Inside the Biz with Jill Dyche

The Netflix Prize: Customer Intelligence for Hire

By Jill Dyché

In which Jill wonders if more data could have rescued her from Mama Mia!

Movie rental by mail (and now by streaming video) company Netflix has been celebrated for its disruptive business model. Woe to Blockbuster, Hollywood Video and the other industry dinosaurs that have regressed to slow follower status, lumbering behind Netflix’s innovation.

That innovation has included the company’s lauded Cinematch function. Cinematch is the Netflix version of Amazon’s purchase circles, a recommendation engine that predicts what you might like to buy next. Cinematch is how Netflix knows that because I like the movie “Almost Famous” I will also like the movie “Lords of Dogtown.” (I did.) Somewhat counter-intuitively, it also knew that I would like the movie “Rabbitproof Fence.” (I did.) Cinematch doesn’t really care what people in my neighborhood are watching, which is fine by me since most of my neighbors are twice my age and tend toward the black-and-white whodunit genre. Of course, I’m guessing on that one, which is my point: Cinematch knows.

But according to Netflix, Cinematch could be even better. The Netflix Prize offers $1 million to the first person or team that can improve Cinematch’s current accuracy by 10 percent or better. The contest was announced on October 26, 2006, and no one has won yet. (So far a team called BellKor in BigChaos is in the lead, delivering a 9.63 percent improvement.)

Why is the problem so vexing? We’ll leave discussions of collaborative filtering, linear regression algorithms and singular value decomposition for another time. One of the most buzzed-about reasons is the so-called Napoleon Dynamite problem. The movie is an outlier: it’s hard to categorize into a single genre. Moreover people either love it or hate it—“Napoleon Dynamite” gets a disproportionate number of 1-star and 5-star ratings. Such a wide preference disparity for a film with such a singular concept can flummox the cleverest predictive algorithms.

The fact is that Cinematch is bound by a singular limitation: a dearth of heterogeneous and comprehensive data. Cinematch doesn’t rely heavily on geography, age, or gender to predict what movies you’ll love, indeed it strips out personal details. Instead it uses information about other movies you’ve liked in the past. The smaller the number of descriptive attributes, the smarter the data mining engine has to be.

Our efforts to understand customer behaviors and preferences are easier. Or at least, they should be if we’re collecting a diverse set of granular-level data about our customers. And we need to standardize and cleanse that data so that it’s consistent. The more information we have about our customer and our products, the more we’ll know about them. That is, the better we’ll understand clear determinants of behaviors and preferences, and craft messages and conversations around them. .

Do the math and it’s clear that upping Cinematch scores is worth vastly more than $1 million to Netflix. What’s the ROI for better customer knowledge at your company? If you don’t know, then you don’t know what you should be spending, and odds are you’re probably not spending enough. Of course I don’t know the precise likelihood that you’re not spending enough, that would call for some analysis. Or we could just go to the movies. 

Bad BI? Inferior Marketing Takes Wedgewood Down

By Jill Dyché

In which Jill considers whether insufficient customer intelligence left a once-renowned brand shattered in pieces.

Venerable English china and crystal company Waterford Wedgewood declared bankruptcy earlier this month. This evoked a bit of sentiment among those of us who remember our mothers' or our grandmothers'—the company was founded in 1759—fancy Wedgewood tableware. Labeled by millions of households as "the good china," the company is now bankrupt.

The company's founder, Josiah Wedgewood, made much ado of the fact that the Queen herself used his china, milking the term "Potter to Her Majesty" for everything it was worth. This was long before affinity marketing or luxury goods were de rigueur. Now a web search on Wedgewood delivers information about factory outlets and replacement pieces as it does about the luxury brand.

What happened? An established brand can never grow complacent. It must constantly innovate and address new markets. Wedgewood gave this a half-hearted shot. According to Judith Flanders in The New York Times, the company tried changing its design without updating its traditional molds. Not only didn't the public adopt these new semi-designs, they weren’t marketed well. Waterford Wedgewood’s attempts at innovation clashed with its traditional and often-staid image.

