Marketing Campaigns

Somebody in soccer once said that a good manager improves a team by 10% but a bad manager harms a team by 30%.

Something similar could probably be said for marketing campaigns. Have you ever noticed that you have far more campaigns today than you had in 2007 and your annual customer retention/rebuy rates are flat or down vs. 15 years ago?

How is that possible?

Campaigns suffer from "regression to the mean".

Let's say that your customer rebuy rate (on an annual basis) is 36%. Let's assume that you have 24 key campaign windows per year, two per month. This means that 1.5% points of your rebuy rate are "at play" during any window.

Now let's assume that a brilliant campaign increases your 1.5% points of rebuy rate by 20%. The 1.5% response that is at play become 1.5% * 1.20 = 1.8%.

On an annual basis? You increased rebuy rates from 36% to 36.3%. On an annual basis you accomplished nothing.

Because results regress to the mean ... in other words, you are not going to have 24 perfectly flawless campaigns that inspire all of your customers to purchase.

This is the failure of marketing campaigns. They all cannot be great, therefore, as a collective they do not fundamentally change the purchase dynamics within your customer base (though they create a TON of work for your staff and for your vendors).

This is why I continually harp on three key elements to marketing strategy.

1. Customer Awareness, which leads to Customer Acquisition success.
2. Customer Development, which pushes a 1st time buyer to a 2nd order within 12 weeks of acquisition.
3. Profit generation among all good customers, which funds all activities at your company.

You can accomplish 1/2/3 above many different ways. You do not need specific campaigns to accomplish 1/2/3. This is a change of thinking that will cause many of you to feel uncomfortable. But it is a necessary change of thinking.

Reader Questions

Yesterday I discussed a paid search test.  https://blog.minethatdata.com/2022/08/channels-arent-what-they-appear.html.

The test/post yielded questions from you, the loyal reader.

“Why would organic search revenue increase when paid search is turned off.”

“Why would customers spend more via email marketing when search is turned off?”

“Why would our vendor reporting over-state the importance of paid search?”

“Our attribution vendor shows us something very different and they are using AI and you are using an A/B test so their science is better than yours, correct?”

“Are you honestly telling me that in this case paid search is causing the company to lose money? Because if that is true, you have no idea what you are talking about.”

“You tested Boise and Salt Lake City - those cities don’t represent the America my customers live in, thereby invalidating the test, correct?”

“You are evaluating success via profit. ROAS is a better metric, don’t you think?”

“We ran this post by the Executive Team at an agency we respect and they said this post is utter gibberish.” (that is a comment, not a question).

All of the responses/questions avoid the point of the post. Not one question dealt with the reality that a test produced results different than typical reporting produce. When that happens via a controlled test, ask yourself instead what it means if the test results are right and you and your vendor partners are wrong?

Channels Aren't What They Appear

I introduced a brief quiz on Twitter regarding marketing channel performance. The answers I received were generally unsatisfactory.

Here's the gist of the question. A "brand" executed an on/off test. In Boise paid search is "on", in Salt Lake City paid search is turned "off" for a period of time. Matched market test.

For the month of the test, here's sales performance by major marketing channel.

Key facts from the test:

• When paid search was turned off, organic search results improved.
• When paid search was turned off, email / display / paid social / other website revenue marginally improved.
• When evaluating paid search by itself, it generated $10,000 in sales.
• When evaluating paid search in combination with other channels, paid search generated $2,000 in incremental sales.
• When evaluating paid search in combination with other channels, paid search expenditure resulted in a loss, not profit, of $4,300.

Questions for you:

• Which numbers from the table above would you share with your Executive Team?
• Do you believe the results of the test above? If the answer is "no", what does that say about you as a "data-driven" marketer?
• How would you adjust your marketing strategy based on the results of this test?
• What attribution rules would you implement as a result of this test?

Please discuss.

Yup, They Matter

Have you ever looked at a cohort of loyal buyers and observed what happens over the next two years?

Here's a cohort of customers who purchased for the fifth time two years ago. What did these customers accomplish?

