Service Marketing: Quantitative Response Tracking and Reporting

CBSI White Paper
October 8, 2009
By Kenneth G. Kraetzer, Vice President, CBSI, Harrison, New York
& Adjunct Marketing Instructor at Mercy College, Dobbs Ferry, New York

1. Intro:

One of the defining characteristics of direct response marketing which continues through the internet era is the ability to track specific results of marketing campaigns and tactics.

Where general advertising offers the opportunity to reach large numbers of people which may result in retail activity, a properly set up direct response tracking process should support the opportunity to calculate financial return on every marketing investment in the program. Tracking supports the ability for learning to result from every action taken. Direct response programs are a frequent practice in consumer financial services when sales are generated through a central servicing unit rather than by sales staff working from branches.

2. Why is Program Tracking Important?

Tracking will help demonstrate the value of customer acquisition efforts by calculating the breakeven point and the lifetime value of an account. It will identify what campaign elements are related to higher levels of enrollment persistency, lower servicing costs and increased profitability. We want to know what the performance will be for each media utilized in generating sales, how much does each batch of sales cost, how long will they take to breakeven, what product fulfillment and services expenses can we expect, and what will be the life time profit.

3. Are New Program Features Profitable?

Often new features are added to product offers to try and improve sales performance or improve the length of enrollments. Often the initial results will tell if the added benefit makes a difference in generating sales. What takes longer to determine is if an added benefit or altered product configuration makes a difference in generating more usage or increased enrollment tenure. To do this, batches of sales tracked by codes should be measured for enrollment and revenue performance. For programs which generate revenue over time, measurements after 60, 90, 180, and 360 days are critical. If customer accounts are not generating revenue by that time then they often will never be profitable.

4. Can Tracking Improve Enrollment Persistence?

Tracking allows all of the variables that go into customer account acquisition campaigns to be evaluated for effectiveness. This includes the type of media used to attract the customer, the creative version, the vendor utilized, any of the list segment and countless other relevant facts. Coding each solicitation to identify the variable contained allows for evaluation of each test based on response, revenue and expense generation.

5. Tracking Customer Retention Efforts:

Many marketers find that an investment in retaining customers pays off better than the diminishing returns often associated with investing more money in acquisitions. But how can you prove which efforts pay off? One way to encourage longer tenure of enrollment is to add an extra benefit to the product or service package. There are costs for benefits and communications that have to be considered when doing this. Tracking supports determination of how many accounts stay active and what incremental revenue they can be forecast to generate. Our projects over the years have found that customers who consider cancellation by calling a customer service department and accept an attractive offer to stay enrolled, tend to perform well following that dialogue. In other words, the lifetime value of the customers business is greater than the cost of the retention offer.

A tracking program adds a code to each account in a group for which a unique benefit has been offered and then tracks over time the performance of each group. This tracking process enables evaluation to be made on the value of adding benefits to a product or service. In some cases results are evident immediately if cancellations drop significantly or if revenue increases due to added account usage or purchase of cross-sell offers. Essentially we are seeking to determine if the life time value of the group of customers increases sufficiently to cover the cost of the retention benefit or activation effort.

6. Planning, Capacity, Call Center, Merchandise Inventories.

Tracking processes have a long history in the catalog merchandise industry. Products offered in catalogues need to be tied to merchandise in the warehouse to facilitate order fulfillment and inventory control. The practice of establishing Stock Keeping Units (SKUs) was developed to help fulfill orders when thousands of products might be available, and also monitor the sales of merchandise in small test catalogues to determine how much would need to be on hand to fulfill orders from large rollout mailings. The same principle is applied today when financial accounts are offered via mail, call center, or the internet.

