What Direct Merchants Can Learn From Direct Marketers

Multichannel merchants, flush with customer data, often find themselves paralyzed with too much information, too many ideas, and too little time and resources to use the wealth of information that lies within their customer files. While the most sophisticated direct marketers have applied for decades statistical modeling techniques for teasing out subtle insights to optimize catalog and direct mail investment, the majority of traditional retailers who evolved into equally robust direct merchants through their e-commerce and e-mail investments have remained on the outside looking in.

Being an active member of both multichannel retail and direct marketing communities, I’ve seen firsthand the wide differences in practices and personalities of these two groups. In the common ground of new customer acquisition via the Web, the differences are clearly delineated.

Think about the simple path from lead generation to conversion. Direct marketers are among the most proficient users of high-volume, low-cost lead generation products like “incentive offers” (win a free ipod), faux surveys and co-registration. These channels provide a site visit but also an e-mail address (for future contact) and key pieces of additional information (for future targeting). The “path” itself narrows, offering few options to find additional information, comparison shop, or navigate in any way other than from landing to purchase to payment to confirmation. The number of landing pages and paths often counts in the dozens at any given time, constantly being adapted on the fly based on highest levels of conversion.

Leads that do not convert are remarketed (assuming the consumer has given e-mail marketing permission) using multiple offers, multiple creative versions – again in a scientific and rigorous methodology of continuous testing, learning, and optimization.

Multichannel merchants’ prospecting, in contrast, employs much softer, user-driven approaches such as affiliate marketing, search engine marketing (and optimization), and graphical display advertising. Leads that come through these channels come with no additional personal information (for remarketing) – though they are typically more qualified in their purchase intent. Merchants have done a much better job customizing landing pages, particularly for search, but prospects land on open sites free to navigate, compare, and ultimately get distracted from their original intent.

That softer approach is not going to change – nor should it. The significant differences between direct marketers and multichannel direct merchants (brand perception, product and category breadth, longer term customer relationships) lend themselves to these very different approaches.

With that said, what can multichannel direct merchants learn from their direct marketing cousins in order to improve their performance? We recommend the following tactics:

Expansion of lead generation channels. Be willing to take a chance on a few rogue sources of data. The keys to success while doing this are to insist upon receiving only leads from sources that closely match your targeted demographics or to have all leads pre-qualified with a few telling survey questions. If the media company or list broker cannot ensure that the leads are pre-qualified, steer clear. Second, test success of the investment as rigorously as you would optimize your search buys – both with regard to initial purchase as well as long-term value. A simple metric to watch is the degree to which these leads remove themselves from your e-mail list. A high rate is cause for double the concern: the payback won’t be there on the cost and more important, if these leads mark you as spam, you jeopardize the deliverability of your entire list.

Better customer profiling capture. Ask questions of your customers that are relevant to providing them with better service and give you keen insights on how, what, and when to best market to them. Some examples that we’ve seen work are:

· Category interest

· Brand preferences

· Body type and sizes

· Channel preferences

· Birthday

Each of these data points can be applied explicitly to both the targeting and content of your e-mail marketing campaigns, and where capabilities exist, allow you to customize the content and featured items on your Website.

Hypothesis-driven transaction mining and marketing. Almost every multichannel merchant employs some degree of transactional data to their e-mail marketing campaigns. While a few have invested in analytics tools and analytical professionals to sift through the terabytes of data to tease out insights, we have a real fondness for merchants who pose and test hypotheses on a continual basis.

Here are some of the hypotheses that we’ve seen multichannel merchants test successfully:

· Sales-sensitive (and insensitive) customer behavior. Limit price-reducing promotions to customers who have shown the highest levels of conversion in the past, while offering more product-focused e-mails to less sensitive consumers before markdown.

· RFM combinations. The infinite combinations of recency, frequency, and cumulative monetary value offer just as many ways to target and test. For example, how would you reach out to a customer that had made three transactions in the past six months for an amount in excess of $250, but you had not heard from in 60 days?

· Birthdays. Who wouldn’t like to hear from you on their birthday with a special offer?

Promotional creativity. Direct marketers know how to sell. We’ve all heard: “But that’s not all! Call in the next 18 minutes and you’ll receive not one but six glow in the dark shoelaces.” Merchants should use their direct channels to promote offers not available to everyone in their stores. Use your e-mail marketing to send small (but statistically relevant) quantities bundling, discount, gift with purchase, and other offers that you would never dream of opening up to everyone. Sure they’ll end up on bulletin boards and coupon sites, but these sites as just another way to expand you lead generation.

Bottom line, there’s a lot to learn from our cousins in the direct marketing world without tarnishing your brand or turning to the dark side.

David Rosen is senior vice president of Loyalty Lab (www.loyaltylab.com), a San Francisco-based developer of customer loyalty programs for the retail industry.

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