Mastering Data Management

How can MDM benefit stockholders?

Bloggers often talk about the value of MDM in terms of customer data. MDM can create a single view of a customer which, in turn, provides a wealth of benefits, from decreased marketing costs to improved customer service.

But how can MDM affect shareholders?

Walgreens just announced their intent to purchase Duane Reade, New York City’s largest drugstore chain, for $618 million. This gives Walgreens access to 257 new stores in the New York area. Walgreens has been busily expanding over the last few years, and has also acquired a couple smaller chains.

The M&A trend is not isolated to the retail pharmaceutical industry. It is happening across the board. As Kelsey Swanekamp noted on Forbes.com, “The acquisition helps the company increase their revenue at a time when margins are slim and internal growth is expensive and difficult.”

I wholeheartedly agree. It is a sound strategy to create wealth for shareholders in trying economic conditions. (After all, how else do you grow when people don’t have money to spend?)

As you would expect with a merger of this size, there are bound to be some integration costs. The press release states as much: “The company anticipates the transaction to be dilutive to earnings per share in the first 12 months after closing, and accretive in the next 12 months and beyond. Walgreens expects to achieve synergies between $120-$130 million in the third year after closing the transaction.”

Now things get a lot more interesting. This is good stuff right? As a shareholder I would be happy to hear that.

I am speculating, of course, but my hunch is that these projected synergies are related to similar programs in both companies. The press release notes, “Duane Reade’s transformation initiatives correspond to Walgreens current Customer Centric Retailing (CCR) initiative to reinvent the shopping experience.”

This is fantastic. As a retail giant, Walgreens must understand its customers better to drive growth. Armed with that understanding, Walgreens will be able to better segment its customers in different locations and stock stores accordingly.

Are you hearing the scream? Well you should, because we just talked about MDM. Working backwards, Walgreen’s valuation of Duane Reade is based on projected potential growth. Walgreens is projecting future sales to customers who will now be accessible through the Duane Reade channel.

But are they completely new customers? Maybe some of them already shop at Walgreens. If they do, are they buying the same products in both places? Can Walgreens now sell more of the same items to them, or can they sell them something entirely different?

Clearly this is both an art and a science. But that does not mean ambiguity cannot be minimized. One of the first things Walgreens should do post-acquisition is use MDM to understand the overlap between Walgreens customers and Duane Reade customers. Sure the data is potentially bad and incomplete. But starting to plug actual data into strategy can only help!

From there, Walgreens can get into a healthy feedback cycle of revising strategy. Doing so demands accurate customer data, which drives focused MDM projects, which lead to better strategic decisions. At the end of the day, that is a good thing for the Walgreens shareholder.

We don’t have to stop here; we can involve MDM earlier in the process by forcing each of the companies to include statistically significant samples of their customer data to get a feel for the overlap. (Yes, I am glossing over anonymity, privacy and other issues). This will lead to better valuation.

I hope you are starting to see the big picture emerge here. We are either benefiting from MDM in our daily lives or we are paying the price of not using MDM in our daily lives. One day, perhaps the average, non-IT person will know what MDM is and why it matters.