Monthly Archives: January 2008

Strategic vs. Tactical LifeTime Value

The following is from the January 2007 Drilling Down Newsletter.  Got a question about Customer Measurement, Management, Valuation, Retention, Loyalty, Defection?  Just ask your question.  Also, feel free to leave a comment.

Want to see the answers to previous questions?  The pre-blog newsletter archives are here.

Q:  I’m working with IT on building a new database and at the same time hope to build in new query capabilities to allow me to understand our customer lifetime value and build it accordingly.  I’ve been tasked with putting some math examples together for IT so they can understand what I’d be looking at and how CLV would be calculated.

A:  I’m sort of lost on this because it sounds to me like you are looking to forecast LTV; reality is that LTV is really only known after the customer has defected.  So, you can go back in time and say “the LTV of customers acquired through this campaign is X” a year or two after the fact and use that info going forward in the business.

Q:  In addition to your Drilling Down book, I also have read Sunil Gupta’s “Managing Customer as Investments“.  One thing that stands out for me is that Gupta stressed the importance of allowing for a discount rate and I don’t see any mention of discount rate in the examples your provide in your book.

A:  Yes, a case in point for my comments above.  The reason I don’t mention NPV is I favor a relative LTV approach; I just think it’s more practical, and in my experience management is not really interested in the NPV approach when discussing Marketing, they want to know about “cash I make now”, not cash you are forecasting in the future.

Said another way, to use NPV you have to have something to discount to the present, meaning you are making a forecast of absolute LTV, and this forecast will probably be wrong because there are too many unknowns that will occur, at least in B2C.

Q:  This is the request from my IT rep….which leads me to believe that she may have missed that Absolute vs. relative LTV conversation which we had – or maybe I’m missing something.  Once I have these examples we will be ready to begin our modeling.  Here is the formula I was going to provide IT for LTV:

(bunch of equations and data)

A:  Again, far from me to play IT expert here, but what I would concentrate on when creating a new database is making sure you have all the data you need, making the acquisition of that data as clean as possible, and creating a database that is as flexible as possible.  I don’t really understand why you need to provide any “LTV formula”, because if the data and structure are right, you can run any formula / query any time you want.  You can both go back in time and forward in time, and use different equations for each, the big difference being back in time is “actual” and forecast is “predicted” and adjusted with NPV.

What I am thinking here is there may be some confusion on both sides about the difference between using customer data / valuation for Strategic versus Tactical purposes, so perhaps some more info on that will help you and IT communicate on this project more effectively.

A Strategic use of customer valuation would probably be fairly stable and something that could have static formulas created for reporting purposes at the CEO level.  You would probably use the NPV approach and forecast absolute (a number) LTV.

For Tactical use of customer valuation in  campaign management and driving Marketing ROI, you are better off not messing around with NPV and looking at LTV from a relative (is it getting better or worse) perspective.  Let’s see if I can give you some practical examples of what I mean.

The Gupta formula:

CLV = m(r/1+i-r)

where:
m=customer margin or profit per period (year)
r= retention rate
i=discount rate

is a marvelous macro equation to describe LTV when you are trying to make strategic customer investment decisions. 

He also provides modifications to this model for different scenarios where retention rate or profit are variable, with a final result that on average, the LTV of a customer is between 1 and 4.5 times the current period profit. 

This is probably shockingly low to some people, but you have to realize that at a 60% defection rate only 2.8% of customers are left after 7 years; put another way, with a 12% discount rate and 90% retention, the multiple on current period profit is just 4 for LTV.

This is a perfectly competent analysis and especially powerful in it’s simplicity; I use this kind of thing when talking to CFO’s, CEO’s and other financially-oriented, strategically-focused individuals.  The plain fact of the matter is because of the discount rate, any arguments about “how long a customer is a customer” become moot, because the incremental value of the out years is very small.  This realization generally kicks C-Level people in the gut and gets them thinking about “doing something”.

Strategic customer value, in case it’s unclear, would be used for decisions like this:

* What lines or services should we add?
* What marketing mix is optimal?
* Should we implement a loyalty program?

Formulas like Gupta’s are also often used to value companies for sale or acquisition.

However, on a practical, tactical level, we know the dangers of making database marketing decisions using the “average customer”, knowing there is a lot of behavioral skew, and that there is a huge profit difference between best and not so good customers.

So, when you’re developing targeting ideas and just trying to see where you make the most money so you can optimize customer  campaigns, I think his model is really overkill.

When I look at campaigns, I basically look at “breakeven” – will the net margin after all costs pay for the customer acquisition or the incremental sales generated from the customer as a result of the campaign?  Once the customer segment hits breakeven, then it’s all upside profit from there, right?  As long as you don’t do something to destroy value (which is certainly possible), LTV should remain the same or increase and since you are past breakeven, financial liability is zero.

