multichannel forensics: an introduction

Multichannel Forensics: An Introduction

Kevin HillstromPresident, MineThatData

Kevin Hillstrom, President: MineThatData [email protected]

206.853.8278 http://minethatdata.blogspot.com

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Multichannel Forensics

An IntroductionKevin Hillstrom

President, MineThatData

Predicting The Future



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Who is going to win “American Idol”?

Do you anticipate heavy traffic on your way home from work?

How will Microsoft’s Zune MP3 player fare against Apple’s iPod player?

Metrics And Intuition



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Systems have been built to help us understand the past, and predict the future:

• Comp Store Sales.• Stock Market: Dow Jones Index, S&P 500• Weather: Temperature, Cloud Cover, Humidity, Rain.• Sports: Playoff Seeding.

We Use Metrics And Intuition



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Examples:• Interstate Highways, Suburbs, Urban Decay.• IBM, Microsoft, Google• Dial-Up Internet, Broadband Internet• 8mm Film, VHS, DVDs, Digital Movies• LPs, Cassettes, CDs, MP3s• Network TV, Cable TV, Satellite, YouTube

Could You Answer This Question?



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“Five years from now, if current market conditions remain reasonably constant, what will your sales and profit be, by product, brand or channel?”

Predicting The Future



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Think about the metrics available to you, where you work.

Most of the metrics explain “what happened in the past”.

You are paid to drive “future sales”.




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Multichannel Forensics is the study of how Customers interact with Advertising, Products, Brands and Channels.

Multichannel Forensics provide a roadmap for the CEO or Executive. The leader will understand which levers drive growth.




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There are two components in any Multichannel Forensics analysis.

1. Customer Loyalty. How loyal are customers within any product, brand or channel?

2. Customer Migration. Do customers stay within one product, brand or channel, or do they migrate to others?

Repurchase Modes



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Our products, brands or channels are classified into three Repurchase Modes, usually based on annual activity.

For the average business, we look at customers who purchased during 2005. Next, we count how many of those customers purchased during 2006.

Repurchase Modes



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Retention Mode means you have a reasonably loyal customer base.

Hybrid Mode means you need a balance of loyalty and acquisition strategies.

Acquisition Mode means your main job function is to constantly acquire new customers.

Repurchase Modes



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There are three Repurchase Modes:

Retention Mode: 60% - 100% Repurchase.Hybrid Mode: 40% - 60% Repurchase.Acquisition Mode: 0% - 40% Repurchase.

The repurchase mode determines the primary focus of your marketing activities.

Migration Modes



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Three Retention Modes are complimented with four Migration Modes.

Migration Modes explain how customers use products, brands or channels. Do customers only buy from one area, do they sample other areas, do they switch to other areas?

Migration Modes



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Here are the Migration Modes:

Isolation Mode is when customers do not cross-shop other areas.

Equilibrium Mode is when customers try other areas of the business

Migration Modes



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Two additional modes:

Transfer Mode is when customers switch to other areas of the business.

Oscillation Mode happens when customers alternate loyalty between products, brands or channels.

Calculate Migration Mode



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Here’s an example: Online customers have a corporate repurchase rate of 55%.

Online customers had a 16% purchase rate into the retail channel.

The repurchase index is 16 / 55 = 29% = Equilibrium Mode.

Migration Probability Table



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Migration Probability Table Catalog Website Retail

Twelve Month Buyers 39,261 8,361 13,315Twelve Month New Buyers 27,444 4,480 4,167Corporate Repurchase Rate 50.6% 51.9% 48.8%

Repurchase Rate: Catalog 29.5% 5.0% 3.0%Repurchase Rate: Website 16.2% 39.0% 8.0%Repurchase Rate: Retail 16.5% 19.9% 44.5%

Repurchase Index: Catalog 58.4% 9.7% 6.2%Repurchase Index: Website 32.1% 75.2% 16.4%Repurchase Index: Retail 32.6% 38.3% 91.3%

Repurchase Rate For The Total Company = 49.4%

Migration Probability Table Example



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Catalog is in Acquisition / Equilibrium Mode.Online is in Acquisition / Equilibrium Mode.Retail is in Hybrid / Isolation Mode.

Catalog customers shop the website and retail store. Online customers shop retail. Retail customers are unlikely to shop elsewhere.

Migration Probability Table Example



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In this example, catalog growth is hard. Catalog can be used to drive traffic to other channels.

The website might be used for E-Commerce, or for research that drives customers to the store.

Store customers seem to only want to shop the store.

