Multichannel Customers

This week's news that J. Crew multichannel customers spend twice as much as single channel customers, coupled with the fact that 49% of their customers are "multichannel" (source = Associated Press via Paul Stuit's weekly newsletter) suggests that a "brand" better have a sound multichannel platform to succeed.

Here's a question for those of you who advocate multichannel strategies, products or services.

Based on your analytical studies (and if you're a multichannel retailer that is worth your salt, a reputable research organization, or a multichannel vendor, you've already studied these factors before talking about the importance of being "multichannel" in a public forum, right?), where does being a "multichannel customer" fall on the value chain, compared with the following statements?

• Customers who visit your website multiple times a month are worth "x" times more than customers who visit your website one time a month.
• Customers who purchase from multiple stores are worth "x" times more than customers who purchase from just one store.
• Customers who purchase from multiple merchandise categories are worth "x" times more than customers who purchase from just one merchandise category.
• Customers who purchase in multiple months are worth "x" times more than customers who purchase during only one month.
• Customers who have multiple items in their order are worth "x" times more than customers who have just one item in their order.
• Customers who order multiple times a year are worth "x" times more than customers who order just one time per year.
  
• Customers who ship merchandise to more than one address are worth "x" times more than customers who ship merchandise to just one address.
• Customers who use multiple payment methods are worth "x" times more than customers who use just one payment method.
• Customers who purchase from multiple store employees are worth "x" times more than customers who purchase from only one store employee.
• Customers who purchase full price and promotional items are worth "x" times more than customers who only purchase full price or promotional items.
• Customers who use multiple search engines are worth "x" times more than customers who only use one search engine.
• Customers who click on multiple links off of your homepage are worth "x" times more than customers who only view the homepage.
• Customers who respond to e-mail marketing, catalog marketing, portal marketing and search marketing are worth "x" times more than customers who only respond to one style of marketing.
• Customers who shop your outlet stores and full-price stores are worth "x" times more than customers who only shop one price channel.
  

In other words, rank order these statements in terms of true incremental value to your business. Is being "multichannel" important, or is it the only metric you actively measure?

We studied statements like these at Nordstrom ... "multichannel" customers were not the most valuable among all the customer types listed above.

You think about your business differently, once you assign value to each aspect of customer profitability.

Your turn --- how important is being "multichannel", compared with the other statements listed in this post?

Playground Supervisor

In college, my summer job was "Playground Supervisor".

For eight weeks, from 9:00am to 11:30am, 1:00pm to 4:30pm, and 6:00pm to 8:30pm, four days a week (closing down at 5:00pm on Friday), I was partnered with a young lady. It was our job to corral anywhere between ten and forty youngsters, ages five to maybe sixteen. We had to plan activities that weren't too advanced for the five year olds, weren't too childish for the sixteen year olds.

There wasn't a better management lab than playground supervision. Some kids were needy, some were mean, some were sick, some were shy, some were outgoing. We earned $4.00 per hour, considered a good summer wage at the time, trying to balance the needs of three dozen kids.

We had maybe eight or nine playgrounds across the city of Manitowoc. Attendance at each park was directly tied to the environment created by the playground leadership team. Some parks had a half dozen or dozen kids during each session. Other parks had between thirty-five and fifty kids attending each session. All it took was effort, activities and kindness to bring the kids in.

I recall there being a sixteen year old who liked to stir up trouble. Overall, this kid had a good soul. But from time to time, he liked to pick on various people. Each Friday morning, we spent several hours at the municipal pool. His job was to drown me. My job was to let him drown me. Our management team thought it was good for the kids to try to torment us in the pool. At times, I'd have six or seven teenage boys trying to drown me. Those were heady times. Imagine what a lawyer would think of that in the year 2007?

After a few weeks of incessant horseplay, I became frustrated. It became my mission to find a way to "get even" with this kid.

My opportunity came during a game of dodgeball. This young man was standing all by himself, no more than fifteen yards away from me. I had a perfectly-sized playground ball in my right hand. Seeing the opportunity to toss this ball at a high velocity toward the teen's belly, I reached back, and with all the strength I could muster, catapulted the ball toward the bully.

The young man was quite agile. Realizing this whistling weapon would cause undue damage to his abdomen, he dove to the ground, his face full of fear.

As the teen hit the ground, I saw a young boy, five years old, standing maybe ten yards behind the teen. This young boy was not watching the epic struggle between sixteen and twenty-one year old. No, this boy was probably daydreaming about strawberries or frogs or Max Headroom.

No sooner than I could yell "Watch Out Harold!", the projectile struck the innocent youth flush in the left cheek, pushing Harold's head back at the velocity of the playground ball. The force of the impact lifted Harold's tiny little feet airborne, much like a teeter-totter. The back of Harold's wee-little head hit the pavement first, followed by his hands, buttocks, and finally, his previously airborne feet.

Lord knows how Harold felt. I know how I felt. I realized that I may have killed Harold!

Five seconds later, air returned to Harold's lungs, and he began to cry at decibel levels reserved for jet airliners. At that moment, forty children, a mortified playground leader, and a laughing sixteen year old bully stared at me like I was the anti-Christ.

No amount of apology solves a problem of this magnitude. I remember Harold wiping the tears off of his little face, a face that was half pale, half bright red, swollen slightly out of proportion. He quietly sobbed as he walked to his bike, mounted the vehicle, and peddled home.

Harold never came back to the playground.


As leaders, how often do we inadvertently do harm to the employees placed in our care? How often do our petty battles and problems with various leaders cause situations that spill over and impact folks like Harold? Worse, how often do we not notice the damage we do?

When Somebody Steals Your Work

Many years ago, it was my job to create a catalog marketing strategy that would significantly increase the profitability of my division.

I worked hard at developing something new, innovative, and different. Mysteriously, I came up with something that 'worked'!

I shared the plan with a member of our executive team. This person showed moderate disinterest in the plan.

Nearly eight weeks later, I was on vacation when I received a phone call from one of my analysts. My analyst informed me that the executive came to my team, told my team they needed to re-work the entire catalog contact strategy and sales forecast, and gave them a plan to implement before the end of the week.

It was my plan.

The executive either planned to do this, or circumstances forced the executive to do this, or it was an honest mistake.

Regardless, my work was stolen by this person. This person got the credit for a strategy that was several million dollars a year more profitable than what was being done at the time.

There are many times when you 'want' your work to be stolen by others. When you are in Database Marketing, it is your job to 'influence' others, you don't lead the merchandising or creative team. So, you float ideas and concepts out there that other executives run with. This happens all the time. The best Database Marketers are utterly gifted at this style of management.

But there are times when your work is blatantly and brazenly stolen. When that happens, how should you react?

Are there instances in your career when somebody stole your work, and received credit for it? How did you handle the situation? How did the situation resolve itself?

Texas Hold 'em Poker

These days, you cannot toss your remote at the television screen without bumping into televised poker.

Given my analytical background, I'm fascinated by poker.

Given my business background, I'm fascinated by poker. There are many ways that the dynamics of poker mirror real life.


Let's explore some of the light-hearted ways that poker applies to our industry.

Social Media Gurus: Your blogging and social media experts sit at the poker table with laptops ablaze, using Twitter via a wireless internet connection to "have a conversation" with their social network, soliciting their "community" for betting help.

Catalog Marketers: We tend to like "sure bets", things that have a proven return on investment. We wouldn't invest in a 7-2 offsuit, we'd bet A-K suited like our lives depended upon it. The catalog marketer thrives by winning numerous small pots. It is unlikely you'll ever see us bluff to win a hand, even though we logically know we have to take risks from time to time.

Online Marketers: These folks would test many different scenarios, always trying to optimize performance. They would play hands differently against the same opponents, so that they knew which strategy worked best. Similar to the catalog marketer, the online marketer thrives by winning numerous small pots. Different than the catalog marketer, the online marketer thrives by betting "after the flop", optimizing strategy much in the same way one optimizes conversion with customized landing pages.

Brand Marketers: The most exciting players at the table! They move "ALL IN" without hesitation. A select few hit it big, winning tournaments, gaining notoriety. The vast majority flame out quickly, and move on to the next table. All talk about the importance of developing a "persona" at the poker table. All of these players remind us about the importance of "building a brand" over time --- that the success or failure of any one hand or one tournament is not what it is about. These folks have extensive debates about whether wearing dark sunglasses is good for the brand image of a player. Other folks at the table believe the brand marketers bluff a lot, but the brand marketers earnestly believe their strategy is right. They will cull examples from Apple, Starbucks or Nike to defend their point of view.

Market Researchers: Similar to the social media gurus, the market researcher asks a focus group of highly targeted poker fans which strategy is best for any given hand. Whereas the social media guru draws upon a worldwide empire of online friends, the market researcher polls the actual audience in the casino for advice.

Business Intelligence Analysts: These experts are likely to develop a KPI dashboard that highlights the specific scenarios when winning is most likely. Heated debates about various hands are matched by heated debates whether Business Objects or MicroStrategy provide the best dashboard development environment.

