At the close of 2009, tens of thousands of enterprises throughout the United States were faced with allocating marketing budgets for 2010. They undoubtedly considered the costs of messaging by various channels, and then divided their dollars accordingly – channel by channel, dollar by dollar. But the siloed, disconnected, multichannel approach to budgeting based on macro-statistics doesn’t quite hit the spot.
Just because one channel might be more effective in the aggregate does not necessarily mean it is more effective at a customer-by-customer level. And if by-channel messaging can be tailored on a by-customer basis, then why allocate budget dollars based only on measures of aggregate effectiveness? There’s a better way to slice your budgeting pie: serve up a coordinated, multichannel approach that allows you to operate at a more accurate, effective and granular customer level.
Sure, there are differences between channels. And sure, overall there are differences in cost per contact and cost per acquisition. But do those differences alone definitively answer questions like, “Is online display advertising more cost effective than direct mail?” Or “Is e-mail more effective than television?” Of course not. Rather, the answer to these questions and others like them is that it depends. It depends on what individual or segment you are trying to reach, and what medium or combination of media is best for that individual or segment.
The cost of acquiring a customer does tend to be much higher in certain channels. So, does that automatically mean that budget dollars should shift away from the higher cost-of-acquisition channels in favor of cheaper alternatives? If you’re dividing the pie based on macro-statistics, the answer is obviously ‘yes.’ But why stop at macro-statistics when so much is known at the customer level?
Remember, averages are simply a reflection of the aggregates of a population. Individuals make purchase decisions; averages do not.
Suppose that the cost of acquiring a customer averages $8 via paid search, $15 via online display advertising, $25 via e-mail and $70 via direct mail. Even if the average value of the customer were the same across all channels, does this automatically mean that direct mail and email should be de-emphasized? That answer, perhaps surprisingly, is a resounding ‘no.’
What it does mean, however, is that customer and prospect bases should be analyzed and segmented in a way that ensures that the most expensive channels are focused on reaching those who are known to be unresponsive to the lower cost channels. Similarly, the lower cost channels should be used aggressively with those individuals, segments, or audiences where they are known to be effective.
Incidentally, the high-cost/low-cost channel decision need not be an either/or proposition. Media mix can be tweaked so that channels work together to magnify effects. Every day, marketing services providers are improving their customer-level, multichannel optimization capabilities. Combinations of off-the-shelf channel optimization models and custom, by-client, by-segment, by-household and by-individual models can be brought together in a coherent, strategic and tactical way. Doing so enables you to reach customers and prospects in the most cost effective manner, even if it’s not the least expensive manner.
Optimization, by definition, takes a realistic, balanced approach to goals as well as constraints.
So what are the goals? Typically they vary, but you know what you’re after. You want to generate a certain number of leads. Acquire more customers. Acquire the right kinds of customers. Retain and cross-sell customers. Maximize lifetime value of customers. And you know the constraints, too. There’s a finite number of budget dollars that can be deployed for any single customer, campaign or medium, as well as general budget parameters over the course of a quarter or year. Those budget dollars can be divided by an aggregated, top-down approach to focus heavily on low-cost channels. Or they can be divided using a customer-centric, bottom-up approach that focuses on utilizing the right channels for the right customers.
Now, the question that remains is this: how do you slice your budgeting pie? Using a coordinated, multichannel approach results in effective optimization at a customer-by-customer level, with results that get better with every quarter. And that is very sweet, indeed.
David Danziger is the senior manager of innovation for Acxiom Corp.
Network
