Monthly Archives: March 2007

Optimizing Mail Drops for Consumables

Jim answers more questions from fellow Drillers

Want to see additional questions & answers from fellow Drillers?

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Please note: The business discussed below is a “continuity business”, where customers consume the product and need to either reorder from the company every few months or seek alternatives sources for the product.  In this scenario, the behavior of customers is generally governed by the Latency Metric.

Q: Currently we mail our current customers direct mail every 6.5 weeks.  We have a new VP and he is asking if that is the optimal spacing of mailings.  I’m wondering if there are any best practices for setting up frequency tests?  If you can shed any light on how to set up such a test I would greatly appreciate it.

A: Well, do you know how you got to the 6.5 weeks number in the first place?  Somebody must have thought it was a good idea based on some kind of data (I hope)!

Obviously, there is some significant financial risk in simply “moving the drop around” and testing results that way.  You can do it, often by slivering off parts of the drop and dropping then at different times, but there could be a substantial financial penalty for approaching the problem this way – both on the cost and sales sides.  This is especially true when you have a current schedule that seems to be working.

The first thing I would do, if possible, before taking on the risk of messing with the mailing is to see if you can find any segmentation /  frequency that makes more sense from the customer data itself.  Since you also have a web site, there probably is evidence of “natural purchase cycles” the customer engages in that operate outside the mail drop – customers ordering “when and how they want to”.

Can you find evidence that the average purchase cycle is more like 5 weeks or 7 weeks?  How does this differ by product line, or packaging of the product?  Both segmentation by actual customer behavior and segmentation by product line will generally provide increased profits, provided the cost of dropping different mail streams does not overpower the increased sales.

For example, if someone can buy a “90-day supply”, well, 6.5 weeks is a bit  early for the mailing, I’d think.  If they can only buy a 30-day supply, well, it seems to me that 6.5 weeks could be a bit late.  Look to actual  purchase cycles by product line / supply length and see if you can find any patterns in the purchase behavior.

The key to this kind of analysis is to line up all the customers so that the purchase cycles match.  In other words, you need to enforce the same start date.  One way to do this, for example, is look at all new customers who started in January 2007; of the ones that bought again, when did they purchase – 5 weeks, 6 weeks, 7 weeks out?  What percentage of new starts in January (or any other month) purchased in each of the subsequent weeks?  Be aware choosing a single month may create results that have a seasonal bias, but I’m not sure that is relevant in a product line like yours.

A more complex but possibly more accurate way to do this is to “normalize” the start date of all new customers in 2006 and then look at the subsequent purchase patterns – given the same start date, what percent bought again 5 weeks out, 6 weeks out, 7 weeks out?  You can achieve virtually the same thing by taking each month of current year and running it through the same drill as the one described above for following year, though it won’t be as accurate.

Once you have nailed the cycle for new customers, you can move on to see if  there is any change in optimal cycle date as customers age.  My guess is the cycle probably gradually lengthens until the customer defects.  If this is  true, it might be worth it to do two mailings with different cycles – one cycle for customers who became new customers in the past (say) 6 months and all other customers.  It’s likely in this business there could be an important behavioral difference between new and current customers that would allow you to deliver a more optimized mailing cycle.

Failing access to any analytical means to drill down into the data first, because either you lack the resources or simply don’t have the time, set up your next drop with flagged segments based on “weeks since last purchase” and look at profit per customer.  You could also back into this if you have good promotional history on your customers.

In other words, if you are going to drop “everybody” at the same time, there must be a segment where for this single drop, the time since last purchase based on arrival of the mail is 5 weeks ago, 6 weeks ago, 7 weeks ago, and so forth.  If you flag these segments before the drop in the database, you should be able to go back and determine sales per customer mailed for each segment.  This will tell you if your timing should be adjusted.  Further, you might divide these time-based segments, if there are enough members in the  segment, along various product lines.

Then, once you have a handle on the general cyclicality of different segments, you can get to profit per segment by using control groups to measure the lift and profit by segment.

A careful analysis of the next drop (or as I said, a previous drop if you have good history) should tell you which drop cycle for each product line is optimal.  From there, you have to look at economies of scale and decide if  you can afford that kind of segmentation.  You may find that due to the economies of scale in the mailing, you simply cannot drop 50% of your mail one week and the other 50% the next, for example.  But you might find enough support in your analysis to either justify the current 6.5 week drop as the most efficient, or to move it up or back somewhat.

Another way to approach the “timing problem” relative to economies of scale would be to try “reminder to re-order postcards” instead of mail or catalogs to some members of the group that require special timing considerations.  For example, new customers might not really need a catalog on their first drop, a postcard driving them to the phone or web site to reorder might be enough.

