Drilling Down Newsletter -
February 2001
In this issue:
# Best of the Best Customer Retention Links -
*** Alert: These expire soon!
# New Article: Macro versus Micro
Analytical Approach to CRM
# Small Business Script(s) Project
# Questions from fellow Drillers:
ROI Runs Smack into Branding Head-On
-------------------------
Hi again Folks, Jim Novo here.
Let's do some Drillin'!
Customer Retention Links
====================
The following are must read articles on measuring and
managing customer retention. Their "free status" on
the DM News website expires 30 days after the publication date listed.
If you don't read them by then, you'll have to pay $25 to read them in
the DM News archives. Note: I provide links to many more
articles like these as they become available on the Drilling Down
site. If you don't want to miss any of them, you might want to
check this page weekly for updates to the article links:
https://www.jimnovo.com/fresharticles.htm
By the way, the new publishing implementation at the DM News web site
creates URL's so darn long they get all broken up in the newsletter,
so I have to "link to the link" on my site to get you a
clickable link. Sorry for the "doubleclick".
*** Alert ***
The links below expire very soon! Perhaps I will send them
bi-weekly (just links, not the newsletter) to make sure you always
have enough time to read them. Care to comment on that idea? Use
this link.
Note to website
readers:
The links in the following section will not be accessible unless you
subscribe to the DM News archive. To get these links via e-mail before they
go to the paid archive, sign up for my newsletter.
* Handling Missing Data Problems
January 29, 2001 DM News
https://www.jimnovo.com/
fresharticles.htm#handling
A rarely discussed and somewhat gnarly subject, all budding
database marketers need to know this stuff. It's a huge problem
when you rely on self-reported customer demographics and you have lots
of "gaps" in your data. If you were using behavior for
profiling instead of demos, you wouldn't have any gaps; either the
customer has activity or doesn't...
* Use CRM to Build Exit Barriers
January 29, 2001 DM News
https://www.jimnovo.com/fresharticles.htm#use
This is an advanced idea for most people, but the "next
level" of customer retention programs does involve building
barriers, and there is no better way to do it than through behavioral
segmentation. Changes in behavior are the LifeCycle
"triggers" used to put up the barriers - the right product,
the right offer, at the right time.
New Article: Macro versus Micro
Analytical Approach to CRM
====================
The CRM-oriented topics seem pretty popular, judging by page views on
the site. Figures, it's the hot acronym, for now. Me?
The front-end stuff that really _is_ new - Sales Force Automation, the
"unified" service center integrating the telephone and
e-mail - very cool. On the back end, the customer analytics and
campaign management side, it just sounds like plain old database
marketing with fancier machines and software to me. Just because
you have the capability to micro-segment a population to death doesn't
mean you should do it or this approach will be effective or
profitable. Read more about this topic in a new article:
https://www.jimnovo.com/CRM-Analytics.htm
This "over-targeting" idea is the underlying theme of my
upcoming speech, "CRM Rules You Can Really Use". I'll
be speaking at the Thunder Lizard Web Marketing 2001 conference in
Monterey, CA March 12-14. The plan is to be around for the whole
conference, so if you're going to be there, let's toss around your
high ROI marketing questions! You don't have to go to a
conference to get questions answered though; just send them to me.
Small Business Script(s) Project
======================
This is a longshot given who subscribes to this newsletter ( a lot
more corporate big shots than I originally imagined - hey, OK by me),
but I'll give it a try.
Small business people are just dying to have some pre-packaged tools
to help them implement some basic customer retention methods. I
thought my customer database creation and customer scoring software
(free with the book) would do the trick, but it ends up they're worse
off in the transaction management area than I thought.
They do OK with purchase tracking (usually Excel or Access) but many
don't have and can't figure out how to implement the cookie management
process needed to track page views properly. I'd like to provide
a free .cgi script (probably Perl, PHP, or Miva) that would:
* Create a cookie with a sequential or random customer ID number
* Store in the cookie the first URL visited, first date visited, the
last URL visited, the last visit date, and the total pages viewed (the
Drilling Down RF customer scoring parameters for page views).
I know this isn't difficult, and there are similar scripts around, but
none that provide all the pieces needed. Anybody out there who
can write this script or who can suggest other resources? It
would be a free download, available on my site and anywhere else
people wanted to post it. Hey, you could become semi-famous, and
maybe even make a buck or two (there is a long term motive lurking
behind this project). Drop me an e-mail if you or someone
you know might be interested here.
Questions from Fellow Drillers
======================
Speaking of questions, you folks are starting to toss in some real
zingers. We've moved on from the "How do I calculate
Lifetime Value" stuff to some real mind benders, and this month's
featured question is a heck of an example. Speaking of
questions, I always hide the identities of any organizations or people
involved, so don't be afraid to send them on in. Help
yourself, and help others as well!
Branding is a much misunderstood topic and it's beat to death in the
forums and trades. I pretty much run in the other direction when
it comes up, because I'm a numbers kind of guy and the branders out
there never seem to have any numbers to back up their position.
That said, there _are_ ways to quantify branding....
Q. Jim, I send a monthly corporate custom-published
magazine (content mix of product and broader lifestyle interests) via
email to my house e-mail list - how do I measure ROI on what is a
purely brand loyalty vehicle?
A: Thanks for sending in such an easy question - Geesh Louise,
doesn't anybody have easy ones any more?
I assume you believe over the longer run, those receiving the magazine
will either convert to customers, increase their level of business
with you, or bring business to you through referrals.
If you have new business "source tracking" in place (where
did the business come from?), it should be fairly easy to determine if
the business came from someone who is receiving the magazine, or from
someone not on the magazine list. Assuming you are also able to
track where the non-magazine business comes from, you can look at
expenses versus business generated and find out if the magazine is at
least as efficient as other ways of generating business.
