Category Archives: Lab Store

Relationship Marketing Economics

Just opened up a carton from a manufacturer we use in the Lab Store.  Every unit inside looks like this:

Bad nozzle

Here’s your challenge:

Would anybody in your business recognize this as a problem?  Or would they just shrug and transfer the item to the picking racks?

In other words, finding this, would you or an employee:

1.  Ship to the customer as is, let the customer figure it out

2.  Cut the nozzle off so customer doesn’t have to even think about it, doesn’t have to send you e-mail or call asking about it

Your answer to this question depends on:

1.  How customer-centric you / your org really is

2.  How much you understand about the financials of your business

Continue reading Relationship Marketing Economics

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Lab Store: Year End Analysis

Some stats from the Lab Store (Background) for the year:

Processed 10,172 orders, up 3% from last year, despite a logistical problem in the business model we did not have control over (breeding of animals).  Fixed that, so should not be an issue going forward.  Merchandise Return Rate of .3% on dollars, which is quite low.

Returns cost money to process, imply negative Social feedback, and increase customer defection by creating poor experience.  We do everything we can up front to keep returns and other negative experiences from happening in the first place by screening products and actually taking action on customer feedback and analysis.  Often, we modify packaging, create our own instructions, or assemble products we know people will have trouble with.  More on this idea here: Marketing through Operations and Panic Pack!.

We retained between 75% – 87% of our best buyers depending on what time frame you use, and further improvement in these stats is pending test results.  More on this idea here: Frequent Buyer Analysis.

Continue reading Lab Store: Year End Analysis

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Lab Store: Frequent Buyer Analysis

Every year just before the holiday season we take a look at the customer database for the Lab Store – the online retail biz my wife runs – and see what’s up with 10x or more buyers.

I often prefer to look at “worst case” data when doing customer analysis; this way you don’t over-estimate the Potential Value of the business going forward.  The beginning of the 4th Quarter is a good time to do this since “holiday” really hasn’t kicked in yet, so you don’t have those buying influences skewing the natural activity in the customer database.

At the end of September, we took a look at all customers, no matter when they became customers,  who have purchased from us at least 10 times – a best customer analysis.  Considering a “year” to be 9/30 to 9/29,  we bucketed them by when their last purchase was – past year, 2 years ago, 3 years ago, 4 or more years ago (the business started 5 years ago).

Here are the results:

Last purchase date was in               Percentage of all 10x or more Buyers

9/30/07 –  9/29/08                                 75%

9/30/06 –  9/29/07                                 12%

9/30/05 –  9/29/06                                   8%

9/30/04 –  9/29/05                                   5%

If this data is still confusing, the second line above would read, “Of all customers who have ever bought 10x or more, 12% last purchased in the period 9/30/06 –  9/29/07.

Continue reading Lab Store: Frequent Buyer Analysis

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Lab Store: AdSense Finally Works!

I have a very long history with PPC marketing.  When GoTo finally syndicated their ads to Yahoo, I thought, man, this is brilliant, this is what will make web advertising work.  Advertising at the point of demand (the search), with scale because syndication removes the site-centric orientation.  A direct marketer’s dream, let the testing begin!

AdSense, however, has always been a poor performer for the Lab Store (and many other commerce businesses).  AdSense is really a banner ad with lipstick on it, only marginally attached to the point of demand by context, and not by action.

We’ve tested it many times and always with the same result – unbelievable numbers of impressions and no sales.

In the last test cycle, we finally stuck pay dirt.  Behold, AdSense finally delivering value to the Lab Store:

(click to enlarge)

As you can see, we started out with a Cost / Conversion of about $155.  This ain’t going to work, because the net value of the customer generated from “context ads” is only about $65.  We’re literally losing money every time we make a sale.  But this time around, Google finally provided all the tools we needed to optimize this system, namely:

1.  More advanced control over site selection. 

In the earlier stages of this capability, we could not kill some sites without killing others, so it was not as flexible as we needed.  The most I could find out about this issue was it had something to do with the nature of the AdSense distribution agreements.  As of this summer, something had changed and we had finer levels of control.

The first thing we did was to kill any sites in Social Media land (primarily MySpace), which is where you get the first dogleg down in Cost per Conversion.  Then we continued to selectively prune more sites with the same profile as MySpace – tons of impressions, worthless traffic.

