September 28, 2009

OMS: MVP = Most Valuable Path

When you take a few moments to read articles about online marketing, you quickly learn that the goal is to get a conversion ... NOW!

What happens if the customers you acquire aren't very good long-term prospects?

Time to pull out the OMS and see if that happens! If you want to follow along, send me an e-mail message, and I'll send you the free spreadsheet with 80% of the content I use when working with my clients.

Here's what I want for you to do:
  • Zero out cells D6 - G6, we only want to acquire customers in the first year.
  • Zero out cells B101 - B340, the cells that have the number of customers by segment to start the simulation with.
  • Now, zero out cells B341 - B580. These are the cells that tell us how many people we're going to acquire. I have 240 segments, I add "300" to the segment label on each of these ... so segment 412 is really segment 112.

Ok, now let's try something. Plug the value "1,000" into cell B452. We're going to track what happens when we acquire 1,000 customers into what is Segment 112, a cell graded as a "C". What do you observe:

  • Almost all of these customers purchased from online marketing channel number two (see cell J6).
  • Almost all of these customers purchased merchandise from department number 11 (see cell J15).
  • After the first year, almost none of these customers purchased again, generating about $35,000 over the next four years.
  • When acquired, these customers typically bought 1.8 items at $17.49 per item.

Now let's try something different. Zero out cell B452, and instead, plug the value "1,000" into cell B477. Look at these customers.

  • Almost all of these customers purchase from online marketing channel number one (see cell J5).
  • Almost all of these customers purchased merchandise from either department numbers 15 and 19 (see cells J19 and J23).
  • After the first year, some of these customers purchased again, generating about $121,000 over the next four years.
  • When acquired, these customers typically bought 1.4 items at $30.28 per item.

There's a fundamental difference in the subsequent behavior of these customers, right? Which customer would you want to acquire?

This is part of the art of online marketing that is missing these days. We look at conversion metrics, and determine if we did well or not. By folding in the merchandise a customer purchased (and the price point the merchandise is offered at), and simulating what is likely to happen in the future, we see a different story --- we can identify the marketing channels (offline, e-mail, search, affiliates, etc.) that yield high-value customers, and we can identify the merchandise that we should advertise, merchandise that yields high-value customers.

This is part of something I call the "MVP", or "Most Valuable Path". What we want to do is understand how customers progress through our ecosystem, identify that path (micro-channel + merchandise + geography + price point) that yields a high value customer, and then acquire customers who take the Most Valuable Path.

Make sense?

Homework assignment: Describe the dynamics that happen when you acquire 1,000 customers from segments 349, 350, 355, 357, and 364. Which segment yields customers with the most future value? What do you see happening that is driving this?

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