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How data analytics helped DirectBuy gain new customer insights

Clint Boulton | Sept. 7, 2015
As part of its digital transformation, the membership retail club is using analytics software to strengthen its business in the face of threats from Amazon.com and other ecommerce providers.

DirectBuy also used open source analytics tools, including Microsoft's R statistical analysis software and RapidMiner, to analyze 22 marketing channels for opportunities to improve lead generation in print, radio and online mediums. What he learned surprised him. Some channels were actually hurting the company's marketing effort. One in particular was troubling because the more money DirectBuy invested in it, the more it disrupted the overall sales effort – known as a negative correlation coefficient. "We immediately advised the marketing team to stop funding the channel because every dollar spent would be counterproductive," he says.

Roeseler says he sees even greater opportunity in predictive analytics, specifically anticipating who is most likely to cease their relationship with DirectBuy and making an effort to retain them. Each month, 18,000 of the company’s 250,000 total members are scheduled to let their membership lapse. By analyzing one million membership cases spanning 15 years of renewal data, DirectBuy learned that if a member made one purchase from the company in the 12 months prior to their membership lapsing, they were more likely to renew. Also, members who renewed three times consecutively were more likely to continue renewing. The data enabled DirectBuy to prune the number of “at-risk members” by three to four thousand a month by targeting them with discounts, promotions and other incentives before their renewal date.

While Roeseler says the analytics have helped the privately held company's bottom line, he adds it would be premature to link the technology implementation to financial results. But, he says, “we now know how to spend our marketing dollars to have a certain impact on leads that we generate.”

Challenges abound in the digital transformation

DirectBuy overcame a few challenges in building the new analytics system. Roeseler says he reorganized DirectBuy’s IT culture and processes to manage and change cloud and analytics systems, rather than traditional infrastructure tasks to “keep the lights on.” He also says being based in northwest Indiana (Merillville) has made it hard to attract talent, though he managed to hire some analytics staff and contractors. The project also required close collaboration with business executives, with whom IT built a “data dictionary,” essentially a uniform way to describe the company’s various performance metrics.

Digital transformations such as the one architected by DirectBuy are a major reason why spending on cloud, mobile and analytics technologies to capture and retain customers will total $363 billion, or 54 percent of the $669 billion in new global tech purchases for 2015, Forrester Research analyst Andrew Bartels announced in a mid-year spending report released earlier this week.

Roeseler, who was one of the last senior executives CEO Mike Bornhorst hired as part of a major management reorganization, is enjoying using analytics and cloud technologies. But the allure of the role was the potential to turn around the company's fortunes. "This was too good an opportunity to pass up," he says. "My job is entirely inspired by business opportunities and needs.”

 

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