And that’s when you start looking at the relative value – one segment beats breakeven by $2 per customer, another beats by $20 per customer, then all else equal, I invest more in the campaign that beats by $20 and let it go – it really doesn’t matter what the end or “terminal” LTV of the customer is.  I made the right decision by allocating towards higher ROI so I don’t need to know absolute LTV, do I?  I’m in the black.

Put another way, I’m optimizing a system, trying to make it better and better at generating profits.  The end, absolute numeric value number is really not relevant to me.  If what I’m doing is always adding incremental value, absolute LTV will take care of itself and can be measured as a separate exercise – if you have resources.

Next, we know these relative valuations can change over time.  To monitor further, you use a simple “sales to date” analysis to see if LTV is still growing and a “% Recent” index to predict if sales will continue to grow.  Based on this longer-term idea, you make further adjustments to your campaign allocation.

So for example, let’s say the net $2 customers above are late bloomers and the net $20 customers above are fast starters; you do this sales to date / Recency analysis at 3 months or 6 months and find out the $2 folks are now $30 with great Recency and the $20 folks are still $20 with terrible Recency.  So you adjust your campaign allocations to reflect this change based on the real data, not a forecast that has been discounted with NPV.

I mean, you have the actual data, why mess with a forecast?

The above is an example of why I’m not clear on why a “formula” needs to be solidified or why you would want to strap yourself into that kind of inflexibility – unless, of course, there is something going on system-wise that I am (obviously) not competent to comment on. None of these queries are complex formulas, but you do need all the source data to keep track of the campaign populations and go back and query them.  That’s why I stressed the data and flexibility above.

Now, if we’re talking about a resource issue, as in you live in a is a “set it and forget it” type of environment where the ability to run custom (though very simple) queries on the data is lacking, and you need a “formula” approach, I would use the LifeCycle Grids from my book to replicate the idea above.  If you don’t recall this idea, the Grids are similar to the pix I used in this blog post.

Once the data collection and output for one of these Grids is programmed, all you need is the ability to run a Grid for each campaign – and that should be super-easy to set up, even as a self-service thing.  For example, you go into a menu system and select:

Run LifeCycle Grid –> Choose Campaign Code –> Choose Date Range

and run your own reports.  They could be set up to run overnight or on weekends if system resources are an issue.

Then, you could just visually compare the Grids or have them output to spreadsheets and perform calculations on them.  It should be very obvious which campaigns generate higher relative LTV using this method – over both the short term and the long term.  If dollars are more important than number of transactions, use dollars instead of Frequency in the Grids.

If you really want to get to a “net net net” LTV number (and you should!), have that number carried in the database cumulatively as opposed to created in the query each time and use that number instead of Frequency in the Grids.  This further reduces the need for custom work.  In other words, if the system knows margin and cost of campaign, have the net net net calculated during updates and stored in the customer record.

Basically, all you need to know is the margin on the product and the cost of all campaigns, which would come from a promotional history table – cost of all promotions (and any discounts) the customer received.  This net LTV number could be updated on a weekly or monthly basis.  If you want extra credit, also net out the cost of customer service calls using the customer service history or use an average per customer during updates.  Then when you run the Grids, you will be working with net cash, which is always a good thing.

Look, I think the Gupta book is fabulous and have reviewed it on my blog.  But you always have to ask yourself, why am I doing this analysis, and what kind of action will be taken?  His book is largely about strategic customer analysis (the idea of a “portfolio” of customers), and I’m guessing you are looking for something more tactical because of your focus on campaigns in the data.

His approach is long-term and planning oriented; mine is short-term and results oriented.  Neither conflicts with the other, they operate on different time horizons for different purposes, and ultimately the short-term tactical results for relative LTV should roll up to the long-term strategic forecasts of absolute LTV. 

That is, if the forecasts are accurate!

Jim

———–

Does the above make sense to you as an approach?  How are you using LTV, if at all?  You can certainly make an LTV exercise complex, but isn’t there some sense in taking a simpler, relative value approach for making marketing decisions?

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Example: Messaging for the Apathetic

So I look at the mail yesterday and there’s a catalog from Bliss.  If you don’t know Bliss, they are an online / catalog / storefront multi-channel retailer.  The tagline on the book is “beauty by mail from new york’s hottest spa” – yes, no caps at all.  So you pretty much know this book is positioned for younger – or want to feel younger – gals.

The book had a wrap on the outside with a message for the Apathetic.  This is a great technique to use because you can do it “in-line” with the rest of the mailing, which saves a lot on postage.  The Engaged just get the catalog, the Apathetic get the catalog with this special wrap around and they all are processed inline and enter the mail stream together. 

It’s one of my favorite catalog tricks, check out the piece:

Bliss Catalog Wrap

Let’s do the copy thing:

You can see on the left spine the macro message of “we want you back” – again, no caps.  This is an acknowledgement of the state of the relationship – we’re not sure if you like us, but we still like you!  This is a classic Date message tactic, it sets the proper tone and pulls the customer into the conversation.

