E-Mail Marketing, Search, Matchback, Attribution

One of the mysteries of marketing in 2009 is the concept of attribution, a process where we matchback orders derived in one micro-channel to the advertising micro-channel that drove the order.

For whatever reason, the e-mail blogosphere and vendor community fails to capitalize on this opportunity.

My Mutichannel Forensics projects repeatedly indicate that e-mail marketing and search marketing play a unique micro-channel role. E-Mail marketing is a "love" channel, if you will. The 10% to 50% of your twelve-month buyer file that subscribes to e-mail marketing "loves you" more than the average customer. These customers have better "RFM" characteristics, not because of e-mail marketing necessarily, but because the customer is a good customer who wants to learn more.

And then we have search, which works in the opposite direction. The customer who "loves you" doesn't implicitly trust you. As a result, she wants to make sure that she's getting the best deal possible, the best combination of merchandise and value.

When you have customers who want to see your e-mail campaigns and then want to use search, you have a classic micro-channel combination that must be tabulated in your database, and analyzed going forward.

At minimum, we need to run matchback algorithms for e-mail marketing. Catalogers have been running matchbacks for the past fifteen years, taking credit for orders that were not necessarily driven by catalogs. E-Mail marketers, however, have been exceptionally slow to embrace attribution and matchback programs. I don't understand why.

It's a fairly simple process. Say you deliver an e-mail marketing campaign on a Tuesday. Take all customers who ordered on Tuesday, Wednesday, Thursday, and Friday, and match them back to your e-mail campaign. And by the way, make sure you have a holdout group, a group who did not receive the e-mail campaign, and do the same process --- subtracting the difference between mailed and holdout group for true incremental value.

Now, any orders that are generated by search marketing are matched back and attributed to the e-mail marketing campaign. And here's where we need to make an adjustment ... we need to make a guess at all of the unconverted searches that were caused by e-mail marketing, and allocate the cost of those unconverted searches back to the e-mail marketing campaign. If the typical search conversion rate is, say, 3%, you have to multiply converted searches by 33, and then multiply that total by the cost-per-click, in order to get at the right advertising cost.

Two things usually happen, two things that are highly relevant to e-mail marketers.

1. E-Mail marketing causes search activity, and that search activity results in orders that are normally credited to search and should be credited to e-mail. This can result in e-mail marketing being more productive that usually measured to be.
2. E-Mail marketing causes the "search audience" to do a bunch of unproductive searches. As a result, the "search segment" is actually unprofitable --- causing the e-mail marketer to withhold e-mail marketing campaigns to customers who search all of the time.

The latter point is worth noting ... the e-mail marketer should be creating segments in the database of customers who utilize search on a frequent basis ... electing to develop a different contact strategy for the "E-Mail / Search" micro-channel combination.

Multichannel Forensics A to Z: Paid Search

The paid search customer is one worthy study in your average Multichannel Forensics project (book, study).

Most customers understand the difference between paid search and natural search, implying that the customer is using paid search for reasons different than the customer using natural search.

Customers can be segmented by the micro-channel they use (Google Paid Search, Yahoo! Paid Search, MSN Paid Search, Ask.com, etc.).

When search is viewed from the Multichannel Forensics standpoint, you often see that Google is in "Isolation Mode", while Yahoo! and MSN are in "Equilibrium Mode". In other words, the Google customer stays with Google, while the Yahoo! and MSN customer is willing to try all search engines.

Pay close attention to the long-term dynamics of this relationship, if you experience this phenomenon. If the Google customer is less valuable, long-term, and your MSN and Yahoo! customers are switching to Google, uh oh.

Our focus will continue to shift away from traditional direct marketing, to the relationships exhibited by online micro-channels. Our databases will be able to store complex micro-channel interactions across time, allowing us to see these trends.

Paid Search And Catalogs

So many of my Multichannel Forensics projects now include both referring URL information and catalog / e-mail promotional history.

When you have this type of information, you quickly notice that customers blend advertising strategies into a slurry of confusion that results in the same purchase the customer used to place with you fifteen years ago.

