Author: Andrew Veitch (Page 1 of 3)

Database Marketing 2 of 2: Tactics

23rd November 2018 / Andrew Veitch

In my previous post we covered the database strategy. This time I wanted to dig into tactics, mainly looking at email which is currently the core database marketing channel for most e-commerce businesses (my strong suspicion is that won’t be true soon).

Anyway, given the strategic objective of maximising the value of the database, let’s look at some tactical considerations:

1. Are we simply bringing forward sales that would have happened anyway?
2. Are we offering a discount to a customer who would pay full price?
3. Are we mailing at the right frequency?
4. Is the content right?
5. What product personalisation should we be using?
6. How strong an offer do we need?
7. Who could be a Member-Get-Member advocate?
8. Who is at risk of leaving us?

On reflection, it becomes clear that there just isn’t one answer to these questions. They are fundamentally questions about segmentation.

The first question should really be “Who is going to buy anyway and who needs to be prompted?”. The other questions could be re-written in a similar way.

These questions are inherently much more complex than our strategic question which could be answered with one simple formula to measure the value of the database. There’s a lot of crossover between the questions: some people probably do need a strong offer at a high frequency for example.

These sort of complex, multivariable questions are very well suited to machine learning where we can just put a bunch of data into an API and action what comes out.

This is what we are currently working on at our new startup Machine Labs. If you are interested in joining us as a beta customer then please get in touch.

Database Marketing 1 of 2: Strategy

22nd November 2018 / Andrew Veitch

At their heart, nearly all e-commerce businesses are database businesses. Oddly enough it’s a side of the business that tends to be ignored. There is a virtual obsession with customer recruitment and conversion rates but almost no discussion about database marketing.

This is ironic because the database is where all of the profit comes from. In an efficient market, which the e-commerce world tends to be, it will be impossible to recruit profitably. So logically profit has to come from the database.

Currently most e-commerce businesses market to their database mainly be email so I will focus on that for now.

So the strategy should be to maximise the value of the database. I think that is quite an uncontroversial statement. I would however suggest that the vast majority of marketers don’t do this.

The first thing is to think of what the value of the database currently is. In investment there’s a very simple Net Present Value (NPV) calculation:

NPV Formula

This is just a sum of the cash flows from the database with the future cash flows discounted back to its present value. NPV is very widely used for valuing assets.

The tricky bit though is working out what the future cash flows from the database are likely to be. I would divide this into two parts:

1. What is the value of leads?
2. What is the value of customers?

Valuing leads should be based on i) the likelihood of them turning into customers and ii) when that is likely to happen. This is generally a fairly simply calculation providing the database has about 6 months of history. (Leads tend to go off faster than fish.) The more metadata you have the more accurate this calculation is likely to be.

Valuing customers is about estimating lifetime value. There are several ways of doing this. One method would be to add up historical lifetime values and use survival analytics (we’re Python developers at Move Fresh so we like Python Life Lines for this) to estimate future lifetime values of current customers.

Another approach would simply be to dump the dataset into a machine learning API and see what comes back, although you would need a good few years for this to work. This has the advantage that many more variables could be taken into account.

Once you have your estimate of cash flows you can then calculate the NPV of your database at will. This gives you a very different way of thinking about your business.

For recruitment campaigns, instead of thinking of Cost per Customer Acquired you can think of cost of the recruitment campaign v. increase in NPV of the database.

It also helps you understand how to email the database. The value of sales of an email campaign must be greater than the decrease in NPV of the database as a result of sending the campaign out. Thus you should be well on the way to maximising the value of the database without killing the golden goose by over mailing.

Finally, it will also help you to understand how much capital is sensible to allocate to marketing. If a marketing campaign results in £3 of NPV for every £1 of spend then that would be very powerful.

In my next post I’ll cover tactics.

Strategy v. Sales

25th September 2018 / Andrew Veitch

There’s a great story about Larry Ellison which may, or may not, be true. The story goes that at each Oracle Sales conference Larry announces the new strategy:

The strategy is to sell more!

