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Database Marketing 1 of 2: Strategy

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

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.

Move Fresh New Warehouse

After 10 years in Newbridge we are in the process of moving to a new larger warehouse in Rennie Square, Livingston.

We have invested heavily based on our learnings of FMCG logistics over the last 10 years and this space gives us significant expansion room for the next 10 years.

Our investment horizon is very long-term and based on a strong belief that grocery retailing in the UK is changing significantly.

Come around for a coffee and tour our facility by getting in touch.

 

The shift in Grocery

I am 50 this month, I have been in high technology and emerging technology for 30 years.

I am an early adopter – I buy all the new services I can, explore new ways to shop and pave the way for the mass market to follow.

I have seen this in technology first hand – usually by being around a decade too early!

In Grocery as with all retail – things are changing. Asked years ago consumers would say they were perfectly happy with shopping in supermarkets rather than fiddling around with their computers to buy online.

But online is taking a grip of grocery quicker than many can appreciate.

CB Insight have produced some great information on the changes in the grocery market. Take a look here.

Looking back at Amazon

As anyone that has ever met  us knows we love Amazon (and obsess about how to compete with them!)

What we love most about it is the clear strategy that delivers long-term shareholder value, it uses the cash flow from its businesses to invest in the future rather than returning this cash to shareholders.

It is by far one of the most misunderstood companies that we have come across

Luckily we bought Amazon in July 2014 at $316.65 per share. The share price this week passed $1,900, but I think its just the beginning so we are not sellers!

Like Mr Bezos we believe in the long term.

You can look at what we most admire about Amazon here

Bella and Duke in The Sunday Times

https://mike-wilkinson.photoshelter.com/index

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

Bella & Duke Investment

We are excited to have closed our a significant seed investment in Bella and Duke (www.bellaandduke.com)  one of the UK’s leading raw pet nutrition businesses.

We have tracked pet nutrition as an interesting area for a number of years, but believe that Bella and Duke have some very interesting defensible qualities and fit with our focus areas of nutrition and food tech.

Bella and Duke (www.bellaandduke.com) founded by friend Mark Scott and Tony Ottley, who were frustrated at the lack of quality meals for their own pets.

We hope to help the team manage the growth by investing in logistics, web and customer recruitment.

We are also very excited to be supporting a business that has come through the Scottish EDGE program.

Dewar’s whisky: Victorian punks

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.

Move Fresh update Q1 2018

When we bought back Diet Chef from Piper Private Equity (who are a great investor!) in 2015 we did this to leverage the massive investment we had made in systems and infrastructure (see Andrew’s post on this).

It took us a little longer to move Diet Chef into a couple of adjacent categories and optimise our marketing but we are very pleased with the 2017 financial results which have exceeded our expectations and generated around £1m of EBITDA.

Our growth strategy wasn’t simply focused on generating cash from Diet Chef but more to invest this cash flow in adjacent categories that our infrastructure can serve.

In 2017 we invested and launched Parsley Box (www.parsleybox.com) a reimagined elderly nutrition brand that is growing very strongly against a stagnant revenue comparison of our two larger competitors.

We have achieved this by letting the management team focus almost 100% of their time on customer recruitment and building the team. Move Fresh has provided the logistics and supply chain to allow the scaling of the marketing at a rate most startups would fail to keep operational efficiency at.

So as we get into 2018 we plan to invest in other adjacent areas and to reach the consumer in different channels, one of the reasons we appointed Henrik Pade to our board of directors.

We will both look at doing this organically and through acquisitions if we can find the right ones. Let us know if you think you can help us on this journey, either as an experienced startup founder or if your company would be interested in joining our journey – its going to be fun!

Removing emotion (and gut) from Marketing

We spend a lot of money every day on customer recruitment and marketing.

Sometimes I pinch myself and look at the marketing investment we are making and look at the amount we spend – then I think about mistakes we made over the year (quite a lot!).

Cost per thousand (CPT) is the single best way to evaluate the media investment. How much will it cost me to reach 1,000 consumers – something that we forget about.

So get an accurate number of the audience (readership, viewers, impressions) and then look at how much this costs. Don’t be fooled by online and offline – who cares – I want or reach an audience – how much?

We offer everyone that joins marketing this simple training and test:

Compare the following (real numbers!):

  • An exhibition visited by 1,000 people at £500 + 20% VAT
  • A TV advert reaching 10,000 people for £2.50 Cost per Thousand.
  • £10 CPM + VAT for a magazine with 20,000 readers.
  • 30,000 PD inserts at £40 per thousand.
  • £1200 for online advertising at £6 CPM.

Calculate which would be the best and show workings.

Which would be the worst?

Answers on a postcard (it costs around 30p for a postcard delivered at volume) so what’s the CPT?

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