The marketing landscape has become a data-driven battlefield as digitisation takes over businesses rapidly. While customer data is a priceless mine of significant insights, transforming that data into implementable actions remains a challenge for many.
This is where CART (Classification and Regression Trees) or decision trees step in.This marketing analytics model factors in several metrics to help make better marketing decisions. It’s a powerful tool and if you want to understand it from the best, you can apply to prestigious B-school programs like IIM Executive courses. An in-depth understanding of this model can help you research complex customer behaviour and empower your marketing strategy.
What is a CART Model?
Imagine a complex decision tree - its branches represent a series of questions about your customers and its leaves display the resulting outcomes. This is the core concept behind a CART model. It meticulously analyses your customer data, building this tree-like structure that reveals crucial relationships between various factors that influence customer behaviour.
By dissecting vast data sets, CART brings out the hidden patterns and trends that traditional analysis methods might miss. This helps marketers structure campaigns around these insights that guarantee streamlined resource allocation and a boost in profits.
The Power of CART for Marketers
IIM Executive courses focusing on marketing techniques teach more on how CART structures empower marketers with several invaluable insights that further productivity and business growth. CART serves as an efficient marketing tool by:–
Unearthing hidden data patterns
CART delves deep into your customer data, uncovering previously unidentified patterns and trends that traditional analysis methods might miss. This makes the marketer aware of trends in customer behaviour, such as target demographics, purchase history and online browsing habits.
Predicting customer behaviour
By analysing past behaviour patterns, CART models can predict how customers are likely to respond to future marketing campaigns or product launches. This enables marketers to streamline their marketing efforts and resources, delivering the right message to the right audience at the right time.
Simplifying customer segmentation
When you know your consumer base well, you can easily segment them into distinct groups based on shared characteristics – such as geographical location, age, purchasing habits and so on. This helps tailor and run marketing campaigns to resonate with each segment, maximising campaign effectiveness and return on investment (ROI).
Building transparent structures
Unlike some complex algorithms, CART models heavily rely on their interpretability. The clear, visual tree structure simplifies how different variables influence the outcome. This transparency empowers marketers to make informed decisions based on tangible insights derived from the data.
Use Cases and Real-World Marketing Applications
Now that you know the significance of CART models, here are a few use cases to help you understand their implementation better :–
- Combating customer churn
Customer churn happens when you fail to retain your target customer base. CART helps you analyse customer data to identify red flags in your system and marketing initiatives that cause customer churn. This allows you to proactively target at-risk customers with targeted retention campaigns, minimising churn and maximising customer lifetime value.
- Optimising ad spend allocation
An effective CART model helps you predict which customers are most likely to respond positively to a specific advertising campaign. This empowers you to allocate your advertising budget more efficiently, maximising campaign ROI and ensuring your message reaches the most receptive audience.
- Personalised product recommendations
Analyse customer purchase history, search data and demographics to predict which products a customer is most likely to buy next. This allows you to offer personalised recommendations enhancing customer experience and driving sales.
- Predicting Customer Lifetime Value (CLV)
Not all customers you attract will be equally beneficial to your business. So, identifying high-value customers who are likely to spend more over time allows you to prioritise your marketing efforts. CART models can analyse customer data like purchase history and demographics to predict a customer's CLV. This allows you to tailor marketing campaigns to retain these valuable customers, potentially offering them exclusive loyalty programs or personalised discounts.
- Fraud detection
Fraudulent activity can inflict significant financial losses. CART models can be trained to identify patterns associated with fraudulent purchases. By analysing factors like customer location, purchase history and typical spending behaviour, CART can flag suspicious transactions in real-time. This empowers you to implement preventative measures and safeguard your business from financial losses.
- Market basket analysis
Understanding how customers shop together, CART models can analyse customer purchase history to identify products frequently clubbed in purchases. Imagine a customer buying a new stitching machine. A CART model might reveal that they often purchase thread rolls and needles alongside this one-time purchase. Leveraging this insight, you can create targeted promotions and even offers bundling these products together, potentially increasing sales and average order value.
Advanced Applications of CART
While the core applications of CART focus on customer segmentation, prediction and personalization, its capabilities extend even further. Here are five advanced applications of CART that can unlock even deeper insights to empower your marketing strategy:
- Customer journey optimization
CART enables you to analyse customer interactions across various touchpoints (website, email, social media) to identify potential roadblocks or areas for improvement. The models can reveal patterns in customer behaviour that highlight where customers drop off during their purchase journey. Now you can optimise your website user experience, refine email marketing workflows, or tailor social media engagement strategies to ensure a seamless customer journey.
- Campaign response modelling
Predict how different marketing campaigns will perform before launch. By analysing past campaign data, including budget allocation and target audience patterns CART models can predict the potential reach, engagement and ROI of future campaigns. This allows you to test different marketing strategies, optimise campaign elements and ultimately maximise your return on marketing investment.
- Price sensitivity analysis
CART models can analyse customer purchase history alongside product pricing to identify price sensitivity. This allows you to develop dynamic pricing strategies, offering targeted discounts to specific customer segments or adjusting prices based on market demand.
- Product development and innovation
Gain insights into customer preferences to inform product development and brainstorm ideas to further your business into newer dynamics. Analyse customer demographics, purchase history and online reviews to identify trends and unmet target customer needs. This allows you to develop new products or features that cater to specific customer segments, increasing customer satisfaction and loyalty.
- Competitive Analysis
CART models further help you gain a competitive edge by analysing customer behaviour towards your competitors' offerings. By analysing customer data alongside competitor product information, CART models can reveal which customers are more susceptible to competitor offerings. This allows you to develop targeted marketing campaigns to retain these customers and highlight your brand's unique value proposition.
Conclusion
CART stands as a formidable asset capable of transforming your marketing strategy. Its insights into customer behaviour are invaluable, offering a pathway to enhanced targeting, personalised campaigns, optimised resource allocation and ultimately, accelerated business growth.
However, to know more about CART and its many applications, sign up for the Executive Management Programme in Sales and Marketing Leadership by IIM Lucknow. This 11-month course is brought to you by Imarticus among all its other IIM Executive courses, to transform you into a marketing guru ready to kickstart your dream career!