2.  Ability to change pricing models.  

Google allowed us to go from impression pricing (CPM) to click pricing (CPC).  Since we now had pruned the site list down to the most relevant, we were able to jam the price we would pay per click way above the equivalent CPM Google was getting from us before this change so we could own the real estate.

Look what happened – the next dogleg down in Cost / Conversion, finally stabilizing between $4 – $5 per new customer. 

This cost we can live with versus the net customer value of $65.

I know some folks may concern themselves with advertising higher up in the “funnel”.  Gee Jim, what about “awareness”?  How do you reach folks that don’t know about you, folks not searching for your products?

The answer is in the chart above.  I can’t afford to generate awareness, it costs too much.  Generating 400,000 impressions on MySpace basically creates awareness among people who are not interested.  I’m sorry, but I simply don’t see any value in that.

That’s what the mass media are for.

We have tons of high-ranking site content that generally addresses the awareness issue, if a person is casually interested enough in our category to do a simple search.  If they are not interested enough to even search, then why would I want to advertise to them?

I only want to advertise to people who are interested in our category.  Pull, not Push, if you know what I mean.  Relationship Marketing.

Just a beautiful business model I tell ya, this advertising at the point of demand.  As long as you only have to pay for the real demand, that is.

Thanks for making the changes, Google.  Some implications for display ads as a result of this test are discussed here.

How are your AdSense ads doing, have you been able to optimize them to profitability?  Or have you abandoned them completely?

The next post in this series is here.

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Interview-Podcast w/ Jim Novo

Friend and fellow blogger Alan Rimm-Kaufman spent some of his valuable time asking my opinion on various online marketing issues in a far-ranging interview and podcast.

We met in person for the first time doing a presentation together at the DMA show in Chicago this fall, and because he used to work at Crutchfield – a truly customer-driven remote retailer – we share some experiences and beliefs.

For those of you who might be wondering where a lot of the Marketing Productivity ideas I post here come from, this interview-podcast is probably a pretty good backgrounder.  We talk about a lot of stuff, including:

Monetizing customer experience

Importance of Control Groups / Source Attribution

Multichannel Marketing Strategy

LifeCycle Contact Strategy versus Calendar-based

Retail Business Models / Lab Store

Search box or not? / Serendipity

How to tell if online customers are really engaged – without web analytics

Here’s another link to the Interview-Podcast.  Enjoy! 

That was lots of fun, thanks Allen!

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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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Lab Store: Web Merchandising

This is a bit of rant against robotic thinking, best practices, and testing as the savior of all things web.  This after having so many conversations lately with people at all levels of web analytics who are infatuated with the idea that robots / software and “best practices” are the answer to everything web marketing. 

To be clear, I don’t have anything against the poor robots or testing – it’s the people using them.

All the way back in 2000, Bryan Eisenberg and I wrote the Marketer’s Guide to E-Metrics – 22 Benchmarks because nobody was measuring or testing anything, and that was silly, especially when it was so easy to do.   Now, it seems web analytics has taken that mantra and run all the way to the other side with it – testing is Strategy, and Marketing is whatever the robots say it should be after the tests are done.

Yes, web marketing seems to be going IT-centric again.  Worked out well last time, didn’t it?

Here’s the bottom line: I have no doubt you can improve a faulty execution with a lot of multivariate testing, but the real question is this: if the execution is Strategically flawed, will you ever get where it is you want to go? 

I think not.

I’m sure you are convinced your Strategy is on target, based on conventional web commerce wisdom.  The following is a bit of unconventional web commerce wisdom for you to consider when you sit down around the table with your robots.


The Lab Store – my wife’s pure online commerce business where I am Chief Product Assembler and also do a lot of marketing testing on the customer base – services the exotic pet customer.

It’s a very odd experience going to the pet trade shows for this biz to review merchandise and make purchases, on many levels.  The root of this odd-ness can be summed up this way: we buy narrow and deep, and most everybody else in the pet business – which means retail stores, and many online stores – buy broad and shallow.

We work with one of the largest pet supplies distributors on the East Coast.  At their show, we get a bit of a discount if we place orders directly with the vendors, which are then managed by the distributor.

As we place our order with this one vendor, he asks, “Did you know this order is nearly 40% of the entire annual volume we do on these SKU’s with the distributor?”  We chuckle, hearing this all the time.  “Yea, well we do sell a lot of them” is basically the only thing we can say.

Another common conversation goes something like this: “Are you sure you want that many of this SKU?  No offense, but this is one of our slowest moving products, and I just wanted to be sure the quantity was correct.”  And our response is always something like, “Really?  That’s one of our best sellers, it’s a great product.”

