Marketers agree that the name of the game is multi-channel synergies. However, when they allocate each response from an existing customer to a single promotion, they are implicitly assuming that the response was caused solely by that promotion. How can this be true with multi-channel synergies?
There are two reasons why allocating responses from existing customers to individual promotions is not the way to derive real insight into what is driving the behavior of your existing customers:
- Promotional Cannibalization — Source codes significantly overstate the effect of some promotions such as email, and understate others.
- Baseline Revenue — A significant amount of revenue would occur even in the absence of direct marketing promotions. It can be 85% or more for some customers, and 15% or less for others. Baseline revenue is caused by factors such as the “drive-by” promotional value of e-commerce sites, the “boots on the ground” efforts of field sales, inbound and outbound telemarketing, brick-and-mortar retail stores, and walk-in distribution centers. Other contributors include brand loyalty, Internet promotional media such as display ads, and paid and natural search.
A Five-Step Path to True Insight
Allocating response behavior from existing customers to individual promotions is a daunting task, even if it made any sense. This is because of the massive amount of multi-channel promotional overlap that is so typical in today’s marketing world. For example, catalog/e-commerce companies often drop six or more mail pieces during the Holiday season, and supplement them with weekly emails. Then, layer on Internet sources and the complexity becomes staggering. The following five steps will streamline your promotional efforts, and provide true insight into what is driving existing-customer behavior:
- Step #1 — Focus your testing and measurement, as well as your segmentation and circulation management, on logical time periods such as seasons, and not on individual promotions.
- Step #2 — For each of your customer types, estimate the true incremental effects of promotions across multiple channels; that is, net of Baseline Revenue. This is done by analyzing your marketing database for past “natural tests,” and by running going-forward, over-time tests.
- Step #3 — Re-think the role of Source Codes. Source Codes are an effective way to organize information because they are a short-hand descriptor for planning and tracking. However, their effectiveness in determining the impetus for existing-customer purchase behavior has been significantly undermined by the synergies that occur across multiple promotional channels. Therefore, Source Codes should play a reduced role in promotional decisions.
- Step #4 — Replace your existing segmentation with statistics-based predictive models that incorporate the knowledge gained from the previous three steps. The predictions must span logical periods of time. And, the dependent variable (“target”) for each customer must be adjusted for the number and intensity of the promotions within the time period. Likewise, Baseline Revenue must be excluded.
- Step #5 — Continue to test, monitor and refine as necessary. You must continually refine the estimates of the incremental effects of your multi-channel promotional mix, because the amount of Baseline Revenue changes over time.