Planning ROI? Turn the Funnel Upside-Down

Many marketers use a funnel to illustrate the progression from prospect to buyer because the narrowing graphic neatly shows the narrowing segments of the sales progression. Most construct the funnel by starting at the top and working their down chronologically through the sales cycle.  They apply projected percentages to each stage, funnel down to a number of buyers, calculate revenue based on average sale, and determine ROI based on promotion costs.

Many marketers use a funnel to illustrate the progression from prospect to buyer because the narrowing graphic neatly shows the narrowing segments of the sales progression. Most construct the funnel by starting at the top and working their down chronologically through the sales cycle. They apply projected percentages to each stage, funnel down to a number of buyers, calculate revenue based on average sale, and determine ROI based on promotion costs.

A different approach to using the funnel starts at the bottom. It has its roots in the tried and true direct response principles of Customer Lifetime Value (LTV) and Allowable Acquisition Cost (AAC). Because these two principles are the components that make up ROI (with LTV as the “R” and AAC as the “I”), the upside-down funnel becomes a useful tool for planning and creating ROI scenarios.

Start with the value of a customer. Set a target ROI and calculate your AAC. For this illustration, let’s assume that a buyer is worth $300 and we set our revenue target ROI at 3:1. This results in an AAC of $100.

See Equation No. 1 in the media player at right.

As you move to the lower portions of the upside down funnel, you apply assumptions about the conversion rates at each stage. For example, if you assume that 30 percent of all qualified leads will convert to buyers, then the Allowable Cost per Qualified Lead is $30.

See Equation No. 2 in the media player at right.

Similarly, you can calculate the Allowable Cost Per Lead, Per Response, and Per Impression all the way to the top of the upside down funnel. So if you estimate that two-thirds of your leads will be qualified, your Allowable Cost per Lead is $20, and so on.

When you reach the bottom of the upside-down funnel, it becomes particularly useful for media planning. You can determine the required response rates from each medium under consideration by:

  1. Dividing the cost of the media by the Allowable Lead Cost to determine the number of leads required from each medium
  2. Dividing the number of leads required by the circulation or number of impressions associated with the medium

For example, see Equation Nos. 3 and 4 in the media player at right.

Then, do a gut check. Is that response rate attainable? Don’t know? Test it. A carefully controlled small test will quantify your assumptions at each point of the upside-down funnel.

A Pictorial Trip to the Mailbox

After my previous Mailbox Memory post, a few mailboxes started to make some appearances in my inbox. With a little more research, I found there’s quite a bit to choose from, like those on this Pinterest account. I even found a pictorial tour of mailboxes in Santa Barbara, Calif. Click on the images in the media player to see some my favorites.

After my previous Mailbox Memory post, a few mailboxes started to make some appearances in my inbox. With a little more research, I found there’s quite a bit to choose from, like those on this Pinterest account. I even found a pictorial tour of mailboxes in Santa Barbara, Calif. Click on the images in the media player at right to see some my favorites.

Back to my summer holiday … and I can’t wait to look at all the mail when I get home.

Email to Repair Broken Customer Relationships—What J.C. Penney Got Wrong

Email is one of the more personal forms of electronic communication. Notes from friends and family are co-mingled with marketing messages. This makes it an excellent vehicle for repairing broken relationships. When done well, email apology letters drive sales in addition to mending relationships, but can they save a company from a death spiral? The management team at J.C. Penney is hoping that the recent note from CEO Ron Johnson will reverse (or at least slow down) the sales free fall for the last two quarters.

Email is one of the more personal forms of electronic communication. Notes from friends and family are co-mingled with marketing messages. This makes it an excellent vehicle for repairing broken relationships.

When done well, an email apology letter drives sales in addition to mending relationships. A few years ago, a client had a system failure that resulted in delayed shipments of holiday orders. An email was sent to every customer who had placed an order that season (even the ones who had already received their orders.) The message explained what caused the problem, apologized for any inconvenience, promised to expedite shipments of remaining orders, and offered a gift certificate for future orders.

The immediate response was so positive, the President quipped, “We should plan a problem once a quarter so we can apologize!” The revenue from the apology letter more than covered the expedited shipping. Furthermore, the relationship between customer and company became stronger. The people who received the letter consistently outperformed their counterparts who didn’t get one in both sales and lifespan.

