Shift the focus away from loyal customers
Too many marketing campaigns focus on customers who are already loyal. This gives high response rates but near-zero effect. Campaigns add real value only when they convince indecisive "swing customers" to make a purchase.
Kim Larsen, internationally recognized marketing analyst from US-based MarketShare Partners, references the US presidential election and the concept of "swing states" to introduce "swing customers" as the marketing department's most valuable target group.
Larsen is a number cruncher who is an expert in drawing knowledge from customer and market data. His message is clear: marketers must work much more analytically with data in order to identify the swing customers who increase a campaign activity's net worth.
"The vast majority of marketing campaigns are designed to achieve maximum response rates," says Larsen. "But a campaign's effectiveness can't be measured in the number of responses it generates. Instead, we should be looking at the value the campaign creates for the company. I often observe campaigns targeted toward "yes men" and those loyal customers who probably would have bought the product anyway. Aiming campaign content and messages at this group yields minimal effect."
Digging for gold
"The initial test group results were quite convincing; 5.01 percent purchased the product after having received the special offer. The company broke out the champagne and was ready to launch the campaign. Then the results from the control group came in. These showed that 5 percent would have bought anyway – even if they did not receive any special offer. The actual effect of sending the special offer was a completely marginal increase in purchases of 0.1 percent, so the company decided to drop the campaign. The very premise of the campaign was wrong; customers who visit a company's website are, a priori, interested. So it makes no sense, from a profitability perspective, to invest campaign dollars there."
A needle in a haystack
The $64,000 question is how to isolate the swing customers as a target group. They are not immediately visible, since customers that react positively to a campaign can belong to either the loyal customer group or the swing customer group. The answer lies in the control group data. Larsen is a strong advocate of getting marketing departments to use this data.
"My recommendation is to expand campaign testing so that it includes a control group, just as pharmaceutical companies do in clinical trials. The purpose of the control group is to reveal purchase behavior among customers who were not exposed to the campaign; this contributes valuable data that can be used to isolate swing customers. The really interesting customers are those in the control group who do not make any purchase during the test. These are the ones we might be able to motivate toward purchase through exposure to the campaign. When control subjects do make a purchase, on the other hand, we should just be happy about it. But we shouldn't use our campaign budget on them since they would have bought anyway," explains Larsen.
Obama vs. McCain
The resulting analysis method, Net Lift Modeling (NLM), is widespread among American businesses and the strategy behind NLM is widely used by political campaign organizations.
"The US presidential election was a textbook example of the principles behind NLM," Larsen recalled. "In San Francisco, where I live, we didn't see a single TV commercial for either Obama or McCain during the entire campaign. The explanation is simple: San Francisco is Obama country. Both Obama and McCain knew this, so why should either of them use their marketing budget there? When I was in Las Vegas, on the other hand, the situation was completely different and both candidates went all out. Nevada is a swing state and every single campaign activity can determine whether the vote will go one way or the other. Thus, there are real rewards to be won by investing heavily in this area."
Larsen prefers traditional probability models with test groups when researching campaigns for products with low market visibility. In these cases, control group reactions will be so limited that there will be insufficient data to analyze reactions to the campaign. As product awareness grows, including control groups in the testing becomes more and more relevant.
"I would always begin by considering the traditional method. But if this doesn't work – and this is more the rule than the exception in my experience – then I would switch to NLM," concluded Larsen.
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Kim Larsen, Marketing Analyst
Get more bang for the marketing buck by investing campaign dollars on identifying, influencing and converting so-called “swing customers”
“A campaign’s effectiveness can’t be measured in the number of responses it generates. Instead, we should be looking at the value the campaign creates for the company.”