Channel Migration Visualization

Many database marketers who practice Multichannel Forensics categorize customer activity on the basis of the channel the customer purchased from. Others take this a step further, combining the physical purchase channel with the advertising channel that drove the order.

Example:

• A brand has two physical channels: Telephone and Website.

• A brand has eight advertising channels: Catalog, E-Mail, Paid Search, Organic Search, Affiliates, Shopping Comparison Sites, Portal Advertising, Blogs, Twitter, Uncoded.
  

Each combination represents a micro-channel. Many combinations have little relevance, and are not included below:

• Catalog / Phone.
• Catalog / Website.
• E-Mail / Website.
• Paid Search / Website.
• Organic Search / Website.
• Affiliates / Website.
• Shopping Comparison Sites / Website.
• Portal Advertising / Website.
• Blogs / Website.
• Twitter / Website.
• Uncoded / Phone.
• Uncoded / Website.

At this point, you have twelve micro-channels, and now you have something. Take a look at the ecosystem revealed by a Multichannel Forensics analysis (click the image to enlarge it).



This is fun stuff!! You can clearly see the path a customer takes as she moves from newbie status to becoming a loyal customer.

E-Mail marketers --- pay close attention to the middle of this chart. I frequently find that e-mail marketing is the "glue" that links a customer as the customer moves from the past (direct marketing, catalog marketing) to the future (social media, organic demand).

Paid Search marketers --- pay close attention to the role you play in this chart. You are frequently a source of new customers, but the customers you bring into the business are often not responsive to traditional direct marketing. That's ok, as long as the brand doesn't try to convert that customer to traditional advertising via direct marketing.

Often, there's a transition the customer goes through.

• Traditional Direct Marketing (Catalogs).
• Traditional Digital Marketing (E-Mail Marketing).
• Loyal Customer Generating Organic Demand.

And there's a digital transition that the customer goes through.

• Paid Search
• Organic Search
• Loyal Customer Generating Organic Demand.

There's a ton of profitability to be had by marketing appropriately to customers walking down one of these two paths. And increasingly, we'll add in social media and micro-blogging and mobile marketing.

Housefile Modeling & Co-Ops

In customer acquisition, you may have a mutually beneficial relationship with the co-ops. You get enough value to grow your business, they generate enough revenue to be profitable.

In housefile modeling, however, the story changes. Clients using Zip Code Forensics, a free tool that outlines the most productive zip codes, tell me that they are achieving 80% to 85% of the performance improvement seen via co-op housefile modeling. Here, however, the difference in cost is enough to turn the tables.

	Co-Ops	Zip Code Fr.	Base Perf.
Circulation	25,000	25,000	100,000
Buyers	313	303	1,100
Response Rate	1.25%	1.21%	1.10%
Average Order Value	$135.00	$135.00	$135.00
Demand	$42,188	$40,838	$148,500
Contribution	$14,766	$14,293	$51,975
Less Book Cost	$13,750	$13,750	$55,000
Less Co-Op Expense	$625	$0	$0
Variable Profit	$391	$543	($3,025)
Profit Per Buyer	$1.25	$1.80	($2.75)

In this example, Zip Code Forensics only gets us 73% of the improvement (you tell me that average number is about 82%) yielded by the co-op housefile model. However, at $0.025 per housefile name, you don't generate enough business to offset the benefit of the freely available Zip Code Forensics segmentation tool.

Unless your co-op is tossing in a bunch of goodies, you're better off using Zip Code Forensics to overlay against lapsed buyers. You went for the lower cost solution when you abandoned the list industry for the co-ops. Why not use a free tool instead of a low-cost solution?

Channel Shift And Online Marketing

These are absolutely delicious times in the world of multiple channels.

Sure, I focus a disproportionate amount of time on catalogers and retailers, because that's what I know. But the most interesting stories are over in the online marketing world.

