Kevin Bauer's Digital Commerce Missives

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One of the things I love about the industry I am in, is that no matter how many times I think I have it nailed, I look back, often only months later, and realize just how wrong I was about a given belief towards the direction or impact of digital and marketing.

Many who read this will likely be pretty familiar with me, so it must sound, particularly for my friends, colleagues and acquaintances that this time, I have truly lost my mind.  After all, I am a digital marketing executive in the eyes of many yet here I am writing a post that maybe I shouldn’t exist!

I actually consider myself to be a digital strategist, or even more accurately, a marketing strategist.  And this gets to the heart of my recent and growing concern.  What is digital marketing and what is its place in a company, and with a consumer? 

I actually remember a friend of mine; the widely known and respected Harry Joiner once asking a question of an audience of digital professionals what they thought the title of Ecommerce would evolve into.  Would it stay as “Ecommerce”, or evolve into “Digital Commerce”, “Mobile Commerce” or just “Commerce”?

I responded with what I felt was a well thought out and reasoned answer that surely the answer was “Digital Commerce”.  I felt this was because from my experience, the very word “Ecommerce” was almost by definition, outdated.  It implies a silo, or channel by the mere fact that it is defined differently than “Commerce” which is broadly seen as any and all transactions of a financial nature, generally within the B2C world.  I was sure in my belief that “Digital Commerce” was a more modern definition and implied a more holistic view of commerce.  That it implied digital was at the heart of all commerce.

Here’s the thing…I still actually believe a lot of that.  It’s just that with every passing day, I see company after company, executive after executive define their business as “Digital” vs. well….vs. Retail, or catalog, or direct or call center, or CRM or….any other channel.

I can’t count the number of conversations I have had with executives who implore me to drive “Our future digital strategy” and “All things digital marketing”.  But the very fact that they are thinking this way actually means the strategy is doomed to failure before it even leaps out of my head.   

I recently commented on a great article by @davidsable about the convergence of brick and mortar and digital strategies.  The article was spot on.  You cannot have a sustainable and successful brick and mortar strategy unless it is indistinguishable from your digital strategy.  They truly are one and the same.  The customer experience has forever changed.  They no longer see a difference between a store experience, a mobile experience, a “Web” experience, or a catalog, call center, highway sign or any other experience.  They just have an experience.  Each particular touchpoint is simply that…a touchpoint that when combined with others (if the brand has earned it) add up to an experience.

If each of these Touchpoints are not seamless with one another, you almost certainly will lose your customer to someone who has figured this out and is out executing your brand.

The unfortunate behavior I see from today’s executive though is exactly the opposite.  Whether they consciously realize it or not, they continue to define the world around silos and believe that if they can just get their digital strategy right, their company will be saved. Yet nothing could be further from the truth.  Many (but certainly not all) of these executives are very smart people whom I respect a great deal for one or many attributes they possess.  So it can’t be that they are just dumb.  What I have become convinced of is that the mere fact that there are job roles defined as a subset of the wider mission is by itself enough to ruin the biggest of corporations run by some of the most successful executives of the past few decades.

There is no such thing as a digital marketing strategy.  There is only a marketing strategy.  “Digital Marketing” is a complete misnomer.  There is no such thing.  There is only marketing (And again marketers, let’s stop mistaking promotions and offers as marketing campaigns).  The former is but a potential attribute of the latter, not a replacement for it as so many marketers and brands seem to believe).  Sure, some Touchpoints are more “Digital” than others and require unique skill sets to excel at, but ultimately, the digital version or aspects of the marketing campaign still have to be seamless with an overall fantastic, unique, compelling, and memorable marketing experience.  Today I read another great article by Ted Booth about the legendary David Ogilvy and the relevance of his 1963 marketing masterpiece “Confessions of an Advertising Man”.  You should read it too.  It will blow your mind and does a much better job of making my point than I am doing here.

Some believe that being stronger in digital will make them more relevant to today’s customer.  Hogwash!  Digital irrelevance is just irrelevance…but with a digital flair!  The requirements for being relevant to a customer today are no different than they have ever been.  Have a compelling product or service that adds value and solves a need or provides for a want that a customer has, when they have it, and does so in the most convenient, cost effective or delightful way.  That’s it!

Again, yes, you have to have digital expertise to translate this and leverage it to it’s full potential within all customer Touchpoints today.  But that’s just it…ALL TOUCHPOINTS ARE DIGITAL.  It doesn’t matter if it is in a store, on the phone, on a website, in a car dashboard app…. THEY ARE ALL DIGITAL.

So if everything is digital, and yet the use of the word still causes executives to fundamentally think about their business wrong, there should be no harm in removing the word digital from the discussion; if only to drive better strategic thinking at the top levels within the brands our collective customers rely so much on.

So, from now on, or until I (hopefully) once again get smarter in a few months time, I think we should focus on the real disciplines at hand since to focus on anything else seems distracting for most brands: marketing, merchandising, customer experience, or in a word…commerce.

Harry, I change my mind…”Commerce”.  Just plain “Commerce”.

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While I haven’t written on my blog for quite some time due to being so wonderfully, incredibly busy executing on the digital strategy for Omni-Channel retailing, I came across an article today that was so powerful, I just had to find the time to sit down and discuss it in greater detail.

