ARTS White Paper Charter: Customer Path to Purchase/Channel Attribution v 1.02 2015-10-01 Status of this Document This document is an ARTS DRAFT Charter, for initial review by the XXX work team for comment and revision prior to full draft and review by the Technical Committee.
TABLE OF CONTENTS 1 INTRODUCTION...3 2 TEAM NAME...3 3 TEAM MISSION...3 4 MEMBERSHIP ROSTER...4 5 BUSINESS JUSTIFICATION...5 6 CHANNEL ATTRIBUTION CORE CONCEPTS...6 6.1 Channel and Related Concepts...6 6.2 Channel attribution...7 6.3 Channel Attribution Key Performance Indicators...7 7 VERSION 1.0 MISSION SCOPE...8 7.1 In Scope for Version 1.0...8 7.2 Out of Scope for Version 1.0... 10 7.2.1 Getting Started: Channel Attribution Based On Aggregated Notion of Channel... 10 7.2.2 Exclusion of Marketing Campaign Features... 10 8 BUSINESS VALUE PROPOSITION... 11 8.1 What Value Does Channel Attribution Provide?... 11 8.2 Is Channel Attribution Always Appropriate?... 11 9 USE CASE SURVEY... 12 10 REFERENCES... 12 11 OUTSTANDING ISSUES... 12 12 PROJECT ESTIMATES... 13 13 GLOSSARY... 14 Copyright 2015 NRF. All rights reserved. Page 2
1 Introduction This document introduces channel attribution and proposes an ARTS white paper initiative to help retailers incorporate channel attribution modeling and related concepts into their portfolio of key performance indicators. Event Changes Date Version 1.0 In Process 2015-02-25 Version 1.01 Version 1.02 2 Team Name Removed editorial notes. Added section detail on work products Edited document, added team members and removed estimated dates The team name is Customer Path to Purchase Channel Attribution Team. 3 Team Mission 2015-05-05 2015-10-01 The mission of the Customer Path to Purchase Channel Attribution Team is to write a White Paper and accompanying Executive Summary that introduces and explains channel attribution and lays out guidelines that retailers may use to incorporate it into their key performance indicator portfolio. Its purpose is also to complement the work products created in other NRF communities in a way to offers retail member a more comprehensive understanding of channel attribution. The intended audience for the White Paper consists of retailer chief marketing officers (CMOs) and their team. It is also intended to help other executives like chief information officers, chief financial officers, chief merchandising officers, chief executive officers and other C-level leaders to understand the principles and concepts behind channel attribution. Copyright 2015 NRF. All rights reserved. Page 3
4 Charter Team Membership Roster Board Sponsor Allison Troop Bealls Chairperson: Matthew Kulig Aisle411 Members: John Glaubitz Jean Hillel Jr. Dennis Blankenship Margaret Connor Bruno Mourao (bmmourao@sonae.pt) Vertex REI Verizon Nordstrom, Inc. Sonae Marsha Stark Aaron Friedman Antony Ashley Jagan Mohan Gayla Todd Dennis Gerson Vicki Cantrell Mark Lawrence Gordon Grant (gordon.grant@pierhouse.co.uk) Rob Lewin@specsavers.com Karen Shunk Tom Sterling Richard Halter Verizon Verizon Tesco Manthan Manthan IBM ARTS Oracle Pierhouse Specsavers ARTS ARTS ARTS Contributors: Michael Schwarze (Michael.schwarze@bizerba.com) Bizerba There may be more individuals joining this team as the white paper project progresses. Copyright 2015 NRF. All rights reserved. Page 4
5 Business Justification Retailers are learning how to succeed in the evolving, consumer-centered marketplace. Part of the challenge retail marketing executive have to address is how to allocate advertising and promotion investments across a growing diversity of channels. The retailer driven broadcast media of the past (e.g. radio, television, billboards, print advertising, direct mail, etc.) are no longer sufficient as mechanisms to acquire, retain and develop customers. Today s conversational media, made possible through internet based technology, is largely controlled by consumers and influencers that create their own messages independently of the retailer or its media agents. Retailers no longer control the media or the message content. Retailer investment in consumer mind-share and relationship development has to be spread over a widening range of media, touch points, consumer-customer transition events, etc. Some of the investments will continue to purchase traditional broadcast media. A growing portion of investment is going to personalized messaging through mobile applications, web stores, email and related digital technologies. Retailers are also investing in channels that involve indirect conversations about the retailer between consumers and influencers (e.g. social network sites, blogs, tweets, etc.). The net of all of this is a proliferation of channel choices and the associated complexity of trying to figure out which ones are most important to helping the retailer achieve its business goals. Some of the money invested will be directed to promotion and advertising channels that yield little to no impact on consumer awareness and interest in the retailer s offerings. Some channels may prove to be decisive in winning new customers and keeping existing customers. Channel attribution is the art and science