Marketing Practice

Using customer
analytics to boost
corporate performance
Key insights from McKinsey’s DataMatics 2013 survey

January 2014
 2

Contents
Introduction 4 Cross-referencing tools

Part I: Executive summary

Extensive and best-practice users of customer

analytics outperform their competitors 5

So how do the top performers do it? 8

Indicates that additional
„ „ Analytics is not an IT but a strategic information is available in the
business topic 8 documentation part
„ „ A truly integrative approach is key 11
„ „ High performers hire C-level executives with
the “data gene” in their DNA 12

Outlook – Implications for CEOs and CIOs 16

Part II: Documentation

Methodology and sample structure 17 Indicates that the chart

can be enlarged
Detailed results 20

„ „ Objectives and value contribution 20

„ „ Capabilities and challenges 24
„ „ Trends and future investments 26
„ „ Organization and governance 28
The following icons help readers
Contacts 29 to navigate in this report
 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 3

Overview of key insights

2. Successful companies outperform their
competitors across the full customer
lifecycle. Focusing on acquisition and
profitability gives the greatest leverage, yet none of
1. It creates value! Extensive use of the customer-relevant key performance indicators
customer analytics has a large impact must be missed. Goals need to be set for both
on corporate performance. Companies strategic and tactical indicators
that use customer analytics extensively are more
likely to report outperforming their competitors on
key performance metrics

5. Success requires senior-

management involvement
3. Having a culture that in customer analytics.
values and acts on High-performing companies
customer analytics is are led by data-savvy C-level
critical. Investments in IT executives who understand
and skilled employees are also 4. the importance of customer
important, but investments alone analytics and take a hands-on
will not deliver value. Leadership Integration of customer approach to the topic
that expects fact-based analytics across functions
decisions and an organi­zation and channels is the
that can quickly trans­late those top trend to focus on.
facts into action are more likely Enabling integrated multichannel
to win than those companies that marketing that leverages real-
focus mostly on IT time data and frontline access
is seen as more important than
leveraging new sources or types
of data
 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 4

Introduction
Key insights from McKinsey’s DataMatics 2013 survey substantiated with objective performance criteria.
The validation phase evidenced a signi­fi­cant
correlation with the companies’ return on assets.
Corporations across the world and across industry
sectors are increasingly approaching their busi­
nesses from a customer-centric perspective, Key aspects of the survey Text box 1
amassing vast quantities of customer intelligence
in the process. But harnessing this data deluge is The DataMatics 2013 benchmarking survey was
a huge challenge. Even after drawing on sophisti­ conducted from May to June 2103 with 418 senior
cated software systems to portion big data into executives of major companies distributed
viable segments, countless companies are finding equally across Europe, the Americas, and Asia.
their expectations dashed. Big data often fails to All the organizations had revenues of between
deliver the big insights that were hoped for because around EUR 500 million and over EUR 50 billion;
com­panies are not tackling the topic opti­mally. the majority had revenues of over EUR 5 billion.
To do this, it would be of huge benefit to know Most respondents were from analytics-intensive
whether one can actually identify a corre­lation be­ sectors within 10 major industries, including Retail,
tween the use of customer analytics and cor­porate Banking, Insurance, Media, IT, and Energy. The
performance. And if so, how can this be evidenced topics covered were the objectives and value con­
and quantified? Does the impact of customer tribution of customer analytics, its capabilities and Please refer to the
analytics differ by industry? What capa­bilities and challenges, trends and future investments, and its Documentation section
investments are needed? What is the impact at organization and governance. in Part II for further
stake? What are the most important levers? details on the survey.

To find answers to these questions, McKinsey This report describes the results of McKinsey’s
recently conducted a global survey on big data, 2013 DataMatics survey, explaining the cham­pions’
inter­viewing over 400 top managers of large inter­ secrets of success. It is divided into two sections.
national companies from a wide variety of indus­ The first is a report covering the results of the study
tries. The data obtained consisted of com­panies’ and some of the learnings that can be derived from
self-assessment of their own position and capa­ it. The second section is more statistics driven,
bil­ities. A subsample of these results was then showing the data on which the report is based.
 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 5

Extensive and best-practice users of

customer analytics outperform their competitors
Use of customer analytics appears to have an im­ of new customer acquisition than nonintensive
mense impact on corporate performance (Exhibit 1). users, and 9 times more likely to do so in terms
The likelihood of generating above-aver­age profits of customer loyalty. Our survey results also show
and marketing earnings is around twice as high that the likelihood of achieving above-average
for companies that apply their customer analytics profitability is almost 19 times as high for customer
broadly and intensively as for those who are not analytics champions as for laggards. Even more
strong in customer analytics. The effect from impressive is their likelihood of migrating an
sales is even greater: 50 percent of customer above-average share of customers to profitable
analytics champions are likely to have sales well segments, at 21 times that of non-intensive users
above their competitors, versus only 22 percent of of customer analytics (Exhibit 2).
laggards. These champions are also almost three
Exhibit 1
times as likely to generate above-average turnover Extensive use of customer analytics has a large impact on
growth as competitors who evaluate their data corporate performance
only sporadically (i.e., 43 percent of champions
No extensive use of customer analytics2
manage to do so, compared to only 15 percent Extensive use of customer analytics
Percentage of companies above competition
of laggards). Return on investment shows roughly
the same picture: companies making intensive use Profit1
22

of cus­tom­er analytics are 2.6 times more likely to 49

+126%
have a significantly higher ROI than competitors – 22
Sales
45 percent versus 18 percent. 50 Extensive users of
+131% customer analytics
15 are more likely to
It is not just along such vital KPIs that these com­ Sales growth outperform the market
43
pa­nies are very likely to outperform their compe­ +186%
titors: they reveal a markedly higher likelihood of 20
ROI
above-average performance across the entire cus­ 45
+132%
tomer lifecycle. In terms of strategic KPIs, some of
the findings are quite extraordinary. Intensive users 1 Based on "Please describe the performance of your firm/business unit in the following areas relative to your average competitor". "Above competition"
defined as 6 to 7 on a 7-point scale: 1 = Well below competition, 7 = Well above competition.

