Showing posts with label OMS. Show all posts
Showing posts with label OMS. Show all posts

## January 25, 2010

### Online Marketing Simulations: Merchandise Growth

Open your spreadsheet (contact me for your copy), and take a look at cells J19 - N19.

Cells J15 - N27 illustrate simulated/projected growth in different merchandise divisions during the next five years. Remember, this is a business that is forecast to shrink significantly over the next five years.

But the merchandise division in cells J19 - N19 is forecast to grow!

In fact, this isn't the only merchandise division forecast to grow in the next five years. Look at J23 - N23.

When a business is struggling, there is often data available, data that shows the Executive a path to a profitable future. You just need the tools to demonstrate the profitable path to the future.

## January 11, 2010

In the spreadsheet, enter "0" in cells B101 - B188, and enter "0" in cells B190 - B580. This means that we are going to analyze just one segment of customers, a segment that is at a grade of "B" on an "A / B / C / D / F". Recall that I grade all customers in Online Marketing Simulations, so that I can measure where these customers migrate over time.

Ok, 7,062 customers with a grade of "B" don't stay as "B" customers for long, do they? At the end of five years, the majority of customers slump to grades of "D" and "F". In other words, good customers don't stay good customers forever. Here's what we see in our simulation:
• Grade of A = 436.
• Grade of B = 503.
• Grade of C = 695.
• Grade of D = 1,202.
• Grade of F = 4,226.
Now, marketers think they can "fix" this problem. By initiating a loyalty program, or by simply dazzling the customer with outstanding marketing programs, we're told that marketers and vendors can "retain" your best customers.

So, let's assume that you can do a better job of retaining these customers. In cells C5 - G5, enter the value "1.30". This means that we're going to do a 30% better job of retaining customers, due to a loyalty program that does a spectacular job of retaining customers. What does the distribution of customers look like after five years?
• Grade of A = 1,047.
• Grade of B = 742.
• Grade of C = 756.
• Grade of D = 1,110.
• Grade of F = 3,406.

If you can develop a loyalty program that somehow increases retention rates by 30% per year for each of five years, you can make a difference.

Good luck with that!

It is more common that new marketing efforts, as long as existing programs are being executed reasonably well, will lift retention rates by maybe 5%. So plug the value "1.05" into cells C5 - G5. Now take a look at how customers migrate over time:

• Grade of A = 510.
• Grade of B = 543.
• Grade of C = 717.
• Grade of D = 1,199.
• Grade of F = 4,093.

Look at that! You improve retention rates by 5% a year, every year, and you basically get nowhere, do you? A 30% increase by year, every year, makes a significant difference, but is virtually impossible to achieve.

So, if you want to add an additional 500 customers at a Grade of "A", how are you going to do it? Your thoughts?

## January 04, 2010

Let's get overly simplistic here, but let's do so in order to prove a point. Open your spreadsheet! (contact me for a copy).

In the old days of cataloging, if you didn't advertise with a catalog, you didn't get sales. In the modern world of e-commerce, if you don't advertise, you still get sales. This is called the "organic percentage", the percentage of business that happens regardless whether you advertise or not.

Let's assume that 50% of the retention rate of existing customers happens regardless whether you advertise or not.

Now, let's say that you want to increase your overall advertising budget by 20%. In old-school marketing, there's a rule of thumb ... a 20% increase in advertising yields a 10% increase in business.

If half of the business is organic, then we can only impact the other half of the business with marketing. So a 20% increase in marketing to existing buyers yields a 10% increase in business on the half of the business impacted by advertising, yielding a 5% increase in volume.

So, open your spreadsheet, and look at demand over the next five years.
• Year 1 = \$75.9 million.
• Year 2 = \$70.4 million.
• Year 3 = \$66.7 million.
• Year 4 = \$64.4 million.
• Year 5 = \$62.9 million.

Now, let's increase the advertising budget for one year by 20%. We need to change cell C5 from 1.00 to 1.05. If we only change our advertising strategy for one year, we see the following outcome:

• Year 1 = \$79.0 million.
• Year 2 = \$72.0 million.
• Year 3 = \$67.8 million.
• Year 4 = \$65.1 million.
• Year 5 = \$63.4 million.

You get a \$3.1 million dollar improvement in year one, and you get an additional \$3.9 million in improvement in years two through five.

