MULTICHANNEL FORENSICS: HOW CUSTOMERS INTERACT WITH ADVERTISING, PRODUCTS, BRANDS AND CHANNELS

Kevin Hillstrom

“Back In The Day”

Amazon.com Homepage

Amazon.com Refresh

Amazon.com Refresh #2

Amazon.com Refresh #3

Our Business Changed

Cataloging and Mail Order

Database Marketing, CRM, Compiled Lists

E-Commerce and E-Mail

Portals, Banners, Affiliates

Multichannel

Search

Web 2.0

Executive Challenges: 1995

Determine the annual marketing budget.

Determine in-home dates, new creative verses remails, pages per catalog.

Housefile Circulation.

Prospect Circulation: Lists, Catalog Requests, Compiled Lists

Control: The Executive controlled everything. If the business failed, it was largely the fault of the Exec.

Executive Challenges: 2001

Catalog Productivity Stagnating, Rampant Online Growth

Budgeting, In-Home Dates, New Creative Verses Remails, Pages per Catalog.

Housefile and Prospect Circulation

E-Mail Contact Strategy, Allocation of Budget to Online Channel.

Control: The Executive Still Managed Growth

Executive Challenges: 2007

Marketing Allocation Problems Between Catalog And Online Channels. Print Response Is Down.

Catalog, E-Mail And Online Strategies Integrated.

Google Sits At The Executive Table: They Steer Your Loyal Customers And Your Prospects To Your Site For A Small Fee.

Executives Have Much Less Control: Marketers Influence Purchase Process, Do Not Determine It.

Executive Challenges: 2013

Web 2.0 Morphs Into The Primary Way That Brands And Customers Talk To Each Other.

Online Retailers Flock To A Series Of ‘Second Life’ Competitors Offering 3D And Virtual Reality Communities.

The Online Marketing And Search Industry Becomes ‘Old School’.

Google Begins To Lose Market Share. Why Use Google When You Can Just Ask Your Avatar?

Losing Control

Mail Order Marketers Used To Control The Relationship Between Brand And Customer.

Today, The Relationship Is Becoming ‘Shared’. Customers Have Input (E-Mail Subscriptions), And Influence (Web 2.0). Google Might Own 10% To 60% Of Your Business.

Tomorrow: Customer > Marketer/Merchant?

The Problem: How To Make Sense Of All Of This?

Multichannel Forensics

Multichannel Forensics is an analytical study of how customers interact with Products, Brands, and Channels.

There are two components of Multichannel Forensics that the marketer must understand.

• Repurchase Rate, Measured Annually

• Migration Patterns

Annual Repurchase Rate

Retention Mode: When Sixty Percent or more of last year’s buyers purchase again this year from the same product, brand or channel.

Hybrid Mode: When Forty Percent to Sixty Percent of last year’s buyers purchase again this year from the same product, brand or channel.

Acquisition Mode: When less than Forty Percent of last year’s buyers purchase again this year from the same product, brand or channel.

Example: Telephone And Online

Assume your Direct business has the following annual repurchase rates:

Phone Customers: 53% Repurchase Rate

Hybrid Mode 44% Phone Repurchase Rate

19% Online Repurchase Rate

Online Customers: 39% Repurchase Rate

7% Phone Repurchase Rate

Acquisition Mode 36% Online Repurchase Rate

Executive Strategy

Retention Mode executives need to focus on increasing purchase frequency, and items per order.

Hybrid Mode executives have enjoyable businesses to manage. They can increase purchase frequency, items per order, and can ramp-up customer acquisition.

Acquisition Mode executives need to have a laser-like focus on acquiring as many new customers as possible --- this is the single best way to grow these businesses.

Migration Modes

Once we understand how we retain customers, we have to understand how customers migrate across products, brands or channels.

The repurchase index:

Channel Repurchase Rate divided by

Corporate Repurchase Rate

Migration Modes

There are four types of migration modes.

Isolation Mode = Index less than Twenty Percent. Buyers are loyal to the product, brand or channel.

Equilibrium Mode = Index between Twenty and Fifty Percent. Customers cross-shop other products, brands or channels.

Transfer Mode = Index above Fifty Percent. Customers are likely to switch to another product, brand or channel. Two-way Transfer Mode = Oscillation Mode.

