Marketing Analytics

Social media is a hot topic this year and it is likely to remain a hot topic in 2009.  I even found myself talking about it over dinner last night.  That is what happens when two marketers get together for dinner and a movie.  Somehow we end up talking shop.

So you may yawn when I say that I have suggested to a client that she develop an internal blog.  However, it can help her achieve her goals by educating users about an internal resource, disseminating information about enhancements to the system, and reducing calls to the internal help desk by building a community of users that learn from each other.  Believe it or not, there are companies that do not have blogs yet.  I can understand their hesitation.  Blogs result in a loss of control as the blog may move in unintended or undesirable directions.  Further, it can inspire resistance from managers.  There is also the additional work involved as it requires that staff monitor the site and address questions or criticisms at a minimum.    They will probably need to write posts.  Blogs are a lot of work.  Ron Shevlin in his blog states, “a helluva lot of time and effort” went into creating his posts.  (In the interest of full disclosure, I had the pleasure of working with Ron a few years ago.)

To be successful, the blog must focus on what users care about;  it must be about their needs rather than the needs of the company to have credibility and gain acceptance.  If it does so, it will develop a devoted audience.  Again to use Ron’s blog as an example, his post announcing the end of his blog has 55 comments as I write this.  This was after just writing his blog for two years.    I too will miss Ron’s thoughtful posts.

If there is a silver lining to this recession for marketers, it may be the focus on analysis and measurable results.  With every marketing dollar being scrutinized and questions being asked about return on marketing investment, every  tactic is being reevaluated.  For a long time, I have questioned the value of web banners.  They are easy to ignore and, as a result, have lower response rates than other marketing vehicles.  Advocates justify the low response rates by pointing to their relative low cost.  Others say that rich media will breath life into banner ads but I remain unconvinced.

Recent articles make me think I am not the only one.  Mike Shields of Mediaweek wrote about display ads a few weeks ago.  He quoted Greg March of Wieden + Kennedy as saying “Advertisers want to deliver impact, and I don’t think the impact for these ads is always that strong.”  Shields wrote that “click-through rates for banner [ads] rarely approach 1 percent”.  I have seen much smaller rates than that.

A recent BtoB special report on 2009 marketing plans, found that 30.6% of B2B marketers surveyed were planning on increasing their spending on banners.  This sounds promising except that other online tactics had higher growth percentages:  email 68.3%, search 50.0%, web-casting 42.9%, web site development 66.3%, and social media 46.6%. 

With new tools, analysts may be able to measure the impact of online ad campaigns, taking into account every ad served up to the user regardless of whether or not she clicks on it.  Hopefully we will soon be able to answer the question, what is the value of a banner ad?

You probably already know that but, in this case, the United State Postal Service has announced that it will be raising its shipping rates on January 18, 2009.  There is a link on the home page of usps.com with the new shipping rates.  

Any price changes related to mailing services, which includes stamps, will be announced in February 2009 and will go into effect in May 2009, according to the USPS website.

Tangyslice had a recent post about customer retention metrics.  To his list, I would add lifetime value.  There are many ways to calculate lifetime value but let me tell you about one way I have calculated it.

A cellular phone company was losing customers due to churn and wanted help to retain their most profitable ones.  In other words, they wanted to know the future value of their customers.  With a lifetime value model, the company could increase ROI through targeted retention and provide one-to-one marketing.

In the cellular phone industry, most customers sign up for two year contracts.  However, some customers default on their contract and others continue their service even when the contract ends.   Thus, the lifetime value model in this example consists of two parts: 

1. survival analysis which predicts survival probability, the likelihood that a customer will remain a customer
2. financial data that include revenue and costs used to determine future customer profit

The first step was estimating the tenure of each customer.   A proportional hazards model or baseline hazards model can be used to estimate tenure.  Once the tenure is determined, the next step is estimating the future value based on past average monthly spending by the customer and the cellular phone company’s costs.

The formula calculates the discounted profit.  In the calculation above, i= the cost of capital and the terminal value is an estimate of the revenue beyond the 36th month of tenure. 

Does this bring back nightmares from Finance and calculating the discounted present value  of cash flow?  The same advice applies.   Be very careful how you calculate the terminal value because it can account for a large percentage of a customer’s estimated value.

Recently I received an e-mail from a local art gallery that was updating its subscriber list.  They sent me a brief e-mail letting me know that they were moving their e-mail list over to a new host and, due to its strict anti-spam policies, they asked that I confirm my desire to subscribe and receive periodic e-mails from them.  All I needed to do was click on an embedded URL to verify my subscription.  If I chose not to subscribe, I had to do nothing.  Ignoring this request would result in my deletion from their e-mail list.

This was a great e-mail, because it …

1. was short and to the point
2. made it extremely easy for me to re-subscribe by including the URL in the e-mail
3. followed best practices by asking for me to opt-in (it is best practices to ask consumers to opt-in but for businesses, it is more common to ask them to opt-out)

Consider asking consumers to opt-in.  The quantity of e-mail addresses in your subscription list will diminish but your list will be the better for it.  Only those engaged and interested in your products and services will remain. 

A few years ago I was presenting the results of a B2B customer survey.  It provided surprising insight into how customers were using a service provided by my client.  The survey was a great success, enabling us to refine campaign creative and messaging, build campaigns on the insight and compare self-reported usage to actual usage.  What was the first question I was asked at the end of the presentation?  What was the Net Promoter Score?  