Narrow and deep.  We only sell what the customer buys – a little trick I learned at HSN (not sure how they do it now).

Kind of makes sense though, doesn’t it?  “Customer-centric”, as they say.  And we are not afraid to completely re-build / re-brand any product we think has potential but has simply not been marketed correctly.  Or to take a “poor selling” product and change the intended use of it, turning it into a best seller. 

In fact, we routinely rip off all the packaging a product comes with and create our own packaging and new name for the product.  Any online retailer who has done a great job marketing a product only to find it appearing in a competitor’s store at a lower price should understand exactly why we do this.  We absolutely love this kind of product.

In many cases, multi-variate testing can improve the sales of any product, but can it turn a dog into a best-seller by completely rethinking it?  Nope, sorry.  Are there any “best practices” a human can follow to repackage a product successfully?

What, are you kidding?

Most pet stores stock a broad range of SKU’s and buy only a few units deep on each.  We buy only a few SKU’s and buy them as deep as makes economic sense – based on volume discounts, weight to value ratio (freight cost from distributor), storage considerations (is the product large relative to value) and so forth.

In other words, everything we do in the Lab Store is really based not on Sales, but on Productivity – how can we generate the greatest amount of profit for the least amount of time, money, and effort?  I realize this approach does not square with conventional wisdom, but the Objective of the store was to replace 1 income (my wife’s) with the least amount of effort possible.  If that is the Objective, then the Strategy is Productivity, not a focus on Sales.

For example, we turn our entire inventory 21.8 times a year.  I’m pretty sure most small (micro?) online retailers in our category ($1 – $5 million in annual sales) don’t care about that stat, but I’m also sure a few of the offliners out there are feeling their jaws hit the desk.  Most of them turn at 5 – 6 times with the really good ones at 10 – 12.  This stat is one of the most important in retail, it’s an “inventory productivity” thing.  And it also points out the economic difference between a narrow-deep and broad-shallow merchandising strategy. 

I know this is going to sound insane to a lot of small online retailers, but in our online store, you do not find a lot of variety, and this is intentional.  What you find is the single very best product for each need a customer has.  And most all except commodity products are priced that way – as the super-premium product in the category.  We carry the commodity stuff not because we want to, but because customers want access to it when they order from us.  It’s a Service decision, not a Product decision.

When customers ask, “Why don’t you have more variety?” we simply tell them we don’t see a need to offer anything but the best product for each need they have. “But don’t you have any cheaper ones?”

Notice, “variety” here is a code word for price.

“No, we don’t have cheaper ones.  You can find cheaper versions on eBay.  Or try a shopping search engine, if you are shopping only on price.  If you want products we have personally tested, are vet-certified for the particular exotic pet you are dealing with, and are absolutely guaranteed to satisfy your needs, we welcome your purchase.”

As a result, we clearly narrow the ability to attract a wide audience.  But we don’t want a wide audience.  We want an audience and a business we can easily defend against the constant price wars that are a reality of the web.  We knew that would be the evolution, and designed the business that way.  We want a Productive audience, one with high demand for the best, and a low Sales to Service ratio. 

Do you know your Sales to Service ratio (orders / service inquiries) and how to optimize it?  Do your robots?

If we did an on-site survey, I’m sure a lot of casual visitors would complain the store “lacks variety” and is “over-priced”.  That we’re not being customer-centric, don’t you know.  But we are, for the customer we want – she wants a high degree of quality, professional one-to-one advice, extremely fast and accurate execution, all with no hassles.  The rest of these high maintenance, high variable cost “customers” who are buying single items on price and suck the life out of the business if you let them can go to hell.  Really.  Those shoppers looking for value, which we deliver through aggressive product bundling and flat rate shipping, find it in our store.  And those are the customers we want.

It takes nearly as much effort to process, pick, pack, ship, and service a $40 order as it does a $140 order.  Given that, we prefer to drive higher value orders, and all our marketing is set up to do just that.  We actively discourage low value orders by using flat-rate shipping.  It’s that Productivity thing again; it’s the Strategy, and the store was built from the beginning with that idea in mind. 

Please sir, can you multivariate test that idea for me?

For example, we don’t have a search engine on the site, because we want to force (sorry, I mean “encourage”) customers to look at all our products, and not to cherry-pick the product they originally came to buy.  We specifically and intentionally designed the navigation that way.  And since we have less than 80 products by design, it’s easy for customers to review every product we have very quickly. 