of quantifying channel efficacy and efficiency in influencing consumers and customers to emotionally, intellectually and financially commit to doing business with the retailer. Channel attribution key performance indicators are an important part of a retailer s metrics portfolio. The ARTS Customer Path to Purchase Channel Attribution White Paper and Executive Summary is an effort aimed at helping retail decision makers understand: Channel attribution terms and concepts; Channels and related components that make up the basis for channel attribution modeling; Pragmatic strategies for initiating a channel attribution program that improves as the methods, organizational skill and technology required to collect and analyze data matures (i.e., a craw-walk-run approach to channel attribution); and The intent is to create a white paper that provides a practical introduction to channel attribution written for retail executives and their supporting management teams. Copyright 2015 NRF. All rights reserved. Page 5
Media Media 6 Channel Attribution Core Concepts Before entering into a discussion about channel attribution, it is important to understand the nature of the channel and related concepts. The definitions are included here because they are central to understanding the subject of this charter. 6.1 Channel and Related Concepts A channel is an identified, named, defined set of functions, states, touch points and media that define how parties interact in the buying and selling of goods and services as well as conducting conversations (social media) related to retail products and services. A channel serves as a conduit that conveys information and/or tangible products between two parties. As used here parties may represent people, organizations, automated processes, etc. A touch point is an identified, named, defined, described point of contact between a retailer and customers, workers, suppliers and other stakeholders (parties) before, during and after completion of a sale. The channel, as a conduit connects two parties. The point where a party comes into contact with a channel and channel content is a touch point. Touch points include mobile devices, web sites, magazines, televisions, radio, billboards, coupons, etc. Media is the mechanism used to implement an interface between a channel, its content and a party. Media includes things like mobile apps, web sites, magazine ads, television ads, radio ads, billboard ads, etc. As used here, media incorporates both the notion of a device and the software that organizes and presents message content. Content is the actual information payload (or for channels that handle tangible items product payload) being conveyed through a channel. Channel function is the business action or process that produces or consumes the content of a channel. For example an order entry channel provides a conduit for consumers to request a retailer to fulfill a need for products and in exchange preauthorize a form or payment. Channels, as represent in ARTS are tied to business processes and functions. The nature of a channel function also determines whether the channel content is information or a tangible product. Delivery channels, for example, always convey tangible products. Customer survey channels convey information. Figure 1 illustrates channel and related concepts. Figure 1: Channel and Related Concept Diagram Channel Function Message payload Initiating Party Touch Point Message payload Touch Point Responding Party Copyright 2015 NRF. All rights reserved. Page 6
6.2 Channel attribution Chanel attribution is a collection of quantitative methods used to determine how much each channel should be credited with sales or other consumer/customer conversion outcomes that a retailer values. The term attribution is important because its purpose is to find a way to place a relative value of efficacy and efficiency on each channel. Channel attribution is not the same thing as channel allocation. Allocation divides the total sales or other monetized retail benefit across channels using an arbitrary set of rules. Most channel attribution methods in use today are in fact arbitrary allocations. These include channel allocation based on first touch point, last touch point, time decay, even distribution, etc. Channel attribution assigns credit for sales or other monetized retail benefits to channels based on a correlation between channel usage and some observable outcome such as a sale. Channel attribution is harder than channel allocation which is why the latter is most often used in practice. With the proliferation of channels and the delegation of channel choice to the consumer, a fixed arbitrary allocation model is ineffective and downright wrong. It will mislead retailers into making the wrong channel investments. As shown in Figure 1, channel is a non-trivial concept and presents a complex measurement challenge. To make channel attribution practical the ARTS white paper and executive summary will address channel attribution within the context of a customer path to purchase and focus on informational exchanges only. 6.3 Channel Attribution Key Performance Indicators