OMS: Mini-Primer

Some of you are looking for less theory, more practicality, as you explore the Online Marketing Simulation framework.

Let's start at a very simple level.

This spreadsheet, from my Multichannel Forensics work, simulates migration of customers across just two channels.

The exact same concepts that are at work in a 2-channel Multichannel Forensics five year simulation apply to a 100x100x100x100x100 segment migration (future customer value, advertising channels, physical channels, merchandise preference) in the Online Marketing Simulation framework.

If you can understand 2x2x2x2x2, you can conceptualize 100x100x100x100x100, or 1,000x1,000x1,000x1,000x1,000!

Heart Attacks and Web Analytics / OMS

Imagine that you are in for your annual physical.

Your doctor tells you that you are a heart attack waiting to happen. You are overweight, your cholesterol is high, you eat bad foods (i.e. nachos), you don't exercise.

You can choose to heed the advice of your doctor. You openly welcome Crestor into your life, you begin eating turkey breasts instead of bacon cheeseburgers, you walk three miles a day, you do the things necessary to minimize the risk of a heart attack.

Or you can keep going down the path you're on ... hoping that 0 or 00 won't come up on the roulette wheel.

Which brings us to Web Analytics and the Online Marketing Simulation, better known as "OMS".

Web Analytics is great, in that you are potentially given all of the information necessary to understand the health of your business today. You've got metrics (cholesterol) and multivariate testing (ekg). Maybe the health of your business isn't so great.

Here's why you need consider the Online Marketing Simulation (OMS) environment. If you decide to keep eating nachos (discounts and promotions), you increase your personal happiness (conversion rate), but you edge yourself closer to a heart attack (bankruptcy). The OMS environment allows you to play "what if" games --- what if I switch from nachos to boiled chicken, what is the probability of living a longer, healthier life --- or in the case of your business, what if you switch from free shipping in your e-mail campaigns and paid search activities to acquiring customers without discounts/promos, what impact will that have on your business, long-term?

With traditional Web Analytics, you're the doctor telling the patient about the potential for a heart attack.

With the OMS, we get to see all of the likely outcomes of our dietary and lifestyle changes.

Find a techie who can program the OMS environment for you, if you cannot create it yourself. If you don't have the resources and are interested in an Online Marketing Simulation (OMS) project, contact me here. Or the best solution of all ... encourage your favorite Web Analytics vendor (Omniture, Coremetrics, WebTrends, Unica) to partner with me on migrating this algorithm to their platform!

OMS: Real-Time Scoring

In my OMS projects, I create three different families of scores:

1. Probability of a customer purchasing in the next twelve months.
2. Amount a purchaser will spend in the next twelve months.
3. Factor analysis scores for channel x merchandise combinations.

The scores yield a series of segments --- as few as maybe 80, as many as several thousand.

Each segment has a predicted future value --- that future value fuels the simulation of five year sales and profitability of your online business.

This information could easily be incorporated into your Web Analytics platform, allowing you in real-time or near real-time to see how today's purchasers influence the future trajectory of your business.

For example, you query customers who purchased in the twelve months ending last night. Each customer is scored via the OMS algorithm, and placed in one of the segments. Then, the future value for the next twelve months is summed across segments. At this point, you know that your current twelve-month buyer file is going to generate, say, $33,000,000 in the next year.

Tomorrow you have an e-mail campaign that goes absolutely bonkers. Woo-hoo! Replicate the scoring process mentioned above, just shift the twelve-month window by a day, and re-score everybody. Sum future volume. Say the total is $34,000,000. Now you know that your e-mail campaign went bonkers today, but also added a million dollars of value to your future business.

That's something you'd want to know, wouldn't you? And knowing it in real-time or near real-time is even better.

That's the power of the OMS algorithm.

Gliebers Dresses: CMO Candidate #1

We're ready for the group interview of CMO candidate #1, Duncan Berkshire, DVP of Brand Marketing for Blast Candy Bars. Let's go to the Executive Meeting.

Glenn Glieber (Owner): "... and Candi, I have no idea who started this 'Save Gertie The Pig' campaign on Twitter, but it ends today. You've got to get these people to stop re-tweeting this message. I mean seriously, we had something like 1,300 followers on Monday, and now in just two days we've added 9,000 followers, every one of them passionate about saving Gertie. Folks keep phoning the call center, pleading with our associates to Save Gertie. You know, the only way this thing got on Twitter is from somebody in this room, because Dorothy sure doesn't interact with social media. Candi, end it, now, or at least tweet that you'll Save Gertie if they buy four dresses and enroll in our loyalty program."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yup, it's me."