Web Analytics: Everything is about "conversion rate" for these folks. Each hand is recorded in real time in Google Analytics, showing where players abandoned their hands (aka shopping cart abandonment), illustrating which scenarios yielded winning hands (aka conversion rate).

Finance: Your finance department wants a detailed business plan that demonstrates, prior to the start of the poker tournament, how you will end up in the top ten percent of players --- the group that win money in any poker tournament. The finance department is less interested in whether you win or not, they simply want to know that, over time, you will consistently finish in the top ten percent. The finance team is unlikely to play in the tournament, given how much riskier poker is than opening new stores or investing in Canadian currency.

Human Resources: You'll want at least one of these folks at your table. They will intervene should a player rub your face in a bad beat. They'll also make sure that food and restroom breaks are conveniently scheduled throughout the tournament.

Operations: The operations executive is unlikely to play in the tournament. Instead, the operations executive will play the role of the dealer. Going largely unnoticed, the operations executive never wins or loses. However, the poker tournament cannot happen without the operations executive playing the role of the dealer.

Merchandising: Your Chief Merchant is unlikely to play poker, but will identify the best poker tables, decks of cards, and poker chips to be used in the tournament. Each year, the table, cards and chips are "better than last year", are "trend-right", and are "really popular in London or Milan".

Creative: Your creative executive will probably not play in the tournament. But the look and feel of the tournament cannot happen without the creative executive. S/he will determine the appropriate level of lighting, and will take aspirational photos of the competitors, so that next year's tournament will be more appealing to a larger, maybe even younger audience.

E-Mail Marketer: You'll get a mixed bag of individuals here. Highly reputable e-mail marketers will send targeted verbal messages to competitors, telling the catalog marketer that she has a pair of Jacks, knowing that the message will cause the catalog marketer to fold. Spam-based e-mail marketers just yell random, loud messages, non-stop, to anybody and everybody. The spam-based player bluffs all the time.

Information Technology: In spite of all the needs of the tournament, all anybody wants from IT are earplugs to block out the spam-based e-mail marketers sitting at the table.

Explaining The Matchback Mistake

Now that I've frustrated many of you by not aligning with catalog industry best practices (i.e. the right way to implement results from a "matchback" analysis), allow me to explain the philosophical issues surrounding the methodology.

Catalogers like to look at a "segment" of customers, folks with similar behavior, folks with consistent future performance.

For instance, assume it costs a cataloger one dollar to mail a catalog. Also assume that thirty-five percent of all demand flows-through the p&l, resulting in "contribution" or "variable operating profit".

We mail a catalog to this segment of 10,000 customers, folks who last purchased within the past three months, and have spent $250 - $499 in their lifetime with the company.

By measuring source codes, we learn that this segment spent $2.00 per customer over the telephone. We run a profit and loss statement, and observe the following:

Households	10,000
Demand	$20,000
Flow-Through	$7,000
Book Cost	$10,000
Contribution	($3,000)

In other words, we lost money mailing this segment of customers.

This is where the matchback analysis comes in. Savvy catalog marketers partnered with list processing and compiled list vendors to "match" all customers who received a catalog, but ordered online instead, "back" to the catalog mailed to the customer. Typically, the most recent catalog mailed gets credit (and we can address all the flaws with that methodology another day).

In this instance, the "matchback" analysis shows that customers mailed this catalog also spent $2.00 online during the life of this catalog. This changes the profit and loss statement, illustrated below:

Households	10,000
Demand	$40,000
Flow-Through	$14,000
Book Cost	$10,000
Contribution	$4,000

Now all is good in the world! The catalog drove online volume, the profit and loss statement works. Catalog list processing vendors, compiled list vendors, paper vendors, and list rental vendors rejoiced because the catalog becomes a viable marketing vehicle responsible for the majority of the online volume harvested by a business.

This strategy works well when the online channel is incapable of generating its own volume. In 2007, this is often an incorrect and dangerous assumption. This is where mail/holdout testing comes into play.

Simply put, mail/holdout testing shows you how much online volume occurs if a catalog isn't mailed. The methodology points out the fundamental flaw in a matchback analysis.

For many catalogers (certainly not all, maybe not even half), half of the online demand will happen anyway if a catalog is not mailed. In these instances, the mail/holdout testing clearly illustrate this finding (see the last article, business model number three).

In the case of our profit and loss statement, adding in one dollar per customer instead of two dollars per customer changes the profit and loss statement, illustrated below:

Households	10,000
Demand	$30,000
Flow-Through	$10,500
Book Cost	$10,000
Contribution	$500

In this case, the segment is above break-even, so depending upon your profitability criteria, the segment can be mailed next year.

It is this last profit and loss statement that catalogers need to be evaluating.

Almost all catalogers are mailing too many catalogs due to flaws in the implementation of the matchback analysis. This isn't the fault of your list processing or compiled list vendor. It is our fault, we failed to adequately understand customer behavior.

At Nordstrom, when we killed our catalog division, our online division actually continued to grow sales, year-over-year. Matchback analysis suggested that killing the catalog would create a catastrophe. Our inventory management team nearly fainted, thinking the implosion would be epic!

Mail/holdout testing accurately forecast a subtle sales hit that would largely be offset by organic growth in the online channel. Within a month of killing the catalog, we observed that mail/holdout testing was right, that matchback analyses were highly flawed.

Another flaw in the implementation of matchback analysis is attributing online orders to the original source (which in most cases, is catalog).

In other words, the catalog marketer gives the online channel credit for taking the order, but says that the order could never have happened had catalog marketing not been responsible for originally acquiring the customer. This analytical technique assures that catalogs will always gain too much credit --- in these cases, I've seen orders generated by paid or natural search (i.e. Google) attributed to catalogs, because the customer was acquired via a catalog twelve years earlier. I'd stay away from this popular method of attribution.

I realize what I am saying is utter heresy to most in the catalog industry, as evidenced by the feedback I receive from you! As leaders, we have a responsibility to maximize sales and profit in the business models we support. Let's measure the evolution of our business in a fair manner. We need to take our catalog silo hat off, and put our brand hat on. We'll still find that catalogs are an important part of the marketing mix used to educate customers about our merchandise offering.

Expanding Upon Multichannel Business Models

We really lit up the readership meter yesterday when we discussed Multichannel Business Models. Monday was one of the top five traffic days in the history of the blog, that post was the most read post of the day by a wide margin.

I'll take that as affirmation that multichannel business models are of interest to you, the loyal MineThatData reader. Let's expand upon yesterday's discussion.

A common question I hear is "How do I, with the data I have available to me, determine which business model my brand is classified in?" Good question! Let's explore each business model, and some of the things you're likely to see. We'll explore each business model by looking at results from mail/holdout tests, comparing dollar per customer metrics.


Model #1 = Simple Online Presence

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$3.00	$7.00	$0.25	$0.00	$10.25
Holdout Segment	$0.00	$8.10	$0.05	$0.00	$8.15
Increment	$3.00	($1.10)	$0.20	$0.00	$2.10
Incremental Results:		$2.10 / $3.00 =		70.0%
Matchback Analysis:		$3.00 + $0.25 =		$3.25

Notice that almost no online demand is generated by the mailing of the catalog. Also, if the catalog is not mailed, virtually no online sales occur. This clearly tells you that the website is just "there", customers are not really using it to order merchandise.


Model #2 = Online Order Form: Check out the differences in this table:

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$2.00	$7.00	$2.00	$0.00	$11.00
Holdout Segment	$0.00	$8.10	$0.10	$0.00	$8.20
Increment	$2.00	($1.10)	$1.90	$0.00	$2.80
Incremental Results:		$2.80 / $2.00 =		140.0%
Matchback Analysis:		$2.00 + $2.00 =		$4.00

Notice how different this table looks. In this business model, demand is driven to the online channel when the catalog is mailed. Notice that almost no online demand occurs in this scenario. So, the catalog drives orders online, but the online channel is not yet capable of generating its own incremental volume. The online channel is a glorified order form.


Model #3 = True Catalog Multichannel Model

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$3.00	$7.00	$3.00	$0.00	$13.00
Holdout Segment	$0.00	$8.10	$1.50	$0.00	$9.60
Increment	$3.00	($1.10)	$1.50	$0.00	$3.40
Incremental Results:		$3.40 / $3.00 =		113.3%
Matchback Analysis:		$3.00 + $3.00 =		$6.00

Notice the significant differences in this business model. If the catalog is not mailed, half of the online demand occurs anyway. This is a view that many catalogers are missing these days, due to an over-dependence upon matchback analyses. In this case, $3.40 of demand per customer were generated. However, the matchback analysis indicates that $6.00 of demand per customer were harvested. If the cataloger goes with the latter, the executive team will significantly over-circulate catalogs, causing profit to be sub-optimized. This is probably the most significant analytical error happening in our industry these days --- our list processing, compiled list vendors, industry experts and and paper representatives have unknowingly pushed us down this path, and we let it happen. Nobody is to blame, it's simply our responsibility to do a better job of analyzing the business models we manage.