 Scott Brinker from Chiefmartec.com wrote a fantastic piece on the evolving roles of the CMO, CIO and the emerging CDO (Chief Digital Officer).  In it, he discusses how 25% of organizations will have a CDO within just the next 2 years according to Gartner.  He goes on to imagine several ways the CDO may impact the CMO and the CIO; making cases that both should be scared, and that both should not be scared.

 I truly believe this is one of the most important conversations and decisions to be made by companies today.  The business world (and anything consumer facing in particular) has changed so radically in the past decade, with the pace of change reaching a near insane fever pitch since the invention of the Smart Phone, that organizations simply must adapt to the new realities or face the ultimate punishment in today’s world…. lack of relevance.

 As I drive digital strategy, I see it every day.  There simply are no longer any walls between channels.  Omni-Channel isn’t a buzzword; it’s a reality and a business imperative.  With the best analytics, scientists, digital and marketing minds available, I can no longer tell what is a retail sale vs. an online or direct sale.  I don’t believe it’s because I am blind, I believe it’s because there is no difference.  The consumerization of technology (Also known by many as mobile) has turned the world upside down, and it’s never going back.  From a business perspective it’s almost as profound as realizing the world is not flat, or that the earth is not the center of the solar system.

 So, back to Scott’s piece.  How does all of this impact the org structure of today?  At the risk of sounding like I am pandering, I really believe there is nothing to fear and everything to gain by having a strong CMO, CIO and CDO working together. 

I believe this because I believe it is the same conclusion for any brand that has really been successful at being relevant and building deeply loyal customer bases.  If you talk to those companies (and they are of course the exception rather than the rule) you will hear how unbelievably important it is to understand the customer, be relevant at all times, provide exactly what the customer needs, when they need it, and how they need it.  You will hear how all of this comes together and transcends mere bullet points on a strategy document. 

 The very few who have truly figured this out, have come to understand just how deeply these things need to be embedded, how you can’t fake it, and how it must be part of your DNA.

 From my perspective, this is the same discussion as the CMO/CIO/CDO discussion.  To make the business work, it can’t be three positions that are related in certain bullet points of a job description only.  You need deep synergy to become one of the great companies, and that starts with the executive team.

 The first argument Scott’s article lays out is that the CIO may have something to fear by the creation and rise of the CDO.  The role of the CDO is, by definition, part technologist, part marketer, all parts strategist, so perhaps the CIO should be losing sleep?  I argue that can’t be true.  The CIO and the CDO are two sides of the same coin.  The CDO has a stronger understanding of the “Front-end” and how it should be leveraged to benefit the customer, but no front end can operate without the “Back-end”. 

 Digital Strategists know enough about the back-end to be dangerous, but cannot possibly understand all the technology platforms that exist, how they interoperate, what the dependencies are, what connectors need to be in place to deliver to the front-end, how the databases need to be optimized etc.  Unless a company came into existing in just the last few years, there are also a ton of legacy issues to deal with.  How do you unlock the data in Mainframes and turn hardcode into object-oriented architectures? 

 Digital Strategists have no idea, nor should they.  They should never take their eyes off the customer, and that creates an absolute dependency on the CIO and the IT world.  One cannot exist without the other.

 So what about the CMO?  Most of marketing these days is delivered via digital means so why do we need a CMO?  This one is easy, even if so many companies miss this every day.  What is the point of a digital strategy without a brand platform? 

Without a brand platform, you can’t possibly build a business that truly connects and impacts a customer’s lifestyle.  Who are you?  What do you stand for?  These are critical questions and the whole point of having a business.  To truly understand these questions and their answers requires significant marketing resources from traditional brand teams, to print teams, retail (AKA Local) teams, planning teams etc. etc.  All of that requires a top notch CMO to pull all the marketing messages together and make them work with each other rather than fracture and fragment as so many companies do.

 One of, if not my greatest fear, as a digital strategist is that the digital strategy separates from the brand.  Relevance is everything.  Without it a business is just a commodity, waiting to die.  The ability to sell someone a pair of shoes cheaper than someone else is not a reason for being, and certainly not a sustainable business model.  The ability to offer a product or service at higher quality is nice, but on it’s own is simply a business that is niche at best, and forgotten most of the time.

 A business that truly understands its customers needs and builds a completely unified strategy and execution plan to deliver true meaning every day…that’s what we are all looking to achieve.

 For this reason, I believe the CMO and the CDO are also two sides of the same coin.  I guess to be technical, we have a three-sided coin now but I believe the message is no less powerful or important.   How the CDO is positioned on the executive team I believe to be of less consequence than having a team and strategy that is deeply in tune with each other, and most importantly the customer.

 It’s of even less consequence if a business has not started down the path to a truly unified digital strategy.  And my argument is, you cannot possibly have a unified digital strategy and execution plan (And therefore a chance at long-term success) if you do not have a deep connection between marketing, digital strategy, and IT.

 And that, my friends, is the most important challenge we all face. 

 

A major challenge faced by many retailers is how to execute in the social channel.  It is a fascinating space and is full of great opportunity.  But it represents a conundrum for most digital marketers.  How do you “Do” social?  