of customer analytics are 23 times more likely 2 Based on "Please indicate how much you agree or disagree with the following statement: 'We use customer analytics extensively in our firm/business
unit'." Scale of 1 to 7: 1 = Strongly disagree, 7 = Strongly agree. Comparison of items assigned 1 or 2 vs. 6 or 7.

to clearly outperform their competitors in terms SOURCE: McKinsey, DataMatics 2013

Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 6

A third of all survey participants rated customer factors for success – incorrectly. McKinsey’s
analytics as extremely important for business benchmarking has shown that intensive data
success, positioning it among the top five drivers evaluation has the greatest impact on performance
of their marketing. They consider it as important in the retail industry. In the European retail trade,
as price and product management, and only a benchmarking shows that the economic impact
few percentage points below service and actions of customer analyses is in fact more than twice
to enhance customer experience, far ahead of the that in the banking sector, and around three times
management of advertising campaigns (which only higher than in telecommunications and insurance.
20 percent view as a key driver of success).

These results also differ considerably by industry

Exhibit 2
sector. Banks have the greatest analytical skills, Successful companies outperform their competitors across the full
media companies are particularly strong on imple­­­ customer lifecycle
men­tation, while the retail trade – surprisingly –
Performance index1 Low performer2
lags furthest behind. Although they have an un­ High performer2
Strategic KPIs Tactical KPIs
precedented wealth of transaction data available,
Sales to
most retailers began deploying customer analytics Customers 3
existing
10
acquired
comparatively late: industries such as financial 69 customers 74
x 23 x 7.4
services and telecommunications are far ahead. Customers
11
Customer
4
Extreme cost consciousness has held the majority retained 71 profitability 75
of retailers back from making major investments x 6.5 x 18.8
9 Value 5
in the field. Many also appear to lack awareness Customer
loyalty
delivered to
80 customers 76
of how great the impact of customer analytics x9 x 15
can be. While the best performers across all Customer 14 Migration to 3
profitable
satisfaction
industries rate the use of customer analytics and 81 segments 63
x 5.8 x 21
other customer-oriented initiatives as the no. 1
contributor to their success, retailers whose 1 Based on "Please describe the performance of your firm/business unit in the following areas relative to your average competitor". "Above competition"
defined as 6 to 7 on a 7-point scale: 1 = Well below competition, 7 = Well above competition.

performance is average view general marketing, 2 Based on "Please describe the performance of your firm/business unit in the following areas relative to your average competitor." Aggregate index
derived from the dimensions Sales, Sales Growth, Profit, ROI. Comparison of bottom vs. top quartile.

pricing, and campaign management as the key SOURCE: McKinsey, DataMatics 2013
Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 7

Methodology Text box 2

The methodology used was to ask the participants CS010

Why does your firm/business unit deploy customer analytics?

to give full details of their context (position, indus­
Strongly Neither agree Strongly
try, geography, revenues, and number of staff), as disagree
1 (1)
2
(2)
3
(3)
nor disagree
4 (4)
5
(5)
6
(6)
agree
7 (7)
well as their customer base and com­pe­titors. They To acquire new customers (1)       
were then asked a series of questions, rating their To increase sales to existing
      
responses from 1 (Strongly disagree) to 7 (Strongly customers (2)

To increase customer profitability

agree). These fell into various catego­ries, such (3)       

as the value contribution of cus­tomer analytics, To increase customer satisfaction

(4)       
their objectives in using cus­tomer ana­lytics, and To improve the value delivered to
      
their use of it along different dimen­sions, whether customers (5)

To increase the proportion of loyal

IT, analytics skills, or execution. Their evaluation customers (6)       

of upcoming trends was also re­quested, as well To increase the number of

customers retained (7)       
as their opinions on forthcoming challenges To migrate customers to more
      
and opportunities. Investments, value chain profitable segments (8)

To reduce customer acquisition and

management, and staff/governance were further servicing costs (9)       

aspects that were analyzed in detail. For cross-selling purposes (10)       

To better understand the needs and
wants of the customer (11)       
An extract from the McKinsey survey (below) is a Other (please specify)
      
brief example of the way many of the questions (998)____________
Please refer to the
Other (please specify)
were structured. (999)____________       
Documentation
section in Part II for
SO HOW DO THE TOP PERFORMERS DO IT? further details on the
The findings showed that winners take a truly integrative approach, seeing methodology.
analytics not as an IT but a strategic business topic. Hiring C-level executives that
take a hands-on approach to customer analytics is also vital – they need to have

8
 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 8

So how do the top performers do it?

