eCommerce Analytics

Many customers have asked us to help them better understand the effect marketing messages have on their customer base. Almost everyone we know uses multi-channel marketing in one form or another - whether it’s email and web ads or email, web ads, and direct mail - most companies are using more than one medium to get their message out to new and existing customers. The problem many companies have is determining how and when to target each customer with the appropriate message.

Read Multi-Channel Marketing and the Zone of Influence »

While working on a proposal the other day for a prospective customer, I decided that I’d go the extra length for him in an attempt to demonstrate where exactly the company could make up some ground in its effort to realize a bit more bang for its buck in its email marketing program. That is, the company wanted to make more money from its existing customer base. When I looked at the company’s email marketing statistics, I was surprised to find that their clickthroughs per purchase was much higher than any company I’d seen.

Read Clickthroughs Per Purchase is the Gold Standard for Targeted Email »

With today’s news that the retail sector is experiencing a slowdown, now is a better time than ever for multi-channel retailers to do two things: turn to cheaper forms of advertising (email) and use quick-return customer analytics to compete with gargantuan discounters like Wal-Mart that threaten to swallow retail whole. The truth is that Wal-Mart will continue to invest in analytics during the tough economy because they will see immediate ROI from understanding which customers are poised to buy, which items they want, and how much those customers are willing to spend. I can think of two, good reasons for smaller multi-channel retailers to follow suit.

Harvest your current customers
Most would say that the thick of a poor economy is a poor time to invest in new marketing projects. If these projects are tied to new customer acquisition, I might agree. It’s damned expensive to acquire customers and you tend to forget what you already have while you’re out prospecting, buying lists, etc. Sometimes, the answer is in front of you. In a poor economy, isn’t it imperative that you retreat to your base? Multi-channel retailers need to figure out ways to:

A. Not lose your current customers to competition (like Wal-Mart)
B. Harvest your existing customers by making them feel as though you understand them

Really, achieving B is the answer to question A. A redoubling of your customer service effort will always make your customers more loyal and less likely to jump ship. But we have to remember that larger players can always offer deeper discounts in an effort to combat your superior customer understanding. One way around this is to deepen your customer understanding on the marketing front with timely, personalized emails to your customer base. Ultimately, if you can address your customers’ needs first - make your customers offers at the cusp of when they need those products - then you are likely to win their business. This is the advantage that predictive models based on your customers behaviors provide you: the ability to beat your larger competition on timing as opposed to discounting.

Quick ROI
Customer analytics like those that Istobe proposes are great because the analysis takes advantage of data that you, as a multi-channel retailer, already possess. You’ve already got a record of your cusotmers’ purchases. In other words, there is no up-front infrastructure or talent investment. What this ultimately means is that your ROI emerges quickly. How quick? Well, let’s just say that you’re in the black (or, green) around month two. This is especially true if you’re already used to sending your customer data to a co-op database (like Abacus or NextAction); you’ve already made your data collection and transfer investment. Now it’s simply about turning those investments to a different use - customer development not acquisition - by focusing how that data helps you pull in the monetary margins in your current customer base.

As I discussed last week in Why Matchback Analysis Overstates the Importance of Catalogs, one of the most effective ways of figuring out how our direct marketing efforts drive online sales is to do holdout testing. Holdout testing is nothing more than a controlled experiment and, done correctly, is a low-risk way of producing the accurate results that matchback analysis can’t.

Let’s say we’re a cataloger and we want to know which of our online-only shoppers we can stop sending catalogs to. The simplest way to find out is to test it:

1) Separate the online-only customers into behavioral and demographic segments

If you already have a customer segmentation schema in place you can skip this step and use your existing segmentation instead. If you don’t have a schema, you have a couple of options.

You can do a manual segmentation by thinking about who your main customer groups are and what attributes they have. You can then developing rules based on those attributes to do segmentation (i.e., Age > 55, suburban address, often buy children’s items is classified as a grandparent).

If you want a more quantitative based approach and have a statistician or data miner on staff, consider using a clustering technique such as k-means or two-step. These will produce statistically sound groupings which are perfect for holdout testing. Sometimes, however, it’s no so clear what to call each group or what they look like.

2) Randomly choose a set of customers in each segment who will serve as the experimental group

One of the more common mistakes is selecting an experimental group that is needlessly large. We want to ensure the test doesn’t impact the business too much so it’s important to try to keep these groups small. This table to give you a rough idea of how big your sample should be per segment:

If you typically have a higher response rate you can afford a bigger margin of error in your testing. The reverse is also true. If your response rates are smaller, you’ll need a tighter margin of error in your testing to ferret out valid results.

3) Stop sending catalogs to the randomly chosen customers in each segment and track the results

For best results, run this test over a few months and see how the response rate of the control group who still receiving catalogs differs from the experimental group in each segment. If the experimental group’s response rate is only slightly smaller than the control group’s, the loss in revenue may be small enough that you can save money by not sending catalogs to that segment.

This experimental technique succeeds where matchback fails and helps you identify segments that no longer need your marketing dollars to spur spending. Finally you’ll know whether the catalog does indeed drive online sales.

I feel like June is always a great time to take a look back at the forecasts and predictions made at the end of the previous year to figure out what’s living up to the hype and what has yet to catch on. Many internet retail trends have yet to meet expectations - virtual world advertising (i.e. Second Life) and YouTube marketing are still in their infancy while other marketing areas like personalization and one-on-one marketing are just starting to gain mainstream buy-in. One trend that we believed in at the end of last year that is now being implementing at major retailers across the country is the integration of online and offline marketing campaigns to maximize the effectiveness of cross-channel sales.

Of course, the question is always how best to judge the effectiveness of a campaign that generates sales in multiple channels. Unfortunately, this is not just difficult, it’s becoming harder as many customers are increasingly using one channel to research information about a product while purchasing the product in a different channel. As an example, the number of customers that receive a product catalog and then choose to purchase via the phone or mail has dropped significantly over the past five years. While it may seem like this would make the case for discontinuing expensive catalog mailers, the truth is that catalogs still drive a substantial amount of purchases - customers are using catalogs to inform their decisions about web purchases.
Back in February, eMarketer came out with a great report that showed the inverse is also true. In his “Multi-Channel Retailing” article, Jeffrey Grau writes about how buyers are increasingly using the web to research a product that they intend to purchase in a retail store. In fact, the article estimates that for every $1 that is generated from online sales, nearly $4 is generated from in-store purchases that are driven by online research. Additionally, over 90% of consumers that purchase online with some frequency have used the internet to inform themselves about items they later bought in-store.
So why is this important? Well, first, if you’re selling across more than one channel, it’s important to recognize that even simple marketing decisions may have a greater effect on your customers than you anticipate. One less catalog a year may seem like a good idea to someone with floundering mail order sales, but unless you can determine which of your customers is using the catalog to purchase online, you may be effecting more than just your mail order business. Second, no matter how your organization is structured - whether your online sales site is run as a separate division or if all marketing is a centralized in one department - the only way to truly judge the effectiveness of your marketing campaigns is to carefully track and, more importantly, analyze the data from all marketing related activities in one place (that means using everything from Google analytics to catalog match-backs). Last, while many internet retail trends that were forecast to happen in 2008 may have several years before becoming mainstream, the recent rise in postage and supply costs means we’ll be seeing more and more retailers looking to get the most out of their multi-channel marketing dollar in the coming year.