Candi Layton (HR and Chief Customer Officer): "Kevin, we're about to begin the final part of our CMO interview with Duncan Berkshire, the group interview. We've all had a chance to interview Mr. Berkshire individually, so let's not waste any time and get on with this important part of the Gliebers Dresses culture."

Lois Gladstone (Chief Financial Officer): "Duncan, can you describe for us a situation where management demanded that you grow sales, and you were able to act in a nimble manner to immediately grow sales?"

Duncan Berkshire (Group Interview CMO Candidate): "In 2006, Blast candy bars were struggling to maintain market share. We started a new marketing campaign, with the tagline 'Have a Blast!' I worked with grocery executives. I increased slotting fees for better product placement. The strategy paid off, as sales increased 2.8% in the ninety days following implementation of our global branding strategy."

Lois Gladstone: "Was the strategy profitable?"

Duncan Berkshire: "We really focused on driving sales. We let the finance folks calculate the ROI of brand marketing activities."

Pepper Morgan (Interim Chief Marketing Officer): "Let's say that Glenn wants to increase the November catalog from 124 to 140 pages. How would you quantify the sales impact of a decision like that?"

Duncan Berkshire: "You might consider putting together a few focus groups, and ask if this type of strategy makes any difference in the eyes of the customer."

Pepper Morgan: "Do you believe that you can mathematically quantify the change from 124 to 140 pages, prior to putting the catalogs in the mail?"

Duncan Berkshire: "I think the math is irrelevant without understanding how customers might respond to a change of that nature."

Candi Layton: "Gliebers Dresses has always stood for Quality, Value, and Fashion. How would you capitalize on our strengths to better communicate what we're famous for?"

Duncan Berkshire: "My question for all of you is this ... are you truly known for quality, value, and fashion? Seriously, have you asked your customer if that is what you're known for? You use your catalogs to tell the customer you're known for quality, value, and fashion. Gliebers Dresses isn't what Gliebers Dresses says it is. Gliebers Dresses is what the customer perceives Gliebers Dresses to be."

Meredith Thompson: "Show me where you can purchase fashion at our level of quality and value?"

Duncan Berkshire: "Again, it has nothing to do with what you actually are, it has everything to do with what the customer perceives you to be. For instance, how do you get your message out to potential new customers?"

Pepper Morgan: "We go to ResponseShop, an industry-leading co-op, and we pay them six cents a name for one-time use, and they use some geeky math formula to decide the potential new customers that should hear our message."

Duncan Berkshire: "Exactly. Now it is two months later, and you want to communicate your value proposition to potential new customers. What do you do?"

Meredith Thompson: We go back to ResponseShop, and we pay them six cents a name for one-time use, and they use some geeky math formula to decide the potential new customers that should hear our message, many of whom heard the message last time. This is an industry best practice, everybody does this! We use what they call a 'harmony model' to identify prospects who have purchased merchandise that is 'in harmony' with the merchandise we offer."

Duncan Berkshire: "Exactly. Are you renting the same names, or are you renting different names?"

Pepper Morgan: "Oh, we don't get to know anything about the names we're getting access to, that information is controlled by the analysts at ResponseShop."

Duncan Berkshire: "Exactly. See, your strategy for communicating quality, value, and fashion to potential new customers is to let a math whiz who doesn't even work at your company dictate who hears your message. You have no marketing strategy for how you will evangelize your brand to new customers, and you have no communication strategy for educating customers about your quality, value, and fashion proposition. If you are from outside the catalog industry, like I am, the strategy sounds highly suspect. Why would you ever let a math whiz at ResponseShop dictate your communication strategy?"

Roger Morgan (IT and Operations): "Duncan, how many chocolate chips are needed for the perfect chocolate chip cookie?"

Duncan Berkshire: "I have no idea. But I really like those Otis Spunkmeyer cookies, hot out of the oven, with a tall glass of cold chocolate milk."

Glenn Glieber: "Oh boy. OH BOY! That sounds so good. What's the name brand, Otis Spunkmeyer? Are they available in the freezer section? Dorothy's got to get those for me."

Meredith Thompson: "But we aren't letting ResponseShop control our message. We have a website with secure e-commerce transactions. Our website exudes quality, value, and fashion."