Then they just come out and say it:

We haven’t had an order from you in a while and – what can we say? – we miss you.  We feel lost without those 3 a.m. ‘beauty’ calls and the sweet, soft sound of your mouse clicks.

Yes, they’re great copywriters, but there’s a bigger point I think you should take away: you couldn’t possibly get away with copy like this if you had not set up the personality of Bliss in the first place.  They can speak like this because they have spoken like this to the customer in the past – all over the web site and throughout their catalogs and hopefully in customer service phone / e-mail.  Consistently.  Everywhere.  That’s a Brand in remote retailing, that’s how Brands are built.  Theatre of the Mind is the best weapon you have.  Copy.  Art.  Get it?  What about your web site?

This is probably the most common retail problem on the web today – web sites / businesses that completely lack any kind of personality.  Catalogs know how important this idea is in remote retailing and have been using it for a very long time.

So, in a totally shameless attempt to woo you, we’ll send you a Free full-sized bottle of our clog-dissolving cleansing milk (a $28 value) when you order $75 or more from this catalog or at blissworld.com.

The classic Dating offer, complete with a threshold ($75) as explained here.  They’re testing.  The importance of the words “full-sized bottle” you don’t know about but I do; about 4 weeks ago we received another “we want you back” effort that offered a trial size.  They’re essentially starting small with the offers and when we remain Apathetic, they up the offer. 

This approach drives down the cost of the average customer reactivation; the strategy is called The Discount Ladder.

(If that’s not a great excuse to arm yourself with our all-out flab attack kit (p. 49) or smooth yourself citrus with our lemon+sage set (p. 09), we don’t know what is.)

This is just very smart merchandising, it is persuasive because it directs you to a specific place rather than giving you a lot of choices – by the way, how many different offers do you make in a promotional e-mail?  The choice of products promoted here may have been customized (not sure of my wife’s buying history) or they may simply be very popular products with a high conversion rate to lapsed buyers on catalog covers.

I would bet the latter; that’s how I would play it because after all, she’s a lapsed buyer.  She’s stopped buying because she doesn’t want what she has bought before.  Do you make offers based on what customers have bought before?  Why is that?  Why not offer the products that convert people like the targets?

Unless you have specific evidence that “people who buy this also buy this” I’m pretty sure that outside of certain niches, you depress response by making “forced offers” to customers – especially lapsed ones – to buy a specific item or category just because they bought it in the past.  Think about it.  “Buy anything over $75” is a lot stronger offer than “Buy these specific things we are promoting”.

A lot to test there as well…

To take advantage of this special offer, just order something from us before March 1, 2008.  Our land of lotions and lip gloss just isn’t the same without you.  Bliss on, the entire bliss team

Par for the course here – a deadline and an “in personality” close.  Urgency and persuasion.  If you’re busy, you probably keep the book at least to check out p. 49 and p. 09…

P.S.  If you’ve been getting your Bliss fix somewhere other than our catalog or web site (it happens), don’t forget to keep up with our latest and greatest by signing up for Bliss beaut-e-mails at www.blissworld.com

Ah, the beaut-e of multi-channel done the right way.

They probably don’t have perfect visibility between the direct channel (web and catalog) and the retail channel (who does?) so they are acknowledging that, telling you it’s OK, and then offering you a service so you can “keep in touch” – the general theme of “we want you back”.  They don’t want you to feel bad if you find their retail distribution more convenient, and at the same time they’re trying to re-engage you electronically and generate value from this catalog drop even if you don’t buy. 

I guess the channel managers are team players.  By the way, this relationship started on the web site…and in my experience, you can extend the LifeCycle by switching customers to another channel.  But you don’t want to force it, you let it play out the way the customer wants it to.  Test and look to the behavior; they will tell you what is right on an individual or segment basis through their actions.

bliss-ful job on the catalog wrap gang!

P.S. Well, almost.  A search for “flab attack” (phrase from the promotional copy above) on the web site returns this result:

We’re sorry, but your search for flab attack returned no results.  Please try again with a different keyword, or double check the spelling. (You’re not alone – we only learned how to spell ‘fuchsia’ properly a week ago.)

Gotta love that personality thing though…

Questions on this?  What do you think of this promotion?

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Messaging for the Apathetic

Recall from the Messaging for Engagement post we generally have 3 states of customer in the database:

  • Engaged – highly positive on company, very willing to interact – Highest Potential Value
  • Apathetic – don’t really care one way or the other, will interact when prompted – Medium Potential Value
  • Detached – not really interested, don’t think they need product or service anymore – Lowest Potential Value

Combine this messaging approach with a classic behavioral analysis, (the longer it has been since someone purchased, clicked, opened, visited etc., the less likely they are to engage in that activity again) and you get different messaging for each group, what I call Kiss, Date, and Bribe.  Click image to enlarge if you want…

Kiss Date Bribe

Please note “Months Since Last Contact” means the customer showing interest / taking action and contacting you in some way (purchase, click) not the fact that you have “contacted” them by blasting out e-mails.  Behavioral analysis is about customer behavior, not yours.