• 86% purchased again over the next two years.
• Those who purchased again bought 4.18 times over two years.
• 65% were still 12-month active after two years.

So yeah, loyal buyers matter. They're printing profit for your business.

And interestingly, within two years 35% of this cohort of loyal buyers have faded away. The company I'm analyzing here is really, really good at developing customer loyalty - likely far better than your company is at developing customers who are loyal. But this company is going to ultimately lose most of the loyal buyers as well.

You take the profit you get from loyal buyers and you reinvest it in new customers ... of which 10% will become ... loyal buyers!

Customer Development. It matters.

Days of Our Lives

Like sands through the hourglass (click here) ...

This isn't altogether different than the business situations you manage. The program is your product, it's the merchandise you sell. It's an old winner. Now it attracts "old" customers, and is utterly cut off from the rest of your merchandise/customer ecosystem. In response, NBC moves the program (for a year) to their digital platform, where few of the "old" customers will take the plunge, allowing the program to die an uneventful death.

In the Merchandise Forensics work I've performed over the past decade, this topic reappears in the catalog world ... not as much in e-commerce where items churn faster. Catalogers have long-time winning items, and they squeeze profit out of those items forever. Eventually, those specific items have a fan base of long-time customers (i.e. age 65), and those customers (and the product) become disconnected from the rest of the business. The cataloger has a choice ... discontinue the item and lose profit today in an effort to be more relevant in the future ... or run with the product today and have a customer base that is disconnected from the future.

I know, it's not an easy choice.

I'll go back to 2006 when we eliminated the catalog division at Nordstrom. The business hummed along like nothing happened (i.e. a high organic percentage meant that the catalog was essentially meaningless from a profit standpoint). However ... however ... at a customer level the business changed significantly.

• Our investment in e-commerce and the products that sold well to e-commerce buyers meant that we attracted new customers age 30-45.
• Our disinvestment in catalogs and the products that sold well to catalog buyers meant that we abandoned customers age 60+.

I got to review customer complaints. Our customer service team would forward me postcards received from 77 year old women in North Dakota ... "we can barely read the writing" I was told ... and these customers were upset. We took away their products, and we took away the channel they liked to shop in.

However, as a business, we were fine. We traded a 77 year old catalog shopper for a 37 year old e-commerce shopper. And we told the 77 year old she could still shop online (which she obviously didn't want to do).

We did the same thing that NBC is doing to the million soap opera viewers that are left. 

These are the Days of Our Lives.

Can I Show You Something?

Can I show you something?

"Engagement" is considered a best practice. Get people to interact with your content.

Last Friday I shared a story with you about an NFL punter who is going to change how punting is viewed. That post generated 155 clicks to the links in the post, and generated zero inquiries about project work.

On Monday/Tuesday, I shared catalog marketing themes (here and here). The posts generated a total of twenty (20) clicks to the tables, generated two (2) business inquiries about project work, and generated five (5) unsubscribes from vendors who presumably were upset that I wasn't giving them enough relevant/digital free information to help their product offering.

Which article was more "engaging"?

Which article was more appropriate for my business?

Now translate this case study to your business.

What do you do that is "engaging" but doesn't cause your customer to purchase?

What do you do that is "boring" but generates business?

Where should your time be spent?

Big Difference

Aside from the industry telling you that catalogs have a 100% open rate because you have to touch them to throw them away, there is science involved in determining "who" should receive a catalog.

Here we have three customers who are identical in terms of corporate value ... each is expected to spend $50 in the next year. Exactly equal / identical customers.

However ...

... the first customer will spend 80% of next year's revenue "because" of catalog mailings, the second customer will spend 50% of next year's revenue "because" of catalog mailings, and the third customer will spend 20% of next year's revenue "because" of catalog mailings.

Let's look at the optimal strategy for each customer ... going from 20% organic first to 50% organic second to 80% organic in the final table.

Tell me what you observe?

20% organic rate:  14 catalogs is optimal. $53.20 in sales, $14.14 in profit.

50% organic rate:    5 catalogs is optimal. $41.41 in sales, $15.01 in profit.