The findings showed that winners take a truly (Exhibit 3). That is where the retail industry – as
integrative approach, seeing analytics as a strate­ just one example – falls down. It does not invest
gic rather than purely as an IT issue. Hiring C-level sufficiently in in-house expertise, staff skills, and
executives who take a hands-on approach to the development of proprietary analysis models.
customer analytics is also vital – they need to have McKinsey conducted a diagnosis on the advanced
the skills themselves, and be able to appreciate analytics capabilities of one of the leading global
their importance. These three factors play a large online companies, and outperformed their existing
role in the astounding spread in results between analytics in various algorithms during the following
high performers and laggards evidenced in the pilot phase. The new algorithms were fully imple­
previous section.

Exhibit 3
Analytics is not an IT but a strategic business topic Having a culture that appreciates and acts on Execution and organization

customer analytics is critical for value creation Analytics

IT
Companies need to understand that it is not the Importance for value contribution
IT that counts so much as what you do with it. through analytics1
Objective Capability Percent
Many managers associate customer analytics Understand the most Fact-based decisions 100
important capabilities that
with complex IT systems and expensive analysis enable an organization to
Fast translation to action 95
Management expectations 95
gain value from customer
tools. It is true that no company can leverage their analytics Use of appropriate techniques 93

customer data successfully without IT investment. Method

Actionability of insights
Broad use of customer analytics
92
91
But relying on technology alone is not the answer. Correlate level of capability Analytics valued by the front line 91
to perceived value Management attitude 91
How companies actually make use of customer contribution of customer In-house expertise 84
analytics and index highest
information is what makes the difference, and the correlation of 65 to 100%
Quality management of analytics 82
Automated analytics 81
organizational changes they implement to realize Speed of model development 77
these changes. Automated data processing 77
360°perspective 73
Software accessibility 72
Interlinked IT systems 59
A narrow focus on technology and tools rather
Average for category 72 86 94
than staff and processes is another common
failing. Competence is what counts – the ability 1 Pearson correlation of respective capability with value contribution of customer analytics (based on agreement with the statement "The use of customer
analytics contributes significantly to our firm's/business unit's performance", with the highest scaled to 100%).

to swiftly translate data into concrete action SOURCE: McKinsey, DataMatics 2013
 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 9

mented across multiple levers and channels, contributed to making the company a trail-blazing
which led to a positive earnings impact of around pioneer in the industry, epitomizing the “data to
EUR 1 billion per annum. This has substantially strategy” shift.

Key capabilities for maximum value creation Text box 3

The key capabilities for creating value from cus­tomer analytics are
integrated deployment of IT systems, targeted analytics skills, and
smart execution/organization.

Ideal IT setup

A company’s IT – including all relevant legacy systems – is all Example:

inter­linked. Silos are minimized by ensuring intensive cooperation A leading retailer uses thousands of automatically
between the IT and business departments. A datamart with a built predictive models to forecast future demand
360° perspective on customers contains all customer data from on an SKU level, and link it with their customer
multiple interconnected sources, and is accessible for analytics datamart.
specialists from different business units. Data processing is fully Automating as much of the analytics process
automated, as well as analytics processes for critical marketing as possible means the data scientists can focus
operations, with self-learning algorithms for stan­dard analytics. their time on defining the analytics process and
All the requisite software is ac­ces­sible to analysts/analytics mission-critical QC and validation tasks.
decision makers. Business users have access to software
interfaces that allow them to run analytics on the go, without
programing know-how.
 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 10

Optimal analytics skills

The company has in-house expertise for conducting advanced Example:

customer analytics. Analytics leverages both structured and In the telecoms industry, analytics talent is a
unstructured data by combining data and text mining for ad­ scarce resource for many organizations: analytics
vanced predictive models. Analytics infrastructure enables rapid leaders score highest on superior quality manage­
development, evaluation and scoring of models from a single ment of analytics and streamlining their analytics
integrated environment. Different types of statistical and predictive processes for maximum efficiency.
algorithms are combined for maximizing the impact of analytics Knowing this constraint, a leading telco player
(e.g., by moving from traditional CHAID decision tree models refrained from using the newest and most inno­
to Random Forest or ensemble models to maximize accuracy). vative algorithms. Instead, they concentrated on
The analytics staff are excellent at deploying the appropriate finding the analytics talent able to apply the right
analytics techniques and generating actionable insights from analytics method for a clearly defined business
data. Standards for end product quality and service are enforced; question. Standards for end product quality are
predictive models are versioned and scores are tracked. also precisely delineated and rigorously monitored.

Highly efficient execution and organization

New analytics insights are quickly translated into value-creating Example:

initiatives. Analytics assets are integrated into business processes A major insurance company improved their profits
(such as real-time scoring where necessary). Virtually everyone in by integrating their customer analytics with their
the firm/business unit uses customer ana­lyt­ics-based insights to fraud detection system. During the claims handling
support decisions. Predictive analyt­ics are used throughout the process agents leverage customer analytics to fast-
organization. Top management ex­pects in­sights stemming from track claims for customer segments with a low likeli­
customer analytics to sup­port key mar­ket­ing and sales decisions. hood of fraudulent activities, simultaneously boost­
Frontline units value recom­mendations based on customer ing satisfaction and reducing operational costs.
analytics. Top management looks favorably upon using customer
analytics to reach informed decisions.
 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 11

