Businesses have long recognised that a loyal, repeat customer is far more valuable than a brand-new one. Most also realise that a small portion of their existing customer base generates most of a company’s revenues.
For years, the accepted wisdom has been that 80 percent of profits come from just 20 percent of customers — a concept known as the Pareto Principle. With the growing use of big data and analytics, however, it’s becoming increasingly possible to identify more precisely than ever which customers are most valuable or most loyal.
A couple of years ago, writing in the Harvard Business Review, Michael Schrage of the MIT Sloan School of Management described how one travel services company analyzed its large volumes of customer data to discover its 20 percent set of most valuable customers had within it an even more valuable 20 percent subset of cultishly loyal customers.
“Marrying Moore’s Law to the Pareto Principle transforms Big Data into more actionable analysis,” Schrage concluded. “The best way to digitally discipline dataset mash-ups is identifying the 80/20 dynamics that the organization wants driving its differentiation. ‘What 80/20 analytic will matter most tomorrow?’ is the challenge top management needs to both ask and rise to.”
More recently, Telstra CEO Andrew Penn told a business gathering in Melbourne that he believes machine learning and artificial intelligence will take customer data insights to even more advanced heights. Netflix, for example, can attribute a large part of its success to the fact that it “spends 20 times as much on their recommendation engine compared to traditional companies,” Penn said.
The digital future of business, he added, depends not only on improving how companies provide goods and services but on improving the customer experience digitally as well.
Facebook certainly has great ambitions in this area, having recently rolled out a new ecosystem for automated chatbots on its Messenger Platform. A large number of companies — including 1-800-Flowers.com, Bank of America, Salesforce and Zendesk — are in the process of launching, or have already launched, Messenger bots to provide fast, AI-driven help for customers across multiple platforms.
“Bots for Messenger are for anyone who’s trying to reach people on mobile – no matter how big or small your company or idea is, or what problem you’re trying to solve,” Facebook product manager Seth Rosenberg wrote in a blog post this past April. “Whether you’re building apps or experiences to share weather updates, confirm reservations at a hotel, or send receipts from a recent purchase, bots make it possible for you to be more personal, more proactive, and more streamlined in the way that you interact with people.”
While bots from Facebook, Skype (Microsoft) and Google are still in their early days, it’s not hard to imagine how much more they could help boost customer experiences above and beyond what they are today. The era of data-driven, intelligent and machine-boosted customer service is just getting started.