The end idea is ease of use by the customer.  We do it by having fewer products and really smart navigation, not by substituting technology to fix a broken execution.

I know this also sounds insane given “best practices“, but you have to realize that a lot of these “best practices” tests related to on-site search were done on sites with terrible navigation, screwed up product assortments, and lousy merchandising.  In that case, I’m pretty sure a search engine increases conversion.  In our case, a search engine did not increase conversion, but it surely did lower Average Order Value. 

C’mon, do you think I didn’t test it?  Productivity again.

Can we get a multivariate test to confirm search improves conversion on poorly merchandised web sites?  Or can we just look at the site and know it will be true because the nav sucks?

One of things we do very aggressively is cross-merchandise, bundle, and package.  We do it precisely and intentionally within the navigation, which is why a search engine doesn’t help us.  Our approach is not an automated system, it’s a carefully considered marketing decision based on known behaviors.  People who buy this will be interested in this.  We don’t need a computer to do that for us, all we need is intimate knowledge of the customer and some merchandising savvy.  This bundling and packaging doesn’t change, it uses the same format over and over (so the customer gets used to it) and the bundles don’t change dynamically, they are the same for every customer.

Could we have a more sophisticated system?  Sure, but at what cost?  Given we already know what drives buying behavior, we understand pricing theory, we attract a specific audience, and we know what they want, why do we need a machine?  What would the incremental benefit be relative to the cost?

The store itself was built with a $70 copy of FrontPage.  Our monthly costs for hosting and the MIVA Merchant shopping cart (which is all but hidden from the customer except for checkout) is $40 a month.  When the package volume got to 15 boxes a day, we bought a back-end inventory / pack / ship label processing package for $500.  That’s it, that is all the infrastructure there is.  No employees.

Does the store look “slick”?  No.  Doesn’t need to.  Instead, it oozes personality from every pore – the product copy, the newsletter e-mails (which have no offers in them, we never discount or have a sale), the customer service communications – they all speak with one voice.  People adore the site, they think it’s the easiest to use site in the entire category.  People anticipate the newsletter and actually complain when they perceive it to be “late”.

Had any complaints recently from customers about not getting the newsletter?  How about the opposite?

The average product description on our site has over 500 words – even for the most mundane products.  We tell you absolutely everything there is to know about a product.  I noted that the big thing on e-commerce retailers “to do” list for 2008 is improve product descriptions.  Did they need a multivariate test to tell them that?

We have a no questions asked returns policy without a restocking fee.  We can do this because we anticipate product problems by extensively reviewing every product..  If a product is difficult to assemble, we assemble it before we ship.  If the assembly instructions suck, we re-write them and include them with the product.  Sounds like a lot of effort, until you find out we have a return rate of 3% on units and 1% on dollars.  Yea, it’s that Productivity thing again…

What is missing in web analytics today, with all due respect to both sides, is people who understand both the Marketing and the Technology aspects of web Behavior and Analytics.  Optimization is in the middle, not at the extremes.

Following “Best Practices” leads to commodity positioning, as everybody plays Monkey-See Monkey-Do (MSMD).  The constant benchmarking that is part of the IT culture is simply wrong-headed for Marketing; why does it matter what the other guys do, especially if they do a crappy job?  Do you take pride in the fact you benchmark better than some of the crappiest folks on the planet?  That your site / performance sucks less than theirs, but still sucks?

Do you have a Marketing Strategy, and do you execute in line with it, down through every fiber of the company?  Substituting brute force robotics or worship of MSMD best practices will never replace a great Strategy.  If you are at the point where all you can do is test things to death, perhaps you need to rethink your Strategy instead.

Please understand, I am not saying you should run your commerce operation like we do.  I’m just saying there are other, highly successful ways to do it and blindly following Best Practices and robotic testing – for any web operation, commerce or not – should be reconsidered.

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Measuring Customer Experience ROMI #2: Lab Store – New Customer Kits

Here’s another Customer Experience kind of test that proves you can generate incremental profit by improving the Experience.  You just have to make sure customers want the experience “improved”.  This example is from the Lab Store and the ROMI on this little program is a real eye popper.

