Last week I discussed how you need to manage your customers based on their expected lifetime value, and machine learning technology is a powerful tool to execute this strategy. When applied effectively, machine learning can reduce your service and support costs while increasing your profit margin. Machine learning lets you tailor virtually any part of your business to each individual customer so you optimize the value of that customer.
Predicting and placing users in the right bucket
The first key in maximizing profitability is segmenting your customers based on expected lifetime value. You can accomplish this manually by examining their past behaviors and key metrics, but most analytic teams do not have the resources to analyze how all the metrics and data interact. Machine learning algorithms, however, can not only incorporate hundreds of variables, but also predict future behavior based on these patterns. Thus, two customers who may have both spent $500 may warrant very different treatment, if the first one is likely to spend $20,000 while the latter is projected to spend $750. Machine learning is a strong tool for making these projections and optimizing the segmentation of your users.
Matching service to customer needs
Once you have your users segmented properly, machine learning can help direct customer service and support resources more efficiently. It can identify valuable users who are likely to churn if they do not receive a personal phone call. It can also predict when a user with a support issue is not likely to leave or change their purchasing habits and thus may not warrant a high level of service.
Optimizing your price strategy
As I also discussed last week, price discrimination is crucial in increasing profits. Machine learning is a tool that can have a strong impact on optimizing price discrimination. It can identify users who are more likely to monetize or monetize higher if they are offered a special discount. It can also determine what users are not likely to change their purchase patterns due to discounts, so that you do not offer them favorable pricing. Machine learning is the tool that helps you ensure each user gets the pricing that optimizes their lifetime value.
- Machine learning can help you segment your users by lifetime value more effectively than other methods.
- Once segmented, machine learning can direct CS and other resources to users where they have the highest return.
- Machine learning can facilitate pricing optimization by sending offers and incentives to users when they would most impact LTV.