Monthly Archives: January 2007

Lab Store: Managing Customer Experience

When Ron wrote this great post on Marketing’s responsibility for managing customer experience (more on process improvement from me here), I thought I would relate this simple example from the Lab Store.

We sell some exotic pet food that is meant to be a continuity item – the customer buys it every 3 months or so.  This product offering is, of course, designed to extend the Customer LifeCycle.  The food is a “staple” meaning it is generally kept in the cage at all times to supplement the fresh foods fed to the animal.  This food is not as appealing to the anlmal as say, fresh fruit, but it’s an important part of a well rounded diet for the animal.  The feeding instructions on the web site are extensive – portion size relative to fresh food, when to feed, amount to feed, etc.

So we start analyzing the repurchase rate of this staple food that is supposed to be our “back end” and it is dismal relative to expectations.  Why?  Have the customers switched to a different, cheaper source?  Are they not feeding the diet plan we suggest?  Is this even a “marketing problem”?  Well, in the Lab Store, anything related to customer behavior is a marketing problem.

So we grab a sample of the customers who passed the re-order point Tripwire of 3 months without ordering again and ask them, Why aren’t you ordering the staple food?  And the answer is “The critters don’t like it”.  Really?  That’s a surprise; we know the animals generally eat the food.  So we ask about portion size, are they following the diet plan?  And they say, “Not really, when they didn’t eat the staple food, we thought they would be hungry and so we gave them more fresh food.  They never ate any of the staple food”.

And there you have it.  We don’t need to ask any other questions.  The animal is not going to eat the boring staple food when they are being overfed the fresh food.  This is like asking a kid if they would rather have spinach or candy; one is good for them, the other tastes better.  And the customer isn’t going to buy staple food the animal will not eat.

The problem is, this “fresh food only” diet is unhealthy for the animal; they are not going to get critical nutrients they need from the staple food.  But, this exact feeding scenario is covered on the web site; we’re already communicating this issue to the customer.  So it’s not a marketing problem, right?

Wrong.  That is the marketing problem – the information is on the web site.  We started including a package insert with the staple food containing the very same info as on the web site, except now, of course, it was “contextual”; delivered in exactly the right place and at exactly the right time – when the customer opened the staple food package.  And magically, the repeat purchase rate on the staple food increased 32%.

The point is, if we had been off “marketing” and not paying attention to the Potential Value of the customer by setting up the Tripwire, we’d have never found this flaw in the process.  And by fixing it, we increase the return on all the acquisition marketing we do, because the LifeCycle of the customer has been extended.

Marketing Productivity, indeed.  More Lab Store tales to come.

Lab Store: Background & ROMI Formula

Many of you in the blog audience might not know I have been writing about both offline and online Marketing Productivity since late 2000 on my web site through articles, an e-mail newsletter with about 7,500 double opt-in subscribers, and a blog-like database marketing article review section. Anyway, back in 2000 it was pretty hard to get people to listen to Marketing Productivity ideas because there was just too much money sloshing around. Who?cares about Productivity when you have unlimited budgets?

So to prove out some of the concepts I was talking about, I started my own online store for under $1,000, all costs in. Those of you who have seen me speak at Search Engine Strategies or the eMetrics Summit on customer retention know this web site as the”Lab Store“, which has turned into a large enough business on that same $1,000 infrastructure my wife now runs it as her full time job. The Lab Store is a great resource for online marketing research and testing because I control everything (unlike most client situations) and perhaps more importantly, I don’t have to ask permission to release results. So from time to time, I pull analysis out of the store operation I think will be interesting to other people and provide it for your review.

That said, I’m not linking to the Lab Store site because I’m not fond of the idea that our competitors might use this blog to improve their business. Lab Store Analysis Examples will link back to this post to provide context for new subscribers.

ROMI – Return on Marketing Investment

When we execute different tactics designed to increase customer value in the Lab Store, we measure the results using an incremental flow-through model I call ROMI (to differentiate from the extremely lightweight ROAS). We define ROMI in online retail this way:

Sales – Cost of Product = Gross Margin
Gross Margin – Variable Overhead Cost = Gross Profit
(Gross Profit – Marketing Cost)/ Marketing Cost = ROMI

where Variable Overhead Cost is basically the cost to process, pick, pack, ship, and service the incremental orders generated by the marketing, service, or operational initiatives. ROMI answers the question, “For every $1 I spend on a marketing, service, or operational effort, how much cash flows through to cover fixed costs? What do I get back, after all variable costs, including the cost of the effort?

Examples of how this works with efforts other than Advertising:

New Customer Kits
Managing Customer Experience

Overview of Lab Store stats and metrics can be found here. Pics here.

I’m not clear on the Chief Customer Officer concept…

I don’t have any problem with the direction Jeanne Bliss provides regarding how to become the “customer champion” in your company, especially the idea of aligning with the CFO and CIO.

What I’m trying to figure out is why this is not Marketing’s job; seems to me the CMO should be the Chief Customer Officer, complete with the ultimate responsibility for Customer Service.  Otherwise, it seems like this CCO position is just an excuse for people keeping their heads in their own silos and letting somebody else worry about cross-functional processes, customer experience, and defects.

In other words, do we really need a unique exec to be able to create / enforce / enable cross-silo functionality on the “soft” side (marketing, service, some fulfillment) of the business?  After all, the CIO and CFO operate across all the silos, why can’t the CMO?  As Ron said in his excellent piece What Marketers Should Learn From IT, the CMO now needs to get involved in the whole business and act cross-functionally to be successful, as the folks in IT have learned.

I guess the answer is probably that “Marketing” has been redefined over the years and has somehow lost the strategic seat at the table, morphing downward into “MarCom”.  This has not happened at all companies – I can tell you at most truly data-driven companies, the CMO is the Chief Customer Officer, because these folks / the company understand how the totality of the customer experience affects Marketing Productivity.

Perhaps the answer to Kevin’s question on what happens to the Marketing folks in the catalog business as the web takes over is this: they become Chief Customer Officers or consultants to them like Jeanne Bliss, formerly of Lands’ End.  After all, they already know how to do the Chief Customer Officer job.