December 10, 2009

Gliebers Dresses: ResponseShop

Today, I am visiting the offices of ResponseShop, the co-op that Gliebers Dresses does most of their customer acquisition work with, meeting with account VP Rob Clarke.

Rob: "Kevin, thanks for coming, though I don't understand why you are here today?"

Kevin: "Glenn Glieber asked me to visit all key Gliebers Dresses marketing vendors, to understand how each vendor is helping Gliebers Dresses become more successful."

Rob: "You did something to get voted off the island, didn't you? This happens to all Gleibers Dresses consultants. Eventually, they say something that ticks off Roger Morgan, and they're banned from the building until they are willing to play ball again. Why do you think Chip Cayman only shows up there three or four times a year?"

Kevin: "I don't know about that. My job is to support Mr. Glieber."

Rob: "Sure it is. Anyway, what did you come all the way here to ask me about?"

Kevin: "Let's talk about the names you provide Gliebers Dresses."

Rob: "The absolute best names available anywhere. We have this thing called a 'harmony model', and it selects the absolute best names available anywhere."

Kevin: "And who are those 'best names available anywhere'? Can you describe for me the demographic composition of the names?"

Rob: "Well, we don't look at the world that way. See, these are names that are in 'harmony' with your business. They have similar buying habits and merchandise preferences across other companies."

Kevin: "So you don't really know who these customers are?"

Rob: "Yes, we do. They are customers who are in 'harmony' with Gliebers Dresses customers. A complex set of equations dictate who scores high in a harmony model. Our statisticians are among the best in the industry, doctorate degree holders and entry-level statisticians who really focus on complex math."

Kevin: "We carefully analyze ResponseShop sourced buyers. There are some very interesting trends. Did you know that the names you give Gliebers Dresses disproportionately prefer telephone transactions over online transactions?"

Rob: "Well, we don't really look at the world that way. We really care about simply finding customers who buy something from Gliebers Dresses."

Kevin: "Across all sources of acquisition, ResponseShop has the highest proportion of customers who order over the telephone. This is important, because those names are the easiest to track, meaning that ResponseShop gets more credit for these names, making ResponseShop performance look best, causing Gleibers Dresses to allocate more of their customer acquisition budget to ResponseShop."

Rob: "That's silly. We have our new matchback tool, called 'ChannelMAX'. It clearly points out who buys online or in any other channel. We'll find those online buyers, and allocate them back to the catalog mailing that drove the order. In fact, any order within sixty days of a mailing is matched back to the original catalog."

Kevin: "That's a problem, Rob. We did a test at Gliebers Dresses. We purposely chose not to put 50,000 harmony model names in the mail. Then we looked at the results via ChannelMAX. It turns out that 60% of the housefile orders and 15% of the customer acquisition orders would have happened if no catalog was mailed. This means that ChannelMAX is over-stating results, which means that your clients unprofitably over-mail customers, causing your profit and loss statement to look really good."

Rob: "It's simple matchback business rules, Kevin. We just hope you use the tool as designed."

Kevin: "But all you have to do is encourage your clients to do holdout tests, like Gliebers Dresses did, then put the holdout tests into ChannelMAX. Your clients will learn that they are over-mailing customers, often significantly. Your clients will become much more profitable. Don't you want your clients to be more profitable?"

Rob: "Again, we encourage catalogers to apply simple matchback business rules. We fully believe in our matchback strategy. We're using leading-edge technology to match harmony model purchasers back to the catalog that drove the order. The same thing happens online, but I don't hear anybody complaining about Google cannibalizing orders."

Kevin: "Here's another question. You charge Gliebers Dresses six cents per name, but you charge other clients five cents per name, or even less in some instances, correct?"

Rob: "We negotiate specific deals with every one of our clients. We strongly believe that each client receives maximum value for their investment with ResponseShop."

Kevin: "And Gliebers Dresses is paying for gross names, correct?"

Rob: "Correct, they pay six cents for each of the 100,000 names they select via the harmony model."

Kevin: "And then Gliebers Dresses executes a merge/purge, and finds out that 67,000 names are already on their database. Gliebers Dresses can only mail 33,000 names. So, ultimately, Gliebers Dresses is paying eighteen cents per name, correct?"

Rob: "We're not holding a gun to their head, Kevin. They can do what they want with the information. Some companies use multi buyers in very creative ways, or they populate their internal customer database with the information that comes from the merge/purge process. You cannot put a dollar value on that type of information."

Kevin: "Well, no, they are already mailing the names, because the names are already on their housefile. Wouldn't it make sense to develop a relationship that is more equitable for Gliebers Dresses, so that they can mail more of your names? Eighteen cents per name is insane, given that they pay Google maybe fifty cents per click, and that potential customer has raised her hand, demonstrating interest in a specific item. Couldn't there be some sort of sliding payment scale, based on how deep the client mails, coupled with the names that net out of the merge?"

Rob: "We've actually done the math on this one, and the pricing model we currently employ is close to optimal for both parties, and is highly competitive with other co-ops in our industry."

Kevin: "We looked at the merchandise that harmony model customers purchase. The merchandise is skewed toward 'basics', skewed away from 'fashion'. It turns out that, as ResponseShop becomes a larger and larger contributor of names to Gliebers Dresses, that the business skews more and more toward customers who like 'basics'. And basics have a lower profit margin, making it increasingly harder for Gliebers Dresses to sell high-margin fashion items in the future. Can your harmony model account for this, and instead focus on finding buyers that buy high-margin fashion items?"

Rob: "Well, we don't really care what merchandise the customer buys, that's between the customer and Gliebers Dresses. We just want the names to perform the best."

Kevin: "I've got everything I need from this visit, Rob, thanks for taking the time to chat with me."

Rob: "Seems like a long way to come for so little information, Kevin. Hopefully you'll get out of the Roger Morgan doghouse soon. We've been with Gliebers Dresses since 1994, I think we know how to take care of Roger. We feed him a lot of white papers and research articles. When we give him 'food for thought', he tends to stay out of our way."

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