Show Me the Lift - Lift Modeling Explained

While the science of marketing has become increasingly sophisticated, we have been trying to solve the same problem for many years. That is, how to ensure that marketing investment is producing incremental results. It's the basic premise that marketing managers gravitate to and finance managers question: How do you know that you're not just rewarding customers who would have purchased the product anyway?

So, we have our test and control groups and we can demonstrate incremental benefit. Most stakeholders will not dispute the results. But was the approach optimal? Could there have been a better way to squeeze out even greater incremental sales (and presumably profit) by shifting the target audience, the communication, or the pricing offer?

Today, most marketing decision makers have some going-in assumptions about which groups of customers will produce the most lift. It follows that these are the customers who will be prioritized in terms of marketing investment. In my experience, I have witnessed all ends of the spectrum. In some companies, the very top customers receive most of the treatment. Reward your best customers, and they in turn will become even stronger performers, even more loyal, they believe. In other words, fish where the fish are. Other companies choose to focus efforts on the under-performers or even pure prospects. "Our best customers are doing fine," they say, "the way to improve overall business results is by getting more out of the customers who lag behind." And then, there are those who concentrate on the middle tier, believing that the best customers are maxed out and the bottom-tier customers are too hard to convert, while the middle have the greatest upside potential.

Sticking to any one of these paradigms can result in missed opportunities. If it is incremental revenue and profit you are after, lift modeling will produce the best results. This shifts the basic thinking away from who to target based on expected revenue, and gets right to the heart of the matter by pinpointing the customers who will provide the greatest incremental benefit. Often times, customers who have the highest estimated lift will span across revenue deciles. In my experience, however, I have observed the customers in the middle and upper revenue tiers will produce the greatest lift volume. Yes, even the top tiers can often give you more.

In my next post, I will talk more specifically about the technical aspects of lift modeling and my direct experience in applying these models. Suffice it to say that lift modeling is achievable and it works.

Answer our poll: Which customers do you believe should be targeted to produce the most incremental benefit: Best, Middle, or Bottom Tier? We will share responses in a future post. You can also send us thoughts on the topic - let's chat!

By the way - you can set up an RSS subscription to WiseGuys (it's quick and easy) by clicking on the RSS button above - that way my next post on this topic will be forwarded to you automatically.

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Posted by on 11/14/2007 11:23 AM

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