Model #4 = Retail Business, Catalog Heritage

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$3.00	$6.00	$3.00	$3.00	$15.00
Holdout Segment	$0.00	$7.00	$2.00	$2.00	$11.00
Increment	$3.00	($1.00)	$1.00	$1.00	$4.00
Incremental Results:		$4.00 / $3.00 =		133.3%
Matchback Analysis:		$3.00+$3.00+$3.00		$9.00

These results are interesting. In a true multichannel version of a catalog business model, volume is spread across other catalogs, the website, and retail stores. Typically, the catalog will drive modest amounts of volume online, and to stores. Notice that online and store channels still get a ton of volume, even if the catalog is not mailed. In these cases, matchback analyses are flat-out wrong --- much care needs to be taken to accurately read matchback analyses in a retail environment of this nature.


Model #5 = Online Business, Retail Heritage

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$1.00	$4.00	$5.00	$20.00	$30.00
Holdout Segment	$0.00	$5.00	$4.00	$19.00	$28.00
Increment	$1.00	($1.00)	$1.00	$1.00	$2.00
Incremental Results:		$2.00 / $1.00 =		200.0%
Matchback Analysis:		$1.00+$5.00+$20.00		$26.00

These business models are also fascinating. Notice that catalog advertising plays a very small role in influencing business results. Online demand and retail volume are barely moved by the mailing of a catalog. Yet, in total, the catalog is twice as effective as source code reporting would indicate.


There's no need to talk about online pureplays, as catalog dynamics are not part of that equation.

Given what has been shared over the past two days, what are your thoughts? Does this framework make sense? What are you seeing in the business models you manage? Do you agree that matchback analyses are frequently in error, sometimes significantly in error, when measuring the incremental value of a catalog?

What Are You Reading?

I am looking for good blogs, authors, journalists or publications to add to my RSS reader. I have plenty of analytics, marketing, catalog and online marketing blogs. I'm looking for something different, a diversion, something that makes one think, something of high quality.

In the comments section of this post, please provide links to blogs, authors, journalists or publications you respect, and read on a frequent basis.

Thanks,
Kevin

Multichannel Business Models

Fifteen weeks as an independent multichannel strategist provide me with a new perspective on multichannel business models. I can see that there are at least six ways that retailers/catalogers are leveraging the online channel, the channel responsible for the "multichannel" moniker. Each business model has unique advantages, and unique challenges.

Model #1 = Simple Online Presence

• These businesses generate the vast majority of their sales by customers who send orders via the mail, or by calling a sales representative in a contact center. The order was stimulated by the mailing of a catalog. The online channel is not a significant driver of sales for businesses in this situation. The customer does not utilize the online channel as a shopping vehicle. At least eighty percent of the net sales happen via the mail, or via telephone. The average customer is at least fifty-five years old.
  

Model #2 = Online Order Form

• These are catalog businesses that use cataloging as the primary marketing vehicle, but provide a robust online experience that causes customers to place their orders online. These businesses struggle with the concept of being "multichannel", because all analytical work indicates that the catalog drives eighty percent or more of online sales. In reality, these businesses are not "multichannel", they are really catalog businesses that take orders online. Still, it is not uncommon for these businesses to generate half of all orders online.

Model #3 = True Catalog Multichannel Model

• It has been my experience that this is the least understood of all business models. These are catalogers that generate at least half of their annual net sales online. However, these catalogers typically believe that the catalog is responsible for driving the online sales. In reality, the online channel developed a foothold in these business models. If catalogs were not mailed to customers, online orders would happen anyway. This is very hard for catalog executives to understand, to digest, to develop strategies against. Company reporting and matchback reporting indicate that the catalog drives online sales. Mail/Holdout testing indicate that at least half of the online sales would happen regardless whether catalogs were mailed or not. These businesses have robust e-mail, paid search, natural search, affiliate, portal and online marketing programs that generate incremental sales. It is this business model that many industry experts and consultants target when they talk about "multichannel marketing".

Model #4 = Retail Business, Catalog Heritage

• These are interesting business models. Be it Coldwater Creek, Williams Sonoma, Lands' End or now Dell, these businesses practice true multichannel marketing, but with a strong focus on ROI. The catalog heritage drives measurement of all advertising activities across all channels. If an aspiring individual wanted the best multichannel lab to build multichannel skills in, I believe these environments provide the best place to gain valuable, portable experience.

Model #5 = Online Business, Retail Heritage

• A Neiman Marcus, Saks or Macy's fit into this business model. The online channel is strictly complementary to the store experience, as the stores are responsible for the lion's share of sales and profit. Management says the right things about multichannel marketing, and do invest in the online experience. That being said, the purpose of being multichannel is to do everything possible to please a store customer. This strategy leads to sub-optimization of the direct channel. Over time, these businesses will lead the online industry in "entertainment". The online channel (and supporting catalog channel) will likely become the entertainment and informational arm of the brand. Of course, a giant retail presence will cause a ton of traffic to migrate online, driving a huge volume of online sales. But the online sales will not be driven by brilliant online marketing or catalog marketing strategies. The online sales will happen because the online channel acts as the entertainment/informational arm of the retail brand experience. There's nothing wrong with this. But it does require a very different set of marketing skills --- traditional online and catalog marketers may be frustrated by this business model. Traditional analytics individuals may not be pleased with the depth of analytical insight required to run these businesses (i.e. the business is run by "brand instinct", not by analytical findings and ROI).
  

Model #6 = Online Pureplay

• These businesses are fundamentally different than the five models described above. These businesses were born online, and utilize a marketing strategy fundamentally different than other businesses. Traffic is driven by online marketing strategies. To compensate for what I call "channel disadvantage" --- not having catalogs or stores, these businesses utilize free-shipping, free-returns, and rock-bottom pricing to gain a competitive advantage. These businesses need to grow to a size large enough to overcome margin and shipping revenue shortfalls. Zappos is probably the best example of a business in this category. The online marketing departments in these companies offer spectacular laboratories for learning online marketing strategies. If I were a college student today, this would be one of my primary industries to target for employment.
  

Strategically, it is very important to understand where your business model falls on this continuum. The way you utilize multichannel marketing and advertising strategies is highly dependent upon the customer base you have, coupled with your heritage and objectives.

Cataloging makes less sense for business models five and six. Traditional cataloging strategies are frequently not congruent with brand-based retail models and online pureplays.

Online marketing makes less sense in the short term for business models one and two. These business models are supported by customers who are not willing to shop on the web without the benefit of catalog merchandise presentation.

Matchback and analytical expertise are probably most critical in business models three and four. Catalog businesses that migrated from model one to model two to model three have the best opportunity to overcome postal increases, because the customers shopping these businesses will purchase online if catalog frequency is reduced.

Your turn, my loyal reader! What e-commerce business models are missing from this list? How might you change these categorizations to make more sense?

Millard / Mokrynski Merger

By now, my catalog industry readers know that infoUSA is merging the Millard and Mokrynski list brands that they acquired over the past two years for a combined $20,000,000+.

Many industry veterans surmised that consolidation was inevitable, and given the amount of downsizing that happened over the past year, it appears headcount adjustments weren't enough.

Here's a question for my catalog readers, and I am not making any judgments here, I simply want to hear your point of view. "How will you, as a customer of Millard or Mokrynski, benefit from this merger?"

Television And Multichannel Forensics

Are you watching less television?

I sure am. During the past three years, the DVR fundamentally changed how I use my time.

This is fascinating, because the VCR existed for decades, but it didn't change my behavior. I recorded a handful of shows. Maybe I was attending a dinner, and would miss a new episode of Seinfeld. The VCR kept me current with programs I missed.

For me, three things happened that caused me to stop watching television.

• Television became awful. I'm not sure television was ever great, but it sure used to be better. Last night, I scanned two hundred channels before settling on a thirty year old episode of MASH that I viewed a hundred times previously. I personally think September 11 changed television. How many comedies are on television anymore? Life wasn't funny after September 11 ... at least that's my opinion. You have to balance the half-dozen CSI and Law and Order franchises with something that makes you laugh. Instead, television gave us "reality" programming, an inexpensive, unsustainable, short-term profit solution to comedy. Instead of improving the quality of the programming, television improved the quality of the image (HDTV).
  

• If television is awful, then there isn't a reason to sit in front of the television for three straight hours. To me, the DVR didn't represent a fundamental change, because the VCR always existed. The DVR coupled with awful television represented a fundamental change. When there are only a handful of quality choices (quality is defined differently by each individual), one can use the DVR to create a personalized "evening of television". For instance, this morning, I am going through a week of programs like "Charlie Rose", Dan Rather Reports, and CBS Sunday Morning. Television folks call this "time shifting". I call it "convenience". These days, I can watch "Lost" on Thursday evening, when both my wife and I are at home.
  

