When Testing --- Focus on the Opportunity, Not Immediate Profitability

Written By Ted Grigg
DMCG Results

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Look at Direct Mail Advert1sing Costs As a Long Term Investment

Have you ever wondered why some great, new products and ideas never go anywhere? There are probably a multitude of reasons. But one may be that management focuses on immediate profitability instead of the opportunity.

When testing new offers, for example, actual results may be good, but insufficient to produce the required profitability.

The following example demonstrates this concept by showing the sales results for a hypothetical 50,000-package direct mail test.

The assumptions:

-50,000 direct mail packages cost $600 per thousand including printing, lettershop, postage and list rental

-Test 25,000 packages of offer #1 against a like amount for offer #2 for a total of 50,000

-The program also tests 10,000 rental names for each of five lists testing the offer and the lists simultaneously

-The product sells for $200

-Both offers cost the same to fulfill

-The profit for each product sold is $100 taking into account shipping, refurbishing and all associated product support costs

-The response rate for test offer #1 is .5%

-The response rate for offer #2 is .3%

-Though unlikely in real life, let's assume that all lists responded at the same rate

The test grid was set up as follows.

Here were the test profit results.

Notice that offer #1 lost $2,500 for 25,000 pieces dropped. And test offer #2 came in even more in the red with a $7,500 loss.

Conclusion: this is NOT the way to evaluate direct marketing tests. Why? The rollout of the tested lists comes to well over 1 million names. Based on the greater mail quantity and associated cost savings, the rollout of test #1 becomes profitable.

So here is another chart using the same assumptions and test results given above. But the ROLLOUT costs for a 1 million-piece run drops to $375 rather than $600 per thousand dramatically reducing the overall cost. What was a $2,500 loss for offer #1 becomes a $3,125 net profit when taking the rollout costs into account.

Here is the recommended way to analyze your test results.

The above tables were simplified to demonstrate why you should not require your testing to produce immediate profits. Don’t look at test results based on what you did, but on what would happen if you rolled it out to your target markets.

What you are looking for are not profits from the actual test, but a significant profit-making opportunity.

In what other ways do you look at campaign profitability?

Ted Grigg
What Ted does best is increase response by beating controls, applying multiple channels to target markets, profiling customer databases and generally improving sales results using deep direct marketing principles. Regard Ted as your personal “think-tank” for your direct marketing planning and strategy development. After analyzing several hundred million dollars of direct response testing in all channels, he brings with him the knowledge accumulated from seeing what tends to work and what does not. Having worked on both the agency and client side of direct marketing, Ted understands the unique challenges faced by agencies and their clients. Agencies need to sell themselves and deliver sales results. And clients not only require results, but need ideas they can implement while focusing on tracking response using a relational database. If Ted brings nothing else to the table, by profiling customer databases and creating response propensity models, he quickly becomes the clients’ expert on their own customers. His formal training includes a BA from Abilene Christian University and two years of graduate work at Texas Tech University. For a national direct-to-consumer insurance company, Ted developed a revolutionary direct mail format that beat most standing direct mail controls for this company. He also generated more profitable business for this firm by expanding compiled list circulation of less than 10% to more than 30% of total direct mail circulation within a year. (Insurance business generated by direct mail demonstrated higher persistency than customers coming from other media such as print and DRTV.) Ted’s plan and implementation of Medicare lead generation campaigns for over 60 regional and national HMO/PPO organizations combined multiple channels that surpassed some sales projections by as much as 60%. Additional industry experience over the last 30 years includes B2B or B2C for finance, securities, home security, healthcare, insurance, manufacturing, government, technology, nonprofit, retail, transportation, communications, and multiple categories in the services industry. As the founder of Wyse Direct (a division for Wyse Advertising in Cleveland, OH), he successfully launched and branded a new technology product for Seiko-Mead by supporting a nationwide sales team with a predictable flow of qualified sales leads. While a VP of new business development for the Grizzard Agency, Ted acted as the direct marketing strategist who refocused the agency’s culture to attract new commercial and fundraising accounts. At the time, Grizzard was essentially a direct mail fund raising production operation. His leadership and team building effectiveness prepared Grizzard for the eventual Omnicom acquisition and Grizzard’s successful integration into Omnicom’s large group of advertising agencies. An independent DM consultant, Ted continues to write numerous articles and conduct webinars on direct marketing techniques. He also wrote The HMO/PPO Marketing Plan — A Step-by-Step Guide publishing it through Executive Enterprises in New York City. During his youth, Ted was raised in Lille, France with his missionary family attending French schools becoming fluent in reading and writing French. Away from the job, Ted is a computer geek, blogger and science fiction buff!
http://www.dmcgresults.com
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