Drilling Down Newsletter - June 2001
In this issue:
# Best of the Best Customer Retention Links
# Drilling Down Book Available at
Amazon,
bn.com
# Marketing to One-Time Buyers
# Practice What You Preach: Online Advertising
Effectiveness? Tell Me About It... (Part 2)
# Questions from Fellow Drillers
------------------------
Hi again folks, Jim Novo here. This month we've got great
customer retention article links and some information on marketing to
One-Time buyers. Also, the online advertising mystery continues
with a little behavior-based (of course!) visitor analysis, and a
subscriber wants me to explain some commentary I wrote on the web site
(cyber-accountability!)
Let's do some Drillin'!
Customer Retention Links
====================
These articles are on the DM News web sites and will move into their
paid subscription archive 30 days after the date of publication listed
below, so check 'em out soon!
Note to web
site visitors: These links may have expired by the time you read
this. You can get these "must read" links e-mailed to you
each month 2 weeks before they expire by subscribing to the newsletter.
What
to Do About Low Response
May 23, 2001 iMarketing News
This article has some great stats on the number of remote shoppers in
the US and some interesting ideas about using e-mail. And then
he tosses RFM into the ring. Are you using RFM yet to maximize
profits yet?
Promotions
Can Drive Full Life Cycle
June 4, 2001 iMarketingNews
Yes, if you know how to use them correctly; otherwise, they can drain
profitability. Long term customer value is a function of what brought them to you in the first place, but as
far as marketing using
the LifeCycle, hey, you know I'm all for that
approach.
Make
Sure That the Prize Is Right
June 4, 2001 iMarketingNews
If you run sweepstakes to attract new customers, you need to read this
article. The biggest mistake people make in customer marketing
is to not fully understand the cardinal rule: the future value of a
current customer depends very much on
how they became a new customer.
Drilling Down Book Available
at Amazon, bn.com
=====================
Thanks to you good people (well, those of you who bought a book
anyway) the Drilling Down book has been picked up by Ingram for
distribution. Making this happen was about as enjoyable as
getting a root canal, but I survived to tell the story. Ingram
supplies most offline bookstores around the world, along with amazon.com
and bn.com
(Barnes & Noble), so you should now be able to order the
book most anywhere offline or online. Ask your favorite
bookstore if they can order one for you! Or in the online
stores, just search for "Drilling Down".
Note: the fastest way to get the book is from the publisher, Booklocker.com.
Marketing to One-Time Buyers
=====================
Ah, the One-Time buyer, my companion (but not a
friend) all these many years of database marketing. You
have them, right? Maybe 40%, 50%, even 60% of the customer base?
Seems like such a waste. You went out and spent a bunch of money
to reel these people in, only to find they buy or visit once and that
was it. Then you pound them with all kinds of targeted
promotions and they still don't buy or visit. Your boss (if you
have one) is pulling out all his/her hair, and is starting on yours.
Convert those people to multi-buyers, darn it!
Not going to happen, folks, at least not at a rate that will make it
profitable for you to spend a lot of time and money on it. Years
of direct marketing history and testing come to one conclusion - it's
just not worth it. The One-Time buyer problem is tough to solve
in the catalog world, but even tougher in the interactive world.
If the online customer wanted to buy or visit again, they would have!
In fact, many database marketing companies don't even call One-Time
buyers customers, because it's highly likely they are not customers
any longer. If you are going to spend precious marketing dollars
where you get the highest payback, there are many targets much more
profitable than One-Time buyers to address.
Does that mean all is lost in One-Time buyer land?
No. The solution is to create less of them. One-Time
buyers are created by the circumstances surrounding their first
purchase (or visit), and if you minimize the types of activity known
to generate One-Time buyers, you'll save a ton of money over time.
What do I mean by circumstances? The media used
to bring in the customer and the offer usually play a big role,
as does the product itself. Between these three variables, you
capture 80% of the forces creating One-Time buyers. Some
products just naturally encourage One-Time purchase, as do certain
kinds of offers and types of media. Your task is to find out
which combinations create a high percentage of One-Time buyers, and
minimize the use of these combinations.
Gather up all your One-Time buyers, and see if you can
find any commonality in them. Do the majority of them come from
one particular media or offer, or have they bought the same items or
categories of items? If so, then you can reduce your reliance on
this media or item and put the money you save into media or items you
know tend to generate multi-buyers. By going through this
process, you will automatically raise the long-term ROI of all your
marketing and merchandising.