This is one of the things you simply cannot see with your standard web analytics package or sales attribution model or matchback algorithm.

Online Marketing Simulations can help you see the short-term and long-term impact of your marketing decisions. Don't you think your CEO (or CFO or CMO) wants to know this information? These are the kind of projects I routinely work on for CEOs, CFOs, and CMOs.

Exercise For You: Increase retention for five years by 5% ... type 1.05 into cells C5 - G5. What is the impact of spending more in advertising across five years?

## December 28, 2009

Please enter the value "0" in cells B101 - B580.

Now, enter the value "10,000" in cell B397. These are new customers that are acquired via low price points. In this simulation, we acquire 10,000 customers per year at low price points.

Next, enter the value "10,000" in cell B395. These are new customers that are acquired via higher price points. Look at how your new business evolves in a manner that is quite different than when you are exclusively acquiring customers from cell B397. You have far more "A" customers, you have customers who purchase at higher price points, you have a \$3.8 million dollar business instead of a \$2.8 million dollar business.

Direct marketing has become a game of promotions and discounts. We seek to optimize our business based on conversions, and in order to maximize conversions, we have to offer 20% off or free shipping or gifts with purchase or great deals on inexpensive items.

These two simulations illustrate how these "empty calories" impact the business, over time. We're much better off putting veggies in our bodies than snack foods and cookies.

Buy the book, Online Marketing Simulations, on Amazon.com!

## December 22, 2009

Online Marketing Simulations are designed to illustrate to the marketer the long-term impact of short-term decisions.

So, let's open up our spreadsheets (e-mail me for your own copy).

Take a look at cells G10 - G25. This is the forecast for the business in Year 5, given current projections. Let's look at a few key cells.
• G16, Orders per Buyer = 1.615.
• G17, Items per Order = 2.424.
• G18, Price per Item = \$65.80.
• G21, Customers With Grade Of 'A' = 58,417.

Now, let's make one small change. Let's assume that for just one year, in Year 1, customer retention improves by 20%. Enter the number 1.20 into cell C5. Now look at how all of the metrics change, in Year 5.

• G16, Orders per Buyer = 1.629.
• G17, Items per Order = 2.424.
• G18, Price per Item = \$66.58.
• G21, Customers With Grade Of 'A' = 60,480.

Four years after the improvement, key metrics are, in many cases, changed.

Now, what do you think will happen to your business, long-term, when you give away the farm with free shipping and 25% off of every order?

Run your own Online Marketing Simulation to find out. Buy the book at Amazon.com!

## December 21, 2009

Let's run another simulation, one similar to the one we ran last week when evaluating customer loyalty.

Open your spreadsheets (e-mail me for your own copy). Using the customer acquisition index row (C6 - G6), enter increases in customer acquisition that yield a business that is generating \$80,000,000 in sales in Year 5.

There are many solutions that get you to the same answer. Share your simulated results in the comments section of this post.

## December 16, 2009

Here's one for those of you who have been following along with your own spreadsheet (e-mail me for your copy).

Quiz: Using the customer retention index line (cells C5 - G5), figure out how much you have to increase customer retention in order for this business to hit \$80,000,000 in Year 5.

Use the comments section of this post to outline your solution. There are many different solutions that get you to the same answer.

## December 14, 2009

### Inefficiency

Here's the deal. The vast majority of online marketing focuses on "easy conversions".
• SEO --- close to free.
• E-Mail via batch-based campaigns --- close to free.
• Promotions --- free shipping, % off, GWP, PWP.
• Paid Search --- expensive, but better when coupled with a promotion.

There are what I call "hard conversions". These are the conversions that happen the old fashioned way, when a customer finds your product so compelling that they cannot resist it. Hard conversions often lead to loyal customers.

So the goal is to find hard conversions that lead to long-term value. That's not easy. But that's what the OMS methodology enables you to do.

See, you'd rather get half of the clicks if it means that those customers are worth double or triple the value of easy conversions, right?

I'm here to tell you that Online Marketing is inherently inefficient. The entire ecosystem, and the Web Analytics solutions that measure the ecosystem, create a giant feedback loop based on easy conversions. It's easy to see how the conversion funnel worked via Google Analytics.