This is essentially the Move Fresh strategy. There certainly have been occasions where business school strategists have suggested that some of the things we do lack strategic coherence and I think that Kevin and I would probably agree that they were correct.

But at heart we are traders. If there is million dollars to be made from an Indecent Proposal that is a completely departure from our strategy then we will accept the cash.

On the other hand there have been opportunities that have arisen for much smaller sums that we have turned down for being out of alignment with our strategy.

The much bigger group of possibilities we turn down are chances to increase sales without a gross margin. There are many publicly traded companies that make a similar mistake. Of course we can make sales rocket by selling below cost price but that’s easy.

A genuine business has to create value. That’s where strategy meets sales.

Bella and Duke in The Sunday Times

27th May 2018 / Andrew Veitch

There’s a nice article about our investment in today’s Sunday Times.

A Scottish dog food brand has collared £300,000 of seed investment to fuel growth.

The company was founded by neighbours Mark Scott and Tony Ottley after their dogs — Morph, a collie, and Barney, a golden retriever — died from cancer. “We realised highly processed dog food could have been the cause,” Scott said.

Bella & Duke, an internet- based subscription service, is on course for sales of more than £3m in its first full year, Scott said. It employs 10 people at its base in Blairgowrie, Perthshire.

The full article is here:

The Sunday Times | Dog food maker Bella & Duke wins investment

Dewar’s whisky: Victorian punks

20th April 2018 / Andrew Veitch

I started my marketing career with Dewar’s whisky. Dewar’s is fairly unknown in its Scottish home but is the number one selling whisky blend in the USA.

The brand started in 1846 and within 50 years was the market leader, largely down to Tommy Dewar who was an incredibly colourful character, to put it mildly. This blog is not a suitable place to record all of his personal indiscretions.

He constantly caused outrage in the business world, was involved in regular publicity stunts (such as sending a case of Dewar’s to the President of the United States during prohibition) and adopted new technology including the first ever cinema advert for any product.

Over a century later Martin Dickie and James Watt at BrewDog have a very similar style with #DontMakeUsDoThis and their punk beer.

Of course nowadays Dewar’s advertising is very far from punk. As it should be, a nearly 200 year old business which is the biggest blended whisky brand in the biggest market in the world should not be behaving like BrewDog.

But for those of us starting out, it’s good to remember that today’s corporate brands with their multimillion dollar campaigns and everything focus grouped to death, began in a very different way.

How we did FoodTech for just £3 million

15th March 2018 / Andrew Veitch

Up until quite recently food has been a technology backwater. Now we are awash with FoodTech companies but at Move Fresh we have been a technology company long before that portmanteau was coined.

We have spent about £3 million developing our software systems. I am very pleased about how cheaply we’ve managed to do it. Many of our competitors have spent an order of magnitude more to get similar systems. Some of our ideas have been quite obvious, other less so. Here’s the top six:

First, to cover offer the most obvious is that we used Amazon Web Services. There’s two big ways that this saves money:

There is on demand scalability. We can multiply up servers when we need them and drop them hours later. This alone is a six figure saving for a seasonal business like ours.
Day to day systems administration is largely automated. As a result we no longer employ Systems Administrators and instead just have DevOps.

Secondly, we reckon to save a seven figure sum through developing in-house rather than using consultants. Our view is that software development is absolutely core to an e-commerce company so it’s something we would want to do ourselves.

The third saving is also fairly obvious which is just to have a very efficient development process. We use a Kaizen process and have automated deployments and a high level of automated testing. There’s more to it than that, but basically we made a big up front investment which is now resulting in massively increased productivity.

We love hosted services which has been our fourth saving. We replaced all of our development servers with a GitHub subscription. Address entry is through PCA Predict. Many thousands of items a day are printed through PrintNode which costs us just $99 a month! We save a six figure sum every year through using the free token system from Braintree Payments and we also save on PCI compliance too. We also use many other hosted services for development and management of our marketing.

