April 28, 2008

Micro-Channel Challenges: Abacus And Co-Ops

I am continually told by traditional catalogers that there isn't a viable way to get away from a paper-based advertising model. Regardless of the sales success of folks at Zappos or Blue Nile or Amazon or Overstock.com, folks who do not use a catalog marketing channel, traditional catalogers usually have data (and more important, a belief system), to support the need for a paper-based advertising model.

Many (most?) catalogers have annual repurchase rates under fifty percent. In other words, fewer than fifty percent of 2006 purchasers buy again in 2007. When this happens, the business model demands a disproportionate focus on customer acquisition.

Catalogers look to outside lists and co-op databases (with Abacus being the primary co-op) as the primary way to acquire new customers, looking at paid search and online marketing as a secondary source.

Micro-channels like Abacus / Co-Ops present unique challenges. We need to seriously look at WHO the customers are that we acquire via these channels.

Have you completed this exercise? The exercise is valid for any micro-channel (not just e-mail or co-ops or rented lists or paid search).

Some folks see that the names they acquire from Abacus / Co-Ops are disproportionately rural. These customers are likely to stay in the catalog / telephone environment (which, by the way, is a more measurable environment, making Abacus / Co-Op names appear to perform better, simply because the phone/mail channel is the most measurable ... an interesting and unintended outcome).

Some folks observe that the names they acquire from Abacus / Co-Ops buy fundamentally different merchandise than customers acquired from other sources. This implies that the future value of these names will be different (maybe better, maybe worse). This also implies that, depending upon how many new customers are acquired from these sources, the future merchandise assortment is being driven by co-op statisticians applying sophisticated algorithms.

There are significant differences between names acquired from various sources.
  • Rented / Exchanged Lists are brand loyal, this loyalty to another brand drives their future behavior within your brand.
  • Abacus / Co-Op names are selected by a human using an algorithm. Future behavior is driven by the choices made by the human using the algorithm.
  • Paid Search names self-select themselves on the basis of an algorithm. Future behavior is driven by the needs of the person self-selected by the algorithm.
Profiling the names acquired via these micro-channels will give you an idea where your brand is heading. Increasingly, algorithms and outside individuals are driving the future success of our multichannel brands. This is neither good nor bad, it is simply part of our new marketing reality.

Use tools like Multichannel Forensics (or simple future value tables) to understand the long-term trajectory of customers acquired via micro-channels.