Modern Segmentation, Modeling, And Planning

Much of the segmentation/modeling/planning process involves predicting a future purchase, followed by the determination of an appropriate targeting strategy.

For instance, in this catalog example, we predict two things.

1. We predict the Response Rate to a future catalog.
2. We predict the Average Order Size for a segment being mailed a future catalog.
   

Based on these two predictions, and a forecast for the cost of mailing a catalog, we arrive at the following segment-level mailing prediction and profit/loss statement (after online/retail matchback):

	Prediction
Response Rate	1.8%
Avg. Order	$125.00
$ Per Book	$2.25
Flow-Through %	35.0%
Flow-Through $	$0.79
Book Cost	$0.70
Profit	$0.09

The marketing world of 2009 requires a different level of sophistication.

In the future, we will change the planning and prediction process. This segment will be split into two sub-segments.

1. Subsegment #1 = Customers with the same RFM-style classification, but never historically purchased using Paid Search, Affiliates, or Shopping Comparison Sites.
2. Subsegment #2 = Customers with the same RFM-style classification, but historically purchased using Paid Search, Affiliates, or Shopping Comparison Sites.

In each case, we'll measure future response, but we'll also predict the expected marketing cost associated with self-service customers using Paid Search, Affiliates, or Shopping Comparison Sites. If the catalog or e-mail drives customers to these micro-channels, we incur additional marketing expense. Here's the sub-segment prediction:

	Subseg #1	Subseg #2
Response Rate	1.8%	1.8%
Avg. Order	$125.00	$125.00
$ Per Book	$2.25	$2.25
Flow-Through %	35.0%	35.0%
Flow-Through $	$0.79	$0.79
Book Cost	$0.70	$0.70
Pred. Search/Aff/SC Cost	$0.02	$0.18
Profit	$0.07	($0.09)

In this example, Subsegment #2 generates additional expense, because they like to use Paid Search, Affiliates, and Shopping Comparison sites after receiving a catalog. Therefore, we have to predict what the amount of incremental expense is likely to be. The same level of prediction is required to properly manage future e-mail campaigns.

For Statistical Modelers, this opens up a whole new area of exploration --- it's like drilling for oil in areas where exploration was prohibited.

For the Catalog Circulation Director, this gives you the opportunity to fundamentally change the contact strategy for self-service online shoppers, while generating a boatload of profit for your brand.

For the E-Mail Marketer, you have a once-in-a-lifetime chance to motivate your Executive team to deliver e-mail campaigns to unprofitable customers less often --- and you'll have the proof!

For the vendor community, especially for matchback vendors, you have a whole new product you can develop --- one that integrates purchases and expenses in a holistic and actionable manner. Or maybe the folks at Coremetrics or Omniture can get a jump on the catalog vendor community, and take ownership of this new opportunity.

Best of all, all of you e-mail vendor employees who regularly read this blog have a chance to build an application that improves the profitability of e-mail marketing efforts for your clients --- a good thing!!!

Customer Modeling

Sometimes you wonder what your department should be named.

Back in 1994, after spending my entire career (6 years) scratching and clawing my way to the title of "Manager", I was offered the opportunity to name my new department. Our job was to build statistical models that determined the customers that received Lands' End catalogs.

Given my extensive management experience, I opted for a no-nonsense name ... "Customer Modeling". After all, that's what we did, we modeled customer behavior!

We printed business cards. We changed the department name in our internal business systems. I was one happy manager.

About a week later, the phone rang. The conversation went something like this:


Phone: "Hi, may I speak with the manager in charge of modeling?"

Kevin: "Yes, you're speaking with that person. My name is Kevin, how may I help you?"

Phone: "Yea, my name is Chick Mather, I'm a partner at Pyramid Agency. Listen, I represent a model, Therese Jones. You might be familiar with her work. She's a long-time model in the Garnet Hill catalog, and recently did a photo shoot with The Territory Ahead catalog. I'm hoping I can send her portfolio to you, as I think she'd be a wonderful addition to the Lands' End brand. Please provide me with your name and address, and I will expedite her portfolio to you."

Kevin: "Huh?"

It only took a dozen calls, over a two week period of time, to realize I'd made my first mistake as a manager.

Customer Modeling became Analytical Services, until I realized that people focused more on the word "service" than the word "analytical". All too often, we were asked to tell folks how many people used the code "XG143" to purchase chinos. We wanted folks to ask us meaningful questions, strategic questions. By being a "service", you set yourself up for a role where you provide counts.

So in 2001, I went with the term "Business Intelligence".

Years later, I remember a finance person telling a roomful of my peers that the term was an oxymoron. A year later, that term was trumped by a new leader offering the name "Consumer Insights".

In the past fifteen years, we've stripped modeling, analytics, services, business, and intelligence from what we do. Now we simply provide insight.

For most of the folks we work with, that's what they really want ... insight. If they only had the facts, they could make great decisions.

It's a shame we did such a poor job that nobody cared about the modeling, analytics, services, business, and intelligence we can provide.