Duncan Berkshire: "And how do you drive traffic to the website?"

Meredith Thompson: "We have existing customers, we have the prospects that ResponseShop decides to mail on our behalf, and we have all of those customers who click on keywords."

Duncan Berkshire: "And who decides if your keywords even make it to the first page of a search engine?"

Pepper Morgan: "Obviously, our paid search program is optimized against our primary competitors and the long-term value of various keywords. A decent amount of our traffic, however, comes from natural search."

Duncan Berkshire: "Exactly. Who controls that traffic?"

Lois Gladstone: "The search engines control the traffic."

Duncan Berkshire: "Exactly. Mathematical algorithms from the search engines control your website traffic. Mathematical algorithms from ResponseShop control your catalog traffic. What, exactly, do you control?

Roger Morgan: "Duncan, what city are Longaberger Baskets made in?"

Duncan Berkshire: "Dresden, Ohio."

Meredith Thompson: "We control the merchandise we offer. We control the price. We control how the merchandise is creatively presented to the customer. We control our e-commerce platform. We control the quality of the paper in our catalogs. We control the contact strategy to existing customers. We control the versioning of our e-mail program. We control our expenses. We control everything, don't we?"

Duncan Berkshire: "Exactly. The job of a catalog brand marketer is to control the traffic. You have no control over your traffic, algorithms decide everything for you. You trust algorithms to evaluate whether prospects cares about quality, value, and fashion. The catalog brand marketer clearly communicates quality, value, and fashion in a way that resonates with the customer, so that the traffic that comes to your website is already pre-qualified, is already wanting what you have to offer. We'll have to invest money to do that. If you decide to hire me, that's what you are getting. You are getting an 'algorithm-free' approach to driving qualified traffic to your brand. Who are you going to trust, geeky math algorithms, or me and my decades of experience growing the Blast Candy Bar empire?"

Kevin: "Duncan, what role should a Chief Marketing Officer play in helping a catalog company find the optimal mix of channels?"

Duncan Berkshire: "I believe the CMO is responsible for teaching all employees how customers are interacting with emerging channels. The CMO must demonstrate that customers are shifting behavior from existing to emerging channels. The CMO must create a roadmap that helps employees see that there is nothing to fear as customers change behavior. And then, the CMO must make darn sure that s/he protects the profit and loss statement, working with the finance team. I don't think the CMO needs to be able to calculate a profit and loss statement, but he should fully lean on the CFO for that responsibility. This is not a time for careless mistakes. I mean, I look at your business, and I'm thinking there isn't much difference between your business and the newspaper industry --- the only difference being you monetized your algorithm-based online traffic, whereas the newspaper industry gave away their online content. And let's go a step further. Your online competitors don't charge for shipping and handling, you appear to make several million dollars a year in shipping and handling revenue. You're going to need to have a plan in place to deal with this issue --- there is absolutely no reason why any rational customer will, in the future, choose your merchandise over a competitor when you require her to pay an additional $14.95 to have the merchandise shipped to her in 5-7 business days."

Glenn Glieber: "I'm afraid we'll have to cut off these fascinating insights right here, folks, we need to get Duncan on a plane. Thanks everybody for the stimulating discussion. Now on to our next topic. Pepper, I'd like to add four pages to the January catalog. Now I know we cut four pages out of the January catalog last month to fund Candi's customer initiatives, but I'm starting to think that was a bad idea. Can you recommend how we might merchandise the four additional pages to make the biggest splash, coordinate with Meredith on the strategy, and then work with Lois to add the expense to the profit and loss statement? Thanks!"

Presentation On Web Analytics And OMS

Download this presentation on how Web Analytics and the Online Marketing Simulation work together to give you a peek into the future of your online business.

There are more than three-dozen slides in the .pdf file, chocked-full of ways that I'm asked to apply the OMS to the challenges CEOs face when trying to understand where their online business is heading over the next five years. The future sales trajectory of the online channel has become a really hot topic, now that organic online growth is drying up.

If you're technically adept, you can take the framework I outlined and create your own OMS. Or, give me a holler, and I'll be glad to build an OMS that outlines the future of your online business.

Let me know what you think of the presentation --- especially those of you in the Web Analytics community, what are your thoughts?

Join Me At IMC Vancouver, September 16-18

I've been invited to speak on a panel at the Internet Marketing Conference in Vancouver, September 16 - 18!!