Now try to use Google Analytics to measure the five year simulated trajectory of your business, based on the customers who fall through the purchase funnel and eventually convert. Or Omniture. Or Coremetrics.

We use Online Marketing Simulations to find inefficiencies, seeking to optimize the long-term health of our business. Those who use Online Marketing Simulations have a clear competitive advantage over those optimizing the business based on conversion rates.

## December 07, 2009

By now you are using Online Marketing Simulations (book, kindle, digital downloadhire me) to understand how customer behavior evolves over time. You are probably excited about some of the unique ways that customers behave, and you probably know a lot more about how to grow your business for long-term success.

Now, you probably want to know how much you should invest, in order to maximize your opportunity, right?

When I am working with a CEO, CFO, or CMO, I combine the results of an Online Marketing Simulation with Ad Curves, yielding the optimal strategy necessary to yield profitable long-term success.

If you are managing e-mail marketing, paid search, or print marketing campaigns, you'll appreciate the insights gained by combining Online Marketing Simulations with Ad Curves!

## December 02, 2009

### OMS: Decomposing A Disaster

Time for everybody to pull out their sample OMS worksheets for an exercise (e-mail me for a copy)! And if you haven't secured your copy of Online Marketing Simulations (the book is a perfect Holiday stocking stuffer), you can buy the book via three sources:

Now, back to our regularly scheduled discussion. Open up your copy of the spreadsheet, and take a look at cells C18 - G18. What do you observe?

The average price that a customer is paying, per item, is decreasing over time. In fact, during the next five years, the average price trend is forecast to decrease by about 9%. This accounts for half of the reason why sales are dropping like a rock.

Look at cells C16 - G16. Even though prices are dropping, customers are not ordering more often. One might intuitively think that as prices drop, customers would become more "loyal", right?

Look at cells C17 - G17. Even though prices are dropping, customers are not ordering more items per order. One might intuitively think that as prices drop, customers would be willing to buy more items.

These are simple concepts ... prices, items, orders. And yet, combining simple concepts with Online Marketing Simulations allow you to see a forth-coming catastrophe.

So, I ask you the following question. Can you use Omniture, Coremetrics, Webtrends, Google Analytics, or any other software application to provide you with a five-year view of where your business is heading? If not, give me a holler!

## November 30, 2009

### Ripple Effects and Cyber Monday

One of the reasons we run Online Marketing Simulations (Book, Kindle, Digital Download, Hire Me) is because we want to understand what I call "Ripple Effects".

We're all familiar with Ripple Effects, right? Our economy collapsed based on the actions of a relatively small number of players, folks who did things that rippled through our economy, one domino at a time.

You'll use Online Marketing Simulations to understand, for instance, how Cyber Monday discounts and promotions ripple through your customer ecosystem.

Say you offered customers 15% off plus free shipping during Cyber Monday 2008. You now have one year of data to plug into your simulation. You'll get to see how customers who took advantage of this generous promotion behaved.
• Did these customers ever purchase full-price merchandise again?
• Did these customers ever pay for shipping and handling again?
• Did these customers ever purchase anything again?
• Did you convert full-price customers to discount hounds?
• Did you change the type of merchandise that the customer now prefers (i.e. low-price-point items)?

And you will get to see how changes in customer behavior ripple through your ecosystem. If your Cyber Monday promotions converted customers to low-price-point items in the future, then you'll see that high-price-point items are not selling as well, resulting in changes in merchandising strategy, changes that impact gross margin in the future, requiring more items to be sold, requiring more promotions to move items, further lowering gross margin ...

You get the picture!

You can simulate all of these things. You can plug in a smaller number of full-price buyers on Cyber Monday instead of a high number of promotional Cyber Monday buyers, and then see how this ripples through your business over the next five years. Pay close attention to the merchandise that sells in the future. Pay close attention to the discounts and promotions you'll have to give away in the future.

This is a great way to use an Online Marketing Simulation!

## November 23, 2009

### Optimizing Customer Acquisition

Buy the book on Amazon.com, or buy the Kindle version here. Finally, e-mail me for a copy of a free OMS spreadsheet so that you can follow along with our examples.

