August 14, 2012, 3:48 PM

Williams-Sonoma targets e-customers with a “treatment” approach

The retailer uses marketing models developed by medical researchers.

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Williams-Sonoma Inc., which operates all Williams-Sonoma, Pottery Barn and West Elm brands in the Americas, knew known that certain customers respond to e-mail messages and online advertising better than to catalogs. But in order to act on that knowledge, the retailer needed a way to analyze how marketing campaigns affect individuals, not just segments of customers. After two years of joint development with vendor UpStream Software, Williams-Sonoma is starting to test new techniques for targeted marketing based on models that medical researchers use to make treatment plans for patients. So far, the results are positive.

As well as cutting costs by not sending catalogs to unresponsive customers, the new technique is helping the retailer reallocate funds to more effective online marketing channels like e-mails and display ads. “We’ve seen our ability to target with the catalog improve using these techniques on a scale that we haven’t seen with any sort of small technical improvement,” says Mohan Namboodiri, vice president of customer analytics for Williams-Sonoma. “This is a qualitative improvement in our ability to target the right type of customer with the right type of messaging, and it’s not something that we’ve had available up to now.”

The retailer uses marketing algorithms first developed by UpStream that are based on medical research data-crunching techniques that analyze the efficacy of various treatments over time for a single patient. In retail, that corresponds to analyzing the efficacy of multiple marketing campaigns over time for a single customer. As doctors ask which factors in a patient’s lifetime led to heart disease, for example, marketers might ask which factors in a customer’s lifetime led to a sale.

“The light bulb moment was that this is data that is changing all the time,” says UpStream’s CEO John Wallace. “It turns out the statisticians who have spent careers on that are medical researchers.” The only difference in applying the methodology to retail was a matter of scale—medical research analyzes 250,000 to 500,000 pieces of data about a patient, he says, but marketing takes millions of pieces per customer. For that, UpStream partners with another vendor, Revolution Analytics, which provides the scaling algorithms.

“We’re fortunate that the underlying technology is in place,” Wallace adds. “Two years ago we wouldn’t have been able to do this, it would have blown out most people’s [data capacities] to try and do this at the customer level.”

UpStream and Williams-Sonoma are making strides in not only determining the effect of specific marketing campaigns on individual customers, but creating customized “prescriptions” for how to feed individual shoppers messages and to reallocate portions of the retailer’s marketing budget accordingly. “You can determine who to pull into or out of the mail stream depending on their sensitivity to catalog marketing,”Namboodiri says. Then Williams-Sonoma can target those customers with online marketing campaigns instead.

The testing is still underway and Williams-Sonoma is not disclosing results, although  Namboodiri says they are encouraging. The next task will be working to optimize marketing spend on a customer basis. “It’s very important that we’re not just talking at a high level about investment, but that we are applying the new insights directly into channels and trying to drive revenue,” he says.

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