Think Like a Quant How Data Analytics Can Drive Measurable Growth

Proprietary and Confidential c Ascension Growth & Innovation Strategies 2022

“Without data you’re just another person with an opinion” Most business professionals would agree that actionable data is the key to effective growth planning. But data for data’s sake…. is useless. “Without data you’re just another person with an opinion” W. Edwards Deming Operations Consultant/Data Scientist/Professor Data Analytics is unquestionably a critical component of effective business planning. Understanding the critical analytics associated with your business is the first step in actionable growth planning. Top-line growth strategies can only be developed with insightful market and financial data analysis. Data analytics is the process of analyzing raw data to identify key marketplace and customer trends and answer vital business questions. Successful use of data analytics will give your company a clear, objective picture of where you are, where you have been, and where you should go.

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- W. Edwards Demming Data Scientist

Growth leaders know that data-driven decision-making results in lower costs, increased revenue, improved customer experience, and increased operational efficiency. A “Quant,” or a quantitative or data analyst, is a person specialized in the application of math and statistical methods. These individuals live at the intersection of mathematics, statistical analysis, information technology, and business. The primary goal of a Quant is to help their organization to increase efficiency, improve performance, and develop/ drive growth strategies by discovering and analyzing useful patterns from internal company and external marketplace data. 1 You don’t have to be a Quant to apply essential analytics to drive growth for your organization. You just need to understand some of the key principles behind data analytics. Here are eight tips for using data analytics to develop critical growth strategies for your company. 1 https://www.mastersindatascience.org/learning/what-is-data-analytics/#:~:text=Statistical%20 analysis%20allows%20analysts%20to,predictions%20and%20inform%20decision%20makingv

QUANT TIP #1 HAVING TOO MUCH DATA IS AS BAD AS NOT HAVING ENOUGH Data Overload can Lead to Inefficiency and, in the Worst Case, Missed Opportunities Quants know that data driven decisions are integral to creating business value.

Key Takeaway: Understanding the true metrics associated with company growth is essential to effective business planning. Key metrics include product and operating costs, product and services revenue, important customer product/service usage, and brand perception data. Gathering meaningful insights from these data sets will provide guidance in the development of future strategies.

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Successful organizations must have the ability to analyze data effectively and efficiently or risk experiencing paralysis through analysis. Most companies have large amounts of data, but 88% of data is ignored by most businesses. It is critical to determine what specific data points can be utilized to generate the most value and drive growth. Companies need access to the following continually updated data: -

Clearly defined product and/or service mix

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Master database of all current and prospective customers

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Company-wide sales statistics, broken down by region or product/service category, as applicable

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Accurate and documented business costs 2

2 https://www.pipartners.com/data-analytics-business-value/

QUANT TIP #2 USE DATA TO BETTER UNDERSTAND YOUR PROSPECTS AND CUSTOMERS Data-driven Companies are 23 Times More Successful at New Customer Acquisition than Peers 3

It is essential that companies understand where they make their money and how true value is delivered to the marketplace. In most companies, data analysis reveals that 80% of profits are derived from 20% of customers. But most companies have no idea which customers are in the 20% most profitable segment of their base. One of the key data sets for a company to reference is customer-centric data. This includes an accurate profile of the company’s most profitable customers, proper segmentation of target markets, understanding the true financial value of all current and prospective customers, and validated customer acquisition costs. The following are four critical questions that data analysis can help answer: 1) What is the profile of your most profitable customers? Customer profiling includes demographic, firmographic, geographic, and psychographic data. This information will help you to build a profile of your target prospects and customers. Strategic profiling also includes an understanding of target customer product/service preferences and buying behaviors. This data can be gathered via opt-in form-fills, surveys, purchase data, etc. 2) How do you segment your target markets? Market segmentation should be logical and reveal actionable insights for marketing and sales. Segments should be sized and defined so they can be prioritized against your available financial resources. Market segmentation allows companies to sell to the right people and avoid wasting resources on consumers who are not likely to buy your products/services. 5

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3 https://www.pipartners.com/data-analytics-statistics/

3) How do customers perceive value from your products/services? It is essential to understand the true financial value of all current and prospective new customers. Calculating Customer Lifetime Value (CLV) allows companies to measure the average revenues generated by a single customer over the lifetime of their relationship with the firm. 4) How do you accurately calculate Customer Acquisition Costs (CAC)? Determining the amount that a company spends to acquire new customers helps determine your Return on Marketing (ROM) and Return on Sales (ROS). These measures are calculated by dividing the total cost of sales and marketing by the number of newly acquired customers as a result of marketing and sales investments.

Key Takeaway: Acquiring profitable customers is essential to increasing top-line revenue. In today’s world, you have more accessibility to your customers and their entire journey, more than ever before, thanks to CRM systems, Customer Data Platforms (CDP), and Marketing Automation (MA) systems.