There is great demand from within most retail organizations to leverage social to drive sales.  Social can be a huge driver of brand awareness, and even sales if it is integrated correctly into the business.  Unfortunately, most of us tend two live two lives, and these can often get in the way to success in marketing…particularly social marketing.

In our personal lives, we all get what makes things social.  What we get excited about.  What we like to share with others.  What we like to see/hear/interact with and what we don’t.  When we get into the office though, all this knowledge of what works, and why, mysteriously vanishes.  In it’s place is an insatiable desire to “Do” something social to drive sales….get a post out there letting people know our product X is awesome, or is on sale, or is new, or whatever.

Thing is….we know that doesn’t work.  It doesn’t work because it is trying to take something that is not inherently social, and force it to be social.  This is the act of “Doing” social.  It is how most retailers use social today.  

Social is not a billboard.  No one likes to be interrupted from personal conversations with friends to be told that retailer X has a 20% off sale this week.  It’s not relevant to the situation.  It’s not relevant to the time.  It’s not engaging.  It’s boring, intrusive and rude.

But here’s the thing.  Social is at the center of what we do as marketers.  It always has been.  It’s the whole point really.  Get a message out there that gets others to remember it, engage with it, and pass it on.  So how do we “Do social?

We don’t.  What we DO do (or should do), is BE social.  By this I mean, when we come up with marketing campaigns, they ARE (or should be) social from their very inception.  Social is not about posting something on Facebook.  it is about creating an engaging experience.  It is about changing our mindset as an organization to think about social as the very fabric of everything we do in marketing.  

In the last week I have seen some great stuff from Coke that illustrates this perfectly.  The first is an article on Forbes from Wendy Clark, SVP of Integrated Marketing Communications and Capabilities at Coca-Cola on how to build a social brand. Her 7 points for success are brilliant and better said than I ever could so please go read the article.  Not a few days later did I see a perfect example of Coke’s strategy at play with a fantastic piece around the new James Bond movie, Skyfall.  It is a great example of what is possible when you don’t DO social….you just ARE social.

The Video is deeply engaging.  it represents a great brand image for Coke.  It’s fun, it makes you HAVE to share it with others (Enter the word Viral) and it leaves you with a great feeling for Coke.  It also looks like it was relative cheap and easy to put together.  It’s easy to covet a campaign like that and say “Why can’t we do that”.  The trick is in grasping that you can.  It wasn’t hard, it just requires that your marketing organization stops doing social, and starts being social.

Number 2 on our list!  How to change your marketing costs based on user behavior.  This sounds like a holy grail doesn’t it?  Knowing what someone is trying to do before you decide how much to pay to get in front of them….dreamy!

Unfortunately, most retailers are not executing this today, despite the enormous potential.  That’s because this, like many of the rest of our Top 10, is really difficult to do and even requires close partnership with some publishers.  The good news is, it IS possible, and can be executed in several programs like Remarketing, Paid Search and Affiliates.

There are actually two sides to this coin.  One side is paying based on the activity a customer takes before they see your ad.  The other is altering what you pay based on what they do after they click on your ad.

In terms of bidding on behavior before your ad, what you are trying to do is decide how close the customer is to actually completing their purchase.  From here, you want to understand what it is they are trying to buy, and overlay your merchandising metrics to this to get the best fee for what you should, and can pay to attract that customer.  If the customer is showing behavior like they are likely to buy now, you should probably bid more.  If what they are trying to buy is a high margin product with solid inventory and likely a leader to other products (Also known as a cart starter), then this helps you have even more room to bid.  Finally, if you can understand if the potential customer is likely to have a high ICILTV, you are freakin’ golden!

Understanding buyer intent is commonplace in rich media ads (AKA Banner ads).  Deriving frequency and recency towards an activity (How often am I looking at content for fleece jackets and of those times, am I doing it more recently, or am I tailing off?). Ad networks and sophisticated partners will help append other data and analytics to this.  If a customer has looked at product reviews, price comparison, and a listing of local shops that sell fleece jackets, all this morning…odds are pretty good they are going to buy right away, and I should therefore consider paying more to attract them.  

The other side of the coin is of course what the customer does once they come to your business.  You brought the customer in by an ad for a fleece jacket.  Did they land right on your product page and put it directly in their cart and then complete their purchase?  If so, you are likely willing to pay more for that traffic.  Why?  Because the publisher or ad network did a great job of leveraging it’s data and skills to pre-screen the customer for you, so you did not have to leverage product recommendations or other content that can be costly.  They partner did a great job and kept your costs lower, so you can share some of that gain with them and drive more sales.

On the other hand, if they came to you looking at a Denali Jacket from The North Face, but then browsed around and ended up eventually buying a fishing pole, you as the retailer did far more work to capture the sale.  This drives up your costs, and you should pay less to the publisher/partner.  There was still value in the traffic, but it cost you more to get the actual sale.  Amazon pioneered this in their affiliate program many years ago and it has of course proven to be a great model.  Last I checked they keep growing 40%/Year on a ginormous base measured in the many tens of billions.

So, there you have it.  This is on the one hand simple: Be willing and able to pay more for more qualified traffic that results in more profitable sales..that’s not rocket science.  On the other hand though, this is really tricky and very few retailers or ad partners work off of it because tracking this data is extremely difficult.  If we can combine this with previously discussed goals of understanding true lifetime value, the bottom line profit of a marketing program, and the likelihood of a landing page to convert, we have one heck of a marketing model.