Website Example: Peanut Business



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Migration Probability Table Gifts Shelled Roasted

Twelve Month Buyers 188,994 132,886 86,821Twelve Month New Buyers 93,300 60,892 28,892Corporate Repurchase Rate 50.5% 46.9% 44.4%

Repurchase Rate: Gifts 46.1% 5.3% 10.7%Repurchase Rate: Shelled 5.6% 28.4% 9.5%Repurchase Rate: Roasted 5.7% 23.8% 33.0%

Repurchase Index: Gifts 91.3% 11.3% 24.1%Repurchase Index: Shelled 11.1% 60.6% 21.5%Repurchase Index: Roasted 11.3% 50.8% 74.3%

Repurchase Rate For The Total Company = 47.3%




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Gifts are in Hybrid / Isolation Mode.Shelled are in Acquisition / Transfer Mode.Roasted are in Acquisition / Equilibrium Mode.

In this example, Gift customers are the most loyal, but fail to cross-shop. Shelled Peanut customers become Roasted Peanut customers. Roasted Peanut customers shop the whole site.

Online Channel Example



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Five Year Product Forecasts



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The business analyst can build a forecast of future performance.

The analyst measures the probability of a customer migrating to every product, brand or channel combination. By appending spend levels to each combination, a future forecast can be derived.

Analyze Sales Over Time



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Projected Sales Over The Next Five Years --- Multichannel Forensics Simulation Total Sales In Millions

Year 1 Year 2 Year 3 Year 4 Year 5

Base CaseGifts $52.3 $57.1 $63.3 $70.4 $78.9Shelled $10.6 $11.3 $12.0 $12.8 $13.8Roasted $9.1 $9.4 $9.7 $10.1 $10.5Brand Totals $72.0 $77.8 $85.0 $93.3 $103.2

Increase Roasted AcquisitionGifts $52.3 $57.6 $64.3 $72.4 $81.9Shelled $10.6 $11.3 $12.0 $12.8 $13.8Roasted $9.5 $10.4 $11.2 $12.6 $13.7Brand Totals $72.4 $79.3 $87.5 $97.8 $109.4

Analyze Your Competitors



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Leadership Strategies



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Business units that operate in Equilibrium or Transfer Mode require leaders that have outstanding collaborative skills.

Because customers migrate back and forth in Equilibrium / Transfer Mode, business leaders also need to collaborate.

Leadership Strategies



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Equilibrium and Transfer Mode leaders have the least control over their business.

Isolation Mode leaders have a lot of control. Small business units in Isolation Mode are ideal for new leaders. Leaders who don’t “play well with others” are ideally suited for Isolation Mode business units.

Marketing Strategies



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E-Mail Marketing:1. Versions that meet the needs of customers likely to

migrate to another product, brand or channel.2. Try to move products, brands or channels from

Acquisition to Hybrid, or Hybrid to Retention Mode.




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Catalog Marketing:1. What role does catalog marketing play, given the

results of a Multichannel Forensics analysis?2. If catalog customers transfer to another channel,

consider merchandising strategies that facilitate this transfer.




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Online Marketing:1. Do online customers transfer to another channel

(telephone, retail)?2. If so, online marketing is “brand focused”, not

“channel focused”.3. If not, online marketing capitalizes on completing an

online sale today.




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Data Mining:1. Identify merchandise trends that facilitate customer

migration from one product/brand/channel to another.

2. Build models that predict the migration.3. Use Isolation Mode information to limit cross-

shopping marketing strategies.

Multichannel Forensics Overview



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Three Repurchase Modes and Four Migration Modes dictate the role each product, brand or channel (and combinations) play in the bigger picture of our complex business models.

Each product, brand or channel plays a role in the larger ecosystem of your individual business.




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By calculating unique repurchase probabilities, it is possible to develop five-year business forecasts that highlight the future trajectory of your business.

Your trajectory and acquisition/retention strategy dictate marketing strategies and data mining opportunities that drive growth.




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Humans are great at looking at various trends, understanding where the future is heading, and then developing action plans based on what they are observing.

We do this well with macro-business trends.Let’s do this within our own businesses, too!!

Questions?



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Contact:Kevin HillstromPresident, MineThatDataE-Mail: [email protected]: 206-853-8278Website: http://minethatdata.comBlog: http://minethatdata.blogspot.comWhite Paper: http://minethatdata.com/MineThatData_Multichannel_Forensics.pdf

mailto:[email protected]

http://minethatdata.com/

http://minethatdata.blogspot.com/

http://minethatdata.com/MineThatData_Multichannel_Forensics.pdf

multichannel forensics: an introduction

Documents

futurekevin hillstrom

intuitionkevin hillstrom

youtubekevin hillstrom

minethatdatakevin hillstrom

future sales

metrics available

comwe use metrics

comp store sales