This caused our industry to dive head first into matchback analytics. We try so hard to allocate every order that happened in the past.

It might be time to view the future.

In other words, we can measure past relationships, modeling them to see what a customer might do in the future.

For instance, I notice that some customers use paid search and catalogs as a combined effort, then use paid search and e-mail as a combined effort, then use paid search, then simply purchase without the benefit of any advertising.

Identify these customers, mail fewer catalogs to them, and focus ad spend on customers who require various forms of marketing to place orders.

Part 4: What If Catalog Prospecting Stopped Because Of Do Not Mail Legislation?

For a recap of this series, please read part one, part two, and part three. For a view of the simulation tool used to create the scenarios in this series, click on the Multichannel Forensics Two Channel Simulation Link.

This exercise was created to give everybody, catalogers, vendors, customers, blog participants and third parties, an opportunity to understand how actual customers behave based on a simulation of actual customer behavior. The simulation ends speculation and opinions. The simulation simply illustrates how customers behave, and the business consequences that management may eventually have to deal with.

There is no getting around the fact that phone and mail volume are crippled when catalogs are not mailed. Many jobs would be lost if catalog mailings were limited only to loyal customers. Good, hard working call center staff, distribution center staff, and folks who make a living working in the catalog ecosystem (printers, co-ops, list brokers and managers, paper reps, USPS, merge/purge vendors, contact management software vendors), will have their lives interrupted if things ever get to this point. In many ways, this four part series should encourage the cataloger to partner with third party opt-out services in an effort to stem an outcome that is this bleak.

Remember, there is light at the end of the tunnel. Notice that at the end of the simulation, in years four and five, sales rebound, and profit increases. There is hope! Catalog management can follow a prescription to make sure that if things ever get bleak, the business is insulated from the dire situation illustrated in this series.


Catalog Management Prescription To Avoid A Dire Outcome

It is better to partner with third party opt-out services now than to deal with the dire consequences of this simulation later.

Test significant increases in online marketing NOW! See how far you can push the envelope in e-mail marketing, affiliate marketing, shopping comparison sites, portal advertising, banner/ppc advertising, paid search.

Do everything possible to make your site natural/organic search friendly. Contact our friend Alan now, and have his organization help you with natural/paid search strategies that insulate you from tough choices associated with the long-term prognosis of catalog marketing. His catalog marketing experience is very beneficial for making the transition from catalog to online marketing.

Test not mailing catalogs for a quarter to various segments of your customer file. At the end of the quarter, run matchback analytics on the mailed group, and the holdout group. Truly learn what will happen to your business if you were not allowed to mail catalogs.

Run Multichannel Forensics simulations (there are free links on the homepage of the blog), so that you know the long-term trajectory of your business. You may find that your phone/mail customers are very willing to shop online if not mailed catalogs, which would be highly beneficial to you!

Cultivate organic business. This is easier said than done, but is means EVERYTHING to your business. Organic business happens when customers purchase from your brand because they love you, not because you advertise to the customer. Organic e-commerce sales protect you from any catalog or online advertising issues. Organic e-commerce sales are highly profitable. In this simulation, had the catalog brand had significant and growing organic e-commerce sales, the outcome wouldn't have been as dire.

Be proactive! Test everything now! There is hope!

E-Mail, Paid Search, Portal Advertising, Channels

How do you evaluate and segment customers who respond to e-mail marketing, paid search, natural search, portal advertising, shopping comparison sites, affiliates, and any other advertising channel?

Are these customers fundamentally "different" than other customers?

Do you treat these customers differently across various marketing strategies?

Most important, how do you evaluate the interactions that occur when customers respond to different advertising channels? For instance, should your e-mail marketing strategy be different for customers who respond to both search and e-mail, vs. customers who only respond to e-mail?

E-Mail ROI: Again

The e-mail community is on a mission to prove it is "right".

The community continues to use the "ROI" metric as a way to shoot down paid search, portal advertising, shopping comparison sites, affiliates, and catalog marketers.

ROI is typically measured as the "profit dollars obtained in a campaign divided by the marketing cost to execute the campaign".

