A Multichannel Manifesto

Yesterday I asked you, the loyal reader, to share with the MineThatData community the leaders you believe are great multichannel marketers.

The response was underwhelming (i.e. no response), and underscores a challenge we're going to have to overcome over the next five years.

Are there any leaders who can put together all aspects of multichannel marketing, and speak to this craft in a credible way that drives increased customer satisfaction, sales, and profitability?

I'm aware of a business that has a "multichannel manifesto", a multi-page statement that tells all employees key facts about how customers behave in a multichannel world. I've paraphrased, revamped and added to the statement. The statement is outlined below. Could/should your organization produce a version of a "multichannel manifesto"? What would you add to this manifesto?


"At Acme, we leverage multichannel marketing to improve the shopping experience of our customers, and to improve the long-term profitability of our brand.

We don't necessarily believe that multichannel customers behave differently than other customers. We can simply measure more aspects of the multichannel customer relationship, and desire to use the information to grow long-term sales and profits.

Here is what we know about multichannel customer behavior.

First, the role of the catalog has changed. It is no longer the primary driver of sales at Acme. Still, we believe catalog plays a critical role in 'creating demand'. We know we have to dazzle the customer in the first twenty pages of the catalog, or the customer loses interest and purchases less merchandise from us. We know we have to mail a customer a catalog every three weeks. Mail less often, we lose demand. Mail more often, we cannibalize sales and become less profitable.

Customers take eight weeks to respond to a catalog over the telephone. Customers take four weeks to respond to a catalog over the internet. Customers take ten days to respond to a catalog in our stores.

Our catalog customers are suburban and rural, and have different needs than online or retail customers. Therefore, we are willing to merchandise catalogs in a way that maximize sales among the target audience. We are willing to create a 'look and feel' that is appropriate for our catalog target. We are willing to feature different merchandise in catalogs than online or in stores, because we've learned that when we advertise the best product in any one channel, we cause customers to purchase non-featured merchandise in other channels.

We are fully aware that our catalog and online channels are profitable when there is a steady flow of new customers into these channels. While loyalty efforts are considered important, the best route to long-term growth in our catalog and online channels is to constantly add new customers in a cost-effective manner. We know that new catalog and new online customers eventually become good retail customers, and calibrate our marketing activities around this central truth.

Our online channel is most representative of our overall brand. We know that for every dollar driven to the telephone channel by catalog mailings, we drive $0.40 to our online channel. We no longer obsess with conversion rates and abandoned shopping carts, because we've learned that our customers use the website as a research tool to facilitate purchases in any channel. We know that it takes four visits to the website before a customer will purchase merchandise online for the first time. Our best customers visit our website six times before placing an order. And when that order occurs, twenty percent occur over the telephone, fifty percent occur online, and thirty percent occur in stores. Traditional conversion rate and shopping cart metrics fail to measure the true relationship our customers have with our brand, but are appropriate for improving the effectiveness of the online channel.

We realize that our customers have relationships with other brands. We know this because sixty-five percent of all search-driven purchases occur among customers who last purchased within the past twelve months. Online marketing plays a key strategic role in our organization. Without portal advertising, affiliate marketing and paid/natural search, we are convinced we would give up market share to our competitors.

We know that online marketing strategies are different than traditional marketing strategies. Our online customers are highly responsive to discounts, promotions and incentives, based on the testing we've executed. We are willing to offer specific online incentives that benefit the customer, and further the long-term profitability of our brand.

Online customers are frequently suburban customers.

Nearly half of our active customer base subscribe to our weekly e-mail marketing campaigns. We know that if we assign customers to any one of four different creative presentations / merchandise offers, based on prior purchase history and stated customer preferences, we improve e-mail campaign performance by fifteen percent.

The average e-mail campaign has a life of forty-eight hours. E-mail campaigns delivered early in the week benefit our online channel. E-mail campaigns delivered late in the week benefit our retail channel. For every dollar driven online by an e-mail marketing campaign, we drive sixty-five cents of net sales into our stores.

We've learned that our retail customers are often different than our catalog/online customers. While nearly half of our catalog/online customers will purchase in a store, only fourteen percent of our store customers will purchase via catalog or in our online channel.

Our retail channel significantly benefits from catalog/e-mail/online marketing activities. As a result, we encourage retail purchases via our direct marketing activities, knowing customers are driven into stores. We've learned that retail customers are largely suburban or urban residents. This somewhat limits the effectiveness of catalog advertising, which is most effective to a rural audience.

Our retail customers are significantly more loyal than our catalog/online customers are. As a result, our loyalty efforts are largely directed at our best retail customers.

We realize that all of our marketing activities 'work together'. One out of every four online purchases were placed by a customer who received at least one catalog in past month, at least one e-mail in the past month, and arrived at our site via paid search in the past month.

Given these facts, we are taking steps to integrate our customer service, inventory and merchandising systems across the enterprise. That being said, we realize we must continue to educate all employees as to how multichannel and single channel customers behave, so that we can maximize customer satisfaction, sales and profit across all channels.

Bill Walsh, The Coaching Tree, And Multichannel Marketing

Former San Francisco 49er football coach Bill Walsh passed away today.

I've always been fascinated by his "coaching tree'. He had a group of assistant coaches in San Francisco who went on to become head coaches elsewhere. Many had tremendous success, like Mike Holmgren (being part-owner of the Green Bay Packers, I have a soft spot for Coach Holmgren). Holmgren's tree includes Mike Sherman, Andy Reid, Steve Mariucci, Marty Mornhinweg and Brad Childress.

In multichannel marketing (catalog + online, online + retail, catalog + online + retail), who are the leaders, and who are the disciples who carry multichannel marketing to new levels? Who are the folks who are doing genuinely innovative work, the folks who build upon what innovators have done, and create something new, interesting, successful, profitable?

Tell us about the folks you've worked with who have had an impact on multichannel marketing in the comments section.

I can honestly say that I've borrowed from the strengths of many different folks who I've worked with or followed over the years (and the company I worked with these individuals at):

• Ron Mowers, Garst Seed Company: Patience.
• Lori Liddle, Lands' End: Unparalleled passion for creating a 'perfect' circulation plan.
• Dave Johnson, Lands' End: People skills. I haven't worked with another individual who valued people as much as he did.
• Jim Fulton, Lands' End: His consulting practice is thriving because he figured out how to generate useful information from computer programs, information that shows how the future of a business is likely to evolve. This spurred my interest in what I now call "Multichannel Forensics".
• Bill End, Lands' End: It was great to work with a President/CEO that would take time to teach an arrogant, garden-variety analyst like myself how the world worked.
• Harry Egler, Eddie Bauer: Harry lets you do your job without micromanaging the details.
• Rick Fersch, Eddie Bauer: The President/CEO had one phrase that told you what you needed to do ... "Drive Sales Profitably". In other words, increase sales AND increase profit. The other phrase that proved prophetic was "Grow or Die".
• Brian McAndrews, aQuantive: I only spoke the President/CEO of aQuantive twice. The second time was when I resigned to become VP of Database Marketing at Nordstrom. He only had two questions for me. One was "... but do you still believe in our business model?". He stuck with the company from $78 a share to $1 a share to selling to Microsoft at $65 a share. How many other online leaders "sold out" when the going got tough?
• Blake Nordstrom, Nordstrom: He stayed away from gaudy, confusing, high-flung strategies. Most interesting --- in February 2005, I wanted to apply for the President of Nordstrom Direct position. Blake told me in plain, simple language that I did not have the skills he believed were needed for the position. He wasn't mean. He was simply matter-of-fact about it. The conversation fundamentally changed the direction of my career --- I knew it the moment I the conversation ended. Who knows what might have happened had he danced around the subject, or worse, been dishonest?
• Jim Bromley, Nordstrom: He was the President of Nordstrom Direct, and like Dave Johnson, accomplished a heck of a lot by believing in people over marketing gimmicks or high-flung strategies.
• Frank Buettner, Nordstrom: He cared about the $11/hour call center and distribution center individual. 'Nuff said.
• Brooke White, Nordstrom: The PR Executive who did things opposite of every other PR person I've met. Never heard her name before? There's a reason for that. She would do anything to protect the Nordstrom family, or the Nordstrom culture.
  
• Linda Finn, Nordstrom: The EVP of Marketing rescued me from a lousy situation. She also valued people over marketing gimmicks or technology.
• Don Libey, Guru: How many people would publish two books from an absolute nobody? These books kick-started my new endeavor. Who knows how many other kinds words he's spread about me that have helped me get this thing going?
  

E-Mail Marketing Investment

An executive recently spoke the paraphrased sentence below, when talking about his e-mail marketing program.

"We measure the living daylights out of e-mail. But at the end of the day, it really doesn't move the needle a whole lot. All of our e-mail subscribers were prior catalog buyers, so incrementally, there's very little value to e-mail."

On the surface, it is easy to see how an executive can come to this conclusion.

Results from an e-mail campaign might look like this:

• Open Rate = 22%.
• Click-Through Rate = 31%.
• Online Conversion Rate = 3.4%.
• Average Order Size = $110.
• Sales Per E-Mail = 0.22 * 0.31 * 0.034 * 110 = $0.255.

There are two numbers in this series of metrics that cause an executive to believe that e-mail doesn't "move the needle". One is hidden, one is obvious.

• Hidden Number = Actual percentage of customers who purchase because the e-mail was sent to them.
• Open Rate * Click-Through Rate * Conversion Rate
• 0.22 * 0.31 * 0.034 = 0.002319.
• 1 in 431 customers who received the e-mail purchased something.
• Obvious Number = $0.255 per e-mail.

The hidden number is the most disappointing aspect of e-mail marketing. To think that, in this case, only one out of every 431 customers thought the e-mail was compelling enough to purchase something is a genuine failure of direct marketing.

Of course, e-mail marketing has different dynamics than other forms of marketing. Good marketers actively build a large list of e-mail addresses to market to.

If you are like some major multichannel retailers, and you have 3,000,000 e-mail addresses, you aren't disappointed in a $0.255 sales rate per e-mail. Why? Because $0.255 * 3,000,000 * 52 e-mail campaigns per year = $40,000,000 of annual sales volume.

Better yet, there is very little incremental cost associated with sending one additional e-mail. One might have to spend $8,000,000 mailing catalogs to generate $40,000,000 sales volume. One might only spend $400,000 to generate $40,000,000 volume via e-mail.

There is another important way to look at the value e-mail campaigns bring to an organization.

Let's assume that 1 in 431 customers respond to an e-mail, and let's assume that a brand sends 52 e-mail campaigns per year ... one per week. What percentage of e-mail subscribers will repurchase, annually, because of e-mail?

• 1 - (1 - (1/431))^52 = 11%.

In other words, over the course of the year, 11% of the customers in a segment where only 1 in 431 respond to an average e-mail will purchase "because they received e-mail campaigns".

This becomes important, because the average online retailer has an annual repurchase rate that varies between 25% and 65%, usually leaning toward the lower half of that range.

If your testing shows that e-mail does not cannibalize organic orders or catalog orders or paid/natural search orders or store-driven orders, then the 11% figure is big.

(Added 7/30/2007 ... 12:53pm: It is also very likely that, of the 11% of the list purchasing via e-mail, that the vast majority of the responses are coming from a small subset of the 11% --- it is important to analyze these folks separately, as they are your e-mail evangelists).

Direct marketing is no longer the quaint world that Sears and Montgomery Ward and J.C. Penney and Spiegel and others crafted through the 1970s, that Lands' End and L.L. Bean were lauded for in the 1980s and early 1990s.

These days, direct marketing success is the sum of thousands of small efforts. Some efforts have bigger rewards (catalog). Some efforts have small individual rewards (e-mail) that add up to a reasonable amount of volume.

While we all realize we have to invest in e-mail, how we invest in e-mail is likely to change over the next decade.

Transaction-based e-mails based on a common template, offering the customer a percent off or free shipping, with tabs across the top outlining various merchandise departments are the norm in 2007. All of our efforts at implementing "best practices" yielded a glut of e-mail campaigns that look similar, with similar offers. Long-term, this will cause response rates to further erode.

Long-term, the e-mail campaign will have to offer the customer more than discounted merchandise already available via catalog marketing or online marketing or store marketing.

Long-term, the investment in e-mail marketing has to be in creativity. We have to be able to communicate why our brand matters. We have to tell stories. The customer doesn't need to learn that fall merchandise is available at a discount --- everybody has fall merchandise available at a discount. The customer wants to know why she should have a relationship with the brand sending the e-mail campaign.

Think about it ... when is the last time Microsoft Outlook "dinged", signaling that an e-mail arrived, and you looked to see who sent it, and said to yourself "Oh yeah, it is an e-mail from Ann Taylor, I can't wait to read it!"