For example, let's say you feature your most popular
item on your home page. What if this item generates 90% One-Time
buyers? You would be much better off using a less popular item that
generates only 10% One-Time buyers. The real estate this
featured item occupies is very valuable, and you want to get the most
bang for the buck you can out of it.
Sometimes, if you find a particular item is generating
a lot of One-Time buyers, you can fix it. Reasons for One-Time
purchase generation may be linked to poor quality, bad
instructions, shipping difficulty (item often breaks), or other
physical reasons. So hunting down One-Time buyer products can be
helpful to product sourcing efforts; the customer is telling you by
making only one purchase the product has failed.
If you go behind the One-Time buyer products and find
a common vendor (especially a drop-ship vendor where you never
see the merchandise), they may be shipping something different
from what you approved. For example, the packaging may be
different and substandard or the color is different from the photo you
are using. For expensive items, these problems usually shows up
in returns analysis, but for items under $30, the problem shows
up as One-Time buyers.
OK, so much for reducing One-Time buyers as a fix.
But what if you are getting all kinds of pressure to convert them
anyway? All I can say is you are going to have one heck of a
long road to walk down, so be prepared. The best way to go about
it is through a qualifying test. Don't try to second guess it,
let the customer and the data show you the way. Customers are
self-selecting One-Time buyer status, and it is best to let them
self-select a solution, if there is one. Let the behavior play
out and look for commonality in the customer.
Take a random sample of your One-Time buyers (or all
of them, if there are under 5,000 and you can afford it) and mail them
a good solid offer, say 20% off. Anything less and you will get
weak response. You might as well "load it up" for a
test - if they don't respond at 20%, they aren't going to respond at
10%.
Then look at the responders and see if you can find
any commonality. Did they buy the same first item or category?
Come to you from the same offer or media? Make the first
purchase a certain number of days ago? Have customer service
problems? Return their first purchase?
You may find a couple of segments, usually quite
small, where you can create profitable One-Time buyer programs.
Then it becomes a question of scale - is it worth all the time, effort,
and resources required to reduce One-Time buyers by 1/4 %? You
would be better off creating less of them in the first place by
reducing the factors creating them.
Generally, the more Recent the One-Timers are, the
more likely they are to respond. If you don't know what this
means by now (you must be new to this newsletter), you should take the
Recency tutorial.
Even though the more Recent One-Timers are most likely
to respond, the response rate may not be high enough to pay the cost
of mailing and discounting to them. You have to get right on
them, immediately after the first purchase. This approach causes
a problem of a different kind - subsidy costs. Subsidy costs are
the discounts given to customers who would have bought anyway, without
a discount. If you discount a second purchase to every new
buyer, you will undoubtedly be handing out discounts to people who
would have bought a second time anyway, and this can ruin your
margins. A Recency approach can also create discount proneness
(customer will not buy unless they get a discount). You
end up teaching them early on to wait for your next offer, which is
not a good thing (trust me, I've seen some very bad discount proneness
cases, and it is not pretty).
So it's a very tricky proposition to create a One-Time
buyer program like this; you have to be on top of measuring the true
ROI. A high response rate could mean you are simply giving the
store away to people who would have become multi-buyers anyway.
If you don't know how to create and use control groups to measure the
subsidy cost and discount proneness, you would be better off not doing
this kind of Recency-based One-Timer program at all. If you
would like to find out how to create and use control groups, may I
humbly suggest the purchase of my book.
So, no easy answers in One-Time buyer land, are there?
If you wait too long, they will ignore you. If you act too
quickly, you could ruin your margins. The best answer is really
this: focus your budget on multi-buyers, and determine how to reduce
the number of One-Timers you create in the first place. You will
grow your profitability without any increase in your marketing
spending.
Practice What You Preach: Online Advertising
Effectiveness? Tell Me About It... (Part 2)
=====================
OK, is Jim getting ripped off on his online advertising or not?
The only advertising I buy is highly targeted to search terms,
primarily through GoTo and the Google AdWords program. This
means I get two kinds of traffic from the same search engine - paid
and unpaid - for the same search terms! Last month, we looked at
a chart comparing the value of these visitors by source:
Metric |
Ad Visitors | Search Visitors
_________________________________
Avg. Visit Length 7:43
9:12
% 1 Page Visits 38%
51%
% Downloading Book Sample
2.2% 10.2%
% Bookmarking Site
2.2% 11.0%
% Newsletter Subscribes
3.7% 5.1%
The page viewing activity seems to indicate the ad-driven visitors are
of higher quality (lower 1 page visits) but the other behavior of the
search-driven visitors (average visit length, downloading, bookmarking,
subscribing) is far more valuable, as these visitors are most likely
to turn into book buyers. What's going on here? Should I
pay for ads or not?
