Marketing

As we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.
     Donald Rumsfeld, Secretary of Defense from 2001-2006

The former Secretary of Defense may not be the first person you would ask for advice when conducting your market research. But his quote above does apply to how you can develop effective surveys and questionnaires to grow your business.

Known knowns
If you collect geographic information on your customers as they purchase, you can easily plot a map showing where those customers live and visualize where your products are sold. You know this, so why waste valuable survey space asking what you already knew?

Known unknowns
Here you understand the question and possible answers, but don’t know what those actual answers are. For example, you know that your customers experience a level of satisfaction with your product, but you don’t know what that satisfaction is. Or, perhaps you understand the content segments that you include in a newsletter, but you’re not sure how your customers feel about each segment.

Known unknowns are where the analysts who parse your data have the most fun. Because you know what you want to measure, you can generate a pre-given set of responses. If you want to figure out satisfaction by content area, tell your customers to rate, on a scale of 1 through 5, their satisfaction with each area. When you receive the responses, your analyst can report on which content works and which doesn’t.

Unknown unknowns
Let’s say you inherit a newsletter whose objective is keeping financial folks up to date with news on the latest software packages. And we believe that they read it to help them make a purchase. But if we were to challenge that assumption, we might ask an open-ended question like “Why do you read our newsletter?” Perhaps the answer that comes back most is “For your job ads.” If you knew that job ads were a main feature of your newsletter, then it would be a known unknown and you could have included it as a choice among other choices. But if you hadn’t known this, and wondered whether there was some unknown reason why subscribers did read your newsletter, then this open-ended question would have given you a surprising answer.

As another example, marketing managers sometimes forget that their response rates are driven by an emotional need for their product. What is that need? Try asking your customers, “List the top five challenges in your job today” and give them five open text-boxes to fill in themselves. As a follow-up, ask “of those five challenges, where does our product help you most?” As another follow-up, pose “of those five challenges, where would you trust our company to develop a new product to help you.”

Here you’re letting the customer fill in the unknown unknowns. Once they are “known”, you have them answer their own selections to help you discover their emotional needs and new areas you could explore to help them.

So whatever you may think of our former Secretary of Defense, his philosophy on what we know and what we don’t may just help you get the actionable market research you need to grow your business.

When you sell content, metrics can overwhelm you. But there are some essential pieces of information that all circulation marketers should follow over time. You may have a good handle on some, and others could require a mental leap, but tracking them will make a difference in how you look at your publications’ success and how management views your results. Most importantly, these metrics will help you to better allocate your resources in order to grow your paid circulation.

1) Web metrics

The web is where most customers start to engage with your content. Web analytics has a long list of metrics to analyze, but you’ll want to focus on click-through rates, cost per click, unique visitors and conversion rates to show your website’s ability to bring in new prospects.

To determine your content’s “stickiness”, track bounce rates, return visits and average time on site. Be careful not to put too much weight on bounce rates as sometimes your customers will want to read one article and leave your site. This is fine as long as your high bounce rates are coupled with a long average time on site.

2) Gross new orders, net new orders and pay-up rate

Keep track of new orders, but make sure to break these out by who has paid and who has not. A historical ratio between these is very useful for estimating future net new orders. Breaking down these ratios by marketing source allows you make estimates like this: “If I mail 100,000 pieces and get a 2% response rate for 2,000 gross new orders, then based on the historical pay-up rate for mail of 30%, I can expect 600 net new orders from this promotion.”

3) Gross and net circulation

You always need to know your gross and net circulation. If you have 2,000 subscribers, but 600 haven’t paid, your managers may count on revenue for 2,000 subscribers rather than 1,400 (believe me, I’ve been in this situation and it’s not pleasant when the truth comes to light). With the historical pay-up rate in hand from 2), you can estimate your net circulation by the time all 600 open credit orders go through your billing cycle.

4) Price per subscriber

If you start to notice a large drop in price per subscriber, it may mean big changes in how you report on net circulation. For example, let’s say you sell newsletters for $1,000 per year. That means your 5,000 subscribers will earn you around $5 million this year. But if group sales closes at $200,000 per year for 500 new subscribers, your price per subscription drops to $945. Management may expect $5.5 million in revenue with the increase in circulation, but you’ll only get $5.2 million.

Keep track of average price per subscription. If it drops significantly, it may be time to track individual subscribers separately from groups so that your company will know how much revenue to expect in the coming year.