What should Waterford Wedgewood have done? For one, it should have delayed enlisting hot designers until it could segment its market. Brides-to-be want something in tableware that's very different from first-time parents or birthday gift buyers. An inability to profile your constituencies is a sure way to over-invest in risky development or marketing gambles that don't pay off. The company could have done a much better job understanding customer behaviors and purchase preferences, segmenting those customers, and then retaining those customers with targeted design and brand messaging.

In the end, it was the spray-and-pray model of marketing writ large on a company whose entrenched image belied its need to understand its buyers and its potential buyers better. According to The Times, Waterford Wedgewood is now offering bargain-basement prices and outlet-type stores that squarely confront its legacy. It might be time to pick up some new dishes.

Marketing’s To-Do List for 2009

By Jill Dyché

A bank's V.P. of Marketing once confided in me that she was more than a bit vexed about her organization’s internal reputation. "My team and I are all about our customers," she told me. "We’re all measured on uplift, retention and satisfaction. We are so metric-focused my head spins sometimes."

Indeed, she and her team had delivered the goods, using detailed data to enrich micro-segmentation, behavior predictions, target marketing, customer value scores, and customer feedback processes. The problem according to the V.P. was that Marketing was "still seen as the make it pretty" department.

Happily, Marketing’s rap as nothing more than corporate PR or, worse, graphic design, is eroding as revenues are mapped directly to successful campaigns and sales uplift. For marketing departments to maintain this edge, they’re going to have to retrench in 2009. Here are four top-of-mind "to do" items that every marketer should consider for the coming year:

1. Get serious about online communities. Where other than the Internet can a company convince its customers and prospects to interact and share information with the company—and with each other? Companies from Proctor and Gamble to Best Buy to Zappos.com are encouraging no-holds-barred on-line dialog with key corporate leaders. "I’m in the process of humanizing the Ford brand," claimed Scott Monty, the automotive company's head of social media. In so doing, these executives not only promote their brands. They vet new products ideas, encourage feedback, and coach their customers on doing business with them. It's honest, it's cheap, and it's a way to get real with consumers.
2. Figure out your ROMI. Despite the hype, few companies calculate, never mind use, return on marketing investment (ROMI) as a success measure. Most product or segment managers will admit that their estimates for campaign success rates rely more on gut-feel than hard analysis. This is usually due to the fact that marketing organizations don't retain historical information about promotion success rates, buyer profiles, or purchase details in a sustained and structured way. Without ROMI it’s tough to prove the incremental value of marketing campaigns. Until we figure out ROMI, these campaigns continue to be measured by wet fingers lifted high in the air.
3. Redefine—and re-launch—CRM. A few years ago I wrote a book on Customer Relationship Management. Since then I’ve had several casual conversations with my publisher about releasing a second edition and my retort was always, “But nothing’s really changed!” Well, that’s changing. With social media driving a new level of transparency, companies are reconsidering what it means to be a “good customer,” and re-evaluating their outreach strategies. Organizations that heretofore considered CRM synonymous with on-line call center applications or campaign management should reconsider its very definition, and even create from-scratch CRM strategies to reflect the new reality.
4. Manage your data. With all the hype over data governance this past year (I know, I’m one of the hypers), companies blur the line between data governance and data management at their peril. Governance—the business oversight of enterprise data—is all well and good, and bringing managers to the table to form information policy is an awesome accomplishment. But at the end of the day we need to find, define, correct, synchronize, apply rules to, and deploy that data. That’s data management. The extent to which marketing organizations collaborate with IT to formalize data management is the extent to which they’ll see sales uplift—and all the other benefits resulting from information analysis—in 2009, and beyond.

The most effective marketing organizations are those that never rest on their laurels. They’re always evolving, considering new ways to reach out to customers and have more relevant conversations to not only capture their share-of-wallet, but entrench their loyalty. It’s time to evolve. Customers and prospects hang in the balance.

The Truth About BI as a Service

In 1994 Baseline defined the term “BI Portfolio” to illustrate the concept that business intelligence transcends a single project and become a set of capabilities deployed to the business over time. Developing a BI Portfolio takes equal parts discovery, business engagement and program management, but the whole is bigger than the sum of its parts.