E-mail depends upon two very important metrics --- one dramatically working in its favor, one dramatically working against e-mail.

After factoring in staffing levels (which may be comparable for online advertising, catalog advertising, e-mail and search marketing), the incremental cost to do e-mail marketing is low --- almost zero.

By default, this yields a ridiculously high and meaningless "ROI" metric --- the metric e-mail advocates use to defend investment in e-mail ROI.

The metric working against e-mail is sales per contact. E-mail is awful at generating sales volume per contact. Catalogs and paid search are great at generating sales volume per contact/click.

The table below illustrates this fact:

Return On Investment: Marketing Tactics
	Catalog	E-Mail	Paid Search
Demand	$4,000,000	$400,000	$4,000,000
Net Sales	$3,200,000	$320,000	$3,200,000
Gross Margin	$1,600,000	$160,000	$1,600,000
Less Adv. Cost	$1,000,000	$1,200	$1,000,000
Less Pick/Pack/Ship	$384,000	$32,000	$384,000
Variable Operating Profit	$216,000	$126,800	$216,000
Profit As A % Of Sales	6.8%	39.6%	6.8%
ROI	21.6%	10566.7%	21.6%
Circulation / Search Clicks	1,500,000	2,000,000	3,000,000
$ per Contact	$2.67	$0.20	$1.33
Orders	40,000	4,000	40,000
Cost per Order	$25.00	$3.33	$25.00

The dynamics of cataloging and search marketing are very different than the dynamics of e-mail marketing. You never hear e-mail advocates talk about a $0.20 demand per e-mail delivered. Nope. E-mail advocates scan a profit and loss statement like this, pick out the two metrics that look the best (ROI and Cost per Order), and then beat up folks who work on other marketing tactics.

Chief Marketing Officers are pressured to drive sales now --- or they lose their job. It's hard to drive sales at $0.20 per contact, when paid search and cataloging drive so much more volume than e-mail marketing.

Dive in head-first, and do your best to maximize all marketing activities. You should have a great e-mail program, using best practices and targeting strategies and personalization to maximize ROI. It is absolutely worth the effort!

Just listen with a grain of salt when you read the research reports and vendor marketing articles that tell you that e-mail has the best ROI, articles and reports that beat up others to justify investment in e-mail marketing.

Look at the net sales and profit dollars generated by each marketing activity, and let those metrics speak for themselves. E-mail will be able to stand on its own merits.

Return On Investment (ROI) In Direct Marketing

Click on the image to enlarge it.

We hear a lot of talk about ROI, or "Return On Investment", when evaluating direct marketing programs.

Catalogers know that paper drives more total sales, and more total profit, than any other form of direct marketing.

E-Mail marketers know that e-mail drives the best "ROI", measured as "total profit divided by total cost". E-Mail marketing has almost no cost associated with it, making it a tool marketers must use, and use properly.

Paid Search marketers know that they reach customers at a "time of need", thereby providing the most "efficient" form of advertising known to-date. No other form of advertising cuts out the waste of uninterested shoppers like paid search ... except I guess for natural search, which has no cost associated with it.

Portal marketers know that they make the brand known to customers who have not purchased previously. They know their investment is best measured on a "lifetime value" basis ... short-term metrics are not appropriate for portal advertising.

In the table attached to the top of this article, each form of advertising has various strengths and weaknesses. Your job is to evaluate your advertising objectives.

Objective: Drive large volume of sales/profit from existing customers.
Solution = Catalogs.

Objective: Precisely target merchandise to existing customers.
Solution = E-Mail, Paid Search.

Objective: Precisely target merchandise to customers in-need.
Solution = Paid Search.

Objective: Make your brand aware to potential customers.
Solution = Portal Advertising.

Objective: Acquire new customers.
Solution = Catalog, Portal Advertising, Paid Search

I didn't even talk about affiliate marketing or shopping comparison marketing, which also fit into this story.

Obviously, there are many different objectives and solutions, my list above is abbreviated and short. Strategically, consider what you want to accomplish, and allocate your advertising mix on the basis of total sales, total profit, and your objectives.