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QUANT TIP #3 A SMALL PERCENTAGE OF A BIG NUMBER...IS STILL A BIG NUMBER Small Incremental Growth Can Lead to Huge Business Impact The typical business lifecycle includes the following phases: -

Startup

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Growth

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Maturity

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Renewal

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Decline

In the Startup phase, the company is still trying to create a solution for unmet needs in the marketplace. Sales and revenues accelerate during the growth phase as the company captures increasing market share. When business Growth inevitably slows, the company enters the Maturity phase. The decisions made during this phase determine if the company then moves into a Renewal or Decline phase. Consistent growth is essential for companies moving into the Maturity phase. Incremental growth is defined as the small gains that a business can achieve to help improve bottom line and sustain or improve top-line sales.

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There are various ways to achieve incremental growth, such as: -

Increasing list pricing

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Adjusting customer payment terms

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Improving new customer conversion or business win rates

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Lowering customer acquisition costs

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Offering add-ons, upselling, or cross selling complementary products/services

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Improving Return on Marketing (ROM) and Return on Sales (ROS) investments

As business growth slows, it is essential to maximize the value of the enterprise. Incremental growth allows a company to sustain some level of growth as the business’s larger growth flattens and new strategies for long-term growth are developed. Each of the aforementioned methods of incremental growth can result in small revenue increases that add up to a more substantial level of total organizational growth. 4

Key Takeaway: Even small, incremental growth can have a big financial impact in large product/service categories. Don’t strive for home runs. Shoot for base hits using data analytics to inform smart, actionable growth plans.

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4 https://www.business2community.com/business-intelligence/when-to-look-for-incremental-growth02198742#:~:text=What%20is%20Incremental%20Growth%3F,%2Dons%20or%20upselling%2C%20etc

80% of your sales come from 20% of your clients PARETO PRINCIPLE

QUANT TIP #4 THE PARETO PRINCIPLE IS ALIVE AND WELL TODAY Pareto Suggested the Key to Data Analysis is Using it to Achieve More with Less Vilfredo Pareto was the man who influenced modern day lean manufacturing and Six Sigma operational programming. He was a sociologist, economist, political scientist, and civil engineer. He lived in Europe from 1848-1923. The Pareto principle states that for many outcomes, roughly 80% of outputs come from 20% of inputs. In other words, small percentages of inputs can lead to a big effect on output. This is an important concept for your business as it determines which initiatives should be prioritized due to their likely potential impact. 5 The Pareto principle is a useful tool for developing a growth strategy for your business. It is critical to identify the characteristics of the top 20% of your customers, who account for 80% of your sales. Then, you can find and market to similar customers and dramatically increase your sales revenues without an excessive increase in costs. 6

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5 https://asana.com/resources/pareto-principle-80-20-rule 6 https://www.forbes.com/sites/davelavinsky/2014/01/20/pareto-principle-how-to-use-it-to-dramatically-grow-yourbusiness/?sh=4759cd333901

Here are three specific ways that the Pareto Principle can be applied to strategic growth and marketing programs: 1)

Use of Strategic Customer Analytics

Use customer data to identify the 20% of your customers that generate 80% of your sales or profits and examine their characteristics. Use the R-F-M Rule to identify customers who bought from you most Recently, most Frequently, and spent the most Money. Design your marketing strategy around those highest potential customers…and derive the most benefit. 2)

Strategic Prioritization of Your Time

Strive to spend more of your time on the efforts that maximize your business performance, like spending more time working with your most profitable customers. Use data analytics to monitor which of your various marketing activities generate the most results. Spend more of your time on those activities than on those that produce only minimal results. 3)

Enhance Your Product/Service Offering

Investing in new product/service development is a great way to increase revenues. But don’t neglect your established products/services. Work to enhance, promote, and push sales of your core offerings while you pursue new product/service development. 7

7 https://extension.umd.edu/resource/applying-pareto-principle-your-marketing-8020-rule

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Key Takeaway: Use Pareto’s 80/20 principle to increase efficiency, identify your most profitable customers, and prioritize business and investment strategies that will ultimately improve your performance!

QUANT TIP #5 MULTIPLE DATA SOURCES ENABLE RICHER, MORE ACTIONABLE ANALYSIS Leverage Qualitative, Quantitative, and Sales Data to Paint a Clear Picture of Growth The three primary types of data used in business are: 1) Qualitative Data observed or recorded information (non-numerical in nature) 2) Quantitative Data numerical based information determined based on calculations 3) Sales Data information/metrics specifically used to manage sales activities

Key Takeaway: Don’t isolate your data sources. Choose the appropriate sources of data and examine them in an integrated manner to get a complete picture of the marketplace, your customer, and your business.

