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MANY DATABASE MARKETERS HAVE TWO THINGS IN COMMON. First, they can measure acquisition cost well but they don't use a sound method of judging the lifetime value ("LTV") of a customer. That is, they know what it takes to turn a prospect into a customer but they don't follow through to know how much the customer is worth to the company. Second, they emphasize prospecting efforts rather than retention and cross-selling/up-selling efforts. The combination of these two traits often leads to profitability problems when testing new media. |
For a "traditional" cataloger who sells only through direct mail and prospects only with rented lists, there can be a major difference in the long-term profitability of buyers from different sources. For a database marketing company that prospects through many different media, the long-term differences in profitability are even greater.
Marketers often emphasize prospecting over retention. This fails to generate sufficient profits from retention to cover the costs of prospecting. As a result, they are actually forced to grow more slowly by emphasizing prospecting than if they concentrated on generating profits from existing customers. The logic is simple. If existing customers return greater profits, then spend more time on them. Use these profits to convert new prospects into customers. This will grow your customer base and profits even faster.
PLANNING FOR RETENTION
Without a successful retention program, there cannot be a successful prospecting effort. Why attract new customers that aren't going to be profitable? Yet that is exactly what many database marketers risk doing when trying new media.
Many of the web-based efforts, particularly those funded by OPM (other people's money), have spent huge amounts on advertising to drive prospects to their web sites. Despite the investment they make on prospecting, some don't have a coherent retention strategy at all.
On a smaller scale, catalogers are treating other media in a similar fashion. They assume that customers acquired through newspaper ads or radio spots will behave like their "traditional" catalog customers and buy from the catalog. This can be an unfounded assumption.
There is often no strategy in place to follow up with first-time buyers from different media. If a first-time buyer responds to a newspaper ad, they may be responding to a very different offer than typically found in a catalog. Since they did not buy from the catalog in the first place, it may be unsafe to assume that they will buy from the catalog in the future.
It certainly stands to reason that database marketers should recognize, measure and respond to buyers from each medium in different ways. It also stands to reason that it may be appropriate to have a different follow-up strategy for first-time buyers from each advertising medium, as well.
TESTING NEW MEDIA
The fact that a medium is different or that it has not been adequately tested in the past does not make it good or bad. Some catalogers wouldn't be in business without their web site. For others, there is little crossover from the web site to the catalog. In at least two cases, we have seen DRTV (Direct Response TV) buyers generate higher repeat sales through a catalog than the average buyer acquired through direct mail.
Remnant space ads in city newspapers have widely varying LTV results. Depending upon the offer, average order and other factors, results from such ads run from very low to very high LTV. And for some direct sellers, card decks bring in the bulk of their prospects and customers.
The importance of testing new media -- whether web-based, print-based or broadcast -- is clear. The key to successful testing is making sure that each kind of media not only provides a reasonable customer acquisition cost but also brings in new buyers who will stick around and generate future sales and profits.
FRONT END vs. BACK END
Acquisition cost (or front-end expense) is the investment it takes to turn a prospect into a customer. Back-end profits are earned by making repeat sales to existing customers.
For each medium, database marketers need to link the front-end and back-end strategies. For a marketer that has treated all buyers in the same manner (for example, treating all buyers as though they are catalog buyers), this can be a difficult change. This is especially true when there is no sound method to calculate customer LTV.
Assuming the front-end expense can be measured for each medium, how can marketers get a handle on the back-end profits associated with each medium? Here is a simple but effective way to compare buyers from different sources/media:
- Identify acquisition cost by source/medium (advertising expense, responses, initial sales).
- Determine typical back-end sales in the first 30 days, 90 days, 6 months and one year periods.
- Compare each source/medium to the "standard" at each interval.
- For media at or above the standard, continue testing and rollouts.
- For media at or below the standard, review follow-up strategy and test carefully.
- For media well below the standard, modify or discontinue your efforts.
SALES CHANNEL vs. MEDIA
A sales channel is different from a medium. A sales channel could be retail stores, direct sales representatives or an in-bound call center.
Advertising supports the sales channels. For example, signage and in-store displays support retail stores. Rarely would one suggest that improving in-store displays will generate new buyers who will return and buy from a catalog. Yet marketers often expect as much when prospecting through new media.
OFFERS vs. MEDIA
The medium is the messenger; the offer is the message. When you find a medium that is not performing either on the front end or back end, change the offer and re-test.
Most of the efforts with new media that fail, do so because the offer was very different than successful offers used elsewhere, not because of the media. For example, a cataloger with an average order of over $100 ran ads in Sunday supplements for an under-$10 item. Back-end sales were miserable, as could be expected. However, by changing the offer repeatedly and continuing to test, a new offer is working very will on both the front and back ends.
BUILDING RETENTION STRATEGIES BY MEDIUM
For each medium that is used to attract new customers, there should be a front-end and back-end strategy in place. This strategy should be in place before any new medium is tested to be certain that each effort is watched, tracked and managed in such a way that the chances for finding success are maximized.
For web-site buyers, a web-based follow-up strategy should be in place. E-mails, electronic catalogs and other devices should be employed in an ongoing effort to retain these buyers. Special care should be taken to make sure buyers are not lost when they move from one medium to another, such as when DRTV customers use catalogs after their first sale.
REWARDS
The rewards of testing new media are too great to justify avoiding the risks. It has become common to find companies that sell more through media that they didn't even use five years ago than they now sell through traditional media.
The web is certainly the most glamorous of today's media portfolio and catalog marketers should test it. But many profitable stories involve marketers that succeed in using newspaper, radio, DRTV, car decks, direct mail and other media as well.
The same rules of testing, measurement and offers apply to all media. Your pot of gold might be hidden on the web or it might be hidden in the sports section. Either way, I hope you find it!
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