5) Free trial conversion rates

When you offer a free trial to your content, you need to know how many leads who take a trial will eventually pay for a subscription. This ratio will show how many free trials you need to generate in order to meet your circulation goals. If you need far more trials, you have data to support a budget increase to attract new prospects.

6) Renewal and conversion rates

Conversions can mean two things, and for that reason I refer to “free trial conversions” separately. A proper conversion is a first-year renewal. Customers who have only subscribed to your publication for one year will renew at a much lower rate than after they make it to their second year. This can be important in projecting circulation beyond one year and for developing different strategies to keep first-year subscribers interested.

A great way to track renewal rates (which I’ve heard called a horse-race report) is to look at expire pools over time. To do this, you set your pool 6 to 10 months before expiration. Assuming we’re in February, we would set the pool for September with its 110 subscribers. Now, from March until September, we track the renewal rate of that pool over time. In doing this for every month, we see where some pools are having trouble. If you spot the issues early enough, you can download those subscribers and give them an extra email, telephone call or mailing to keep your renewal rates high.

7) Customer satisfaction

Subscriber satisfaction is one of the few metrics not affected by economic turmoil or other outside factors. It benchmarks how well your publication meets subscriber needs, and starts discussions between marketers and editors about overall product improvement and business strategy. Breaking down satisfaction by feature will show where your publication underperforms, and where it overachieves.

8) Customer referral rates

How often do your subscribers refer colleagues to your content? Word of mouth is a powerful form of marketing, but oftentimes we fail to explore how it works. Knowing referral rates is a great indicator as to the health of your content and can help you target more valuable subscribers in the future.

9) Lifetime value

When a customer subscribes for $1,000 per year, we sometimes forget that there’s more return than this. A subscriber could renew 10 years in a row, generating at least $10,000 over time for your business. Also, referrals can push lifetime value even higher.

Because lifetime value presents such a challenge to all marketers, I’ve included some formulas. But you’ll need to know conversion rates (first-year renewal rates), ongoing renewal rates, the propensity of subscribers to refer colleagues (perhaps from a survey) and, if possible, the internal rate of return demanded by your business.

Step 1) Figure out the average lifetime of your subscribers

(1 – conversion rate) + [conversion rate x (1 + 1/(1 – renewal rate))]

Let’s say you have a 50% conversion rate and an 80% renewal rate. That means 50% of subscribers drop after one year. The other 50% renew at a rate of 80% for their remaining life cycle, meaning they stay for five more years (six years in total since they already converted after the first year). So, of 100 subscribers, 50 stick around for a combined 50 years (1 year per sub) and 50 stay for a combined 300 years (6 years per sub). 350 years / 100 subscribers = average lifetime of 3.5 years.

Using the formula above…

(1 – 50%) + [50% x (1 + 1/(1 – 80%))]

(0.50) + (0.50 x (1 + 5))

(0.50 + 3) = 3.50 years per subscriber

Step 2) Average value of a subscriber without referrals

At a price of $1,000, you could take 3.5 years x $1,000 and conclude that the average value of a subscriber is $3,500. But you should discount future values by your company’s internal rate of return, which is typically the average return on equity for your company (values usually range from 5% to 20%).

∑ (1 thru n): Price / [(1+R)^n] where R is the internal rate of return.

Assuming R = 10%, the first year would be valued at $1,000, the 2^nd at $909, the 3^rd at $751, the 4^th at $683. The total lifetime value would be $1,000 + $909 + $751 + $683 x 0.5 (only 3.5 years per subscriber, not 4.0) = $3,001.

Step 3) Add referral revenue

If you find that your 100 subscribers each refer an average of 0.2 new subscribers in a year, then take $3,001 and multiply it by (1 + 0.2) = $3,600.

In sum, any brand new subscriber to your publication is worth an average of $3,600 over her lifetime, not just the $1,000, first-year-subscription price.

10) ROI – Return on Investment

A simple return-on-investment calculation takes the revenue generated from a specific campaign divided by the costs of that campaign. Revenue generated is NOT lifetime value because the promotion you sent is only responsible for whatever price the subscriber pays at that time. Therefore, if a direct mail piece costs $10,000 and yields 20 subscribers at $1,000 per year, you have a $2.00 ROI. Anything over $1.00 is considered profitable as all product development and salary costs are sunk by the time you send a promotion.

11) ROMI – Return on Marketing Investment

Because ROI is specific to a single promotion, management needs ways to gauge the effectiveness of your overall circulation strategy. Return On Marketing Investment (ROMI) takes into account all possible marketing returns vs. all costs.

