DIRECTADE BUSINESS RULES SERIES: 3 TOUGH CREDIT CARD PROCESSING QUESTIONS

Peanut Butter Jelly Time...for fraud?

Peanut Butter Jelly Time...for fraud?

By Jason Solano

The Directade Business Rules Series is taking a look at the practices, processes, and settings that help to power Direct-To-Consumer and Subscription businesses. Each week we’ll cover new questions related to Business Rules best practices that can help companies optimize their sales funnel and increase customer lifetime value.

This week we’re focusing on three tough questions related to credit card processing. We suggest you discuss these questions with your Finance and Marketing teams, your credit card processor, and industry experts like us.

1. Should you require the CVV (Card Verification Value) in your shopping cart?

Card security codes, commonly known as CVV codes, vary differently by each credit card brand.

Requiring the security code in your shopping cart can increase authorizations, reduce chargebacks, and help block many types of fraud.

The downside is the potential decrease in your conversion rates. The fast, seamless checkout flow you desire is affected by the amount of information you require. Plus, some consumers may not want to provide their security code.

If you do require the security code, it’s ideal to display a card-specific graphic for your customers. Having this in your cart will help them locate the code. Another important tip for subscription companies - DON’T store the security code. It’s against PCI standards and you will be penalized.

2. Do you allow gift cards, both reloadable and un-reloadable?

If you’re engaging in simple one-off e-commerce, your risk is low and you should take both kinds of gift cards.

However, the answer may not be that simple. If you’re running a subscription business with your profitability dependent on recurring revenue, gift cards can pose some serious challenges. For example, a gift card can be used by some customers who really want to try your product at a low price, but absolutely don’t want to risk being charged for their first full-priced recurring shipment.

Gift cards are the peanut butter to a fraudster’s jelly. I’ve seen individuals build staggeringly large businesses on Amazon and Ebay by re-selling products purchased with stacks of gift cards.

If your brand offers low introductory prices and payment plans, you should seriously consider prohibiting (at the very least) un-reloadable gift cards for your subscription membership offers.

3. Do you force deposits for some credit card authorization declines?

Some companies utilize a practice called a forced deposit or forced settlement when an authorization can’t be obtained or the charge failed due to an authorization decline.

Many of these transactions may have failed due to a technical issue or a temporary lack of funds from the customer. However, the practice is heavily discouraged by payment processors and often carry transactional fines. The likelihood of chargeback also increases with forced deposits.

It’s very difficult to justify this practice as customer friendly despite disruption caused by a failed transaction.
 

Find more insights from Directade here

DIRECTADE BUSINESS RULES SERIES: BILLING DESCRIPTORS

How effective is your billing descriptor?

How effective is your billing descriptor?

By Jason Solano

The Directade Business Rules Series is taking a look at the practices, processes, and settings that help to power Direct-To-Consumer and Subscription businesses. Each week we’ll cover new questions related to Business Rules best practices that can help companies optimize their sales funnel and increase customer lifetime value.

This week’s topic is on how credit card transactions appear to your customer and what impact that could have to your business.

Are you effectively using your credit card billing descriptor field?

When your company charges a customer, the billing descriptor is the text displayed next to the charge. Here’s the thing: this is an incredibly important marketing touchpoint and it should not be overlooked.

What are the repercussions or a bad descriptor?  Aside from the negative brand association from pure customer frustration, you can expect more customer service calls, earlier cancellations, and an increase in chargebacks.

So how much space do you have? It really depends on your credit card processor and the customer’s bank. You can expect to have at least 18 and up to 25 characters of text for your descriptor. Our advice is to structure your descriptions at 18 characters to avoid potential cut-offs that might confuse your customer and their partners/spouses.

Following the descriptor, it is most common for a company phone number to be listed, followed by the state where the company is headquartered. We recommend including a toll-free number for the benefit of your customer, ideally one dedicated for billing statements. Maintaining this separate number will help you understand how many calls are being driven from billing versus other customer service reasons.

Whenever possible, stay away from internal abbreviations and jargon in your billing descriptor. While it may make sense to someone in your operations or accounting team, it could confuse your customer. If you have a longer brand name, and an abbreviation is critical, go with the abbreviation and use the rest of the space for keywords that clearly describe your product. Bring in your marketing and customer experience teams to advise on what makes the most contextual sense from the perspective of your customer. Create a descriptor that makes sense, then make sure you can have it show up first in Google search results.

