Why Compas is perfect for direct marketing (direct-to-consumer selling)
Compas is a flexible platform that can be adapted to a wide range of situations, but one activity to which it is particularly well-suited is direct marketing (otherwise known as direct-to-consumer or DTC selling). For any business accustomed to planning and forecasting in Excel, Compas offers all of the flexibility of using spreadsheets, with none of the limitations. For example:
- It is not restricted to two dimensions, allowing the calculation of all of the financial and operational implications of the plan, without resorting to multiple tabs/linked files
- It has no data or performance constraints, as it is backed by a powerful Oracle database
- Loading data from other systems (internal and external) is straightforward
- Formulae are defined at the level of the underlying business rule (e.g. ‘Gross Margin’), rather than cell by cell (which is highly prone to errors)
In various case studies on this website, we have shown examples of it being used to plan and analyse direct marketing campaigns, food production and retail trade promotions. In this blog post I particularly want to focus on its application to direct marketing (DTC), which is something that is right at the heart of the Compas story.
Whereas, in the past, direct marketing was a somewhat specialised field, with a small number of companies mailing doorstep-sized catalogues to their customer base, these days most suppliers try to create and nurture a direct relationship with their customers as far as they can. This is as true of manufacturers, who have historically been somewhat removed from their end users, as it is of traditional ‘bricks and mortar’ retailers, who realise that once a customer goes online, it is as easy for them to order from the other end of the country, as it is to order from them. Travel is another sector, where the providers have traditionally been insulated from their end customers by a layer of retail travel agents, but are now trying to build direct relationships and brand loyalty themselves.
On top of these traditional ‘bricks and mortar’ companies is a whole new army of pure e-commerce companies, which have always dealt directly with their customers, primarily through the mechanism of email. For some, building a relationship from the moment of first purchase is part of their business DNA; for others, it has always been somewhat secondary to the operation of their Magento or Shopify web store. These latter companies will find themselves at a permanent disadvantage, unless they have a very unique product or a highly effective marketing presence in some other way. It is widely recognised that it costs a lot more to recruit a new customer than to retain an existing one: this article in the Harvard Business Review puts the recruitment multiple as being anywhere between 5 and 25 times the cost of retention.
The impact of this shakeup is that most companies now undertake a great deal of direct marketing to their existing customer base, and are also seeing the merits in attracting more ‘direct’ customers, through a variety of media, including email, web ads, direct mail, inserts and printed advertisements. Typically, all of these mechanisms will have some sort of associated response code attached to them, to enable the company to trace the response back to the original recruitment mechanism. This both allows the effectiveness of the initial recruitment campaign to be assessed, and also lets companies assess the different long-term lifetime value of customers recruited through different channels and sources. Typically, it costs a business money to acquire a new customer through direct marketing, and what ultimately matters is the difference between the acquisition cost and the customer’s lifetime value post recruitment. Companies that focus exclusively on the cost per acquisition without considering the lifetime value side of the equation are likely to make poor – and possibly terminal – business decisions.
Direct-to-consumer selling generates a lot of data – that is one reason why companies like it so much. Not only do they learn a great deal about their individual customers from their direct interactions with them, but they can also gain a good understanding of their customer base as a whole by seeing which messages resonate better in terms of email open and click-through rates, even from customers that do not go on to purchase. However, in order to benefit from this data, it is essential to have the right platform to report and analyse it. Also, because there are frequently many overlapping activities taking place at the same time, planning can really benefit from a detailed, bottom-up approach which allows individual campaigns to be manipulated separately.
Compas has a number of features that make it perfect for planning, monitoring and analysing direct marketing:
- It understands the concept of planning and analysing multiple overlapping activities
- It can calculate both the short-term results of an acquisition campaign, and the long-term value generated by the customers recruited by it
- It can help to forecast campaign response rates and response profiles from historic data
- It can undertake a detailed financial evaluation of activities before and after the event
- It can help users to reforecast the final response to a campaign once the initial results start coming in
- It supports A/B testing of different concepts, allowing analysis of each concept individually and jointly
- It can track the results associated with different database segments or mailing lists separately
- It can help with product forecasting and range planning
- And much more…
Planning and analysing direct marketing activities in a spreadsheet is like seeing the world in black and white. The great joy of direct marketing is the wealth of information it generates, which illuminates customer likes and dislikes, and the effectiveness or otherwise of different marketing tactics, in glorious technicolour. For this, it is essential to have a good customer data platform to record and analyse customer-level data (we recommend Unifida, a powerful and intuitive tool, based on a foundation of solid data science), and a good marketing data platform, such as Compas, in which to plan and analyse the effectiveness of different marketing tactics. In a direct marketing environment, a significant number of customer acquisition activities typically destroy value because the customers recruited never generate enough value over their lifetime to recover their initial cost of acquisition. Understanding this dynamic is critical to building a profitable direct marketing business, and fundamental to this is having the right data and systems.
To understand more about how Compas can help you to build a profitable direct marketing business, contact us now for a free demonstration.