The investment in e-mail has to change over the next decade ... from an investment in targeting and messaging and # of contacts to one of creativity and storytelling and engagement.

How Much Investment Is Too Much Investment?

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There are a series of fundamental truths about direct marketing that, while generally understood, are not actively practiced.

We all know that if you don't market to a customer, generating significant sales and profit become unlikely.

We also know that if you market too much to a customer, customers rebel, or the marketing is highly unprofitable.

The best direct marketers measure marketing effectiveness over time. In other words, the best direct marketers segment customers at the start of the year (calendar or fiscal). Next, customers are placed into different test groups. Some customers receive almost no direct marketing. Some customers receive too much direct marketing. At the end of the year, the direct marketer measures the repurchase rate, spend per repurchaser, average spend, and average profit, based on the contact strategy test the customer participated in.

Click on the attached image. This is what test results typically look like. In this case, customers received anywhere between six and sixty-six catalogs during a twelve month period of time.

At just six catalogs (one every other month), the customer segment had an average response rate of ten percent. The annual repurchase rate was 46.9%. The average customer generated $15.00 of profit.

At twelve catalogs (one per month), the customer segment had an average response rate of 7.1%. This is a very common situation --- by adding catalogs, we artificially cause each catalog to perform slightly worse. However, the annual repurchase rate increases from 46.9% to 58.5%. Better yet, annual profit increases from $15.00 per customer to $17.70 per customer.

Clearly, it is better to mail twelve catalogs than it is to mail six catalogs.

The table shows that profit is "maximized" at eighteen catalogs.

Now take a look at the scenario where twenty-four catalogs are mailed. Response rates continue to deteriorate. Annual repurchase rates continue to increase. Annual profit begins to decrease.

It is at this point that things become very interesting in your average catalog-based business. As you go from twenty-four to thirty catalogs (in this example), profit begins to erode, faster and faster as catalogs are added to the contact strategy.

There is an unusual dynamic that occurs in catalog companies that reach this stage. The CFO quickly points out that the "ad-to-sales" ratio is increasing at an unacceptable rate. The CFO might even want to cut back on catalog mailings.

Your merchants might view things differently. Merchants are charged with increasing sales --- one of the ways to do this is to increase pages, or increase the number of mailings. A merchant might recommend a new catalog title, focusing on a slightly different assortment of merchandise, targeted to a slightly different customer. The merchant might recommend six additional mailings, asking for a two year trial to see if sales can be grown, to see if a new target audience can be harvested.

Often, two or three merchants recommend this strategy. Suddenly, there are thirty-six or forty-two mailings in the catalog plan.

The merchants are under pressure to "grow sales". The way to do this is not to spend a ton of time prospecting for new customers. The way to do this is to mail "best customers".

This strategy artificially lowers catalog response rates, increases annual repurchase rates, and lowers profit per customer.

Eventually, something gives. If the business fails to meet plans by maybe ten or fifteen percent, the CFO gets enough power to enact change.

If the CFO isn't as strong a leader as the merchants are, circulation changes come in the form of cuts in circulation depth --- instead of mailing 1,000,000 customers per mail date, circulation depth drops to 850,000 customers per mail date. This is a short-term fix ... profit is slightly improved. The long-term problem of having too many catalog in the mail plan causes us to invest too much in our "best customers".

If the CFO is a strong leader, an excellent communicator, then real change can happen. Various catalog titles are dropped, various in-home dates are dropped.

Things get interesting when going down this path. Taking this approach cases the annual repurchase rate to decrease. This dynamic causes a reduction in the strength of the "housefile". With fewer active buyers, next year's sales potential is reduced. This will cause various leaders to want to advertise more next year, or the year after, in order to grow the housefile back to a level of perceived strength.

Of course, the way to balance this dilemma is to manage customer acquisition and customer reactivation activities in a manner that fuels total file growth.

But at an executive level, the concepts of customer retention, customer reactivation, and customer acquisition are too "geeky" to pay attention to. It is easier to think about adding catalogs, developing new products, presenting products differently, or to find new "target" audiences.

In almost every company I've visited or worked for, investment in direct marketing is overly focused on "best customers". Catalog mailings, e-mail mailings, loyalty programs, postcards, you name it --- everybody marketer wants to be successful. The best chance for success is with "best customers", right? Or is it?

Best Customers

There is an amazing difference between "new" forms of direct marketing (like paid search) and classic direct marketing.

Paid and natural search is all about intercepting a customer when the customer has a need. You don't necessarily know if this customer is your most loyal customer, or one who has never heard of your brand.

Classic direct marketing is all about "pushing" a message at a customer. And in order to get the best return on investment, it is perceived that it is best to "push" your message at "best customers".

Take your average multichannel retailer. If you believe in the old adage that "multichannel customers are your best customers", then your marketing efforts have to be focused on these individuals.

• If you are launching a new catalog title, you'll send it to this individual.
• If you are moving from one e-mail campaign per week to two e-mail campaigns per week, you'll want the new campaigns blasted to the best customers, giving them the best chance to succeed.
  
• If postage costs are chewing up your profits, you are unlikely to pull back spend among your best customers, who spend enough to offset increased costs.
• If you're having a store event, you'll want to notify your best customers about the event.
• If you're opening a new store, you'll want to notify the best online/catalog customers in that trade area about the new store.
  
• If you have a loyalty program, you want to reward your best customers, right?

In each situation, direct marketing activities are going to be focused on "targeting" best customers.

The majority of companies employ this type of strategy --- each marketing campaign is unique --- ignoring the targeting strategies being employed by future/concurrent/prior campaigns.

Is the "best" strategy one that focuses on "best customers"? We'll talk a bit about this topic this week. You are encouraged to offer your thoughts.

Knowing A Secret At A Big Company

Reading Mack's article, you sense the frustration of a person who "knows a secret". In this case, he knows that a certain style of corporate writing will "work", based on his experiences. The folks at the corporation he talks about, however, don't see the world the way he sees it.

I worked at three big companies. There aren't many businesses bigger than Nordstrom ($8 billion+ in annual sales in 2006). Everybody knew something that would help grow sales, something that wasn't popular with the masses.

Big Companies = Big Frustration.

Maybe you're the Director of Online Marketing at a retailer. You know your portal advertising drives sales to stores. But the folks in the stores hate your stupid "banner ads". You know a secret.

Maybe you're the Director of Circulation at a cataloger. You know that your catalogs drive 60% of all the online sales. Yet, the Online Marketing Director was promoted to Vice President, while you remain trapped in the same job for the past seven years. You know a secret.

Maybe you're the Web Analytics guru. You know that the changes made to the look and feel of the website hurt conversion rate by eight percent. Yet, your CMO received an award from an interactive marketing agency for branding strategy. You know a secret.

The painful part of a corporate secret is that there may be very little upside to sharing it.

It may not be worth the effort to convince the traditional CMO to have a viable corporate blog.

It may not be worth convincing the organization that your catalog drives the majority of web sales, now that you're considered a "multichannel" organization.

It may be worth the effort to convince the organization to improve conversion rate by eight percent, as eight percent can mean the difference between profit and loss.

Keep corporate secrets that don't move the sales and profit needle.

Keep corporate secrets that move the needle, but can be implemented without ticking off non-believers. In Database Marketing, this accounts for eighty percent of your secrets. You can implement a new statistical model for determining who receives versions of an e-mail campaign without inflaming your entire merchandising team ... so long as you increase overall sales.

Then there's all the battles that are worth fighting. These are the ones that keep life interesting, the ones you choose to change jobs over if you fail.

Every one of us knows a 'secret' that will improve the performance of our business. The bigger the company gets, the more people that need to be convinced that the secret is reality, resulting in a lower probability of implementation.

Case Study, Part Four

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We wrap up this four part case study, analyzing an online-only golf brand, by asking the question "What would it take to grow Accessories so that sales were equal to Apparel?"

The Accessories merchant won't like the answer.

The scenario in the image is one where I doubled the corporate repurchase rate for Accessories-only buyers, from 30% per year to 60% per year.

I also increased new buyers to Accessories-only by a factor of 2.5x.

By doing this, Accessories generates the volume that Apparel generates. Also notice that Golf Clubs greatly benefits from this strategy.

Realistically, it is not likely that one can increase the annual repurchase rate for any one segment of customers by more than maybe twenty percent. Therefore, the retention increase is unlikely to ever happen.

Furthermore, increasing new customers by a factor of 2.5x is probably very expensive.

This suggests that, in the next two or three years, it is highly unlikely that the new Accessories merchant can hope to grow the business in a dramatic manner, no matter how much the merchandise assortment is improved.

This is a key area where traditional web analytics fails our business leaders. A Multichannel Forensics analysis aids the CEO by realistically telling the Executive team "what is possible".

In this case, the Accessories leader should have modest bonus objectives.

The data strongly suggest that the better the Accessories leader performs, the better that Golf Clubs will perform. These two leaders should have incentives that depend upon each other, since customers switch back and forth between these two merchandise divisions.

New CEOs and Executives need to understand what kind of trouble they are getting themselves into. This case study clearly illustrates how challenging it will be for the new Accessories Executive to grow the business.

The case study also indicates how "dependent" various merchandise divisions are upon each other. Success in one division causes success in another division. The online CEO or Executive cannot understand these dynamics by studying traditional web analytics. Only a well-constructed multichannel forensics analysis points out these important "dependencies".


Case Study, Part 1.
Case Study, Part 2.
Case Study, Part 3.

Case Study, Part Three

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This week, we spent two days talking about an online-only business selling Golf Clubs, Golf Accessories and Golf Apparel (First Article, Second Article).

Recall that management wants to grow the Accessories division, hiring a new merchant to lead the charge. This merchant believes that Accessories-only customers will see increased corporate repurchase rates, from 30% to 36%, because the merchandise will be a lot more appealing than it has been.

What impact would this have on the total business?

If the corporate repurchase rate holds at 30% for Accessories-only customers, sales next year will be $9.1 million in Clubs, $5.1 million in Accessories, and $10.5 million in Apparel. Projecting these rates ahead for four additional years, sales in year five will be $11.0 million in Clubs, $6.1 million in Accessories, and $12.6 million in Apparel.

If the corporate repurchase rate increases to 36% for Accessories-only customers, sales next year will be $9.3 million in Clubs, $5.2 million in Accessories, and $10.5 million in Apparel. Projecting these rates ahead for four additional years, sales in year five will be $11.6 million in Clubs, $6.4 million in Accessories, and $12.7 million in Apparel.

Because Accessories buyers will purchase Clubs, both merchandise divisions benefit by improvements made in Accessories merchandise. Accessories buyers, in this example, are not likely to cross-over and purchase Apparel. As a result, Apparel does not grow if Accessories are improved.

This leads us to an interesting question: Which type of customer is most valuable to this online-only brand?

Three simulations were run. The first simulation looked at sales for 1,000 Customers who only purchased Golf Clubs last year. The second simulation looked at sales for 1,000 Customers who only purchased Golf Accessories last year. The third simulation looked at 1,000 Customers who only purchased Golf Apparel. Each simulation sums total demand over five years, by merchandise division.

Here are the results.

1,000 Golf Club Only Buyers:

• $214,518 on Golf Clubs over five years.
• $126,380 on Golf Accessories over five years.
• $26,607 on Golf Apparel over five years.
• $367,505 total brand spend.

1,000 Golf Accessories Only Buyers:

• $265,810 on Golf Clubs over five years.
• $129,904 on Golf Accessories over five years.
• $40,045 on Golf Apparel over five years.
• $435,759 total brand spend.

1,000 Golf Apparel Only Buyers:

• $109,409 on Golf Clubs over five years.
• $44,643 on Golf Accessories over five years.
• $338,217 on Golf Apparel over five years.
• $492,269 total brand spend.

These are interesting findings, when simulated over five years.

Notice how dependent Golf Clubs and Golf Accessories are upon each other. Increased sales in one merchandise division result in increased sales in the other merchandise division, over time.

Also notice that Golf Apparel buyers represent the division that has the best long-term sales value. However, these customers are not likely to buy Golf Accessories.

This phenomenon accounts for the reason why Golf Accessories have not had the sales volume that Golf Clubs and Golf Apparel enjoyed.

• Golf Clubs get sales from Golf Accessories and Golf Apparel buyers.
• Golf Accessories get sales from Golf Club buyers.
• Golf Apparel does not get sales from other merchandise division buyers. However, Golf Apparel has the most customers, because it has the highest overall repurchase rate for customers only buying from one division. This drives the success of this division.

When we focus on conversion rates, landing pages, average order size, PPC, and all the other components of online merchandising, we focus on what happens during only one visit.