As an example, let’s consider the fictional company ‘Sepulveda Boulevard Pet Food & Supplies’. With the wrong descriptor, the credit card statement might look like this:

SEPULVEDA BOULEVARD 1-800-123-4567 CA $60
Or
SBPF&S  1-800-123-4567 CA $60

Both of the above descriptors lack crucial clarity, and would certainly cause many customers to wonder about the charge. If the customer were to Google either description it’s likely they wouldn’t easily find the business, so they’d have to call customer service. With enough frustration, they might dispute the charge.

Instead, we recommend a default descriptor such as the following:

SEPULVEDA PET FOOD  1-800-123-4567 CA $60

Depending on the variety of products and services offered by your company, you can use a dynamic descriptor to better describe what is being sold to your customer. You’ll need to work with your credit card processor to clearly understand their mapping capabilities, and try to stay as close as possible to 18 characters. You’ll also want to know if your processor can generate your dynamic descriptor during authorization, settlement, or both.

In our example, the Sepulveda pet supply company might offer pet toys, grooming, and adoption services, and their dynamic descriptors could be listed as:

SEPULVEDA PET TOYS  1-800-123-4567 CA $60
SEPULVEDA PETGROOM  1-800-123-4567 CA $60
SEPULVEDA PETADOPT  1-800-123-4567 CA $60

If you offer installment billing, and you have the space, you should considering using a dynamic billing descriptor to call out each payment. Listing the charges could help you reduce confusion and additional calls/talk time at customer service. In our example, if our pet company offered many products or bundles that were charged in three monthly payments, they might consider a descriptor such as this:

Month 1: SEPULVEDA PET 1of3  1-800-123-4567 CA $20
Month 2: SEPULVEDA PET 2of3  1-800-123-4567 CA $20
Month 3: SEPULVEDA PET 3of3  1-800-123-4567 CA $20

Some companies go further by including billing-specific URLs in their descriptors. The custom landing page then goes on to explain the charge, the product, and what the customer can do if they have a question or issue. The CEO of Basecamp wrote about his company’s success with this strategy that reportedly reduced chargebacks by 30%.

Billing descriptors are an often overlooked marketing touchpoint that can occur as much as, if not more than, actual product fulfillment. You can improve your customer experience and minimize many costs by following our advice on establishing an effective billing descriptor for your brand.

Next time: 3 Tough Credit Card Processing Questions

 

DIRECTADE BUSINESS RULES SERIES: CREDIT CARD AUTHORIZATION

IMG_4541.JPG

By Jason Solano

Directade’s Business Rules Series is taking a look at the practices, processes, and settings that help power Direct-To-Consumer and subscription businesses. Each week we’ll cover new questions related to Business Rule best practices that can can help companies optimize their sales funnel and increase customer lifetime value.

We start off this week with some questions about credit card authorization.
 

Do you authorize credit cards before accepting a new order?

A very common answer to this is “of course I obtain a pre-auth before I take an order.” However, the practice of obtaining a pre-authorization has been discouraged by Visa since 2009 (via additional fees and declines) because the typical $1.00 pre-auth is an early sign of fraudulent card-testing. Getting an authorization is still a necessity in order to verify funds prior to accepting an order, since a settlement still takes several days to process. In order to avoid potential declines, it’s important to make sure you’re obtaining the authorization for the full amount.


What do you do with new orders that do not pass credit card authorization?

Declining orders due to a failed credit card authorization may seem like the only prudent choice, but you should consider a few other options. Authorizations fail due to two primary reasons: the cardholder has insufficient funds in their bank account or they have exceeded the limit on their credit card account. What do you do next? Both of these instances are likely to be temporary. Presuming you’ve provided a feedback loop that includes asking for a different card, you might consider still taking the order. Work with your credit card processor and fulfillment center to hold the order and recycle the authorization. Re-contacting the potential customer via e-mail or an outbound call might be worth the cost and effort. Shipping the order with an open invoice is another much riskier option, so only consider that if you have excellent fraud detection rules and a tolerance for potential write-offs. Remember that your media is a sunk cost, so any recovery will quickly impact your bottom line.


Next time: How does your billing really look to your customers?

DIRECTADE BUSINESS RULES SERIES: AN INTRODUCTION

A small leak today....

