It’s been over 10 years since I left Home Shopping Network, so I’m pretty sure I can tell this Relationship Marketplace story without enraging the Gods.
The mail order channel had a jewelry-only catalog that did quite well, in terms of mail order ROMI. This book generated the majority of the profits in the mail order division. What we wanted to know was this: if you looked at the book from the company perspective – across all channels at the customer level – what was the contribution to profits this book made?
When we started using Control Groups on the book and looking more deeply into the Relationship Marketplace, here is what we found:
1. The book actually lost money versus control. It virtually had zero impact on sales at the customer level, meaning it was almost completely cannibalistic to TV. That means the entire cost of the book, plus the cost of discounts, was a net loss on every book mailed. The more they mailed, the worse the losses were.
I remind you this book generated the majority of the profits at the mail order divisional level. This revelation was not pretty.
2. Like the good Marketers they were, the mail order folks had tested all kind of segments across the entire customer database, and found brand-spanking new TV jewelry buyers to be the most productive target. In other words, they were mailing to the folks with the highest level of Engagement. This is why the book was very productive at the divisional but not at the company level. The “always on” nature of the TV channel demand was pulling in buyers all by itself, and the book was essentially just getting these sales that would have happened anyway to switch channels.
3. Further, and perhaps even scarier, the mail order division was involved with a list exchange that had a “hotline” (new buyer) component. That meant as soon as TV acquired these highly Engaged jewelry buyers, their contact info was rented by the mail order division to competing jewelry catalogs if they became mail order buyers. That’s OK for the mail order division, which gets to keep the list rental income.
I should also say list exchanges of this type are standard practice in the catalog business. So the catalog folks were not doing anything “wrong”, from the catalog division perspective.
But I think we could all agree that situation sucks for the TV channel, which deployed assets to acquire the customer in the first place. Not only is TV getting hosed on the (company perspective) non-incremental sales stolen by the catalog division through this book, TV is not getting a piece of the list rental income from selling the contact info of their best customers to the competition!
Further, as one might guess would happen with highly Engaged customers, when we held back a control group from the list rental process, those folks who were not rented out delivered higher profits to the company overall than those rented out.
Just makes sense, right? Relationship Marketplace, indeed.
What to do? We simply re-configured the targeting of this catalog to dis-Engaging TV jewelry buyers. As they stopped buying from TV, this very well-executed book was able to extract another purchase or two from the customer and actually maintain some of them longer term. Sales for the book dropped dramatically, but these sales were truly incremental versus control, and the book was still profitable. This also affected list rental, but since the buyers had already dis-Engaged from TV, this issue was not nearly as critical.
Got any multichannel misallocation stories of your own you can share?