Back in the old days (meaning the 80’s), what I guess is now called WOW was referred to as “surprise and delight”.  Essentially, this 2-step idea works like this: when you surprise the customer, you really get their attention.  If you can get their attention by surprise and delight them at the same time (instead of pissing them off with your surprise), then you are going to have a more loyal customer.  The trick, of course, is to somehow make more money doing it…

New Customer Kits are a very simple way to do this, and in my remote retailing experience, it works every time.  First impressions, in case you didn’t know, are really important – and especially so in remote retailing, where there is no way for the customer to get any tangible “feeling” for the company.  Sure, you have copy on the web site that paints a picture.  But how many times have people read all this wonderful copy only to be screwed when delivered the tangible experience?

The challenge is to design a kit that is relatively inexpensive yet packs an emotional delight.  Lots of people toss extra stuff for the customer in the first order, but that stuff is usually company-centric, for example, “Here is a magnet with our URL on it” or “Here is a catalog of our other products”.  That’s fine, but it’s neither surprising nor delightful.

Here is what makes up a good New Customer Kit, based on years of testing:

1.  A letter or other message from the company that Welcomes the customer, talks about the people and philosophy behind the company, and reinforces any guarantees or promises that are part of the Brand.  This piece must be written carefully, and from a customer-centric point of view.  No “we we” stuff.

2.  A free gift.  This gift must be related to the merchandise or general category being purchased, and must not be discards, seconds, or defective merch.  Giving a new customer something that is dented or discolored is not a gift, it’s an insult.  Giving a new customer something that is promotional (magnet) may be a gift, but it is expected and not particularly delightful.  Giving a new customer a “gift” because they made a first purchase (Buy today and we’ll include a…) might be delightful but sure is not surprising.  Ignore the above cautions at your own peril.

3.  Free Samples, if relevant to the business.  Anything that is consumable and generates repeat purchase is ideal.

Anyway, I suppose you’re expecting some kind of numbers to go along with all the fuzzy-wuzzy “Oh, if we just make their experience better, they will be more loyal” drivel you hear all the time online.  This is the Marketing Productivity Blog, after all, right?  OK, here are the stats on this technique from the Lab Store.  As usual, this promotion was tested versus control (new customers who did not receive a New Customer Kit are control) and we compare sales activity of both test and control over the next 90 days.  Why 90 days?  Well, if it makes money at 90 days, it sure makes money at 120…

Average cost of New Member Kit (there are several versions) – $.74

Increase in 90-day second purchase rate, test versus control – over 30%

90-day ROMI – 4,891%  ($36.68 in net profit for every $.75 spent)

Surprised and Delighted Customers – Priceless

Now that the bottom line has been presented, the black box folks simply interested in the “what happens” can skip the next part.  If you want to know why it works and maybe learn something useful you can port elsewhere, read on.

New Customer Kits are a great way to shape Theatre of the Mind. 

What you have with a remote retailing customer is a “theatre of the mind” scenario, much like you have in radio advertising.  Customers can’t see or touch you, so “Cues” become extremely important; if you don’t populate the theatre of the mind for the customer, the customer will go ahead and populate it themselves.  If you want some control over the image of your company people create in their head, you need to be proactive.  Theatre of the mind, folks.  Very powerful stuff. 

Our New Customer Kit generates absolutely tons of “Thank You” e-mails from new customers who want to tell us all about how great the experience was purchasing from the Lab Store.  Now, I think you’d agree that purchasing from a web site isn’t a particularly thrilling experience in any way, but if you really listen (and understand a bit of Consumer Psychology) these customers are not really talking about the web site, or even our company.  

What they really are saying is they are very happy with themselves for making a first purchase from us; our actions have confirmed they made a good decision.  Remember, this is remote retailing.  There is risk to the customer, especially on that first purchase; they have no idea if their expectations based on the web site copy are going to match the reality of delivery.  They are concerned about what might happen – will they be proven smart or dumb for taking this risk?

When we deliver the products they ordered in a timely way we meet expectations.  When we deliver these products carefully packed in a pristine new box packed with fresh blank newspaper, we probably exceed expectations by a bit.  But when these new customers get to the Welcome letter, the free gift, and the samples, we blow out their expectations. 

The picture these new customers had in their mind of our company based on the web site experience is then permanently altered; we’re doing brain surgery for 74 cents a head.

Now, I have a question for you – is this program Marketing or Customer Experience Management?