What we need to spend more time doing is analyzing customer behavior over time.

By analyzing customer behavior over time, using Multichannel Forensics, we notice that it will be very hard for the new Accessories executive to grow the business to similar rates seen in Golf Clubs and Golf Apparel.

In the final installment of this series, we'll investigate what it would take for Accessories to have the sales that Apparel enjoys.

MineThatData Traffic Analysis

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You're probably wondering how many folks read this blog, right?

Or, maybe the topic is only of interest to me.

Either way, you get to learn all about blog audience dynamics today.

According to my statistics, I have about 3,900 visitors per month (via Google Analytics) and an average of 450 daily subscribers (via Feedburner).

The image illustrates how we get to subscribers, and the true amount of monthly traffic generated by the blog.

During an average month, 1,873 visitors arrive via search (almost all via Google). 976 visitors arrive from other websites, about eighty percent from blogs referring folks to MineThatData (thank you all!). 200 visitors type in the URL.

Of these visits (3,049), about two percent (60) become what I call "Loyalists", folks who frequently visit the URL, or subscribe by RSS or E-Mail.

I estimate that each month, I add 60 subscribers, and lose 30 subscribers, yielding a net increase of 30 subscribers. To date, about 450 of you subscribe via RSS, E-Mail, or type in the URL frequently. You are my "Loyalists". Thank you!!!!

The 450 "Loyalists" drive the relative popularity of this site, visiting about 13,650 times a month. There are 854 actual site visits, 5,460 readings in Google Reader, 1,092 via E-Mail, and 7,098 readings in other RSS Readers.

In total, this yields 14,504 actual readings from my "Loyalists", and 3,019 visits from folks who weren't impressed with the site, or got what they needed from one visit and moved on.

In total, this yields 17,523 real "visits" each month.

There are flaws with the analysis --- there are probably many more "Loyalists" than measured by Feedburner --- BlogJuice suggests I have twice as many Bloglines subscribers as Feedburner suggests I have. So there might be as many as 1,000 actual "Loyalists", each visiting half as often as I have estimated.

Still, the number of real "visits" is a reasonably accurate reflection of what happens each month ... yielding about 210,000 annual visits.

Vice President of Business Intelligence And New Business Development, American Girl

A fundamental shift in the job requirements of analytical individuals is occurring across Corporate America. The shift is not positive for E-Mail Marketers, Catalog Circulation Marketers, Online Marketers, Business Intelligence Analysts, and Web Analytics staff.

Read this job description, found on the Marketing Sherpa Job Board, for a VP of Business Intelligence and New Business Development at American Girl.

This position proactively leads the identification and development of actionable consumer insights, market and competitive understanding. This person will translate information gained through the Analytics Services and Consumer Insights areas into actionable implications and assist in the application of these insights into the American Girl strategic plan. Requirements: *Bachelor's degree, Master's degree (MBA) preferred *Minimum of 10 years of experience working in Consumer Products Industry to include Consumer Research and Analytical Services or significant experience in consulting with a major consulting firm. *Direct Marketing Analytics experience at a multi-channel company preferred *Experience contributing to the strategic planning process preferred *Familiarity with multiple channels of distribution, with special emphasis on direct mail and branded retail preferred *Significant P&L experience preferred *Consulting for a major consulting firm preferred.

Notice how this position focuses on using the insights of the Analytical Services and Consumer Insights areas. Notice that this person will come from the Consumer Products Industry, or will have Consulting experience from a major consulting firm (preferred).

In the past five years, our zeal to be "multichannel marketers" caused us to scatter in a dozen different directions --- all honing our skills in different specialties, becoming experts at a tiny fraction of what matters to our customers. We failed to develop a global view of our business. Our leaders don't have confidence in having a web analytics expert do anything else than study web analytics. Our leaders don't believe the e-mail marketer can also drive a social media plan, or can manage television advertising campaigns.

To thank us for diving headfirst into a niche, becoming a subject matter expert, our companies are looking to hire leaders who know how to position eight varieties of Cheerios among potential customers, or know how to articulate opportunities to what is know as individuals in the "C-Level Suite".

If you're an individual working at a catalog, online, retail or multichannel organization, and you have less than ten years of corporate experience, this is a really good time to change course.

Instead of being the expert at working with CheetahMail to get e-mails delivered through AOL, or being the expert at getting CoreMetrics to help you accurately measure the effectiveness of various landing pages, or being the catalog circulation expert who measures the LTV of Abacus-sourced new names --- become the person who is the expert at knowing how EVERYTHING FITS TOGETHER, telling a story that helps executives know what they need to do to be successful.

Right now, your business leaders don't believe in you. They believe in a person who knows how to build a business plan for Cool Ranch Doritos, who knows how to speak to executives. This is the third job description of this nature I've run across over the past four months.

One person, working a division that is now being led by one of these "newly qualified leaders", told me that the new leader (with qualifications similar to this job description) communicated that the circulation folks "knew nothing of actual customer behavior".

Ouch.

It's time to stop talking about RFM, HTML vs. Text, Black-Lists, SEO, PPC, CGM, DMPC, Conversion Rate or Landing Pages.

It's time to stop talking about subject line testing as a "strategy".

It's time to stop talking about paid search as a "strategy".

It's time to stop talking about getting e-mails through GMail as a "strategy".

It's time to stop talking about working with Abacus or Millard/Mokrynski as a "strategy".

It's time to actually create actionable business strategies that merchants and executives understand, and can act upon. More important, it's time for us to be able to articulate our strategies in a way that executives and merchants understand.

If we fail to do this, the folks who manage the "Twinkies" brand will do this for us. I've been impacted by this evolution in job description. I don't want for you to be impacted.

Your thoughts?

Case Study, Part Two

Click on the image to enlarge.

Yesterday, we addressed the first part of a case study of an online golf brand that is struggling to grow sales in the Accessories division.

A big part of a Multichannel Forensics analysis is a forecast of future sales by product, brand, channel or title. In this case, focusing on an online pureplay, we look at future sales by merchandise division.

In this case, each division will grow by less than five percent per year, given the forecast for new customers and anticipated repurchase dynamics.

Upon being hired, the chief merchant of the Accessories division anticipated that her merchandise would be so liked by customers that customers who only buy Accessories will see an increase in annual corporate repurchase rate from 30% to 36% --- an increase of 20% per year.

That's a bold statement. What kind of impact would that have on the total business? Make your guess in the comments section, we'll reveal the answer tomorrow.

Coldwater Creek. Wow.

Sometimes you take a look at the financial documents provided by Coldwater Creek, and you are amazed at the transformation of what was once a humble little cataloger located in Northern Idaho.

According to management, retail is now the primary growth vehicle for this business. Already boasting 255 stores in 146 markets, the retailer expects to grow to up to 500 stores within five years.

For people like me, steeped in a traditional cataloging background, the transition out of "traditional" cataloging has been fascinating to watch. The brand will spend an amazing $32,000,000 in national magazine ads in 2007, and even tested television ads in late 2006. The catalog investment is shifting as well. Instead of investing in traditional catalogs that drive sales through a telephone channel, Coldwater Creek is instead mailing more catalogs designed to drive sales to stores --- circulating the catalogs to store markets.

Coldwater Creek also boasts an e-mail list of 3.2 million names, an amazing number for a business selling just over a billion dollars of merchandise per year.

Coldwater Creek also announced a new loyalty program, targeted to the best 250,000 households --- designed to improve retention and increase spend per household.

Pay attention to SG&A --- increasing at a faster rate than sales, due in part to national branding programs, increased store employee expenses and increased catalog circulation.

As Direct Marketers, we need to keep an eye on Coldwater Creek. They are choosing a traditional path toward growth, one not altogether different than what Sears or Montgomery Wards utilized eighty years ago, or the route that Eddie Bauer took in the late 80s and early 90s. It's a fascinating and intoxicating route to riches, as the brand determines the 'saturation point' --- the point where retail stores no longer contribute significant incremental sales. To date, saturation is not a consideration ... comp store sales have increased by more than sixteen percent during the first quarter of the past two years.

When that saturation point happens (and it will happen, ask Gap), life becomes very interesting. Increased saturation drives down comp store sales at existing stores. Furthermore, online growth stagnates, as the new stores do not contribute enough new customers to fuel online increases. A brand needs to have a magical group of business leaders to recognize this inflection point a couple of years before it actually happens.

But for now, the meteoric increase in sales at Coldwater Creek is worth praising. Sales (and stock price) reflect the fact that management saw how the world was changing (stores/online), and shifted investment toward this new reality in a timely manner.

Case Study: Online Golf Brand

Click on the image to enlarge.

Online business models are very enjoyable to manage. Executives have a veritable plethora of metrics available to measure the effectiveness of their business, in stark comparison to catalog or retail executives.

That being said, online business executives often have less experience managing business models "across time". In other words, online business growth can be forecast over multiple years, so that the online executive can understand the long-term impact of today's business decisions. This is an area where catalog/retail executives traditionally have more experience.

This week, we'll take a look at an online-only business model that sells Golf Clubs, Golf Accessories, and Golf Apparel. This business is five years old, and management is not pleased with the sales growth of the Accessories division. Last year, sales of Golf Clubs totaled $8.6 million. Sales of Golf Accessories were $4.8 million. Sales of Golf Apparel were $9.9 million.

A new Accessories merchant was hired. Management hopes to grow Accessories through an improved merchandise assortment.

Anytime a change in management occurs, it is wise to conduct a Multichannel Forensics analysis, to understand how customers are behaving. The image at the start of this article illustrates the "Migration Probability Table", a grid of numbers that help the business leader understand how customers migrate between merchandise divisions.
Notice some of the interesting findings:

• On average, 48.6% of last year's purchasers will buy again this year. This puts the online golf brand in "Hybrid Mode", meaning that the business grows through a mix of customer retention and customer acquisition activities.
• Golf Clubs have a 39.6% repurchase rate. Being in "Acquisition Mode", Golf Club sales grow by finding a constant supply of new Gulf Club purchasers. This means that Golf Club buyers don't buy new clubs every year. The 71.8% repurchase index for Golf Accessories means Golf Club buyers are likely to "transfer" their allegiance from Clubs to Accessories in the year after buying Clubs.
• Golf Accessories have a 37.9% repurchase rate (Acquisition Mode), and the repurchase index metrics suggest Accessories buyers are in "Equilibrium" with Clubs and Apparel. In other words, Accessories buyers will purchase just about any merchandise in the year after buying Accessories.
• Golf Apparel has 47.3% repurchase rate (Hybrid Mode). These buyers are unlikely to buy Golf Clubs next year, but are willing to buy Accessories.

These findings are interesting. Accessories have a low repurchase rate, so the hiring of a new merchant could make a difference. However, Club and Apparel buyers are willing to purchase Accessories. All customers have the propensity to purchase Accessories. The question will become, "How do you grow Accessories if all customers are already willing to purchase Accessories?"

We'll explore growth opportunities this week.

Multichannel Retailing Week: Wrap-Up

There are probably four key messages that I want for you to take from our exploration of multichannel retailing.


One: A re-definition of multichannel retailing. I'd like to define it as "Pleasing customers through a profitable mix of advertising, products, brands, channels, service and community".

Two: Multichannel retailing is about employees working well together and communicating well with each other. This combination trumps marketing strategy.

Three: While customers are the best asset a brand has, you do not have customers without innovative, appealing product that is presented favorably. This combination trumps marketing strategy.

Four: No strategy works "for every brand". A subset of best practices combined with innovation specific to your brand yield great results.


Viewing multichannel retailing through this lens explains much of the diversity we see in retailing. Clearly, we could all do a better job, just ask some of our leading service providers and research organizations.

Each point is important. The first two words in the first point might be most important ... "pleasing customers". Maybe your catalog is critical to pleasing customers. Maybe you don't have to offer "buy online, pick up in stores" to please customers. Whatever pleases customers and is 'profitable' is most important. Off-shoring customer service may be profitable, but it may not please customers. Only you, as owner of your brand, know the answers.

For me, it is so important that employees work well together, and communicate well together. Many of the multichannel retailing shortcomings I've observed are due to communication failures.

Product and creative presentation of merchandise are always key --- this sets Apple apart from other organizations. Why else would people stand in line for two days to purchase a $500 phone that other companies already market for about half the cost?

And finally, not everything works for everybody. Each business has different customers, and these customers have different needs and expectations. Do what is best for your customers.


Your turn. What did I miss this week that you wanted for me to talk about? What are your viewpoints on multichannel retailing?

Multichannel Retailing Week: Consumer Intelligence

What spelled doom for me at the end of my tenure at Nordstrom was the concept of "consumer intelligence".

