Multichannel Forensics A to Z: XXL

If you are an apparel marketer, then you know all about the importance of extended sizes.

Visit your local retail store, and you're not likely to find a broad assortment of size 14 dresses or XXL coats. Go online, and you can find absolutely anything you want.

The apparel marketer uses Multichannel Forensics to understand the unique behavior of the extended size customer.

From a marketing standpoint, you don't necessarily waste resources pushing the extended size customer into your store ... in many ways, you are limiting the ability of this customer to be a multichannel customer due to your assortment and merchandising strategy.

Extended size customers can be fiercely loyal to a brand when they find something that is fashionable and comfortable. Extended size customers can also be "leading indicators" of problems with your merchandise assortment, if loyalty wanes.

Analysis of extended size customers is easy --- simply identify, by size or sku, the items that are considered extended size items. Track customers who buy these items different than all other customers.

Appalachian Mountains: Hillstrom's Zip Code Forensics

Another interesting outcome of the beta of Hillstrom's Zip Code Forensics (read about and purchase here) occurs in mountain areas.

This map shows trends from Washington, DC to Atlanta.

As we leave Washington, heading southwest, we migrate from Online Bliss to Catalog Fans. In Southwest Virginia and Western North Carolina, there are many productive zip codes in the Catalog Crazies and Catalog Fans segments.

As we approach Atlanta, the focus shifts, with many productive zip codes northeast of Atlanta, mostly in the Online Bliss and Online Spend segments.

Mountain areas tend to be very productive regions for direct marketers. As you get closer to cities, e-commerce is prevalent. As you get farther away from cities, traditional direct marketing and ordering over the telephone becomes important.

Urban, Suburban and Rural: Hillstrom's Zip Code Forensics

One of the unique validations of Hillstrom's Zip Code Forensics (read about and purchase here) is the consistent difference in behavior between Urban, Suburban, and Rural zip codes.

This map features the Chicago, Milwaukee, and Madison markets. Look closely at Chicago and Milwaukee.

The inner city zip codes perform well below average. As you move out from the inner city, into the suburbs, you see e-commerce take over, with many Online Bliss and Online Spend zip codes.

Moving beyond the suburbs, and we begin to see Catalog Fans, and even a few Catalog Crazies.

Repeatedly, across the United States, we observe this behavior. Direct Marketing is a uniquely suburban, exurban, and rural practice --- something the marketing experts who preach multichannel strategies may not have ever had the data to validate. And this makes sense, folks! You go back to the early days of Montgomery Wards and Sears, and you'll see that the catalog was the commerce lifeline to rural folks.

You think differently when you know that many urban areas, retail hotbeds, are not always direct marketing responsive. You think about e-mail marketing differently when you think about targeting a suburban and exurban customer. You think about catalog marketing differently when you think about targeting an exurban or in some cases a rural customer.

Hillstrom's Zip Code Forensics: Download The Paper

The vast majority of the work has been done in the beta version of Hillstrom's Zip Code Forensics!

Hillstrom's Zip Code Forensics classify each zip code in the United States on the propensity for residents of that zip code to shop via traditional direct marketing (catalogs) or via e-commerce. Furthermore, the segmentation strategy classifies zip codes on the basis of overall productivity, illustrating zip codes that are highly productive, and those that are generally unproductive. The segmentation strategy is based on nearly a billion dollars of sales across a dozen leading direct marketers.

There are six segments in Hillstrom's Zip Code Forensics. From Catalog Crazies to Online Bliss, you'll see your business in a whole new light, having the ability to filter out unproductive names from your marginal segments.

If you are interested in participating in and purchasing Hillstrom's Zip Code Forensics and wish to learn more about the six segments, please download a paper on Hillstrom's Zip Code Forensics here.

Feds Set To Bail Out MineThatData

Washington, DC: In an unprecedented move, The Federal Reserve Board announced this evening that it will, for the first time ever, bail out a highly profitable sole proprietorship.

Seattle based MineThatData, a consultancy that helps CEOs understand the complex relationship between customers, advertising, product, brands and channels, will be the recipient of nearly $300,000,000 of free money, courtesy of an unprecedented taxpayer bailout.

"It's only one dollar per person living in the United States" groaned a noticeably exhausted Treasury Secretary Henry Paulson. "We just finished taking ownership of AIG, and now we're faced with having to bail out a highly profitable sole proprietorship. Where does this end?"

The announcement was met with an enthusiastic roar of approval at the Shop.org Annual Summit in Las Vegas. Attendee Maya Pemberton, Sr. Pay-Per-Click Analyst at Dell, told anybody who would listen that the announcement provides much-needed stability in the emerging field of Multichannel Forensics.

"We just realized that our online customers were in hybrid/transfer mode, rapidly migrating to our retail offering at Wal-Mart. We couldn't possibly take our strategy to the next level without assistance from the Feds." mentioned Pemberton, who then ran her badge under the bar code scanner at a social media vendor in the exhibition hall, earning her a free ballpoint pen and a chance to win an iPod shuffle.

Wall St. did not react positively to the announcement, with the Dow Jones Industrial Index plummeting 1.4% in after hours trading. We were unable to solicit a comment from management at MineThatData.

Note: Various, if not all elements of this story, have been fabricated. No taxpayers were harmed in the writing of this story.

Metrics That Matter

How many of you know how many of last year's customers will purchase again this year?

All the business intelligence pap about dashboard reports sells software. A few key metrics, metrics that I used to see printed out on green/white tractor paper back in 1991, will give you insight into where your business is heading. Let's review a few simple tables that many direct marketers produce.

This table analyzes existing customers. These were prior customers, acquired more than a year ago. For the 2008 row, these customers were acquired in 2006 or earlier, and placed at least one order during 2006.