We’ve already gone over an example of Kiss Messaging, so lets provide an example of Messaging for the Apathetic. 

Recall the tactical background with Apathetics:

Apathetic – Date Messaging: We’re not real clear where we stand with you, so we’re going to be exploratory, test different ideas and see where the relationship stands.  Perhaps we can get you to be Engaged again?  In terms of ROI, this group has the highest incremental potential.  Example: this is where loyalty programs derive the most payback.

The most consistently successful (meaning profitable) messaging for this group generally looks at what their past behavior is and tries to drive it just a bit higher with a carrot / stick combo. 

In commerce, if you were looking at a behavioral segment such as “No Purchase in 180 days” (month 6 on chart above), you find their average purchase price and then discount for purchasing over that average price threshold.  So, for example, if a segment (or individual customer, if you can go that far) has an average purchase price of $80, you do a promotion like $10 off any Purchase over $100.  This approach tends to preserve margin on the customer while driving new activity, thus setting up the customer to become re-Engaged on a longer-term basis. 

Why re-Engaged?  A new purchase moves them to the 1 month column in the chart above, so they have a much higher “natural” likelihood to purchase again.  They are now Engaged again, and their messaging should change to Kiss, if you want to really leverage their state.

The values I have chosen above are not a “formula”, you have to test and optimize the thresholds and discounts for your business.  For example, sometimes people don’t trade up to just over the threshold, they’ll respond to a $10 off purchase over $50 discount by generating an average purchase price of $125.  Now you’re talking some severe latitude on your margins and you can try for incremental response with a higher discount or try to drive margin with a higher threshold.

The trick with Apathetics is this: unlike the Engaged, they probably need some incentive to act on.  But unlike the Detatched, they still have some Potential Value you would like to unlock – you don’t want to just all out bribe them because you’ll lose some of that Value. 

After all, in an always-on sales environment like the web, some people are going to purchase anyway – without an incentive – no matter what segment they are in.  For this 180 day case (chart above) a healthy portion of the 7% are “buy anyway” kind of folks.  The more Recent the action, the more likely it is to repeat.  That’s why you give ’em a threshold – to ensure you don’t give away more margin in discounts than you are making from the rest of the promotion. 

Does this “threshold approach” depress response?  Sure.  But are you trying to drive response (gross demand) or profit?  Those of you whose success is judged by ROAS don’t need to answer; profit doesn’t matter in your world.  You’ve never used a control group.

If you were working on my business, I’d want you driving profit.

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Listen Up! (IVR Optimization)

Speaking of the role Marketing should play in Operations, here’s the first article I have ever seen in a Marketing context about optimizing a VRU / IVR.  This challenge is really very similar to optimizing a web site.  You have path, and traffic down branches of path.  You have bounce rates and exits.  You have the same “choices with correct context” issue that is the heart of designing good navigation and inline link text.  You have usability.

Fact is, a VRU / IVR is a technical interface to humans, just like a web site is.  And just like many web sites, it was probably built and programmed by some engineers without a lot of direction from Marketing or Customer Service.  There’s really no reason at all why the folks optimizing the web site should not also optimize the phone system too – especially if they do a good job with the web site!

I optimized my first VRU in 1991 at HSN.  This was very new technology back then, and our customers were kind of shocked by it.  Nobody used it.  When I finally found an engineer who could print out a “path map” and I went through all the branches, I understood why nobody used it – confusing choices, unclear language.  Sound familiar?  Only 2% of customer orders were being processed through the VRU.  And besides, customers like talking to live reps.

A real Marketing through Operations problem.

First we worked with the engineers to redo the branching and change the language so the VRU was smooth and easy to use.  We pushed high frequency paths to the top of the stucture and sunk the low frequency stuff, eliminating steps for most transactions.  Sound familar?  I also felt the close on the transaction was ambiguous, so we built in a clear “confirmation” the order had been placed correctly.  Sound familiar?  How long did it take online carts to include a confirmation e-mail?

But then the Marketing problem.  Lots of people had used the VRU and thought it sucked.  How do we get them to give the new unit a chance?  How do we get them to actually like using it?

Next, we gave the VRU more personality.  We named it Tootie and had it toot a horn at the end of the order placing process – just like the hosts did (back then) on the live TV show.  An “audio confirmation” if you will.  So now the VRU does something the live reps can’t do – give customers a “Toot”.  That helps address the “liking to use” issue.

But we still have the problem of trial – how do we get people to try the revamped interface out?

Fashion programming is what the core customer eventually migrated to; we knew this from previous hard analysis (not surveys or gut feel).  If we could get these high order frequency customers to use the VRU, we’d get a significant jump in usage.  Fashion shows were very high velocity and because sizes and colors are frequently involved, certain SKU’s can sell out quickly.  So we had the hosts in those shows talk on air about how if customers used the VRU they would beat out everybody else ordering through a live rep.