This was a movement that, in retrospect, anybody could see coming. But when you're slogging through day-to-day issues, it can be easy to miss.

Think of "consumer intelligence" as the sum of all activities that explain overall customer behavior.

• Customer performance in catalog marketing campaigns.
• Customer performance in e-mail marketing campaigns.
• Customer performance in online marketing campaigns.
• Database Marketing, the traditional role of direct marketing campaign execution.
  
• Organic customer performance ... what customers spend when not marketed to (a very important concept in retailing, not well understood in the online environment).
• Business Intelligence, the software tools and general ad-hoc queries that help solve generic business questions about customers, merchandise performance, and store performance.
• Social Media Experts, folks who thoroughly understand how customers are interacting with tools like Facebook, Blogs, Twitter.
• Customer Advocates, the folks who strongly believe that companies require "Chief Customer Officers" to better understand the challenges facing customers.
• Multichannel Ombudsmen, the folks who understand customer behavior across channels, and then try to develop strategies like "Buy Online, Pickup In Store" that can be implemented by various channel leaders.
  
• Lifetime Value, the net present value of all future customer transactions.
• Statistical Modeling, condensing customer behavior down to an equation that explains customer actions.
• Marketing Research, including surveys and focus groups.
• Merchandise and Market Share Analysis, source from databases like NPD, Scarborough and Simmons.
  
• Competitive and Customer Research from organizations like Forrester, Jupiter, Gartner.

The goal is to take these activities, typically done by separate individuals across the organization, tie them together, identify actionable findings, and then drive strategy through the EVP/C-Level/Board-Level individuals at multichannel retailers.

To be successful, the consumer intelligence leader must recruit a talented team of "translators", folks who synthesize the technical information obtained by staff members who work in the various functions, then put the information into a context that is relevant to the EVP/C-Level/Board-Level individual.

In some ways, you can think of it as the role that Management Consultants used to play, executed in a considerably less expensive manner.

It was good to have this experience at Nordstrom, because the companies I visit these days are ultimately asking for this solution --- they just don't know this is what they are asking for. The business leaders want folks to distill geeky, complex customer information into actionable sound bites that they can work with.

As our marketing world becomes more fragmented, with terminology and techniques that are unique to each discipline, it will become more important for a "Consumer Intelligence" expert to tie together each discipline. Multichannel retailing is a logical early adopter of this emerging discipline.

Multichannel Retailing Week: Catalog Circulation

This morning, an article arrived in my RSS reader, promoting the power of catalog marketing.

You can't argue with the fact that more paper is being deposited into our mailboxes than ever before. Does the incremental increase in paper drive an incremental and proportionate increase in sales in the telephone, online and retail channels? Vendors don't answer that question for you.

Your catalog circulation expert knows the answer to that question. In fact, the catalog circulation expert knows the answers to more questions than almost any other marketing individual in your company. Ask the online marketing executive if natural search results in an increase in store sales, and see if you get an answer you can trust. Ask the e-mail marketing executive if e-mail campaigns cause customers to order merchandise over the telephone, and see if you get an immediate, confident answer. Ask the web analytics individual if an abandoned shopping cart resulted in a store purchase, and see if you get an honest answer.

But ask the catalog executive how effective catalogs are at driving sales to the telephone, online and retail channels, and you'll get an earful. You may not understand a geeky word that the catalog circulation expert says, but you'll at least get the inkling that this person has measured the concept, and markets to a combined ROI across channels.

So if the catalog folks have all this "tribal knowledge", why are they largely being under-utilized at many multichannel retailers? Why would multichannel retailers make the decision to eliminate traditional circulation teams and list vendor relationships in favor of an outsourced solution from the folks at Abacus?

Today, I am seeking your feedback on this topic, your thoughts on catalog marketers and catalog marketing.

If you work at a catalog/online retailer, or a catalog/online/retail organization, please share your thoughts about what you think about catalog marketing, and about the folks who do catalog marketing in your organization.

How do you view these individuals? What value do these individuals bring to your company? Let's not cloud things with my opinion --- let's get your thoughts on the topic. Please discuss!!

Multichannel Retailing Week: Online Marketing

Here's a secret: Online Marketing works in a multichannel retailing environment.

Maybe that's not a secret to you, because you work in the online marketing profession.

But it is an unknown fact to almost every other employee in your multichannel organization.

As an online marketing professional, it is your job to evangelize your craft.

I recently sat in a room full of retail executives, retail directors, and retail marketing managers. I asked them the question, "If you were going to purchase a computer, and had no idea where to shop, what is the first thing you would do?"

The answer I was looking for was "I'd do a internet search".

Not one of the sixteen individuals volunteered this answer.

We all know that customers initiate searches, primarily on Google, to research and learn about potential product purchases. But this roomful of retail leaders, entrenched in their mall-based shopping ecosystem, did not think of shopping in this manner.

We also know that between twenty-five and thirty percent of website visitors at multichannel websites arrive via search.

In many cases, a targeted e-mail campaign sent right before a catalog mailing causes an increase in online or store response.

In many cases, catalog marketing and search marketing combine to increase the likelihood of a customer purchasing an item online or in stores.

In many cases, online advertising and search marketing combine to increase the likelihood of a customer purchasing an item online or in stores.

Your average retail staffer does not see the world through this lens.

During the next five to ten years, the online marketing executive will need to bridge this communication gap. If the online marketing executive wants to become the Chief Marketing Executive, the transition from metrics-based facts to retail storytelling will be essential.

To do this, the online marketing executive will partner less with the web analytics team (as they generally have access to online transactions). The online marketing executive will increasingly partner with the database marketing team or the business intelligence team, SAS-based programmers who link online, catalog and retail transactions with clickstream data. This gives the online marketer a holistic view of the effectiveness of online marketing.

Maybe the biggest thing the online marketer will learn is that at least half of their marketing activities are speaking to existing, often loyal customers. Historically, online marketing has been viewed as a customer acquisition tool. In the future, online marketing will be viewed as a customer retention tool. Couple that perspective with the education of your retail marketing team, and you've greatly enhanced the power of online marketing.

Multichannel Retailing Week: Call Centers And Distribution Centers

How many multichannel retail executives view their call center and distribution center as a "cost center"?

It is easy to think of operations as a cost center. After accounting for shipping/handling revenue, it costs between ten and fifteen cents of every dollar of sales to field phone calls, manage live chat, respond to e-mails, and pick/pack/ship items.

You don't view your call center or distribution center as a cost center if you spend any time in these facilities. You'll find yourself rubbing shoulders with individuals more committed to your brand than you are. These folks aren't killing time, waiting for their stock options to vest.

You'll see individuals eagerly attacking contests to improve productivity. You'll find employees who are taking calls, even though their Aunt passed away earlier that morning. You'll find employees who milked cows at 5:00am, showered, and made it in to work through a snowstorm to begin their 8:00am shift five minutes early. You'll see co-workers bringing sub sandwiches, cookies, and treats to work. Food is a motivator for folks who don't earn enough money.

These folks work eight hour shifts for just $11 an hour. After taxes, that's an eight hour day that nets the employee around $70.

We expect an awful lot out of individuals who take home $70 a day.

We expect every single order to be processed correctly.

We expect all e-mails to be responded to within four hours.

We expect orders to be taken with joy, we expect our complaints and criticisms to be met with empathy.

We want these individuals to communicate our frustration with soldout items to an inventory management team they never get to work with.

We want these individuals to absorb the abuse we toss at them because we are frustrated with cost-cutting management teams that hold us hostage in telephone-based CRM systems.

I had the privilege of working in a call center in the late 1980s. I can tell you that it was one of the harder jobs I've ever had. I had to ask customers if their AT&T repair service was done accurately and on-time. Ask a seventy-six year old angry man if he was "very satisfied", "somewhat satisfied", "satisfied", "somewhat unsatisfied", or "very unsatisfied", and I promise you, you'll receive some "feedback".


When I worked at Eddie Bauer, I frequently got to visit our parent company, Spiegel. The executive team worked in a section of the building that had leather floors.

People in call centers and distribution centers work in buildings with dirty floors.

I do think that many multichannel retailers will begin to see call centers and distribution centers as "knowledge centers" over the next decade. Nobody knows more about the "vibe of the customer" than these individuals. We've used these people to increase the "cross-sell" rates from 9% to 14%, netting us significant increases in profits. Over the next decade, we can partner with these individuals to learn more about what our customers truly want.

We can literally pull customer information from these individuals. Today, we push promotions at them, hoping they will push them at the customer.

Instead of talking about corporate blogging, we should talk about call center and distribution center blogging. We could have internal blogs that allow these employees to have a dialogue with business leaders --- passing information back and forth. If the executive won't make the trip to the call center, let technology bridge the gap. We can give these folks a voice. If we want to implement a promotion, we can float the idea through the call center blog, and let our call center employees advocate on behalf of the customer.

If we want to create a better experience for the customer, we can start by creating a better experience for the call center and distribution center employee. We could view these individuals as "knowledge centers" instead of "cost centers".

Multichannel Retailing Week: Information Technology

Three experiences illustrate the challenges facing information technology experts in multichannel retailing.

Experience #1: I attended a meeting where a multichannel business wanted to implement a marketing idea on the website. The information technology individual told the attendees (some were executives) that IT would not implement the idea, because it "wasn't a good idea".

Experience #2: Earlier this week, a representative of a vendor told me he had "143 low-cost individuals over in India, just waiting to do whatever I tell them to do."

Experience #3: Recently, an IT staffer told me I could call him at any time of the day, whether he was at work or at home, that he would go to any length to take care of me.

Multichannel retail information technology is not sexy work. Would you rather try to scale the Facebook platform, or would you rather modify COBOL code for an antiquated point of sale system?

Our challenge as multichannel business leaders is to create genuine ways to incorporate information technology experts as true business partners. We've largely failed to do this.

When a crisis occurs, we demand that IT is there to support us, 24/7/365. When IT becomes overwhelmed, they push back. When IT pushes back too much, and becomes too expensive, management sends the jobs to a lower-cost alternative.

To fulfill the multichannel reality that vendors, consultants and research organizations propose, we must integrate technology individuals into our business processes. We see the necessity to integrate technology into our processes, but we fail to integrate technology individuals into our processes.

Over the next decade, expect to see better integration between business leaders and information technology leaders. When people communicate better, our systems will begin to integrate and communicate better with each other.

Multichannel Retailing Week: Web Analytics

A Vice President attends between one and two thousand meetings a year. Maybe a quarter of those are higher-level meetings, with multiple VPs discussing business issues.

Frequently, a VP will bring a technician or business intelligence analyst to a meeting, to help support an important point.

During the past twelve years in multichannel retail, I can count on one hand the number of meetings I've been in where a Web Analytics guru was one of the chosen technicians to demonstrate key customer insights.

This is not a harbinger of things to come, or a criticism of the folks who do web analytics. It is a failure of multichannel retailers to appreciate or understand what web analytics can do to help the business improve.

Could you imagine if an analyst walked into a meeting at Bloomingdales, and told a team of merchants this fact: 67% of store customers walked past a coat after looking at it, 33% stopped by to pick it up. Of the 33% who picked up the coat, 25% took the coat to the dressing room. Of the 25% who took the coat to the dressing room, 38% bought the item. In total, for every 100 customers who walked past the coat, three purchased the item.

Retail merchants would salivate if they knew that type of information, by item.

And yet, every multichannel retailer has individuals who do this type of measurement on a daily basis for the websites they support.

In our multichannel businesses, we still have disconnects between catalog employees and online employees. There are bigger disconnects between online employees and retail employees. The language barriers are enormous.

Web analytics practitioners suffer from two language barriers. First is the technical to practical language translation that must happen for business folks to act upon what a technician describes. Second is a direct-channel to retail-channel language translation that must happen for retail folks to act upon what has been learned in a direct-channel.

Web Analytics is a wonderful field that has enormous potential to improve multichannel retailing. This potential will be harnessed when multichannel retailers hire "translators" to convert language from technical to business-oriented, from direct-channel to retail-channel. When this happens within the right culture, eyes will open, and web analytics will become tightly integrated with all business systems and analytical teams.

Multichannel Retailing Week: Merchandising And Creative

I chose to align merchandise and creative together in this post, for good reason.

Say you want to purchase a dress. There are a veritable plethora of multichannel 'brands' that will sell you a dress, similarly styled, similarly priced. A quick Google search for "women's dresses" yielded dozens of paid search results including Become.com, AmericanApparel.net, Avenue.com, BostonProper.com, AnnTaylor.com, OneStopPlus.com, JessicaLondon.com, ArdenB.com, and Bloomingdales.com in the top ten. Natural search results included Macys.com, JCPenney.com, Chadwicks.com, Amazon.com, and SierraTradingPost.com. Toss in two or three dozen retailers not making the front page of Google, and it becomes obvious that dresses are a commodity item.