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Lab Store: Automating Worst Practices

The news that Omniture has acquired Touch Clarity is shaking up the world of web analytics a bit.  Machine automation has always been a very sexy sell for software companies.  The problem is people think it’s a magic bullet and often end up using these tools to their disadvantage because they do not have the experience to really understand how to use the tools properly.  Then they get caught in trap of Reporting versus Analysis.

Here is a real world example from the Lab Store.  I am constantly fighting the Google AdWords A/B split testing algorithm for rotating ads.  Google almost always picks the wrong ad to run more frequently so I have to force it to run 50 / 50 in order to get accurate results.  How do I know Google is picking the wrong ad?  Because I have seen thousands of such tests, online and off, and I have a “feel’ for these things based on my background in Database Marketing, Consumer Behavior and Psychology.  In each case where Google has picked one ad over another, and where I have forced it to then run the ads 50 / 50, it ends up I was right – Google picked the ad that generated the least profit per dollar of PPC spend as “best” and demoted the more profitable ad until it was not running at all.

Why does this happen?  Because Google isn’t smart enough to understand the complexity of the customer behavior in the Lab Store – and it can’t be, given the number of clients it has.  If you have done a lot of this kind of testing, you know that often the campaign with the highest response rate generates the lowest quality customers.  While these campaigns were running, I could see that the visitors generated by the campaigns Google picked as “best” were actually inferior to the visitors generated by the campaigns Google demoted, using a variety of metrics other than conversion (primarily Recency).  In other words, I was able to predict Google was doing the wrong thing by looking at the Customer LifeCycle.  When I forced Google to run the ads 50 / 50 to give the demoted ads a chance, I was proven right – the campaigns Google demoted had a 90-day ROMI averaging 2.1 times higher than the campaigns Google promoted.

Look, I know these are software companies and their sole purpose in life is to create the next big thing and sell their software into it.  That’s fine, and frankly, I hope they are successful in doing it, because it will create a tremendous amount of business down the road for database marketing consultants as “machine optimization” hits the wall and companies need to be rescued from the results of it.  Just like they had to be rescued from demographic clustering in the 80’s and data mining in the 90’s. 

People are always looking for the easy way out, and it ends up costing them more in the long run because they don’t really understand what the tool does and does not do.  Perhaps that is simply the state of Marketing today.  So be it…

If you are an analyst and you see a black-box test result that simply does not make any sense based on your past experience, I encourage you to question the result, find a way to test it outside the system.  Learn why, because this kind of incident usually will lead to a shattering of some myth or bias you will be most happy to fully understand.

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Lab Store: The Next Inspector

This is a great B2B example of a Marketing / Customer Service program operating in Fulfillment from a vendor of ours.  It drives profitability on the vendor side as well as increased satisfaction on the customer side.  Simple as a rock, effective on a number of levels, and measurable.

When we open a carton (usually 6 or 12 items in a carton) from this vendor, the first thing we see printed on the inside lid of the box is this message:

Our Customer is the
Next Inspector

Think about that message.  If you are packing the vendor boxes, you see this message every time you start to seal the box.  Every time.  How much “training” would it take to have the same effect?  In addition to the more direct message it sends to a packer about quality control at the carton level, it also sends a broader message to employees concerning customer experience and care.  After all, the employees know customers see the same message.

Simple, direct, impactful.

As a customer, when we opened these cartons for the first time, we thought, “Wow, that is pretty neat.  These guys really give a crap about what they do.”  Whether they really do care or not, of course, is up for speculation, but that is not the point, is it?  We think they care.  In fact, my wife’s response to this message was to cut off the carton flap with the message on it and put it over the packing station.  Not sure they planned for something like that, but a nice “halo effect”.

And, unlike most of the vendors we deal with, we have never received a mis-packed box from these folks in 6 years.

I talked with the vendor about this and he filled me in.  The idea came out of Marketing as a potential solution to a packing error problem that was causing nasty-gram traffic in Customer Service and the hard loss of customers.  An Operational defect that had a direct and trackable negative effect on both Customer Service and Marketing – as these process problems almost always do.  He doesn’t know what the ROI is because it’s silly to even calculate it – the incremental profit generated by decreased packing errors (cost reduction in “make good” shipments and returns processing) since program implementation is so large relative to the cost of printing the message on the box that the ROMI would have 8 or 9 figures to the left of the decimal point.

That’s not including any customer metrics like slowing of customer defection rate and halo effects, because those are obvious to them.  Customers simply stopped defecting due to mispacked packages.

Period.  Do you need to run a lot of math on a result like that to figure out if it’s profitable?

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