In other words, “If you really want this product, you better use Tootie” – the “persona” we created for the VRU.  Hard customer benefit.

Within a very short time, we had 20% of customer orders coming through the VRU, on it’s way to 80%.  Saved the company an absolute boatload of money – and made customers happy in the process!

How did we know they were happy?  Hard analysis (% best customers using VRU, % of their orders placed by VRU) and surveys of course, but we had a better indicator than these metrics – the number of Christmas Cards Tootie received each year.

That’s right, customers sent holiday greetings to the VRU.

How many greeting cards did your VRU / IVR receive last year?

Seriously though – what other customer-facing, technology-driven business processes can you optimize?  You already know how to do this from the web site experience.  Let’s create a list.

And here’s another link to that article – Listen Up!

 

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Geo-Demos that Work

Great Local Marketing Campaign 

After my post on PRIZM Clusters, I got a decent amount of hate mail from people who did not completely read or misunderstood the post.  I don’t think geo-demographics are useless; I think they work quite well for the applications they were designed for and make sense – when there is something specifically geo-centric about the task at hand.  My problem is not with geo-centric models, it’s with Marketers using these models for purposes that don’t make sense.

Here’s a case where using geo-demos makes a ton of sense, and includes a fantastic customer-centric marketing execution for good measure, where the marketing plan is strategically and operationally integrated into the business model.

The company is Duncan Roofs.  Now, if you have ever thought about the way neighborhoods are formed, you understand that many of the homes in a particular area were originally built at the same time.  You also know that the households in a neighborhood generally share the same socio-economic status – disposable income and so forth. 

The first variable – age of house – has a direct correlation to needing a roof.  Since roof shingles generally have a life of 20 years, you get cycles of roof replacement in a neighborhood every 20 years, give or take.  In other words, it’s likely that if a roof needs replacing in the neighborhood, other roofs nearby need replacing.

The second variable – income in neighborhood – goes to acting on the need to replace the roof.  If the homes in the neighborhood are owner-occupied and there is disposable income, a roof in bad shape gets replaced.  There is too much downside with a bad roof to ignore, if you have the money to replace it and you own the house.

So what we have is location predicts not only the need to replace a roof, but also the likelihood to act on that need.  Rock simple, classic geo-demo stuff.  “Place” is a true driver in this model, not just some kind of tag-along data that’s nice to know but not strongly predictive.

Enter Duncan Roofs.  The day before they do a job, they have folks go through the neighborhood hanging an envelope on the door of each house with this package inside – a letter and a fridge magnet impregnated with cinnamon.  Smells real good!  But the copy in the letter is the killer part of the campaign (click to enlarge if you want):

geo-demos

Let’s tear apart why this copy and campaign work so well.

Tomorrow morning we will be replacing the roof at (address in neighborhood).  Our crew will begin work at 7 AMThey will be as quiet as possible, however by nature, our work is somewhat noisy.  Please accept this cinnamon Teddy Bear refrigerator magnet as our apology for any inconvenience we might cause you. 

Notice this letter does not open with a sales pitch, or “About Us” or any of that crap.  The open is about me; it provides timely and directly relevant information for me.

After I get past the “surprise and delight” of the cinnamon magnet, I get a piece of information that is directly useful to me.  Instead of “What the hell is that racket” in the morning my reaction will be “Oh, that’s the roofers that gave me the magnet.”   This information is highly targeted and directly relevant to me – and I might even chuckle about it when the noise starts.  It sets up a very positive image of the company in my mind; they are service-oriented and respectful.

We hope you will use Teddy to hold notes on your refrigerator and think of us when you or someone you know needs a new roof.

The first part of this sentence is probably there just in case you were clueless about what the magnet was for and how it could be used.  Appropriate in tone once again, the magnet is not emblazoned with their logo; that would spoil the “for me” part and make it less likely I would actually use it.  The magnet does have their name / phone number on the back, hidden from view during normal use.  More importantly, the second portion of this sentence directs your mind to ask a question: By the way, do I know anybody that needs a roof?  Hmm, just the other day Jerry was saying….

Perhaps you will have the opportunity to observe us at work.  If so, I trust you will be favorably impressed with our efficient and professional work habits. 

In other words, “Hey man, we’re tearing your neighbor’s roof off!!  Come check it out!”  They literally invite you to market their company to yourself by visiting the job site.  Now, you don’t know it yet, but Duncan has a business model that matches the brilliance of their marketing.  They literally put on a huge show like you have never seen before on a roof job – it’s highly orchestrated, almost ballet-like in precision.  Not just a few guys grunting with scrapers and hammers, they show up in 3 or 4 trucks with 20 – 30 guys and literally give you a new roof in one day.  They have to – the marketing is already kicking in, and they have a lot of jobs to do after this one!

Clearly, if you were “in the market” for a roof job, you would be compelled to go check them out, right?  After all, getting a new roof is not small change and can be extremely disruptive, not to mention quite likely to trash your plants and property if not done with some care.  If you are in the market for this kind of work, there is a lot of upside for you to literally “watch the demo”, if you know what I mean…

If you have any questions about our work, our foreman or myself will be happy to answer them.