A truly integrative approach is key integrated multichannel marketing, expanding

customer analytics across the value chain,
The integration of customer analytics across embedding analytics on the front line and
functions and channels is instrumental. The survey processing real-time data. One of the UK’s major
showed that enabling integrated multichannel retailers started a customer analytics journey in
marketing using real-time data and frontline the mid-1990s, further developing their analytics
access is more important than leveraging new capacity on a continuous basis. They learnt to
sources or types of data (Exhibit 4). Successful leverage analytics across a variety of marketing
big data players build an insight value chain that and sales levers, broadening these applications
incorporates all elements from design through to
the customer, end to end.
Integration of customer analytics across functions and channels Exhibit 4

The six elements in this chain are data, analyses, is the top trend to focus on
software, capabilities, processes, and strategy. Respondents perceiving the trend as "extremely important"1
Any chain is only as strong as its weakest link, Percent

so it is vital that each element is professionalized, Enabling integrated multichannel marketing 29

and that they are optimally interlinked. The data Frontline embedding of analytics 28
have to be appropriately adjusted, structured, and Expanding customer analytics across the
27
value chain
enriched. The analyses also need to be reliable,
Processing real-time data 24
supported by interactive and scalable software.
The findings should not be bundled at one central Generating automated commercial actions 21

site, but be made available to everyone involved Automating customer analytics 21

in making the related decisions, accessible at any
Analyzing unstructured data 19
time. It is also important to continuously analyze
Including third-party/external data 17
the data for new sources of value, and to feed
these into the value chain on a regular basis. Sharing data in strategic alliances 14

Some aspects of the integration that participants 1 What trends do you consider most important for customer analytics within the next 5 years?

rated as particularly significant are enabling SOURCE: McKinsey, DataMatics 2013

 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 12

across their network to encompass targeted 45 percent at low performers – a difference of

communications, pricing, and merchandising. almost 70 percent (Exhibit 5). Perhaps unsur­pris­
Eventually, they even incorporated their suppliers ingly given these results, 76 percent of com­panies
so that production was directly influenced by the that extensively involve their senior man­age­ment
big data they were gathering. As a result, they in customer analytics strongly agree that custom­er
managed to save hundreds of millions of pounds analytics significantly contributes to per­for­mance,
a year in promotion expenses while constantly while this is true of only 29 percent of com­panies
increasing their market share, and customer that do not. The likelihood of achiev­ing an above-
com­plaints fell by 75 percent. They have also average return on investment is almost double
seen a direct rise in customer loyalty: at present,
40 percent of their customers buy over 70 percent
Exhibit 5
of their groceries at the store. The company’s The most profitable companies have top-management involvement and
unprece­dented ability to translate data to insight broader support for leveraging customer analytics
to action created a sustainable competitive ad­ Percentage of each level involved in customer Number of FTEs actively engaged in
van­tage, leading to clear market leadership, and analytics supporting customer analytics
Percent
exemplifies the integrative approach that is the Not/somewhat Very/extremely How important is the use of customer
secret to success. important important analytics to your commercial success?

CEO 15 49
173
High performers hire C-level executives with the Other C level 25 54
“data gene” in their DNA
2nd level 20 53 +394%

The results clearly indicate the importance of Dept. heads 43 70 35

senior-management involvement in customer
Team leaders 25 51
analytics. High-performing companies make sure Not/ Very/
somewhat extremely
of this by hiring C-level executives who understand Working teams 30 39
important important
the significance of customer analytics, and take a Companies that rate customer analytics as important are
more likely to have senior-level involvement and more
hands-on role in its deployment. High performers FTEs involved
have 76 percent of their C-level executives involved
in customer analytics, whereas the figure is only SOURCE: McKinsey, DataMatics 2013
Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 13

that of laggards at companies where senior While it is crucial that management walks the
management is intensively involved in analytics, talk, it is also essential to anchor a culture of
while the probability of generating above-average customer data management throughout the entire
profits is more than twice as high (Exhibit 6). Sales company, ensuring that analytics tools and their
growth is another key area where champions results are always connected to the right data,
with senior-management involvement in customer the right people, and the right marketing strategy.
analytics have a clear advantage, with almost three Everyone in the organization should understand
times the likelihood of outperforming competitors the topic, and all decisions should be supported
who do not give importance to this factor. by analytics.

Senior-management involvement in customer analytics Exhibit 6

X% Percent of companies
translates into business performance above competition

Profit1 +91%
82
43

Sales +86%
80
43 Companies with
senior-management
involvement in
Sales growth +161% customer analytics
81
31 initiatives are more
likely to outperform
the market
ROI +113%
81
38
No senior management Senior management
involvement in involvement in
customer analytics2 customer analytics

1 Based on "Please describe the performance of your firm/business unit in the following areas relative to your average competitor". "Above competition"
defined as 5 to 7 on a 7-point scale: 1 = Well below competition, 7 = Well above competition.
2 Based on "To what extent is senior management involved in customer analytics initiatives?". Scale of 1 to 7: 1 = Not at all, 7 = To a great extent.
Comparison of items 1 or 2 vs. 6 or 7.

SOURCE: McKinsey, DataMatics 2013

Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 14

DataMatics and big data in action: that statistically links marketing expenditure and Text box 4
All systems go other drivers to sales (Exhibits 7, 8). This is not
just historical, but can also estimate the sales
A consumer goods retailer had a CRM organiza­ impact of any stimulus, whether promotional
tion, but was using this on a reactive, ad hoc price, halo advertising, social media or competi­
basis, only occasionally mining big data. The tive advertising. Pricing initiatives covered differ­
analyses were primarily descriptive – no use was entiation by price zone, and the optimization of
being made of advanced analysis techniques such price guidelines for each category. Data-driven
as customer value models or data mining.

