Is your contact strategy in crisis?

Apr 01, 2011 9:30 PM  By

Being proactive is a big buzz phrase in our industry. But many direct marketers continue to engage in practices that seriously undermine the effectiveness of the contact strategies that, in large part, determine their performance and profitability.

Once these practices have taken root, they can become so entrenched that marketers no longer even recognize their insidious effects. What can you do?

Here’s a look at the biggest contact strategy underminers within the five core stages or components of contact strategies. If you recognize your company or department in any of these, it’s probably time for some re-evaluation.

  1. The dysfunctional budget

    Here’s a news flash (not): The budget largely determines the fate of your contact strategy. If the budget is faulty or inadequate, you will fight for the rest of the fiscal year to achieve results.

    Too often the budget process is not only lengthy and tedious, but misguided, frustrating and ultimately counterproductive.

    Many will recognize this scenario: Detailed, bottom-up budgets are prepared for the executive board by individual department managers worried about over-promising on results. These budgets are then rejected by top management or the board, members who have set a growth target that doesn’t reflect the realities of the organization’s current resources, market dynamics or other core variables.

    The back and forth eventually results in a budget that fails to support the growth objectives, yet drives inventory purchases, fulfillment and call center staffing, paper purchases, and all other components of the strategy.

    Truly best-in-class organizations use a different approach. Their bottom-up budget processes are informed and guided by a realistic overall financial goal that enables managers to set ambitious but achievable goals that are supported by sufficient investment in internal resources.

  2. Insufficiently defined customer segments

    Most seasoned direct marketers have a solid handle on traditional recency/frequency/monetary segments for their print customers. But ask some of these same marketers for the segmentation data for their web-only segments or email campaigns, and you’re likely to get blank stares.

    In today’s multichannel world, knowing which channels work for which customer segments under which circumstances, and the optimal frequency of contact for each segment and channel, is not optional — at least if you plan to achieve your financial goals. Without this in-depth understanding, there’s simply no way to allocate advertising/marketing spending so as to optimize response and order size per marketing dollar spent.

    One company that recently measured channel preference over a full year discovered that 15% of its file could be contacted solely through the online channel without depressing response rates or average order value. Another 24% needed to receive print campaigns on a monthly basis. The remaining 61% needed a combination of the printed piece (but only every two months), complemented by weekly email campaigns.

    The merchant’s cost savings on the online-only and reduced print-contact groups more than compensate for recent print and postage increases.

    Some warning signs that your multichannel segmentation efforts are not optimized include declining AOV and response rates in your best performing segments (print/online or both); increasing home page bounce rates; increasing opt-out rates for the best performing email segments; a growing proportion of one-time buyers as a percentage of the overall 12-month house file; and model-scored names no longer outperforming unmodeled segments.

  3. Allowing silos to sabotage the multichannel strategy

    When it comes to the synergistic power of a multichannel contact strategy, many companies suffer from the silo effect. One example: Online marketing managers launch an email campaign with a free shipping offer to all top segments, unaware that this is going to skew results for a simultaneous A/B print campaign that’s testing a free shipping offer.

    Solution? Institute regular strategic contact planning sessions. Create separate “channel cohort” groups to brainstorm ideas and broadcast marketing initiatives across the organization.

    Marketing managers for print, web, mobile and social media will provide distinct opinions on channels, frequency, timing and offers. The approaches offered by the newer channels can often be applied to older channels.

    The critical analytical work conducted for some of the older channels (too often perceived as “grunt work” by the newer-channel staff) can be applied to determine accurate ROIs for newer channels.

    If your marketing managers barely know the names of their colleagues in other channels, the likelihood of skewed test results and inefficient customer contacts is high. Here are some of the data points your marketing managers should be following:

    • What portion of the business comes in through social media or mobile channels? Is this growing? How fast? What would you do today if you knew that this channel could account for 25% of your total business 12 months from now?
    • What is the Facebook fan penetration rate on your file? Should it be higher?
    • How are your prospecting response rates doing? Increasing? At pre-recession levels?
    • What are your pay-per-click acquisition costs? Are they increasing? What portion of your business is PPC-initiated?
  4. Overreacting to preliminary results during post analysis

    How many times have you seen this happen: A company launches a campaign, reviews the early data, and draws some preliminary conclusions. Then, because of insufficient internal resources or inadequate planning, those preliminary results are reported as “final.”

    The sad reality is that many teams have ceased conducting promotion wrap-up sessions because of time constraints or — worse yet — inability to measure and manage effectively.

    This matters — a lot. Case in point: If the company in the segmentation case study described earlier had failed to analyze the full test results before revising its contact strategy, the outcome could have been catastrophic instead of highly positive.

    The initial one-month read on the online-only channel was 32% — more than double the real (final) 15% finding. Imagine the performance effects had this company pulled the necessary marketing elements for maintaining revenue per customer on 17% of its 12-month file — and shudder as you imagine how the same mistake would affect your own bottom line.

  5. Failure to test new acquisition channels

    The relative levels of emphasis and resources devoted to acquiring, retaining and increasing share of wallet (through targeted customer penetration programs) vary over time, depending on a company’s life cycle and other factors. But the survival and success of all companies ultimately depends on consistently balancing all three.

Unless your customer retention rate is 100%, some level of prospecting is mandatory at all times.

Consider the hypothetical example, shown in the box above, in which a company is looking to increase the customers on its 12-month house file by 10% year-over-year. As you can see, it would need to acquire/reactivate 65,000+ names, accounting for typical file degradation.

Mobile technology, social media and general 24/7 consumer “connectedness” and empowerment are fast reshaping the entire marketing game.

To stay relevant and competitive, all multichannel merchants must continually ask themselves questions such as:

  • Are my Facebook fans a potential source of new customers?
  • Have I investigated Groupon? Given PPC cost inflation, are my organic SEO efforts productive (or productive enough)?
  • What’s my ROI for each acquisition campaign, across all channels? What about their lifetime values?

Think of your customer contact strategy as a living, continually developing entity that’s born during the budget process, refined through segmentation, acquisition and multichannel optimization prior to a campaign launch, and brought to maturity/fruition through post-analysis and the strategies implemented as a result.

Each step in this nurturing process plays a critical role in determining the ultimate result: a whole that is greater than its parts. Within each core step or stage in the contact strategy process, warning lights — if heeded — enable marketers to steer those strategies back on course to achieve their financial goals.

ACQUISITION/REACTIVATION NEEDS

Current 10% YOY Industry Total acquired
Frequency 0-12 Mo. HL growth YOY loss names needed
One time 100,000 110,000 30,000 40,000
Two times 60,000 66,000 12,000 18,000
Three times 30,000 33,000 3,000 6,000
Four-plus times 10,000 11,000 500 1,500
Total 200,000 220,000 45,500 65,500
2011 PLAN Acquired
Circ. RR% names
Prospects 4,000,000 1.00% 40,000
Reactivations 400,000 1.10% 4,400
Total 4,400,000 1.01% 44,400
2011 ACQUISITION PLAN SHORTFALL
Names Forecast
needed names Shortfall
65,500 44,400 (21,100)

Philippe Graner (philippeg@jschmid.com) is director of marketing strategy and Ken Lane (kenl@ajschmid.com) is senior marketing consultant for J. Schmid & Associates, a Mission, a KS-based catalog consultancy.