You know those online marketers. They're the folks that just stare at you when you mention anything that cannot be immediately quantified with a conversion rate metric. They're the folks who organically benefited from all of your offline marketing. They're good people, learning their craft on the fly --- something offline marketers have a much harder time doing.

And in the course of just six months, the world shifted out from under them.

Aaron asks us, "How Much Of Your Pagerank Are You Wasting On Twitter?" Catalogers/Retailers, read this carefully, but as you read the article, make the appropriate substitutions:

1. When you see the word "Google", put in the word "Catalog", or the word "Retail".
2. When you see the word "Twitter", put in the word "Internet" or the phrase "Online Marketing".

Aaron speaks about the exact sort of thing that was announced at Get Elastic today. These folks are reducing blogging frequency, and eliminating Friday link-love, instead spending time on Twitter forwarding readers to good articles. Just like that, a brand that utilized a fruitful combination of social media and Google elects to slowly de-tether from the beast, choosing to spend more time on Twitter.

Too much hype was made over Web 2.0. What is happening now, however, doesn't have a label. It is a fusion of online marketing and offline marketing and Web 2.0 and, most importantly, demand creation, that is threatening to anybody in the online marketing camp.

Demand creation is sorely missing from online marketing and Web 2.0. Improving conversion rates and managing search and placing a shopping cart in the upper right hand corner of the screen is all about capturing as much demand as possible --- a good thing. But it is a fundamentally different process than what one goes through to create demand.

Demand creation results in new channels. New channels, as we have learned over and over again, cannibalize old channels. Search, all of a sudden, is an old channel. Old channels go after the money. New channels go after romance --- and are always criticized in the early going for not delivering ROI.

For my loyal catalog and retail readers out there, this is a time of huge opportunity. You can ignore the pap about selling on Twitter. You can ignore the stories about improving conversion rates by 394%. You can, instead, find new and innovative ways to use combinations of micro-channels in ways others haven't envisioned. Test! Try things. The mighty online marketing empire probably peaked last September, and is now being nibbled all around the edges by the very micro-channels it enabled.

The Hidden Marketing Tool: The Nameflow Model

It appears that Tim Hoermer from Carmot Marketing either has similar interests, or has created something that is mysteriously similar to Multichannel Forensics.

He calls it "The Hidden Marketing Tool: The Nameflow Model".

Read the article --- then you tell me if it isn't essentially eerily similar to Multichannel Fornesics, the widely adapted forecasting process we've described for the past three years.

Wow. Good to see folks using these concepts.

The concept isn't new, of course. Jim Fulton practiced his version of Multichannel Forensics at Lands' End back in the early 1990s (and does very good work as a consultant today), and I saw the concept practiced at Fingerhut in the 1980s.

Stress Test

You may have read about the stress tests banks are being put through.

For those of us in the "multichannel" industry, we, too, need to put the customer file through a stress test.

1. The cataloger really needs to see what happens to the business, over five years, if catalog customer acquisition is shut down.
2. The online brand can stress test the business if offline advertising were executed against the housefile. What happens to profitability, what happens to the retention rate, what happens to orders per buyer when any type of advertising happens other than online marketing?
3. The retail brand can stress test the business when stores are closed. How is the online channel impacted when a market only has one store, and that store is closed? How are stores impacted when one store is closed in a multi-store market?

This isn't an exercise for the CFO. This isn't an exercise for the web analytics expert. This isn't an exercise for the business intelligence staffer. This isn't something your co-op will do for you. This is something that you, the multichannel forensics practitioner, must become proficient at, and must assume the leadership role for in your business.

Now if you really want to stress test your Executive Team, do what Skittles did.

Co-Op Pricing And New Customer Elasticity

Thanks to all of you who forwarded me average co-op costs per prospect and per housefile customer. The data indicate inconsistencies and volume discounts. Some of the smaller brands get hosed on price ... some of the bigger brands get hosed because they contribute so many transactions that smaller companies benefit from.