Sorry I’ve been gone folks…lots of travel but a great Shop.org show.  Anywho, next up on our top 10 list is calculating a Landing Page Quality Score, or LPQS as a method of improving digital marketing spend.

The concept of a landing page is simple.  It’s just a page that someone first sees when they enter a website.  It can be literally any page on a site.  For digital commerce, more often than not, this is a product page, where a user can add a product to their cart.

The concept of a quality score is a fairly known quantity as well, at least in theory.  Google uses quality score as a key metric in it’s algorithm to determine placement on in search results.  It is believed to be a major factor in both SEO and Paid Search.  For my merchant partners and other non-digital natives out there, what what Google basically does is evaluate the likelihood of a customer being satisfied by clicking on a link they serve up.  This has a major influence in it’s results.  

From a paid search perspective, what needs to be understood is that the price you are willing to pay for a click (a CPC) is far from the only factor that determines if you are first, second, third, etc. in the results.  Google takes into account the price you are willing to pay AND many other factors, like it’s believe of the quality of the landing page.  The higher the quality, the happier the customer.  The happier the customer, the more likely they are to keep searching on Google and keep clicking on ads.

So, my belief is, if Google does this, and it works, so should digital marketers.  I am sure most marketers have come across the problem of buying keywords and driving traffic to product pages that are out of stock.  This represents one of the worst case scenarios.  Another is to pay to drive traffic to a product that is radically over priced, which, in effect, just means you are paying to drive sales to your competitors which is kind of silly.

In the most simple form, this is a quality score.  You should bid more to drive traffic to product pages that are in stock than those that are out of stock.  Why?  Because you are far more likely to make a sale of course.  There are a huge number of variables that determine how good a given landing page is, not just stock and price.  What I advocate is developing your own internal algorithm that scores each landing page and uses it as a metric to determine the performance threshold for your paid marketing efforts.

The higher the score (generally speaking) the more you can spend driving traffic to the page because the higher it will likely convert.  So what are the types of metrics that should be tracked in this quality score?  Here are some examples I recommend based on my experience (not in priority order):

  • Margin.  The higher the product margin, the more you should be able to spend
  • Fulfillment time.  People like products to get to them fast (Just look at Amazon Prime).  The faster it can get to the customer, the more you should be willing to pay (This really hurts drop ship items due to long shipping times).
  • Owned stock vs. Drop ship. Similar to above, though this takes into account inventory ownership.  If I have invested in the inventory, I want to turn it faster so I should likely focus more on driving traffic to these pages.
  • Quality and number of images.  Multiple images sell.  If a product has model shots, interior, exterior, front, back, top, bottom, etc. images, it is more likely to sell.
  • Videos and 360 degree views. Similar to images.  Videos sell products and sell them very well.  Products with the right videos embedded on their pages should convert better and thus have more marketing dollars aimed at them.
  • Likelihood of add-on sale.  Certain products tend to attract other items in the cart.  Knowing this allows you to adjust bids for the expected cart size, rather than the individual item, making you potentially far more competitive.
  • Product ratings:  Seems like a no-brainer, but products with a 4 star rating or higher tend to convert 40% higher than those without.  The number and the quality of the reviews play a key role in conversion rates and thus marketing spend.
  • Product description:  Product descriptions and related content are critical to conversion and to SEO.  The stronger both of these metrics, the better your performance.  Is the description unique, or copied from the vendor?  Unique is better (Way better).  Does it contain properly formated product specs (Height, weight, fabric, etc. etc.)?  If so, this greatly enhances conversion.
  • Product guarantees and returns:  For many retailers, this differs depending on product and even marketing channel.  If product is guaranteed and returns are free and easy, this actually helps conversion.
  • Actual Shipping Cost.  If you see my post on MCNROAS, or calculating true profitability of marketing spend, knowing your true net shipping cost on the item is key to profitability and therefore your bids.
  • Promotion and inventory lifecycle management.  If an item is part of a promotion, depending on margin, etc. this very fact should improve performance, potentially altering your bid strategy (Either up or down).  Likewise, make sure you have a plan to deal with inventory lifecycle management in your algorithm.  Sometimes you need to ignore margin or other metrics if the merchant needs to move through inventory in a given time frame.  If marketing spend is the way to get there, you need a lever to adjust your quality scores, and thus spend, accordingly.
  • Other merchandising metrics.  Inventory turn, sell-thru rates, on-order dates, inventory status and related data should all inform, in conjunction with your merchant partners, spend and performance thresholds.

There are many, many other factors you could take into consideration.  It all depends on the specifics of your business.  Whatever factors you come up with, and however they build your Landing Page Quality Score, coming up with a consistent and systematic approach to measuring and adjusting your marketing programs accordingly will pay huge dividends in your marketing performance, will keep your marketing costs significantly down, drive better sales and merchandising metrics, and increase performance across the business for you and your merchant partners.

Pretty much all retailers track their marketing spend against sales.  If they don’t….whoa boy, we really need to sit down and talk…call me….But even though sales seems like a straight forward metric, it’s actually very complicated and how you deal with this has a huge impact on your ability to digitally market effectively at scale.

