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Drilling Down Newsletter - February 2001 - Analytical CRM, ROI of Branding

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: 


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 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.

* Handling Missing Data Problems
January 29, 2001   DM News
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
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:


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 page URL visited, (entry page), referring domain for this first page visited and date of first visit, the last visit date, and the total pages viewed across all visits (the Drilling Down RF customer scoring parameters for page views).

* Update this information in a simple database that could be imported by Excel or Access.

I think this isn't very difficult; 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 is interested.

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!


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:


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.  If you like the newsletter, please forward it to a friend; the subscription is free!  Subscription instructions are at the top and bottom of the newsletter.  

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

Copyright 2001, The Drilling Down Project by Jim Novo.  All rights reserved.  You are free to use material from this newsletter in whole or in part as long as you include complete attribution, including live web site link and/or e-mail link.  Please also notify me as to when and where the material will appear.


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