Migration Modes

Telephone Channel

Phone = 44% / 53% = 83%

Online = 19% / 53% = 36% (Equilibrium)

Online Channel

Phone = 7% / 39% = 18% (Isolation)

Online = 36% / 39% = 92%

Executive Strategy

If your product, brand or channel is in Isolation Mode, you have advantages. Your customers don’t leave for other products, brands or channels. You have control over your business.

Equilibrium Mode introduces challenges, because your customers scatter to other products, brands or channels (i.e. Phone customers moving Online).

Transfer Mode can be very difficult for the executive. Customers leave you for other products, brands or channels.

Multichannel Forensics Matrix

Twelve modes that ultimately define the strategy for an executive managing a product, brand or channel.

Multichannel Forensics Matrix

Corporate Loyalty Mode Isolation Mode Equilibrium Mode Transfer Mode Oscillation Mode

Retention Mode (Annual Retention Rate of 60% to 100%)

Hybrid Mode (Annual Retention Rate of 40% to 60%)

X Catalog Channel

Acquisition Mode (Annual Retention Rate of 0% to 40%)

Online Channel (Primary Source of New Customers)

Executive Strategy

The most favorable combination is ‘Retention / Isolation Mode’. This executive retains her customers, and her customers do not leave for other products, brands or channels.

The least favorable combination is ‘Acquisition / Transfer Mode’. This executive cannot retain her customers. Worse, if her customers are retained, they are likely to migrate to another product, brand or channel.

The Ecosystem

Once we understand how customers migrate between products, brands and channels, we can map the ecosystem our businesses operate within.

The ecosystem becomes an important element to understanding how to grow a business that we have less and less control over.

Let’s view a simulated ecosystem.

An Ecosystem

Long-Range Sales ForecastsThree-Way Multichannel Forensics Simulation

Beginning After After After After AfterCatalog Website Retail Inventory One Year Two Years Three Years Four Years Five Years

Existing Buyers Yes Yes Yes 273 636 778 863 841 895Yes Yes No 998 1,061 1,178 1,165 1,036 1,017Yes No Yes 497 1,007 1,133 1,115 986 972Yes No No 37,493 39,561 31,193 22,275 16,110 12,684No Yes Yes 1,107 3,860 5,145 6,045 6,154 6,699No Yes No 5,983 15,351 31,392 47,631 59,689 68,415No No Yes 11,438 12,356 28,314 24,445 41,544 38,627

Newbies Yes Yes Yes 100 70 49 34 24Yes Yes No 100 70 49 34 24Yes No Yes 100 70 49 34 24Yes No No 30,000 21,000 14,000 10,000 8,000No Yes Yes 1,000 1,030 1,061 1,093 1,126No Yes No 10,000 22,000 33,000 40,000 45,000No No Yes 4,000 18,000 7,000 25,000 15,000

12 Month Buyers, Total Catalog 39,261 42,265 34,282 25,418 18,973 15,567Website 8,361 20,908 38,493 55,704 67,721 77,026Retail 13,315 17,858 35,370 32,468 49,525 47,193Totals 57,789 73,832 99,133 103,540 126,360 129,309

12 Month Net Sales, Total Catalog $14,836,929 $12,411,403 $9,248,419 $6,859,803 $5,493,125Website $6,282,025 $12,684,292 $19,297,880 $24,267,961 $27,901,441Retail $5,461,623 $10,218,112 $10,844,021 $14,804,383 $15,436,737Totals $26,580,577 $35,313,807 $39,390,320 $45,932,147 $48,831,304

12 Month Average Spend, Total Catalog $351 $362 $364 $362 $353Website $300 $330 $346 $358 $362Retail $306 $289 $334 $299 $327Totals $360 $356 $380 $364 $378

Putting It All Together

Management Strategies:

Retention / Isolation businesses are probably the easiest to manage. There are fewer levers to pull. New executives have fewer distractions or challenges.

Hybrid / Equilibrium businesses are probably the most fun to manage --- many levers to pull.

Acquisition / Equilibrium-Transfer businesses are the hardest to manage or grow.

Putting It All Together

Marketing and Multichannel Strategies:

Catalog and E-Mail strategies can be calibrated to the natural paths that customers take when migrating through your ecosystem.

The incremental value of your catalog/telephone channel can be derived via the long-term planning scenarios yielded by multichannel forensics.

Short and long-term investment choices can be measured via long-term planning scenarios.

Multichannel Forensics

Questions?