7. Making Sure Enrollments Properly Bill.

One of the key ancillary benefits of a tracking program is as an "Early warning alert" process to help make sure that all enrollments are properly billed. On more than one occasion we have seen program segments show a zero or very small quantity when a large amount of budgeted revenue or expenses should have appeared on financial reports. It is vital to then audit these accounts to find out if billing or benefits were not applied to the processing system or if simply the tracking report was not updated properly. Perhaps an operations problem occurred and can be quickly corrected. It is a huge benefit to learn that numbers of transactions were not processed while there is still time to correct the situation before it becomes a legal issue.

8. Source Coding Makes it Happen!

Product marketing starts with a product and a plan on how to generate sales. The key is to be able to code the program variables so that they can be tracked at regular intervals for revenue production and profitability on an on going basis. This takes quite a bit of planning, discipline, and commitment in order to achieve implementation that can provide useful analysis. From the days of large hardcopy mailings, source code has been issued so that reporting can be produced to evaluate the most productive list sources and modeling processes.

In some marketing applications it is possible to issue a customer number which can be tracked during a cross selling offer. On the internet this means finding a combination of keywords and email addresses to identify the activity and sales resulting from customers. It is no simple matter to make sure a campaign is properly coded so that it will support reporting for years to come.

9. What Are the Analysis Tools that are Utilized?

  1. Break Even Analysis: Often the first question asked in a marketing program is how long will it take to earn back the marketing investment? After the development costs have been expended to start-up a product or service, budgets must be allocated to conduct marketing campaigns. In direct marketing we try to define this amount as closely as possible. We then watch acquisition batches closely to see how much initial revenue has been created. Break even occurs when the billed revenue exceeds the associated marketing and product fulfillment costs. We sometimes call the product costs, "The Cost of Goods Sold".

    There is often an expectation that the marketing and product expenses will be exceeded by revenue resulting in breakeven with in a year or very soon after. After a product has proven itself and is marketed on rollout basis, the organization may add to the breakeven equation the costs of product development and corporate overhead. This means the product sales and resulting usage will need to continue generating revenue to exceed these costs in order to start producing a profit.
  2. Life Time Value Analysis: This goes beyond breakeven analysis by attempting to calculate what will be the total amount of revenue and profit from a group of enrollments. This calculation, as the name indicates, is most frequently, a multi-year analysis process. We are looking for what the total revenue will be minus acquisition and cost of goods sold. To make this calculation you need to first set up a breakeven analysis and then extend this forecast report for however many years the program is expected to still have significant number of enrollments. Frequently programs run out in just a few years, but for others they may generate revenue and profits for decades. On a practical basis we may want to consider the revenue and profit for a batch of enrollments over the first five years.
  3. Per One Thousand Report: Often when planning a new product or program, we find it useful to construct a forecasting spreadsheet based on the dynamics of generating 1,000 sales. This allows many of the key variable or hurdle rate statistics in the program to stand out clearly. This report format makes it very easy to look at acquisition costs, sales rate, cancellation rate, cost of goods sold, average revenue, breakeven and lifetime value without the confusion of a wide variety of units of sales.

    This report is very helpful if a target cost per sale must be adhered to. Perhaps the target acquisition cost per account is $75, based on the cost of the advertising or communication, the response rate can be calculated to stay under that ceiling. The report might take the analysis to the level of persistence and revenue after a period of time that would have to be reached in order for the marketing to be expanded. Starting a program with the perspective of how the program math works for 1,000 sales can be a great way to present the hurdles to creating profitable margin.
  4. Same Month on Book Reports: This is a great report format for evaluating how programs which are run at regular intervals, frequently monthly campaigns, are performing in comparison to the campaigns which ran in the time periods just before or after. For example, it is very typical to run a monthly acquisition program for new customers and then to watch their performance as they bill monthly on an ongoing basis. In this analysis we line up the month one performance statistics for all the campaigns for a year in a column so we can compare their enrollment statistics. Then we line up the month two statistics when the enrollments typically would be posted on to the system and begin to bill or be utilize. This process is continued for successive months to track key persistency, usage, revenue, and expenses.

