Live from NEMOA: Using Multichannel Forensics to Analyze Your Customer Database

Mar 26, 2007 10:50 PM  By

Cambridge, MA – There was a time when mail order marketers were in control of the relationship between the brand and the consumer.

But as Kevin Hillstrom, president of Seattle-based consultancy Mine That Data, pointed out during a session at the New England Mail Order Association’s spring meeting last week, that relationship is now shared. E-mail subscriptions and Web 2.0 are allowing customers to have more input and influence on where they shop and why. Google, for example, may actually control anywhere from 10% to 60% of your business.

Hillstrom, who left his position as vice president of database marketing for Nordstrom earlier this month to launch his consultancy, said he uses a process called multichannel forensics to make better sense of how customers interact with products, brands, and channels. There are two components of the analytical study that the marketer must understand; annual repurchase rates and migration patterns.

The annual repurchase rates include three different modes – retention, hybrid, and acquisition. Retention mode is when 60% or more of last year’s buyers purchase again this year from the same product category, brand, or channel. If the annual repurchase rate is between 40% and 60%, the merchant is in hybrid mode, and is in acquisition mode if the number is less that 40%.

Retention-mode executives need to focus on increasing purchase frequency and the number of items per order. Hillstrom said hybrid-mode executives are the lucky ones, and that they can choose either to work to increase customer acquisition or to retain customers. But acquisition mode managers need to have a sharp focus on acquiring as many new customers as possible to grow their business.

Hillstrom said once merchants understand how they can retain customers, they need to track how customers migrate across products, brands, or channels. The repurchase index Hillstrom recommended to identify the three types of migration modes is channel repurchase rate divided by the corporate repurchase rate.

A merchant is in isolation mode if the repurchase index less than 20%, and indicates buyers are loyal to the product, brand, or channel. In equilibrium mode, the index falls between 20% and 50%, and shows that customers cross-shop other products, brands, or channels. In transfer mode, the repurchase index is above 50%, and those consumers are likely to switch to another product, brand or channel.