• Television folks say the DVR allows you to skip commercials, a bad thing for the health of the television industry. We've been able to skip commercials for three decades. Bad television coupled with technology changed consumer behavior. When the price of a DVR became affordable to the average consumer, a mass shift in behavior occurred. Cable companies, the very middlemen who connect viewers to programming, hastened this shift by offering low-cost or no-cost DVRs to consumers in response to competition. I purchased my first DVR three years ago, my first HD-DVR last year. Everything changed, especially after buying the HD-DVR.
  

Programming, advertising, cable/satellite providers, technology, the internet and pricing all interacted in a complex slurry, yielding the odd response to television we see today, an odd response ideally suited for a Multichannel Forensics analysis. Only seventeen percent of Americans own a DVR. What happens when fifty percent of Americans can afford a DVR?

Maybe most interesting is what I do with my extra time. I write books, I write this blog, I volunteer. Arguably, the quality of my life is better today than pre-DVR, thanks to the "quality" of television today. It is a zero-sum game.

Trading Places

I spent today at an all-day conference on elder abuse, part of my volunteer job.

In this volunteer role, I am at the absolute bottom of the pecking order. I am the least experienced of maybe three hundred volunteers. I have a boss, who reports to a series of three managers. The three managers report to a local Director. The local Director reports to the Executive Director, who runs our volunteer program for the entire State of Washington.

When you spend a decade in a leadership position, you view the world one way.

When you are number three hundred out of three hundred, you view the world differently.

In one job, you listen to feedback, you gain consensus, you demonstrate vision, and you make decisions.

When you're number three hundred out of three hundred, you see all the ways things could be different, better. But you're an ant, your job is to move your small piece of soil into place, in harmony with all of the other ants.

You look at the relationships between your leaders. You notice that one Director sits at a table with most of the managers, while another manager sits by herself, halfway across the room. You notice that your Director and the Executive Director never talk, they sit on opposite ends of the conference room. Your managers are constantly leaving the meeting to take cell phone calls. Your co-workers do not exhibit "cell phone" behavior. Some co-workers have interesting comments about the dynamics between your leaders.

When you're number three hundred, you read too much into subtle gestures offered by management. Without the appropriate context or information, you make assumptions.

It would be interesting to have our multichannel leaders spend time in volunteer programs, where they are number three hundred out of three hundred. There are many lessons to be learned at the bottom of the pile, lessons that can be applied to leadership.

When Capture Rate Bites You In The Belly

A market researcher will conduct four focus groups of nine individuals each, recommending brand-changing strategies on the basis of thirty-six customers.

Your market intelligence analyst will measure market share by DMA, knowing full-well that the error rate on the estimates is plus or minus seventy percent. Your executive team oooohs and aaaahs at her findings.

Then you report on actual customer purchase behavior, and remind folks that your information technology team is only able to match sixty-five percent of your retail purchase transactions to a name and address (this is called "capture rate"). Your executive team badgers you about "the other thirty-five percent", wondering if those customers behave "differently". Of course they do, they paid using cash or check or an un-trackable credit card! You share that information with your executive team. They boot you from the "C-Level" table, while the market research analyst offers a smug smile, secure in the knowledge provided by thirty-six customers.

Such is the life of the database marketer.

Market researchers and market intelligence analysts get free passes from the "C-Level" table that so many of you crave to present to. You will get a free pass back to the cubicle farm. Why?

In a word ... "consistency".

In other words, market researchers and market intelligence analysts frequently analyze metrics that behave in a "consistent" manner. The numbers don't change significantly from year to year. Therefore, your beloved "C-Level" team "trust" the numbers, even if highly inaccurate.

Your numbers are "inconsistent". They don't know what to trust. Take a look at the following table:

Actual Performance, Measured Via The Customer Database
					Overall
	12 Month	Repurchase	Spend/	Average	Retail Cap-
	Buyers	Rate	Buyer	Value	ture Rate
2007 Results	10,000	20.60%	$235.00	$48.41	65.00%
2006 Results	8,000	24.30%	$230.00	$55.89	75.00%

When you analyze these results, you really cannot tell whether customers repurchased at lower rates, or if the ability of the "information technology" folks to assign name/address to transactions got worse.

More often than not, when capture rate changes, the number of customers who purchase change. Most often, retail customers are using the same credit card, or are using two credit cards. As a result, one might consider adjusting the repurchase rate for the fact that the capture rate is lower. The analyst might adjust the 20.60% repurchase rate by a factor of (75.00% / 65.00%), resulting in a 23.77% repurchase rate.

Performance now looks like this:

Actual Performance, Measured Via The Customer Database
					Overall
	12 Month	Repurchase	Spend/	Average	Retail Cap-
	Buyers	Rate (Adj).	Buyer	Value	ture Rate
2007 Results	10,000	23.77%	$235.00	$55.86	65.00%
2006 Results	8,000	24.30%	$230.00	$55.89	75.00%

In this table, customer performance is essentially equal, year over year.

Another step to validate this assumption is to compare the results to comp store sales performance. For instance, if comps are flat, the table above may be reasonably accurate. If comps are up ten percent, you may need to further adjust the repurchase rate.

Once you've made this adjustment, you're best off footnoting it. Your "C-Level" buddies are not big fans of "cooking the books". And yet, if you don't adjust your findings, they will not be big fans of "inconsistent data".

For Database Marketers who have to report customer behavior across time periods, capture rate is probably the biggest challenge to database marketing credibility. Make sound adjustments, speak with confidence, and your credibility will improve.

Capture Rate

You work for a retailer. You are able match fifty percent of all customer transactions to a name and address, storing the combination in your customer warehouse, all tied to website and catalog behavior.

Good job!

Now, how do you adjust your research for the fact that you are only able to link half of your sales to a name and address?

How does this influence your findings? What kind of adjustments do you make? Do you bother to share your insights with others? Do you have to defend yourself every time somebody takes umbrage with your lack of data quality?

I spent eleven years dealing with these challenges. While I'm traveling, I'm hoping you can start a conversation about how you deal with "capture rate".

27C

Database Marketing thoughts from eight flights in eight days:

In an amazing display of "co-branding", I observed a program on the United Television Network with a feature from NBC/Universal showing Larry King of CNN interviewing Kathy Griffin of Bravo.

If you had ninety seconds to convey a concise and helpful message for new Eddie Bauer CEO Neil Filske on how to turn around the beleaguered brand, what would your message be? By the way, check out the analysis of CEO compensation at Eddie Bauer verses Nordstrom mentioned in this article.

Speaking of marketing, I'm coming around to the thought that the iPod was invented to project us from the world of marketing, blocking out the audible half of marketing.

Good things happen to good people! Avinash hits the jackpot, getting his web analytics book mentioned on Seth's Blog.

My lost luggage was deemed a "baggage irregularity".

You can't hit an FM scan button these days without running into "Jack FM", "Bob FM" or "Mike FM". I'll tune in when I hear "Avinash FM".

I actually heard a pilot come over the audio system and offer a "co-branded opportunity presented by trusted business partners USAir and Bank of America". Yes, the pilot used the phrase "co-branded opportunity".

Four flight attendants did a spectacular job of helping a woman who was having a panic attack, fearful that the plane was about to crash while in heavy turbulence.

Quick quiz: If you aren't in the Database Marketing or analytics community, tell me what the following acronyms stand for, and how they relate to your job?

• BI
• KPI
• LTV
• BPM
• CPM
• CPC
• AOV
• DMPC
  

The Day E-Commerce As We Knew It Died

Of course, e-commerce didn't die today.

But symbolically, e-commerce changed today, with the ousting of Yahoo! CEO Terry Semel and a New York Times piece about the end of rampant e-commerce sales growth.

Both stories point to the maturation of the online channel.

To me, the New York Times article is particularly delicious, drawing the ire of Shop.org and various e-commerce bloggers (here, here and here), all quick to defend their channel at the first hint of criticism or sales slowdown. To be fair, the criticisms are valid and even enlightening --- but it was fascinating to see how defensive some of the responses have been.

Those articles and comments look an awful lot like the musings of catalog executives between 1999-2003. Catalog folks were defensive, quick to defend the catalog channel when e-commerce pundits predicted doom for anything not associated with the online experience.

In reality, the data used in the study has been readily available from Forrester Research for years, and publicly traded companies have repeatedly talked about this slowdown over the past year, so this news isn't news.

Over the next three years, our profession will see a separation in talent. As e-commerce growth becomes harder and harder to achieve, management is going to need e-commerce folks who are skilled, maybe "gifted" at driving sales.

For the past decade-plus, multichannel e-commerce executives benefited from the efforts of their catalog and retail leaders. The catalog executive mailed catalogs, the customer shopped on the internet. The online executive received hefty bonuses, the catalog executive was fired.

The retail executive spent decades building a brand, the online executive received credit for sales cultivated through years of positive retail experiences. With e-commerce maturing, it will be up to the e-commerce executive to stand alone, to drive incremental sales increases without the benefit of seasoned leaders in other channels pushing free, incremental sales to the online channel.

