer response and adaptive re-optimization of offer selection as shopper behavior evolves over time. By continually re-evaluating offer priority based on accumulating response information in an iterative, closed-loop analysis, retailers can significantly improve promotional efficiency and productivity, and increase their return on investment.

But perhaps the greatest impact EOM solutions achieve is on the quality of customer relationships. By selecting promotional offers based on actual customer preferences and purchase patterns, they demonstrate a retailer's interest in and understanding of the customer as an individual. And understanding is, after all, the beginning of beautiful relationships. T

Real benefits with enterprise offer management Retailers that have deployed Teradata enterprise offer management (EOM) solutions have experienced enormous improvements in individual promotions and overall marketing initiatives. Documented benefits include: > Response rate improvements of up to 500% over traditional product coupons > Redemption rates of up to 60% on highly targeted efforts, including re-purchases without discount up to nine months later > Program response rates of 26.5%, driving incremental sales of more than $4 million in eight-week cycles > Individual customer spending increases of more than $40, representing 50% revenue growth over a four-week period > A 20% reduction in per-campaign printing and mailing costs > Behavioral insights that drive campaign profitability; for instance, 10% discount coupons often out-perform 20% discounts in terms of promotional profitability While the benefits of consolidating offer management at the enterprise level are indisputable, few retailers have the internal development resources to assemble, integrate and maintain these multi-component solutions by themselves. To bridge this opportunity gap, Teradata is working with its retail software partners to develop, test and deliver proven EOM solutions for various business segments. All Teradata EOM solutions are based on Teradata's Customer Management Solutions portfolio, itself an integrated solution that combines powerful analytical tools with the Teradata data warehouse. For example, Teradata's new foundation software, Teradata Relationship Manager, makes it easy to develop, execute and maintain many concurrent and highly targeted promotional offers. The following are key components of Teradata Relationship Manager: > Guided analytics help marketers and merchandisers identify and segment specific customer audiences for each offer. Externally developed propensity scores and target lists can be imported to streamline campaign development and execution. > Dialogue management simplifies the development of personalization rules that drive delivery customization with per-customer selection of discount rates, incentives and other offer elements to maximize response rates. > Offer optimization provides rules-based analysis to quickly match hundreds of product and service offers with millions of customers to identify, for each individual, the optimum offer set with the highest probability of positive response. Teradata developer partners also provide third-party offer management software to complement Teradata EOM solutions. These components include unique enhancements to offer distribution through multiple emerging channels, such as Point of Sale systems, mobile phones and even fuel pumps. They also include comprehensive design, integration and maintenance support from Teradata Professional Services. —B.T.

Bill Tobey is a senior technology writer with Ford Sherman, a communication services agency.

Teradata Magazine-December 2007