Ok folks, open up your spreadsheets. Take a look at the five year sales projection for this business.
• Year 1 = \$75.9 million.
• Year 2 = \$70.4 million.
• Year 3 = \$66.7 million.
• Year 4 = \$64.4 million.
• Year 5 = \$62.9 million.

Now let's try something different. Go down to the customer acquisition portion of the spreadsheet, and do the following:

• Enter "0" into cell B452.
• Enter "10,142" into cell B441.
• Enter "11,463" into cell B443.

Look at the five year trajectory of this business:

• Year 1 = \$75.8 million.
• Year 2 = \$70.5 million.
• Year 3 = \$67.1 million.
• Year 4 = \$65.0 million.
• Year 5 = \$63.9 million.

This doesn't look like much of a difference, does it? Of course, we're only looking at changes to three of 240 different customer acquisition segments.

Here's the point I want to make. Those of us in the Web Analytics and Online Marketing community do everything possible to improve conversions today. This creates inefficiencies in our business. Use the OMS framework to understand the customer acquisition strategies that improve the health of your business long-term.

Think about being in this business five years from now ... having an extra million in demand might mean an additional \$400,000 in profit, enough money to save five jobs.

All of these little details add up over time. When we optimize our business for today, we potentially cost ourselves our job in the future.

## November 16, 2009

### A Laundry List Of Attributes

There's no reason that an Online Marketing Simulation (buy the book at Amazon.com or buy the Kindle version of the book) has to focus only on e-commerce purchase attributes.

For instance, here's a laundry list of attributes that are worth capturing:
• Customer subscribes to e-mail campaigns.
• Customer unsubscribes to e-mail campaigns.
• Most recent e-mail campaign click-through date.
• Customer only buys via free shipping.
• Customer prefers expedited shipping.
• Customer frequently abandons shopping cart.
• Customer never abandons shopping cart.
• Customer spends more than 15 minutes on your site.
• Customer spends less than 15 seconds on your site.
• Customer likes visiting clearance/sale pages/products.
• Customer actually read your privacy statement (hint, pay attention to this).
• Customer participated in live chat.
• Customer generated a review of one of your products.
• Customer volunteers demographic information.
• Customer gave you contact information in an offline channel.
• Customer watched one or more of your videos.
• Customer is a proprietary credit customer.
• Customer adds items to a "wish list".
• Customer returns merchandise.
• Customer returns more than 2/3 of merchandise purchased and has purchased 3+ times (hint, stop marketing to this customer).
• Customer purchased an extended warranty.
• Customer asks to have product automatically sent to her on a monthly basis.
• Customer utilizes rebates.
• Customer shops by brands.
• Customer shops by products.
• Customer enlarges images.
• Customer clicks on Top Sellers.
• Customer clicks on a toolbar to share products via social media.
• Customer clicks on "read reviews".
• Customer abandons items rated at two or fewer stars on a 1-5 scale.
• Customer uses site search function.

And on and on and on the list goes!

Take this information, and categorize the customer into one of forty segments, based on all of the information in the list. Combine the forty segments by five "grades" of productivity (A, B, C, D, F), and you have the perfect setup for an Online Marketing Simulation!

## November 11, 2009

### Subtle Differences

Time to open up your spreadsheets! (e-mail if you would like a copy).

Ok, enter the value "0.00" into cells C6 - G6. Next, enter the value "0.00" into cells B101 - B340. Finally, enter "1,000" into cell B189.

Next year, we'll retain 38.4% of these customers (cell C11). These customers will order 1.49 times (cell C16), buying 2.47 items per order (cell C17), paying \$48.02 per item (cell C18). Notice that as time goes by, these customers become more loyal, buying more expensive items. By the end of year five, these customers are purchasing \$83.00 items.

Now, enter "0.00" into cell B189. Enter "1,000" into cell B190.

Next year, we'll retain 36.8% of these customers (cell C11). So basically, these customers are very similar to the customers outlined earlier. However, these customers will order 1.6 times next year, buying 3.0 items per order, paying \$40.89 per item.

In other words, these customers are subtly different --- about the same repurchase rate, but buying more items per order, and buying cheaper items as well.

Over time, these customers also buy more expensive items, but only spend \$71.89 per item by year five. But notice that these customers are worth more in year five than the customers in the first segment (spending \$77,000 in year five, vs. \$57,000 in the other segment).

