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Multichannel Forensics: An Introduction

Kevin Hillstrom

President, MineThatData

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Multichannel Forensics

An Introduction

Kevin Hillstrom

President, MineThatData


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Predicting The Future

Who is going to win “American Idol”?

Do you anticipate heavy traffic on your way home from work?

How will Microsoft’s Zune MP3 player fare against Apple’s iPod player?

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Metrics And Intuition

  • Systems have been built to help us understand the past, and predict the future:

    • Comp Store Sales.

    • Stock Market: Dow Jones Index, S&P 500

    • Weather: Temperature, Cloud Cover, Humidity, Rain.

    • Sports: Playoff Seeding.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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We Use Metrics And Intuition

  • Examples:

    • Interstate Highways, Suburbs, Urban Decay.

    • IBM, Microsoft, Google

    • Dial-Up Internet, Broadband Internet

    • 8mm Film, VHS, DVDs, Digital Movies

    • LPs, Cassettes, CDs, MP3s

    • Network TV, Cable TV, Satellite, YouTube

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Could You Answer This Question?

“Five years from now, if current market conditions remain reasonably constant, what will your sales and profit be, by product, brand or channel?”

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Predicting The Future

Think about the metrics available to you, where you work.

Most of the metrics explain “what happened in the past”.

You are paid to drive “future sales”.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Multichannel Forensics

Multichannel Forensics is the study of how Customers interact with Advertising, Products, Brands and Channels.

Multichannel Forensics provide a roadmap for the CEO or Executive. The leader will understand which levers drive growth.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Multichannel Forensics

  • There are two components in any Multichannel Forensics analysis.

    • Customer Loyalty. How loyal are customers within any product, brand or channel?

    • Customer Migration. Do customers stay within one product, brand or channel, or do they migrate to others?

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Repurchase Modes

Our products, brands or channels are classified into three Repurchase Modes, usually based on annual activity.

For the average business, we look at customers who purchased during 2005. Next, we count how many of those customers purchased during 2006.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Repurchase Modes

Retention Mode means you have a reasonably loyal customer base.

Hybrid Mode means you need a balance of loyalty and acquisition strategies.

Acquisition Mode means your main job function is to constantly acquire new customers.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Repurchase Modes

There are three Repurchase Modes:

Retention Mode: 60% - 100% Repurchase.

Hybrid Mode: 40% - 60% Repurchase.

Acquisition Mode: 0% - 40% Repurchase.

The repurchase mode determines the primary focus of your marketing activities.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Migration Modes

Three Retention Modes are complimented with four Migration Modes.

Migration Modes explain how customers use products, brands or channels. Do customers only buy from one area, do they sample other areas, do they switch to other areas?

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Migration Modes

Here are the Migration Modes:

Isolation Mode is when customers do not cross-shop other areas.

Equilibrium Mode is when customers try other areas of the business

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Migration Modes

Two additional modes:

Transfer Mode is when customers switch to other areas of the business.

Oscillation Mode happens when customers alternate loyalty between products, brands or channels.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Calculate Migration Mode

Here’s an example: Online customers have a corporate repurchase rate of 55%.

Online customers had a 16% purchase rate into the retail channel.

The repurchase index is 16 / 55 = 29% = Equilibrium Mode.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Migration Probability Table

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Migration Probability Table Example

Catalog is in Acquisition / Equilibrium Mode.

Online is in Acquisition / Equilibrium Mode.

Retail is in Hybrid / Isolation Mode.

Catalog customers shop the website and retail store. Online customers shop retail. Retail customers are unlikely to shop elsewhere.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Migration Probability Table Example

In this example, catalog growth is hard. Catalog can be used to drive traffic to other channels.

The website might be used for E-Commerce, or for research that drives customers to the store.

Store customers seem to only want to shop the store.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Website Example: Peanut Business

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Website Example: Peanut Business

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Website Example: Peanut Business

Gifts are in Hybrid / Isolation Mode.

Shelled are in Acquisition / Transfer Mode.

Roasted are in Acquisition / Equilibrium Mode.

In this example, Gift customers are the most loyal, but fail to cross-shop. Shelled Peanut customers become Roasted Peanut customers. Roasted Peanut customers shop the whole site.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Online Channel Example

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Five Year Product Forecasts

The business analyst can build a forecast of future performance.

The analyst measures the probability of a customer migrating to every product, brand or channel combination. By appending spend levels to each combination, a future forecast can be derived.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Analyze Sales Over Time

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Analyze Your Competitors

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Leadership Strategies

Business units that operate in Equilibrium or Transfer Mode require leaders that have outstanding collaborative skills.

Because customers migrate back and forth in Equilibrium / Transfer Mode, business leaders also need to collaborate.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Leadership Strategies

Equilibrium and Transfer Mode leaders have the least control over their business.

Isolation Mode leaders have a lot of control. Small business units in Isolation Mode are ideal for new leaders. Leaders who don’t “play well with others” are ideally suited for Isolation Mode business units.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Marketing Strategies

  • E-Mail Marketing:

    • Versions that meet the needs of customers likely to migrate to another product, brand or channel.

    • Try to move products, brands or channels from Acquisition to Hybrid, or Hybrid to Retention Mode.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Marketing Strategies

  • Catalog Marketing:

    • What role does catalog marketing play, given the results of a Multichannel Forensics analysis?

    • If catalog customers transfer to another channel, consider merchandising strategies that facilitate this transfer.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Marketing Strategies

  • Online Marketing:

    • Do online customers transfer to another channel (telephone, retail)?

    • If so, online marketing is “brand focused”, not “channel focused”.

    • If not, online marketing capitalizes on completing an online sale today.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Marketing Strategies

  • Data Mining:

    • Identify merchandise trends that facilitate customer migration from one product/brand/channel to another.

    • Build models that predict the migration.

    • Use Isolation Mode information to limit cross-shopping marketing strategies.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Multichannel Forensics Overview

Three Repurchase Modes and Four Migration Modes dictate the role each product, brand or channel (and combinations) play in the bigger picture of our complex business models.

Each product, brand or channel plays a role in the larger ecosystem of your individual business.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Multichannel Forensics Overview

By calculating unique repurchase probabilities, it is possible to develop five-year business forecasts that highlight the future trajectory of your business.

Your trajectory and acquisition/retention strategy dictate marketing strategies and data mining opportunities that drive growth.

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Multichannel Forensics Overview

Humans are great at looking at various trends, understanding where the future is heading, and then developing action plans based on what they are observing.

We do this well with macro-business trends.

Let’s do this within our own businesses, too!!

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com


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Questions?

Contact:

Kevin Hillstrom

President, MineThatData

E-Mail: kevinh@minethatdata.com

Phone: 206-853-8278

Website: http://minethatdata.com

Blog: http://minethatdata.blogspot.com

White Paper: http://minethatdata.com/MineThatData_Multichannel_Forensics.pdf

Kevin Hillstrom, President: MineThatData kevinh@minethatdata.com 206.853.8278 http://minethatdata.blogspot.com