I have followed Benedict Evans for many years and he has an amazing ability to put context around large datasets.
There are some great insights into a number of markets that we currently invest in such as Grocery, TV and Machine Learning, so take 23 minutes out and watch this
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.
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:
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.
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.
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.
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.
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
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
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.
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.
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