Because I'm a Drilling Down kind of guy, I took these
numbers down to the next level. I wanted to see if there was
variation by the search phrase used, not just an average of all search
phrases. So I took my top 3 search terms (relationship
marketing, customer retention, customer loyalty) and did the same
break out. The following is a chart of visitor behavior for the
3 search terms above, broken out by whether they clicked on an ad
displayed in response to the search term or clicked on the search
engine listing itself. By the way, in many cases both are
displayed at the same time (if I rank high enough for the search term
in the engines involved):
Metric Ad
Visitors | Search Visitors
_______________________________
Avg. Visit Length 8:75
3:53
% 1 Page Visits 22%
20%
% Downloading Book Sample
6.0% 2.2%
% Bookmarking Site
9.8% 3.8%
% Newsletter Subscribes
3.8%
.6%
Well, I'll be darned. Now the visitors from ads are of better
quality - higher rates of downloading, bookmarking, and newsletter
subscription. The variation is really not best understood by the
method of arrival (ad or free search), but by the search term itself!
Or some other yet undiscovered combination of variables. If
there can be this much change just by looking at search term, then I
must have some paid ads keyed to search terms that generate very poor
quality visitors.
I know what you're thinking - he's going to Drill Down
some more, take it down another level in next month's newsletter...
And you would be right!
--------------------------------
If you'd like to see more on web log analysis
in future newsletters, let me know
--------------------------------
Questions from Fellow Drillers
=====================
Well, this newsletter is getting a little long, so only one question
from the curious out there. This three part question refers to a
comment I made when reviewing an article recently written by Seth
Godin and posted to the "fresh articles" list. If you
want to keep track of the latest in customer marketing articles around
the Web, I post links to them every few days on
this page.
Hi Jim,
Q1: When you say that the Web is a direct marketing
machine, do you mean that brand doesn't count?
A: No, brand always counts. The term
"machine" was meant to reflect the Internet as a medium is
the most efficient and effective direct marketing medium, relative to
all other media. Successful direct marketing depends totally on
the ability to collect data and analyze behavior, and the Internet is
the mother lode of this capability compared to any other medium
available.
Q2: Do you attribute Amazon.com's success to
their direct marketing efforts or to their strong brand?
That's a hard question to answer; branding is not
exactly my area of expertise. I attribute most of their awareness
to being first, and any brand success to being focused and following
through with the execution of the brand "promise".
This is why personally, I think they have wrecked their brand with all
the new products and lengthened delivery times. Amazon's
brand always meant "fast" to me. I don't think they
have ever been successful "back end" direct marketers.
Their attempts at it appear random and unfocused. They use their
data in a very shallow fashion compared to what goes on at a catalog
or TV shopping channel, for example.
Q3: Could you please explain to me your (and
Seth Godin's) point of view on this?
Well, I can't speak for him, but I'll tell you what he
might be thinking, and what I am thinking. Seth is a direct
marketer and he realized the same thing I did - the Internet is just a
higher tech version of what we've been doing for years, only faster,
cheaper, and with more data. Permission Marketing has been
practiced for decades by direct marketers, though in a messy way due
to a lack of the proper technology. The Internet gave us the
right technology. When I place a direct marketing ad in an
magazine, and ask you to fill out a coupon or call a number, am I not
asking for your permission? When I run an infomercial and you
click by and stop to watch, am I not asking your permission?
Messy, awkward, expensive technology. But the
same fundamental idea. The customer self-selects what they are
interested in, and this selection starts the relationship.
But now, you can put up a web site for almost nothing,
get listed in search engines, and customers will come to you, just
like surfing TV channels and seeing an infomercial. Then you try
everything in your power to "get permission" and ease the
customer into a sale, just like you do on an infomercial, or in a mail
piece, where I get your permission when you open the letter (I know, a
messy and annoying way to do it, but it works).
Seth's article was about this same direct marketing
process, and is based on his new e-book The Big Red Fez, where he
explains how to take advantage of direct marketing ideas to improve
the "front end" - getting the first sale. I
concentrate on the "back end" - getting the next sale.
Both are parts of the same direct marketing discipline, and depend for
success on analyzing customer behavior. As usual, in this book
he takes a complex idea and turns it into a simple "object"
people can more easily understand.
---------------------------------------------
That's it for this month's edition of the Drilling
Down newsletter. If you like the newsletter, please forward it
to a friend! Subscription instructions are at the top and
bottom.
Any comments on the newsletter (it's too long, too
short, topic suggestions, etc.) please send them right along to me,
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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