Multichannel Measurement: Search Engine Marketing: Maximizing Profit with Web Analytics. Strategies for Success

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1 WHITE PAPER Multichannel Measurement: Search Engine Marketing: Maximizing Profit with Web Analytics Strategies for Success introduction In 2004, two-thirds of consumers researched a product online only to buy it offline. This percentage drastically increased from a mere one third of consumers in As the lines between channels continue to blur, the need to measure, understand, and optimize cross-channel purchasing behavior is emerging as a critical business requirement. Whether your customers are shopping at stores, ordering from your catalogs, or visiting your Web site, you need to meet their desires by presenting a unified front, giving them the same functionality in each channel and recognizing how much their business means to you. In this paper, we ll discuss solutions for measuring and optimizing cross-channel activity, how you can improve multichannel marketing ROI, and how to measure overall customer lifetime value. By David Kirschner, Principal Consultant, Best Practices Group

2 Why it Matters It s more important than ever to monitor customer activity as they channel hop. The value and loyalty of a multichannel customer increases exponentially as they interact with your company through various means. In the diagram to the left, we ve highlighted four very salient differences between cross-channel shoppers and online-only shoppers. Still not convinced? Here are some more jaw-dropping statistics from Forrester: 65 percent of consumers researched a product online then bought it offline (as mentioned earlier). For every dollar consumers spend online, they spend an additional $6 off-line as a result of their online research. Nearly 50 percent of cross-channel shoppers researched a product on one retailer s Web site, only to buy it from another company. When confronted with numbers such as these, the need for cross-channel measurement comes into sharp focus. But there are other lessons to be learned from monitoring multichannel activity as well. Web Analytics Unlock Cross-Channel Mysteries In their October 2004 report, In Search of Cross Channel Excellence, Forrester Research said to Use Web analytics as the foundation for cross-channel metrics. This reinforces what we at Omniture have been saying for years there is far more actionable data in your Web analytics tool than you realize. Yet, that same report went on to say that only 53 percent of companies are sharing Web analytics data with their marketing groups, creating a huge knowledge void. Nearly half of the companies surveyed are not passing along valuable information that could improve the methods and tactics used to market their goods and analyze the results. Figure 1: Demographics of cross-channel shoppers Say, for example, your Web analytics group sends the offline marketing team a list of items that are commonly added on to Web purchases. These could be displayed at the point of sale, much in the same way impulse-buy items have traditionally been arranged in checkout lines. In the case of an electronics retailer, the typical items (such as blank CD-ROM discs or pens) could be replaced with higher margin items (like flash drives or ipod accessories). If there is a particularly trendy or hot-selling product, such as the ipod, the Web analytics team can provide a list of products that are commonly purchased along with the hot item. This can yield a data-driven method of creating end-cap displays or product bundles, giving the offline retailer a competitive advantage over its counterparts, who are not using data from the Web site.

3 Customer ID is the Key To monitor cross-channel activity properly, you ll need a unique identifier for each customer that can be captured at different points of sale. In some leading-edge companies, this information is provided in real time to the Web site or POS system, allowing the Web site or salesperson to tailor the experience to the customer s needs and offer suggestions for upsells, like related products or extended warranties. In the reporting world, as long as the purchase has a time/date stamp and can be assigned to a specific customer or to a specific campaign, cross-channel measurement is possible. SIDEBAR: For more recommendations on multichannel measurement success, please contact the Omniture Best Practices Group at Choose your Key Wisely A word of caution take care when deciding what will become your customers unique identifier, commonly known as a primary key. Ostensibly, the most solid primary key is something memorable and unique, like a Social Security number (SSN), but only a handful of businesses even capture that information, and it s much too sensitive to make widely available. The other end of the spectrum is an address, which makes an even worse primary key, largely due to the disposable nature of free accounts. An example of a robust primary key would be the first seven letters of the customer s last name, their billing zip code, and the last four digits of their phone number. But these days most primary keys are automatically generated by a number randomizer. While they aren t something the customer will remember, they don t need to be, as the customer will rarely, if ever, see their primary key. Even credit card companies and reward programs usually supplement the card or account number with additional characters when creating primary keys, because they know that multiple users may share a card or an account. Multichannel Customer Value Assigning a primary key enables true multichannel analysis, including insight to a customer s value. While not every company has a retail, Internet, and catalog presence like JC Penney, they have successfully tagged multichannel customers. In the figure below, take a look at the annual value of a multichannel customer versus any single channel there is a two and a half to three times lift when they cross channels, and the value of a customer who shops all channels in one year is nearly one-third greater than a two-channel shopper and four times greater than any one channel, proving that channel hopping customers are to be encouraged, as their value is exponential, not additive. An analysis of JC Penney's customers spend by channels, shows that a well-executed multichannel strategy is exponential, not additive Figure 2: Exponential Value of a Multichannel Shopper

