Friday, September 2, 2011

I CAN predict the future!

A colleague of mine has recently tried to convince me that (a) Lifetime Value (LTV) is a meaningless statistic and (b) applying prediction science to marketing will result in the same failures as those experienced by the stats-heavy financial industry.

While I agree on the first point (whose lifetime we talking about, anyway), I think the second is an over-reach. 

You certainly can't predict everything - especially the future with any degree of certainty. But saying that you can't predict ANYTHING seems irrational. There's a business that lives and breathes this uncertainty every day - the insurance business.

Insurance companies have no idea when a catastrophe will happen. But you can use the principle of the law of large numbers to mitigate the risk associated with an any unforeseen event. The key learning from the law of large numbers is that you can't always predict the outcome of the individual (too much variability) but - if you have enough of exposures that look alike - you can better predict the results of the group. Not always perfectly, but better. And there's value in better. Often, significant value.

It's not perfect, but it works. You can think whatever you want of your insurance company and point to the AIGs with their over-reliance on stats and mortgage securities got them into into serious trouble. But you also have others that have been doing this sort of "prediction" for more than 100 years.

Here's a really dumb example. If I punch any one of you in the face, I have no idea what the outcome will be. In fact, if I punch one of you and nothing happens, I may conclude that there are no repercussions to the act. But if I punch ALL of you in the face (and live to tell about it - my readers scare me) I can come up with a range of possible outcomes and "predict" an overall impact to my well being if I find another group of similar people and punch THEM all in the face.

Here's another, more relevant, example - Hurricane Irene. Models and prediction tend to break down the more finite the number of observations. So while you can say things like "there are 1.5 hurricanes per year on average", you can't predict when Irene will come. Or where it will go when it will gets here. But you can "predict" that Atlantic coastal states have a significantly higher chance of a hurricane than Colorado. You can also "predict" what happens when six feet of water come rushing down your street. You can also "predict" that houses closer to low-lying areas are more likely to flood than ones high on a hill. So why you didn't know that Irene was coming, you could defend against the event better than if you hadn't examined and learned from the past. And there's value in better.

In business (and especially email marketing) we are more concerned with the behaviors of the group more than of any one individual. So why do we do this? Simple...scale. We're not mom and pop marketers. We have a lot of large numbers from where we can draw conclusions. When we try to capture data about a person, it's so we can better associate them to a group (a cluster - hooray for clustering!) whose behavior - driven by the law of large numbers ' we can better predict.

It's certainly not perfect. But it's not value-less.  There's a huge aspect of time-frame management that needs to be considered in terms of setting accurate probabilities. You can learn a lot from watching and mining the behaviors of your customers. You can apply that learning to prospects. You can use the law of large numbers to drive better, more efficient value from your marketing efforts.  Really, that's all email marketers do. We're not here to shape the future direction of the business - we're here to make money while there's money to be made.

So while I agree that LTV is a bit like finding Noah's Ark, to say that prediction is a losing proposition swings the pendulum too far to the other side. It's not the prediction that's the problem - it's the incorrect use of the tool.

Saturday, June 11, 2011

Real-time marketing hype machine

Someone recently asked me what I thought about "real time" marketing in the email space - the ability to hyper personalize marketing offers based upon relevant, "immediately captured" data. 

"Real-time" e-mail marketing seems like vision that is easily "sold" but not really reflective of what technology can attain and sociology can support. After all, it's a super-compelling idea that any idiot should easily see (my old CMO would have loved it...then again, he wasn't just ANY idiot.)

Here's what I sounds dangerously like referring to garbage men as "Sanitation Engineers." It might make the garbage man feel better, but it's both an overstatement of a garbage-man's job and an insult to true sanitation engineers who do a lot more than toss trash. (Full disclosure - I used to be a garbage man...we stink every day - Sanitation Engineers don't.) 

Seems like the hype machine has spit out a new buzzphrase. Buzzphrases - like may things that buzz (bees, alarm clocks, your post-concussion head) - are not always good. Sometimes, linking a good thing to a buzzphrase causes more confusion than it is worth.

For example, let's take two related yet slightly different concepts - hyper-personalization of email  based upon known things (browser type, geography, content preferences, etc.) and tag-based optimization of email. They both theoretically offer improvement and should be tested. It sounds like they might offer more than marginal improvement over a well segmented and executed campaign. Which is awesome. But calling them real-time smacks of trying to capitalize on buzz to the exclusion of the true potential of these approaches. Sure, real-time is easier to explain to the non-technologists who sometimes make decisions. But it builds a set of expectations that these approaches don't (and shouldn't) meet.

Here's a huge barrier to real-time success - it's not enough to have "relevant/real-time/blah blah" - your organization needs to be able to act on the available data. For example, tell any airline in the world that I'm 6'2" and like more legroom...or that - since I'm an American Platinum member - I'd like elite status for any airline that wants my business. Guess what - it won't matter, because there's nothing any airline can or will do anything about that. Businesses are usually not built to serve the customer - they're built to serve the business. 

How about we master the tools that we have before trying to let technology hyper-drive things we don't fully understand? Can you update your customer service product recommendation model fast enough (what's that, you don't use one?) Can you make sure that your ESP delivers content in a timely and reasonable fashion?  Have you run optimization efforts against your email? Your landing page? Your web site? Do you have rock-solid measurement tools in place to measure your marketing results? Do you have a robust preference center that lets people get what they want? Are your sales people compensated based upon serving your customer as opposed to serving your next quarter's results? Have you solved the attribution question? Etc, etc, etc. if you haven't mastered these basics, why jump to the next hype machine?

All in all, the term "real time" in the marketing space simply seems like hype. The Google Wave. The Gripple. Call me a cynic...I'd love to be proven wrong...but sometimes the hype machine wins...after all, email is dead. The hype machine said so.

Thursday, May 26, 2011

No Open, No Value

I read Chad White's MediaPost article about "Bad Advice from email marketers." While all of the points were good, his "No open, no value" bullet strikes a huge nerve with me...of course, this is just a dumb assertion that Chad nails quite well. It's the epitome of email myopia.

Back when I ran email, we consistently saw that about 8% of purchasers - who we regularly sent email to - never opened emails we sent to them. Several industry pundits recommended that I stop mailing these people as they were "not engaged."

Just because people don't do what you want when you want, it doesn't mean they're not engaged. It just means that they're engaged in a way that either you don't expect or you can't measure.

For example, some people just don't trust the email channel. Maybe it's one too many attempts at transferring millions from secret overseas accounts but there are some folks who just will not execute via your email. Even if it were the best email in the whole wide world. They simply won't. What they will often do is either go directly to your site (usually prompted by your subject line) or search based their idea of what your email is trying to get across.

So do you abandon those folks in the name of efficiency? You could...but it turns out the email still has value - just not the value you think. Will they purchase even if you don't send them email? Why take the risk? So the real issue here isn't the email, it's the fact that your measurement systems are myopic. Or that you're stuck with a punitive and counter-productive CPM agreement with your ESP.

I'm really beginning to become wary of "email experts" who are anything other than deliverability specialists. Email is simply an arrow in the marketing quiver. In some quivers it's a huge arrow. In some, it's nothing more than a sharp toothpick. Before you go changing arrows, make sure your measurement systems are up to par.