Using analysis to drive success      

Alice came to a fork in the road. "Which road do I take?" she asked. "Where do you want to go?" responded the Cheshire cat. "I don’t know," Alice answered. "Then,” said the cat, "it doesn’t matter." Lewis Carroll, "Alice in Wonderland"

If you don't know where you're going, then any path is as good as another. That's too often the approach taken in circulation departments. Let's try everything and see what sticks.

There's a better way. Circulation management doesn't have to be guesswork. This section focuses on the use of analysis to chart your course. It goes hand in hand with the next section on retention. That’s because the way to analyze sales channels is not based on the cost of the sales. It’s based on retention. Two words will explain what we mean:

Performance.

Potential.

If you only remember two words from this Guide, remember these.

CLOSE-UPs Related articles: Test. Repeat. Test again. Repeat. EZ Data for EZ Pay Predictive Modeling Modeling non-paying customers Modeling at-risk subscribers

As you’ll see, the science of strategic selling is a matter of managing your sales channels based on their past performance and current potential. First you use data to identify which channels have contributed the most annualized circulation at the lowest cost. That’s performance. Then you evaluate these high-performing channels to determine which have the greatest potential for continued growth and volume. The point at which performance and potential intersect is the cost per unit of circulation (CPU). This is the bottom line in comparing all of your various sales channels. It is not the same as the cost per order (CPO), which is a far less relevant figure.

Consider this analogy. Let’s say you buy two stocks on January 1. One costs you $28 per share. The other costs $44. Which is a better deal? Who knows? It depends on how they perform for you in the months ahead, right? The purchase price of a stock is like the CPO. It tells you very little. It’s your cost basis, but it tells you nothing about performance or value. No sane investor would buy one stock simply because it sells at a lower price than another stock. But circulation executives will often compare the CPOs of different order sources and make decisions based on that data alone. Bad idea.

Key terms: Cost Per Order (CPO). The CPO is the actual cost of generating a start – the commissions, discounts, and related expenses associated with acquiring a new order. The CPO tells you nothing about the rate of retention. A sale that cost $28 and retained for only 13 weeks would have the same CPO as a sale that cost $28 and retained for 52 weeks. In both cases the CPO is $28. For this reason the CPO is of limited value in measurement and analysis. Cost Per Unit (CPU). The CPU is the cost of sustaining the equivalent of one unit of circulation over a year’s time. The CPU integrates the cost of the sale with the retention value. A sale that had an initial cost of $28 that retained for only 13 weeks would have a CPU of $28 x 4, or $112, because you would have to sell four of these subscriptions to achieve one unit of circulation over a year’s time. If the same $28 sale retained for the full year, the CPU would be $28. The CPU is the bottom line.

Now let’s fast-forward to Dec. 31. The $28 stock has been very volatile. At year’s end, it was selling at $23, representing a loss of 18 percent. The other stock showed slow but steady growth, and is now selling at $48, for a profit of 9 percent. Now you know which stock has delivered better value. The CPU figure can tell you the same thing about the investments you make in your portfolio of sales channels.

If a telemarketing order costs, say, $28, and retains for an average of 13 weeks, you have to sell 4 orders to sustain the equivalent of 1 annualized unit of circulation. Cost: $112.

Now let’s say that another order source – direct mail, perhaps -- costs $44. Yikes! That’s a lot of money, a much higher CPO than telemarketing. But you discover that these customers retain at a much higher rate – averaging 26 weeks. You only have to sell two direct-mail orders in this hypothetical scenario to sustain 1 annualized unit of circulation. Cost: $88. You just saved $24 compared to the “cheaper” telemarketing channel. That’s money you can pour into your retention program, or incentives for carrier sales, or field equipment to enhance home delivery service.

So to determine which sales channels deserve your investment, you need to use the CPU. It is the CPU that tells you how your channels have performed, and what value they have delivered. Once you begin to focus on CPUs, the entire strategic puzzle begins to fit together.

Along with the CPU, you need to know the maximum volume you can expect to attain within a given channel. As one circulation executive joked, “Why don’t we just sell nothing but voluntary orders – they cost nothing and have ultra-high retention rates.”