The vast majority of retailers track “Sales” as the product revenue from a given order, that has a marketing cost associated to it.  This provides some rudimentary direction and guidance to the marketing team, and is certainly better than nothing, but it has major flaws that can be improved upon.

Incrementality:

The first of these is the issue of incrementality.  I dealt with this to a degree in yesterday’s post on MCNROAS.  It’s very likely that the customer who made the purchase with you, touched multiple marketing programs before completing the sale.  If you add up the sales from each marketing program, you get greater than 100% of your revenue.  Incrementality ensures each program gets attributed the correct portion of a given sale, so the total always equals 100% of your revenue.  This is a crucial first step in starting to track sales correctly.

However, the next major flaw is that most companies are treating a sale as if they are completely independent, non-repeatable events.  In essence this means they track Average Order Value (AOV).  If you ascribe only 1 transaction to a customer, your sale is basically your AOV.  You will peg your costs against that and run your math.  This runs serious risk of cutting your marketing program off at the knees though.  Most companies worth their salt, and any worth doing business with, work really hard to create repeat transactions and customer loyalty.

This means that when you acquire a customer there is a (hopefully) reasonable chance the customer will buy from you again.  If you can get them to buy again, and they do so because you provided a great experience/service so they come directly to you next time, there is no, or little marketing cost associated with that 2nd sale.  This should be factored into your marketing spend because when this happens, you didn’t get one $100 sale, you got two sales totaling $200.

Taking this to it’s logical conclusion is to track the life-time value of a customer.  There are various methods and equations for doing this, depending to some degree on the buying cycle for your product type, the breadth of your SKU count etc., but for purposes of this post, let’s assume a customer life-time is measured in 2 years to keep math simple.  Each time you acquire a customer, on average, they remain your customer for 2 years.  Let’s also assume they buy from you an average of twice per year, so you get 4 transactions out of your average customer.  It is also crucial to understand the channels your customer purchases in and how marketing drives each of those.  It’s likely, if you area  multi-channel retailer, that your digital marketing is driving sales in-store as well, so don’t forget to track and account for this as well.  Transactions in different channels will likely have different values, so your marketing spend for the next transaction needs to have a few as to which channel the next sale is going to be driven in.

This is much more solid ground for understanding your marketing.  As long as transactions 2-4 come from customer loyalty (Vs. having to pay to re-acquire customers who have forgotten about you etc.), keeping the same AOV, you are now netting $400 for each customer acquired, yet your marketing cost didn’t go up, or only went up very marginally.  This allows much more flexibility in your marketing spend and approach vs. looking at the individual sale.

Contextual:

The next area you want to look at is context.  Knowing the average life-time value is $400 is great, but it assumes that all customers are at the start of their relationship with you, and they are not.  Some have just started the relationship, some are nearing the end.  Maybe their lifestyle is changing, maybe they moved, maybe they are d…let’s not go there…Loyalty does cost some money, so understanding how much of their life time value is still in front of them is important to understand.  You will put differing amounts of effort and cost against different programs.  Programs focused on repeat transactions vs. acquisition need to understand where the customer is in their life cycle.  Maybe it’s worth throwing them a discount…maybe it’s not.  Where they are at in their life cycle has a great deal to do with this.

Influenced:

This is an interesting one for sure.  It has always existed, but only lately can we start to track it.  People have always looked to those they trust to drive purchase decisions.  We have read about this extensively and exhaustively since the rise of social media.  Thing is, it’s a real factor in your marketing spend.  That customer with a $400 life-time value…that’s the revenue they will personally bring to you…what about all those times they were selling for you when you couldn’t?  What about the times they recommended you to a friend, posted on Facebook, Tweeted your offer or brand image out to their followers?  They are marketing for you and are driving sales for you at very low cost.

The more I can focus on customers who are brand advocates and champions, those who are loyal to my brand AND reward my brand by driving influence and sales with their network; they are worth, analytically speaking, far more to me than others.  I am willing to pay more to acquire them because I will make the money back due to their influence.

Now that I know, by ingesting their social graph and activity, that they are influencing 3 additional people to purchase from me in their life cycle.  That same customer who made a $100 order with me is now worth…$400 on their own, plus (on average) $1,200 additional revenue due to the three others they influenced to join my brand and purchase as well.  Granted the math gets complicated here as each of these has their own stage in a life cycle and their own influence over others etc, but I’m trying to keep math simple today :).  

The impact:

Now that I know all of this data, let’s say I spent $100 to generate that first sale at the beginning of this post.  That gives me an ROI of 4, or 400%.  Better yet, an ROAS of 3 , or 300%, or if you track your MCNROAS, let’s say it turned out to be 2.5 or 250%.  Now I know the real sales value to track was $1,600, not $400.  My costs didn’t jump very much due to the loyalty and social influence, so the real sales number to peg my costs against is much, much higher than than $400.  The true additional variable costs are pure speculation for purposes of this post, but the point is hopefully clear…for giggles, if we said my total cost went to $200, double the original cost, my ROI is still 8, or 800%.  My ROAS is now 7, or 700% and my MCNROAS is still likely above 4 or 400%.  That’s a big improvement on the old way of tracking sales and performance which would have taken $100 in sales with a cost of $100, or an ROI of 1, or 100%, and an ROAS of 0%.