There are such subtle differences between customers in the businesses we manage. Our dashboards and reports suggest similarities. Over time, similar customers with subtle differences in purchase behavior diverge, becoming fundamentally different customers. When we optimize our business for short-term results, we miss out on the things that cause us to have a healthy business in the long-term.

## November 09, 2009

### Firing Customers

The concept of firing customers is a popular one. We read a lot of content that tells us to focus on the 20% of our customer base, the part of the customer base that generates most of the demand.

I'm not here to tell you that the strategy is right or wrong. I'm here to give you the tools to understand what it means to fire customers.

In our OMS spreadsheet, we grade customers with a grade of "A", "B", "C", "D", and "F". So today, we're going to attempt an experiment.

• Year 1 = \$75.9 million.
• Year 2 = \$70.4 million.
• Year 3 = \$66.7 million.
• Year 4 = \$64.4 million.
• Year 5 = \$62.9 million.

Clearly, this business is in free fall. So, let's do something odd. Let's fire every customer with a grade of "D" or "F". These customers cannot purchase again, ever. We'll literally block them from buying from us. Any customer that falls into a grade of "D" or "F", during the next five years, is prevented from buying again in our simulation.

Enter the value "0.00" into cells C245 - C340. This means that customers with a grade of "D" or "F" cannot buy again. We'll keep acquiring new customers. Take a look at the results.

• Year 1 = \$73.4 million.
• Year 2 = \$66.1 million.
• Year 3 = \$60.4 million.
• Year 4 = \$56.1 million.
• Year 5 = \$52.9 million.

In the first year, firing customers has almost no impact on sales ... sales decrease from \$75.9 million to \$73.4 million.

In the fifth year of the simulation, firing customers has a significant impact on sales ... sales decrease from \$62.9 million to \$52.9 million.

Your job is to determine if this type of decision increases profit, or decreases profit. My job is to show you that there is a cumulative impact that results from the decisions we make today. So many of us in the Web Analytics community and Online Marketing community look to optimize conversion rate, seeking to optimize the performance of the business today.

Hint: The Online Marketing world is "inefficient". When everybody is trying to optimize short-term results, you gain a competitive advantage by optimizing long-term performance. Use the OMS framework to do this!!

## November 08, 2009

Oh sure, I can offer merchandise across multiple channels!

If you are a "best customer", you'll purchase this book in multiple channels, right? I mean, multichannel customers are the best customers, so that means you'll probably purchase multiple copies in multiple channels!

## November 04, 2009

### Different Customers, Different Behaviors

Online Marketing Simulations (buy the book on Amazon.com) routinely show us that different customers exhibit different behaviors.

Go to the sample spreadsheet (
e-mail me for a copy), and do the following:
• Enter 0.00 in C6 - G6.
• Zero-out cells B149 - B340.

Here, we're running a simulation, evaluating only how customers with a Grade = A (the very best customers) perform over time. Play close attention to cells J5 - N7, these cells represent the sales trajectory of best customers across three advertising channels.

Don't save these results. Close the spreadsheet, then open it again, and do the following.

• Enter 0.00 in C6 - G6.
• Zero-out cells B101 - B292

Here, we're running a simulation, evaluating only how customers with a Grade = F (the most marginal customers in your database) perform over time. Look at cells J5 - N7. What do you observe? Well, Channel 2 gets disproportionately more sales, while Channel 3 gets disproportionately less sales.

This happens in your business too, folks. You will see that your best customers have purchase preferences that are different than are the preferences of marginal customers.

Use this information to your advantage. Know which marketing channels appeal to best customers, and to marginal customers!

## November 02, 2009

### Paid Search: Low Long-Term Value?

Paid Search is an absolute enigma, folks.

Talk to online marketing experts, and it is truly a big deal, the primary way many online brands acquire new customers.

Talk to offline marketing experts, and you hear a common theme ... "paid search customers have poor long-term value."

Long-term value is a relative term, comprised of two components ... "involuntary expense", and "voluntary expense".

Voluntary Expense includes all outbound direct marketing expenses that work for/against long-term value. Catalog marketers often begin to send paid search customers a veritable plethora of catalogs. If the paid search customer has no interest in catalog marketing, long-term value is going to decline, rapidly. The marketer is making a voluntary choice to speak with the customer, impacting long-term value.