A small leak today....

By Jason Solano

“Beware of little expenses. A small leak will sink a great ship.” - Benjamin Franklin

We joke that Direct-To-Consumer and Subscription Business Rules aren’t particularly sexy. They’re complex and often technical. Rules that work well sometimes can’t be easily tracked on a dashboard. Like most things in Direct Response marketing, rules need to be tested and measured over time with accurate data. Rules can’t be maintained by a single marketing or finance department - and they definitely require IT support.

Business Rules might be seen as barriers to orders. Or tiny cents compared to thousands of dollars in sales. This assumption would be dead wrong. Every order in your company is touched by dozens of business rules.

At first glance, Business Rules are a bit like plumbing in your house. It’s there, you don’t think about it, but you count on it everyday to work seamlessly. Small leaks are annoying yet seemingly inconsequential to your budget. A big leak can cause some damage and be fixed in an afternoon. And yet the plumbing in your business is completely different than the plumbing in your house. This plumbing needs to be reviewed and monitored regularly. By the time you spring a big leak, it might be way too late.

Think of how much effort goes into acquiring an order. You’ve spent money on design, on product, on your staff and your website. Not to mention the media expense. Taking an order doesn’t mean it will ship. Just because you’ve acquired a member with an expected Lifetime Value of $250 doesn’t necessarily mean you’ll ever net a dollar. Many, many Business Rules will apply to orders that you’ve paid and captured; your media cost is sunk! So good news: any improvement can flow right to your bottom line.

Optimizing your Business Rules requires a lot of questions. So that’s what we’re going to present - questions and perspectives than can help you become fluent in DTC and Subscription-related rules.

Many of these rules contain questions you’ve asked before. Some of the rules have questions you may not have considered. Many rules should come with that irritatingly famous slogan "You think you know ... but you have no idea.”. Some rules might be better for your bottom line at the expense of your customer. We urge you to be careful and be fair. Some of these questions may not apply to your business. Some of these questions might be connected to federal or state laws - so it may also be a good idea to confer with your legal counsel.

Check back next week for our first of many business rules blog posts. We’re kicking off at the top of your funnel with some thoughts on credit card authorization.

 

TECHCRUNCH THINK PIECE ON MODERN LIFE AND SUBSCRIPTIONS

Outstanding article on TechCrunch on rethinking the value of ownership and how subscriptions are becoming ever more relevant.

"For subscribers who rent their apartments, take Ubers, watch Netflix, clean their houses with Handy and cook with Blue Apron, subscriptions create an agile lifestyle. No ownership means no maintenance costs and upkeep. Subscriptions can be upgraded, downgraded or canceled easily and flexibly. There is a financially shrewd Zen in not being tied to unmalleable objects. It frees people to spend money on pursuits other than that of saving to buy nice things."

Read the full piece here.

 

 

WHAT’S THE NEW DEFINITION OF A ‘SUSTAINABLE BUSINESS’ IN 2016?

Winter is coming this spring to Silicon Valley

Winter is coming this spring to Silicon Valley

By Rob Reynolds and Jason Solano

A ‘sustainable business’ has been defined as a green company dedicated to a minimal impact on the environment.

Now a second definition is beginning to circulate in Silicon Valley and other venture-centric hubs: a ‘sustainable business’ is one that can simply remain cash positive over time. This is somewhat of a pivot for The Valley, which was prone to shovel loads of cash at a business based on its speculative potential, not its P&L sheet.

One company taking pre-emptive, responsible steps is Optimizely.  Last October they received $58 million in Series B funding which brought their venture total to $146 million and a $585 million valuation.  Despite these impressive numbers, Optimizely laid off 10% of their workforce last week.  In a letter to employees, co-founder and CEO Dan Siroker tied the cutting of staff to the necessity of reigning-in costs and a promise for the company to be more profitable. Dan wrote “Destiny, which means controlling the path we are on as a company without having to depend on anyone but ourselves. In order to do that we must build a business that makes more money than it spends. We set a goal of getting to cash flow breakeven and we have made tremendous progress toward this goal.”

Companies in the Direct-To-Consumer and consumer subscription spaces are not immune to this emerging trend. In the first quarter of 2016 there are increasing media reports of layoffs at startups across the DTC spectrum including Birchbox, Sonos, Fanduel, Nasty Gal, Motiga and LivingSocial.