The math is tough, and it takes the ability to ingest, and digest social data as well as having a crack team of data scientists, or an incredible outside partner with killer analytics tools, but however you get there, understanding your ICILTV, or Incremental, Contextual, Influenced Life-Time Value will greatly enhance your digital marketing programs.    

How to tell if your marketing spend is generating an acceptable return.  Countless time is lost by digital marketers everywhere on this crucial question.  Most companies still rely on fairly basic calculations: For every dollar I am spending, do I generate more than $1 in sales?  If the answer is yes, they keep spending, if it is no….well, many still spend, others will stop.

There are many, many flaws in this method.  For starters, it doesn’t deal with incrementality.  It assumes each marketing touch, and therefore related spend, was 100% responsible for the sale.  Alas, this is usually not the case, but we’ll deal with that in an upcoming post.

The next flaw, and level of sophistication many get to is to take into account the actual marketing spend.  This is the difference between ROI (Return on investment) and ROAS, or Return on Ad Spend.  To be fair, Return on Investment is actually an incorrect term as well as it does not deal with profit, but more on that in a minute.  Return on ad spend simply takes your perceived revenue generated and divides it by your spend.  If you generated $8 in perceived revenue, and spent $2 to get that sale, your ROI is $8 / $2 = 4, or 400%.  

This of course is less accurate than the calculation for ROAS which is $8 in revenue - $2 in spend / $2 in spend = 3 or 300%, as you need to back out your spend.

The vast majority of companies I am aware of use ROAS as the metric. Again, leaving aside the issue of incrementality for another post, let’s talk through a more accurate methodology for determining the effectiveness of your spend.  As awful as the acronym is, I advocate using MCNROAS, or Marketing Contribution, Net Return On Ad Spend.

I have used this system for years and developed it with a team in one of my former lives who deserves most of the credit for this (You know who you are and thank you!).  The first concept to deal with us to make sure you take into account as many costs related to the sale you generate as you can reasonably track.  For most companies, this consists of tracking variable costs related to a sale.  For each new sale you make, not only did you spend marketing dollars, you generated incremental cost to the organization to fulfill the order.  It’s important to track and measure this.  Accounting for variable costs is how I get to Marketing Contribution.  

What I want to know is, for each dollar I spend, how much profit do I drop to the bottom line?  Once you know this, if you combine this with a view of Influenced Incremental Contextual Life Time Value we spoke of in an earlier post, you can set effective targets for your spend.  At this point, you can basically ask, what level of profitability do I want my business to have? If the answer is a 5% Net Income, you now have, for all intents and purposes, your target.  I grant other factors of course influence this like metrics for turn, velocity, sell-thru, brand protection etc…so I am not advocating blinding shooting for this, but it will get you pretty close to where you need to be….close enough to help win those political battles for working with variable marketing budgets rather than fixed budgets so many still use!

So, to calculate and account for the variable costs, I track the following:

Product Margin:  

Take your incremental sales and subtract out your Cost of Goods Sold.  There’s no point spending $30 to sell a product that only has $20 of margin in the sale. 

Returns and Cancellations:

As marketers we love to assume all sales are final, but they are not.  You must back out the returns and cancellations of orders in order to understand your Net sales.  In cases where you pay commission, you may also be able to add back in to your revenue any commissions you claw back from affiliates and the like.

Net Shipping:

If you sell something, you likely have to ship it.  Shipping, as ubiquitous and expected as it is by customers, is expensive.  I track shipping revenue generated on each sale as well as the actual cost of shipping and run the math to get the net shipping cost and subtract that from sales.

Transaction Costs:

Unless you are dealing in cash, which is tricky to say the least, you are obtaining payment via credit card, debit card or other digital payment mechanism.  For the vast majority of retailers, this is a cost center.  You usually pay somewhere between 2.5% and 5.5% per transaction depending on the payment type.  You must take this cost out of your revenue as well.  If you are one of the very few retailers who own their own bank, this metric may be different for you, but we won’t deal with that here since almost all retailers rely on other banks.

Customer Relations:

The vast majority of retailers have call centers or customer relations centers.  A good chunk (Probably somewhere between 5-10% of your sales with digital marketing costs associated to them, contacted your call center for guidance.  I take the % of sales that represents and subtract that out as well.

What you are left with:

Once you have accounted for these costs, you are in essence left with your profit.  You definitely could continue to take G&A costs like salaries and bonus/commission of your marketing, design teams etc. out, and if it’s reasonable for you to do so, I would consider it.  However, in my experience there is a point at which if you want to do business, you just have to accept some cost of doing business.  You are going to have a marketing team (I hope!) regardless if you made a sale or not, so unless you are really trying to track and understand the value of the size of your marketing team, for purposes of this exercise, I would suggest leaving those types of costs out.

So now, when I go to calculate the effectiveness I can get to MCNROAS or Marketing Contribution Net Return On Ad Spend.  The equation now looks like this:

((Incremental sales - returns - cancelations) - Net COGS) -((Shipping revenue - shipping cost) - transaction fees - call center costs) - Ad Spend / Ad Spend = MCNROAS

Again, I encourage you to look at Influenced Incremental Contextual Life Time Value rather than simply order sales as this more accurately portrays the sales side of this equation.  If you run a great business, the cost to acquire a customer is one thing, but as they make additional transactions, your costs lower, and usually margin increases if the business is run well, so you should take that into account, but I digress.

