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Provides one-click ordering for all customers who complete the pro le, along with personalized emails and Web site opening pages. Sends an email thank you for each order, an email when the order is shipped, and an email asking if the order was satisfactory. Provides personalized emails announcing the arrival of each book, with click here for items that it is assumed the customer is interested in. Uses collaborative ltering to make suggestions on next best product, leading to a cross-selling rate of 40 percent. Offers an advanced search feature that permits customers to nd products faster. Has live shopper support for people who want to have a text chat with a customer service rep while they are on the site, or who want to call on another line to talk to a live agent. The $1,200,000 software, amortized across 3 years, will represent a cost of $200,000 for each group of rst-time buyers acquired ($1,200,000/3 $400,000/2 per year $200,000). The result of these changes can be seen in the Table 12-2. The purchase rate for the second-time buyers has risen from 40 percent to 50 percent. The average order size has increased. The costs have Table 12-2 Improved LTV with Web Site Software
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Round 1 Customers Purchase rate Average purchase Revenue Cost percent Costs Number mailed Mailed cost Mail costs Software cost Total costs Pro t Discount rate NPV of pro t Cumulative NPV of pro t Lifetime value 20,000 100% $120 $2,400,000 40% $960,000 500,000 $2.00 $1,000,000 $200,000 $2,160,000 $240,000 1.00 $240,000 $240,000 $12.00 Round 2 10,000 50% $140 $1,400,000 38% $532,000 20,000 $2.00 $40,000 $0 $572,000 $828,000 1.04 $796,743 $1,036,743 $51.84 Round 3 5,500 55% $155 $852,500 37% $315,425 20,000 $2.00 $40,000 $0 $355,425 $497,075 1.08 $460,255 $1,496,998 $74.85 Round 4 3,300 60% $170 $561,000 36% $201,960 20,000 $2.00 $40,000 $0 $241,960 $319,040 1.12 $284,256 $1,781,254 $89.06
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C a n D ata b a s e M a r k e t i n g W o r k f o r C ata l o g e r s
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Table 12-3 Gains from Software Improvements
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Round 1 New LTV $12.00 Old LTV $22.00 Difference ($10.00) Times 80,000 ($800,000) Round 2 $51.84 $50.10 $ 1.74 $139,156 Round 3 $74.85 $62.25 $12.60 $1,008,323 Round 4 $89.06 $67.68 $21.38 $1,710,552
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gone down as a result of increased use of the Web rather than telephone calls. Against that, there is a software cost for each group of rst-time buyers of $200,000. Lifetime value has gone up to $89.06, from $67.68. Overall, the changes will increase pro t by a total of $1.7 million over 2 years, as shown in Table 12-3. Note that these pro ts of $1.7 million include all costs, including the heav y losses in round 1 that resulted from the initial software costs. Each cataloger will have to work out its own gures based on its own situation. In the end, however, the results will probably be close to those shown here. When it is done right, database marketing works. Customer communications work. People respond when people they know and have done business with write to them and pay attention to them. Statistics from other catalogers discussed in this chapter show that when you adopt the improvements listed in this chapter The repurchase rate will go up. The average order size will go up. The cost of order ful llment will come down. Cross sales will go up.
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A business-to-business cataloger with sales in excess of $14 million had never built a marketing database. It turned to Sejal Shah at CSC Advanced Database Solutions to come up with a plan. Here is what he found: The cataloger had about 55,000 current customers who spent an average of $250 per year. It mailed about 300,000 catalogs every quarter at $1 each and had an annual response rate of 6.2 percent.
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