May 29, 2007

Abacus, Google, And Brand Implosion

Using Abacus for customer acquisition has always been a hotly debated topic in catalog marketing.

Many circulation experts have always enjoyed their relationship with their favorite list broker. It's fun to exchange 50,000 names with Talbots, to net out 24% and realize, by default, that you share the exact same customer as your competitor. It can be a rush to test a Crutchfield 0-3 month $100+ select, and see the list work. List rental, exchange and brokerage requires gut feel, instinct, business savvy, and negotiation skills.

Then along came Abacus. You dump your housefile into their database. You then have access to modeled prospect names for something like seven cents a name. You have no idea which names you're getting, you just know their model picked "good" names, names that have an "affinity" to your brand.

At first, big companies hated this idea --- why should a big company dump six million names into the compiled list, only to realize that sixty percent of the compiled list is your customer?

Once Abacus achieved scale, all contributors theoretically benefited. Another funny thing happened along the way. The performance of Abacus names rivaled that of rented/exchanged lists. Why go through the hassle of managing 73 different lists in a mailing, when Abacus can automate the process for you?

The evolution of catalog customer acquisition is driving companies toward Abacus, away from the good folks at Millard and Mokrynski.

Everything seems peachy.

Except for one person I recently spoke with. This person made an interesting observation. He told me that almost all of his customer acquisition is from Abacus. He told me that the performance of Abacus names continues to be good. But, his housefile names are not performing well anymore.

I asked this individual what his twelve month buyer annual repurchase rate was. The answer ... thirty percent.

Remember, this individual does almost all of his customer acquisition via Abacus.

So, two years ago, this individual had 100 buyers. 30% repurchase. This person has to recruit 70 new customers ... almost all from Abacus.

In year two, there are 30 existing buyers, and 70 from Abacus. 30% of each list repurchase. This leaves us with 9 existing buyers, 21 existing buyers from Abacus, and 70 new customers from Abacus.

Within two years, 91 of 100 customers are from Abacus. Obviously, some names come from other lists, or from lapsed buyers. So let's assume that just 75 are from Abacus, not 91.

Still, in just two years, 75% of the active housefile are Abacus-sourced buyers. And this individual points out that his housefile names aren't working well anymore.

If your annual repurchase rate is in "Acquisition Mode", under forty percent, and you do the vast majority of your customer acquisition work with Abacus, you've got an interesting dilemma. In just two years, the vast majority of your active housefile is sourced from Abacus.

Remember, this individual says his housefile names no longer work well. Hmmmmmmmm.

This isn't the fault of Abacus. They are simply providing a service that clients are willing to pay for.

No, this is the fault of circulation experts. It is our fault! We're doing this to ourselves. Not smart!

Our business models participate in a big ecosystem. Unwittingly, we are moving our ecosystem away from something we control, toward something we no longer control. In this example, Abacus now owns the brand I spoke of, with housefile productivity imploding as we speak. The success or failure of the brand is no longer in control of the merchants who pick great product. Instead, the brand depends upon the type of names that Abacus makes available for the client.


And all you online marketers, if you think you're immune to this, you're not. Where do you get all of your customers from? Google? Abacus is tiny. Google owns the world. Once we've saturated the online customer market, Google plays the role for online marketers that Abacus plays for catalog marketers today.

Multichannel CEOs and CMOs: If your annual repurchase rate is under forty percent, be wary of sourcing the majority of your new customers from one vendor. The dynamics of your housefile dictate that, within just two years, that vendor determines the fate of your brand, not the product/creative/service/brand strategies you initiate.

2 comments:

  1. casey carey8:05 AM

    Kevin -

    Thought your readers might be interested in this research conducted by Lenser on the impact of cooperatives on housefile performance.

    http://www.lenser.com/newsletter_0806.html#casestudy

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  2. Thanks Casey, score one for participating in co-ops.

    Belief in co-ops is a religion. Either you believe in it as a strategy, or you don't. The actual results seldom matter.

    All that being said, it is not smart for a circulation person to only depend upon one source for customer acquisition.

    ReplyDelete