4 Campaign Pain As your company expands into multiple channels, it becomes more difficult to manage customer behavior and spending habits. It also makes it harder to assign a value to each campaign and to each customer as they channel-hop. But if this dilemma sounds familiar, you re not alone. In the chart below, we see that only 21 percent of online advertisers claim their back-end systems are fully integrated, while 47 percent say they can t get a coherent view of campaign performance from their analytics software. According to JupiterResearch, 74 percent of companies list their biggest measurement challenge as integrating data from multiple sources and understanding user behavior. LEGEND Figure 3: Data Integration Challenges Source: JupiterResearch, Integrated Marketing, April 2005 The Analytics Champion With such amazing technology and a plethora of intelligent people, why the jaded results? In many instances, it is because the organizational structure doesn t support data capture and sharing. The optimal organizational structure begins with a strong chief officer who insists that everyone in the organization makes data-driven decisions. The chief officer should appoint members of each group to form a committee for Web analytics governance and champion the use of Web analytics data. (For more information on this topic, read our white paper, Web Analytics Governance: Creating a Culture of Change. ) But organizational commitment goes beyond the establishment of committees it is imperative to capture pertinent information and route that information to those who can take action. In short, the Web analytics team has to know what to look for, what equates success or failure, and with whom to share their findings to affect change and improve performance. Web analytics teams with clear objectives that directly support enterprise-level goals will consistently provide actionable insights.

5 Cross Channels, Not Wires One challenge many marketers face is pulling together data from disparate systems and analyzing it in a central location. These data silos commonly occur when a company grows by mergers and acquisitions, or when a company outsources core functions, such as media buying and reporting. SiteCatalyst simplifies this process by accepting nearly any type of data from an external source. Even if your provider, ad serving company, or Search Engine Marketing (SEM) agency isn t on our long and growing list of partners, you can still import and analyze their data in SiteCatalyst. When preparing a measurement strategy for cross-channel campaigns, first take some time to think about which metrics are common to all channels. What metric matches up to impressions? The number sent? Opened? Clicked? Do you have a thirty-day look-back window (usually set by a cookie) on your SEM efforts that doesn t exist on your campaigns? Do the banners you re running have a 25 percent discount offer attached to them that the other elements of the campaign don t? All of these factors need to be considered to make apples-to-apples comparisons. Several campaign metrics are common and crucial: impressions, visitors, orders (or actions), revenue, and cost. From these five metrics, you can begin to calculate more meaningful figures, such as conversion rates, cost-per-action, and ROI. Below is an example of what a cross-channel campaign report looks like in SiteCatalyst. In this example, the calculated Key Performance Indicators (KPI) are response rate, cost-per-action, and ROI. Sidenote: Calculating ROI Although it is always fun to tout 10,000:1 ROI figures, don t make the common mistake of stating ROI as total revenue divided by cost. According to James Lenskold, author of Marketing ROI, the proper way to calculate ROI is defined below: Gross Margin Marketing Investment Marketing Investment Lenskold s method is much more accurate, sheds light on the true lift each campaign provides, and makes ROI an instrumental tool in supporting financial decision making.