Frederick Reichheld wrote about the Net Promoter Score (NPS) in Harvard Business Review in 2003.  It has spawned an industry complete with a website, certification courses, conferences and papers for and against the methodology.  The basic idea behind NPS is that growth by an organization, brand, or product is correlated with the percentage of its customers who would recommend them.  

Per the HBR article, it requires the following survey question to be asked: “How likely is it that you would recommend [brand or company X] to a friend or colleague?”  The possible responses should range from zero to ten.  Zero means not at all likely to recommend.  Five is neutral.  Ten means extremely likely to recommend. 

This is where my friend’s survey question went wrong.  As per my earlier post, both of the NPS questions used a scale from 1 to 10.  With an even numbered scale (in this case 10 choices), there is no true midpoint.  In addition, I noted affect of the words used to describe endpoints of the scale earlier. 

While many marketers I know have heard of NPS, they are less familar with the research challenging the NPS methodology.  If you are interested in learning more, here is a recent article from Quirk’s Marketing Research Review available from Business Over Broadway.

The Net Promoter Score (NPS) means many things to many marketers but it starts with a single survey question about the interviewee’s likelihood to recommend an organization, product, service, etc.  To calculate NPS, you subtract the percentage of detractors from the percentage of promoters.  The idea was first published in Harvard Business Review but you may have read about it in Advertising Age, Journal of Marketing or any number of publications. 

A friend asked for my thoughts about NPS recently because he was getting two different results for NPS depending on how he asked the question.  One question asked, “On a scale of 1-10, how likely is it that you would recommend company X to a friend or colleague?”  The scale ran from 1 (Not likely) to 10 (Very likely) with 5 described as Neutral.  The scale on the second question went from 1 (Definitely would not recommend) to 10 (Definitely would recommend).   No qualifiers were given for numbers 2 to 9 on the scale.

I correctly guessed which question produced higher results.  Can you?  In my next post I will write more about NPS because both questions were wrong. 

However, I would like to focus on the art of writing survey questions.  The only difference between the two questions are the scales used.   The second scale was more extreme than the first.  “Definitely would not recommend” is much stronger language than “Not likely”.  The first scale also highlighted position 5 by using the word “Neutral” instead of the number.  All the other positions on the scale had numbers.  This had three consequences.  First, this made it appear that 5 was the midpoint.  However, On a scale from 1 to 10, the midpoint would be 5.5.  Second, by replacing the number 5 with a label, it calls attention to the middle of the scale and could skew answers as a result.  Third, position 5 should not have been described as neutral when in fact a 5 is considered a detractor according to the published methodology. 

This real life example reiterates how difficult it can be to write good survey questions.  How you ask the question can determine the answers you will receive.

A client asked me how her campaigns compared to industry standards. It is a common question and there are many resources available. The DMA compiles statistics and reports on response rates. Most recently they published the DMA 2007 Response Rate Trends Report. MarketingSherpa produces reports such as the 2009 E-Mail Marketing Benchmark Guide. Then, of course, there are websites offering benchmark rates for e-mails such as www.bronto.com.

Just because there are resources available does not necessarily mean that you should use them. Finding the right benchmark rate requires finding comparable campaigns. That means looking for rates based on campaigns having the same:
1. target (i.e., business or consumer)
2. channel (e.g., direct mail, print ad, web banner, e-mail)
3. industry (e.g., retail, financial services)
4. message/offer (e.g., sales)

Even if you find rates for campaigns that meet all of those conditions, how can you be sure that the campaigns are truly comparable? As noted in a recent Molecular blog post, you do not always know the context of the numbers.

The question of industry standards can also obscure another great resource, your own past campaigns. Again, you need to consider the factors above, but these will also provide a benchmark against which you can measure the success of current campaigns.

To keep my niece entertained during long car rides, I tell her the story of Odysseus (also known as Ulysses).  If you start with the Iliad, which I do because it was Odysseus’ idea to build the Trojan Horse after all, and then move onto the Odyssey, you can pleasurably fill quite a lot of time.  So she’s 6 years old.  Can you ever be too young for Homer?

Well, there’s another Ulysses I was hoping to conquer.  This one was written by James Joyce.  I have begun subscribing to an e-mail service that provides excerpts of books.   It is from DailyLit.  I tried it on a lark and am enjoying the brief but intense dose of literature in my inbox each weekday.  That is, once I get over the dread and open the e-mail.  I loved Dubliners so why the dread of Ulysses?  It certainly has a reputation for being difficult but that is partly why the e-mails are perfect for me.  I can savor the book in small doses and read them when I have the time and focus needed.   Further, seeing them in my inbox each day encourages me to read them.

The e-mails from DailyLit are what e-mails should be — relevant, timely and meaningful to the recipient.  In this case, I selected the book from a myriad of choices and set the frequency.  My choices were daily, weekdays or Monday, Wednesday and Friday.  Further, I was able to schedule the time of the e-mail or RSS feed.  Other e-mail senders can learn from the customer preferences provided by DailyLit.

Have you heard this one before?  If you put two analysts together what do you get?  Three opinions.  Okay, so it wasn’t a very good joke but I have certainly had conversations with analysts where it seemed like I was talking to Sybil.

This is my way of saying that I understand if you are sceptical about the following link to Email Marketing Q&A.  However, it was created by the Email Experience Council of the DMA.   Also, if you are new to e-mail marketing, you might find it helpful.  If you don’t find it useful or relevant, please let me know.