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Custora raises $13.75 million to make customer data actionable for retailers

The company uses AI and predictive analytics to help brands find and market to their top customers

Financial trends and news by Steven Loeb
September 6, 2018
Short URL: http://vator.tv/n/4c0d

It's a common refrain that 90 percent of the world's data has been created in just the last two years, meaning there's now a huge opportunity for companies and brands to know more than ever before about who their customers are. That amount of data can also be overwhelming, leading to those same companies not knowing what exactly to do with all of it. 

In retail, for example, companies now have data about their customers coming from in-store purchases as well as their online purchases. There's also data from mobile, as well as e-mail marketing campaigns and other sources. What they need is an easy way to dig into that data and the find the most relevant information on their customers.

That's the problem being solved by Custora, a provider of cloud-based customer analytics software that sifts through retailer data and makes it actionable. On Thursday, the company announced a $13.75 million Series B round of funding led by General Catalyst with participation from existing investors Foundation Capital and Greycroft. This brings its total funding to roughly $25 million.

"Every retail brand right now is very obsessed with providing a good customer experience. One of the driving forces of being able to create that good customer experience is having great insights on your customers," Corey Pierson, co-founder and CEO of Custora, told me in an interview.

"When you think about analyzing customer data, there’s a few really big problems that retailers face, one of them being the way shoppers are today; customer data is really fragmented across a bunch of different systems. You might buy some things in store, you might buy some things online. That’s a problem when you want to analyze customer behavior if the data’s all over the place."

What the company's software does is take data from all the disparate sources and then create predictive analysis about those customers using artificial intelligence. That allows retailers to have greater insights into who their higher value customers are and how to most effectively market to them. 

"A lot of what Custora does is, with this wonderful artificial intelligence algorithm, it takes a look at all of the data, all of the things that you might have bought before, and makes all kinds of predictions about each and every shopper," Pierson explained.

"So what kind of products do they like? Are they going to come back and order a lot? Do they only order at holiday time? It takes all of these inferences to create all this knowledge about customers, and then we plug that in to all the different technologies; we have all these great dashboards and reports all over the company that just help brands understand who their customers are and put those insights to work."

Custora's value to its customer

Custoram works with over 100 brands, including seven out of the top 20 retailers in the U.S. Customers include J.Crew, Tiffany & Co, Uniqlo, and Kenneth Cole. The company can help those brands both with customer acquisition, as well as customer retention. 

"Once we bring all that data together, we’ll say, 'The top 10 percent of your customers drive 80 percent of your revenue. Those great, loyal customers are really what’s growing the brand.' So the first thing that Custora’s going to do is figure out who those customers are; now that we know who your superstars are, then we’ll plug into your different marketing tools in a couple of different ways," said Pierson.

"One, all of the different marketing campaigns you’re doing to try to attract more customers, we’re going to inform those tools what good customers look like, so that when people are spending all this money on Google, spending all this money on display ads, they can allocate those dollars into the campaigns and types of advertisements that attract more of those superstar customers. We have this insight on who are your high lifetime value customers, your loyalists, and then, using that insight, we can integrate with your customer acquisition marketing vehicle to attract more people like them."

When it comes to customer retention, Custora will use data to identify a retailer's top customers and then use the predictive analytics to send out timely targeted marketing campaigns so they don’t let those customers fade away.

The company measures return on investment in a variety of ways: it can determine hard ROI, such as whether a retailer is seeing greater return on their marketing dollars, as well as softer ROI, in which the firm can identify audience segments, such as Millennials, that a brand or retailer might be losing.

"We’ll talk to brands in both of those fashions, like how much incremental marketing dollars can we generate today, and then what is the value to your brand to be in tune with which customer segments are heating up, which ones are fading away," said Pierson. "In cases where we're looking at the marketing return that we generate, the entire company’s revenue has grown by multiple percentage points by plugging all of these insights into their marketing channels. If you’re talking about adding two or three percentage points to top line revenue, that’s a really big deal."

General Catalyst first learned about the company from Demandware CEO Tom Ebling, who is Executive-in-Residence with General Catalyst, as well as a board member at Custora. 

"When we heard what Tom was saying about the company we became very enthused and interested. I got to know Corey and the company. We invest a lot in the commerce space, with Demandware and Big Commerce, it’s a big part of what we do so we immediately resonated with what the value proposition was and felt like we could be helpful to the company," Larry Bohn, Managing Director at the firm, told me. 

What really got the firm interested, though, was that aforementioned ROI that Custora was able to bring to its customers.

"They have tremendous impact on their customers. A lot of technology providers will claim that they help customers and they provide better infrastructure, but the impact here is very quick, immediate and profound. If they go to a customer and help that customer understand their segmentation and find out who their best , most profitable customers are, and who has a propensity to buy more, and they act on it, they can see an ROI within six months," said Bohn.