If only we could!

From performance to potential

The CPU gives us the performance half of our two-part decision-making tool. Once you know the relative CPUs of your various sales channels, you are ready to ramp up the ones that deliver the greatest performance. It would be a simple matter to pick the channel with the lowest CPU and pour all your money into that channel. Problem is, each channel has volume limitations. Internet orders, for example, deliver some of the best CPU figures. The problem is that few papers can squeeze more than a few percent of their sales from this channel, even with their best efforts and optimum resources. Even if you poured all your money into Internet marketing, you’d reach a ceiling – a point of diminishing returns. In addition to knowing the CPU – the performance -- you need to know the upside potential for each sales channel.

What can circulation executives learn from crocodiles? Adult Cayman crocodiles grow to be about eight feet in length. They can be easy prey for the much larger Orinoco crocodiles, which grow up to 25 feet. But there are many more Cayman crocodiles than giant Orinocos. Why? Because Caymans feed on the eggs of the Orinoco crocodiles. This is the essence of strategy: achieving superior results through intelligence. Not only do the Caymans gain a nutrient food source, but they reduce the numbers of their enemies while they feed. The point: Intelligence and strategy can overcome seemingly insurmountable challenges.

So to calibrate your circulation portfolio, you want to invest in the channels that have the lowest CPUs, and exploit these channels to their full potential. How will you know when you have reached a channel’s optimum potential? Oh, this is the beautiful part. You’ll know you’ve reached the peak potential – the point of diminishing returns -- when the CPU starts rising.

Here’s an example. Let’s say a newspaper compares its various sales channels and determines that kiosk sales represent a good investment in the coming year, based on attractive CPU data. So the paper allocates more money into kiosk sales. Sales go up. So the paper pours more money into the kiosk operation. Sales continue to rise, but at a slower pace. Eventually, the cost per unit of circulation begins to reflect the increased spending with fewer incremental sales. You’ve reached the peak – and you know it, because you are constantly measuring the CPU.

This is a beautiful thing. It’s not simple, but it’s not rocket science, either. Just balance the CPU with the maximum volume potential you can attain within each given channel. Guess what will happen next?

• Your decision-making will improve, because it’s based on real-world data in your own market. Not theory. Not guesswork. Facts.

• Your ability to acquire internal resources will improve, because you will be able to support your capital requests with data a CFO would love. When you can support your financial requests with data showing that the money will be invested in the high-performance, high-potential CPUs, publishers and CFOs will listen!

• You and your staff will enjoy your work more, because you will have a solid strategic framework to guide your decisions. Each time you must allocate resources, you’ll ask, “Is this channel a high-performer, based on CPU data? If so, is there untapped potential?” Your life just got much simpler.

• You’ll be called upon by your peers in the industry for advice, because your reputation as a brilliant circulation manager will spread far and wide.

• Your children will greet you at the front door in the evening with a refreshing beverage and your cozy slippers, and your spouse will look at you with that frisky gleam that you hadn’t seen since that weekend in Atlantic City. …

OK we can’t guarantee that last part, but the rest is rock solid.

More on analysis: Predictive modeling

Have you ever seen a frustrated hawk? Hungry hawks will sometimes come upon a dense flock of birds -- thousands upon thousands of birds. Too many birds, as it turns out. Hawks will dive right into the middle of the thickest part of the flock of birds, missing every single bird. The result: a hungry, frustrated hawk. By indiscriminately charging into the flock, they miss their meal. The same hawk could easily chase down a solitary bird in mid-flight, but faced with too many targets at once, the hawk goes hungry.

Circulation executives face the same dilemma. Hungry for new starts, feeling pressure from every corner, they will try everything, crank up the autodialer, and turn up the heat on every sales channel. The results often disappoint.

Wise hawks and smart circulation directors will avoid that temptation. Despite whatever pressure they face, they'll choose their prospects deliberately. When you have a focus and aim at a specific target, you are more likely to succeed.

So faced with a flock of prospects that, at a glance, all appear identical (after all, they're all  "households"), the key is to isolate prospects and target them more specifically.

The Close-ups show how some newspapers are using data analysis to create models of the types of customers to target.