There are hundreds of really good, really talented online executives at multichannel companies. These folks honed their craft, while learning how to get things done politically, while learning offline marketing skills that transfer to the online world.

These online executives will have a tremendous advantage. These are the folks who will continue to drive true incremental sales increases over the next three years, while other online businesses flatten-out, or flounder.

June 18, 2007. The day e-commerce as we knew it died.

Three Ways To Increase E-Mail Sales

Businesses with customers who purchase fewer than three times a year seldom benefit from trigger-based e-mail marketing campaigns (with the notable exception of shopping cart prompts, which often work well).

There are at least three key factors that can be managed, to grow e-mail sales.

Factor #1 = Incremental List Size, Managed By Contact Frequency

Factor #2 = Incremental Demand Per Contact, Managed By Contact Frequency

Factor #3 = Demand Per E-Mail, Managed By Number Of Targeted Versions


Incremental list size is ultimately determined by the number of e-mail campaigns sent per week. When a customer is contacted too often, too many customers unsubscribe, driving down the total size of the e-mail list. Strategically, management may choose to execute "x" campaigns per week. Mathematically, the number of e-mail contacts per week can be determined by the number that still cause a healthy increase in the number of valid names available to be e-mailed. In the table below, you'll see that two e-mails per week are optimal, as the e-mail list continues to grow.

Incremental demand per contact is also important. As you increase e-mail frequency, you will decrease the performance of any one e-mail contact. Increased frequency will probably cause cannibalization between e-mail campaigns. The table below shows that the combination of unsubs and performance dictate two e-mail campaigns per week.

Targeted versions of an e-mail are important as well. Few retailers have the ability to dynamically create unique e-mail campaigns for each customer. As a result, management creates "x" versions of an e-mail campaign, offering different merchandise in each version. The analytics team decide which version of an e-mail campaign the customer receives, on the basis of past purchase behavior, stated customer preferences, clickstream history, and other factors. From a staffing standpoint, it could be a challenge to produce numerous versions.

In the table below, I assume that a company managed one version of an e-mail, one time per week, to the entire e-mail file. This strategy yielded $20,700 of demand per week.

Going from one campaign a week to two campaigns per week kept the file size increasing, reduced volume per e-mail, but resulted in $30,030 of demand per week. Clearly, this is a better strategy than sending just one e-mail campaign per week.

Going from one version per campaign to nine versions per campaign drove $40,040 of demand per week. Assuming this strategy can be managed with existing staff at minimal cost, this strategy could work.

Notice that the combination of list size (dictated by frequency), demand per contact (dictated by frequency), and version contribution cause a doubling in e-mail volume, on a weekly basis.

Catalogers have long mastered this type of analysis, assigning profitability to each strategy. With e-mail, profitability is not as big an issue, so if one can avoid the fixed costs associated with incremental staffing, a move to moderate frequency with increased versions can yield a significant increase in e-mail sales.

Obviously, there are many ways to increase e-mail volume. These three basic strategies almost guarantee a positive return on investment.

No Targeting Strategy
Contacts	List	New	Unsubs	Net	$ per	Weekly	Total
per Week	Size	Subs	& Invalids	Names	E-Mail	Demand	Demand
1	100000	1000	650	100350	$0.20	$0.20	$20,070
2	100000	1000	900	100100	$0.15	$0.30	$30,030
3	100000	1000	1150	99850	$0.12	$0.36	$35,946
With Targeting Strategy: 2 Contacts Per Week
Targeted	List	New	Unsubs	Net	$ per	Weekly	Total
Versions	Size	Subs	& Invalids	Names	E-Mail	Demand	Demand
1	100000	1000	900	100100	$0.15	$0.30	$30,030
5	100000	1000	900	100100	$0.18	$0.36	$36,036
9	100000	1000	900	100100	$0.20	$0.40	$40,040

Simplicity

Please read the following quote, from a recent article about database marketing:

"… a visual analysis of dynamic site interaction that applies multiple interrelated business dimensions and online customer behavior simultaneously to decipher and arrange raw data will move companies toward making decisions that will create a more positive customer experience."

Then read this quote that Jim Fulton forwarded to me today, from Charles Mingus: "Anyone can make the simple complicated. Creativity is making the complicated simple."

We Database Marketers and Multichannel Retailers need to focus more on being simple. All too often, we scare the living daylights out of people with our geeky terminology, or we offend folks by using flashy words that convey almost nothing of substance.

Multichannel Marketing And Merchants

Our merchandising organizations provide passion and excitement. Heck, if these folks didn't believe in their product, why would the customer believe in the product?

Back in the day (i.e. pre-internet, 1995), catalog marketing was "the store". Say you mailed 1,000,000 catalogs, and put a dress on a quarter page of the catalog. If you didn't feature the dress, you sold $0. If you did feature the dress, maybe you sold $25,000 of merchandise.

Today, the internet is "the store". The catalog, while still very important, "influences" sales.

Today, you will probably sell $33,333 of merchandise instead of $25,000. However, the distribution of sales will be very different, assuming you run the dress in a catalog to a million folks on a quarter page:

• Telephone Demand = $10,000.
• Online Demand Driven By The Catalog = $5,000.
• Online Demand Driven By E-Mail = $3,000.
• Online Demand Driven By Search = $3,000.
• Online Demand Driven By Affiliates = $1,500.
• Online Demand Driven By Portal Advertising = $1,500.
• Online Demand --- Organic = $9,333.

Notice the difference between 1995 and 2007. Back in the day, a merchant got product in the catalog --- where product appeared, how it was presented, and who saw the catalog made a big difference. The merchant fought for her product.

Today, there are at least a half-dozen different avenues for the same item. There are numerous folks that the merchant has to work with, in order to maximize the sales of the dress she is trying to sell.

Most important, the merchant literally has a "portfolio" of investment options. The merchant doesn't have to feel terrified if the dress is not featured in a module in the e-mail campaign, for example. The e-mail campaign only drives a small fraction of total volume of this item.

Now that I'm running my own sole proprietorship, I get to talk to a lot of people across the catalog/online industry. I'm not convinced that we have done an excellent job of teaching our merchandising friends how different the marketing world is in 2007, compared with 1995. Maybe in some ways, we have yet to figure out how different the world is.

Improve The Product

Yesterday, I asked for suggestions to grow a hypothetical business by ten percent.

The options I provided were channel-based tactics, things you can do in the short-term, to grow top-line sales.

One should ask the obvious question, "why don't you just improve the product, why don't you create something remarkable that the customer craves?"

I take you to a board room I was in, many, many years ago. Customers did not want to buy our merchandise, they were voting "no" with their wallet ... for at least a year.

Most of the merchandise we sold was private label. This means we created, designed and sourced our own merchandise. If we wanted to improve the product, we had a nine to twelve month process ahead of us. You don't simply go out and find new, better product. You improve product today --- but the product isn't available to the customer for almost a year. Your job is to increase sales today.

So we're meeting in this board room. It is November, and we are talking about our sales plan for the next fiscal year, which begins in February. Remember, new product takes nine to twelve months to develop and make available to the customer.

Our sales plan, based on what has happened over the past year, did not meet the expectations of our President or our CFO. I was responsible for creating the sales plan.

After taking a half-hour of heat from the executives, I became defensive. I simply turned to our Chief Merchandise Officer, and said "If we could just improve our merchandise productivity, we wouldn't be in this situation."

Once words leave your mouth, you cannot take them back. As the light-hearted smile that previously adorned the face of the merchant turned into a rage-based, crimson-colored scowl, I realized my choice of words, while honest and accurate, were not going to produce the result I desired.

Eight executives watched as the merchandise executive shared thoughts, opinions, and assorted non-positive commentary with me.

Our President and CFO turned their attention back to me, and asked "What are YOU going to do to improve sales next year?"

When faced with constraints, you go back to the tactics that you are accountable for. You try to add catalogs, add pages, remail old catalogs to your best customers. You look to add a second or third e-mail contact each week. You try to add affiliates who could refer sales to your website. You look at marketing strategies surrounding your best customers, your most productive customers, because you simply cannot afford to send crappy merchandise to customers who are unlikely to buy anything --- that's a recipe for financial disaster.

Of course, the strategy of adding remailed catalogs, adding additional catalog contacts, adding pages, adding e-mail contacts, adding affiliates, increasing online marketing spend, you name it, is a long-term recipe for financial disaster. We add these tactics to grow sales. Then the merchandising team does a good job, and these tactics become profitable. Inevitably, however, customers don't want to buy your product, or become frustrated by being spammed by your marketing activities.

In many cases, you cannot "retreat". Your shareholders won't tolerate a "rightsizing" of the marketing plan, in order to profitably drive sales. In other words, you couldn't reduce your bloated catalog or online marketing budget by forty percent, because it would come with a twenty percent reduction in sales --- a result that is not acceptable to your executive team or shareholders.

