Case Note
This is a redacted results analysis for a two-step direct mailing program for Votive, a maker of high- end audio and video equipment. The client–Votive–is fictional.

Step 1 asks Votive’s VARs (value added resellers) to identify themselves as being interested in sponsoring end user seminars in the local market. The end user seminars—Step 2—were designed to create demand for specific Votive products. Results are measured based on the number of VAR requests for kits, number of seminars executed by VARs, and the incremental lift in end user demand.

Background

In February, we mailed a direct mail solicitation to 20,000 VARs inviting them to participate in our end user seminar program. The call-to-action instructed VARS to go to a special URL and order the kit for fulfillment by return mail. Inside the mailing were the following elements:

  • Seminar kit The kit was designed as a “just add water” seminar kit and included a video, ideas on how the VAR could customize the seminar, signage, a high-quality video for use at the seminar itself, plus copies of the direct mail invitation.
  • Direct mail to end users Each kit included a sample direct mail invitation as well as information on how the VAR could order invitations and a mailing list.
  • Incentive to participate Each VAR was given a sell through goal that was based on their historical run rate. To qualify for the trip, they needed to grow our business by 20% and show proof of performance i.e. that they had fielded the seminars with at least 30 end users.
  • Closed loop measurement system End users checked into the seminar online, using a specially developed web application that carried the VARs branding but was hosted by us. In this way, we collected the information we needed to keep in contact with these prospects and also for results measurement.


Summary of Results

This program delivered sales of $2.9 million and an ROI of 2.9 on a contribution margin basis. Based on sell through data after 6 months, each dollar invested in the program generated $6 in revenue and almost $3.85 in contribution margin. This program reached breakeven with two months of launch. Based on performance to date, we recommend that this program be continued in 2004, enabling us to further improve performance based on findings to date. Summary of results obtained Kits requested: Of the 20,000 VARs solicited, 8.4% requested seminar kits, for a total of 1,676 kits requested.

Quantity
Mailed
Seminar Attendees
(Implied Response Rate)
Sales following Seminar
(Conversion Rate)
Revenue Generated
(Average Order Size)
Customers 804,000 16,437 (2.0%) 3,566 (21.7%) $1,735K ($487)
Prospects 496,000 10,203 (2.1%) 1,858 (18.2%) $1,179K ($634)
Total 1,300,000 26,640 (2.0%) 5,424 (20.4%) $2,963K ($546)

Seminars fielded
Of the 1,676 VARs who requested kits, 704 went on to field seminars with end users, representing a participation rate of 42%. Of this number, 570 of the VARs participated in the same program last year. The remaining were either re-activations or new participants.

Number of end users
The seminars attracted 26,640 end users. Participation varied depending on whether the end user was on our files as an existing customer or was completely new to Votive. In terms of attendees at the seminars, 62% percent were customers, the remainder prospects. The response rate to seminar communications was 2.0% for existing customers and 2.1% for prospects. Overall prospects participation levels are unexpectedly high.


Regional Performance

Quantity
Mailed
Seminar Attendees
(Implied Response Rate)
Sales following Seminar
(Conversion Rate)
Revenue Generated
(Average Order Size)
Northeast 374,000 8,669 (2.3%) 1,599 (18.4%) $733K ($458)
South 316,000 6,496 (2.1%) 1,145 (17.6%) $771K ($673)
Northwest 259,000 5,566 (2.1%) 987 (17.7%) $567K ($575)
Midwest 233,000 4,277 (1.8%) 1,402 (32.8%) $665K ($475)
Pacific 118,000 1,632 (1.4%) 291 (17.8%) $129 ($443)
Total 1,300,000 26,640 (2.0%) 5,424 (20.4%) $2,963K ($546)

As expected, the Midwest and South performed better on an ROI basis than the other regions given the traditional higher propensity to buy Votive products in those regions (NW, NE, and Pacific has a higher purchase incidence than South). Pacific lagged in performance, attributable to a misfit between the Votive styling and positioning compared to its major regional competitor. This misfit is highlighted by the relatively small number of units sold.