We are now getting onto less obvious stuff. Saving five is to avoid enterprise software. We have migrated from extremely expensive enterprise software onto either open source or simple hosted services. For example, on our ERP system we have saved around 92% by moving to Odoo. We also saved over 90% on our move from an enterprise email service provider to MailChimp. We saved 98% by moving from corporate DNS to Amazon. In all three cases, these are direct savings but we made more savings through the improved functionality by dumping the enterprise software. There’s been a further saving through not having to constantly have lunch with account managers.

Saving six is that we constantly market test our technology. We do this in two ways:

We regularly test outsourcing to compare with delivering in-house; a recent example was the Bean to Door website where our internal team absolutely smashed Shopify.
We also sell our services to external companies and indeed for 2018 Q1 about a quarter of the transactions on our platform have been for third parties. Selling your service to other companies is proof that you really are market leading.

Our development team is very clearly a technology company that happens to embedded in a food business. Indeed, we employ more software engineers than some software startups.

So that’s a very brief overview of how we developed a £20 million plus system for just £3 million.

If you’d like to catch up with us the Move Fresh technology team we will be attending DjangoCon Europe 2018 in Heidelberg, Germany, May 23-25 and EuroPython 2018 in Edinburgh, Scotland, July 23-29.

Book Review: The Black Swan

10th March 2018 / Andrew Veitch

I finally got round to reading The Black Swan by Nassim Nicholas Taleb. This is continuing my habit of reading business books about a decade after everyone else.

A “Black Swan” is a highly improbable event that happens much more often than would be expected.

The first thing that struck me is that Taleb and I seem to have read almost exactly the same books over the last couple of decades. I felt that I was experiencing a Black Swan event myself as I turned page after page and came across book after book that had also influenced me.

There’s certainly plenty of things that I would agree with Taleb about. Regular readers of this blog will know that I’m not a fan of using statistical models to drive investing. To paraphrase Joseph Goebbels, “When I hear R-squared I reach for my revolver”. However it’s quite a leap to decide to ignore statistics completely.

I think Taleb goes way off base when he begins to suggest practical advice based on his philosophy. For example: his suggestion to hold bonds over equities. There is enormous historic evidence that equities outperform bonds. It’s also entirely false to view bonds as low risk: virtually all bonds are exposed to the risk of inflation and most bonds are exposed to default. Other than people who are about to experience a short term need for liquidity, bonds are highly unlikely to be a good investment*. It’s a classic case of heads I win (growth goes to equity holders and bonds may be called if they end up delivering good value) and tails you lose (business failure will result in wipeout of bondholders) proposition.

Equally, his suggestion to focus on good Black Swans (i.e. very high growth businesses) is a very poor recommendation for the average investor. It is true that Diet Chef returned 89,999,900% over three years but it’s hardly good advice to suggest most investors should look for these opportunities. It’s not reasonable to expect most investors to identify these start ups in advance. It is however a very high risk area that is likely to result in destruction of hard earned savings.

A much better way to look at investing is that it is multi modal. You need to understand the industry, accountancy, classical economics, behavioural economics, marketing, psychology, statistics, software and other areas too.

It’s massively flawed to adopt a single criteria and Taleb does an excellent job of demolishing the case for an entirely statistical based approach. But he goes too far by suggesting statistics are completely without value.

As is so often the case, truth lies in a middle ground. Statistics are very important but can’t be relied on exclusively.

I think a big problem business books have is that it’s very hard to write a book saying that investing is a huge grey area that is best tackled using dozens of techniques but not relying on anything exclusively and accepting that you will make mistakes. People want a simple certainty in their business books.

Classical statistics are a bit like my sat nav. It’s not 100% accurate so I wouldn’t want to rely on it completely but neither would I completely ignore it.

The Black Swan would have been a better book if Taleb had done his takedown of statistical models but then said that they are a useful datapoint but should not be relied on exclusively, rather than saying that they are completely useless.

* The £1.5 million issue of Move Fresh bonds are obviously the exception that proves the rule with their exceptional 7% yield. I bought some myself.