Given all of this competition, the multichannel merchant has a challenge. The merchant must know nine to twelve months ahead of time what is 'going to sell' in the future. Some businesses partner with great brands to acquire great dress styles. Other businesses design their own merchandise. Either way, the merchant has to have a keen instinct to know that a dress is going to be 'cute'.

Merchants who take bold risks that pay off are considered geniuses. Merchants who take bold risks that fail are fired. Very few employees in multichannel retail have the kind of pressure that a merchant faces.

When many businesses sell very similar or identical items, there are very few things that set the multichannel merchant apart from others. Companies try to differentiate themselves in unique ways. Nordstrom, for instance, focuses on trendy brands sold with great customer service.

Creative presentation can be an important differentiator. Lands' End combines great quality with great copy and virtual model technology. Coldwater Creek presents merchandise online and in catalogs without models. Eddie Bauer aids your purchase process by illustrating which of three possible fits --- shaped, classic or easy --- a dress falls into. J. Crew uses copy to differentiate themselves, saying "every dress has a story", shirtdress, halter, strapless, tank or knit. Click on any of those links, and a story is told to the customer. Chadwicks and Jessica London use a fashion glossary to explain key terms. Ann Taylor allows the shopper to e-mail an item to a friend from the item page, or locate the item in a store. Monterey Bay Clothing Company leverages a clean presentation and a large item image.

One of the bigger frustrations I've heard from merchants is the creative presentation of merchandise in the online environment. It is comparatively easy to present merchandise in retail. It is a time-honored art form to creatively present merchandise in a catalog environment --- merchants can instantly look at a spread, and determine with some confidence if the spread and copy will work or not.

But in a template-based online environment, the vast majority of creative presentation is compromised, creating a similar and somewhat generic feel across different online brands. The differences I outlined above may mean very little to a customer.

Cataloging and retailing give the human being creatively presenting the merchandise all of the power. Online retailing results in a "cookie cutter" approach --- most items have to be presented in a similar manner, so that the website can operate efficiently. In other words, in the online environment, the information technology expert plays as big a role in the selling process as do the creative team.

Take Costco, for instance. In a retail environment, Costco's visual merchandisers create the feeling that you are walking through a huge warehouse. In a catalog environment, Costco uses imagery and stories, page after page, to attempt to replicate that feeling. Online, what tools does Costco have to create the huge warehouse feeling?

This is a source of frustration for both merchants and creative staff.

Over the next decade, the multichannel merchants who give online creative presentation power to the creative staff and merchants through innovative technology will have a competitive edge over those merchants who rely heavily upon the information technology staff for creative presentation. Combine an empowering creative environment with great merchants who design or source excellent merchandise, and you end up with a thriving multichannel merchandising experience.

Multichannel Retailing Week: Social Media

Since starting my own business, about one in three business leaders have asked my advice about what an appropriate "social media" strategy could be for the multichannel retail brand they support.

This tells you there is something to this 'social media' stuff. Or at least there is a 'buzz' in the air, or 'was' a buzz in the air.

One thing we have learned in multichannel retailing is to not listen to the social media punditocracy. They tell you what to do --- they blast you when you try things they don't agree with, they laud executive bloggers who eventually are discovered to have been participating in potentially illegal activities (i.e. Whole Foods). It is hard to please these individuals, individuals who on occasion haven't had the privilege of accountability for driving sales and profit at multichannel organizations.

You can please your customers, however. This is where your interpretation of social media can play a role.

In my final year at Nordstrom, we assigned one of our managers the task of thoroughly understanding how Nordstrom customers interacted with social media. Our Public Relations team, in my opinion one of the best teams in all of multichannel retailing, also monitored the blogosphere for customer commentary about Nordstrom. Our talented online marketing team, PR, and a Database Marketing social media expert combined skills to understand how customers were networking with each other, communicating aspects of brand preference with each other.

Many larger multichannel retailers monitor what is being said about them. Many smaller multichannel retailers actually participate in some way, with blogging representing a tangible communication outlet.

In the old days (i.e. before 2005), we read reports that documented customer complaints at our call center. When things really got challenging, we recruited customers for a survey or focus group to learn what our loyal advocates were thinking.

Today, our customers happily leave a digital paper trail all over the internet. We can easily follow the trail of bread crumbs. Really good Database Marketers are busy organizing these bread crumbs into actionable pieces of information that are stored in the customer data warehouse.

I've observed a handful of multichannel retailers who do this. The insights are interesting. In some cases, visitors with a social media referring URL have lower than average conversion rates. If the objective of social media is to facilitate a conversation, there's no problem with this. If the objective is to monetize social media, this doesn't bode well for this emerging form of media.

In my opinion, we'll see multichannel retailers harness the power of social media over the next decade. How we do this will likely be very different than the tools and techniques the social media punditocracy recommend we implement today, and that's no fault of the social media punditocracy --- technology and consumer sociology are simply moving too fast for us to anticipate or predict. We will find authentic ways to engage our most loyal customers. Our loyal customers will spread the message that television and radio commercials spread for the past sixty years.

If I were in charge of the social media strategy at a multichannel retailer, I'd start first with an internal blog, one for employees to share ideas and communicate with each other. This will provide a fertile laboratory that will pay dividends later when a strategy is crafted for customers. In year two, I would have a blog that I invite only my most loyal customers to participate in --- the blog would allow the most loyal customers to communicate directly with management. During these two years, I'd watch how the landscape changes, and begin experimenting with marketing strategies that partner with consumers in year three.

Of course, these are just my ideas, my opinions. We'll see multichannel retailers try lots of unusual strategies over the next five to ten years. Eventually, a set of 'best practices' will emerge from this 'Wild West of Social Media', just like paid and natural search emerged from the embryonic online marketing wilderness of the late 1990s.

Your turn --- how do you see multichannel retailers interacting with social media over the next decade? What interesting trends are you observing today?

Multichannel Retailing Week: Human Resources

We're at a very important crossroads in multichannel retailing, one that is well suited for the talents of your beloved Human Resources staff member.

There are at least four important issues that I've experienced, issues requiring leadership from the Human Resources teams I've worked with.

The first issue is talent, or more specifically, a lack of talent. This doesn't mean the folks working at multichannel retailers lack talent. Instead, the demographics of America are conspiring against multichannel retailers.

Through the 1980s and 1990s talent was plentiful. Baby Boomers were generally between the ages of 35 and 55, filling the lion's share of management positions at growing multichannel retailers. This was a wonderful situation for Baby Boomers, but a frustrating situation for my generation, dubiously labeled 'Generation X'. Career opportunities have been far less plentiful for Gen-X individuals, trapped by Baby Boomers who are firmly entrenched in their career trajectory.

As a result, Gen-Xers have taken different paths to achieve career objectives, becoming the most entrepreneurial generation in history, according to a recent article in the Harvard Business Review.

The smaller number of Gen-X individuals (compared with the Baby Boomer generation), coupled with alternate career paths crafted by Gen-Xers have created a talent shortage at the Sr. Analyst, Manager and Director level. Adding to the talent challenge is the fact that Gen-Xers who are working at multichannel retailers are heavily focused on online and e-mail marketing disciplines, and are less focused on traditional jobs.

Human Resource individuals have the opportunity to re-invent the multichannel professional workplace. Via telecommuting and work-life balance, HR staffers can add to the talent pool of the multichannel retailer in non-traditional ways.

A second issue I've observed surrounds compensation. With Baby Boomers firmly entrenched in management positions, Gen-Xers and Gen-Yers are largely trapped in entry level and middle management positions. Multichannel retailers have largely put the clamps on compensation over the past decade, allowing marginal salary increases that barely keep pace with inflation. I've watched this practice cripple talented teams across many companies. Our HR team members have a huge opportunity to craft compensation packages (bonuses, stock options, additional paid time off) that reward entry level and middle management professionals for outstanding performance without significantly increasing base pay.

A third issue involves professional tension surrounding the "marketing digital divide". Take your marketing employee working in the advertising department, supporting newspaper advertising. This individual can do outstanding work. How do you prove the work drove an increase in sales? Now take a marketing employee working in the paid search department. This individual can do average work. Yet, there are a veritable plethora of metrics that prove there was an increase in sales. This individual may be viewed more favorably by management. Our Human Resource partners can help create career paths that reward outstanding employees, regardless which side of the marketing digital divide they work on. In addition, our HR teams can provide 'cross-training' opportunities, to get employees over the marketing digital divide.

The fourth issue I've observed holds back multichannel retailers. This issue combines "under-staffing" with "metrics obsession".

I spoke with a marketing director today who told me he has never worked harder in his entire twenty year career than he has worked in the past two years --- and his hard work has largely gone unrecognized by Sr. Management.

A combination of lean staffing and too many unimportant real-time metrics have created a level of 'busy work' that is unprecedented in multichannel retailing. We can measure changes in paid search conversion on a minute-by-minute basis, causing so much more tension than existed fifteen years ago when we measured marketing effectiveness once a week, or once every twelve weeks! This 'busy work' causes all staff members to focus on unimportant issues. We fail to focus on strategy, because we have to understand the reasons why the Monday e-mail campaign performed 3.8% below expectations (though we don't have the tools to measure if it drove a 3.8% increase at retail). HR staffers can partner with business leaders to address time management skills, helping employees focus on 'big picture' challenges instead of short-term metric-based crises that are not relevant to the overall momentum of the business.

As I mentioned at the start of this article, these times are well suited for the talents of the Human Resources leader.

Your turn --- what challenges are you observing in your multichannel organization that are well suited for the talents of the HR leader?

Multichannel Retailing Week: The CFO

As we complete the transition from catalog and retail to "multichannel retail", we find we don't have the technology solution or marketing strategy necessary to meet the needs of our customers.

This is where the multichannel CFO comes into play.

The multichannel CFO determines the investment strategy for the business. The CFO has a set budget, one largely determined by the growth trajectory of the business. As sales increase, investment can increase (though hopefully at a slower rate than sales, yielding more profit).

In the early days of the internet, some incremental sales were being added to the business. Coupled with competitive pressures, multichannel CFOs invested tremendous amounts of capital building and improving e-commerce enabled websites.

However, in our post-Google multichannel environment, things have changed. Direct-to-consumer sales are growing at subtle rates. This introduces risk in the investment portfolio of the multichannel CFO.

Take the traditional catalog CFO. This individual likes to look at the 'ad-to-sales' ratio on the profit and loss statement. If you sum catalog advertising and online advertising, and calculate the ad-to-sales ratio, you will likely see an increase in this ratio over the past five years. This means that the introduction of e-commerce has not grown sales at a sufficient rate to offset the increased advertising expense necessary to support multiple channels.

The traditional catalog CFO, armed with the information, is likely to challenge the CMO or Database Marketing executive to "mail smarter", and better leverage online marketing strategies, shifting dollars out of catalog and into paid/natural search, affiliates, portal advertising and e-mail.

Until ad-to-sales ratios improve, it will be difficult to convince traditional catalog CFOs to invest in multichannel solutions.

The traditional retail CFO has a different set of concerns. To please shareholders, the CFO must grow comp store sales, and must increase the number of new stores in new markets.

Ultimately, the traditional retail CFO has to decide whether it is a better to invest in multichannel technology improvement, multichannel advertising increases, new stores, remodeled stores, and all other internal investment needs necessary to run the business.

This is where we really fail the traditional retail CFO.

The traditional retail CFO has several "knowns":

• If the CFO invests in a new 6,000 square foot store, the business will probably get $2,000,000 of net sales per year. It might cost $1.7 million dollars to build the new store.
• If the CFO invests in remodeling a 6,000 square foot store, the business will probably get an additional $400,000 of net sales per year. Maybe it costs $0.7 million dollars to remodel a store.
• If the CFO invests in catalog or online advertising, there is a known incremental rate of return for the increased investment.

For multichannel investments, the CFO has a great big "unknown".

• Say the multichannel CFO invests $1.7 million in inventory systems and point-of-sale systems to facilitate "buy online, pickup in stores".
• What are the incremental sales that will be generated by this strategy? Will the incremental sales be more than what is observed in a store remodel? Will the incremental sales be more than what is observed when a new store is built?

The CFO depends upon the multichannel advocate (the CMO or the Database Marketing executive or the catalog/online executive) to "prove" that a multichannel investment will generate a better ROI than a new store or remodeled store.

So, the multichannel advocate uses research reports, anecdotal information, 'our competitors are doing it so we have to do it', 'our customers demand it', and the time-honored "multichannel customers are 'x' times more valuable than single channel customer" metric to "sell" the multichannel strategy.