Prospects vs. Customer Performance

Overall, prospects spend more than customers as they have to buy and end-to-end solution, rather than individual modules. Purchase incidence varies across the two groups and across regions, though prospects buy at respectable rates in all regions except Pacific. Only 7% of prospects who attended seminars purchased Votive’s products, less than half the rate of the next poorest performer. The poor showing generated the only negative ROI in the program. However, existing Pacific customers participated in the seminars at an above average rate. Areas with higher prospect ROI are likely areas to invest greater levels of marketing spend going forward, while markets where prospect ROI are danger zones that require further research. Votive is particularly strong with prospects in the Midwest and posts strong performance with them in the South and Northeast.

CPM Purchase Incidence ROI
Prospects Customer Prospects Customers Prospects Customers
Northeast $307 $245 22% 17% 3.8 1.5
South $451 $399 20% 17% 3.5 2.6
Northwest $385 $317 13% 21% 1.9 2.5
Midwest $318 $258 31% 34% 4.4 3.7
Pacific $297 $233 7% 21% 0.7 2.1

The Pacific is not as strong as other regions. We were not able to achieve breakeven on our investment when it came to new prospects (ROI=0.7 with ROI=1.0 required for breakeven). Next year, we need to give the Pacific region more guidance on who they should mail to in order to get to breakeven.


2002 vs. 2003 Performance

Votive fielded a similar program in 2002, but with data collection as results tracking limited to aggregate performance.

2003 2002 % Change
VARs mailed 20,000 26,000 -23%
VAR participation 1,676 1,355 +24%
End Users mailed 1,300,000 804,000 +62%
End User attendance 26,650 19,000 +40%
Purchase Incidence 20.4% 21.1% -4%
Revenue per Purchase $546 402 +36%
Contribution Margin per Purchase $366 $241 +52%
CPM (cost per thousand mailed) $390 $435 -10%
ROI (return on investment) 2.9x 1.8x +58%

Overall program performance improved for the following reasons:

  • Excluded from the kit mailing 6,000 of the smaller and least profitable VARs, who as a group did not execute credibly on the program in 2002
  • Lowered the cost of the package mailed to the VARs based on their feedback that many of the in-store promotional materials did not drive attendance
  • Targeted prospects using externally purchased lists, not only existing customers as we did in 2002
  • Selected a higher priced, higher margin item to market

Together, the above actions increased the program ROI by 58%.


List Performance

To support the VARs in their seminar efforts, we continued the following sixteen (16) lists which reached new prospects as opposed to customers and invited them to a local seminar in their area. All the lists had a ROI of 1.0x – meaning all the lists gave a positive return on our investment. Similar to previous catalogs, the audio enthusiast magazines and new homeowner lists were the best performers. The best performing list, List A, had a purchase rate 0.6% and a ROI of 6.2x. The 2nd best performing list, List B, had a purchase incident rate of 0.57% and a ROI of 4.2x. Given the Votive product set, the type of home theater buyers reached through List Y are likely targets. The worst performing list, List P, still managed a respectable ROI of 1.5x. The more general readership of this magazine accounts for its weaker performance than the other lists.


Next Steps

Overall the program drove significant demand and generated a strong ROI. We recommend continuing the program in 2004. For the next wave, we recommend designing in the following test cells to better inform our marketing efforts:

  • Gender
  • Years at present address
  • Age

Based on other data available from your team and third parties, we believe that buyers of your products skew male. We also believe that people wither moving to a new home or who have been in their homes for 6+ years are much more likely to buy. The replacement cycle for your products is 6-9 years, and often people buy in your category when they move to a new residence. In addition, we suspect that the younger average in Pacific may be a key driver in the relatively poor performance of the region. By creating test cells for these items (assuming we can get cells large enough to be statistically significant), we will be able to learn more about the key drivers of success of this two-step program.

Though we believe that continuing to target new customers in Pacific will not generate a positive ROI, we recommend that the effort be continued and that you conduct quantitative research to understand the drivers of this performance.