Actionable Insights From APT's Retail Practice

Getting Over Promo FOMO

July 11th, 2017 | Posted by APT in Financial Services | Promotions | Retail

What is “FOMO”? It’s simple: the Fear Of Missing Out. This term has traditionally been used in social settings, for example: “Jane had major FOMO when she was out of town for the summer party, because her whole team attended and it was always fun.”

However, the FOMO epidemic has now spread from social circles to the business world. Many organizations are experiencing FOMO when it comes to optimizing their promotional strategies – or, in other words, suffering from “Promo FOMO.”

Consider an organization that deploys a promotional campaign, first trialing it with a subset of customers to understand its impact. In this common scenario, there is a challenging balance to strike. Executives want to maximize the exposure of the campaign to the most relevant customers to avoid missed profit opportunities. However, the process of using test vs. control analysis to evaluate a campaign requires holding out a group of customers from the campaign in order to have a baseline comparison – meaning that fewer customers are receiving the campaign.

For example, if a retailer wants to test a new holiday campaign – which it would typically send to most of its customers, particularly those likely to spend the most – the organization may worry that testing the idea by sending it only to some customers and not others could leave money on the table. This fear of large holdouts is also present in the financial services industry, where banks seek to gain new customers through acquisition campaigns, and are hesitant to leave customers out of a test at the risk of missing opportunities to acquire valuable new business.

However, in order to understand the results of each campaign, organizations across industries need to conduct rigorous tests with a similar holdout – or “control” group – as a standard for comparison. Using business experimentation to measure the impact of a new idea by deploying it with only some customers enables organizations to compare the performance of those that received the action to those that did not. This process informs whether to invest in broader rollout of the program, and which customers should receive the offer in the future. However, a critical component of this approach is thoughtful experimental design, or the process of selecting test and holdout customers.

Many companies send promotional campaigns to their highest performers, or highest-spending customers, and compare their performance to remaining customers. However, top customers may be likely to purchase with or without a special offer, meaning that sending them a promotion could merely subsidize their existing behavior, leading to lost revenue. Further, always holding out lower performers could lead to significant untapped potential. How can these customers become top performers if they don’t receive enticing offers – and are therefore not encouraged to spend or engage with the brand?

In order to accurately measure test results, it is essential that a representative customer holdout group is used to serve as a standard for comparison against the performance of customers who did receive a campaign. With this in mind, organizations must develop a level of comfort with creating holdout groups that have characteristics similar to the test group – which will often entail holding out some of the customers expected to respond positively. This type of rigorous campaign design helps achieve an accurate read of a campaign’s success while minimizing business disruption. Using this approach, organizations can unlock insights to inform future outreach efforts and help target the right customers with the right campaigns for maximum returns.

Well-designed campaigns can minimize holdout size, helping allay Promo FOMO without sacrificing the ability to reach accurate results through testing. In one case, an APT client used test vs. control analysis to evaluate a campaign, and was able to measure results with the same accuracy, but with 15,000 fewer holdout customers. This finding demonstrated that maintaining the integrity of a test does not always require a large holdout group, as long as that holdout group is well-matched to the group being tested.

Establishing standardized testing processes across the organization is key to informing how to design and target future, similar campaigns – in addition to enabling the organization to accurately understand the performance of the campaign itself. As retailers, financial services institutions, telecom organizations, and other companies experience Promo FOMO related to campaign analytics, it is important that they keep these considerations in mind and become comfortable with developing well-designed tests with representative holdout groups. By conquering their fear of Promo FOMO, they will arrive at actionable insights that will ultimately drive performance.

Be Sociable, Share!

You can follow any responses to this entry through the RSS 2.0 Both comments and pings are currently closed.