CFOs don't like flimsy comments like these. CFOs want to know, with certainty, that multichannel investment yields a competitive ROI that exceeds the internal cost of capital.

It is my opinion that this relationship, as described above, limits the pace at which multichannel organizations implement true multichannel solutions.

This would be a great place for a vendor, research organization, or consulting firm to provide actual facts that help the CFO. The CFO is going to look at Circuit City, the poster child for 'buy online and pickup in stores', and say 'Gee, that strategy hasn't helped them financially, why should I make the same mistake?' The vendor, research organization, or consulting firm is going to have to provide actual facts, positive and negative, if they want the CFO to advance shared objectives.

The Database Marketing team has to view the business differently, illustrating the long-term impact on the customer file. The potential long-term impact on the customer file is what fuels the investment in multichannel strategies.

Over the next decade, your multichannel CFO is going to become even more critical of the ad-to-sales ratio, and will demand that total net sales increase at a fast rate. If total net sales do not increase at above-average rates, it is unlikely we'll see CFOs supporting multichannel initiatives at the level we'd all like to see happen.

Your turn: Does your multichannel CFO have the right information necessary to make multichannel investment decisions? What information does your multichannel CFO need to improve multichannel systems and strategies?

Multichannel Retailing Week: Google

Over the next ten years, multichannel retailers will come to terms with the fact that they have been given the unique challenge of managing a business partner named "Google".

Let's use a parable to describe the situation we now face.


Pretend you are Eddie Bauer. You have a store in a favorable mall. Throughout the history of your business, you teamed up with the mall developer and your competitors to create an experience that was hopefully favorable to your customer. You marketed to your customers. Via your 'brand proposition', you built a loyal customer base that drove your sales increases, and accounted for your profitability.

Then one day a person set up an information booth at the entrance to the mall. This person categorized information about every retailer in the mall, including the items being sold in each store, the price of the items being sold, and any discounts/promotions that are available. If customers were displeased with their experience, the information booth documented the complaints.

The information booth never forced itself on anybody. It created a simple little sign that said 'Free Information'.

Within a year or two of setting up the booth, one out of every five visitors to the mall stopped at the booth for assistance. Visitors were free to ask any question. The information booth freely gave answers to visitors. The information booth became amazingly efficient at answering all questions, no matter how long the line of visitors in front of the information booth.

The retailers in the mall were fascinated by this information booth. Seeing the potential power of the information booth steering new customers to each store, they began to give varying sums of money to the information booth. In exchange, the information booth agreed to prioritize certain bits of information favorable to each retailer. The information booth would not tell any of the retailers how much money each retailer spent. The information booth would not tell any of the retailers how it decides which bits of favorable information were prioritized over other bits of favorable information. Retailers would have to stand next to the information booth, and physically watch how visitors interacted with the information booth.

Soon, each retailer realized it had to pay this fee to the information booth. The retailer had no choice. If it did not pay this fee, then its own customers could defect to other stores in the mall, because the information booth would steer them away from the retailer not paying the fee.

Visitors to the mall realized that they were not getting unbiased information from the information booth. Seeking to help each individual visitor, the information booth subdivided into two mini-booths. One mini-booth had free information, the other mini-booth essentially had brochures of information from the retailers in the mall, with those brochures coming from retailers paying the most money on the top of the pile. Few visitors wanted to wade through the piles in either mini-booth.

Before long, the retailers figured out that it would be really nice to be included in the mini-booth that offered free information. The retailers hired special individuals to figure out how the information booth prioritized free information. Once these special individuals learned how the information booth prioritized free information, they handled day-to-day prioritization for the retailer. These special individuals stayed on top of all the changes that the information booth utilized to rank piles of information.

Eventually, the retailers in the mall figured out that they were no longer driving significant sales increases. Eventually, the competitive advantage generated early in the relationship with the information booth was offset, because every retailer paid the information booth to prioritize information. Big retailers paid large sums of money to compete in the paid mini-booth. Small retailers paid the 'special individuals' enough money to compete in the free mini-booth.

'Back in the day', retailers paid money to drive customers to the mall parking lot. Once the customer entered the mall, each retailer competed for customer loyalty.

Today, retailers pay money to drive customers to the mall parking lot. Then, retailers pay the information booth or special individuals a sum of money to enter the mall. Once the customer enters the mall, the customer has a wireless connection to the information booth, a wireless connection that further directs the customer toward the retailer that best leverages the dynamics of the information booth.


This parable illustrates the complex, necessary, and costly dance that multichannel retail will (in my opinion) partake in with Google over the next decade. When all multichannel retailers figure out how to work with Google, figure out how to optimize their website for natural search, or pay a sufficient fee for paid search, any competitive advantage will be lost. At that time, Google has simply figured out a way to extract a portion of the profit multichannel retailers used to generate.

It will be very exciting to see how we as multichannel retailers manage this evolving process. Will we further invite Google into our businesses by giving them full access to our purchase transactions (Google Checkout) and our inventory systems (Item Availability And Keyword Targeting)? Or will our profit and loss statements become challenged, causing us to identify new platforms for enabling customer search? If we take that path, will the customer come with us?

Multichannel Retailing Week: The Chief Marketing Officer

With each passing day, I become more convinced that the role of Chief Marketing Officer is the hardest job in Multichannel Retailing.

The issues facing the CMO are very similar, regardless whether you're looking at a Catalog/Online retailer, a Retail/Online organization, or a Catalog/Retail/Online business.

Retail and Direct Marketing trade journals hound CMOs to "integrate" their marketing efforts, providing a common look, feel and theme across all activities. Catalogs should look like the website, the website should be reflective of the stores, catalogs should drive traffic to stores, stores should acquire traffic that will ultimately buy online, and merchandise offerings should be common across channels.

However, actual cross-channel marketing results measurement indicates that consistency and integration, while most likely beneficial to the customer, is not beneficial to the profit and loss statement. What performs best in e-mail campaigns (look, feel, style, merchandise assortment) is often different than the style and merchandise offering that works best in catalog. Online marketing requires a different merchandising strategy. The affiliate programs that work best may not be "brand appropriate". Traditional marketing activities frequently drive traffic to stores, not to websites or telephone channels --- with a different messaging, promotional rhythm and creative style required to drive the store traffic.

CMOs are heading toward a series of compromises that protect the p&l statement, while helping fulfill consultant/vendor/customer vision of a good multichannel customer experience. CMOs do use available resources to align promotions, retail floorset and website homepage merchandising changes. It appears unlikely that multichannel retailers will ever achieve the nirvana recommended by consultants/vendors. And that is probably fine.

Investment allocation has become a huge challenge for the multichannel retail Chief Marketing Officer.

There are many marketing activities that the CMO manages. Each activity has varying levels of measurement accuracy, and varying lengths of time to evaluate profitability. Today, the CMO does not have the right information necessary to make or defend investment decisions. CFOs know this, frequently challenging CMOs to do better.

• Catalogs are probably the best measured activity. Specific profit and loss can be tracked across any timeframe, in the telephone channel, the online channel, or retail channel. Because it is so thoroughly measured, catalog marketing ends up benefiting from over-investment.
• E-mail campaign performance is often under-reported. E-mail campaigns can drive sales far beyond the 1-2 days the campaign is active. E-mail campaigns frequently drive as much business to a retail channel as they do to the online channel. Most CMOs do not have the analytical resources necessary to understand either phenomenon. As a result, e-mail investment is compromised.
• Paid and natural search, portal marketing, and affiliate marketing performance are all under-reported for multichannel businesses with a retail channel, due to the same issues observed in e-mail marketing. In addition, we don't understand what a "shared" brand relationship between Google and our brand means to the long-term loyalty of the customer.
  
• Traditional advertising (television, radio, newspaper) can never be accurately measured. Vendors are providing solutions to estimate the impact of these advertising channels. CMOs can use these tools to estimate the impact of traditional advertising across channels. However, "double-counting" of sales can occur with these methods --- i.e. the e-mail marketer counts a sale as being driven by e-mail, while the traditional advertising marketer counts the sale being driven by newspaper advertising. Again, vendors are working hard to develop fractional allocation methods.
• Brand Advertising is dying. Since so many CMOs know this arena far better than catalog/online/e-mail advertising, this arena receives a disproportionate amount of focus. This is the hardest marketing activity to measure, requiring the longest timeframe to evaluate for success. In reality, "branding" has never been more important --- everybody offers the same merchandise at the same price. Our "brand" becomes the only real differentiator for the customer. The sum of all experiences the customer has with a business becomes the "brand" perceived by the customer. To properly manage a "brand", the CMO should be given accountability for all aspects of the customer relationship. To date, not many CMOs have this experience. The COO may be a stronger individual at managing the call center experience than the CMO, may be better at responding to customer complaints.

Over the next ten years, the multichannel CMO will acquire skills that will make the CMO position more valuable than it is today.

• Ownership of the "customer experience". It is my opinion that marketing will evolve. Marketing will be more about "pleasing" a customer than about "creating demand". The CMO will have to own the end-to-end customer relationship. This means the information technology folks cannot own the website. The COO cannot own management of the call center. One can envision a CMO utilizing Human Resources staff to support customers, much in the same way that Human Resources staff support employees today.
• Holistic Measurement. Over the next decade, measurement tools will improve. The CMO will trust an analytics expert who "speaks the language of the CMO" to holistically measure catalog marketing, portal marketing, paid/search marketing, affiliate marketing, e-mail marketing, and traditional advertising along the same set of metrics, across all channels, over the same timeframes.
• Investment Strategy. Via holistic measurement, the CMO is armed to defend investment strategies as a partner to the CFO. Today, the CMO is often viewed as being far less "analytical" than the CFO. As a result, the CFO owns the business investment strategy. In the future, the CMO and the CFO will have to be partners for the CMO to succeed.
• Online Proficiency. Today, CMO skills are frequently skewed toward traditional advertising. Over the next ten years, a generation of online marketers will assume CMO roles, and will bring a new and refreshing view of the marketing world to the executive table.
• Metric Proficiency. Today, CMOs are comfortable with market research metrics. Over the next decade, the generation of online marketers who assume CMO titles will bring a proficiency to understanding metrics that will greatly enhance the credibility of the CMO.
• Management Style. The CMO of the future will be very gifted at managing individuals with wildly divergent skills and interests. The CMO will balance the career needs of traditional advertisers and catalogers who are experiencing the decline of their craft. The CMO will mentor online and e-mail marketers who, to-date, do not have the cross-functional skills and abilities of other marketers. The CMO will be more adept at selling long-term strategies to business partners. The CMO will be able to get more done through strong partnerships with the Information Technology leader. The CMO will get creative individuals to work with analytics staff.

If vendors/consultants/research organizations/customers ever hope to see their vision of multichannel retailing fulfilled, management will need to hire CMOs with a broad set of skills, skills required to manage the business of the future. Management will need to give CMOs more responsibility than they have today. As we go through this transition, it appears the opposite is actually happening --- CMO tenure is under two years. I believe this is a temporary phenomenon, necessary because of the transition from traditional advertising to our new multichannel marketing reality. We are transitioning from campaign-based management of the business to a holistic, long-term management of the customer. Eventually, marketing leaders will acquire the skills necessary to complete this transition.

Those are my opinions. It is time for your thoughts. What challenges do you think the CMO faces in multichannel retailing, and how should the CMO address them?

Multichannel Retailing Week: E-Mail Marketing

The multichannel e-mail marketing manager faces a unique set of challenges that are not well understood by those not working in multichannel retail e-mail marketing.

Within the e-mail marketing industry, the focus isn't always on driving increased sales through brilliant merchandising or creative presentation. The multichannel e-mail marketer learns about the importance of targeting strategies, plain text vs. html, double opt-ins, unsubscribes, trigger-based messages, alerts, spam filters, rendering issues, personalization, preview panes, blacklists, preferences, animated GIFs, open rates, click-thru rates, conversion rates and a veritable plethora of technical terms plague the e-mail marketer every single day.

Those who are not actively involved in e-mail marketing at multichannel retail organizations could care less about any of the issues that consume the time spent by multichannel e-mail marketing experts. They believe that it costs essentially nothing (after accounting for fixed costs) to send an e-mail campaign to a customer.

Merchants want e-mail marketers to feature their specific product or department in every single e-mail campaign. They want all customers to see their product, multiple times per week. They want to "expose" the customer to the merchandise they are offering. Targeting is a compromise, one that drives increased sales and profit. But targeting doesn't make merchants happy, because their merchandise is not being featured to the entire audience.