Exhibit 7
McKinsey’s holistic diagnostic and subsequent Target picture of big data competences after implementation RETAIL EXAMPLE

recommendations involved taking action in of actions 1 Base level +1 Improvement

5 Best practice Addressed by
all functional areas: Sales, Marketing, Pricing, Action
prioritized actions

Category Management, and Inventory. Initiatives Genera-

tion of Pro- Availa- Pur- Targeted Marketing
included expanding the client’s existing CRM insights Pricing motion Range Space bility chasing marketing mix

system into an internal center of competence Data 4 +2 4 +1 3 +1 3 +1 3 +1 3 +1 3 +1 3 +1 3 0

for cus­tomer-oriented analytics and introducing

Machine
standard reports to the business functions. What room Analytics 4 +2.5 4 0 2 0 3 +2 3 +1.5 3 +1.5 1.5 0 2 0 3 0

had previously simply been one technical tool 4 2 4 0 1 0 3 +2 3 +2 3 +2 2 0 2 0 3 0

Software
among others was now elevated to the status of
a strategic, predictive compass. People 4 +2.5 4 0 2 0 3 +2 3 +1 3 +1 2.5 0 4 0 2 0

Embed-
Processes 4 +3 4 0 2 0 3 +1 3 +1.5 3 +1.5 2 0 3 0 3 0
Other measures were target group programs, ding

intro­ducing guided selling devices for branch staff, Strategy 4 +3 4 +1 2 0 3 +2 3 +1.5 3 +2 1.5 0 2 0 2 0

shopping apps for customers, and a Web shop

Average 3.3 +1.0 3 +1.7 3 +1.5 2.4 +0.2 2.7 0
with personalized content, plugged in along the
entire customer journey. The project introduced
tailored Web-based marketing mix modeling SOURCE: McKinsey, DataMatics 2013
Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 15

evaluation and development of categories was Multiple actions are being taken to anchor this
combined with out-of-range enquiries to produce transformation into the organization on the
leading-edge category and inventory management. dimensions of mindsets and behavior, skills and
The integrative aspect was key: the client found organization, tools and process integration, and
the EBTDA improvements that this initiative was data, IT, and analysis methods. Strong top-
likely to yield extremely compelling. management commitment is particularly crucial,
as well as ensuring that the analytical findings are
woven into decision making at every level.

Complete implementation of the big data road map has a RETAIL EXAMPLE Exhibit 8
significant EBITDA impact
EUR millions, Germany Low High

EBITDA before one-off costs

Implemen- Relevance Strategic
Actions 2013/14 2014/15 tation effort of big data relevance

Generation of insights

Pricing

Promotion

Range

Space
Availability
Purchasing

Targeted marketing

Marketing mix

Total

SOURCE: McKinsey, DataMatics 2013

 Extensive and best-practice users of
customer analytics outperform their So how do the top performers Outlook – Implications for CEOs
competitors do it? and CIOs 16

Outlook – implications for CEOs and CIOs

Whether termed “strategic analytics,” “business But champions will not be able to rest on their
intelligence” or “customer analytics,” smart inter­ laurels. Since all the players will be in on the game
pretation of consumer data has already become and improving by the minute, champions need to
an absolute must, not simply a nice-to-have value prepare themselves for a pure-play strategy that
driver. From leveraging the converged cloud elevates them to operational excellence, with the
with intuitive interfaces to prescriptive models lowest costs coupled to the greatest possible
that match segments to campaigns, offers, and benefits. Operationalizing the insight value chain
content using every conceivable channel, analytics along every link will be the key. Catapulting them­
is key to maintaining a competitive edge. In view of selves into the next dimension of integrative data
these developments, one can assume that every analysis that encompasses the entire ecosystem of
company will be performing customer analytics industry players will not be easy, but the rewards
as a matter of course in the near future. The call will far outweigh the effort.
to action for CEOs/CIOs of laggards will therefore
be to diagnose their status quo and catch up as
swiftly as possible.
 Methodology and sample structure Detailed survey results Contacts 17

Methodology and sample structure

The DataMatics 2013 benchmarking survey was
conducted from May to June 2103 with 418 senior
executives of major companies from a wide
variety of industries and distributed equally across
Europe, the Americas, and Asia. The data obtained The DataMatics benchmarking survey was
consisted of companies’ self-assessment of their conducted to answer key questions of senior
own position and capabilities. A subsample of executives on customer analytics (Exhibit I).
these results was then substantiated via correlation
with objective performance criteria. The validation
Exhibit I
phase evidenced a significant correlation with the
companies’ return on assets.
What senior executives need to know about
customer analytics (examples)
▪ What is the value contribution of customer
analytics?
▪ What capabilities are essential to take customer
analytics to the next level?
▪ What are the top trends?
▪ What needs to be invested in customer

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analytics to be competitive in the future?

Key parameters of the survey

▪ 418 senior and C-level executives participated in the online survey
▪ Field time was from May to June 2013
▪ The survey covers a variety of industries, including Retail, Banking,
Insurance, Media, IT, and Energy
▪ The survey was conducted globally, equally distributed across
Europe, the Americas, and Asia

SOURCE: McKinsey, DataMatics 2013

 Methodology and sample structure Detailed survey results Contacts 18

The sample covered key customer analytics topics … as well as a broad range of industries and
(Exhibit II) … geographies (Exhibit III).