Just Behave: How to make money by doing the right thing

8th March 2018 / Andrew Veitch

There’s an enormous amount of research on behaviour that results in better investment performance and, indeed, Robert Thaler won the Nobel Prize for Economics 2017 for his insights and other behavioural economists such as Daniel Kahneman and Amos Tversky have produced valuable research.

Here are some thoughts for how an imaginary online stock broking firm could work if it was trying to use behavioural economics to improve the performance of investors using the platform:

1. Ensuring adequate research

The most basic rule of investing is to ensure that before buying a share the investor has properly researched both the company and the management team.

The investment platform should ask six questions before allowing the user to buy a stock in a new company that they have not invested in before. For each question they get wrong they should be banned from buying the stock for that many months.

2. Preventing over trading

Most stock trading platforms charge a lower fee the more an investor trades. This rewards behaviour that is destructive to creating wealth. A much better approach is for the first trade to be free and subsequent trades to become progressively more expensive as volume increases.

In other words a behavioural platform should have the opposite charging structure of all current stockbrokers.

3. Benchmark investors against their peers

Every investor on the platform should be notified of what performance quintile they are in compared with the other investors.

They should also be shown the behaviours of the top investors and how their behaviour differs.

4. Ensuring sensible diversification

Most platforms report on diversification in terms of category and country. This is very crude.

I’m not aware of any platform that shows portfolio diversification by date of founding of the business or by business stage (loss making, high growth or profitable, stable). Also it would be sensible to split by market capitalisation.

Incidentally, all platforms I’ve looked at show diversification by country based on the registered office of the company. It really should be on the basis of revenue split.

I also think the platform should warn against over diversification. No more than one new stock should be allowed per 6 months.

5. Financial metrics

It’s a very tricky thing to try to come up with a magic formula for investing. A very recent example would Carillion whose huge dividend yield resulted in private investors piling in before their bankruptcy. Institutions meanwhile are busy putting funds into “smart beta” products which sound too good to be true.

The central thing to understand is how good the company is at investing cash. Most publicly traded companies are profitable. The real winners understand how to invest their profits (or other cash flows) to make even more profit in the future. This is the reason I love companies like Amazon and Berkshire Hathaway.

Debt is also a metric that’s worth looking at properly. Debt in itself is not a bad thing but it is concerning if debt is being used to fund dividends or if equity is being replaced with debt during a period of historically low interest rates. However in a company going through growth where debt is rising to fund capital expenditure, increasing debt would be a positive.

My fantasy investment platform would try to show how effective the business was at investing and whether the debt was good or bad.

Valuation is of course the most widely viewed metric. I’m not sure I have a simple answer to this. Everyone wants to buy cheap and sell high but most investors fail to do this.

There have been brilliant investments that have always had a high valuation (such as ASOS or Netflix). However my view would be to avoid overly expensive investments, of course this will result in the investor missing some opportunities but overall it’s a better behaviour to buy at fair to low prices (so-called value investing).

6. Beta blocking

Traditional investment theory is very tied up with volatility (R-squared value in terms of a benchmark). It’s the basis of the Capital Asset Pricing Model (CAPM) which gives a view on what return is required for a given level of risk.

It is however complete bollocks for the great majority of investors (the exception being investors who are just about to need liquidity such as people just about to buy an annuity or with children about to start University).

Very few homeowners would get an independent valuation on their house done every month yet owners of stocks will obsessively check their valuations even more frequently. Indeed, we even have some stock brokers showing realtime valuations.

The ideal behavioural platform would only update stock valuations once per quarter to try to prevent this sort of behaviour.

Investors should entirely ignore short term ups and downs. The valuation that matters is in the distant future when a stock is sold. There is substantial empirical evidence that investors outperform when they check share prices less frequently.

7. Fund managers

Purchasing funds can be a good investment and there is a lot of evidence that the lower the fee the better the performance of the investment.