Don't be swayed by folks who tell you that one form of advertising is "better" than another. Each type of advertising has a purpose. Each type of advertising excels within one specific set of metrics.

Investment In Online Marketing

Online marketing is an enigma.

Considered by many to be direct marketing, online marketing more closely aligns with retail marketing than with direct marketing.

And this is a problem, if you are a traditional direct marketer.

Take paid search, as an example. In traditional direct marketing, you get to pick who receives your marketing message. In paid search, you get to pick how much you want to spend on a keyword. The search engine orders bidders on the basis of how much each bidder is willing to pay. The customer picks the bidder s/he wants to research.

The most popular and most effective online marketing craft is not really direct marketing.

Long-term, this means that the online marketer doesn't control her business.

The catalog marketer always controlled her business. She spent "x" percent of her budget mailing catalogs to best customers, "y" percent to marginal customers, and "z" percent to prospects.

The catalog marketer dictated the relationship with the customer.

The retail marketer did not control her business. She controlled location, product, presentation, and the channel she wished to advertise within.

In online marketing, the customer dictates the relationship with the marketer.

In catalog marketing, if your board of directors require you to double the size of your business and gives you infinite resources to accomplish the task, you can double the size of your business.

Can you accomplish this task via paid search?

Some Multichannel brands have learned that more than half of the customers who respond to paid search are existing customers, occasionally best customers.

If your board of directors wanted for you to spend $5,000,000 acquiring new customers via catalogs, you'd talk to Abacus, and open up the floodgates. You'd acquire a lot of new customers.

If your board of directors wanted for you to spend $5,000,000 acquiring new customers via online marketing, how would you accomplish this task?

CEO Concerns About Reducing Catalog Marketing

Lots of phone calls with business leaders over the past month. All ask me essentially the same question.

Question: "Postage is about to put a squeeze on my expense structure. Should I begin transitioning out of catalog marketing?"

Strategically, there are a lot of things to think about. Listed below are a sampling of the issues CEOs need to consider.

• How old is your average catalog customer? If your catalog customer is 55 or older, you need to embrace your catalog marketing efforts.

• What percentage of your direct-to-consumer net sales come from the telephone? If this percentage is more than fifty percent, you need to embrace your catalog marketing efforts.

• What percentage of your direct-to-consumer advertising budget is in search, affiliates, portals and e-mail marketing? If you aren't already spending at least twenty percent of your direct-to-consumer advertising budget online, you need to embrace your catalog marketing efforts for awhile, until you learn all the ins and outs of online marketing.

• Multichannel Forensics: If prior catalog buyers are in isolation mode (meaning they do not at least try out ordering online), you need to embrace your catalog marketing efforts.

• Testing: This is as good a time as any to hold out catalog mailings to a group of loyal catalog customers for a period of at least six months. When you do this, what happens to online spend? Does it increase, decrease, or stay the same? If it decreases or stays the same, you need to embrace your catalog marketing efforts.

• E-Mail Marketing: A colleague forwarded me an e-mail marketing campaign. The e-mail did not sell merchandise --- rather, it told the customer to look for their catalog in the mail. If your e-mail marketing strategy is to market your catalog, you need to embrace your catalog marketing efforts.

• Customer Acquisition: What happens to new customers if you stop traditional catalog prospecting activities? The future of your business is new customers --- if you don't acquire new customers via the online channel, you need to embrace your catalog marketing efforts.

• Paid Search: When you analyze paid search performance, do you find that customers ordering via paid search also received a catalog? If so, you need to embrace your catalog marketing efforts.

• Online Marketing Budget: What happens if you double your online marketing budget? What is the impact on online sales? If you don't know the answer to this question, you need to embrace your catalog marketing efforts until you can answer this question.

• Staffing: Do you have a transition plan for all of the folks who have served your catalog efforts for the past two decades? Contact center and distribution center considerations are not trivial.

• Merchandise Strategy: Can you appropriately forecast sku-level sales if you don't have a catalog driving customers to the online channel? Does the mix of merchandise purchased change between online-only customers, verses online customers fueled by catalog marketing?
  

