The Role Of Channels

In basketball, we all look to superstar players for inspiration. We enjoy watching the player that can record a "triple-double", ten or more points, ten or more rebounds, ten or more assists, in one game.

The "triple-double" is like "multiple channels".

Here's the thing. A superstar player has a hard time achieving a triple-double without serious help from his/her teammates. You cannot score more than ten points unless somebody passes you the ball. You cannot achieve ten assists unless your teammates can make shots.

In other words, each player has a role.

Now, allow me to ask you a question. Who, when you are meeting in your strategy sessions, assigns the role of each channel, so that all employees know what role each channel plays in your business?

Don't feel bad if you haven't identified who plays that role in a business. And don't expect that person to be the CMO, either. We haven't trained chief marketing officers to think strategically about the roles that channels play.

I will say that the most talented multichannel employees tend to intuitively know what role each channel plays. This could be just about any employee in your business, couldn't it?

On a piece of paper, write down the following channels, and the role each channel plays in contributing to the success of your business.

• Catalog Marketing.
• E-Mail Marketing.
• Paid Search.
• Natural Search.
• Banner Ads.
• Affiliate Marketing.
• Shopping Comparison Sites.
• Orders Via Your Call Center.
• E-Commerce Orders.
• Sales Force.
  
• Live Chat.
• Google.
• Amazon.
• Video Commerce.
• Landing Pages.
  
• Retail Stores.
• Outlet Stores.
• Outlet Tabs On Your E-Commerce Website.
• Facebook.
• MySpace.
  
• Twitter.
• Your Blog.
• Radio.
• Television.
• Newspapers.
• Auction Sites.
• eBay.
• Drive-Through.
• ATM Machines.
• Local Branches.

How did you do? Ask yourself the following questions, for each channel:

• Does the channel scale? In other words, can it become one of the top two or three sales volume channels? If the answer is no, why do you participate in the channel?
• Does the channel do a good job of acquiring new customers? If the answer is yes, do the customers have an acceptable long-term value? If the answer is no, what is your strategy to deal with low-LTV customers?
  
• Does the channel aid in profitable customer retention? In other words, if you eliminated social media, would your annual retention rate change? If the answer is no, why are you participating in social media?
• Does the channel aid in customer service? In other words, does the channel solve customer problems? If the answer is yes (i.e. call center), ask yourself why you pay those folks $11 / hour while you take home $175,000 a year while not speaking directly with your customers?
  
• Does the channel feed other channels? If television advertising drives customers to your website, and your website drives customers to your stores, and customers generate profitable sales in your stores, then you established a successful micro-channel path. Hint --- the secret to successful multichannel marketing is to thoroughly understand and exploit profitable micro-channel paths. Quick ... name your five most profitable micro-channel combinations?
  
• Does the channel generate profit? Having an unprofitable $3,000,000 store doesn't do your brand any favors.
• Does your channel educate customers? Catalogs, websites, and e-mail are good at education. And education leads to demand generation. And demand generation is the secret to profitable success. Most of the Web 1.0 advertising channels are not capable of demand generation --- they focus on demand interception, an important but different role for those channels.
  
• What is the exit strategy for each channel? In other words, what is the future of, say, e-mail marketing? What are the conditions under which you would decide to discontinue e-mail marketing?
• What is your R&D strategy for emerging channels? It is one thing to be on Twitter, telling your customers that chinos are on sale for $29.99 and that your chief merchant ate a burrito for lunch. It is quite another thing to think strategically about how you will use the channel for research and development. How much time and money do you invest in an emerging channel, and when do you pull the plug?
  
• Does the channel lend itself to in-house expertise or vendor-expertise? There are advantages to both, aren't there?

If a channel fails to deliver across most of the questions listed above, ask yourself why you participate in that channel? What would happen if you dropped that channel, and re-invested your money elsewhere?

Your homework assignment for April is this:

• Assign one individual in your company the role of "Channel Advisor". This individual determines the role of each channel, and actively communicates the role each channel plays in the success of your business (using tools like Multichannel Forensics) to every employee in your company.

Steve & Barry Retail Stores

No catalogs, no website, growing in an era of retail contraction. Steve & Barry, with just one channel, defies multichannel logic.

Multichannel advocates, do you think this brand is "missing an opportunity", or does having just one channel give it a unique competitive advantage, give it a reason for being, give it a focus that a multichannel brand simply cannot have?

Multichannel Strategy: The Rural Customer

You manage a brand with three traditional channels (phone, web, stores).

Today, you meet to decide your strategy for customers who live in rural areas.

Here's what you know about your rural customers.

• They purchase about two times per year.
• They do not purchase in your stores, because they live more than a hundred miles from their closest store.
  
• They are unlikely to purchase using your e-commerce channel.
• The average age of the customer is 57 years old.
  
• About a third of these customers volunteered an e-mail address to you. The e-mail address typically has a cable internet service provider suffix.
• The merchandise these customers purchase is more conservative than your average e-commerce customer, much more conservative than your average store customer.

If you were building your marketing plan from scratch, not doing the four drops and eight remails you've executed for the past fifteen years, not doing the two e-mail blasts per week you've typically executed, not doing the retail direct mail campaigns you've executed for twenty years, describe the marketing plan you'd employ for this customer segment.

