Jack Schmid, Founder
Multichannel success depends in large part on having a solid strategy for keeping in contact with your house list. Most marketers know this, but knowing how to develop and execute a plan for contacting the customer file is another story.
The good news is that you can simplify the process by breaking it down into steps and then using list metrics to make sure that the plan is working.
Step one is identifying buyers and inquirers and segmenting them by typical analytical tools such as recency, frequency, monetary value, and product category (RFMP) and then sorting them into common-sense groupings such as
- best, most loyal customers
- good customers who consistently produce reliable financial results from campaign to campaign
- problem segments — these include customer groups that underperform because they are inactive or have low average order values (AOVs) and new-to-file names who need motivation to make their second purchase
- catalog requesters or other inquirers who have asked for information about the company or visited the Website but have yet to make a purchase.
As catalogers move toward a broader multichannel focus, they must consider another aspect of segmentation: where new customers originated from — traditional mailing lists, space advertising, trade shows, search engines, affiliate marketing efforts. Don’t assume that a customer is a customer is a customer. In the same manner that we have historically found enormous differences in performance by customer segment, we are also finding parallel dissimilarities by where and how customers have found your company to make their first purchase.
The second step of the customer contact plan is to develop the right strategy to match each of the customer list segments. Offers, number of contacts (mailings, remailings, e-mail campaigns), timing of promotional events, and testing are all part of strategy development.
As you develop the strategy, you should have two objectives in mind:
- to make your sales goals or whatever other financial numbers you’ve decided on
- to learn, through ongoing testing, something about what motivates various customers or inquiries to place an order.
These two steps may be the most important aspects of the “left brain” side of the business. There is a corollary task that naturally flows from the plan and strategy development: identifying how you are going to measure success.
Customer list metrics
Let’s look at the key customer list metrics that savvy marketers use to determine whether they have accomplished their objectives. We have a long tradition of measuring results from promotions put in the mail. We know a ton about catalog and direct mail metrics. As we have evolved into a greater mix of orders via e-commerce, however, the measuring tools have become a bit fuzzier. Fortunately we are learning more every day about how shoppers use the Internet to find our product line and how the Web influences buying decisions and helps close sales.
Last year, across all direct marketing companies, 38% of the orders came via the Internet. Many multichannel companies now regularly receive a majority of their orders via the Web. The good news is that processing an Internet order is easier and more cost-effective; the bad news is that tracking Internet orders is far more difficult than tracking traditional catalog orders.
The following checklist includes the key metrics marketers should be tracking with every promotional campaign:
Metric #1: Mix of how orders are placed. Did orders come by mail, phone, fax, or the Internet? What were the differences in AOV?
Metric #2: Sales or revenue per catalog mailed or per e-mail compared with a fully loaded breakeven. Established marketers understand and use the breakeven analysis (see “Breakeven analysis — by order,” right) to track and measure results. You can apply the breakeven regimen to various customer segments; it’s also applicable to a catalog mailing or remailing, a direct mail campaign, or a push e-mail campaign. The breakeven calculation is one of the few precampaign analytical tools that marketers use.
Metric #3: Profit and loss (to the contribution level) by each campaign. You should perform this analysis for each customer segment that is represented by a unique source code. It is critical to be able to track results by source code for any degree of accuracy. Matchback technology — the ability to match noncoded Internet against an original campaign mailing tape — to accurately track Web orders is becoming more and more sophisticated to help this process. You need to know
- which lists have made a positive contribution?
- which lists have achieved a fully loaded contribution goal?
- what percent of orders are uncoded and are unable to be matched?
- overall, did the campaign make its financial plan (to the contribution level)?
Metric #4: The results of testing within the customer list. Testing new offers, list segments, remails, and promotion timing is part of the lifeblood of successful direct marketing. Seldom should a campaign — mail or electronic — go by that does not seek to help you learn more about your customers and how they react. With every offer, it is critical to know what level of gain you need to pay for that offer, such as free shipping and handling. Response percentage and AOV are key elements that drive results.
Metric #5: E-mail tracking. As we learn more about e-mail campaigns, we are finding that there are quite a number of metrics that must be tracked, including
- open rates: HTML e-mails that were not blocked
- click-through rates: total clicks divided by e-mails delivered
- conversion rates: click-to-purchase percentage
- orders per e-mail: total orders divided by e-mails sent out
- AOV
- bounce rates: number of addresses that were not deliverable
- opt-out or unsubscribe rates: names that requested not to receive future e-mails
According to DoubleClick’s E-mail Solutions Trend Report on the second quarter of 2005, open rates were trending downward to 27.5%, while click-through rates also declined from 7.7% in 2004 to 7.2% in 2005. Conversion rates remained strong, actually rising 27.8%, to 4.6%, and orders per e-mail also gained slightly, to 0.26%. AOV for all e-mails was $80, down from $93 a year ago, and bounce rates were down to an all-time low of 7.9%, with retail and catalog companies being the lowest of all industries at 6.2%.
Metric #6: Lifetime value (LTV). In the past year or two, our company has undertaken several studies on the value of a catalog/Internet company’s customer list. We feel that this calculation provides the ultimate measure of value. Each of the major customer segments is valued over three years. One of the most telling statistics is persistency, or the percentage of each customer list segment that buys again. The more loyal your customers are, the higher this percent should be.
Metric #7: Return on investment. The ultimate metric that defines the success or failure of any campaign is ROI. Did each customer segment provide an expected return on your advertising dollar?
Multichannel marketing is enormously quantitative. It helps that in our business many individuals, companies, and the industry as a whole are willing to share results and help us establish key benchmarks and metrics on which we can judge our results. The better you understand and apply these metrics to your business, the greater your chance of success.
| Breakeven 0% | Breakeven 10% | Breakeven 20% | ||
|---|---|---|---|---|
| AVERAGE UNIT PRICE | $50.00 | $50.00 | $50.00 | |
| AVERAGE UNITS PER ORDER | 2 | 2 | 2 | |
| AVERAGE ORDER VALUE (AOV) | $100.00 | $100.00 | $100.00 | |
| Cancellations = 1% | $1.00 | $1.00 | $1.00 | |
| Returns = 10% | $10.00 | $10.00 | $10.00 | |
| NET SALES PER ORDER | $89.00 | $89.00 | $89.00 | |
| NET COST OF GOODS SOLD = 50% | $44.50 | $44.50 | $44.50 | |
| Fulfillment cost per order | $12.00 | $12.00 | $12.00 | |
| + Fulfillment income/order | $5.00 | $5.00 | $5.00 | |
| Net fulfillment expense/order | $7.00 | $7.00 | $7.00 | |
| CONTRIBUTION (before promotion, overhead, and profit) | ||||
| @ 0% of sales | $37.50 | $37.50 | $37.50 | |
| ($8.90) | ||||
| @ 10% of sales | $28.60 | |||
| ($17.80) | ||||
| @ 20% of sales | $19.70 | |||
| ADVERTISING COST PER PIECE | $0.50 | $0.50 | $0.50 | |
| Calculation formula = promotion cost — in-mail contribution | ||||
| BREAKEVEN = 0% response (variable level) | 1.33% | |||
| Breakeven sales per catalog | $1.19 | |||
| BREAKEVEN = 10% response (variable + overhead) | 1.75% | |||
| Breakeven sales per catalog | $1.56 | |||
| BREAKEVEN = 20% response (variable + overhead + profit) | 2.54% | |||
| Breakeven sales per catalog | $2.26 | |||
As seen on Multichannel Merchant
Tags: customers, Jack Schmid, multichannel, Strategy