From an economic standpoint, the data suggest that there isn't a huge benefit to the co-op to lower pricing.

Take a look at the following table, illustrating new customer acquisition, and profitability levels, given different co-op pricing tiers per prospect. The table assumes mailing to an incremental loss of $15.00 per new customer (at the margin).

Co-Op Elasticity Table
Cost/HH	Circ	Buyers	Demand	Profit	Prof/Cust	Co-Op $
$0.00	210,000	2,724	$354,151	$8,453	$3.10	$0
$0.01	195,000	2,587	$336,247	$8,486	$3.28	$1,950
$0.02	185,000	2,493	$324,082	$7,979	$3.20	$3,700
$0.03	175,000	2,398	$311,717	$7,601	$3.17	$5,250
$0.04	165,000	2,301	$299,139	$7,349	$3.19	$6,600
$0.05	155,000	2,203	$286,330	$7,215	$3.28	$7,750
$0.06	150,000	2,153	$279,833	$6,441	$2.99	$9,000
$0.07	140,000	2,051	$266,639	$6,524	$3.18	$9,800
$0.08	135,000	2,000	$259,937	$5,928	$2.96	$10,800
$0.09	125,000	1,895	$246,304	$6,206	$3.28	$11,250
$0.10	120,000	1,841	$239,365	$5,778	$3.14	$12,000

Assume that you're one of the poor souls paying $0.08 per name for prospects from your favorite co-op. You are able to mail 135,000 households (in my example), generating 2,000 new customers, and $5,928 of profit. Your co-op generates $10,800 revenue.

Let's say that you want the $0.05 pricing level that a larger competitor enjoys. Well, you'd benefit! You could now mail 155,000 households (in my example), generating 2,153 new customers, and $7,215 of profit. Your co-op, however, generates just $7,750 revenue.

If we exclude competitive pricing pressure between co-ops, there simply isn't any incentive for co-ops to lower prices for you. And because most co-ops have achieved a critical mass of households and transactions, there isn't enough of a threat of you leaving the co-op to encourage price incentives.

If you decide to participate in a co-op, you need to participate in at least two co-ops, clearly communicating to each organization how you are shifting circulation between them, being fully transparent about overall performance.

Catalog Customer Acquisition

A quote from the non-profit industry, courtesy of Mark Rovner, from pages 114-115 in Seth Godin's "Tribes". See if you see any similarity to our industry.

• " The era of cheap direct mail and high response rates in acquisition is over. The economics of direct mail are failing. That is more or less an uncontroverted fact. It costs more to mail, and fewer new donors come back with each mailing. This trend has been masked somewhat by higher average gifts by donors you already have, but sooner or later, the acquisition crisis is going to affect bottom lines. For some, it already has. What currently passes for an online fundraising model is at best a stopgap."

I've written nearly 1,200 blog posts, maybe 300,000 words. Why couldn't I have summarized my thesis this easily?

Even more important than somebody actually stating what we're all seeing is the last sentence. "What currently passes for an online fundraising model is at best a stopgap."

In our industry, this means that what we're doing online to acquire customers and build relationships is at best a stopgap. The future of online marketing isn't paid search and tossing a few banner ads up there and participating in shopping comparison sites and hosting a Twitter page. In fact, we simply don't know what online marketing will become.

But many of you now tell me you're beginning the experimentation process!

For many of the "experimenters", the outcome is a profitable customer acquisition program with lower-than-average long-term customer value. I've observed a few "whoppers", programs that literally replace catalog customer acquisition, programs that scale beyond traditional online marketing. These programs are not done via catalog marketing, via online marketing, or via social media, though those channels often get credit for the order. They are the outcome of experimentation!

Why our industry leaders refuse to publicly acknowledge the evolution of our craft is puzzling to me. Seriously, find me a series of articles in trade journals, blog posts, or conference sessions in our industry that address the issue that so many of you keep asking me to forecast the impact of.