Exhibit II Exhibit III

Topics covered Key questions asked Percent, n = 418

Region Industry Level of respondents
Objectives and value ▪ Overall importance EMEA Banking and Advanced Industries2 Head of CSO
contribution of ▪ Value contribution Asia
Securities Marketing
customer analytics Energy Media, Entertainment Other3 CMSO
▪ Objectives pursued Americas
& Information
CEO CCO
Retail/Apparel Pharma/Chem/Med
CMO Head of CRM
Capabilities and ▪ Assessment of capabilities in IT, analytics, and execution Other1 Insurance
Head of Sales

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challenges in ▪ Biggest challenges and opportunities Telecom IT/Software
customer analytics
▪ Industry leaders in customer analytics 5 5 16 5 4
6 6 22
29
39 7 6
Trends and future ▪ Most important trends 15
investments ▪ Customer analytics as a share of the overall marketing budget 9
10
18
▪ Changes in spending 13
10 14
32 12 17
Organization and ▪ FTEs in customer analytics
governance of ▪ Level of senior management involved ▪ Equal distribution of responses across Europe, the Americas, and Asia
customer analytics ▪ Majority of respondents from analytics-intensive industries
▪ Performance indicators for customer analytics ▪ Strong focus on C-level executives
1 E.g., Hospitality, Logistics, Agriculture, Education.
2 Automotive, Manufacturing, Construction.
3 E.g., Sales Director, Head of Marketing Analytics, Manager, VP.

SOURCE: McKinsey, DataMatics 2013 SOURCE: McKinsey, DataMatics 2013

 Methodology and sample structure Detailed survey results Contacts 19

The respondents were mainly recruited from large

organizations (Exhibit IV).

Exhibit IV

Share of overall
FTE employees marketing budget
actively supporting spent on customer
customer analytics Employees Revenues analytics
Percent Percent EUR millions Percent

≤ 500 16 0 - 10 29
< 50 66 ≤ 500 21

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11 - 20 11
501 - 1,000 13
< 500 22 501 - 5,000 28
21 - 30 11
1,001 - 5,000 27
31 - 40 8
< 5,000 6 5,001 - 50,000 27
5,001 - 50,000 31
41 - 50 2

≥ 5,000 6 > 50,000 24

> 50,000 13 > 50 3

Ø = 147 FTEs Ø = 20.5

SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Objectives and value contribution Contacts 20

Detailed survey results

For companies to tackle the topic of big data
optimally, the key is to know that there is actually a
correlation between the use of customer analytics Objectives and value contribution
and corporate performance. But the answers to
other questions are vital, too. To what extent can Extensive use of customer analytics plays a large
this be evidenced and quantified? How does the role in driving corporate performance (Exhibit V).
impact of customer analytics differ by industry?
What capabilities and investments are needed,
what is the impact at stake, and what are the most
Exhibit V
important levers?

McKinsey’s detailed survey results address Percentage of companies above competition1 No extensive use of customer analytics2
these topics, broken down into four categories: Extensive use of customer analytics

objectives and value contribution, capabilities and

challenges, trends and future investments, as well 22
Profit
as organization and governance. 49
+126%
22

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Sales Extensive users of
50 customer analytics
+131% are more likely to
15 outperform the
Sales growth market
43
+186%
20
ROI
45
+132%

1 Based on "Please describe the performance of your firm/business unit in the following areas relative to your average competitor". "Above competition"
defined as 6 to 7 on a 7-point scale: 1 = Well below competition, 7 = Well above competition.
2 Based on "Please indicate how much you agree or disagree with the following statement: 'We use customer analytics extensively in our firm/business
unit'." Scale of 1 to 7: 1 = Strongly disagree, 7 = Strongly agree. Comparison of items assigned 1 or 2 vs. 6 or 7.

SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Objectives and value contribution Contacts 21

Successful companies are more likely to The more mature the customer analytics
outperform competitors across the full customer approach, the stronger its contribution is likely to
lifecycle (Exhibit VI). be to corporate performance (Exhibit VII).

Exhibit VI Exhibit VII

Performance index1 Low performer2 The use of customer analytics contributes significantly
High performer to our firm's/business unit's performance1
Strategic KPIs Tactical KPIs Percentage of respondents who strongly agree

3 Sales to 10
Customers
existing
acquired 43
69 customers 74
+37 The highest absolute
x 23 x 7.4 increase is at the last step
percentage points

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Customers 11 Customer 4 (+19%); excellence in
High performance
retained profitability customer analytics drives
71 75 on all dimensions;
24 disproportionate value
x 6.5 x 18.8 goals need to be
contribution
Value set for both
Customer 9 5 18
delivered to strategic and
loyalty 13
80 76 tactical indicators 11
customers
x9 x 15 5
14 Migration to 3
Customer
profitable
satisfaction Analytics
81 segments 63 Low … High
maturity2
x 5.8 x 21
1 Based on "Please describe the performance of your firm's/business unit's marketing group in the following areas relative to your average competitor
(consider the immediate past year in responding to these items)". Above competition defined as 6 to 7 on a 7-point scale: 1 = Well below competition, 1 Based on "Please indicate how much you agree or disagree with the following statement about the contribution of customer analytics to your
7 = Well above competition. firm's/business unit's performance: 'The use of customer analytics contributes significantly to our firm's/business unit's performance'." Scale of 1 to 7:
2 Based on "Please describe the performance of your firm/business unit in the following areas relative to your average competitor". Aggregate index 1 = Strongly disagree, 7 = Strongly agree.
derived from the dimensions Sales, Sales Growth, Profit, ROI. Comparison of bottom vs. top quartile. 2 Based on "Please indicate which of the following best describes the level of analytic development of your firm/business unit."

