Marketing optimization: direct mail tests validate effectiveness of Targeted Growth Model

By Daniel Williams Published July 19, 2016

Raleigh, NC, July 19, 2016 - An analysis of a series of recent, controlled direct mail tests validates the effectiveness of LEAP Media Solutions' Targeted Growth Model - a proprietary methodology for scoring, segmenting and targeting potential customers for acquisition. The results of the campaign have major implications on a publication's ability to optimize its marketing budgets by investing financial resources toward potential subscribers who have the highest probability for responding and retaining.

The test campaign, executed in April on behalf of three daily newspapers in the midwest, involved the mailing of 12,000 units equally distributed among five value segments, which we have cleverly named "High", "High-Mid", "Mid", Mid-Low", and "Low." For the test, the creative, offer and messaging were identical, and the target universe was a random selection of non-subscriber households within the primary distribution footprint of the publications.

These five value segments are based on a "master value score" assigned to every household in the market using combined scoring and linear regression analysis of thirteen demographic, psychographic and lifestyle factors that LEAP has identified as leading indicators of propensity to subscribe. All households are then clustered into five distinct value (or opportunity) segments that are factored into the data-driven audience acquisition strategy that is built and executed in collaboration with our clients.

The chart below displays the response rate for each of the five segments vs. the average cost per order. Whereas the High Value segments generated the highest overall response rate of 3.11%, the Low Value segments generated the lowest overall response rate of 0.87%. Consequently, the average cost per order for the High Value segment measured at $16.45, whereas the average cost per order for the Low Value segment measured at $58.36.

But as we have written in the past, Cost Per Order only provides a partial picture on the effectiveness of your campaign activity. The more accurate metric for campaign effectiveness is Cost Per Annual Unit, which accounts not only for the rate of response and associated investments, but factors in the rate of retention in order to calculate the cost to net out one Annual Equivalent Subscription Unit. Now let's take a look at the performance across the five value segments based on the rate of retention and the resulting Cost Per Annual Equivalent Subscription Unit:

While the two charts look nearly identical, pay close attention to the Cost per Annual Equivalent Subscription Unit. Whereas the Cost Per Order for Low Value prospects was an acceptable $58.36, the actual cost to generate one Annual Equivalent Subscription Unit is $305.44 when factoring the lower rate of retention (19% on average) for this value segment. On the other hand, for the High Value prospects that on average retain at 58%, the cost to generate an Annual Equivalent Subscription Unit is $28.27, which is not only an outstanding return on investment, but is well within the financial means of any newsmedia organization (small or large) that is committed to growing paid audience among their highest value opportunity segments.

In summary, this controlled test provides critically valuable insights that can be applied in the ongoing efforts to optimize marketing investments by leveraging customer intelligence, modeling and segmentation to identify not only the households that represent the greatest opportunity, but to ensure that precious financial investments are not unnecessarily wasted on households that have a lower probability of responding and/or retaining.

Dan Williams is the Co-Founder and Chief Executive Officer of LEAP Media Solutions.

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