6 Lifetime Value without Waiting a Lifetime Over the past year, Internet advertising spending has outpaced other media types by nearly four-to-one (Source: IAB). This dramatic increase in online advertising spend has a domino effect on customer acquisition and retention costs. Because of this, the concept of customer Lifetime Value (LTV) becomes more important. Even the simplest LTV calculations are enough to make a math major sweat, so let s talk for a moment about the value of Lifetime Value. In a campaign reporting scenario, like the one shown above, Lifetime Value is a secondary metric. Reason being, campaigns have a finite start and end date, whereas LTV calculations generally consider a much longer period of time. While LTV is not time-agnostic, it is highly speculative, looking at past purchase activity and predicting future value. Campaign reporting, on the other hand, focuses on measuring immediate ROI and the rapid assessment of tactical goals, while LTV calculations are more useful for evaluating how a partnership or a program is working over time. For example, an Internet retailer uses LTV to see how their rewards program members value differs from the rest of their customers. They use an Immediate Value approach to see how those rewards program members responded to the same campaign that all customers received. Monitoring LTV and Immediate Value In general, it s not a choice between monitoring LTV and Immediate Value. You ll want to monitor both. Traditional LTV calculations are very difficult, but SiteCatalyst makes it easy to look at Lifetime Value in a cumulative sense. By setting a persistent cookie and allocating all activity to the original campaign or acquisition source, SiteCatalyst does the rest for you. Some marketing gurus, like Jim Novo, expert on Recency/Frequency/Monetary (RFM) scoring and author of the book Drilling Down, would say that this approach is not LTV in the classic sense, because it does not take into account granular costs, such as overhead or interactions with customer service. Yet, Novo says that there is as much, if not more, value in simpler methods. Another method that Novo recommends is focusing on Recency, since Recency is generally the most accurate indicator of someone s likelihood to interact with your Web site or store in the near future. Therefore, the more recent a customer is, the greater their intrinsic value. In the Recency-centric method, you take the groups you wish to compare perhaps visitors from Overture and Google search campaigns. Choose a period of time to compare the two groups interaction with your company. For this example, we ll say ninety days. Then, pull all purchase activity from both groups. Look at the total percentages from each group that has purchased in the past ninety days. The group with the higher percentage of recent purchasers is the more valuable group. You can apply this same approach to products, to see what products create high-value customers, or with Web site sections to see what real estate these super customers are drawn to. And with SiteCatalyst 12 s new Discover functionality, you can run all of these calculations without ever logging out of SiteCatalyst. Amazing, and thank you! Immediate Value reporting is akin to campaign reporting, where you examine a result set over a finite period of time. The reports will focus almost exclusively on conversion and revenue averages: per customer, per click, per order, per item, etc. Load in other metrics like COGS, marketing investment, net profit, etc., and you can use SiteCatalyst s Calculated Metrics to see your Immediate Value in real time. The end goal here is to assign an ROI to each campaign, enabling you to compare historical campaign performance, understand influencers on campaign success, and build a circulation plan that addresses the seasonality of your business.

7 Conclusion In this paper, we ve discussed some of the challenges each of us faces in a multichannel world. We hope that the solutions provided help you benchmark your success in meeting your multichannel objectives. Whether or not you act upon this advice, the key messages are multichannel customers can be your best customers; Web analytics information must be shared with key decision makers; there needs to be executive commitment to foster the use of Web analytics data; and that you should look at both the long-term and short-term value of your customers and your campaigns. The Omniture SiteCatalyst product is a valuable tool in acting upon these recommendations and our Best Practices Group can assist with any questions you may have about calculating customer value, importing data from external sources, or even tips on changing your company culture to focus on making data-driven decisions. Whatever your challenges may be, think of Omniture as your partner in success. If you have any additional questions or need further assistance in monitoring crosschannel activity, developing customer IDs, or calculating ROI, please contact the Omniture Best Practices Group at They are here to serve you.

8 Search Engine Marketing: Maximizing Profit with Web Analytics call 1.8o East Timpanogos Circle Orem, Utah , Omniture, Inc. All rights reserved. Omniture and SiteCatalyst are trademarks of Omniture, Inc.

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