Data Driven: Coloring in the Lines
It has become difficult to understand if an overall marketing strategy is maximally efficient. So how do you determine if there is room for improvement in your marketing practices? It starts with collecting and organizing useful data (resist the allure of "Big Data"!). Here are five steps to gathering data you can use to make your marketing program more efficient.
Step 1: Define 'Efficient' by Defining Strategic Objectives
It may seem overly simplistic, but this essential step is often overlooked. Response rate, average order size, ad spend; these are just a few perfectly valid measures of efficiency.
However, the relationship of these metrics to one another can create conflicting definitions of efficiency. For example, increasing response rates often decreases average order size. If increasing response rates is an objective, it is probably unreasonable to have increased average order size as an indicator of maximal efficiency.
Tip: Variable contribution to overhead and profit is a useful metric because it: 1) is the combination of multiple efficiency measures; and 2) enables you to compare different marketing channels/programs on an apples-to-apples basis.
Step 2: Develop a Rational Segmentation Strategy and Stick With It
Recency, frequency, monetary spend (RFM) are still powerful indicators of customer behavior. Rationalizing your segmentation strategy means analyzing how customers interact with your business and configuring the segmentation to reflect that. Look at the seasonality of your business, rebuy rates, clusters of average order amounts. Understand any differences in buying behavior by ordering or marketing medium and, if appropriate, layer that into your segmentation, too.
Once you establish a segmentation approach stick with it and, if possible, apply it across multiple marketing channels (email and direct mail, for example). If you constantly change the segmentation strategy, you will find it difficult to analyze results and identify opportunities to adjust.
Step 3: Set Up Tests That Deliver Results You Can Act On
With the objectives and segmentation set, the next step is testing. Modesty is an asset when it comes to testing, especially if you have limited resources.While it is tempting to introduce multiple concurrent tests into a single campaign, for example, the results can become murky, questionable and ultimately useless.
The chart below is one example of a test to determine the most efficient contact strategy for maximal contribution from a specific segment of customers. The control group was contacted five times during peak season, while the test group was contact three times. Key numbers in the results have been indexed against the control (Control Index = 100).
These results indicate that while the smaller mailing quantity to the test group was arguably more "efficient," driving a 16 percent higher dollar per book, contribution was down by 26 percent. The control group is also driving incremental orders vital to maintaining stable growth of the active, engaged customer base. With these additional orders, one-time buyers convert to two-time buyers, two-time buyers to three-time and so on.
Step 4: Put Results in Context
Several years ago, the above test would have been sufficient to inform virtually all of your marketing investment strategy. But with so many channels now driving demand, it's important to put results in the context of all marketing efforts. Is there another marketing channel or program that could replace those additional contacts at a lower cost?
Consider the existing or potential scale of your other marketing programs; the downstream value of engaged, actively buying customers is the foundation for growth. A scattershot approach to profitable sales can be taxing on your organization and, in the long run, less efficient.
Step 5: Rollout Winning Results, Share and Repeat
After determining the winning results, incorporate them into future marketing efforts. Develop an action plan to roll out any new initiatives, share with all stakeholders, and communicate frequently to ensure that what is being implemented is consistent with the plan.
When the team is moving confidently in the right direction, return to the strategic objectives set out in Step 1 to identify the next testing opportunity. There are likely many tests to execute within the framework of the segmentation you deployed in Step 2. Consider special offers, creative elements, personalization strategies, product category expansion, to name a few.
By following these steps (in order) and maintaining a disciplined approach to testing and data analysis, you can identify that point of optimal efficiency in each marketing program and craft your plans accordingly.
Jude Hoffner is the senior director of marketing strategy and analytics at the Mission Kan. direct marketing agency J. Schmid & Associates, and he is a colleague of regular Data Driven columnist Geoff Wolf. Reach him at email@example.com.