SOURCE: McKinsey, DataMatics 2013 SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Objectives and value contribution Contacts 22

Also, companies that actively measure their The competitive and market context is a hugely
campaign performance with quantitative metrics important driver: the stronger the related external
are more profitable (Exhibit VIII). factors are perceived to be, the more intensively
companies apply customer analytics (Exhibit IX).
Exhibit VIII Exhibit IX

Performance of companies using different metrics Not using metric2 Companies stating Top2Box No extensive use of customer analytics
Share of highly profitable companies, percent1 Using metric2 Percent1 Extensive2 use of customer analytics

25 35
Campaign ROI Diverse customer
41 base 70
23
Response rate
3

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42 Change of needs
and wants Extensive use of
Companies applying 52
31 customer analytics
quantitative marketing
Reach is primarily driven by
39 campaign metrics are
0 the competitive and
more profitable Used extensively market context
29 in industry 100
Profit uplift
42
47
28 Competition
Revenue uplift
40 87

1 Based on "Please describe the performance of your firm's/business unit's marketing group in the following areas relative to your average competitor 1 Based on "Please indicate how much you agree or disagree with the following statements: 'Our customer base is very diverse'; 'Our customers' needs
(consider the immediate past year in responding to these items)". Scale of 1 to 7: 1 = Well below our competition; 4 = About equal; 7 = Well above our and wants change frequently'; 'Customer analytics is used extensively in our industry'; 'Our firm faces intense competition'."
competition. Values 6 and 7 are classified as "highly profitable". 2 Based on "We use customer analytics extensively in our firm/business unit". Scale of 1 to 7: 1 = Strongly disagree, 7 = Strongly agree. Definition of
2 Based on "Which campaign performance metrics does your firm/business unit use?". extensive use of analytics: comparison of items assigned 1 or 2 vs. 6 or 7.

SOURCE: McKinsey, DataMatics 2013 SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Objectives and value contribution Contacts 23

Customer analytics is most often focused on

customer retention and loyalty. This leaves a great
deal of as yet untapped potential in fields relating
to sales opportunities and customer understanding
(Exhibit X).
Exhibit X

Why does your firm/business unit deploy customer analytics?

Percentage who highly agree (6 or 7 on a scale of 1 - 7)

To increase sales to existing customers 61

Focus on retention
To increase the proportion of loyal customers 55
and loyalty
To increase the number of customers retained 53

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To better understand the needs and wants of customers 51

To acquire new customers 50

To increase customer satisfaction 50 Sales opportunities

(acquisition, profit-
To increase customer profitability 49 ability, cross-selling)
and customer under-
To improve the value delivered to customers 49 standing (needs,
satisfaction, value
For cross-selling purposes 42 delivered)
To migrate customers to more profitable segments 39

To reduce customer acquisition and servicing costs 36

SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Capabilities and challenges Contacts 24

Capabilities and challenges

Having a culture that appreciates and acts on Key challenges can be grouped into five
customer analytics is critical for value creation areas: costs and markets, data, capabilities,
(Exhibit XI). implementation, and company culture (Exhibit XII).

Exhibit XI Exhibit XII

Execution and organization Analytics IT

Challenges seen in customer analytics over the next 5 years1
Importance for value contribution
through analytics1
Objective Capability Percent The whole market faces intense competition in attracting
Understand the most Fact-based decisions 100 Cost/markets
customers. It is getting harder to stay ahead.
important capabilities that
Fast translation to action 95
enable an organization to
Management expectations 95
gain value from customer
analytics Use of appropriate techniques 93 Access to reliable data in real time and ensuring data
Actionability of insights 92
Data
protection and privacy concerns are key to success.

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Method Broad use of customer analytics 91
Correlate level of capability Analytics valued by the front line 91
to perceived value Management attitude 91 The biggest challenge is to build analytic capabilities and
contribution of customer Capabilities
In-house expertise 84 integrate them into the demand generation process.
analytics and index highest Quality management of analytics 82
correlation of 65 to 100% 81
Automated analytics
Speed of model development 77 The issue we are facing is to embed customer analytics
77
Implementation
Automated data processing into everyday frontline operations.
360°perspective 73
Software accessibility 72
59
It is vital to embed a culture of customer analytics across
Interlinked IT systems
Company culture the organization and enable users to easily access
customer analytics relevant to their functions.
Average for category 72 86 94

1 Pearson correlation of respective capability with value contribution of customer analytics (based on agreement with the statement "The use of customer
analytics contributes significantly to our firm's/business unit's performance", with the highest scaled to 100%). 1 Based on "What do you see as the greatest challenges that your firm/business unit will face within the next 5 years in the area of customer analytics?".

SOURCE: McKinsey, DataMatics 2013 SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Capabilities and challenges Contacts 25

Opportunities are mainly seen in improving

customer experience and multichannel integration
(Exhibit XIII).

Exhibit XIII

Opportunities perceived in customer analytics over the next 5 years1

Better customer insights could help us anticipate customer needs

and improve the conversation with our customers.

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We definitely have opportunities to increase our customer expe-
rience with a focus on the long-term value of individual customers.

Granular customer insights allow the customization of products,

prices, and user experience along all touch points.