80% organic rate:    1 catalog is optimal. $42.89 in sales, $18.60 in profit.

Yeah, your mailing decisions are fully dependent upon accurate measurement of the organic percentage. And you cannot possibly know your organic percentage if your focus is on "matchback analytics". You have to execute frequency tests and mail/holdout tests to get there, and you're best off to execute frequency tests in combination with email marketing frequency tests (and to be honest, with market-based paid search on/off tests and display on/off tests etc.).

Ask your favorite vendor if they produce the three tables (above) for every single customer when they are scoring your customer file. If the answer is yes (I know of one vendor who does this routinely), consider yourself blessed. If the answer is no, email me now (kevinh@minethatdata.com).

Catalog Modeling: Optimal Annual Contacts

I'm working on three (3) catalog modeling projects over the next six weeks. These projects have become a lot more important than in the past few years for three reasons.

• Response is down due to the end of the COVID-bump.
• Catalog costs are up and paper availability is sketchy.
• Cost of goods sold are up.

Those three factors reduce the optimal number of catalogs to mail. Here's an example. Two years ago this company averaged $0.70 per catalog mailed and 45% of sales flowed-through to profit. An optimal catalog mailing table might look like this, for a customer with a 50% organic rate.

The optimal strategy isn't the twelve catalogs currently being mailed, but is instead 5 catalogs, though anywhere between 3 catalogs and 10 catalogs is close to optimal.

Now, what happens when the average cost of a catalog increases to $0.75 and the profit factor decreases to 40% due to a higher cost of goods sold?

Oh oh. The optimal answer now happens at 4 catalogs, though anywhere between 2 catalogs and 7 catalogs is close to optimal.

So, here's what we know from this example.

• The company mails 12 times per year, yielding in this case $11.00 profit under current circumstances (the prior answer, two years ago, was $14.10 profit).
• Two years ago, an optimal answer was between 3 and 10 catalogs.
• Today, with different cost constraints, an optimal answer is between 2 and 7 catalogs.

You probably want to know this stuff, right?

So join the companies that are getting way ahead of the curve on this topic ... I have a slot that opens up October 1 ... be the first to obtain that slot.

Punting

If you like punting in the NFL, then you're going to want to pay attention to Matt Araiza (click here).

Here he is in his first NFL pre-season game ... 82 yards on the punt.

Every once in a while, somebody comes along with a different approach (watch his punting style, it's not what you usually see). The pundits will find reasons to not support the new approach. They always find reasons to not support the new approach.

You probably have ideas for new approaches to your business challenges. You've probably had somebody above you say "we tried that, it didn't work" or "we don't have budget for that" or "your idea is stupid".

Maybe your idea isn't great.

But what if it is great?

Find a way to test your ideas.

Why Does It Matter?

Ok, we talked about Paid / Owned / Earned Media yesterday. But why do the terms matter?

Let's assume you have a really good social media team and you have 600,000 followers. Each year 10% of that audience become first-time buyers. Your social media expenses (staffing in particular) are buried in your fixed cost line on your p&l, so the new customers (from a variable cost standpoint) are virtually free.

Assume that you generate the following amounts of variable profit per year after acquiring the customer:

• Year 1 = $16.
• Year 2 = $12.
• Year 3 = $8.
• Year 4 = $6.
• Year 5 = $4.

Now, let's pretend that you acquire customers at the following profit-per-new-customer levels.

• First 60,000 = $2 Profit per New Customer.
• Next 60,000 = Lose $8 Profit per New Customer.
• Next 60,000 = Lose $18 Profit per New Customer.

If you were starting your business from scratch, this is what your five-year profit trajectory would look like:

Using this strategy over five years, you lose $7.2 million acquiring customers, yielding $23.0 million in total variable profit over five years. Nice!

Now, let's say you have a credible Earned/Owned strategy, and instead of having to acquire 60,000 customers a year at a loss of $18 per customer, you acquire 60,000 customers a year at no cost. How does that change the story?