There are folks swarming all over the place – all dressed in uniforms, all polite down to the last person.  All of them have permission to talk to you and of course refer you to the “foreman” – you were invited to talk with the foreman in the letter, right?  It’s a machine – people standing there watching and blown away by the speed of the job, and several “foreman” basically working the crowd for leads – in a respectful way.  They ask, “Do you have any questions?”  Execution, execution, execution.  Planned straight through; everybody knows what’s going on and what role they play in the marketing machine.

Definitely not a Meatball Sundae.

Give us a call for a free estimate.  You’ll be pleased with the professional service and unbelievably low prices.

More business model.  Of course you don’t have to show up to see the job, you can just call us.  I don’t know much about replacing roofs but I bet the way they do these jobs in a single day has something to do with their pricing.  In other words, they have such a pipeline coming from this marketing campaign that they “make it up on volume”, if you know what I mean.  Labor is obviously the highest cost is a roofing job, so something about the way they do these jobs and the “culture” they have developed (employee retention?) allows them to charge less than many other roofers.  Not to mention the customer benefits of getting this messy, noisy job done in one day…

Place your trust in a third generation business that has been serving this area since 1918 and stands behind our work for the life of the roof.”

This is all the “badge” stuff from your home page – you know, the Trust seals, BBB, guarantee, and so forth.  It’s a persuasive and very clean close with no backpedaling or asterisks.  Interesting that the phone number is not below the sig, I wonder if that is intentional to keep the close a bit softer.  The phone number is quite obvious up at the top of the page, so I don’t think they are losing anything here – but wonder if they A / B’d phone number location?

Given the quality of this idea and marketing execution, that would not surprise me a bit.  I imagine the roofing guys running Yellow Pages ads are absolutely getting skunked by this incredibly targeted and tightly executed campaign.  The campaign hits exactly where the demand is with surprise and delight and throws in a theatre act to boot.  Not to mention doing a job that normally can take a week or two in one day – that’s a hard core benefit to the consumer.

All this “Brand” carries though to their web site, where the Methodicals can find out the details of why they are the best choice.  I would kill the scroll box, of course.  The fact they don’t put a URL in the letter is kind of interesting; another potential test but I think there is probably a good reason – they don’t want to kill any momentum the letter generates by introducing potential distractions or raising new questions.  For potential customers who are web-oriented and would naturally just go looking for a web site, a Google search on “Duncan Roofs” brings the company up as the first 5 entries!  So they’re not really losing out by messing up the close with a URL – they want you to go see the show!

Duncan Roofs has reinvented one of the oldest business models around from top to bottom and execute perfectly.  The campaign is timely, relevant, customer-centric, word-of-mouth, and social all rolled into one.  Yep, those ideas work offline too.

Your thoughts on this campaign?

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*** Where Are Your Brand Manners?

Here’s an article giving quite a few examples of companies taking the route I covered in the CMO: Strategic Seat is CCO post.  Interesting that the majority are direct marketing companies and at one, customer service reports to Marketing.  This Marketing department views their job as “service to the customer”.  Now that’s a Marketing department I would feel at home in.

Marketing is indeed a much greater force to be reckoned with when it is strategically and operationally integrated into the brand promise and product offerings and not just a Meatball Sundae.  But somebody has to think that through and make it happen. 

How about you?

Here’s the link:  Where Are Your Brand Manners?

 

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Marketing through Operations

OK, so to review, here’s the premise.  Customer-centricity is something companies want to embrace more than ever.  Company can do this through a Chief Customer Officer, but why isn’t a Marketing exec taking the reins on this issue?  In direct marketing companies – where customer-centricity is not just a fad, but has a decades-long history – the Marketing folks know that Operations typically contains a goldmine of customer-centric Marketing opportunities they can take advantage of.  Many of these opportunities come from problems with empathy and context – or for the more technical folks out there, “Usability”.

Yes, you can optimize the service side of a business just like you can optimize a web site.  Here is how:

1.  Do you have a relationship with a peer in customer service?  If not, that’s really short-sighted for a marketing person who wants to be viewed as a strategic thinker – find someone, OK?

2.  Does customer service record the reason for each call?  If not, that’s nuts.  Most every call center system provides this capability, but you do have to turn the damn module on and populate it with the reasons people call.  So if the center is not using this functionality, get talking about how to get it turned on.

3.  You and your customer service peer need a list of the reasons people call.  Get this by talking, of course, with the agents.  If such a list does not exist, create it.  If such a list does exist, review it – it’s probably filled with crap or default reasons that don’t really have much to do with your business.  This is the most common mistake I see made in the “customer centric” area – using default call reasons not customized for the business.

4.  Once you have the module running and the call reasons right, make sure the agents know how important it is to status every call correctly.  Tell them by statusing calls, you plan to make their jobs easier by reducing routine problem calls, allowing them to spend more time on quality of call and resolving complex issues.