1 Based on "What do you see as the greatest opportunities ahead for your firm/business unit within the next 5 years in the area of customer analytics?".

SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Trends and future investments Contacts 26

Trends and future investments

Integration of customer analytics across Spending on customer analytics is expected

functions and channels is the top trend to increase across all dimensions in the near
(Exhibit XIV). future, with a focus on IT and data acquisition
(Exhibit XV).
Exhibit XIV Exhibit XV

Respondents perceiving the trend as "extremely important"1 Expected increase in spending over the next 12 months
Percent Percent1

One-off expenses Ongoing expenses

Enabling integrated multichannel marketing 29
Integration of customer Overall change in customer
Frontline embedding of analytics 28 analytics across func- 16 18
analytics spending
tions and channels is
Expanding customer analytics seen as extremely
27

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across the value chain important IT (software, hardware,
15 16
licenses for software tools)
Processing real-time data 24
Data acquisition (fees for
Generating automated commercial actions 21 acquisition of third-party data 13 13
and data collection)
Automating of customer analytics 21
Human resources
11 13
Analyzing unstructured data 19 (customer analytics staff)
Acquisition of additional
Including third-party/external data 17 data sources is viewed
Use of external consultants 11 10
as less important
Sharing data in strategic alliances 14

1 Based on "Compared with the past 12 months, how will your company's/business unit's customer analytics spending change (as a percentage) over
1 Based on "What trends do you consider most important for customer analytics within the next 5 years?". the coming 12 months?".

SOURCE: McKinsey, DataMatics 2013 SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Trends and future investments Contacts 27

Companies with high expenditure on customer

analytics perform better in most areas
(Exhibit XVI).

Exhibit XVI

Share of marketing budget spent on customer analytics Low tier Middle tier Top tier
Percent1

26 25 25 23
19 21 18 19 19 21
21 21
13 11 13
9

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Customers acquired2 Sales to existing Customer profitability2 Customer satisfaction2
customers2

28
25 24 24
21 22
18 21 18 21 19 21 18 21
11
9

Value delivered to Proportion of loyal Customers retained2 Customer migration to

customers2 customers2 more profitable segments2

1 Based on "Considering the immediate past year, what percentage of your firm's/business unit's overall marketing budget (excluding sales force
expenditure) was spent on customer analytics?".
2 Based on "Please describe the performance of your firm's/business unit's marketing group in the following areas relative to your average competitor
(consider the immediate past year in responding to these items)". Scale of 1 to 7: 1 = Well below our competition; 4 = About equal; 7 = Well above our
competition. Values 6 and 7 are classified as "top tier"; 3, 4, and 5 as "middle tier"; and 1 and 2 as "low tier".

SOURCE: McKinsey, DataMatics 2013

 Detailed survey results:
Methodology and sample structure Organization and governance Contacts 28

Organization and governance

Having data-savvy C-level executives at the Companies that involve their senior management
forefront of their customer analytics activities is extensively in customer analytics are almost
perceived as key to company performance three times as likely to find it makes a significant
(Exhibit XVII). performance contribution (Exhibit XVIII).
Exhibit XVII Exhibit XVIII

C-level involvement Significant performance contribution of analytics1

Companies with C-level executives involved in customer analytics, percent1 Percentage of companies that strongly agree

76 76

+69%
+162%

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High-performing companies
45 are led by data-savvy C-level
executives who understand 29
the importance of customer
analytics and take a hands-
on approach to the topic

No extensive Extensive
senior senior
Low High management management
performers2 performers involvement2 involvement
1 Based on "The use of customer analytics contributes significantly to our firm's/business unit's performance". "Significant performance contribution
1 Based on "What level of senior management is involved in customer analytics?". Answer categories "CEO" and "Other C-level executives". through analytics" defined as 6 to 7 on a 7-point scale: 1 = Strongly disagree, 7 = Strongly agree.
2 Based on "Please describe the performance of your firm/business unit in the following areas relative to your average competitor". Aggregate index 2 Based on "To what extent is senior management involved in customer analytics initiatives?". "Extensive involvement of senior management" defined as
derived from the dimensions Sales, Sales Growth, Profit, ROI. Comparison of bottom vs. top quartile. 6 to 7 on a 7-point scale: 1 = Not at all, 7 = To a great extent.

SOURCE: McKinsey, DataMatics 2013 SOURCE: McKinsey, DataMatics 2013

 Methodology and sample structure Detailed survey results Contacts 29

Contacts

Jesko Perrey Andrew Pickersgill

is a Director in is a Director in
McKinsey’s Düsseldorf office. McKinsey’s Toronto office.
[email protected] [email protected]

Lars Fiedler Alec Bokmann

is an Associate Principal in is an Expert Associate Principal
McKinsey’s Hamburg office. in McKinsey’s New York office.
[email protected] [email protected]

Marcus Roth Julie Hayes

Documentation
is a Senior Expert in is a Practice Manager
McKinsey’s Chicago office. in McKinsey’s Chicago office.
[email protected] [email protected]

Matthias Kraus
is a Practice Specialist
in McKinsey’s Munich office.
[email protected]
 Methodology and sample structure Detailed survey results Contacts/Academic advisors 30

Academic advisors

Gary L. Lilien
Distinguished Research Professor of
Management Science at Penn State
and Research Director at the Institute
for the Study of Business Markets
(ISBM)

Frank Germann
Assistant Professor of Marketing
at the University of Notre Dame

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Marketing Practice
January 2014
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