When used together, these data provide actionable insights that can help companies build and execute an effective growth strategy. The amount of data available is increasing at a rapid pace. So, one challenge that companies face is choosing the right data sources to answer key business growth questions. The first critical step is to assess the desired outcome of your analysis goals or planned research to determine which type of data is applicable. The following four benefits show why it is important to utilize multiple data sources: 1) Improved respondent experience (if market research is used) 2) Improved data quality 3) Understand actual consumer behavior 4) Get a holistic view of your consumer 8

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8 https://www.netquest.com/blog/en/5-reasons-to-combine-different-data-sources-in-your-online-research

QUANT TIP #6 USE TRENDING DATA TO MEASURE ACTUAL BUSINESS IMPACT Trending Data can Identify Important Patterns in the Marketplace and in Your Business Trend analysis is the practice of attempting to spot patterns inherent in collected information. This type of analysis uses historical results to predict future outcomes. Using trending data over time enables empirical measurement of the impact of program changes. Trend analysis is helpful because making changes that align with broader market trends (rather than against them) will typically yield improved results for your business. Trends can be short, intermediate, and long-term. There is no minimum amount of time required for information to be considered a trend. It is more notable and significant when the trend is maintained for a longer time period. Consider using quarterly programs with ongoing analysis to reveal business impact of implemented organizational or executional changes over time. 9

9 https://www.investopedia.com/terms/t/trendanalysis.asp

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Key Takeaway: Identifying and objectively analyzing marketplace, customer, and business trends over time can help identify activities that work and do not work for your organization. Trend analysis can help businesses develop an informed growth strategy that moves in concert with market trends.

QUANT TIP #7 UNDERSTAND THE DIFFERENCE BETWEEN LEADING AND LAGGING INDICATORS Use Both Historical Data and Future Predictors to Inform Growth Models A lagging indicator is a Key Performance Indicator (KPI) that reflects output or past performance as seen in operational data or financial statements, and reflects the impact of business strategies.

Key Takeaway: In business, it is important to look at data from the past and the future. Using both lagging and leading indicators can provide an informed view of your marketplace and your customers’ behaviors. This can help you determine where to drive your business and what strategies to pursue in the future.

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Lagging indicators are like looking through a rear-view mirror. They confirm long-term trends, but typically do not predict future results. Examining lagging indicators is useful because leading indicators are often more volatile and affected by short-term fluctuations in the broader marketplace or in your business. Examples of lagging indicators include historical sales analysis, investment returns, and findings from past market research initiatives. 10 Leading indicators can help predict and forecast future trends in business, markets, and the economy. 11 Leading indicators are useful at understanding growth potential using analytic models. Predictive tools like “Purchase Propensity Models” are great leading indicators. Predictive models use algorithms to predict future customer interest and likely purchases based on past behaviors.

10 https://www.investopedia.com/terms/l/laggingindicator.asp#:~:text=Key%20Takeaways-,A%20lagging%20indicator %20is%20an%20observable%20or%20measurable%20factor%20that,cost%20per%20unit%20of%20output 11 https://www.investopedia.com/terms/l/leadingindicator.asp#:~:text=A%20leading%20indicator%20is%20a,%2C%20 markets%2C%20and%20the%20economy

QUANT TIP #8 JUMP START LEAD GENERATION WITH BIG DATA AND MARKETING AUTOMATION Linking Big Data Analytics to Marketing Automation can Accelerate Top-Line Growth Lead generation is a crucial process that involves identifying prospects that are likely to convert into customers because they are interested in your products/services. Leads can come from a variety of internal or external sources or channels. Examples of lead channels include online search activity, email marketing program metrics, and social media data. It’s important to determine which leads and channels are most likely to convert to reduce wasted time and produce the best business outcomes. With available data increasing rapidly, marketing and sales teams can improve lead generation and customer conversion rates. The combination of Analytics with sophisticated Marketing Automation systems enable the delivery of personalized content, offers, and messages. The following are some of the key benefits to using data analytics in the development of strategic lead generation programs: -

Acquire more customers Obtain a deeper understanding of your audience Identify the most effective sources of new business Identify your most successful and/or popular products Improve your Return on Marketing (ROM) and Return on Sales (ROS) 12

12 https://www.bytestart.co.uk/data-analytics-generate-more-leads

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Key Takeaway: Lead generation is one of the most important strategies you can use to increase your sales and profits. Data Analytics and Marketing Automation tools can help improve your company’s lead generation, conversion rates, and ultimately your marketing/ sales ROI.

Ascension Can Help You Improve Your Performance with Data Analytics Many companies have limited time and resources to learn how to implement data analytics into their business strategy, which can cause missed opportunities. The Ascension Data Analytics team can help you think like a Quant and incorporate big data, financial analysis, and marketing automation into your marketing strategy and ultimately grow your business! Ascension has over 20 years of experience working with small to mid-sized companies across a wide variety of industries around the world. We objectively evaluate our clients’ business models and design and execute effective top-line growth programs. We help clients drive growth using primary and secondary market research, analysis of multiple internal and marketplace data sources, implementation of CRM, CDP, and Marketing Automation platforms, and by designing fact-based and data-driven marketing strategies.

From Insight to Impact TO LEARN MORE, VISIT US AT ASCENSIONSTRATEGY.COM OR CALL 404-250-4547