Outside of headcount reductions, what can today’s DTC and subscription startups do to build a sustainable business that will continue with steady growth and deliver responsible profits?

Directade has five suggestions:

1) Know your LTV at an offer (not just brand) level
Not only does LTV lay the foundation for your financial planning, it also enables brands to right-size their media spend to maximize new starts. It is essential that you de-average your LTV calculation at an offer level before you invest too much in an aggressive offer that doesn’t pay out on the backend.

2) Dust off and formalize your Business Rules
Subscription-based brands can protect as much as 18% of their profit by implementing optimized Business Rules in areas such as Credit Card recycling, billing and dunning processes, and guidelines for the velocity of claims and returns.  We love Business Rules and will cover the topic in depth in a new series of upcoming blog posts.

3) Protect your pricing strategies by not giving away the farm
Continuity businesses should offer trials and coupon codes to get new starts, but an overreliance on these offers to drive growth can destroy overall brand value. Challenging your teams to innovate through fresh creative, offers featuring new products and gifts, and new emerging media channels should take priority over the “Free Trial” easy button.

4) Balance retail one-offs vs a direct relationship
Consumers should have many compelling reasons to buy directly from your website.  Not just one, but many. Make sure your direct customer is sacred and preferred. Fostering an ongoing relationship with your customer is more valuable than any retail one-off sale.

5) Buy Flow Optimization
You’ve invested a small fortune on advertising to get people to visit your website.  Advertising may even be your largest expense.  Reap the full return on that investment by making sure you follow two deceivingly simple objectives.  

You’re most likely already focused on the first objective: conversion rate optimization. Capture every potential customer.  Easier said than done? Sure.  But, there are tried and true approaches which many websites don't follow.  The majority boil down to creating a low friction buying experience.

Fewer companies focus on the second objective: maximize your customer's LTV (Lifetime Value) starting with that first sale.  Retention marketing has it’s place, but in our experience we’ve seen the biggest boosts in LTV by changing the approach at the point the customer starts. How to do that? Not all customers are created equal. They often have different needs. Some potential customers are more engaged with your brand, have specific motivations or have more disposable income. Develop and offer them product configurations that meet those needs. They will be happier customers (who will stick around longer) and often those new products will increase how much they are spending.

In Summary
On the surface these five suggestions are simple to follow.  But they also take years of experience to master.  It’s also good to keep in mind that some of these approaches can work against each other.  That is why it is so important to manage your business with a testing mentality and go heavy on the analytics. Taking the time to find the right balance is always worth the effort.  Invest resources behind these approaches and you’ll go beyond being a ‘sustainable business’. You’ll bring your company to new levels of profitability.

Reach out to Directade for more detail on these ideas, and others, to ensure the stability of your DTC business.

COMPARED TO WHAT?

Our losing Powerball tickets.

Our losing Powerball tickets.

By Rob Reynolds

Over the years, I’ve gravitated toward a few favorite questions. “Compared to what?” is definitely one of my favorites.

Anytime you are analyzing something you need context.  What should this result be compared to?  Basically everyone knows this.  In theory. This is why we run A/B tests.  The whole point of a control is to give you a baseline to compare against your fancy new idea. If you simply ran your fancy new idea, and you had nothing to compare it to, how would you know whether it was actually better?  Having a point of comparison gives that new data context and meaning.

I expect this all makes sense to you.  Everyone typically gets why you need a good point of comparison.  HOWEVER, in reality, making bad comparisons is sadly very common.  Why?  I’m actually not sure.  But, it seems that the further the analysis is from a pure math exercise the higher the chance of this happening.  One theory I have is that it’s because people aren’t aware they are making such comparisons.  

Over the past week I saw a great example of this bad comparison making with the news coverage around Powerball.

In the days leading up to the $1.5B drawing many of these news reports covered tips and tricks on how to win Powerball.  I’m sure you heard the same report.  Some of these tips and tricks included choosing numbers that were the most commonly picked. So, just based on that nugget, you know that these tips and tricks are a bunch of crap. To be honest much of what they were saying made me crazy.  But, for this post, I’ll focus on one part.

The “tip” I heard repeated often, which gave me a headache each time, was around whether to select your own numbers or to have the computer do it for you.  Here’s a great example:

ABC News - How to Pick your Powerball Numbers

LEAVE THE NUMBER-PICKING TO THE COMPUTER

Rather than picking numbers based on birthdays, anniversaries or other meaningful dates, lottery organizers note that the majority of past winners have left the big decisions up to the computer.

