Whose Sale is it Anyway? Giving Credit to the Right Channel.

Counting RevenueHave you sat in one of those meetings where everyone is trying to claim credit for the latest bump in sales? If so, you know all of the arguments about how some channels brand while others sell. It is a circular debate without an easy answer.

This is a hot topic because most company budgets allocations are weighted by the revenue generated by the channel. More sales credited to a marketing effort equals more money for the department. This creates a departmental feeding frenzy since everyone wants their piece of the pie.

It begins with a competitive attitude towards other channels and departments, continues with undermining of marketing efforts, and ends with poor management decisions. The competition between revenue sources will continue as long as the budget is allocated by revenue credits.

The results can be devastating.

About ten years ago, management at catalog companies started comparing channels based on cost and revenue. They found that their catalog costs were escalating while sales were declining. Their website costs were holding steady while sales were increasing. It seemed obvious that their customers were changing channels. Visions of increased profits danced in their heads as they reduced catalog circulation.

The preliminary results were positive. There was a small drop in sales but an increase in profitability since costs were significantly reduced. Then, the unimaginable happened. Sales started declining at a tremendous rate. It turned out that people were shopping from the catalog and buying online.

If you treat your marketing channels as self sustaining islands, you miss the benefits of multichannel leverage. Channels work together to reduce buying resistance and increase motivation. Where the order is placed may not have anything to do with the motivation to buy.

Realistically, there has to be a way to determine how to distribute marketing dollars.

The revenue model can work if the sales are credited by the channel’s contribution. To do this, you have to know exactly how your channels work together. It begins with knowing what each channel provides:

Social media opens doors. It introduces your company to prospects and improves relationships with customers. Tracking sales back to social media is virtually impossible. Even so, you need a social media presence that works with your other channels to create trust and build relationships.

E-commerce serves a dual purpose. It generates revenue and reduces costs. A percentage of your customers will find you online and place their orders. The rest will make their choices from your stores or catalog and place their orders online. Crediting your website with all of the orders placed online creates inaccurate information and poor management decisions.

Direct marketing via catalogs and direct mail is a multifaceted channel. It introduces your company and products through prospecting, generates interest and revenue, and drives traffic to other channels. It is also expensive increasing the temptation to reduce circulation to save money.

Stores are currently a revenue generating channel. They could also be traffic generators if they provided kiosks for customers to go online to place orders. Doing so increases product depth and availability.

The $64,000 question is “how do your channels work together to build trust, generate revenue, and keep customers coming back?” It doesn’t matter how your industry leaders or competitors’ channels work together. Your unique combination is your only concern.

Answering the question requires a complete understanding of your customers’ movement from awareness to first order to long-term buyer. When you know how your customers move in and around your channels, then you begin the process of correctly allocating revenue.

There’s no absolute numbers in revenue credit.

Keycodes are used by direct marketers to identify the order source. They used to be an effective tool for measuring promotions and attributing revenue to the correct marketing effort. They have lost some of their usefulness because promotional codes are readily available on the Internet. If you attribute your sales based solely on the codes provided by your customers, you may be overstating the value.

Crediting the right channel is best done with several analytic tools. For example, if you have a special sale, create a different keycode for each channel and customer type. After the sale is complete, run a matchback analysis to verify that the orders were placed by the people who received the promotion. Most likely, you will find unverifiable orders because people share bargains with friends, family, and sometimes the world.

The more unverifiable orders the better! Well, maybe not…

Unverifiable orders come from your recipients sharing your promotion information with friends, family, and discount code websites. If the new customers are from your target market and become valuable acquisitions, everything is great. But, if they are hit-&-run buyers, they can cost you far more than they contribute. If you aren’t monitoring your acquisition and retention, you may be over-marketing to new customers.

Before you celebrate the success of any campaign, filter out the unverifiable orders. It makes your marketing analytics more accurate. You can see how each channel and customer segment responded to your offer. If the promotion is profitable without the extra orders, then it is a viable promotion to your customers and goes into the “let’s do this again later” file. If not, then you need to rethink sending it to your customers.

After you’ve correctly measured the response for the promotion, identify the sources of the unverifiable orders. Search the Internet for the code to see if it appears on discount sites. If not, your customers probably shared the information with friends and family. Matching the code to the segmentation shows which group is sharing. If you are receiving valuable new customers, encourage all of your customers to share more.

Attributing revenue to the right source is challenging. One blog post isn’t nearly enough to cover all the nuances. Hopefully this one will start you down the path of better reporting and blending of channels so you will receive the maximum return on your marketing investment.

How are you currently allocating revenue?

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  • Cliff Allen

    Great ideas on relating promotion to purchases.

    Marketers know that frequency of exposure is related to customer purchases, but frequently the most recent exposure is given credit for the purchase — instead of allocating credit across all exposures for the customer.

    I’m always surprised at little tracking is done throughout all of a customer’s exposures to a company’s marketing messages.
    .-= Cliff Allen´s last blog ..Developing a Marketing Communications Strategy =-.

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