February 2012 - Conversion Is The Key

muffin coffee 200x200Forget response rates--think conversion to reap the highest ROI.

 

When you think about evaluating the success of a personalized marketing campaign, what comes to mind? For many marketers, it’s response rates. How many in your audience responded to the campaign by clicking, scanning, or calling as a result of your efforts?
 
Keep in mind, however, that just because someone “responds” by contacting you doesn’t mean that the campaign was profitable. Unless your goal is simply brand awareness or audience engagement, the true measure of success is whether they actually buy something. That’s why one of your most important measures should be conversion rate.

Conversion rate is the percentage of people who respond to the campaign by converting to a sale, signing up for a newsletter or event, or otherwise taking the action you want. 

Let’s say you’re a gourmet store in the heart of a college community. You just launched a line of breakfast items that includes pastries, breads, and gourmet omelets. You decide to target hungry college students and develop a campaign of 10,000 direct mailers that invite students to request an email- or text-back coupon for 25% off one of your new breakfasts. As an incentive for rapid response, you offer a chance to win concert tickets to see the band Green Day, which soon will be performing in the area. 

Initially, you’re thrilled by the response rate. A whopping 32% of college students requested the coupon. Then the excitement fades. Although nearly one-third of students responded, only 3% actually visited the store and redeemed the coupon. When you work out your ROI, you didn’t even break even.

What if you had targeted the local community instead? Based on the incentive, let’s say the response rate is lower—8%—but it’s an affluent community with a high percentage of recipients working in and around the university. Of those who do respond, 32% actually redeem the coupon and try the new breakfast. From this pool, your actual number of conversions is 150% higher than the college student pool—240 rather than ninety-six. Your cost to produce the campaign is the same, but your ROI is vastly different. 

This is a somewhat non-intuitive result, but it illustrates the power of the conversion rate. Initially, the 32% response rate seems far better. Who wouldn’t prefer that over 8%? But the conversion to sales on the back end ends up being the deciding factor in the profitability of the campaign. 

So don’t think response rate—think conversion!