Category Archives: DataBase Marketing

Optimizing Mail Drops for Consumables

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

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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CRM, Chief Customer Officers, and XXM of the Month

Analytical Culture, DataBase Marketing, Marketing / Tech Interface

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?

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

Analytics Education, DataBase Marketing, Lab Store, Marketing thru Operations

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?