Last Year Existing Buyer Performance
	Households	Rebuy Rate	Spend/Rebuy	Volume/HH	Tot. Demand
2008	124,384	53.7%	$274	$147.14	$18,301,613
2007	135,048	56.1%	$283	$158.76	$21,440,626
2006	117,349	52.4%	$249	$130.48	$15,311,228
2005	110,841	51.9%	$208	$107.95	$11,965,508
2004	119,439	50.9%	$203	$103.33	$12,341,274
2003	117,430	54.9%	$201	$110.35	$12,958,283
2002	102,843	55.8%	$200	$111.60	$11,477,279

This is direct marketing's version of "comp store sales". The marketer reviews the volume per household column, to understand if performance is improving over time. In this case, performance is down significantly in 2008, because the repurchase rate and spend levels are down. Also notice what happened back in 2005 --- metrics improved, but total demand decreased, because of a lack of file momentum coming out of 2004.

Direct marketers produce a table of this style for existing customers. A comparable table is produced for customers who were newly acquired in the prior year. This helps the direct marketer understand if newly acquired customers are holding up their end of the bargain.

Another table sums new and reactivated customers. Any customer who did not purchase in 2007, but purchased previously, and purchased during 2008, is included in the table, as are all new customers. The table looks something like this (each row replicating prior years).

New/Reactivated Buyer Performance
	Households	Rebuy Rate	Spend/Rebuy	Volume/HH	Tot. Demand
2008	53,941	100.0%	$188	$188.00	$10,140,908
2007	47,204	100.0%	$215	$215.00	$10,148,860
2006	42,048	100.0%	$203	$203.00	$8,535,744
2005	50,884	100.0%	$189	$189.00	$9,617,076
2004	48,778	100.0%	$185	$185.00	$9,023,930
2003	45,224	100.0%	$183	$183.00	$8,275,992
2002	39,005	100.0%	$180	$180.00	$7,020,900

In this table, we observe that 2008 hasn't been a bad year for new/reactivated buyers. Of course, your analysts will keep close watch on cost per new/reactivated customer, but from a dashboard standpoint, buyers are up, demand is down, yielding about the same amount of demand as last year.

These three tables tell the Executive an awful lot about the health of the brand. You can run the tables by channel or merchandise division if you wish. For many direct marketers, these metrics help diagnose the health of the business.

E-Mail Marketing: Fixed And Variable Costs, And Why They Matter

I'm sometimes criticized by the e-mail marketing community for my belief that e-mail marketing is essentially "free".  This audience points out that it takes human beings to create e-mail marketing campaigns, and those human beings cost money.

This audience is correct --- it does take human beings to create e-mail marketing campaigns, and it costs money to pay those human beings to execute the campaigns.  Please be advised, however, that all forms of marketing have fixed costs, costs proportionate to the effort to produce marketing.

Sometimes, however, we miss the subtle difference between fixed and variable costs.  This subtle difference causes other forms of marketing to be far more productive than e-mail marketing is.

Fixed costs are expenses that do not change, regardless whether you execute one or a hundred or ten million of some activity.  Your $54,000 a year e-mail marketing manager gets paid that sum of money, regardless whether the e-mail marketing list grows by one percent or ten percent.  Your computer, or the chair you sit in in your office, are fixed costs.

Variable costs are expenses that change as you increase or decrease marketing activity.  This is where e-mail marketing is fundamentally different from most forms of marketing.  When you send one catalog, you spend maybe $0.75.  When you send a million catalogs, you spend $750,000.  Now you have e-mail, where it costs maybe $0.003 to send one e-mail message.  When you send a million e-mail messages, you spend $3,000.  See the difference?  There is essentially no variable cost to e-mail marketing.

This is great, because it makes e-mail marketing affordable for anybody.

This is terrible, because it creates a giant disincentive to ever make e-mail a viable sales generation tool.

In 2008, the average cataloger might generate $3,000,000 demand if a million catalogs are mailed.

In 2008, the average e-mail marketer at a catalog brand might generate $400,000 demand if a million e-mail marketing messages are delivered.  Yuk!

When it costs a significant fee to do something, you work very carefully to make sure that you've done everything right (aka "best practices"), so that you get a suitable return on investment.  When something is close to free (aka e-mail marketing, on a variable cost basis), the discipline is different --- not bad, but different.

The best thing that could ever happen to e-mail marketing would be some sort of tax, a fee placed on each e-mail marketing message delivered to a customer.  

Let's say there was a five cent tax placed on every e-mail message sent to a customer, with the tax going to fund prosecution of spammers and for development of inexpensive nationwide high-speed wi-fi access (I know, I'm nuts, but play along).

As marketers, would we not completely re-think every e-mail marketing campaign we execute?  Would we not develop more complex segmentation strategies, or implement statistical ranking models?  Would we not develop numerous versions of each campaign, with targeted merchandise assorted for audiences that buy that merchandise?  Would we not explore trigger-based campaigns more thoroughly?  Would we not carefully study response to every link, or understand the relationship between response and heat maps?  Would we not measure profit, instead of measuring metrics like open rates and click-through rates?  Would we not integrate all of your systems to properly understand the impact of e-mail across channels? Would we not execute mail and holdout tests?

Variable costs completely change how we look at the business.  Until recently, direct marketing was all about variable costs --- the brands that were most profitable executed flawlessly, and knew exactly how to manage variable costs.

Now, direct marketing is a hybrid of fixed and variable costs.  Websites have a fixed component, catalogs are often highly variable in nature.  E-mail marketing is generally a fixed-cost business.  E-mail marketing could be so much better if it had a significant variable component --- variable costs demand discipline.  

And by the way, it is the same lack of a variable cost component that is killing social media.  Without an apparent variable cost for each post, or each comment, or each interaction, the overall quality of the discipline suffers.