"Especially as commerce is growing online, and omnichannel is growing, that kind of impact is what fuels a company’s growth. So if you look at Custora’s customers, they’re the leaders in this whole omnichannel, directly to consumer segment, and they’ve become the go-to company for the best marketers. It was that leadership, that direct impact, and the hardcore ROI that their customers see, that made us say, ‘There’s something important here, this is a company that can really grow, has a lot of runway. It figured out a way to attract the best marketers and brands.'"

Building out the product

One of the things Custora will use the new funding for is further developing its product, specifically its predictive analytics and insights. 

"Right now, of all the technology companies that work with retailers, we are far and away the leader when it comes to the breadth of predictive analytics. All the modeling that we run right now to understand the products people like, who's going to be a high value customer, who's churning or lapsing from the business, who only buys on promos and all kinds of interesting stuff, we’re going to push that even further. We want to maintain this position and continue to invest in the R&D to be at the forefront of artificial intelligence and machine learning and all these things that you hear people talking in terms of generating of insights. One piece of it is going heavier into that," Pierson said.

"The other piece is, if you think about insights, the old school way of thinking about customer analytics was one where, I’ve got a dashboard so I can go digging for my data. The burden is put on the person using the analytics portal to what they’re looking for. We take a very different approach where we know that there are these challenges, we know that the leadership team and the retailers are asking these 10 questions every week. So we, out of the box, find that information and push it into their inbox. Instead of you doing the work, we’re doing the work for you where it’s not just running these predictive analytics but curating the information and giving it in the context of the decisions you’re trying to make."

In addition, Custora will also be using the funding to building out its team. The company plans to double its 60-person headcount over the next year, hiring across the entire company, but specifically in sales and marketing, as well in its technology team. 

How data is changing marketing

Before companies like Custora came along, Pierson said, brands had two ways of gaining insights into their customers, and neither was very efficient. First, they could work with outside consultants, which was costly and slow. 

"One thing people would do is they would work with consultants, where they might partner with consulting firm which is a very expensive endeavor, to try to uncover insights about their customer base. The problem with that is some of these brands might spend $2 million on a consulting engagement, and they get insights on a power point deck, but then what? With Custora, our software does the legwork, surfacing those insights from the data, and then, because it’s a software platform, we can integrate all of that great segmentation stuff in all of your marketing so you get to keep using it," he said.

The other option was that they could create their own internal team, which would take a lot of time and divert resources away from parts of the company. 

"Some brands might have had an internal team, where it would be somebody on a data mining product, where they would hire their own data scientist and someone would say, 'We need a good segmentation model to understand high value customers.' And it becomes a project that takes a long time," Pierson told me. "We don’t automate every single kind of analysis a brand would need to do, we automate the most powerful customer analysis and so those folks might still be working for the retailer, but now they’re working on other projects."

"It's not like there’s an old school technology platform that's doing what we're doing. We’re taking the latest form of technology to solve challenges that were previously solved in less efficient ways."

Custora is only able to offer a product like this now because of the influx of data over the last few years, along with artificial intelligence, which has made it possible to find these customer insights. 

"The challenge is some of the data about a customer comes from the way they interact with their e-mails, some of data is what they bought in the store last month, and some of the data is the product they’re viewing online right now. So brands are kind of helpless, they almost overwhelmed with both volume of data and the number of data sources. So you need technology that helps you unify the data, you need technology that surfaces and finds the needle in the haystack, the insights," said Pierson.

"Marketers don’t have time to go through that data; it’s not enough to pull it all together, no marketer has got enough time in the day to comb through this copious amount of data to figure out what’s actually going to move the needle. That’s where all that AI comes in. It is that very backdrop which is both a huge opportunity for brands, who know they have more ways than ever to connect customers, but also a huge challenge because it’s really hard to feel like you are in control of that data use and you’re using it effectively."

Custora views itself as being a partner with these brands to help them build better relationships with their customers. 

“We want our insights influencing every single communication piece. Every time a brand communicates with their customers, we aspire that it is informed by some of the insights we create. Every time the employees are making decisions internally about which products to buy, forecasting how much revenue are they going to drive this year, planning for the Labor Day marketing campaign, all of the decisions, and all of the customer insights, can be informed by analytics and we want to be that system of truth for customer insights that flow throughout the organization," said Pierson.

"Our goal is, if we can push those insights to the people who need them, in the format they need them, and we can connect with all those touch points, we can help these brands grow lifetime value. That’s the promise we make when we partner with each and every company we work with."

(Image source: custora.com)


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