In a perfect world, you create great product that customers crave. In our world, not everybody creates great product that customers crave. Regardless, we have to find ways to grow sales without the benefit of great product. That's the job of a Database Marketer.

Growth Strategy

Your forecasting analyst suggests your telephone sales will decrease by ten percent next year, while your online sales will increase by ten percent next year, yielding flat corporate growth.

Your CFO is unhappy with this projection, and demands that the business grow by ten percent next year.

There are many ways you could grow the business. Here's a sampling of opportunities:

• Catalog Strategies
• Add catalogs to the mail plan (currently at 30 in-home dates each year).
  
• Add pages to each catalog.
• Remail catalogs to the same customers.
  
• Increase circulation in each catalog --- either customer acquisition or reactivation.
• Other ideas?
  
• E-Mail Strategies
• Increase e-mail contact frequency from one per week to two or more per week.
• Increase the number of targeted e-mails from five versions per contact to ten or more.
• Other ideas?
• Online Marketing Strategies
• Improve natural search opportunities.
• Spend more on paid search, or be smarter about paid search.
• Increase affiliate partners.
• Spend money on portal advertising.
• Start a corporate blog.
  
• Other ideas?

Prioritize the top three ways you would try to grow sales, and describe why you would use the techniques you chose to employ? Which strategies do you think drive the most incremental sales, at the lowest cost?

Do Online Conversion Rates Differ By Business Model?

Please click on the image to enlarge it.

Each year, Internet Retailer publishes their Top 500 websites, in terms of annual net sales.

If one is willing to take the time to have information transcribed into digital format, there are interesting tidbits to consider, including information about conversion rates and business models.

In this case, I took the top three hundred sites, and analyzed various performance metrics by the type of business model employed by the brand.

In other words, Crutchfield would be viewed as a cataloger, due to their catalog heritage, whereas Talbots would be viewed as a Retail Chain, due to their retail heritage. Blue Nile would be a web-only business. Sony would be a Consumer Brand Manufacturer. Internet Retailer made these determinations.

Of the three hundred sites, I adjusted the top ten and bottom ten outliers for each metric. For instance, if the top ten conversion rates were 20%, 18%, 17%, 16%, 15%, 15%, 15%, 14%, 14% and 14%, then I adjusted all ten outliers to 14%.

Now for today's tidbit. An analysis of conversion rates by business model indicates that Catalogers have the highest website conversion rate at 4.89%, followed by Web-Only businesses at 3.92%, Retail Chains at 3.05% and Consumer Brand Manufacturers at 2.99%.

Catalogers have natural advantages. They bring in traffic via catalog marketing and online marketing. Retail Chains have disadvantages online, in that websites are used for research that results in an online purchase. Consumer Brand Manufacturers have distinct disadvantages, in that conversion may actually happen at a Cataloger, Web-Only Business or Retail Chain.

For catalogers, the news is encouraging. With postage and paper costs impeding the catalog marketing channel, this provides hope. Undoubtedly, catalog marketing will evolve as the cost structure makes traditional catalog marketing difficult. Catalogers will evolve their online experience further away from "order taking", moving closer to the experience provided by Web-Only businesses. The economics of catalog marketing will dictate this.

For retailers, the news is encouraging. The data may indicate that the retail channel gobbles up between thirty and sixty percent of possible orders. Online marketers within retail businesses have an opportunity to analyze "incremental" profit and loss statements, those that account for the sales that are truly driven by the website. Ultimately, appropriate cross-channel analysis should result in a bigger marketing budget for online marketers in retail organizations.

These Folks Know Your Business

Tomorrow is Friday. Be honest, the last place you want to be on a glorious late spring Friday is in a temperature-controlled building working for the Man.

But you have to be there, your have to save your "paid time off" for your August vacation in Banff.

So make the best of your Friday. Go into your database, and pull every purchase transaction for the past five years that came at the hands of one of your employees.

Now that you've done that, see if there is any correlation between how much your customers spend each month, and how much your employees spend each month. In particular, you are looking for "changes in spend". In other words, if your employees spent $5,000 in May 2006, and they spent $5,500 in May 2007 (and you have the approximate same number of employees, year-over-year), you have a 10% "comp-employee" increase.

Why would you do this? Often, there is a high degree of correlation between employee spend and customer spend.

This becomes important when your sales go in the tank. If your sales stink, and your own employees aren't buying your merchandise, you know exactly who to ask why. No need to fly business class to Austin to hear nine individuals wax poetic about emotional attachments to brands. Just walk down to the contact center or fulfillment center, and look in the eyes of a person working ten hour days at eleven dollars an hour. S/he may hold the key as to why business stinks. At worst case, s/he actually talks to the customer, and can relay that information to you.

Similarly, if business is smokin', these folks know why.

So give this query a try before you sneak out of the office at 2:30pm to get an early start on the weekend!

Are Relationships Changing?

My first two jobs were at intensely competitive companies.

At the Garst Seed Company, we were fourth in market share, losing money, fighting for our existence. We were fighting against the big boys at Pioneer.

We were downright competitive at Lands' End, too. Stuck in the middle of the country, with L.L. Bean to the east and Eddie Bauer to the west, we wanted to win in the early 1990s.

Two of my favorite experiences were part of cross-functional teams. Getting Eddie Bauer Direct to go from break-even to an at-the-time record $26,000,000 EBIT was fun, and it was especially neat to see merchants, brand marketers, finance, information technology, online marketing, contact center operations, creative and circulation all work together to make it happen. We openly talked about and shared ideas. And for a brief period of time, we were a well-functioning team.

The other really enjoyable experience was in 2003-2004, when Jim Bromley unified a similar team, a team that turned Nordstrom Direct from an epic failure to a money-printing machine.

Since then, the internet and blogosphere seem to have changed things.

Our allegiance to cross-functional teams within a company is being transformed by cross-company teams within an industry.

I see this happening every day. I follow an e-mail discussion group that talks about various topics within the e-mail industry. There are blogs for just about every possible discipline. Fans of any discipline can readily exchange ideas and thoughts with each other, across industries, within industries. You'll see folks from one competitor share ideas with folks from another competitor.

The changing face of relationships was illustrated to me earlier today. In the e-mail forum I follow, an individual asked if anybody leveraged partnerships with the web analytics folks to complement the metrics used to analyze e-mail campaigns.

This question was almost unfathomable to me. Fifteen years ago, you would simply walk down the hall and ask somebody to help you.

Today, you float your idea into the ether, to see if others in your field are already implementing your suggestion.

I'm not sure whether this is good or bad. In the old days, you'd develop your ideas internally. Some companies would win, some would lose. You learned things when you left your company, and went to work somewhere else.

Today, the ideas are homogenized. How many clever e-mail, web analytics, marketing, creative or merchandising ideas can there be if they can all be readily shared in nano-seconds on a blog or message board?

Ok, your turn. Do you notice that relationships are changing? Is this good or bad for an individual person's career? Is this good or bad for the profession we work in? Is this good or bad for the companies we work for?

Being Humbled

Early in my tenure at Nordstrom, I was asked to fix the way we forecast how well a potential new store would perform.

My team spent about four months developing a new process, and sure enough, the new process was a lot more accurate than the old process.

We were happy with our performance.

But somewhere along the way, I failed to communicate to our executive team that we developed a new process that was working better. I said the words to our management team. I shared the powerpoint slides. But due to my failure to communicate, or for reasons not shared with me, management did not feel like my team and I did a good job.

What do you do when you work at a big company, and you need a problem solved? You open up the wallet, and call in the big guns at a management consulting firm.

In came an army of consultants, well meaning individuals tasked by management to solve a problem that I apparently failed to solve.

If you are an analytical professional, especially in a leadership position, there are few ways to be humbled more than being at the mercy of the folks from a management consulting firm.

First, you have to sit through a couple of days of "fact finding". The consultants are given one of your prized conference rooms for eight weeks, ensuring that you are always a few feet away from serving their needs. They ask a lot of questions. "Have you ever thought about using your online buyer data as a proxy for new store performance?", or "Can I see the exact methodology you use today, including all relevant spreadsheets, and can I have that information delivered to me with the actual raw data in fifteen minutes, thanks?!"

This makes you feel defensive. Of course you've thought of everything the consultants are talking about, in fact, you already implemented those ideas, and improved the process!! The management consultants have a job to do, however. They take detailed notes on their laptops, and move on to the next set of question.

Over the next week, the consultants begin asking your executive partners for their ideas. You're not allowed to be in those meetings, but you know they are asking your co-workers about your strengths and weaknesses as well as asking them business questions they should be asked. This will lead to trouble in eight weeks, when the project is over.

For the next two weeks, you start a new job. Your job is to give the consultants whatever they want, whatever data they need, shaped however they need it. And they have a lot of needs!! You lose grip over your day job. Your team is strung out, they want to know why they are being stepped on.

Next thing you know, you have about a month of peace.

Then the project is about to wrap up. There is a presentation. Your management team, the management consulting team, and a select few members of your humble group of underpaid analysts are gathered to hear the findings.