For example, in September if you spent $50,000 on salary, $50,000 on promotions, $20,000 on customer service and fulfillment and $10,000 on renewal efforts, and you incrementally brought in 50 new subscribers with a lifetime value of $3,600, your monthly ROMI would have been (incremental revenue – total marketing investment) / total marketing investment, or ($180,000 – $130,000) / $130,000 = 38%. Not bad.

Summary

To conclude, a few of these metrics may prove challenging to report on. But with greater focus on results, business owners and managers will want to know how much their subscribers are worth over a lifetime and need an overall return on marketing investment. And in all marketing analysis, it is better to have approximate answers to pertinent questions than exact answers to irrelevant questions.

When dealing with numbers and graphs, we hear two views. The analyst wonders why we even use graphs as the numbers are right in front of us. Meanwhile, the non-analyst throws his hands in the air and decides to rely on gut instinct. Neither of those options works. We’re surrounded by numbers, so much so that we can barely comprehend what’s happening. In order to spot trends and outliers, we need graphs.

Below are six simple graphs you can create using Excel-like products and in which situations you should use them:

Graph 1) Column

A column graph shows vertical bars that represent quantities. You would use this graph whenever you want to showcase values rather than the segments to which those values apply. Someone looking at the graph will see which columns reach highest or lowest and focus on those as the outliers.

Example: https:///img0.gmodules.com/ig/modules/column-chart.png

Graph 2) Bar

A bar chart is a column chart flipped horizontally. Because it focuses the viewer on the segments rather than the quantities, it is important to sort your segments by quantity when using a bar graph. Viewers will see a ranking of segments by the quantity you specify.

Example: https:///www.anychart.com/products/anychart/docs/users-guide/Samples/Sample-Single-Series-Bar-Chart-Additional-Chart-Settings.html

Graph 3) Line

A line graph connects all the points on an x-y axis, giving you a line that goes from left to right, jumping up or down depending on quantities. Normally you would use this when showing trends over time. This graph will show outliers over time rather than by segment.

Example: https:///edynblog.files.wordpress.com/2007/07/line-graph-days-on-market.jpg?w=600

Graph 4) Scatter

Scatter graphs plot discrete points of data on an x-y axis without connecting them. The viewer can identify trends without connecting the dots. Use scatter graphs where you have a lot of random-looking data, but you want to spot a possible trend.

Example: https:///www.optionetics.com/images/articles/3-19%20fig%201%20scatter%20plot.gif

Graph 5) Bubble

A bubble chart is similar to a scatter plot except that the size of the dot corresponds to a value like the number of records, amount of revenue. This is one of the few Excel graphs which allow the analyst to break out of two dimensions. For example, the x-axis can be revenue, the y-axis # of units and the size of the bubble could be the client company’s yearly revenue. Therefore you see how well revenue correlates with units and how both of those compare to the size of your customers’ revenue – so you’re looking at three dimensions instead of two.

Example: https:///flowingdata.com/wp-content/uploads/2010/11/5-edited-version1-575×385.png

Graph 6) Pie

Pie charts show the proportion of each segment in a population. The best use case is when a proportional threshold exists that you want to reach. For example, political coalitions must usually command more than 50% of seats in a parliament before they can pick a government. Therefore, pie charts are overwhelmingly used to show voter preferences in politics.

Example: https:///static.guim.co.uk/sys-images/Guardian/Pix/maps_and_graphs/2008/12/16/ICM_pie_460wide.gif

Multidimensional analysis

Visual analytics enables us to understand complex data at a glance. Because we can process so much information at once, simple bar and pie charts don’t use our brain’s full capacity. That means we can include a lot more data in multidimensional analyses, saving time, money and effort in understanding how our businesses work. For higher-level visual analytic software, check out Tableau Software or Tibco Spotfire

For a great historical example of a multi-dimensional graph, look at Charles Joseph Minard’s chart showing Napoleon’s march into (and out of) Russia from 1812-1813:  https:///upload.wikimedia.org/wikipedia/commons/2/29/Minard.png

This graph shows three things: 1) the size of the Grand Armée as it marched through Russia, 2) the geographic position of the Grand Armée on its march and 3) the temperature soldiers had to face as they retreated from Moscow to Poland.

What is the best part of this graph? That it was designed to fit a specific objective. Minard wanted to show the cost of war to his fellow Frenchmen. Make sure you formulate the questions you want to answer before diving into dashboard creation and analysis.

Writing a good questionnaire can be hard work. With the below step-by-step guide, you can develop a framework for doing your own market research that gives you real, actionable insight into your products, services, company, marketing and industry.

