Using Card Transaction Data

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Traditionally, marketing databases combine geodemographic information with whatever information a business can collect about its customers. But soliciting and recording customer information at time of purchase is expensive and time-consuming, and even in the best of cases, most businesses are limited to collecting information on their customers' behavior in their stores. Gathering data on where, when, and how much customers spend with competitors is extremely difficult, if not impossible.

A large number of businesses are getting around these problems by taking advantage of the growing availability of transaction data from banks and credit-card companies. For companies in industries like travel and entertainment, with a high percentage of credit and debit card payments, these data can represent a de- facto customer database with unique benefits unobtainable even from the best in-house customer database. Card data not only enable the collection of in-store customer information, but they also provide information on customers' entire spending behavior across industries by amount, time, and geography.

OVERVIEW OF CARD DATA Card data are unique in that they are not confined to an individual business, and they have location information on both the customer and the business. They consist of a few simple items: the customer, the store, the customer's address, the store's address, date of the transaction, amount of the transaction, and category of the transaction (typically something like the merchant's SIC code). In certain cases, card data include extended information that can be very useful. Airline transaction information includes the origin and destination of the traveler as well as each intermediate airport (trip-legs). For hotel and rental-car transactions, the length of stay may be available.

Card data are generally good, but not perfect. As with all data, there are quality issues. Depending on how a business handles its card transactions, it may be difficult or impossible to determine which individual store location actually booked the business. SIC codes or merchant categories vary in accuracy.

Some sources add additional demographic data such as age, gender, and income to the transaction data. These additions are valuable, but are not inherently better than information from other sources. Card companies cannot use information obtained for credit purposes to support direct marketing. They must purchase or derive household income using the same methods as everyone else.

USING CARD DATA FOR PROFILING Card data are a powerful addition to demographics for building customer profiles. While demographics are very useful, they can only assist in approximating customer spending. Card data contain the hard facts. They can be used to segment customers by number of purchases, total and average spending, frequency and seasonality of purchases, customer and business location, distance to store, and travel versus local spending. Card data can be used to understand who the best customers are, and then construct profiles to target them.

American Express is a leader in the field of providing card data. Through a variety of reports and software products, it provides card data for a wide range of analyses, including benchmarking, store performance, store location, and market evaluation, as well as customer profiling. American Express has a product that illustrates some of the capabilities of card data. The product, called SE Insight-Headquarters Version, provides customer profiling-particularly with regard to origin and location data-on an individual store or chain basis. A merchant can view store- or chain-level breakouts of customer spending by origin (U.S. or foreign), type (local or traveler), and gender. Origin information can be obtained all the way down to the zip code level.

For each segment, the transactions, spending, number of repeat customers, and average charge are also given. Even better, a user can profile these same characteristics for a competitive set-a custom-defined group of similar establishments. This allows a merchant to pinpoint customer segments where repeat business, average charge, or total spending is strong or weak compared with key competitors. This information can be combined with cardmember origin data, and used to build a direct-mail campaign with lists from American Express.

Travel is another important factor in customer profiling. Customers behave differently when traveling than at home, and customers from different origins have different spending patterns. International customers, for example, almost always exhibit different spending patterns than domestic customers. Knowing customer origin can also drive direct targeting campaigns for travelers. You can't target travelers by neighborhood, but using card data you can discover and reach frequent travelers to your area.

USING CARD DATA FOR PROSPECTING Card data provide some unmatched information for doing effective prospecting. Because the spending "signature" of a frequent card user can be as unique and powerful as a fingerprint, card transaction data allow you to identify customers who: * shop in your industry

* are not current customers of your store

* live within the "pull" radius (the area from which you are most likely to draw repeat customers) of your stores

* regularly spend large amounts at stores like yours

This capability to directly target industry spenders who are not current customers is vastly superior to traditional geodemographic methods of customer cloning. Not only can potential shoppers be targeted, their likely lifetime value as customers can be reasonably inferred. Predicting the lifetime value of prospects using traditional data sources is very inaccurate. Card data analysis of industry spending at like stores, geographic pull, and share-of wallet, provides a much more accurate portrait of potential lifetime value. By cross-referencing demographics and store spending characteristics against industry spending characteristics, a modeler can establish lifetime value and share-of-wallet by demographic and spending segments (i.e., frequent or high average ticket spenders) and prospect profiles. Changes and trends by any of these segments can also be identified. Reliable understanding of customer lifetime value enables businesses to substantially increase the benefit of their acquisition dollars.

Another unique prospecting advantage of card data is their ability to provide daytime data. Daytime data include information about neighborhoods and shoppers as they appear during the workday. Traditional geographic targeting uses home address as the locus for all spending behaviors. However, where a person works can be as important as where he or she lives. In fact, the most desirable information is where a person shops. Card data provide that. Using card data, merchants can prospect for nearby regular shoppers, not just for the people who happen to live nearby. A jewelry store in a downtown location, for example, can use daytime spending to target likely prospects. Neighborhood data would be useless in this situation.

GETTING ACCESS TO CARD TRANSACTION DATA Getting access to card transaction data is generally much harder than with other types of consumer information. A relatively small number of companies actually process and record the vast majority of all card transactions. And because these companies are concerned about protecting privacy, they are uniformly conservative about providing direct access to the names. Businesses must be willing to accept the card companies' sometimes onerous privacy conditions to take advantage of card data. The alternative is to use products like SE Insight, which uses aggregated card data for applications like customer profiling or determining store-pull. These aggregations are not privacy sensitive, so the data will be more readily available.

Merchants that accept Visa and Mastercard should investigate marketing opportunities through the bank that processes their card transactions. Of particular interest is the Personalized Visa Rewards program, an integrated marketing program that provides considerable flexibility in accessing transaction data. American Express merchants can contact their account representative to find out more about using American Express card data and analytical tools like Business Profile and SE Insight.

Card data, with their integration of actual, cross-business-cross-industry spending information with geographic information, are unique in their ability to provide insights that geodemographic information cannot. Because card data will always provide a broader view of the customer, they can supplement even the most advanced customer database by providing information about prospect lifetime value and share-of- wallet, customer spending at other establishments, and cooperative marketing opportunities, store-location information, and competitive benchmarking. As consumers increase their use of cards-credit, debit, and someday even the smart card-most businesses are seeing a significant and growing percentage of card transactions. It may be time to start thinking about putting that information to work for you.

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