The findings are not significantly different than the work your team did. You are surprised that a company could spend this much money to get a product that is barely any different than what your team previously created.

When the management consultants finished their work, management told me they were thrilled with the outcome of the project, and communicated their excitement over seeing my team implement the solution created by the management consultants.

Yet the outcome was not significantly different than the work my team did. Obviously, something was wrong with my perception of the situation, or management wouldn't be happy with the work that the management consultants did.

Within days, the management consultants left. My team had to implement their solution.


One of the biggest challenges facing individuals with a skew toward numbers and analysis is communication. Communication problems magnify themselves as you ascend the corporate ladder. Analytical individuals use a style of language that is not easily understood by leadership. We often attack this problem by hoping that management will adapt to us. We talk slower, using the same language that failed to work properly in the first place.

Take time to learn the hidden language of your management team. Ask direct questions about your performance, and listen closely to the choice of words used by management. Realize that management decisions aren't always made on the basis of facts and figures. Realize that management does not see facts the same way you see them. Realize that management may be under pressure from their Board of Directors, causing them to make decisions that appear mysterious in nature.

Most important, invest a lot of time in the adaptation of your communication style. Your job may depend on your ability to adapt.

People Matter

Two things struck me this afternoon, two things from different realms.

• If you're addicted to motor racing like I am, then you were saddened today by the loss of former NASCAR leader Bill France Jr.
• An article from Bookstone about the merits of their relationship with Abacus.

What do these two completely unrelated topics have to do with each other?

The first article illustrates the importance of people, in this case, how one leader shaped thousands of lives and influenced millions of people.

The second article ignores the importance of people. Quotes attributed to a Brookstone executive suggest that a revolutionary product is responsible for unfettered business success.

Catalogers have always known that the creativity of people (and an steely-eyed focus on every detail of efficiently running the operations of a business) drive success.

All too often, multichannel marketing and online marketing focus on technology, on algorithms. We brand our technology, creating demand for a product or service.

But behind the scenes, people invent technology. People create algorithms.

What would happen if a vendor marketed the people responsible for a product? Instead of branding a product as being wonderful, what if the vendor publicly praised the people who created the product? Would we view a vendor differently if we knew that reputable multichannel expert "Bill Smith" is responsible for a product, and puts his reputation behind the product or service?

People matter. If we want multichannel marketing to succeed, we need to reward people for their efforts.

Answer me this: Name three individuals who are well known and respected for their expertise in multichannel marketing? Go ahead and write their names in the comments section of this post.

People matter. Let's start cultivating tomorrow's leaders.

Ten Ways We Will Save Multichannel Marketing

I once had a CEO tell me, "Don't tell me what is wrong, anybody can do that. Tell me how to fix what is wrong". With that in mind ...

Number 10 = Storytelling: One thing that was crystal-clear to me while attending my first NEMOA conference in March is that New England catalogers are better than anybody else at telling stories. This is a HUGE competitive advantage that catalogers possess over online pureplays, and for the most part, over retailers. When is the last time you felt romanced visiting Amazon.com? The further we progress down a technological path, the "colder" our world gets. Catalogers have always been best at being "warm", best at romancing a customer. Read the creative description of this product from Cuddledown of Maine. Use your eighty-four pages of catalog marketing to tell a story. Have what is on page nineteen relate to what is on page thirty-seven. Make the customer want to turn the page to see what is next. If the customer wants to go online and buy the product featured in a catalog, so be it. Online marketing is all about intercepting the customer at a time of need. As customers, we don't want to buy merchandise that way --- we buy the story as much as we buy the merchandise. Catalogers are great at "creating demand". We should exploit this gift we possess.

Number 9 = Band Together: Cataloging and Retailing have always relied upon healthy competition in order to grow. If you are Gap, you want to be in a mall where your competitors are, because a critical mass of popular apparel retailers fuels traffic. Catalogers have always partnered with each other, renting/exchanging each other's lists in order to facilitate growth. A sustainable version of this doesn't exist online --- we rely upon Google to parse traffic. If I were a charter member of the ACMA, I would build a shopping portal that features all member brands. I would construct the site to be search-engine friendly, so that customers searching for a dress shirt would arrive at this portal, and would be encouraged to shop Paul Frederick MenStyle. Use the collective interests of all members to raise the presence of the organization among search engines. Catalogers can band together, and leverage each other's strengths to grow their business.

Number 8 = Be Proud: If you are a cataloger ... BE A CATALOGER! You are not a "multichannel merchant". Conferences and publications invented that term for their own benefit. Retailers tell you over and over that they want to use the web to support stores. Their focus is ... guess what ... RETAIL! Be proud, you're a CATALOGER!

Number 7 = Creativity: We should be doing the exact opposite of "same look and feel across channels". We grow and evolve through experimentation. How else do we learn what works best? We don't improve by homogenizing our marketing, we improve by experimenting, by diversifying our marketing. So be creative, experiment, learn what customers want from us.

Number 6 = Let Them Do Their Job!: One channel is going to inevitably achieve greater sales than another. Multichannel organizations that have a retail arm frequently drive the majority of their sales via stores. In these cases, let the online/catalog folks do their jobs! Homogenization of business processes sub-optimizes the benefits of each channel. You don't have to adjust catalog in-home dates to match up with floorset changes in the store, unless that is what is best for your customer. You don't have to feature every store product online, you can have online-only merchandise, you can have merchandise only available in stores. Let the folks managing each channel do their jobs. Let these folks create demand. Don't stifle employees on the road to multichannel excellence.

Number 5 = Web Analytics: Have you ever sat down and spent an hour with your web analytics guru? Try it sometime. This person knows more about how customers are responding to your business at this moment in time than almost anybody in your company. Soak in everything this person says, don't let terminology issues taint the knowledge this person possesses. Once you've soaked in the knowledge this person has, apply the knowledge to your catalog and store marketing efforts. This person knows what is happening real-time. Don't put this person in a dark room, shine a light on what this person knows.

Number 4 = Web Analytics: Nobody wants to hear that 3.07% of visitors converted to a purchase. That makes us sound like we're failing. Merchants want to hear that loyal customers visited the website eight times last month, with a quarter of them purchasing at least once. That's a story that indicates we have a compelling website. Ironically, the metrics yield almost the exact same outcome!!! Our focus on converting a customer NOW fails to convey the rich experience customers actually have with the businesses we manage. Customers visit our site (and our competitors) multiple times before deciding what they want to do. Create metrics that actually mirror customer behavior, metrics that adequately explain our successes, not ones that beat us over the head with perceived failures.

Number 3 = Invest In Your Employees: Maybe this is old-fashioned thinking. We can save multichannel marketing if we simply invest in our employees. If you sell gardening supplies via catalogs, why not send your catalog and online marketing employees on a field trip to an online pureplay, to see how they think about their business? If you sell apparel, why not send your catalog and online marketing employees to a non-competitive retailer, to see how those folks merchandise a store? Invite a non-competitive cataloger to visit your campus, and create a workshop where they get to design a marketing campaign for you --- how do they approach your craft, what can you learn from them? Give your employees the tools to succeed. Even more important is the investment in line staff, the folks who are paid eleven dollars an hour to actually fuel our business. Give these employees incentives to do good. Pay a call-center employee ten dollars every time he solves a customer problem by using multiple channels. Pay a store employee ten dollars every time she solves a customer problem by using the website. Invest marketing dollars in your own employees, and see what happens.

Number 2 = Technology: There's a reason the term is called "Multichannel Marketing" or "Multichannel Merchandising". It's because marketing and merchandising create demand. Technology doesn't create demand, technology facilitates the interaction between customers and marketers/merchandisers. We need to let marketers determine the vision for our websites, we need to let the technology folks do what they do best.

Number 1 = Gut Instinct: Gut instinct plus timing equals innovation, innovation fuels future profits. Too much of online marketing is formula-based, Darwinian-style evolution, a reaction to "what is selling real-time". Catalogers have always been great at using gut instinct (the vision of the merchandiser or marketer) to fuel customer demand. Catalogers and Retailers create demand. Online Marketers adapt to response. Ultimately, creation and adaptation employed in harmony yields great outcomes. Too often, we focus on the cold science of measuring response. We need to save multichannel marketing by focusing more on the application of gut instinct to merchandising and marketing. We need to create. We need to lead. We need to innovate. We need to be "warm", not "cold".

Your turn, how would you save multichannel marketing? What are your ideas?

Ten Ways We Ruined Multichannel Marketing

Multichannel Marketing used to be called "Direct Marketing". Those were heady times. Now, we've ruined our once-promising method of selling to consumers and businesses. Let's look at ten ways we ruined what we now call "Multichannel Marketing".