No silver bullets, I’m afraid. Just good ‘ol fashioned sloggin’ through the data ought to get you to where you want to go!

Jim

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**** Bob Garfield’s Chaos Scenario 2.0

Chief Branding Officers Take Note…

Most people who read this blog are probably not all that interested in mass media as a marketing vehicle.  But I think just about any Marketing person would benefit from reading this incredibly stark view of the future in the traditional agency / mass media complex in this article over at Ad Age.  Yikes!

I don’t doubt that the cost structure of the mass media complex will have to change, especially on the agency side.  I mean really, you have Google trying to facilitate the purchase of radio and print through a web interface, for crying out loud.  Agencies should really start to push deeper into the corporation and become business strategy consultants.  There are a ton of smart, creative people in the agencies.  Perhaps they could help out with this Deconstruction of Marketing thing.

But the mass media itself?  They will just have to figure out what their place is in the world, and adapt.  I suspect that means leaning more towards direct (drive people to web site or call center) and away from “branding” in the traditional sense.  This has already been happening among the smarter players.  Perhaps we need to lose a major network to “cable only” status in order to funnel more dollars to fewer avails and increase quality.  Just remember, radio was supposed to kill print, FM was supposed to kill AM, network TV was supposed to kill radio, and Cable was supposed to kill network TV.

Quote from article: When Chairman-CEO A.G. Lafley (Proctor & Gamble) says, “We need to reinvent the way we market to consumers,” he doesn’t mean, “We need to find a place to amass 30 million people at a time so we can tell them not to squeeze the Charmin.”

Rich, I tell ya.  Very well written and quite funny, at least sitting on this side of the equation… your thoughts?

CRM, Chief Customer Officers, and XXM of the Month

In response to my comments on the potential for Marketing to lose a seat at the strategic table, Curtis Bingham comments on the difference between a Chief Marketing Officer and a Chief Customer Officer.  It’s not that I am opposed to the idea of a CCO, I’m just wondering, why are they needed?  I asked the same question about CRM when it came on the scene.  I mean, to me, CRM is Marketing; what would Marketing do if CRM was in charge of the customer relationship?  So then Curtis puts forth this gem:

“In some companies I’ve worked with, the CMO is so myopically focused on outward — bound marketing and “pushing” information on the customers that it takes a CCO to bridge the gap between what marketing hopes customers want and the customer reality.”

And then it hits me.  That’s really what is happening from a macro organizational perspective; it answers the question of “why” people are Deconstructing Marketing.  Current CMO’s can’t do the job I used to know as “Marketing”.

As someone who came from the database marketing side, all my experience has been in industries rich with customer data, and in these industries, the CMO is the CCO, performing all those functions, because that is simply the nature of the business, it is all about the customer and always has been.  I think what we are seeing is as more companies get access to their customer data and want to act on it, the skill sets of the CMO’s in those companies are lacking relative to the financial opportunity presented by having the data.  This conflict results in functions like “CRM” and “CCO” being stripped out of what I know as Marketing and created as new functions to address the new opportunity that “outward focused” Marketers don’t have the skills to address.  Unless, of course, the CMO steps up to the challenge of a data-driven organization and grabs hold of it.  Otherwise, the CEO simply fills the gap with another position.  

And that squares with the idea database marketing folks would make great Chief Customer Officers – they have both the Marketing skills and the Customer-centric empathy, plus a knowledge of process optimization all in one package.

Another issue of course is one of scale.  Not that HSN was a huge company at 2 billion in sales or so, where I managed to handle all the “Customer Centric” functionality as well as the Marketing.  But compared to Sun Micro or Cisco, I suppose at some size a single function like Marketing simply cannot pay enough attention to everything that is going on so you have to break it up…or do you?  I suppose that depends on the kind of talent you have access to.

Either way, at some level, as companies become more data-driven and so customer-centric, the traditionally trained “outbound CMO’s” are going to have to get with the customer-side program or will lose a lot of their power.  They will have to, because the financial leverage in customer marketing / analytics / accountability is so huge it’s bound to dwarf anything an “outbound CMO” can come up with.

Plus, the pressure to improve process optimization / accountability is only going to get more powerful as our friends over in IT keep rolling out their favorite XXM (Xxxxx Xxxxx Management) flavor of the month.

This all begs a larger question for me: If the above is true, then is there a market for training “outwardly-focused” CMO’s in the art of customer-centricity?  Or are they simply going to “let go” and cede control to the CCO’s because Customer Marketing is just too hard?

A pithy question we can perhaps discuss at the Don, Ron?