8. Simplified Retail Profit Model Understanding your company strategic profit model is key to aligning direct marketing efforts to overall business results Gain buy-in from finance to “bless a model” August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
9. Direct Marketing Profit Model With buy-in from finance, direct marketing results can be tied to company performance The direct marketing profit model is the first step to validating marketing returns August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
10. Metrics Define all metrics and how they are measured to begin the model August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC Incremental Sales ROI Discounts Incremental Spend Click Thru Gross Sales Bounce Rate UPT Returns Return Rate Cancellations AUR Response Rate Incremental Traffic Response AOV Net Sales
11. Sample Metrics Mail (m) vs. Control (c) Response Rate (R): Buyers/Customers Return Rate(RR): Returns/Gross Sales Discount Rate(DR): Discounts/Gross Sales Average Order Value(AOV): Orders/Gross Sales Units per Transaction(UPT): Items/Orders Click Thru(CT): Responders/Customers Gross Sales(GS): Top-line sales volume Net Sales(NS): Top-line sales less discounts and cancels Net Sales of Returns(NOR): Net Sales less returns/exchanges Cancellations(CN): Canceled sales before shipping Discounts(DT): Full-value of discounts tied to buyers Returns(RT): Full-value of returns tied to buyers August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
12. Incremental Metrics Incremental Sales per Customer: NOR/C(i) NOR/C(i) measures the incremental sales associated with stimulus on a per customer basis to enable segment performance comparisons NOR/Customer(m) – NOR/Customer(c) Total Incremental Sales: NOR(i) NOR(i) is the measure of incremental sales generated by the marketing stimulus across all segments or on a segment by segment level NOR/C(i)*Customers(m) Incremental Traffic: T(i) Incremental performance comes from more shoppers or shoppers spending more. T(i) measures how many additional BUYERS come to your site due to your stimuli [R(m) – R(c)] * Customers(m) August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
13. Incremental Metrics Incremental Sales from Traffic: NOR(iT) NOR(iT) measures what portion of total incremental sales are due to bringing additional buyers to your store. This metric can be taken at a segment level or campaign level or both T(i) * [NOR(m) / R(m)] Incremental Spend per Responder: NOR/R(i) The other source of incremental performance is getting a customer to spend more and this metric covers that performance for responders [NOR/C(m) / R(m)* Customers(m)] – [NOR/C(c) / R(c) * Customers(c)] Incremental Sales from Spend: NOR(iS) NOR(iS) measures the portion of incremental sales that are due to heightened customer spend associated with the stimulus NOR/R(i) * [[R(m) * Customers(m)] - NOR(iT)] August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
14. An Incremental Example Campaign Results Incremental Buyers (Ti): 1,860 Incremental Spend per Buyer NOR/R(i): $3.31 Incremental Sales from Incremental Buyers NOR(iT): $107,438 Incremental Sales from Incremental Spending Behavior NOR(iS): $9,523 Total Incremental Sales NOR(i): $116,961 August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
15. Sort, Segment, Suppress The final key to success is to be able to sort, segment and suppress customers so that you can get an accurate read on the effect of your marketing campaigns Control groups receive no stimuli, do they? Your campaign can have multiple controls and each level of control can serve a purpose for understanding marketing ROI Campaign, Offer, Seasonal, Annual Controls August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
16. Basic Segmentation: RFM(x) One of the oldest forms of segmentation is using Recency, Frequency and Monetary values of your customers Recency – used as a proxy for satisfied customers, unsatisfied customers would not be shopping with you Frequency – used as a proxy for loyalty,customers don’t shop multiple times if they do not like your brand Monetary – used as a proxy for discretionary spending ability – the more, the merrier (X) – what trait do you think will add to your understanding of behavior an predict response? August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
17. August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC What a simple RFM Segmentation Might Look Like A 3 Criteria 3 Node Scheme yields 27 Segments Recency (R) 1: Last Purchase <90 2: Last Purchase >90 <180 3: Last Purchase >180 Frequency (F) 1: 4+ Orders 2: 2-3 Orders 3: 1 Order Monetary (M) 1: Spend > $300 2: Spend > $150 < $300 3: Spend > $0 < $150
18. Basic Segmentation Segmentation allows you to match stimulus customers against non-stimulus customers to determine lift in performance Simple statistical techniques can ensure that the stimulus customers and control customers are similar (sampling) Segmentation also allows you to predict response when your data includes previous response behaviors August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
19. Incremental Modeling Success in direct marketing is linking performance to commonly understood business metrics, measuring ROI and alternative investments using a strategic profit model, and targeting customers to increase response. Hopefully you will find these concepts useful for your business and you can apply them in a complex multi-channel environment. August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC
20. The Bryden Group, LLCIncremental Sales Modeling Chris Daly Founder, CEO chris@thebrydengroup.com www.thebrydengroup.com August 8, 2011 Copyright (C) 2011 The Bryden Group, LLC