Once you can get yourself to a number the business can agree is a profitable metric, you will position you and your team to be able to have the type of freedom marketers want to drive sales, and shed the fixed budget curse once and for all.  

Happy calculations and happy marketing!

Now THAT is a sexy title….not.  But the topic sure is cool.  Server side updates….what does that mean…well, I’m not techie to be sure, but in essence, anytime digital content is consumed, there are two fundamental endpoints (Those who are techie, please forgive me and give some latitude on the description), the front end, or browser side, which is programming that happens on the customer’s machine, and server side, which means content is provided at the source, rather than the customer machine.

Real-time content updates are fantastic for digital consumer experiences and digital marketing programs.  Much can be achieved with client side capabilities, like those provided by Monetate and others.  They are fantastic services.  I have used them in the past and may again in the future.  I highly recommend you look at these services going forward.

However, server side delivery of real-time content has inherent advantages over client-side.  In essence it boils down to the fact that server side gives you much more control, and can enable any type of content to be dynamic and rendered in real-time.  Client side is easier to deploy, but more limited in it’s capability.

So, with all that said, what is the darn benefit to digital marketers?  Relevancy.  Pure and simple, relevancy.  Why do so many people now get their headlines from Twitter?  Because Twitter, being real-time, is far more relevant than newspapers, or even TV, or even most mainstream news sites.  As soon as content is created, it starts to age.  As it ages, even by minutes in today’s world, it gets less relevant.

If you are going to spend dollars on driving traffic, you want that traffic to have the most relevant experience possible.  The more relevant the experience, the higher your conversion rate, the more effective your marketing spend, the more traffic you can drive.  You now have a virtuous circle…ah the joy!

So, tactically speaking, how should you leverage the ability to have real-time content updates?  Here are a few ideas for you to consider:

Email:

Email is one of the best use cases for real-time content.  What happens if a customer doesn’t open your email when you send it?  If it has offers in it, those offers start to degrade the moment they go live.  Inventory dwindles, prices may change, fulfillment timelines are in flux, the offer may no longer be the best offer.  And don’t forget, the customer has changed too.  Maybe they purchased the item you are promoting in between email sends.  There are endless reasons why content may have changed. 

What if your email was ALWAYS relevant?  What if, no matter when the customer opened it, or how many times they opened it, the content in the email was able to change based on all the data you had available to you at that time?  Engagement goes up, sales go up, and the health of your overall email program goes up.  Instead of sending static emails, have your email pull data just before it renders.  Give the very latest pricing, inventory and promotional offers most likely to be of value to your customer at that time.

Mobile:

What if a customer opens an email at work and then drives to your store at lunch, but checks their email again, on their smartphone?  Now you can update pricing and inventory based on the local store, rather than your DC.  You can update fulfillment, provide additional promotional support or messaging based on store events that day…the list goes on.  

Or what about context?  Your smartphone knows what the weather is at any point in time.  Weather is a key driver of buying behavior.  Weather, combined with location, real-time data on customer interaction with your brand and real-time info on offers, pricing and related content allows you to deliver very deep personalization and the most likely promotion to generate a sale AT THAT TIME.  Now if you can add to that changes in your site merchandising and content delivery based on the fact you know they visited one of your competitors today as well (Because you can see the geofence breach you set up, now that they are using your mobile app), you have an amazing opportunity to be relevant.

Referral traffic:

OK, this covers of course just about all traffic types, but if you can customize your experience based on everything you know about the referring URL and it’s related data, you can be very persuasive for your customer.  Client side technologies like Monetate excel in this area, making sure your landing page greets customers based on their referring site, updating site banners based on weather etc.  

If you can add server side updates to this though, you can update far more content and incorporate the fullness of the data you have in your data warehouse.  Offer incentives specific to your referral partners.  Reinforce your partner’s referral message as in the case of loyalty affiliates, provide easy navigation to refine search rather than having the customer go back to Google to search again…use cases abound in this area.

Print:

Print is similar to referral traffic, but imagine…what if your catalog never got old?  Or at least aged much slower.  You may want to continue to honor a price in a catalog in your digital experiences for a given customer, even if the catalog went out of date last month.  Real-time updates allow you to interpret the data and adjust the pricing on the fly.  This allows you to convert the customer AND lower costs at your customer relations department/call center.  Plus, you lowered the marketing touches to convert the sale, reducing your overall marketing budget.

So there’s 4 use cases that I think make a compelling case for real-time, server side delivered content and how it will benefit your business.  Higher relevancy leads to happier customers.  Happier customers leads to more loyal customers.  More loyal customers lead to better sales at lower cost, and now we’re all winning!

Holy Cow!  Now we’re into some new territory.  Responsive design.  What the heck is that and what does it have to do with my retail organization.  I’ll tell ya this, it’s got LOTS to do with your retail organization, most just don’t know it yet.