Channel attribution (which as noted is a set of quantitative methods) will yield a number of different kinds of key performance indicators 1. These may include: Marketing channel return on investment; Customer experience; Conversion rate (as used here new customers); Overall net sales revenue; Revenue (gross and net sales) per customer; Social media metrics (sentiment); Retailers need to establish key performance indicators (KPIs) that reflect their overall business strategy and their customer engagement program in particular. The measures listed here are examples of widely used key performance indicators. For the purposes of the white paper sample KPI s will be presented within the context of helping executives decide how to choose advertising, promotion and order entry channels with the greatest positive impact on sales and supporting path to purchase conversion outcomes. 1 Key performance indicator (KPIs) and their derivation will be addressed in the White Paper through some examples. Retailers really need to design or adapt KPIs that are tailored to their business. This includes channel attribution based KPIs. The list presented here requires some thoughtful design and will be addressed in the white paper. Copyright 2015 NRF. All rights reserved. Page 7
7 Version 1.0 Mission Scope Channel attribution and its related concepts cover a large number of business and technical issues and challenges (as highlighted in section 6). The initial version of the white paper and accompanying executive summary will concentrate on channel attribution as it relates to the consumer-customer path to purchase. The reasons for limiting the scope are: Most retailers are keenly interested in the relative value channels provide in driving demand for products and services; Orienting the introductory discussion around sales revenue provides commonly accepted quantitative outcome used to evaluate the relative value of each channel; and It offers a practical way to get started in channel attribution modeling using readily available objective function (maximization of sales). Section 6 introduced the basic concepts and a very high-level definition of channel attribution. The breadth of white paper coverage, as already discussed, will be limited to channel attribution as it relates to customer path to purchase. The depth of coverage will be governed by the need to focus on the need to present a practical approach that emphasizes applied math and modeling which business executives can pick up and use in their organizations. 7.1 In Scope for Version 1.0 Channel attribution is a complicated subject. The ARTS Customer Path to Purchase Channel Attribution White Paper and Executive Summary is intended to provide a pragmatic introduction to help retail executive decision makers to understand and use channel attribution. The intended scope of the White Paper and accompanying Executive Summary includes content that: Introduces channel and related terms and concepts (building on Section 6); Introduces channel attribution and how it works in practice both for digital and real-world channels; Introduces basic KPIs that may be used to start using channel attribution; Explains the customer path to purchase scope and how it shapes the channel attribution discussion; Incorporates sample use cases and scenarios that walk through channel attribution with a special emphasis on highlighting business and technical issues that need to be addressed to get started with channel attribution; Presents guidelines and recommended steps retailers can take to communicate what channel attribution is all about and start using it as part of their enterprise measurement toolkit; and Describes basic data collection, analytics and modeling methods for channel attribution. Figure 2 illustrates the customer path to purchase scope of the white paper. Copyright 2015 NRF. All rights reserved. Page 8
Figure 2: Sample Customer Path to Purchase Channel Attribution Scope Model Customer Path to Purchase Customer Journey Intermediate Conversion States Activation Search Evaluation Selection Transaction (Sale) Channel Online (Web Site) Email Consumers follow different paths to purchase. Channel selection is one dimension of the journey. There are other factors that ought to be considered such as channel message content, customer motivation, etc. Channel by itself is insufficient for attribution. It is OK for allocation. Mobile (App) Call Center In-store Catalog Figure 2 also highlights the importance of analyzing channel attribution from a customer point of view. Each different color of nodes and lines reflects a different customer s path to purchase. Channel attribution is an aggregation of different customer utilization of channels. This bottom up, customer centered strategy is why channel attribution is a powerful tool to use in assigning credit to different channels. It also poses some of the biggest challenges implementation across both digital and non-digital channels. The white paper will address these challenges and offer guidelines on how to deal with them. Copyright 2015 NRF. All rights reserved. Page 9