5.  Determine how to report on compliance with correct statusing.  If you don’t do this, all your effort will be subject to failure.  Hint: Do not provide agents with a giant “other reason” bucket; force accurate call accounting by providing a full and complete call reason set that only allows a very small percentage of “other reason” ticks.

6.  Find out from Customer Service or Finance what the internally acceptable “cost per call” calculation is; what does Finance think it costs to take a customer service call?

7.  In conjunction with customer service, study the reasons people call and think about how to reduce the need for those callers to call.  This project is about reducing or eliminating the triggers for a call.  Why do they call?  FYI, most really customer-centric companies have a meeting on this topic every week.  At HSN, we had this meeting every day.  Why?  Because we could react in real time.  If you are in an interactive business, perhaps you can too.

8.  In many cases, you will find they call because of things marketing does or could affect, for example:

  • Confusing language or other problems with marketing materials / advertising – this is a huge category which includes all kinds of bad Marketing execution – wrong or expired coupon codes, collateral distribution problems, etc.
  • Incomplete or confusing instructions or product packaging
  • Incomplete or confusing installation process or procedures
  • Pricing or bundling logic issues – the options don’t make sense to the customer
  • Problems with call center script language or logic
  • Illogical touch-tone trees or branching problems
  • All kinds of similar problems with the web site too numerous to mention here

Note to web analysts reading this:

Sound familar?  After you optimize the web site, find out if they will let you join the BI unit and optimize the business.  Idea: Optimizing a VRU / IVR is really no different than optimizing a web site using path analysis – think about it.  Traffic sources, the funnel, leaky bucket, pogo-sticking.  Same thing.

9.  Get off your GRP-lovin’ ass and fix the operational problems Marketing is causing or can affect.

If you are saying to yourself, “But I don’t have control over a lot of the items on this list” then ask yourself why that is.  All this stuff is about copy and presentation, and heck, you’re the expert in those areas, right?  So why don’t you have control over these issues?  Did you ever ask for this control?  If not, why?  That’s what a strategic thinker would do, because all these customer contact issues directly affect customer value and retention.

This stuff is marketing.  It directly affects the value of the customer and customer retention, not to mention word-of-mouth.  You want that new fangled social media thingie you bought to boost sales, right?  How about optimizing the customer experience with your company?

Oh, I forgot, less than 30% of you said increasing customer LifeTime Value is a top marketing objective.  So I guess less than 30% of you should move to the next step.

10.  Measure the reduction in phone calls for these problem areas you have fixed, calculate the cost savings, present to senior management.

Extra credit: measure the increase in customer satisfaction, if that’s all you can do.  Better than nothing.  Hopefully you have some kind of statistically correct, longitudinal study going and can measure satisfaction properly.

Super extra credit: measure the actual reduction in customer defection and monetary value of this reduction.  That’s the right thing to do and will boost the monetary value of your actions tremendously.

11.  Pitch strategic seat at the table / Chief Customer Officer responsibilities using knowledge from “why they call” study and resulting operational modifications.  You will have no shortage of future issues to work on.  Somebody has to do it, might as well be you.

12.  Convene cross-functional team, you will need it.  Get best and brightest from every area of the company or unit.  At minimum:  Marketing / Sales, Customer Service, Finance, IT, Distribution

13.  Start fixing more stuff that pisses the customer off, generates calls, and truncates customer value.  Achieve customer centricity.  After all, they tell you every single day what pisses them off.

Why don’t you fix this stuff?

Any takers?  Anybody doing this?  Any Marketers think they will get resistance if they start poking their nose into customer service land?

 

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CMO’s: Strategic Seat = Chief Customer Officer

Pursuing Ron’s analysis of Forrester’s Evolved CMO study, and it being the Year of the Customer (again), a couple of things seem clear.  

The lack of, or loss of, a strategic role for the CMO – the Deconstruction of Marketing – comes at the same time the Chief Customer Officer (CCO) concept is ascending.  Given an environment accepting of the CCO idea, why would any CMO aspiring to a strategic seat simply let this CCO opportunity slip away?  Clearly the CCO is a strategic seat, and a combination of Marketing and Customer Service responsibility isn’t unrealistic in a customer-centric org.

So I’m left with this: Do most Marketers have the required empathy to run customer service?  Do they have the capability to get down with people interaction, as opposed to blasting the nameless, faceless masses with messages?

In the spirit of not being a Consultainer, I’d like to provide some concrete direction to any Marketing folks who might be looking to “Prove that you deserve” a seat at the Strategic table.  The logical entry point is through this CCO idea.

The first question I would ask myself is this: Do I have control over all the Marketing, everywhere in the company?  Or have I ceded control of some Marketing issues to different operational groups?

For example, did Marketing write or approve the call center scripts?  How about the pathing logic and language used in the IVR / VRU?  Do you control the look and feel of invoices and packing slips?  How about installation or assembly instructions, are they easy to follow and do they use customer-friendly language? 