The keynote speaker is Avinash Kaushik, so that alone is a can't miss, isn't it?

I'll be on a panel on Friday morning. The topic is "Measuring Online Marketing in a Real Time World". I think the conference organizers did a nice job of getting panelists ... I'll share the stage with Manoj Jasra, Braden Hoeppner, Amanda Rose, Stephane Hamel, and Eric Hansen. You can pretty much guess that I'll be talking about what I see in the OMS runs I've worked through.

If you are attending, please take advantage of the 20% off speaker discount --- enter the code "imc-speaker" when registering, in order to receive your discount.

I look forward to speaking with you at the conference!

Gliebers Dresses: Free Shipping

Welcome to the Gliebers Dresses Executive Meeting!

Glenn Glieber (Owner): " ... so my nutritionist tells me that I have to eat heart-healthy food. Well cripes. She gives me this recipe for what she calls 'heart healthy muffins'. And they really aren't that bad, even with two tablespoons of FiberSure in the recipe and a whole boatload of turbinado instead of brown sugar. I baked eight of these things for the county fair, I entered them in the 'healthy muffin' category. Dorothy and I went to the fair around noon yesterday to check on my exhibit, and guess what? I'm the only person who entered anything in the 'healthy' category. But get this ... they give me a second place ribbon. How in the name of Earl Tupper do you get a second place ribbon if you are the only entry in a category?"

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yup, it's me."

Candi Layton (HR and Chief Customer Officer): "Lois, can you continue your discussion about our free shipping problem?"

Lois Gladstone (Chief Financial Officer): "Candi was out on Twitter yesterday, and she noticed that there's a ton of Twitterers who tweet about free shipping."

Candi Layton: "So I searched for Gliebers Dresses and free shipping, and sure enough, there's a bunch of our offer codes out there, and it looks like customers go to Twitter to use them. They're the same codes I authorized Roger to use when customers have a problem ... you know, the customer has a bad experience, so we give them free shipping to make everything better. Now I've heard you can find these things on Google, too, but I'm a social media person, and Google is so old-school, you know, I mean, they just aren't even a factor in the real-time web."

Lois Gladstone: "I noticed when preparing the preliminary August profit and loss statement that free shipping, outside of the 3,000 customers who are now in the loyalty program, was eight percent of sales, eight percent --- and we didn't have a single free shipping promotion all month."

Roger Morgan: "I queried the customer database, and yes, these are valid codes, straight from the call center, the very codes we created to act upon instances where the customer needs to be offered free shipping to make up for a bad experience."

Candi Layton: "I really think my customers are telling these websites the free shipping codes on purpose. I think they are taking advantage of our kindness."

Lois Gladstone: "Or maybe somebody in the call center is in on it --- they get a cut if they tell these websites what the codes are."

Roger Morgan: "My employees would never do that. They're the best in all of New England."

Lois Gladstone: "Pepper, can't you do something about this?"

Pepper Morgan (Interim Chief Marketing Officer): "Like what?"

Lois Gladstone: "Shut these websites down, enter into litigation, something, do something!"

Pepper Morgan: "Why don't we just change the codes, each customer service free shipping code expires daily, so then the coupon sites can't keep up with us?"

Roger Morgan: "Oh, we cannot do that. Our order entry system requires that offer codes be tied to either calendar months, fiscal weeks, or catalog source codes. So the best we can do is offer new codes on a monthly or weekly basis."

Candi Layton: "Do you understand what a terrible customer experience this creates? You work hard to be part of our loyalty program, you spend a fortune so that you can earn free shipping for the rest of the year, and then some customer searches Twitter and finds codes to use to buy from us, codes that give the customer free shipping."

Pepper Morgan: "But Candi, we created the bad customer experience by trying to improve the customer experience without attempting to understand how the customer experience might go sideways when a customer is given a free shipping offer code."

Lois Gladstone: "Eight percent of net sales will be tied to free shipping this month. It was the difference between being profitable and being unprofitable."

Roger Morgan: "I've been saying for a year that we need to upgrade the order-entry system. If we invested the money in our infrastructure, we wouldn't have this problem."

Candi Layton: "Folks, I didn't mean to do this. I was just trying to improve the customer experience. I never meant to give away $30,000 of shipping revenue."

Roger Morgan: "What would Chip Cayman do at a time like this? Maybe we can get him on the phone?"

Meredith Thompson: "Kevin, how would you handle this?