With the BI Portfolio we knew we were onto something when a handful of vendors and competitors co-opted the term and our clients began asking us to design their portfolios for them. We found that the vast majority of our clients had between ten and two dozen applications in their BI Portfolios. If you consider this fact, then BI as a service becomes a more focused and sober discussion. We see BI as a service as a key ingredient in the BI bouillabaisse—but not the only one.

Yes, BI as a service is a spicy topic. It makes perfect sense for vertical applications—for instance the compensation reporting functions offered by Xactly, or revenue analysis from PivotLink—and thus often becomes the purview of a specific department. But BI best practice organizations will inevitably mix targeted SaaS offerings into a richer set of BI tools. We’ve seen over time that as companies become more mature with BI, they also become multi-disciplinary. Ad-hoc, predictive analytics, text mining, complex event processing, and knowledge discovery will eventually comprise the recipe for a robust BI Portfolio, which offers a range of functionality from both inside and outside the firewall.

Note: If you’re interested in learning more about the BI Portfolio, come to my full-day workshop, BI From Both Sides: Aligning Business and IT, at the TDWI World Conference in Las Vegas.

When to Hire a Consultant

In which Jill relates how she put herself in the hands of an expert and only looked back once. (For those of you literal interpreters: this blog is a metaphor for something completely different, but we’ll let you figure that out.)

I have deep ambivalence about my hair. My friend Debbie would cut and color it every six weeks but it would turn brassy and lifeless before the next appointment. In a crunch I’d run over to Supercuts for a trim. But facing an imminent photo shoot for the book jacket of our CDI book, I decided it was time to invest in some serious hair color. One of my dog park friends saw a haircolorist-to-the-stars, a woman I’ll call Sally. Sally is bi-coastal. Sally is famous. Sally did Meg Ryan’s color. I wanted her to do mine.

So after being fully vetted by an assistant to an assistant (“And you are…who?”) I got an appointment. As I sat in the Santa Monica waiting room I felt that I was about to be nurtured. The place was polished but homey. Refined but relaxed. When Sally walked in, she exuded a mixture of competence and cool. (Never mind that I would have to grease my thighs to fit into her bell-bottoms.) Sally was fabulous. As she tousled my hair I felt myself surrender. After two colors, three hours, and four cappuccinos, my hair color looked smokin’ hot. When I asked her how to maintain it, she said, “Come back.”

Then I got the bill.

Come back? Yeah, if I skip food and turn off the heat this winter. The cost to color my hair made me wobbly. I could have seen Debbie for half a year for one Sally visit. I could have gone to Supercuts more than a dozen times! I could have done my own over the sink with two old towels and the spray faucet. I could have grown out my roots and looked campy, for chrissakes! What was I thinking?

But I went out into the world with fabulous hair. My friends (yes, the ones from the dog park) asked me if I’d gotten Botox and my boyfriend thought I’d given up meat for good. My hair was shiny in a believable, does-she-or-doesn’t-she? kind of way. I couldn’t ignore the results of Sally’s handiwork, and neither could anyone else. On a workshop evaluation form one attendee wrote, “Jill has great hair!”

When my hair started to grow out, I rationalized that if the cut was good I could get away with a cheaper stylist and occasional touch-ups. Awaiting a delayed flight one afternoon I ended up in an airport barbershop and told the barber to just “copy the existing cut.” I left the barbershop looking like I’d just been sucked into a ceiling fan and spit out again.

I went back to Sally six weeks later. I told her my story. She looked at me, rolled her eyes, ran her fingers through disheveled locks and announced that we’d be starting from scratch. When she gave me the bill and I started to quietly wheeze, she put her hand on my shoulder and said, “Honey, if you don’t have time to see me regularly, I’ll give you the formula for your haircolor and jot down some notes on texturizing, okay? Just keep it in your bag.” She looked at me as if reprimanding a naughty puppy who had knocked over the trash but that would very soon be bringing her the morning paper.

Now I see Sally two or three times a year. She’ll tweak the color and tell me how to wear my bangs differently. Sally gives me extra confidence, an injection of expertise. I know what to do with my hair when I’m not sitting in her chair. If I have a question I can call her assistant and leave a message. (You can only do this if you are a past or current client.) She’s set the standard for me to follow, and follow it I do—sometimes all the way to Supercuts. But I make sure and book my regular “headcheck” with Sally. Ultimately it’s been well worth it.