Responsive design is essentially a concept that says, build your digital experience (IE a website) from a single set of computer code.  That code should then be device agnostic.  In other words, the code doesn’t care if the consumer is on a desktop, a smart phone, a tablet, or whatever.  The code just knows what type of device, or platform it is on, and dynamically updates the content to be optimized for the given device.

A great example of a responsive design site, that contains tons of great information on the how’s and why’s of responsive design can be found here.  I highly recommend you head over there and check it out.

But what are the benefits to the retail organization?  Well, there are a bunch, and here are a few:

More efficient marketing spend:

Using responsive design means that you do not have separate experiences on desktop vs. mobile.  It’s the same experience, just optimized.  This means, rather than either A) having a crappy experience because you shrank you website down to fit on an iPhone that renders it effectively useless, or B) you built an entirely separate “App”, whether it’s a mobile app or web app, that likely does not contain half the content and capability of your full desktop site, you have a well optimized site.  This of course means conversion rate will be higher.  It also means the customer is far more likely to move from one device to the next without damaging that conversion rate.  All of that translates into more efficient marketing spend.  The higher your conversion rate, the lower your marketing costs as a general rule.

More efficient marketing team:

When you run different experiences across devices, it means your marketing team likely has to build and manage completely different marketing programs.  They need to build and manage Adwords for desktop experiences AND for mobile.  That’s double the work and you don’t get double the return.  Save yourself and your team time, effort, and stress. More importantly, let them take that time and reinvest it back into the program to make it even that much better without all the duplication.

Better SEO:

One of the great benefits of responsive design is that you have the same URL across devices.  Today, if a retailer has a mobile optimized site, it often has completely different URL structures.  Most often this is in the format of m.site.com  What this does is a few things.  First, it effectively splits your SEO equity across two different domains.  Not evenly granted, and Google has indicated that it tries to identify these different url formats to maintain equity, but it also admits it does dilute your SEO mojo that you worked so hard to gain.

Provide a consistent experience to your customer:

Outside of the splitting of equity due to the different url’s themselves comes the problem of URL mapping.  This is partly an SEO issue, partly a user experience issue.  My company has a classic issue with this right now where we actually have 3 completely different URL structures.  We are not that unique.  This is a problem faced by many retailers.  Even if you don’t have 3, you likely have 2.  The problem here is that if a customer uses search to navigate to your brand, it’s entirely possible that they will see several results for your site. This may be in the same search result, or different ones.  Having multiple URL’s means it’s likely that a customer clicks on one, and gets a given experience (Whether it’s the “Optimized” one or not).  When they click on the next link however, it’s probably that they go to a completely different experience (This time they may go to the non-optimized site). This is very confusing for customers and trust me, leads to lots of problems and increased workload in your customer call center, not to mention poor conversion rates and difficulty maintaining state across the domains (IE, how do you keep their cart active across these domains?  It’s tricky to impossible).

Simplify merchandising’s life and drive more sales:

Funny thing about having more than one site running….You now have to merchandise multiple sites.  Each of these sites has completely different rules, or best practices for merchandising as they are completely differente experiences.  This is a nightmare to manage internally.  You now have to train legions of staff in optimal strategies by device and experience type.  It also adds to confusion in the data that results from your operations.  How do you interpret conversion rates etc. on specific product, or categories when the way the fact that they were rendered in two completely different worlds, is difficult to impossible to reconcile?  Responsive design makes this much easier as you can utilize the same tracking codes and techniques, and fundamentally maintain much of the core experience across devices.  A simple business is a winning business.  Don’t make it more complicated than it has to be.

IT and PMO can now do all the other things you want them to do:

It may be a stretch to think they can now do everything you want, but if they don’t have to maintain two or more completely independent code bases…guess what?  Their available time just went through the roof, and your associated IT costs just went through the floor!  That bodes well for your ability to produce more product innovation than if they are caught in the quagmire of managing multiple sets of code.  It will also make your IT support and finance departments quite happy too. 

So…responsive design can lead to:

  • Better conversion rates
  • Lower marketing cost
  • Better customer experiences
  • Happier marketers
  • Happier merchants
  • Better use of inventory and capital
  • Lower IT costs
  • Better merchandising metrics

I think that’s a pretty strong case.  We all on board?  Good! :)

Another day, another Facebook plan to spam it’s users.  I will continue to argue that paying for fans on Facebook is a bad model for brands.  Further, “Advertising”, be it sponsored stories or ads in the right rail is a bad model.  Users don’t want to conduct commerce in a social network.  They want to network with their social group.  

Brands that do right by their customers and provide compelling and engaging content at all times, and always treat their relationship with the utmost respect, don’t need to buy fans and would never intrude on the personal space of their customers in this fashion.  If you do things right, your fans will follow you without you having to pay for it.  If you want to attract even more followers, leverage your own site.  

I have seen brand after brand abuse the Facebook platform by relentlessly posting deals and I see low engagement and little value for anyone in that trap.  I still believe that Facebook’s best plan for driving revenue is Facebook Exchange.  An ad network driven by social graph and social data has real capability, if for no other reason than it helps advertisers provide more relevant ads in places customers expect them, or at least tolerate them.

Treat your customers with respect, and treat yourself with respect.  Be a better marketer.  Do things right.  Treat your customer relationships with the utmost respect and do not spam them.  Thank you…good night! :)