Is transactional data the key to understanding retail customer behavior?
Presented here for discussion is a summary of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.
“The Customer-Base Audit,” co-authored by Wharton marketing professor Peter Fader, argues that firms cannot make fully informed decisions without first understanding their customers’ buying behavior and the actual health of their customer base.
“The customer base has historically been something of a Wild West, lacking a lot of rigor and accountability,” Prof. Fader said in an interview with the Wharton School Press. “It’s about time it was audited.”
To help firms do that, the book sets out the tools and frameworks to assess their customer base, reassess growth objectives, understand how their customers differ in behavior and value, see how the quality of their customers has changed over time, and more.
The authors noted that most businesses already do customer analysis typically on an as-needed basis. A customer-base audit aims to formalize and impose structure to the analysis process.
Bruce Hardie, marketing professor at London Business School and co-author, said, “It’s a systematic review of the buying behavior of a firm’s customers using data captured by its transaction systems to summarize their actual buying behavior. We’re not interested in who these customers are, not what they think, or their attitude. It’s very much a focus on their actual behavior, and providing that high-level overview for top decision-makers in the organization.”
The audit takes in multiple “lenses” in analyzing the purchasing patterns of new and existing customers over time periods while grouping customers into cohorts to understand their behavior and performance over time.
Prof. Fader said such analysis requires “careful handling, careful analysis and careful inferences from data,” but isn’t “too technical.” He believes such analysis is the first step towards customer centricity and should be part of every marketer’s toolkit. Deeper insights into customer profiles should also elevate marketing’s role in guiding an organization.
“As we say in the book, the customer-base audit is unashamedly descriptive. It’s all just there in the data without you having to go out there and work with other vendors or buy a bunch of reports. It’s pure gold,” said Prof. Fader.
DISCUSSION QUESTIONS: Do you believe a customer-base audit as proposed in the article is a good first step on the journey to customer centricity? What are the benefits and drawbacks of leaning on purchasing data to get more of a real-time view of customers?