Step 1) Define your goals

Before you write your questionnaire, ask yourself and your colleagues, “What do we want to learn?” Make a list of research objectives and narrow it down to your top 3-5 goals. There is no sense bothering your list of respondents if you don’t know what you need in the first place.

Step 2) Create a list of questions

Think of all the questions possible that pertain to each of your goals. Don’t restrict yourself by type of question or number of questions. Simply write everything that you would ask a potential respondent if you could. Use plain language.

Step 3) Refine your survey

Choose the best 10-20 questions from step 2), making sure you have a good mix of research goals. Refine each question, one-by-one, by making it into one of the “types” below.

• Rating scale: Respondents will answer this question using a range, the most popular being 1-4 (no option for neutral), 1-5 (typical LIKERT-scale question with a neutral option) and 0-10 (used for determining a Net Promoter® Score).Example: “Please rate your satisfaction with our product on a scale of 1-5”
• Multiple choice, one answer: Respondents must choose a single answer from a list.Example: “Which type of marketing most influenced you to purchase our product?” where the preset options are direct mail, radio, newspaper, Google search, etc.
• Multiple choice, multiple answers: Respondents select one or more options from a list of answers. Example: “Which types of marketing helped convince you to buy our product?” A respondent who had heard your radio spot and read your newspaper advertisement could select both.
• Matrix of choices, one answer per row: Use this to ask the same question about multiple items. For example, if you want your customers to rate satisfaction for 10 features, you can group these features together and ask for the same rating.
• Matrix of choices, multiple answers per row: Respondents have the flexibility to select any box in a matrix.Example: “Please select what type of research you would do for each publication.” Respondents could then say they used The Economist to look at world news and economic information while they read the Wall Street Journal for world news and stock prices.
• Ranking questions: This question forces respondents to put a preselected list of items in order.Example: “Please rank the below list of product features by your satisfaction with each.”
• Open text – one answer: Respondents can answer whatever they like, giving you a more qualitative gauge of how well your company is meeting its objectives. This is also a great place to gather testimonials with a question like “Why would you recommend our company to a colleague?”
• Open text – multiple answers: Here you can find choices that you don’t know. If you’re not very familiar with what features your customers even value (maybe your product hasn’t come to market), you can have respondents list the features they want and normalize the responses.

Step 4) Transform yes/no questions

If you have any yes/no questions, try to transform them into rating questions. For example, change this question: “Are you satisfied with our product?” into this one: “Please rate your satisfaction with our product on a scale of 1-5.”

Step 5) Start your survey with a grounding question

Begin your questionnaire with a generic question like “How satisfied are you with our product?” In this way, you can compare the other ratings to this initial one. This can also serve as a great satisfaction benchmark over time.

Step 6) Test your survey by phone

Call some of your potential respondents and see how they answer your questions. Look for any misunderstandings or areas where you could further clarify what you want.

Step 7) Market your survey

If you have a customer list, sending two emails with an incentive works well in generating responses. Your customers know a lot about you from first-hand experience, and surveying them will help you enormously.

If you have a prospect list or an outside list, emails may not get enough answers. To get the best response rate, conduct a phone survey.

For testing website usability, post a link to your survey on your homepage, or as a pop-up on exiting your website.

Step 8) Compile responses

Make sure you have an easy way to get your responses into Excel, Access or MySQL. You’ll want to explore responses in different ways, cross-tabulating different questions and comparing to any in-house data you have.

Step 9) Analyze responses

Look at the data you have collected, preferably with a visual analytics tool like Tableau Software. This will help you understand how your respondents are thinking and what they want. Whenever you come across an actionable piece of information, take note.

Step 10) Compile your report

Focus on the initial goals of your research and show your conclusions. Are customers happy with your product? Yes, they rated us at 4.5 / 5.0. Which features do they find most important? They care most about X and Y. Are they satisfied with what they think is important? They love X, but aren’t as keen on how we present Y.

Step 11) Create an action plan

List the actions you hope to take regarding each conclusion. Do the results show that customer service seems lacking in San Francisco? Then add “check on San Francisco customer service center” to your action plan. If customers consider feature Y important, but don’t seem satisfied, do more research to find out why.

We hope this guide can serve as the basis for your next market research project. If you want to see some sample questionnaires and reports, visit www.spyglassintel.com/samples. Or if you want to schedule a free, one-hour consultation on your next project, visit www.spyglassintel.com/schedule-a-consultation.