7.2 Out of Scope for Version 1.0 As illustrated in Figure 1, a channel is a complex part of a retail business. Channel itself is a conduit. There are a number of additional factors that affect the outcome of the interaction between two parties including: Message/payload content; Customer needs, wants and preferences; Customer segments; Customer shopping context; Retailer offering (price, promotion, product); And more 7.2.1 Getting Started: Channel Attribution Based On Aggregated Notion of Channel Each of these factors will influence the outcome of a given interaction. However, to introduce channel attribution especially to retailers who are just trying to get started it is necessary to start with a less complex problem that considers evaluation of channel as a named collection of these factors. In the future, a more granular, higher fidelity approach that looks at these different factors in detail will be examined. For now, the approach is to focus on a practical approach that retailers can start with. This is part of the craw-walk-run approach discussed earlier 7.2.2 Exclusion of Marketing Campaign Features Marketing campaigns message content, presentation, targeting, etc. are out of scope for this whitepaper. It is possible (based on the ARTS ODM V7.1) to identify a campaign but that is the limit of detail. Future ARTS ODM development and with it future updates to the white paper will address the detail components of marketing campaigns and how they might impact sales and related outcomes through different channels. 7.2.2.1 Simplified Data Collection and Analytics: Crawling before Walking As discussed in Section 6, channel attribution involves correlation modeling between observed sales and other outcomes and channel utilization. The data collection, reduction and analytic techniques for this kind of modeling can be complex especially where consumer actions cannot be observed and collected for analysis. The analytic and modeling approaches presented in the whitepaper will focus on practical methods that are appropriate to the crawl stage of channel attribution. This is in keeping with the intent to focus on making channel attribution useful as a tool even if it is not perfect. Also, the models and methods in use today (February 2015) are still very much experimental. No company or organization has developed a standard canonical channel attribution model. With this in mind, staying with a basic approach that helps retailers reduce uncertainty around channel funding will provide the most value. 7.2.2.2 Scope Limited to Customer Path to Purchase As discussed in Section 6, channel attribution can include conduits that handle tangible goods as well as information. Channel attribution can be applied to the entire spectrum of conversations and transactions that occur between a retailer and consumers. In the white paper only those related to the customer path to purchase are addressed simply to keep it from becoming a book. Any interactions outside the customer path to purchase are out of scope for this white paper. Copyright 2015 NRF. All rights reserved. Page 10
8 Business Value Proposition A white paper by design is intended to inform and educate. The primary business value from the ARTS Customer Path to Purchase Channel Attribution White Paper is to provide a vendor neutral retailer focused presentation of channel attribution. This section is important because it provides some background to help retailers decide if channel attribution is really worth the effort. 8.1 What Value Does Channel Attribution Provide? The value proposition for channel attribution is a value of information type of problem. It is the expected incremental value (in terms of channel costs avoided and sales gained) based on making smarter channel funding decisions versus expected costs and sales gain based on no channel attribution information minus the cost of the channel attribution program. The white paper will present a more detailed explanation of how to assign a value to a channel attribution program. As used here, no channel attribution means that the retailer either uses an arbitrary allocation rule (as discussed in Section 6) or simply does nothing to spread sales over channels. This analysis will vary for each retailer. It is interesting to note that there are lots of surveys about how retailers perceive channel importance and how they intend to invest but none that actually provide metrics of channel attribution effectiveness. 8.2 Is Channel Attribution Always Appropriate? The relative value offered by a channel attribution program is a function of: The total retail spend on cross channel advertising; Promotion and customer engagement channel utilization; and The number of discrete channels a retailer supports. In theory, customer preferences should drive retailer choices about which channels they support. As a practical matter, channel attribution is based on the selection of channels supported by the retailer. Many retailers take it as an article of faith that they must play in the multi-channel arena their competitors play in. This is why channel attribution is so important. Smarter more selective utilization of channels made possible through an attribution model can lead to a competitive advantage. The hypothesis behind this is that competitive advantage accrues to retailers who align channel strategies and related investments around consumer preferences not those who simply copy their peers. Copyright 2015 NRF. All rights reserved. Page 11