Number 10 = E-Mail And RSS: There was an inflection point in the late 1990s, when e-mail could have been saved, and one in 2004 where RSS could have been saved. We stood by and watched. What would have been nice is the creation of a marketable, non-geeky, non-technical solution that the customer could have pulled into her inbox. Obviously, that solution is RSS. But who trusts a three-letter acronym that has no meaning to anybody? Allegedly, we're brilliant marketers. But we couldn't market a technology that allows the customer to pull whatever she wants into a secure, trusted inbox folder, without interference from twenty-four spam-based messages. E-mail and RSS could have replaced direct mail as the best way to drive volume, had they been managed differently. We're told that E-mail has the best ROI, yet since the advent of the tool, our businesses are not one bit more profitable. We failed.

Number 9 = Short Term Focus: Ignore the pointless arguments about whether lifetime value should sit at the "C-Level" table. Once you've sat at the "C-Level" table, you'll find it isn't very glamorous. We do almost everything to drive business today. We gear most of our marketing measurement around how an e-mail campaign did at driving click-thru rates over a twelve hour period of time, or how a search term drove conversion during a session. Our management teams are given incentives to increase sales and profit today --- incentives that far exceed their actual contributions.

Number 8 = Integration: We were told that we had to align marketing and merchandising across channels, because the customer demanded it. Did your customer demand it, or did you read this in a $279 research report? If the latter is true, who benefits, the customer, or the one producing the $279 research report? We made huge mistakes aligning our marketing and merchandising. First, in order to align these areas, we realized we didn't have the systems infrastructure to align areas properly. Second, putting the systems infrastructure in place to meet this vision requires money --- so instead of investing in the customer, we invest in a systems infrastructure, benefiting vendors. Third, to align marketing, we made compromises that homogenize marketing, lowering response within any one channel.

Number 7 = Shipping: We butchered shipping and handling. We charged our customers $16.95 for a service that they can employ UPS to do for $10.95. Customers aren't dumb, they know they are being gouged. Worse, we offered customers free shipping, charging them nothing for a service they can employ UPS to do for $10.95. We trained the customer that charges for shipping are evil. We trained the customer to expect to receive merchandise for free, though it may be unprofitable at the scale of business we manage. Why didn't we train the customer to expect to receive merchandise for $5, or $7? Why didn't we build an equitable partnership with our customers?

Number 6 = Career Development: Who is training tomorrow's multichannel leaders? By default, our merchandisers are taking control of the future of multichannel marketing. Merchandisers have to sell products across all channels. They learned how to do this without having the systems infrastructure to be effective. While everybody else defended their own turf, becoming experts at managing a niche, merchants became the rulers of the roost. It will be a decade before anybody else has the multichannel knowledge and experience to rival our merchandising co-workers. Why can't I buy a $279 research report on how to manage career development in a multichannel marketing environment?

Number 5 = Channel Dominance: If you worked for a company that has a catalog channel, an online channel, and a retail channel, you know what I am talking about. Dell is about to learn all about channel dominance. Dell will learn that customers who are given a choice between buying something online or in a retail setting will inevitably migrate to the retail setting. Over time, this mitigates all of the advantages of the direct-to-consumer channel. The dominant channel, and the sales rhythm of the dominant channel, require the other channels to "support" it. Anytime one channel "supports" another, it becomes compromised. Why do you think Macy's, Neiman Marcus and Nordstrom are in an arms race to build-out their online infrastructure? Each business wants to use the online channel to "support" their store channel. Anytime the online/catalog channel "supports" stores, sales in the "support" channel suffer, degrading the potential of multichannel marketing. Eventually, the catalog becomes a "brand advertising" tool. Eventually, the online channel becomes a "dictionary" or "encyclopedia" used by the customer to purchase store product. Eventually, "direct marketing" as an art/craft is compromised, unrecognizable.

Number 4 = Marketing's Digital Divide: What a waste. Catalogers honed their craft over more than a hundred years. Then online marketers invented a craft over a decade. Brands use both tools to grow sales. But the skillsets used in each craft are different, and we haven't cross-pollinated folks how to work with both crafts. Go to a NEMOA or Catalog conference, and you'll bask in the knowledge of a generation of catalog experts who are in their 40s, 50s and 60s. Go to any online-based conference out west, and you'll bask in the energy of a generation of online marketing experts who are in their 20s, 30s and 40s. Different channels, different tools, different generations, different mindsets, same objective. It could have been different, had the dot-com explosion of a decade ago not divided all of us so much.

Number 3 = Profit: The all-mighty quest to achieve 6.9% pre-tax profit instead of 6.2% pre-tax profit, to drive "shareholder value", causes us to make decisions that look good in the short-term. We send remails of catalogs, wrapping a new cover and back page around the same creative, hoping our customers won't notice. Private equity buys numerous companies, integrates backend and management operations to reduce expense, and then cross-pollinates the housefiles of each company to save on rental/exchange/co-op expenses (I lived through a version of this at Eddie Bauer). Circulation teams outsource the most vital part of their business, customer management, to a random statistician at a compiled list vendor. We ship merchandise overseas to be assembled, then ship it back here, all to lower cost of goods by a dollar a unit. Then we grumble when the worker in Indiana who used to have a job can no longer afford our product because her job was "outsourced" by our very-own company. We farm out call-center activities overseas. How does the customer benefit from all of these activities, long-term?

Number 2 = Google: Multichannel Marketing is doomed to fail in a Google-dominated world. The very thing Google gives us as customers, the very thing we love (relevant choice), is what will destroy the businesses we manage. Today, we love it that Google drives 20% of our website traffic. Once online growth stops, and Google makes changes for no good reason that reduce our traffic from 20% to 14%, what is our recourse? That's the kind of change that gets an Executive fired. That's the kind of change that turns a 6.2% pre-tax profit business into a break-even pre-tax profit business. That's the kind of change that causes you to lay-off your online marketing analyst. That's the kind of power that Google holds over you --- you just don't see it today, because your online volume is growing year-over-year at acceptable rates.

Number 1 = The Punditocracy: There's a reason that some conferences lock vendors out of sessions. Everywhere you turn, some pundit is telling you what you must do to succeed, is telling you why you are a failure, or is beating the living daylights out of the failure of some "brand". All too often, what they tell you to do requires you to purchase their services. All too often, this strategy creates financial and emotional benefit for the punditocracy, not for your business, not for your customer. The punditocracy hijack relevant trends, turning them into "solutions" for perceived failures within you brand. If all of these "solutions" are so fantastic "in today's multichannel world", how come businesses aren't rolling in profit? The punditocracy pushes us toward their vision of the future, not toward a vision of what our customer wants from us. Our failure to shut out the punditocracy, our desire to trust organizations not truly doing things in our best interest, to trust somebody with a perceived "solution" over our own gut instinct, is causing us to lose control over our businesses, to lose control over the expense structure of our business, and to provide a homogenized "solution" to our customers. Worst of all, we did this to ourselves. We're ultimately responsible. If we don't buy into what the punditocracy tells us, they don't stay in business.

Ok, you're turn. In what other ways did we ruin multichannel marketing? Or, maybe you want to defend multichannel marketing --- go ahead, express your point of view.

Site Changes

I added a couple of features to this blog.

Anytime a "Friend of MineThatData" writes a post on his/her blog, or is mentioned in the blogosphere, a link will be available for the reader to click on. This gives the reader an opportunity to click on the latest news about individuals writing about database marketing, customer analysis, web analytics and customer behavior.

Just below that feature are links to recent news about database marketing.

If you have a moment, please give each new feature a look. Both features are located on the right-hand side of the blog.

Thanks,
Kevin

Rewarding Greatness

If you are basketball fan, then last night you witnessed a 22 year old named LeBron James make the move from potential to a previously unseen blend of genius, talent, leadership and physical gifts.

Are there instances when you witnessed an employee as s/he experienced a "defining moment"?

How do you reward an employee who has a "defining moment"?

I had an employee who had a defining moment. This person went beyond anything I ever thought this individual was capable of. Once this employee crossed this threshold, there was no turning back. This person became a leader, out of nowhere, at a completely unexpected moment in time.

The latter portion of that sentence is what causes struggle in companies.

I immediately wanted to promote this person. And I immediately became demoralized.

I could not promote the individual, because there were "x" leadership positions available. We would need one person to leave the company, or be promoted, in order to open up another leadership position.

I could not give this person a salary increase, because the grading system utilized by our compensation department indicated this person was properly classified, and properly compensated. Furthermore, salary increases were tied to annual performance reviews, which weren't due for six months. Even worse, a future salary increase for this individual would require that another person not receive as big an increase, in order to balance the "salary increase" budget.

And I was a Vice President. I should have been able to do more than I did.

We do odd things in companies. We won't reward an employee at his/her moment of greatness. We will reward an employee when a brand has a need. We quickly seek leaders when sales are in a free fall, purging those we previously thought highly of in favor of a "new regime".

All too often, the employee, having achieved an unexpected level of professional growth, looks outside the company for a reward. There are plenty of brands who will take a chance on this individual.

What are examples of businesses that have properly rewarded greatness, and what examples have you observed where greatness hasn't been rewarded? Have the companies you have worked for recognized your greatest moments?