Bill James, Sabermetrics

My wife always wonders why I never applied my craft to the analysis of sports. Well, it would be hard to answer questions better than Bill James does in this interview with baseball fans on the Freakonomics blog in the New York Times (FYI, here is Bill's website, if you're interested).

Using his logic, if analysis of multichannel and micro-channel customers were a baseball game, we've just moved into the bottom of the first inning in terms of our ability to understand customer behavior.

Think about the established metrics (valid or invalid) baseball uses to evaluate players. When a player comes to bat, the television screen instantly shows batting average, home runs, runs batted in. We know where the player bats in the batting order. Given the information, we set expectations for the outcome of the at-bat.

Now think about multichannel and micro-channel analysis. If you were given a segment of customers at a company that features catalog marketing, e-mail marketing, social media, and store channels, what are the metrics one would list on a television screen that would set your expectations for future performance of that customer segment?

Yup, we're in the bottom of the first inning when it comes to integrating Web Analytics, E-Mail Analytics, Catalog Response, Social Media Response, and Store Performance at a customer level.

Gift Wrapping At Amazon.com

Here's a thorny challenge.

Maybe you're like me (most likely you're not like me, but that's a topic for another day). Being 1,700 miles from family, you visit Amazon to purchase a gift for your nephew for Christmas.

You select the gift, then you select gift wrapping. Except, the item isn't eligible for gift wrapping. The item comes from one of Amazon's partners.

In this case, you run into a unique challenge in multichannel marketing. Amazon uses a vendor that allows for a different customer experience than the experience typically promoted by Amazon.

If you were CEO of a brand that had business partners with different customer service capabilities than your brand, how would you deal with this challenge?

How Online Advertising Channels Fit Together

Please click on the image to enlarge it.

E-commerce provides us with the richest array of information ever available to direct marketers. Let's use the Multichannel Forensics framework to explore the interaction between advertising and customer purchases on your website.

Here's what you do.

Step 1: Create a "spreadsheet", if you will, with each row representing a customer who purchased in 2005. Each column in your spreadsheet is populated with a series of "1s" or "0s". Each column represents a form of advertising. A one is populated if the customer purchased in 2005 using that form of advertising. A zero is populated if the customer did not purchase in 2005 via that form of advertising.

A list of potential "advertising" channels include:

• Brand Buyers: Customers who purchased, and we cannot identify any advertising campaign that caused the customer to purchase. This is the most important "channel" ... we want our customers to purchase from us because they "love" us, not because we advertise to them.
  
• Catalog: Customers who use a catalog source code, or are identified as having purchased via catalog from a matchback analysis.
• E-Mail: Customers who clicked through an e-mail and purchased merchandise.
• Social Media: Customers who purchased and had a referring URL from a blog or social media site like MySpace or Facebook. Some companies comprise a list of the top 5,000 referring URLs, then visit each URL, and identify if the URL is a blog/social-media site. In addition, these companies look for URLs with phrases like "Blogspot" or "Typepad" in the URL, to identify that the referring URL is a blog.
  
• Portals: Customers who purchased and had a referring URL from an advertisement on a portal like MSN or Yahoo!.
• Paid Search: Customers who purchased and had a referring URL from a paid search ad.
• Natural Search: Customers who purchased and had a referring URL from a search engine, a URL that isn't from a paid search campaign.
• Affiliates: Customers who purchased via an established affiliate.
• Shopping Comparison: Customers who purchased via a shopping comparison site like MySimon.

Step 2: Repeat Step 1, but this time, create the file for calendar year 2006.

Step 3: Match the files together for Step 1 and Step 2.

Step 4: Conduct a Multichannel Forensics analysis.

Step 5: Create the map at the start of this post. Any channels that are in "Equilibrium" or "Transfer" are linked together on the map.

The analysis illustrates how your advertising channels work together.

In this example, there are numerous findings.

• New online customers are recruited through paid search, catalog marketing, and "brand buyers", customers who purchase without having used advertising.

• Shopping Comparison and Affiliate customers appear to be largely "cut off" from the ecosystem. In other words, these customers do not eventually become customers who purchase "on their own", or via other advertising channels. One would evaluate the LTV of these customers, to understand if these marketing activities are worthwhile.

• Social Media sites and Portals are leveraged by "brand buyers". In other words, best customers utilize these sites to make purchases.

• Paid Search and Natural Search become "links" that ultimately facilitate the transition from new customer to a loyal customer. The data in this example suggest that these customers can eventually become "brand buyers", customers who don't need advertising to purchase.

• Catalog Marketing is an important way to acquire new customers. The data also suggest that catalog customers use search to complement future purchase activities.

• E-Mail is a "dependent channel" in this example. E-Mail marketing might be effective, but it appears it depends upon other marketing activities (search, catalog) to "acquire" the e-mail address that will be used for e-mail marketing purposes. In this example, the link between "brand buyers" and e-mail is one way. Brand buyers offer an e-mail address, and then respond to e-mail. E-Mail customers are less likely to become "brand buyers", in this example.

Now that the advertising ecosystem has been fully mapped, you sit down with your marketing folks, and consider appropriate linkages between marketing programs.

It is also important to understand which advertising channels drive a customer toward loyalty. Notice that catalog, search and e-mail marketing are all interconnected, whereas affiliate and shopping comparison marketing activities deliver a fundamentally "different" customer to the brand (in this example ... your mileage may vary).