So the multichannel e-mail expert does their best to make compromises, and spends considerable time explaining targeting strategies. Merchants blame multichannel e-mail experts if the merchandise doesn't sell well, believing the wrong customers were targeted.

One of the biggest problems facing multichannel e-mail marketers is what I call "integrated measurement". E-mail marketing systems are often set up as separate systems from the rest of the database marketing infrastructure. This creates significant challenges for the multichannel e-mail marketer.

First, e-mail marketing does drive sales to the retail channel. The e-mail marketer is given access to open rate, click-thru rate and conversion rate information over a short period of time, say twelve hours. The e-mail marketer generally sees these metrics for only the online channel. Response that occurs in retail stores, or even the telephone, are often not measured by e-mail marketers.

Worse, response to e-mail campaigns is "terrible". We always hear that e-mail ROI is far better than in any other marketing channel. That will always be the case when the incremental cost of sending an e-mail is essentially zero. Multichannel e-mail marketing expert knows that only one in seven-hundred customers who receive an e-mail actually buy something. An e-mail campaign will drive between $0.15 and $0.35 of sales per e-mail. A catalog will drive $1.00 to $10.00 of sales per catalog. This really hurts the multichannel e-mail marketing expert. Merchants know that other forms of advertising drive better sales volumes --- and consequently, treat the multichannel e-mail marketing expert with less respect than is deserved.

Over the next ten years, the multichannel e-mail marketing expert will be well-served by integrating with the rest of the organization. Test/control measurement techniques will reveal that e-mail marketing drives equal amounts of sales to the online and retail channel --- causing multichannel e-mail marketing experts to realize their campaigns are twice as effective as previously believed to be. Measurement will focus more on the long-term relationship building aspect of e-mail, less on the impact of re-shuffling sales into a twelve hour period of time following the delivery of an e-mail campaign. As online marketing becomes more expensive, as catalog postage rockets skyward, the multichannel organization will better appreciate the potential of e-mail marketing. The multichannel CFO will invest in database marketing integration between catalog, online and e-mail marketing. Personalized and dynamic e-mails will eventually become the norm --- and ultimately, e-mail and RSS will become essentially the same marketing tool.

Strategically, the multichannel e-mail marketing expert will spend less time with his/her "flock" of professionals across the industry. The multichannel e-mail marketing expert will learn the communication style necessary to be highly effective, and will earn more respect within a multichannel business. Communication will focus more on the annual contribution of e-mail campaigns (which is significant), less on the campaign contribution of e-mail (which is largely insignificant). Communication will be holistic, so that store employees understand that they are benefiting from e-mail.

Eventually, we multichannel retailers will learn that e-mail is a great tool for communicating events and product introductions, and a good tool for complementing sales of individually advertised items. With luck, we'll get away from using e-mail as a "sale", "promotion", "free shipping" and "%-off" marketing tool. We will instead invest the time in developing unique merchandising strategies and creative presentations that truly increase sales, and set our business apart from others employing "best practices" that result in a feel of "sameness" across retailers. When this happens, multichannel e-mail marketing experts will be revered.

Your turn. What are the multichannel e-mail challenges that you face in your multichannel retailing organization?

Multichannel Retailing Week: Inventory Management

One of the most under-appreciated jobs in Multichannel Retail is the title of Inventory Manager.

The inventory manager supports the merchant. By looking at sales history, the circulation plan, the e-mail marketing plan, the online marketing plan, and traditional advertising, the inventory manager determines how many units of an item to purchase.

Multichannel retailing made inventory management very challenging. Five issues really challenge the inventory manager.

First, inventory managers have to deal with different measurement techniques in different channels. The catalog/telephone channel captures "lost sales". In other words, when a customer calls to place an order, and the item isn't available, the fact that the customer "wanted" to purchase this item is recorded. This is a huge benefit that catalogers have over retailers. If 1,000 units were forecast, and customers "wanted" to purchase 1,850 units, the inventory manager has access to this data. Next year, the inventory manager will order the appropriate number of units. In retail, once the 1,000 units "sell through", there are no more units to purchase. In retail, there is an art to forecasting what would have sold. The online channel strikes a balance between cataloging and retailing, in that "lost sales" can be captured by the multichannel retailer, if management is willing to capture the information.

The second challenge facing multichannel inventory managers is the information systems they get to use. Catalog/Online systems are frequently different than Retail inventory management systems. The systems don't always talk to each other, and the systems occasionally utilize different metrics. This means that folks working in catalog/online channels view the business differently than folks working in the retail channel. Different skill-sets evolve. In some ways, it is like the catalog/online inventory manager speaks Spanish, while the retail inventory manager speaks Portuguese. The multichannel CFO plays a key role in this relationship. If the CFO understands the importance of linking disparate systems, staff can evolve to speak a common language. Linked systems, however, need to accommodate the unique measurement differences between channels. This does not always happen in multichannel retailing. If retail wins out, it is possible that demand will not be captured in the catalog channel, sub-optimizing catalog marketing activities.

The third challenge multichannel inventory managers deal with is the information captured in inventory management systems. In most cases, changes in marketing strategy cause significant changes in unit sales. For instance, a drop in circulation depth of twenty percent frequently yields a ten percent decrease in sales. Featuring an item in an e-mail campaign may drive a fifty percent increase in sales of that item. Paid search can influence item sales. In most cases, the inventory manager does not have an organized information system that allows the inventory manager to analyze the simultaneous influence of all of these factors. Really talented inventory managers tabulate their own information system in spreadsheets, and build good relationships with circulation, e-mail marketing and online marketing individuals.

Fourth, not all items sell at the same rate in all channels. Items that are prominently featured in catalogs sell well over the telephone, sell at an average rate online, and may not sell well in retail stores. Items featured in e-mails cause online sales to surge, but may not drive any retail or telephone sales. The audience purchasing via telephone, online, and stores is frequently different. The telephone audience is often older, and lives in rural areas. The online customer may be younger, living in the suburbs. The retail customer lives near a store. Differences in demography and lifestyle cause each item to sell differently, by channel. The inventory manager does not usually have this type of information available in a systematized way. The inventory manager has to make a lot of guesses, in order to be accurate.

Fifth, the inventory manage has to be really accurate, but is not given the tools necessary to create accurate forecasts. If too much merchandise is purchased, then overstock occur, costing the company a ton of profit. If too little merchandise is purchased, sold-outs and lost-sales occur, costing the company a ton of profit. The inventory manager is constantly hounded by merchandising and financial staff members to be accurate. The reward for being accurate is harvested by all employees. The risk for not being accurate falls upon the inventory manager.

Over the next ten years, we will see an inventory manager from a multichannel retailer create an inventory management system that integrates the issues listed above. Many vendors try their hardest to do this today. I believe somebody will figure out how to leverage all of the spreadsheets clogging network drives at multichannel retailers, allowing the multichannel inventory manager to be more effective. This information will be combined with clickstream data --- sales information, marketing information, and the items customers viewed on the website will be combined in a way that allows inventory managers to do a better job.

With luck, CFOs will agree that these systems are needed, and will spend the money to implement them.

Until that happens, the complexity of a multichannel business will continue to challenge inventory managers. These folks are frequently compensated at or below the company average for professional staff, but bear more risk than the average employee.

Your turn. What is your view of multichannel inventory management?

Multichannel Retailing Week

This week, I want to take a look at Multichannel Retailing from the perspective of many different job functions, viewing Multichannel Retailing from the position of an actual practitioner on the "client side" of the business. Though I've spent the past four months managing my own projects as a freelance analyst, I did spend the past nineteen years dealing with real issues on the "client side" of the business relationship.

Maybe ninety percent of what you read about Multichannel Retailing comes from the "vendor side" of the business. It's been my experience that these folks, by and large, want to do good for their clients. Still, they have to sell something in order to put bread on the table.

This week, I hope we can have a discussion about real challenges that employees at multichannel retailers (those with a catalog/web presence, retail/web presence, or retail/catalog/web presence) face, a discussion where readers don't feel like they are being 'sold a solution'. I'd appreciate your participation, by submitting comments where appropriate.

When Conference Presenters Are Wrong

Today I shared my thoughts on how catalogers might capitalize on online marketing with members of the Mailorder Gardeners Association.

For me, questions from the audience are often the most interesting part of a presentation.

One attendee had a great question. I presented a finding that online merchants who have video, audio or blinking text, "on average", perform worse than sites that are more static in nature. Her question: "My business is about to implement video and audio on our site. Is this a bad thing for us to do?"

My surprising answer was "No". Even though I just presented the information on a slide, it is important to note that my findings represent "averages".

This means that many sites with audio/video will outperform sites without this technology.

This is an important concept. Everything in marketing has a chance to succeed, or a chance to fail. Some things have a greater chance to fail. Ultimately, there is a risk/reward issue to be weighed. You can test strategies that are unlikely to work --- and if they don't work, stop doing them! But if they do work, you have a competitive advantage over those practicing established industry norms.

A different presenter suggested that various online marketing tactics were 'death', that the audience needed to talk to their information technology team immediately and implement changes asap.

I used to think that way. But I've been wrong many times over the past two decades.

I share things with you that have frequently worked over the years. You're welcome to do the exact opposite of what I suggest. Feel free to tell me and my readers when you observe success that runs counter to my suggestions. We all benefit from diversity of thought.

Best Practices

Assume you attend a conference. The speaker gives you six techniques, 'best practices' as she calls them, that are guaranteed to improve the ability of an e-mail message to drive sales.

The speaker is an expert, and has mined information from numerous companies to develop her point of view.

Do you take her advice? Do you go back to your company, and implement her ideas? Or do you discount her expertise, because you perceive her ideas "don't work" in your culture, or don't work with your customers?

I get perturbed when somebody who doesn't work at my company tells me that my company is not employing best practices.

And yet, if you assume that the presenter is pure of intent, there's a good reason the presenter shared these ideas with you ... they probably work!

How do you filter the ideas you hear from presenters at conferences?

Data Mining vs. Mining Data In Multichannel Retailing

If there's one thing I've learned during my first four months as a small business owner, it is that multichannel retail executives are hesitant about "data mining", but are very enthusiastic about "mining data".

Assume you have a catalog/online CEO who wants to understand how website customers behave between a first visit and a twentieth visit.

A statistician might provide a series of reports and analyses that thoroughly explains the process from soup to nuts, publishing exciting findings along with complex statistical information to support his findings.

The multichannel CEO nods politely, even offers verbal kudos, then leaves the room feeling like she still doesn't understand how her customers behave.

The person who "mines data" identifies the handful of key findings that every CEO must know, then puts the findings into a context, a "story", that the CEO can use to create actionable strategies that drive sales and profit. There is something that the CEO can "do" with the findings, and it is easy for the CEO to "know" what the next steps are.

Mathematically, this type of work is much less satisfying. Professionally, this kind of work can be more gratifying.

Data mining software and data mining experts are generally plentiful and affordable in multichannel retailing.

Folks who "mine data" are generally in short supply, and are desperately needed by multichannel executives.

Multichannel Retailer Stock Performance

I track about twenty stocks, trying to understand how multichannel retailers (those with stores & websites and possibly catalogs) are performing against online/catalog pureplays.

Here are the online/catalog pureplays I follow: Amazon.com, Blue Nile, CDW, Dell (which may need to be removed), Drugstore.com, eBay, Overstock.com, PC Connection.

Here are the multichannel retailers I follow: Best Buy, Cabelas, Circuit City, Coldwater Creek, Eddie Bauer, J. Crew, J.C. Penney, Nordstrom, Office Depot, Office Max, Talbots, Williams Sonoma.

Since mid-March, the online/catalog pureplays have an index of 1,287 (1,000 = base). Multichannel retailers are at 1,017 (1000 = base).

I'll continue to follow these retailers, to see which business model Wall St. values more. If you'd like to see other retailers included, make a suggestion in the comments section.

MineThatData Index
Index =	1,125
		Today	2007.03.16
Amazon.com	AMZN	$65.78	$37.85
Blue Nile	NILE	$66.06	$38.49
CDW	CDWC	$84.65	$60.56
Dell	DELL	$28.65	$22.50
Drugstore.com	DSCM	$2.83	$2.44
eBay	EBAY	$32.91	$31.74
Overstock.com	OSTK	$19.23	$17.35
PC Connection	PCCC	$12.80	$14.84
BestBuy	BBY	$47.51	$47.85
Cabelas	CAB	$21.66	$24.24
Circuit City	CC	$14.64	$17.63
Coldwater Creek	CWTR	$21.99	$17.60
Eddie Bauer	EBHI	$13.66	$8.90
J. Crew	JCG	$52.37	$38.48
J.C. Penney	JCP	$71.15	$79.47
Nordstrom	JWN	$47.55	$50.96
Office Depot	ODP	$29.81	$34.69
Office Max	OMX	$38.05	$49.22
Talbots	TLB	$24.74	$24.71
Williams Sonoma	WSM	$31.17	$35.33
Direct-Primary Index		1,287	1,000
Multichannel Index		1,017	1,000
Total Index		1,125	1,000

Multichannel Forensics at Red Envelope

Reading the comments of leadership at Red Envelope, you cannot help but believe that they conducted some sort of Multichannel Forensics analysis. That's a good thing, and I had nothing to do with it!!!

