How Plow & Hearth Uses Analytics to Determine Contact Strategies

Plow & Hearth, a cross-channel retailer of high-quality products for the home and garden, engages its customers and prospects via a multitude of marketing vehicles — catalogs, email, direct mail, affiliate marketing, search engine marketing, TV and radio ads. With that mix comes the challenge of determining the best and most profitable way of contacting individual consumers. Does a customer who received a catalog but purchased via the web still need to be mailed an expensive catalog? Will mailing a catalog to a first-time buyer acquired by an affiliate coupon site make them more likely to buy again?

Helping to answer these questions for Plow & Hearth is Jennifer Kwiatkowski, the retailer's director of catalog circulation and analytics, who led a session at last week's directXchange Conference in Boston on this very topic. Here's a recap of how Plow & Hearth uses customer data to drive business decisions.

There are pros and cons to each marketing channel. Catalogs are high cost but they offer a high branding opportunity. While on the other hand, email is a low-cost marketing vehicle but it doesn't have the staying power that a print catalog provides. For Plow & Hearth, it's about reorienting the conversation around customer vs. vehicle, Kwiatkowski said. Demand per customer and profit per customer over a period of time (12 months) are two metrics that Plow & Hearth closely tracks.

Determining whether Plow & Hearth's marketing efforts are driving incremental demand or just shifting sales from one channel and/or time to another is a continuous process for Kwiatkowski and her team. A marketing campaign (e.g., a catalog drop) is judged on whether it produces a net gain, net neutral or net loss to Plow & Hearth's balance sheet.

One plus one doesn't always equal two, Kwiatkowski said in reference to analyzing what's truly incremental sales and demand. In most cases, an additional contact isn't 100 percent incremental. To help it determine what's truly incremental demand, Plow & Hearth uses holdout tests. For example, will a customer still order from the web if they aren't mailed a catalog over an extended period of time? The retailer then tracks the money generated per customer over the course of the holdout test to see if their spend has changed.

Holdout tests are expensive because you're giving up top-line demand, Kwiatkowski said, but you're learning more to gain more in the long term. Continue to retest as ratios shift because of changes in consumer behavior and your marketing mix, she added.

Determining the value of a customer receiving a catalog is critical to Plow & Hearth's contact strategy. Like any other cross-channel retailer that mails catalogs, the prohibitive cost of the channel puts it in a position where if it doesn't have to send a customer an expensive book to still get their business, it's more than happy not to.

Plow & Hearth currently uses a weighted "last touch" attribution model. For example, if a customer receives a catalog but orders via an email promotion, the email channel gets credited for 70 percent of that order while the catalog receives 30 percent credit. It frequently uses catalog and email frequency holdout tests to see the effect they have on demand and where the retailer can optimize its marketing spend.

In the end it's overall spend with the brand (demand and profit) that matters most, Kwiatkowski said. This number drives Plow & Hearth's contact frequency strategies and marketing budgeting. Your contact strategy shouldn't be a one-size-fits-all approach. At minimum, understand your transactional data and what it can tell you about future behavior, she advised.

Key segmentation variables that Plow & Hearth tracks within its customer database (and that Kwiatkowski advised the audience to do as well) include the following:

• How did they come to your website?
• Did they receive a catalog?
• What was the initial first order profit?
• What's the expected rebuy rate?
• What can you afford on subsequent contacts?

Incorporate segment knowledge (e.g., the answers to questions such as the ones above) into your profile rankings, Kwiatkowski said. Plow & Hearth is willing to prospect below breakeven based on expected 12-month spend, which is driven in large part by profile rankings. The retailer has a 12-month goal on how it manages/contacts each customer.