• Customer File Management: Have you run a five-year simulation of the expected change in your customer file? In other words, will you have enough customers, repurchasing at high-enough rates, spending enough money per repurchaser, to fuel the future of your online business? If you don't know the answer to this question, you need to embrace your catalog marketing efforts until you complete your Multichannel Forensics analysis.

Paid Search: New Or Existing Customers?

Catalogers enjoyed a blissful business model. They targeted the customer they wanted to acquire, or they sent catalogs to best customers, in an effort to increase customer loyalty.

Online marketing ends that wonderful fairy tale. Take paid search. You pay for a keyword. Customers click on your link, and hopefully purchase merchandise.

Who clicked on that link? Existing, loyal customers? Inactive customers? First time purchasers?

Multichannel retailers with good customer databases know the percentage of paid search respondents who are existing customers. The greater the percentage, the less effective paid search might be over time, as you simply pay Google to steer your existing customers back to you.

More important, however, is the loss of control over the growth of your online channel. With catalogs, you set aside a portion of your circulation for prospecting purposes. You strategically determine the long-term growth rate of your business. With search (especially with natural search), you don't control the long-term growth rate of your business. Google determines the long-term growth rate of your business.


Multichannel CEOs and CMOs: Your task for Tuesday morning is to sit down with your analytical folks, and learn if Google drives existing customers to your site, or new customers to your site. If Google is used by your existing customer base, you have the potential for long-term growth problems, as you may not have a healthy source of new customers to prospect to. If this is the case, today is a good time to start considering how you will find new customers.

Cost Per Click In Multichannel Retail

SpyFu is a website that helps users understand how much various businesses spend on online advertising.

Having insider information about accuracy of the data at several multichannel retailers, I can tell you that SpyFu is at best, directionally accurate.

That being said, one can summarize and classify the information. By doing so, many of the numerical inaccuracies are mitigated.

The attached image classifies apparel and shoe multichannel retailers into nine cells. Among these thirty-seven businesses, I use SpyFu data to determine if the retailer spends a lot, or very little on online advertising. Next, I use SpyFu data to determine if the average Cost per Click is inexpensive, average, or expensive.

The best place to reside in this image is in the upper right cell. In this cell, spend is huge, while Cost per Click is low. If these clickers convert at an acceptable rate, there is significant efficiency in the online marketing efforts of retailers in this cell. Interestingly, only Zappos meets this criteria.

Of course, SpyFu data does not have access to online or retail conversions. In other words, a customer might search for denim. The customer clicks on J. Crew in the paid search section of Google, views an item on the website, drives to the store, and purchases the item. Whether the item is purchased online or in a J. Crew store, SpyFu cannot see the conversion.

Many of the businesses in this table sell far more in their retail channel than in their direct channel. Some of the more sophisticated multichannel retailers already link paid search to estimated retail conversions. While it is important to look at cost per click, it is much more important to measure variable operating profit across all channels. This concept certainly isn't new, and has been documented many times in Database Marketing literature (this is frequently called a "matchback" analysis).

The table at the end of this post looks at multichannel profit, obtained by spending $100,000 on a paid search program. Notice how important it is to at least be able to estimate the retail conversions driven by online advertising.

In this example, the multichannel retailer generates $33 of profit for every conversion. Also notice that the multichannel retailer generates $1.49 profit per click, in this example. If these metrics were negative, the multichannel retailer would have to conduct a lifetime value analysis, to see if future sales offset short term losses.

Amount Spent, Paid Search	100,000
Cost per Click	0.75
Number of Clicks	133,333
Online Conversion Rate	2.5%
Estimated Retail Conversion Rate	2.0%
True Conversion Rate	4.5%
Online Average Order Size	225.00
Retail Average Order Size	175.00
Online Demand	750,000
Retail Net Sales	466,667
Online Profit to Demand Ratio	23.0%
Retail Profit to Net Sales Ratio	27.0%
Online Profit	172,500
Retail Profit	126,000
Less Online Advertising Expense	100,000
Net Profit	198,500
Return on Investment (Profit/Expense)	1.99
Profit per Conversion	33.08
Profit per Click	1.49