What about service counters, what does the signage look like?  Is there a good flow, do customers understand where to go and what to do?  Is the collateral up to date?  How are customers greeted?

All of the above is Marketing in a customer-centric world where relevance and authenticity is critical.  As a Marketing person, you’re an expert on language, copy, and presentation (if not emotion and empathy as well).

Why is it not your duty to bring these skills to all the customer-facing activities your company engages in?  Is it possible the customer service manager or IT programmer is better than you are at creating a great-looking, customer friendly, value-added packing slip?  If so, that strategic seat is something you will have to give up.

If you want a seat at the strategic table, you have to prove you understand the operational side of the business, and how you can affect it positively with great marketing ideas outside of the marketing silo.  Special bonus and faster advancement for actually measuring and proving the positive effects Marketing can have on the operational side of the business.

In fact, I will tell you that in many cases, your Marketing is not working as well as it should because you have not been influencing the operational side; here’s a real world example.  More real world examples here and here and here and here.

I will give you a specific plan for taking action on this CCO idea that will work at most companies in the next post.

P.S.  And don’t get me started on packing slips – have you ever actually seen one from your company?  Would it help to know that 95% of the ones I see from e-commerce companies that are not catalogers are little more than a copy of the order confirmation e-mail?  With all the e-mail header crap and all included?  No logo, no brand gestalt, no helpful information, no upsell suggestions?  How’s that working for a “customer experience”?

What about you?  Do you stick to “Marketing”, or do you shove your nose into the Operations side and get Marketing things done in Customer Service, Fulfillment, and other operational areas? 

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Lab Store: Panic Pack!

The average ecommerce / catalog packer can pack about 22 – 25 boxes an hour, depending on the level of automation.  Of course, we don’t have anything like traditional mail order automation in the Lab Store; just a computer, a printer and my wife Barb as Chief Packer & Chief Customer Officer.  I pitch in by assembling products and generally keeping the “warehouse” shelves stocked so the Chief can do her thing with the packages and customers.

For a variety of reasons we got a late start today packing the orders from over the weekend and New Year’s Eve / Day, and had to invoke a “Panic Pack” on these 131 orders.  A Panic Pack is a high speed affair where Barb picks all the orders but leaves some for me to pack (I suck at packing compared with her) while she packs the others.  We packed all 131 orders in 4 hours, just barely in time for UPS pickup.

UPS Receipt

That might not sound like a big deal versus the 25 boxes an hour, but remember we are also picking the orders and dealing with all the customer service – can you add this to my order, can you change my shipping method, etc.  Most packers simply pack an order that has already been picked for them, and don’t do any customer service.

131 packages

My point with this post is not that we know how to pack like banshees, but the enabling technology behind this capability.

It would have been impossible to pack and manage the service with this many orders in such a short time without a proper backend order management system – something I see many ecommerce folks go without.  Most web-based cart back-ends are incredibly difficult to deal with, especially on order changes.

In many web-based order processing systems, it can take multiple steps to make simple changes rather than just a few clicks – add another product to an order, run another credit card charge, reprint the packing slips, etc.  This is because once an order is processed, it’s not meant to be changed; order changes were not taken into account when these systems were designed.  Nobody talked to customer service to get specs, I guess…

“You mean customers might want to change an order they already placed?  Why?”  ‘Cause most of them are not geeks.  They make mistakes.  They forget stuff.

Often, when you call companies using these systems to add products to your order, they tell you “we can’t” and to go online and place another order.  Nice.  Great service.

We actually don’t mind if customers want to add to orders they have already placed with us – silly, huh?  Gee, you want to spend more money with us?  Sure, bring it on!  By the way, Flat Rate shipping encourages this behavior.

If you have a good backend system, you can just add the product and the software does the rest, because the order has not been “processed” yet as it has with web-based systems – you process the order right before you print the packing slips, including the credit card capture.  And, you can do all kinds of customization on the packing slip, like messaging for new customers, repeat customers, and so forth, and automatically interface with the shipping manifest system.

The labor cost savings alone when using these order management systems is huge.  When we moved from web-based “copy & paste” order management to local software, our time spent per order on customer service dropped by 50%.  This kind of gain in productivity is common, as you can see here.

And when you have more time to service each customer, you  can provide better, more customized service.  Simple as that.

Plus, our backend system creates one heck of a customer database, automatically consolidating orders at the customer level and providing one-click access to customer service history, cumulative sales, and so forth.  Whenever we are faced with a complex service issue, the first thing we do is look at the cumulative sales of the customer, and then we act accordingly.  In other words, for proven good customers, we bend the rules.  That’s how you build loyalty.

So you need a customer database to provide great service.  As far as Marketing goes, you need a customer database to measure the success of customer-centric programs like this one and this one.

If you don’t have a flexible and marketing friendly order management system, you really should consider getting one.  We use Stone Edge.

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