January 15, 2014

Service: Looping Through The Contact Strategy Algorithm

Ok, now you're interested!

You want to know what, exactly, I'm doing.

Say I have a customer who is forecast to spend $20 of catalog demand on 12 contacts. Also assume that this customer will spend $10 on 250 email contacts.

If I want to bump up the catalog side of the strategy to 15 contacts from 12, I use a law of diminishing returns (based on prior test results -  not highly inaccurate matchback outcomes) to estimate annual catalog demand. In this example, annual catalog demand goes up from $20.00 to $22.36.

Next, let's say that I want to bump up the number of email contacts, from 250 to 300. Again, I use a law of diminishing returns (based on email mail/holdout test results, not opens/clicks/conversions). In our example, annual email demand goes up from $10.00 to $10.47.

Then, we have to account for the fact that additional catalog contacts will drive additional email demand, while additional email contacts will cannibalize catalog demand. I know these relationships from a ton of mail/holdout tests. In our example, catalogs will drive an extra $0.10 of email demand, while email will cannibalize $0.08 of catalog demand, yielding a net increase of $0.02 across channels.

Next, we calculate profitability. We factor in the additional cost of three more catalogs, we factor in the additional cost of 50 more email campaigns, and we factor in the additional cost of paid search clicks generated by additional catalog/email marketing activities. In our case, profit drops, from $2.43 per customer to $1.47 per customer. Clearly, we're moving in the wrong direction!

In fact, in our example, the most profit is generated by sending just 3 catalogs, and 250 email campaigns.

Why go to all this trouble?

Because 99% of B2C catalogers are GROSSLY OVERMAILING customers, even after working with Clario or another credible vendor who goes beyond simple models and RFM segments.

In fact, if you factor in the paid search costs, you'll find that you're over-mailing by 10%, right off the bat, +/-.

My contact strategy work now includes catalog contacts, email contacts, and the impact on the paid search budget. All three elements work together, interacting with each other. The result is beautiful. And you need to be doing all three elements, simultaneously. If not, you're over-mailing, badly in most cases.

Contact me (kevinh@minethatdata.com) for your own contact strategy model!