Hot links to product offers would be a perfect way to do this, and you
can test varying offers by Recency to maximize the profit of different
customer segments. Under this scenario, the magazine is not only
branding, but selling merchandise. So you don't have to worry
about the "ROI of Branding", the ROI comes from sales and
you can easily quantify the ROI using merchandise profit versus the
cost of the magazine.
If you are looking for "hard numbers" on the pure branding
issue, the only way to accomplish this is to use a control group; that
is, a random sample of people on the list are intentionally not mailed
the magazine. This group can be different each time you mail.
If you think branding is a long term effect, you would want to exclude
the same people repeatedly over time; shorter term, rotate the control
group. Then you compare the business coming from people in the
control group with the rest of the list and determine if the cost of
the magazine is justified.
If you were to find the control group (no magazine) generates $1 in
profit per person and those receiving the magazine also generate $1 in
profit per person, then the magazine is "dead cost", meaning
it has no effect one way or the other - the "branding" is
ineffective, from an ROI perspective. You also might find the
magazine actually depresses sales, by aggravating or annoying the
customer. If this scenario is true, then a survey seems
appropriate to re-focus the magazine in another direction more
desirable to the customer.
If you generate $1.50 profit per person from those receiving the
magazine and only $1 profit per person from the control group, and the
magazine costs $.25 to produce and mail, you have a profit of $.25 per
person on an investment of $.25 per person for an ROI of 100%.
On a per person basis:
$1.50 in profit from magazine subs
- $1.00 in profit from control group (no magazine)
= $0.50 incremental "lift" in profit due to
"branding"
- $0.25 cost of magazine
= $0.25 net profit
/ $0.25 in investment (cost of magazine)
= 100% ROI per issue
If creating a "pure" control group is not practical because
everyone _must_ get a magazine, you can create two versions of
the magazine and use one as control. This would essentially be a
"copy test", where one magazine, in branding lingo,
would be more strongly branded, whatever that means, and the other
magazine would have "weak branding" or no branding at
all. Success measurement would follow the formula above, except
control now gets the "weak" magazine.
This test won't prove the magazine _in and of itself_ has a positive
ROI, but you can assume if the "strongly branded magazine"
beats the "weakly branded magazine" in ROI, you have proven
the creative approach does matter and branding works.
If there is no difference or negative ROI on the "branded
magazine", then the magazine itself is probably generating a
"contact effect". In other words, simply reminding
subscribers of your business through any contact generates positive
revenue effects - the creative approach used doesn't really matter.
This would imply (but not prove) negative ROI for any magazine which
costs more to produce and fulfill than a simple contact e-mail sent
with the same frequency as the magazine.
That's the way I would look at it, because I come from the database
marketing world where everything has a quantifiable ROI, and you put
your money where the ROI is highest. Branding people probably
see the mags as effective and would measure ROI as they normally do,
typically through surveys. Are we gaining mindshare? How
much is 1 point of mindshare worth? Where is likelihood to buy
or recommend to friends trending when you survey customers who get the
magazine versus customers who don't? These are the kinds of
ideas branding people work with.
Somewhere in the middle of a nuts and bolts database marketing
approach and a "pure branding" approach would be analysis of
open rates and click-through on the magazine, if applicable.
I would think the fact customers actually _want_ to interact would be
quite telling by itself. A high open rate would be evidence of
this. You could also apply survey techniques to try and link
these "click-through" type of ideas to actual
behavior. In other words, survey the openers and non-openers,
clickers and non-clickers about brand attitude and actual purchase
behavior, and attempt to make a link. Do the non-clickers buy
less frequently, have they switched brands recently, etc. versus the
clickers? Then you could make statements like "clickers are
40% more brand loyal than non-clickers, who are 20% more brand loyal
than the average customer not receiving the magazine".
I might also try to design a tracking survey (let's say 10% of the
magazine group) that you execute every 6 months and attempt to
quantify the ongoing purchase behavior of clickers and non-clickers,
and compare to some baseline info about the "average
customer". Just track over time and see if brand loyalty,
likelihood to purchase, self-reported purchase volume, etc. grows over
time. I would think this information would be very powerful for
a branding oriented company who has never worked with real customer
interaction data before.
I can tell you for a fact customer lifestyle magazines can be
profitable in a retailing environment, having run such a magazine (2.5
million "free" subs, 6x per year) for Home Shopping
Network. The mag had 23 different customer versions and
generated a 60 day ROI of about 200% (profits = 3x the cost) on a
regular basis. This was direct mail, not e-mail.
The versioning was done as a matrix of product affinity and RFM score;
customers who appeared to be defecting were given larger incentives to
try and nudge them into starting another purchase LifeCycle in a known
cross-over category (lapsing jewelry buyers encouraged to buy fashion,
for example). This works like a charm; you already know there is
a tendency to cross-over and you are just giving the customer a gentle
push to get started before they defect completely.
Hope this was helpful; if you have additional questions or would like
to supply more information, feel free to reply.
Have a good day!
Jim
Side bar: readers unfamiliar with using Recency or RFM, the most
powerful and simplest to implement customer behavior and LifeCycle
models, should read this article:
https://www.jimnovo.com/RFM-tour.htm
-----------------------------
NOTE: Got a question on database or high ROI customer marketing?
What are you waiting for? Ask!
-----------------------------
That's it for this month's edition of the Drilling Down newsletter.
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Any comments on the newsletter (it's too long, too short, topic
suggestions, etc.) please send them right along, with any other
questions on customer Valuation, Retention, Loyalty, and Defection, to
me.
'Til next time, keep Drilling Down!
Jim Novo
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