Involuntary Expense happens after the customer is acquired. If a paid search customer elects to use paid search in the future, the brand experiences "involuntary expense". Sure, the brand could choose to not participate in paid search, but if the brand does participate, expenses are rung up in an involuntary manner, essentially controlled by the customer.

Marketing Executives use Online Marketing Simulations to understand how the customer is likely to migrate and change in the future. Simply isolate the paid search customer, and then see which channels the customer is likely to purchase from over the next five years. You can literally tally-up the offline advertising expense you'll incur, and the paid search expense you'll incur.

If you find that paid search customers are unprofitable, eliminate voluntary expense (i.e. offline direct marketing that you control). You may find that paid search customers have low long-term value only because they don't want to be marketed to with offline direct marketing activities. You may also find that paid search customers who purchase specific items have lower long-term value, or that non-branded terms have lower long-term value, as an FYI.

For those of us managing businesses where we do a lot of outbound marketing (post cards, catalogs, e-mail), long-term value is controllable. It is perfectly acceptable to acquire a paid search buyer that generates \$5 of long-term value, and it is perfectly acceptable to acquire a customer via postcard marketing that generates \$50 of long-term value. It is how we manage the long-term value that matters! Heck, let's go find ten of the paid search buyers and just deal with the subsequent value difference.

Most important, use Online Marketing Simulations to understand the long-term value of all customers from all advertising micro-channels!

## November 01, 2009

### Kindle Version of Online Marketing Simulations is Available

Good news for those of you who are into reading books on your Kindle ... Online Marketing Simulations is now available in Kindle format!

By the way, loyal blog readers, the Twitter audience is drubbing you in sales totals ... by a factor of nearly 4 to 1. Are you going to stand for this? Are you going to let the Twitterati run circles around you? Or are you going make the technological leap and be competitive and buy this book? I mean, I've been brazen in my claims that you cannot sell anything on Twitter, and yet this book is selling so much better among the analytical types following on Twitter than among this audience. Oh boy!

Also interesting is the fact that the book, in the very early stages, is being embraced by the online vendor community, in fact, it's a bit of a surprise to me. I strongly feel that the methodology should be part of online marketing software tools.

Thanks to all of you who made the debut of the book the 9,500th best selling book on Amazon last Wednesday, I appreciate it! That's quite a feat for a self-published book with no marketing behind it whatsoever.

## October 28, 2009

### Dear E-Mail Marketers: E-Mail Is Dead, Huh?

Dear E-Mail Marketers:

You represent a fun niche. The leading pundits have declared your medium "dead", less than two decades after being formally launched. You now join catalog marketers in the direct marketing graveyard.

Sure, your niche is still highly profitable. Pundits, however, don't care about profitability. They care about "what's next".

Companies, however, care an awful lot about profitability. It turns out that companies cannot stay in business unless they generate a lot of profit.

Maybe it is time for e-mail marketers to finally prove that e-mail marketing generates long-term profit.

Carefully review your Online Marketing Simulations (buy the book here on Amazon.com, the 9,500th best selling book on Amazon yesterday!), paying specific attention to what customers who purchase from the e-mail advertising micro-channel "do next".

Often, you'll find that e-mail drives future sales increases in other channels. You'll notice that e-mail customers become paid search buyers, or respond to offline ads, or become so loyal that they no longer require advertising to purchase in the future. Heck, in a lot of my projects, I can prove that Google absolutely loves e-mail marketing --- e-mail causes a purchase to happen, and then customer behavior changes, resulting in future paid searches. In other words, your e-mail marketing activities fuel future success for Google.

Use your simulations to analyze the long-term value of the social media shopper, and compare it with the simulated long-term value of the e-mail customer. Seriously. Do it! Tell the world what you find!

E-Mail marketers, once you have the data to defend your channel, defend it!!! It's not going to be good enough to say that e-mail is a relationship builder, or is the glue that holds marketing together, or is the tactic that feeds social media activities. Prove the value of your channel, demonstrating the value via long-term sales and profit. Show what happens to a business if e-mail marketing doesn't exist. This is one of the best applications of an Online Marketing Simulation.

Dear e-mail marketers. Buy the book. Apply the techniques outlined in the book. And then prove to people the profit your discipline contributes to your business.