Instead of losing $7.2 million acquiring customers, you lose $1.8 million acquiring customers. Over five years, you are $5.4 million more profitable.

Or, you could employ the same paid strategy AND enjoy the benefits of your owned/earned strategy.

This tactic works best ... you generate $33.1 million in profit over five years from your acquisition efforts.

In this example, what works best?

• $33.1 million from Paid, Earned, Owned.
• $28.4 million from Reduced Paid, Earned, Owned.
• $23.0 million from Paid.

When I spent the 2016-2019 timeframe telling anybody who would listen why low-cost / no-cost customer acquisition was so important, I was referring to the tables above. When people vehemently disagreed with me? They didn't have the math to demonstrate what would happen.

Run the math.

Hire me if you can't run the math yourself (kevinh@minethatdata.com).

Going Back to 2016

Way back in 2016, I gave a series of presentations about Customer Acquisition. As I've told you before, the audiences HATED the presentations. HATED them. Studious Millennials pulled up websites on laptops to criticize me mid-presentation ... Jaded Baby Boomers just shook their heads and told me "THAT WON'T WORK".

My favorite moment (and by favorite, I mean most disappointing) came when I presented to a room full of Business Owners and Executives. I finish the presentation. A CEO from one company (somebody many of you know) responded unfavorably, with plenty of criticism. But his criticisms were reasonable ... wrong ... but reasonable. Then a guy in a cowboy hat raises his hand.

• "I've run my own business for thirty years and I've done just fine doing just about the exact opposite of everything you explained today. Thanks for the ideas, I'll just continue to do the opposite of what you recommend".

As he finished his comment, the room giggled and many heads nodded up-and-down.

Some of the people in that room back in 2016 reached out in 2022 ... "it's getting really expensive to acquire customers, what should we be doing to minimize costs so that we can meet our budget?"

The grumpy side of me wants to say "how about listening to me in 2016 instead of giggling?"

The practical side of me fully empathizes with the line of questioning. You have owned media, earned media, and paid media, and the person asking the question is frustrated because paid media isn't working so well.

Owned Media and Earned Media require multi-year investments in both money and energy. The work you do in 2016 pays off in 2022. Because we measure ROI via short-term tools (i.e. most digital analytics platforms), we get pushed into a Paid Media focus.

And that, dear readers, is wrong.

At The Lowest Possible Cost

Most of the e-commerce businesses I analyze show a downstream profit profile that looks something like this:

• Year 1 = $14.
• Year 2 = $9.
• Year 3 = $5.
• Year 4 = $3.
• Year 5 = $2.
• Five Year Total = $33.

This profile dictates your customer acquisition strategy. You simply cannot invest in expensive new customers because you never generate enough profit to fuel future success. Your new customers need to be profitable, or acquired at a small loss. You might be able to afford to lose $10 profit acquiring the customer because you make up $33 after five years, but not much more.

The profile above happens when you have a 30% or worse annual rebuy rate. Your customers have no loyalty (usually because they don't need to buy from your merchandise assortment on a frequent basis - it isn't because the customer isn't loyal - it's because you sell something with an infrequent purchase frequency), therefore they generate minimal future profit, meaning you can't spend much money acquiring customers, suggesting you must have a strong owned/earned marketing strategy.

Look at this business ... about 20% of my clients fall into this scenario.

• Year 1 = $18.
• Year 2 = $16.
• Year 3 = $14.
• Year 4 = $12.
• Year 5 = $10.
• Five Year Total = $66.

This business can afford to spend a ton of money acquiring customers! This business could afford to lose $40 profit acquiring a customer because the payoff is certain and generous. This is the kind of business that can afford paid media.

If you don't get long-term payback, you need a strong owned/earned strategy.

If you get a ton of long-term payback, you can pay Facebook/Google forever.

For most of us, we need to acquire customers at the lowest possible cost.

Can I Show You Something?

One of the most successful companies I've ever been associated with operates stores and e-commerce. Here are their counts of "omnichannel" buyers in the past five years ... defined as 1+ purchase in e-commerce in the past year and 1+ purchase in-store in the past year. Tell me what you observe.