Personal letters help salvage relationships but can they save a company from a death spiral? The management team at J.C. Penney is hoping that the recent note from CEO Ron Johnson will reverse (or at least slow down) the sales free fall for the last two quarters. In May, the first quarter results revealed a 20.1 percent drop in revenue because shoppers didn’t like the new pricing and marketing strategy. Second quarter was worse with another revenue drop of almost 23 percent. Traffic was down 12 percent.

When things are going south at this rate, quick action is required. Johnson admitted to pricing and marketing mistakes when speaking with investors, but his letter to customers is more like an introduction than an “Oops! We goofed.” The letter reads:

Dear valued customer,

You’ve probably heard about recent changes at jcpenney. I’m honored to
say that I’m one of them.

I’m Ron Johnson, and I came here because I have a lifelong passion for
retailing—and jcpenney has been one of America’s favorite stores for
over a hundred years. My goal is to make jcpenney your favorite place
to shop.

I’ve asked our team to innovate in many ways—to help you look and live
better—and to make shopping more enjoyable.

While you will see many changes, you can rest assured that we’ll never
lose sight of our founder’s values. When James Cash Penney built his
first retail stores over a century ago, he called them “The Golden
Rule,” because treating customers with respect was his highest
priority.

One of Mr. Penney’s guiding principles was offering low prices every
day—instead of running a series of “special sales.” We’re honoring Mr.
Penney by returning to his pricing policy, so you’ll find great prices
every time you visit.

We’ve also made it easier to return items, we’re bringing in more
great brands, adding excitement to our presentation, offering free
back-to-school haircuts for kids, and much more.

Basically, we’re putting you and your family first, trying to give you
new reasons to smile every time you visit a jcpenney store.

You’ll see many innovations in the coming months, and I’ll keep you
informed in a series of letters like this. I hope you’ll let me know
how we’re doing, and share any ideas that could help us do better.
Just click the link below to send me a note.

On behalf of the jcpenney team, thank you for shopping with us.

Ron

I’d like to hear from you.
View email with images.

*Please be advised that any information disclosed or submitted will
become jcp property and may be used in public communications.”

The timing of this letter is off. It should have been sent prior to the pricing changes. Now is the time for J.C. Penney to be open about the issues and invite people to share thoughts without the threat that they “may be used in public communications.”

Email messages designed to repair relationships are different from marketing emails. They have to be simple and personal. The J.C. Penney email is designed to look like a letter from the CEO, as you can see in the first picture in the media player at right.

Unfortunately, it looks like the second picture in the media player when it lands in the inbox. The letter is an image instead of text. It isn’t very inviting to a loyal customer much less an unhappy one.

Do’s and don’ts for creating personal relationship mending messages:

  • Do personalize the name. “Dear valued customer” says “I don’t know who you are.” The individual who shared this email with me has been a loyal catalog shopper and had a J. C. Penney credit card. They should be on a first name basis.
  • Don’t use a ho-hum subject. You have to catch people’s attention in a flash. “A letter from our CEO” doesn’t do it. Wouldn’t “Our CEO wants your advice” be better?
  • Do identify the problem and take responsibility for it. “Oops! We goofed!” followed with an explanation and sincere apology is the first step to mending the relationship. If the recipient doesn’t feel your sincerity, additional damage is done.
  • Don’t limit responses by qualifying. Mr. Johnson asks for feedback and then states that the information shared may be used in public communications. Some apology emails offer a discount based on a specific order size. Relationship mending emails have to do two things: Take responsibility and offer some form of restitution. A discount is a promotion. Basing it on a dollar amount is adding insult to injury.
  • Do use text-only emails. A picture paints a thousand words and most of them send marketing signals and awaken spaminators. The purpose of relationship building emails is to restore the relationship. This won’t happen if the email goes to spam or looks like a bunch of boxes with red X’s.
  • Don’t ever forget that relationships with customers are a privilege not a right. When you are truly grateful for the opportunity to serve your customers, it resonates in your messages. Make sure that your marketing team (including the copywriter) has the right perspective when creating messages.

1-Click Emails Make Sales and Donations Easy

Attention spans are getting shorter every day. Emails have nano-seconds to capture the recipients’ attention long enough to get them opened. Once open, the offer has to be compelling to move people into the buying process. Every click along the way provides an opportunity to abandon the process. Providing one-click links shortens the path from email receipt to order completion reducing opportunities for people to become distracted or change their mind.

When it comes to service, people prefer easy to exceptional. They want to complete their transactions and resolve any issues in the most efficient manner possible. According to a study by the “Harvard Business Review” and Corporate Executive Board, 57 percent of the people who called customer care departments tried to resolve their issues online before making the call. Customers who reported ease in making transactions were four times more likely to be loyal. This is good information for the service team, but how could it apply to the email marketing strategy?