Most fund supermarkets promote more expensive funds. In the institutional world the equivalent would be hedge funds who have been a huge destructor of investment value.

The behavioural platform should list funds from the cheapest to the most expensive and fees should be lower for investing in cheaper funds and higher to put investors off investing in more expensive funds.

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Of course the problem with these seven rules is that they would result in a transfer of wealth from the financial services industry to the investor. It’s therefore highly unlikely that anyone will create a stockbroker following this advice as the profits would all be with the clients.

What we all want

4th November 2017 / Andrew Veitch

With the Harvey Weinstein allegations and recent news from Westminster sexism and discrimination is very much on the agenda.

As a child of the 1970’s I do feel very old when I look back on the media of my youth and see what was considered acceptable at that time.

Watching Benny Hill or the Carry On films today is quite hard: essentially the jokes are about sexual harassment or in some cases sexual assault on women. It’s very hard nowadays to see how that could possibly have been seen as funny.

The positive side is that it is great to see the progress we have made and how unacceptable the humour of the past is today. What would have been regarded as radical feminism is the 1970’s is today completely mainstream.

A couple of days ago my parents celebrated their 50th wedding anniversary and I said a few words about life in 1967 when they married. In the UK in 1967 it was illegal to consummate a male gay relationship and jobs were advertised with one salary for a female employee and a higher salary for a male employee doing the same job. Racial discrimination was also legal and widespread although 1967 saw the very first black policeman in the UK.

At Move Fresh we have a very diverse customer base, more female than male with many races and religions well represented. Kevin and I are both middle aged white men but we love having diverse customers and staff. We both have daughters which I think makes both of us think more about sexism.

All of us are looking for healthy, tasty food and drink delivered to our homes in a convenient way at a good price. We very much hope that everyone feels welcome at Move Fresh.

Brexit

29th September 2017 / Andrew Veitch

I’ve been asked by quite a few people to write a note on Brexit. It’s a difficult issue to write about as Move Fresh takes a completely politically neutral view and Brexit is a very political subject on which people have very strong views.

As a company, Kevin and I have taken a view that we should not get involved in political issues. This because a) taking a political view annoys a large number of customers and investors and b) although we are pretty good at running a business that skill is not necessarily transferrable into political subjects. Just because someone knows how to make a lot of money does not qualify them to make pronouncements on the big issues of the day.

Which also brings me on to the subject that what is good for business is not always good for society. A classic example would be the Equal Pay Act 1970 which required companies to increase women’s pay to being the same rate as men who were doing the same job. Nobody today would argue against this. However it was bad for business at the time as it resulted in an increased cost but clearly was a great thing for society as a whole.

Taking a view on Brexit is mainly about making a prediction about the future. As Yogi Berra, the baseball star for non-Americans, said “It’s tough to make predictions, especially about the future.”

It is even harder to make a prediction about the future when i) you do not know what the UK government wants and ii) you do do not know if whatever they may want is achievable.

However what we do know is that somewhere in the region of 70% of the UK economy is dependent to a lesser extent (tariffs) or a greater extent (being prevented completely from operating) on membership of the EU. If we assume for the sake of argument that Brexit will ultimately be economically a good thing we have the issue that we have to move from a situation where 70% of the UK economy depends on the EU to a situation where 0% of the UK economy depends on the EU.

So, if Brexit ultimately turns out to be a good thing then we still need to handle a migration of 70% of the economy away from depending on EU membership. It is very difficult to envisage a way this could happen without it being at least a short term negative, unless there was a very lengthy 5-10 year transition period which has been ruled out by both the EU and the UK government.

A way to think about this would be that the set of opportunities for business outside the EU may be greater than the set of opportunities for businesses inside the EU but the intersection between the two sets is small. Therefore many businesses may fail today, even if the future opportunity is better.

So in summary, Brexit looks like a short term negative with the long term being either negative or positive depending on what policy the government decides to adopt and whether or not that policy is achievable.

The only political point I will make is that for Move Fresh we would appreciate greater clarity on what the UK government’s position is so that we can plan the future.