• 2022 = 15%.
• 2021 = 17%.
• 2020 = 8% (Covid year, stores were not open for 6 weeks).
• 2019 = 18%.
• 2018 = 19%.

This brand grew significantly over the past five years.

This brand nearly doubled annual profit in the past three years.

The percentage of customers who buy from stores and online decreased over time, albeit modestly.

This brand technically becomes more successful as it generates fewer customers who buy from both stores and e-commerce in the same year.

There are many ways to be successful in business.

You don't need to do what trade journalists and research brands demand of you.

Instead, sell your best customers stuff they love and acquire customers at a cost that allows you to generate a ton of profit in the next few years. Do that and you'll be just fine.

Future Value

This is a graph I create for my client base when they request a File Power project. I measure future sales as a function of time since acquisition.

The relationship (in this case) looks nearly linear - it is not, but it is one where the customer keeps spending money year-after-year.

Here's the relationship, summarized in tabular form.

Tomorrow we'll extend the table to profit. This company is a good one - there is sufficient downstream profit to grow this business via customer acquisition.

You likely produce this table for your company. The table (and the one I'll share tomorrow) form the basis for your investment strategy. 

A Version of the 80/20 Rule

Here's the share of next year's sales from existing customers (y) as a function of customer file quality (0.1 = great customers, 1.0 = worst customers).

4% of the customer file delivers 29% of next year's housefile sales.

20% of the customer file delivers 65% of next year's housefile sales.

50% of the customer file delivers 88% of next year's housefile sales.

This client needs to take the top 4% of the housefile and do SOMETHING to reward them. Not points. Not a loyalty program. Something meaningful.

I mean, the relationship above is for sales. When I plot profit? Woo-wee!

Having great customers helps your customer acquisition efforts. Great customers generate so much profit that their profit rolls into your long-term value calculations - and long-term value dictates how much you can spend to acquire a customer.

It's all circular, and it's all important.

Email is Different

Yesterday I talked about digital marketing in general, and the fact that one business generally attributed digital marketing efforts to either the very best customers or new customers.

Email is different. For the same business I discussed yesterday, here's what I learned.

• 31% of email sales were attributed to the best 4% of the customer file.
• 61% of email sales were attributed to the top 16% of the customer file.
• 5% of email sales were attributed to new customers.

The 61/16 ratio cited above is not uncommon. You're using a virtually free marketing channel to speak to your best customers.

Here's a fun one for you ... I once analyzed the results of an email mail/holdout test. In the mailed portion of the test, customers were much more likely to have orders attributed to Search and Facebook and Display. The very act of enticing a customer to buy via email marketing caused customers to presumably comparison shop elsewhere, touching other channels (and racking up additional expense) before (maybe) purchasing. In other words, email marketing was not virtually free. Email marketing caused expenses to increase in other channels.

Isn't that fun!

Email, as you already know, is entirely different from every other form of marketing. Give it 3% of your mental bandwidth and miss out on File Power, profit, and the audience that it serves (i.e. your best customers).

That's How We Get Our New Customers

At least that's what the Executive said when I asked him about various online marketing tactics.

A look at his customer file told a different story.

• 19% of his digital marketing budget was attributed to the top 4% of his customer file.
• 31% of his digital marketing budget was attributed to the 5th percentile to the 24th percentile of his customer file.
• 24% of his digital marketing budget was attributed to new customers.

In other words, it was the very best customers consuming online marketing tactics, or new customers consumed online marketing tactics.

Sometimes we just miss the point of everything we're doing. We're not "bidding on a keyword". I mean, that's the tactical thing we're doing. What is the strategic thing we're doing? It's like we're Billy Beane in Moneyball yelling at the scouts "What's the problem we're trying to solve?"

We're trying to increase File Power. And for some reason our best customers know we sell widgets and are out there on Google searching for widgets anyway. What's the problem we're trying to solve when that happens?? Once you answer that question, the tactics employed to solve the problem are different than "bidding on a keyword". Obviously. We just don't ever want to answer the question, do we?