Attention spans are getting shorter every day. Emails have nano-seconds to capture the recipients’ attention long enough to get them opened. Once open, the offer has to be compelling to move people into the buying process. Every click along the way provides an opportunity to abandon the process. Providing one-click links shortens the path from email receipt to order completion reducing opportunities for people to become distracted or change their mind.

The first image in the media player at right is an example of a one-click fundraising email for a political candidate. It began with a salutation followed by a short story and call to action. The email provides five suggested amounts and the option to donate another amount. A click sends the donor to a confirmation page (the second image) to confirm the donation or choose a different amount.

Amazon offers a similar process with their wish list click, which you can see in the third image in the media player. Instead of an option for the one-click buy, the recipient can add the item to a personal wish list. This is the next best thing to a buy because it provides additional information so the recipient can be better targeted for future promotions. The email is crafted to be personal and well-targeted. A brief look at the anatomy reveals:

  1. The recommendations are chosen specifically for the recipient. Having my name in the first line shows that it isn’t a phishing email.
  2. Personalizing the message increases responsiveness. The letter begins by asking if I am looking for something in the fountains department. I chuckled when I read it because they know for a fact that I was looking for an automatic watering bowl. Two weeks earlier I spent an hour searching their site for one.
  3. Clicking on the “Learn More” button opens the item page so you can review it in more depth. Interestingly, the first item presented in the email is the one where I spent the most time in my search.
  4. The “Wish List” button opens a confirmation page (the fourth image) to verify that you want the item added to your wish list.
  5. The item title is clickable. It opens the same page as the “Learn More” button.

The Amazon email provides multiple ways to enter the buying process. Adding a “1-Click” option to buy would make it even easier to complete the transaction.

Making things easier for your customers or donors may improve their responsiveness. Here are some tips for testing it:

  • Count the number of clicks required from the initial click-through link to completion of order. Redefine the path to eliminate any extraneous steps. (This should be done for every email.)
  • Provide enough details in the email for recipients to make a decision.
  • Follow Amazon’s lead and offer multiple options so people are choosing between more information and buy now instead of buy now or not at all.
  • When reviewing results pay close attention to where people are abandoning the buying process. Test different options to find the best ones for moving them forward.
  • Always provide a custom confirmation page.

New Paper Recovery Data Shows Impact of Recession, Digital Media

New data from the American Forest & Paper Association regarding paper recovery rates in the United States has some good news—and not-so-good news—regarding U.S. recycling collection. As marketers, we need to pay close attention to these rates, and take active steps to support increased recovery, since such recovery can have positive impact on recycled paper supply and pricing, as well as other marketplace concerns regarding our print communications and paper packaging.

New data from the American Forest & Paper Association regarding paper recovery rates in the United States has some good news—and not-so-good news—regarding U.S. recycling collection. As marketers, we need to pay close attention to these rates, and take active steps to support increased recovery, since such recovery can have positive impact on recycled paper supply and pricing, as well as other marketplace concerns regarding our print communications and paper packaging.

The good news is that the paper business has continued to increase recovery rates for all types of paper, achieving a record 66.8-percent recovery for the nation [see the first image in the media player at right].

For printing and writing grades, recovery rates slipped from its 2009 recovery percentage peak of 61.0 percent, now registering a 56.8-percent recovery rate, but still ahead of the pre-recession recovery rate [see the second image in the media player at right].

In both the overall market for all grades combined, and the printing & writing grades market, the peak year for paper consumption (the bars on both of the preceding graphs) was pre-recession 2007, a high point we have yet to re-attain in both categories as our economy has returned to tepid growth.

However, by looking at just printing & writing grades consumption, the falloff from the 2007 peak, and the lack of recovery, is far more pronounced than in the paper market overall—fully a 23.7-percent drop from 2007 to 2011. This is certainly a sign that while the recession prompted a pullback, digital media has brought on a migration from print communications, and most certainly in postal mail. That data is supported by declining U.S. Postal Service First-Class Mail volume data, and near-minimal growth in Standard Mail.

Thus, the generally higher recovery rates are generated by higher recycling collection activity or perhaps a more expansive recovery infrastructure, but also by source reduction—there’s just less printing and writing papers being generated.

Certainly, the role of direct mail is changing in an increasingly mobile, digital age—and thankfully, we’re getting a good percentage of what we do consume recycled. We need to do better.

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