Target Marketing featured Hennerberg's client in a cover story and case study titled “Taking Risks, Increasing Response”
Published in DM News
Measurement has long been the hallmark of direct marketing. As the Internet becomes a larger part of the direct marketing media mix, measurement will take a more prominent role in evaluating the profitability of doing business on the Web.
Direct marketers know that virtually everything can be measured. Every media source is coded to trackability. Every list, and different hotlines of the same list, are evaluated and compared against each other. Conversions from prospect to customer are evaluated based on average sale, media type, frequency, and recency.
Measuring the effectiveness of the Web should be no different. In the early days of the Web, measurement wasn’t often important because most sites were informational in nature and managed by technology people.
But that’s changed. Marketing people are taking over many functions of an ecommerce Web site, and entrepreneurs and corporations alike have discovered that businesses and consumers will do business on the Web. Every day, there are more people globally who have access to the Web. Tomorrow’s penetration of the Web into our culture will be bigger than today’s. But with the vast number of Web sites selling products and services, marketers will have to rely more and more on using outside media to bring people to their site. Successful Web owners report that 70% of their marketing budget is spent on media outside of the Web to direct prospective customers to their site. If you’re spending thousands, perhaps millions, of dollars to generate inquiries, doesn’t it make sense to know which efforts are pulling the highest response?
A few days before last Valentine’s Day, an ad appeared on 20/20 on ABC for a special Valentine’s necklace offered by a nationally known jeweler. The ad closed with its dot com address. It was an easy to remember name, and easy to later log on with the notion of looking more closely at the item. But like most Web sites, this jeweler has no way of knowing who went to their site as a result of the ad on 20/20, and they don’t know those prospective customers by name. This unknown data is a significant loss of marketing opportunity. While some direct marketers, especially in business-to-business, may accept that the largest response source is “unknown,” it invites inefficiency and wasted marketing dollars.
There is another classical direct marketing technique that should boost the number of people who self-report and later purchase: a compelling offer. The offer may be a free gift, perhaps a discount off the first purchase, sweepstakes entry, or first notice of special customer sales sent via e-mail. In any event, perhaps the greatest marketing weakness among ecommerce and etail Web sites today is the lack of compelling offers. As is often said in direct marketing, your success boils down to three elements: your list or audience you target, your creative, and your offer. We have recognized for years that about 40% of your success will be due to proper targeting, 20% will be due to creative, and another 40% of your success will come from using the offer. On which of these three do you spend most of your time?
Then there is the question of conversions to sale, usually stated as a percentage of those inquiries who actually purchase. The average order, especially when segmented by average order by inquiry source, will reveal where roll-out dollars should be spent. The best indicator of success may be a combination of two key measurements: response rate and average order. By combining these metrics, you calculate the sales per thousand of your circulation which may be a more meaningful number for you to use as a benchmark.
Database marketing clearly has its place, too, when marketing on the Web. E-mail, or direct mail, should compliment a Web site’s marketing program. Like classical database marketing, there is a wealth of data that should be gathered over time to enhance your marketing activities. And if your product or service lends itself to a rewards program, what better place to hook customers than on the Web where the customer comes to you at their choice.
Calculating Allowable Marketing Costs
If you are ready to begin a massive campaign to direct prospects to your Web site, you would be wise to calculate an allowable marketing cost. This approach requires that you back into your sales and acceptable marketing cost by creating an allowable marketing cost model. By assuming a certain level of inquiries, conversion percentage, and average order size, then backing out costs, the model will reveal the average order, conversion rate, and inquiry rate required to meet specific profit requirements. By taking long term sales, less product or service costs, per customer, and backing out fulfillment, overhead, and your profit objective, you will have an “allowable marketing cost” per customer. Divided over the cost of your marketing effort, this number will reveal the response rate and conversion rate required to recover costs and meet your profit objectives.
Another measure often used by catalogers is a product sales analysis which uses square inch, or space, analysis. This analysis identifies which products are generating sales on a square inch basis, and will help the cataloger identify if an item should have more space allocated, less space, or simply dropped.
The measurement of Web sites has often been treated on a cursory level, or not at all. In the early days of the Web, measurement didn’t matter much. It was the fascination with technology that drove Web expansion. But the as the media evolves and profitability is expected by investors, the playing field has changed. To manage it, you must measure it. And that’s why the marketing metrics of the Web will emerge in center stage in the days to come.