    In the ongoing months, we can continue to look at how key performance statistics are doing. This is very useful in spotting performance irregularities either positive or negative. This report is an excellent way to develop assumptions for the statistics needed for planning financial forecasts for rollouts and continuations of the program in future periods. One of the most important outputs of this analysis is to create a cancellation curve. This is done by charting an assumption statistic for the percent of enrollments which will cancel each month to be used for life time value calculations.
  5. Triangle Reports: When we started to produce these reports almost twenty years ago, they would be printed on very large pieces of report paper which were cumbersome to work with or report from. Digitization of spreadsheets which allows them to fit on 8 x11 paper has been a god send for making reports look neat and presentable. "Triangle Reports" receive this name because they present key information describing the performance of marketing campaigns presented by the time periods they occur.

    Let us say we plan to conduct monthly acquisition campaigns for the coming year, and need to know what the resulting revenue will be by the end of the calendar year. We do this by creating a spreadsheet with the months of the year going across the top and the columns presenting a staggered set of monthly acquisition campaigns. The starting points for each monthly campaign appear below the corresponding months creating a triangle going down the page from upper left to lower right as the information for each monthly campaign begins to be presented.

    For example a program might start in January by generating a batch of sales, we then show the billing progression for the balance of the year. Then we have another campaign starting in February. We then show the billing activity starting in the February column and do the same for March and successive months.

    The report allows the addition of a vertical column presenting the number of customers enrolled, canceled, how much revenue they bill, and cost of goods sold. These are all measurements that are necessary to be tracked monthly across for a variety of planning purposes. For example, we might want to track the number of customer service calls enrolled customers will make per customer per month. This reporting helps us to plan the number of call center representatives that are going to be needed, or perhaps a sharp increase in calls indicates we have done something to confuse customers or a product defect is causing them to cancel.
  6. Segment Reports: Along with the reports described above that measure and present campaign and business wide activity, we frequently create separate reports for tests of new media, vendors, or lists. A very common application is in cross sell marketing comparing base accounts to new accounts or model segments. These and other variables of interest an individually be broken out.

10. Who Can Utilize Tracking Processes, What Are The Applications?

The application for direct response tracking can be very broad. The generic application is very universal and goes back decades. Computers allows us to track much more detail about the performance of greater numbers of variables across vast marketing enterprises serving tens of millions of customers.

  1. Credit Card Issuers: Tracking processes are a vital function to manage the business of banks, private label issuers and other types of account issuers. Banks track performance of new account solicitations by the credit score range of prospects and new customers. They want to see the measurements for usage, revenue, interest generation, expenses and bad debt. Because of the costs to acquire new customers and risks of absorbing bad debts, issuers track the life time profitability performance of each batch of accounts very carefully.
  2. Cross Sell Marketing: Banks, private label issuers and other account marketers offer a variety of up sell and cross sell campaigns. Just as in offering new accounts the offers made to existing customers are tracked for enrollment verification, usage, revenue, persistency, and expenses. Hopefully the addition of a cross sell adds to the life time value of an account from both incremental revenue and longer life of the base account.
  3. Internet. The same principles that direct marketers have used to code offers to determine profitability performance in traditional media applies to the internet. Websites, banner ads, and other media that produce on-line enrollments should be tracked for the performance of sales they generate.
  4. Cable/Satellite television marketers. The cable and satellite industry works with a combination of retail and direct response sales. If sales are taken by a national customer center, it may still be possible to determine the media and offer that attracted prospective customers to take action.
  5. Cell Phone Marketers. Cell phone customers even within the same plans can have significantly different usage patterns. Some customers maybe more profitable because they exceed their plan and bill more than their standard plan cost. Often new phones are given to customers to secure their enrollment or renewal in a service plan. The cost for these phones need to be closely calculated in a breakeven analysis to determine how long it will take to pay back their cost and the customer to produce profitable revenue. Marketers may want to track customer usage before renewal to offer a more suitable plan to avoid the customer moving to another provider. The costs for premiums must be accounted for in acquisition or renewal costs. Breakeven and lifetime value analysis will be very important to determine how generous upfront offers can be.

