SPSS - Customers

Virid

Situation

Virid is one of Australia’s largest direct mail marketing services providers, managing in excess of 28 million pieces of mail per year for a range of customers, including catalogue mailers, mortgage brokers, timeshare, charities, IT, and finance companies. Based on the Gold Coast, Virid was established in 2003 as a spin-off from the marketing department of a successful international mail order company with over 17 years’ experience in direct mail order marketing.

Challenge

From hundreds of list brokerages globally, Virid rents or purchases lists to acquire new customers on a monthly basis. Despite a strong strategic marketing skills base acquired over many years, the company relied on basic recency, frequency, and monetary (RFM) modeling and analysis tools and Microsoft® Excel® spreadsheets to track and compare customer response rates and therefore the profitability of one list against another. Calculating the lifetime value per customer took up to three months, which was clearly inefficient and prevented Virid’s customers from maximizing the value they received from subsequent list purchases.

Solution

Virid searched the market for a data mining and predictive analytics solution, initially to replace its basic RFM modeling and analysis, before selecting SPSS Inc.’s data mining tool, PASW Modeler. Virid chose SPSS Inc.’s solution due to its ease-of-use, sophisticated modeling and data mining applications, and interoperability with multiple databases.

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Results

Increased response rates by 25 per cent from acquisition mailings and by 50 per cent from retention mailings
Reduced mail volume and variable costs by 50 per cent
10 per cent jump in revenues, doubling profitability of mailings within 12 months

While initially selected for its predictive analyics, calculating customer lifetime value enabled Virid to achieve a positive return on investment on the SPSS Inc. solution within nine months of deployment. The company has also slashed the time taken to calculate lifetime values from three months to just several hours.

By focusing on lists that yield the most profitable and responsive customers, we have seen a 25 percent increase in response to initial customer acquisition mailings and a 50 percent increase with subsequent retention mailings.
— Ian Daley
Marketing Manager
Virid

Customer profiling for effective marketing

Direct mail marketing typically uses volume to achieve a percentage response from each customer acquisition mail-out. As Ian Daley, marketing manager at Virid, explains, “A good percentage response from an acquisition package is between two and three percent, so the reality is up to 98 percent of the list are non-responders, which constitutes wasted mail and excessive cost.

“Finding a way to increase percentage response by another two to three percent would be good, but reducing the amount of mail sent would be even better because it drives our variable costs down and increases overall profitability.”

To reduce mail volumes, Virid needed to segment its customers’ existing databases to produce more targeted mail-outs. It also needed an effective method of comparing lists rented or purchased through global brokerages to determine which would elicit the most profitable—but not necessarily the largest—percentage response. As a result, the company embarked on a strategy to analyze the lifetime value of its customer base.

“We established the best way to compare lists was not by percentage response but rather by analyzing customer profitability from a particular list over a 12-month period,” said Daley. “The reason for this was that we might achieve a great percentage response from list A and only half the response from list B, yet list B customers bring in three times as much money as list A customers over a 12-month period. List B is the better list, yet without lifetime value analysis we would never have known,” explained Daley.

Data mining in the hands of marketers

“What appealed to us most about SPSS Inc. predictive analytics software is that it’s a tool that puts in-depth customer information into the hands of the marketing department. It is not only a great modeling tool but also offers true data mining capabilities, enabling marketing to correlate the cause-and-effect of interrelations between customers and products and drill down into customer information quickly and easily,” said Daley.

“We were also impressed with PASW Modeler’s support for database connectivity and the inclusion of specific drivers for all the major databases, which ensures we can adapt and transport models to our other clients’ businesses both now and in the future.”

However, the company realized the full potential of the software when it embraced training and post-training assistance from SPSS Inc. “The training really helped to steer us in the right direction to achieve a measured response and the desired results straight away. We wouldn’t have been nearly as productive without it,” said Daley.

Increased response rates and reduced mail volumes

SPSS Inc. has enabled Virid to rank external lists from brokerages from most to least profitable as a result of previous customer acquisition mailings. This has enabled the company to compare lists and allocate its finite monthly budget to those that have proven most likely to attract customers with the most value over a 12-month period.

SPSS Inc. predictive analytics software has also enabled Virid to segment its database into several customer tiers and highly target mailing cycles within each segment.

“We received response rates as high as 50 percent in some of our most profitable segments, which is almost unheard of. Through segmentation, we have also halved our variable mailing costs while achieving a 10 percent jump in revenues, effectively doubling our profitability over the first 12 months,” said Daley. “We are now streets ahead of our two main competitors in Australia in terms of marketing, targeting, response, and results.”