Kevin: "First, stop creating offer codes for free shipping unless you're going to run an actual free shipping promotion. And if you're going to run an actual free shipping promotion, give free shipping to everybody, regardless whether they have a code or not. Make the darn code ubiquitous --- print the thing in catalogs and e-mail campaigns and put it on the homepage of the website and put it up on Twitter, make sure folks share it via Facebook, allow them to text it to their friends --- allow every single customer on the planet to share the code with their friends and family, and make sure the code expires in a week so that it creates a sense of urgency. Instead of making free shipping a scarcity, make it something that is available for everybody. That would make for a great customer experience. Given the size of your business, you'd load up on new customers, too. If you did that, it would almost be like free marketing, given the PR you'd get."

Glenn Glieber: "I love free marketing!"

Kevin: "Second, go in the database, and correlate people who were using the code with employees who were authorized to give out the code to help improve the customer experience. This way, you may find if you have employees who link the codes to websites and Twitter accounts. Roger can deal with any employees on a one-on-one basis, if employees were causing the problem. I can run this analysis for you."

Roger Morgan: "Maybe our loyalty program should be linked to some sort of card, a card with a number on it that can be accepted by the order-entry system. I'm clearly not an expert at this, but the card could link to a credit card number in the database, and if anybody uses the loyalty card number and does not use a valid credit card, then the transaction is stopped right there. I believe the order entry system can handle this, because there are enough fields available to support a loyalty card number."

Pepper Morgan: "Maybe when we give away free shipping as part of fixing a customer service issue, we tie free shipping to each employee's employee number --- enter the employee number into the order entry system, and then track what happens. I realize this is a gross oversimplification of our order entry system, but it would be wise to spend a bit of money modifying the system to handle the things you can control. We may not be able to stop a Twitterer who tells her followers about your free shipping offer code. We can control the elements of our order entry system, and how they interface with the customer."

Kevin: "And third, we keep reading about all of those KPI (key performance indicator) dashboards. Well, add expense by free shipping by code to the dashboard. Theoretically, you want to give away free shipping from your loyalty program, so that should be something you post to the dashboard every week, and should be something you try to get people excited about. Conversely, post free shipping expense in all of these other codes to the dashboard, and create an incentive to keep that expense down --- encourage people to reduce fraud."

Glenn Glieber: "As long as it doesn't cost more than a few thousand dollars to update the order entry system, then let's go ahead and fix this thing. Roger, figure out some workaround and get this resolved by the end of day today. Ok, let's move on to the next issue that roasted my pork, folks. As you know, our annual picnic is on September 12. And somehow, yesterday, at the 4-H auction at the fair, I was the top bidder for a 219 pound pig named Gertie. I was just trying to drive up the price so that Sarah Wheldon would pay through the nose. I kept thrusting my paddle up in the air, and she kept thrusting her paddle in the air, and the auctioneer keeps yelling "how about $3.40?" and the guy next to the auctioneer screams "YEP" and then the auctioneer looks at me and says "how about $3.50?" and I raise my paddle and the guy belts out another "YEP" and this exchange just keeps going back and forth. And then, out of nowhere, Sarah just stops. Well, the audience bursts into a wild applause, I mean it was like I just won the state basketball tournament or something! They tell me that I just paid $8.60, a record for the fair. I have no idea who these people are who keep patting me on the back. Some guy can't stop laughing, he calls me a 'freakin rube', well, I didn't appreciate that one. It's wild excitement, I'm telling you. And then Pamela, this fourteen year old freckled girl with dusty brown hair in a pony tail, the very girl selling the pig in this straw-covered, foul smelling arena, comes up to me and with tears in her eyes says that I just paid for her first year of college. Well, I say, 'private, public, or community?', thinking community college because I thought I paid $8.60, but in reality, I paid $8.60 per POUND for a 219 pound pig. Do the math, folks, because that's a lot of bacon to shell out for a pig. Dorothy is just livid, she's telling me she wanted to go to Mirival for some sort of organic dining week that she read about in O magazine, and now she's stuck sharing barley, oats, and wheat with a 219 pound pig named Gertie. Anyway, I'm thinking that we're going to solve this problem by having a pig roast for our annual picnic on September 12, and I'm thinking that Roger is going to prepare the best pig roast in history, so thanks Roger for picking up the ball on this important issue! Gertie is staying at Dairyview Farms, just call 555-555-3984 and give them slaughtering instructions."