11. What Are the Requirements For A Tracking System?

  1. System of tracking codes: To support large direct mail or call center campaigns, hundreds of tracking codes may be needed to be available on a monthly basis. In some cases unique codes will be issued to each prospect solicited. For marketing tracking purposes, generally the variables to be covered will be media, vendor, list, mailing package, script, and offer. Tests of mailing piece creative versions or script variations frequently need results as soon as possible, so arrangements are made to provide a quick read on performance from early results.
  2. Database-Operations System: Enrollment tracking will require support from the organizations database system which processes enrollments, billing, and customer servicing. This is facilitated by adding distinguishing codes for each batch of new enrolled customers that identify the marketing variables utilized in their acquisition campaign.
  3. Data Storage: Data should be stored for five or more years, information for the most recent twelve to thirty-six months is the most important.
  4. Analysis: Despite the number and sophistication of analysis tools that are available to track campaigns, it takes an experienced marketing analyst to sift through the huge amount of available data in order to identify the trends and key measurements that will evaluate marketing campaigns.

12. What Do We Learn from Program Tracking?

  1. One of the key aspects of running a tracking program is to be able to convert the significant amount of data which will result on a regular basis into information that can be used for decision making. Frequently we start by presenting the total number of sales, total budget used to generate and the average cost per sale for the period of time the report is covering which may vary from daily to yearly. Typically performance is placed in perspective by comparison with similar statistics for the prior period such as month or quarter or the corresponding time period from a year ago.
  2. We then present performance by media utilized for upfront sales. For each media, performance by vendor, list or presentation alternative is compared.
  3. At any time, a key test of a new product, offer, media, vendor, or list segment, might be the key information that is needed for decision making and can be highlighted. Typically results are reported by:
    1. Media
    2. Vendor
    3. Script
    4. Advertisement
    5. Mailing
    6. Product
    7. Offer
    8. Prices
    Tracking enrollment persistence can be conducted by taking excerpts from the "Like Month on Book" report to identify results for key measurement points such as 30, 60, 90, 180, 360 days on file. The "Like Month on Book" report is a helpful resource to compare what the response rate and other key statistics has been for similar segments in prior months or years. This might illustrate a trend for changing performance. What we notice is the reason customers cancel very soon after sale is "Buyers Remorse", they did realize what they were buying, the price point, or were more simply interested in the premium offer. The reasons often mentioned by those who cancel after a period of enrollment include lack of use of the program or disappointment in service delivery.
  4. Calendar year comparison reports are useful for comparing actual performance to business plans. We often use the "Triangle Report" format to plot the forecast revenue and expenses for programs and the monthly cash flow to the business that will result. When a business invests in an acquisition campaign, it may need to borrow funds either internally or externally to cover the period until the resulting new business revenue can reach break even. The budget requirement to fund ongoing marketing is sometimes described as "Working Capital".

    Marketers seek to minimize their cash or "Working Capital' out of pocket so they will design offers which generate revenue soon after customer enrollment to offset acquisition expenses. What needs to be tracked on going is the amount of funds outstanding until each batch of enrollments breaks even which eliminates the need for "Working Capital". Since marketing activity are often continuous with many simultaneous programs at different lifecycle stages, calculating the financing requirement is an activity in which marketing will work closely with the organization's finance department.

About CBSI:

When you need better customer retention, a new revenue stream, superior direct marketing results, or ways to enhance your value to your customers, count on CBSI.

As your adjunct team, CBSI shares your focus on the bottom line-and on maximizing your return on investment. It's largely why so much of our business has been from repeat Clients, many of whom are industry leaders.

Those Clients tend to say one thing over and over about CBSI: "They know how to get things done." To learn more about what CBSI can do for your organization:

Call 914-630-3457 or email

CBSI, 550 Mamaroneck Avenue, Harrison, NY 10528 USA