About 70 percent of past winners used Quick Picks, the computer system that spits out numbers, according to the official Powerball website.

"Does this mean that you are more likely to win with a computer pick ticket? Maybe," the site states.

This made me crazy. For a couple reasons.  And here’s why.

Ok, so the fact we are working with is that 70% of winning tickets used quick picks.  The reporter seems to have then figured that was better than the 30% of winners who picked numbers themselves.  So, therefore you should use quick picks to get your numbers.  But, this type of comparison is all wrong.  

The core of the problem is that the article doesn’t tell you the split of tickets purchased between quick pick and manual pick numbers. If 1% of the tickets purchased were quick picks, and 70% of the winning tickets were quick picks, then quick picks certainly have the advantage! But if 99% of tickets purchased were quick picks and only 70% of the winning tickets were quick picks, there’s a statistical advantage to manual picked number tickets.

The percentage of purchased tickets has to be compared against the percentage of winning tickets in order to understand statistical advantage!

The article doesn’t make the comparison. That’s pretty frustrating. But it wasn’t the worst part. The article ended with this:

"Does this mean that you are more likely to win with a computer pick ticket? Maybe," the site states.

That’s when I yelled ‘COMPARED TO WHAT?’

I couldn’t believe that was on the Powerball website.  So I went to their FAQ’s page.  I found the question, but not that line.  Here’s what is there (at least now):

  WHICH HAS THE BETTER CHANCE OF WINNING: COMPUTER
  PICKS OR PLAYER PICKS?

About 70% to 80% of purchases are computer picks. About 70% to 80% of winners are computer picks. Perhaps just one of those weird coincidences?

So this means that your odds of winning are the same regardless of how you get your numbers: quick pick or manual.  How you get your numbers and which numbers you choose won’t matter. Which is exactly how a lottery of chance should work.  

Was this changed in the last week or so?  I don’t know.  But, I was very happy to see that they got this right.  Especially with a little bit of enjoyable snarkiness at the end.

WHY DON'T WE START OUR OWN COMPANY?

By Rob Reynolds and Jason Solano

We're sitting in a craft beer bar in Los Angeles talking about our careers. We could see the change coming and we were both ready for something new.


Although we are co-workers at Guthy|Renker, the country’s biggest direct marketer, we talk like friends. That's what hundreds of project hours, four Coachella camping experiences, many beer festivals, and countless concerts will do. We are more than co-workers, we are great friends.


On this day we were talking about what we may do next and the start up culture arriving on our doorstep in Los Angeles. Especially Silicon Beach. Hey, did you hear about that company selling mattresses online?  I heard about the pet subscription box business exploding last year. Diapers by mail: those guys have that giant CPG company running scared. Their LTV must be huge and they don't have to race to the bottom with retailers. This went on for a while.


So what do these companies have in common?  They are selling direct. Many with a subscription. Excellent! Our favorite business model. 


But, we also saw they needed help. Some things we could see right away and we knew there was more that wasn't in plain sight. Many of these fixes could mean a huge improvement for their business. Some changes might even be simple to make, maybe, but they are never obvious. The key is knowing what to look for in a mountain of data.  We have both been there before, that's our advantage. 


Wouldn't it be great if one of us could join company X as CMO and make them huge? Of course we would miss the diversity and reach of Guthy|Renker. And the prospect of us no longer working together was lamentable.


And that's when the shoe dropped for us: why don't we start our own company to help others do what we do best!?


This way we don’t have to pick just one company to help.  We can work with several using the honed direct-to-consumer (DTC) marketing skills that we developed at G|R. We could help DTC companies improve their analysis and marketing processes; transforming how they view their direct businesses.  Similarly, we could help that company who wants to launch a DTC program for the first time.  And, given that we love that part of our jobs, we know it will be a lot of fun.


That day the seeds of Directade were planted. It was a matter of deciding on the right name, branding, the best approaches to add repeatable value, how to engage effectively, and bill fairly for the work. We know we could build something amazing...and work with great products and people.


Dispatches on Directade.com will be updated regularly. Stay tuned for more content. 


To read more about Rob and Jason’s experience please visit:
directade.com/about