9 Use Case Survey The use cases for channel attribution revolve around scenarios describing different challenges retailers face when tackling channel attribution. With this in mind, use cases, where they are used will be written from a retailer s point of view. The use cases, while written from a retailer s point of view (because they are doing channel attribution) will still take in to account the need to organize channel strategies around customer needs, wants and preferences. The use cases envisioned include: Channel attribution for a traditional bricks and mortar apparel and home goods retailer with a relatively new fast growing ecommerce division ; Channel attribution for an ecommerce pure play specialty retailer in the sportswear and sporting goods arena; Channel attribution for a conservative, old-line mid-tier retail grocery chain; These use cases are intended to provide stories to lend some concrete detail to the abstract concepts and principles behind channel attribution. They are high-level presentations that may be extended by white paper readers to meet their particular business requirements. 10 References ARTS Consumer-Customer Lifecycle Analytics Technical Report, Association for Retail Technology Standards 2013 11 Outstanding Issues Channel attribution involves a number of challenging problems related to data collection, identifying parties and threading party channel interactions together to assemble a customer path to purchase. These problems are actively being worked on by Google/Adometry, AOL/Convertro, Visual IQ and a number of thought leaders in the channel attribution arena. As part of the white paper these challenges will be discussed along with current ways to work around them. Channel attribution is a very active research topic which is another reason for the crawl-walk-run approach adopted in the white paper. Copyright 2015 NRF. All rights reserved. Page 12
12 Project Estimates The project will deliver two documents. The first is a management level summary that discusses the business aspects of channel attribution. Its purpose is to provide a non-technical overview of what channel attribution provides, why it is important, how it can be used, organizational hurdles to implementing a channel attribution program. The second document will build on the management summary and provide a more detailed, technical discussion of channel attribution. It is intended to provide a framework to help retail marketing and IT professionals who are charged with implementing a channel measurement program. Deliverable Estimated Date Actual Date ARTS Path To Purchase Channel Attribution Management Summary ARTS Path to Purchase Channel Attribution Program Design and Implementation Guidelines (using craw-walkrun approach) ARTS Path to Purchase PowerPoint Deck summarization of documents for download and presentation/webinar Additional working diagrams, data models, spreadsheets and notes will be created as part of this effort Throughout project This project involves research, analysis, high-level modeling and writing. Copyright 2015 NRF. All rights reserved. Page 13
13 Glossary The following terms identify, name and define important concepts and entities for channel attribution. Term Definition Channel Channel Allocation Channel Attribution Channel Function Consumer Conversion State Content Conversion Behavior Type An identified, named, defined set of functions, states, touch points and media that define how parties interact in the buying and selling of goods and services as well as conducting conversations (social media) related to retail products and services. A channel serves as a conduit that conveys information and/or tangible products between two parties. As used here parties may represent people, organizations, automated processes, etc. A specified rule or formula used to divide sales or some other conversion outcome over channels in an arbitrary way. A collection of quantitative methods used to determine how much each channel should be credited with sales or other consumer/customer conversion outcomes that a retailer values. The business action or process that produces or consumes the content of a channel. An association between a Consumer and a retailer defined ConversionState that tracks the state change of parties as they convert from one conversion state to another. Specific states to be tracked are defined by each retailer based on their business requirements. Examples of states include: General Population (null and undefined) AUDIENCE - part of a group that is receiving retailer messages PROSPECT - An audience with assumed needs, wants and pref. VISITOR - an individual who comes into a store or web site SHOPPER - a visitor that browses through the products and services offered at a retailer business unit (web or physical store) CUSTOMER - a shopper that purchases a product These are examples. As noted, retailers need to define their own ConversionStates.C The actual information payload (or for channels that handle tangible items product payload) being conveyed through a channel. A named category of Consumer behaviors (actions) that if performed indicates the successful achievement of a Conversion Goal. Conversion Behavior Type refers to behavior parties exhibit and are judged by the retailer to indicate a Conversion State change in a Consumer. This entity is used as a way to name and classify discrete Conversion Events for the purpose of measuring and monitoring customer acquisition, customer retention and cultivation and customer reactivation processes and the Conversion Initiatives behind those processes. For example: PURCHASE conversion behavior type indicates that a party has progressed from a SHOPPER to a CUSTOMER conversion state. Copyright 2015 NRF. All rights reserved. Page 14
Term Conversion Event Conversion Goal Conversion Initiative First Interaction Initiating Party Last Interaction Linear Allocation Media Message Payload Position Based Allocation Definition A specific point in time action that alters the Conversion State of a Party Conversion Events are critical because they allow customer state changes to be bound to a point in time, location and to specific kinds of state changes and to specific actions. This is used to develop analytic reports showing customer progress through the customer acquisition "funnel" as well as progress in their cultivation. For consumers that are "Customers" it can be used to track their progression or regression towards different customer value levels (or strata) that are part of a retailer's customer portfolio. Conversion Goal - A desired future Conversion State to be achieved as a result of a demonstrated Conversion Behavior Type. This defines the state a retailer hopes a prospect, visitor, customer or other party in a current conversion state will be in upon performing a Conversion Behavior Type that is observed directly by the retailer or captured through transactions or web clickstream analysis. A typical example is the desire to convert a Shopper (pre-condition) into a customer (post condition) by having them complete the purchase of a productl. Conversion goals become markers used to track individual parties as they journey through the retailer's customer relationship development process. An action taken by the retailer to influence Consumers (i.e. parties in a customer acquisition stage, customer stage or inactive customer stage) to perform a Conversion Action. The Conversion Action references the things the consumer is to do. This entity refers to actions taken by the retailer to influence the customer to execute a ConversionAction. A channel allocation method that assigns sales or other conversion outcomes to the first interaction and its channel in a sequence of interactions which make up a path to purchase. The individual, organization or automated agent that starts an interaction that is carried through a channel. A channel allocation method that assigns sales or other conversion outcomes to the last interaction and its channel in a sequence of interactions which make up a path to purchase. A channel allocation method that evenly divides sales or other conversion outcomes across all interactions (and channels) in a sequence of interactions that make up a path to purchase. The mechanism used to implement an interface between a channel, its content and a party. Media includes things like mobile apps, web sites, magazine ads, television ads, radio ads, billboard ads, etc. The content carried within a message. A channel allocation method that divides sales or other conversion outcomes across selected interactions and their channels based on their relative position in the sequence of interactions that make up a path to purchase. Copyright 2015 NRF. All rights reserved. Page 15
Term Relationship Stage Responding Party Time Decay Allocation Touch Point Definition Identifies high-level phase of development of a customer relationship. Retailers may create their own values and definitions. ARTS sample values are: CUST_ACQUISITION - pre-customer (has not purchased product/services) CUSTOMER - Consumer purchased product INACTIVE_CUSTOMER - has not purchased anything in last N periods, where N is designated by the retailer EX_CUSTOMER - "Dead" customer - no anticipated reactivation The individual, organization or automated agent that answers or otherwise responds to the message sent through a channel from an initiating party. A channel allocation method that divides sales or other conversion outcomes across all interactions and their channels that make up a path to purchase using a weight factor that applies a greater amount of credit to later interactions/channels and a lower amount of credit to earlier interactions/channels. An identified, named, defined, described point of contact between a retailer and customers, workers, suppliers and other stakeholders (parties) before, during and after completion of a sale. Copyright 2015 NRF. All rights reserved. Page 16