If you're a cataloger, you become obsessed with "incremental" or "cannibalization" rates. If you're an online marketer, you love comparing CPA's across various marketing activities. Retailers ... well, it's a lot harder to accurately measure the incremental impact of various retail marketing activities, isn't it? Not impossible, but harder.
There are a few ways to think about optimizing marketing spend. If you have deeper-than-average pockets, you might work with the folks at Decision Intelligence. You'll get your money's worth from the mathematical wizardry they offer.
For those of us looking for a simpler solution, let's think in the most basic of terms. Let's offer a starting point for thinking about contact strategy management.
Catalog-Only Customers: On average, these folks won't buy unless they are advertised to. Via mail/no-mail tests, it is a straightforward exercise to figure out the right amount of advertising spend per customer segment.
- No Advertising = 5% Repurchase Rate.
- 50% Advertising = 41% Repurchase Rate.
- 100% Advertising = 50% Repurchase Rate.
- 150% Advertising = 56% Repurchase Rate.
- No Advertising = 28% Repurchase Rate.
- 50% Advertising = 36% Repurchase Rate.
- 100% Advertising = 40% Repurchase Rate.
- 150% Advertising = 43% Repurchase Rate.
- No Advertising = 41% Repurchase Rate.
- 50% Advertising = 58% Repurchase Rate.
- 100% Advertising = 65% Repurchase Rate.
- 150% Advertising = 70% Repurchase Rate.
Next, you estimate (using relationships like the square root rule, or better yet, using test/holdout results) what happens when you advertise at 50%, 100% or 150% of normal ad-dollars (and increments in-between).
Once you estimate the optimal spend level, identify the most effective marketing activities. In many cases, this requires a decent amount of testing (e-mail and catalog contact strategy testing). Among "multichannel buyers", carefully analyze how many marketing channels are combined in each purchase, when various marketing activities are withheld from the customer.
At some point, you obtain a baseline of knowledge that allows you to do one of three things.
- Try your own contact strategy optimization.
- Hire experts like the folks at Decision Intelligence.
- Go halfway, using tools like Multichannel Forensics to simulate the long-term impact of short-term ad-spend decisions.