Understand Critical Customer Buying Behavior and Patterns - Build a Data Warehouse

Before I discuss why you should build a data warehouse, let's make sure we are clear what a data warehouse is. I spent several years at Oracle, so I was very familiar with databases and building data warehouses.

Essentially, a data warehouse is a big database. It's a place where all your data can be stored for years and years and years. Then, once your data is stored there, and you have enough of it, you have the ability to mine that data. So, let's take a step back and talk about what "mining" that data means, what kind of information that can produce and then how you can use it.

Let's say somebody clicks on an ad and they buy something. As mentioned in previous blogs, all sales aren't created equal. And as we've proven before, just because the sales price is the same doesn't mean that its value to your business is the same, given the different profit margins.

If we have someone who's generated five sales where the cost acquisition is $123. They have the tools in place so that not only do they know they received five sales, but they know which five products they sold at what dollar amount and what margins. If you take all this information and populate that into a data warehouse, over time, you're going to be able to ask some interesting questions about that data.

Wal-Mart was one of the first companies to ever make use of a data warehouse. In fact, Wal-Mart has a very interesting example from their data warehouse. Wal-Mart wanted to understand if their stores were set up in the optimal way, so they could determine if the products their customers purchased were in close proximity to one another. In order to determine this, they needed to analyze millions of cash register receipts to see what people were buying in combination with one another. They automatically loaded all this data into their data warehouse, where the data was mined to identify interesting and relevant purchase patterns and behaviors.

One of the patterns/behaviors that was most interesting was that Huggies Diapers and beer were often on the same cash register receipt. Why that happens, your guess is as good as mine. Perhaps, the husband goes to pick up diapers after work and, at the same time, grabs a six pack. Why it happens is not as important to Wal-Mart as the fact that this is a common occurrence. It's been proven in the data. So how do they capitalize on it? Well, if you're Wal-Mart, you re-arrange your store so that beer and diapers are in closer proximity to each other. This way, the husband or wife that's picking up diapers can see beer nearby, which impulsively they pick up.

So, in relation to running a Web site, you're probably wondering, "What can I do with this information."
Well, I'm going to give you two ways to capitalize on this recognized buying behavior and repetitive pattern. If you already have a promotions module on your warehouse to go along with your data warehouse and associated mining capabilities, you can use technology to do what Amazon does. The next time a buyer comes to your Web site and buys diapers, you would implement an up-sell feature and "suggest" that they can also buy a six pack of beer or any other related product with a strong purchase correlation to diapers (e.g. wipes or possibly aspirin?).

Now, I realize not everybody has this technology built on their Web site. I'm sure you'll have it sooner than later, as this is the direction that Web marketing is going. Another way, however, to capitalize on the opportunity, which is more common today, is by using email or direct mail. The majority of companies are running some type of email or direct mail program, either to their existing client base or to other prospects.

A few important questions to ask are, "What is the message of the direct mail or email that you're sending? Is it general for everybody with everybody getting the same offer? Or, if you had a data warehouse, and you know somebody bought diapers, then wouldn't it be better to send them a customized email for beer and other closely correlated products? Wouldn't that improve your mail campaign conversion rate?"

From the intelligence provided through your data warehouse, you can customize an offer in your email, and then send it to the appropriate people by segmenting your audience, which results in a much better conversion rate, as well as happier customers that think your offers are targeted to their needs and desires.

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