The comments suggest that Red Envelope is not acquiring enough new customers to fuel growth ... and the failure to acquire enough new customers means that the business is projecting lower sales in the next twelve months. This is the very essence of a Multichannel Forensics analysis ... identifying negative or positive business trends before they happen! Good job to the person(s) responsible for initiating this analysis!


Read these comments from Chairman John Pound:

"The negative trends that can be seen in our fourth quarter results reflect three core legacies of last year. They are: an uninspired and unfocused creative message (as manifested in both our catalogs and our web site); an unfocused and tired product assortment; and a shift in our marketing focus away from the critical necessity of customer acquisition".

"In particular, we expect that there will be a cumulative overhang from our lower customer acquisition rates that will affect the balance of this fiscal year, simply because we are drawing on a smaller and less motivated customer base relative to the Company's historical customer pool. We currently estimate that it will take two to four quarters to change direction as we rebuild the customer file. While it is difficult to quantify the impact at this time, we currently believe that for fiscal 2008, RedEnvelope's top line will be below that of fiscal 2007 just ended, and that the Company will experience negative net cash flows".

We will "more effectively drive demand through the web rather than primarily through our catalog distribution (as is currently the case, in spite of notionally being a web business".

We have "tapped our customer data to develop a rigorous understanding of our demographic and the dynamics of the business, we built a baseline financial and operating plan based on a bottoms-up analysis supported by the dynamics of our customer file".

Customers Who Return Too Much Merchandise

Click on the image to enlarge it.

The year was 1993, the company was Lands' End. It was my job to identify customers who "returned too much merchandise".

A deep dive into the database indicated that a small number of households purchased frequently and returned more than 75% of their purchases.

The analysis indicated that these customers were very likely to purchase in the future, and if they purchased, they would return at least 67% of the merchandise they bought.

And if customers ordered frequently and returned at least 67% of the merchandise, it was an unprofitable customer relationship. In other words, after adding the cost of fulfilling orders, marketing to the customer, and processing returns, we would lose a substantial amount of profit.

If we didn't market to the customer, we'd lose top-line sales, but increase profitability.

We made the decision to stop mailing catalogs to these customers, reserving the right to mail maybe one catalog per quarter to these households.

It didn't take long for these customers to realize that they weren't getting catalogs. It didn't take long for these customers to voice their displeasure about not getting catalogs. It didn't take long for the "customer advocate", an employee responsible for taking the side of the customer, to become frustrated with my analysis.

There's a fine line you walk when you accept any returns, no matter the situation. Customers are entitled to return merchandise. However, the company has a responsibility to maximize profitability for ownership/shareholders. We let customers return whatever they wanted to return. We retained the right to decide who we marketed to, and how often we marketed to the customer.

Here's my question for you, the loyal reader ... what is the right balance between marketing strategy and customers who return a lot of merchandise?

In Honor Of The Title Of 'Director'

I am proclaiming Monday, July 9 as "Director" day. If your job title is "Director" of anything, this day is for you!

In a post Sarbanes-Oxley world (thanks Enron), the title of Director has to be the most challenging one for a professional employee to hold.

From my earliest days at Lands' End, I wanted to be a Circulation Director. I saw that position as one that played a significant role in the direction of the business.

Eventually, I became a Circulation Director. Elements of the job were intoxicating. It was great fun to put together a circulation plan that showed increased sales and increased profit on a merchandise productivity decrease of ten percent!

Post Sarbanes-Oxley, being a Director wasn't as much fun. In big organizations, the Director reports to a Divisional Vice President. The Divisional Vice President reports to a Vice President. The Vice President reports to a Senior Vice President. The Senior Vice President reports to an Executive Vice President. The Executive Vice President reports to a Chief "X" Officer. The Chief "X" Officer (fill in any role for the 'x') reports to the Chief Executive Officer. The Chief Executive Officer manages day-to-day responsibilities as assigned by the Board of Directors. The Board of Directors ultimately manage the business on behalf of Shareholders. Shareholders frequently demand a short-term return on investment, requiring a lot of strategic direction from the "C-Level" suite.

The Chief Executive Officer and the Chief Financial Officer have to sign-off on SEC-mandated reporting. This magnitude of accountability requires hands-on control of the business that didn't exist five or ten or fifteen years ago.

This stretches the role of a Director. In the past, the Director managed budgets, and set strategy for his/her area of responsibility. Over the past five years, these responsibilities migrated up the pyramid, closer to the Chief "X" Officers.

Conversely, the Director had to provide a satisfying work environment for his/her direct reports. The Director had to grow talent among Manager and Analyst level staff members. As a result, the job description of your average Director was redefined in a way that was not complementary to the career needs of the Director.

Over the past five years, the Director was pinned-down in a no-win career growth situation. If one of the VP-level individuals left the company to pursue other interests, it was trendy to hire a Vice President from a competing organization. These leaders brought new ideas, leadership, and vision to your organization.

That's the way things had been over the past five years.

Today, Director-level professionals have great opportunities to shape multichannel organizations. Many executive-level individuals lack the online experience necessary to drive multichannel sales and profit. A Director with circulation and online marketing experience may be the most valuable individual in any multichannel marketing organization --- able to combine the tools of the past with new marketing techniques to increase the success of your business.

If your job title is Director, then today, July 9, 2007 is a day dedicated to YOU!

If you are a Marketing Director at a multichannel retailer, this might be one of the best times in the history of direct marketing to make a significant contribution to your business. I think the stars have aligned in a positive way.

It's a good time to demonstrate leadership. And if your company won't recognize you for your efforts, there are hundreds of multichannel organizations that will. The future is bright for Director-level individuals who possess multichannel skills.

Incremental Online Sales: Nordstrom

Click on the image to enlarge it.

Earlier, we reviewed financial results at Williams Sonoma. The data clearly indicated how important catalog is to the growth of the direct channel.

Nordstrom is a highly profitable multichannel retailer, one that took a very different approach to catalog.

In 2005, the brand decided to eliminate $36,000,000 of ad-spend on a targeted direct-to-consumer catalog business that featured merchandise for a niche of women's apparel consumers. (FYI, data in the table above are freely available via Nordstrom 10-K annual reports).

Had this happened at a company like Williams Sonoma, where catalog items ARE the brand, a catastrophe would have occurred.

But at Nordstrom, where the catalog items were a subset of all items offered in stores and on the website, something different happened.

The catalog strategy was discontinued on June 30, 2005. Notice that catalog + internet sales in 2005 only grew by one percent. Yet, in 2006, even though half the year was comped against a prior year that had a significant catalog investment, catalog + internet sales grew dramatically. Nordstrom Direct management figured out how to leverage the marketing tools and merchandise assortment available to them to grow the business, in spite of the dramatic loss of catalog advertising.

Furthermore, we are all aware that Nordstrom retail comps were spectacular during this time period, opposite of what industry experts might suggest would happen if $36,000,000 of catalog advertising were removed from the multichannel ecosystem.

This leads me to my point. At Williams Sonoma, catalogs ARE the store, the website, the brand. Catalog marketing is critical to the success of this multi-brand organization.

At Nordstrom, however, traditional catalog marketing was discontinued. After a brief blip, business came roaring back.

This is why I advocate that catalog marketers have an "open mind". You may desperately need catalog advertising to grow your online business. Or, like Nordstrom, you may not need catalog advertising to grow your online business, you may be able to cross the digital divide, and utilize online and multichannel retail marketing to fuel your online business.

Listening to pundits leads you to the conclusion that you have no choice but to maximize your catalog advertising efforts. Instead, listen to your own business instinct, and the needs of your customer base, and chart a course of your own. Industry experts are only experts to the extent that they have seen various business models succeed. The Nordstrom example runs counter to what most industry experts are used to seeing.

Incremental Online Sales: Williams Sonoma

Click on the image to enlarge it.

Catalog purists looking for a poster child for catalog productivity need look no further than Williams Sonoma.

Williams Sonoma is a multi-brand retailer with stores contributing the majority of sales.

The best part about Williams Sonoma is that they openly share catalog and online information in their annual reports. In addition to sales information, management tells us what percentage of online sales are believed to be incremental to the business, verses the percentage driven by catalog mailings.

During the past four years, Williams Sonoma estimates that 45%, 40%, 40% and 55% of online sales are truly incremental during 2006, 2005, 2004 and 2003.

The graphic at the beginning of this article restates catalog and online sales during the past four years, given the estimates management provides us.

This means that, since 2003, the following trends have occurred:

• Telephone Sales decreased by 13%, an annual drop of about four percent.
  
• Online Sales increased by 138%, an annual increase of about thirty-three percent.
  
• True Catalog Sales increased by 26%, about eight percent per year.
• True Online Sales increased by 95%, about thirty percent per year.
• Catalogs Mailed increased by 15%, about five percent per year.
• Catalog Pages Circulated increased by 35%, about eleven percent per year.

The comparison that "seems reasonable" is a 26% increase in true catalog sales on a 35% increase on catalog pages circulated. This ratio is about what one would expect to observe, given an annual increase in inflation of 3%.

In other words, Williams Sonoma is observing a true catalog productivity decrease (26% increase in sales on a 35% increase in pages circulated), though the change is reasonable.

If we can believe the estimates Williams Sonoma provides in their annual reports, this suggests that management is managing the the catalog and online sales transition in a reasonable manner. Non-competitive businesses could/should speak with Williams Sonoma management about how they are approaching this "channel-shift" challenge.

What I Value

Many (i.e. more than just a handful) of my loyal readers recently shared their thoughts with me about my attitude toward cataloging and multichannel retailing. The most popular word used to describe the message I'm conveying is 'doom'.

If you've worked with me in person, on a day-to-day basis, you know I'm not about doom. I am all about pointing the ship toward a viable future. During my career, the companies I've worked for generated $50 billion in net sales and $4 billion in earnings before taxes. The leaders I've worked with know something about pointing the ship toward a viable future.

So let's list a few things that I value in our multichannel world. These are sustainable things that frequently lead to increased sales and profit, or at minimum support an enjoyable work environment. These concepts and ideas are not about 'doom'. You're invited to contribute your ideas at the end of the article.


I value vendors who speak honestly, and don't market their products and services using fear and arrogance as a tactic.

I value bloggers who do not tear down multichannel retailer customer service for the sole purpose of increasing the readership of their blog. Someday, multichannel retailers will figure out how to fight back against bloggers. Woe to all bloggers when the brands decide to fight back.

I value online marketers who credit retail and catalog marketing for a portion of their success. I believe these folks make up the next generation of great direct marketing leaders.

I value multichannel retailers who use the online channel for customer acquisition. Maybe the biggest advantage a multichannel retailer has is an active online and catalog customer acquisition program that fuels future retail growth.

I value industry experts who are willing to admit that catalog response is declining, and that e-mail response is declining. Both facts are frequently (though not always) true, and there's nothing wrong with admitting it.

I value search marketers who teach their clients the art of search marketing while managing search tactics in an ethical manner.

I value executive teams who listen to the ideas of their analysts, managers and directors first, considering the ideas of vendors and research firms as a secondary source for growth.

I value online marketers who allow search marketers to do their jobs, but remain highly engaged in this form of art.

I value multichannel retailers who increase sales and profit by capitalizing on people. Technology cannot succeed without people. People frequently succeed without technology.

I value executive teams that get along, work collaboratively, and genuinely care about the people they support.

I value e-mail marketers who do their job in an ethical manner. It has been my experience that e-mail marketers are among the least appreciated of all marketers, and drive far more sales in a multichannel retail environment than they get credit for.

I value catalog circulation staff, folks who do hard, tedious, endless cycles of work without sufficient appreciation from online marketers, e-mail marketers, or multichannel executives. Almost all of the tactics used by e-mail marketers were invented by previous generations of catalog marketers.

I value multichannel websites that are warm and inviting, while practicing the art of "selling" merchandise.

I value individuals who have the title of "Director". These folks are among the least appreciated employees in any company, working without the strategic or decision-making authority of an executive while dealing with many of the same headaches that any executive has.

I value multichannel businesses that chart their own course, developing their own take on how to sell merchandise to customers instead of following the advice of the latest research report.

I value research organizations that don't try to increase top-line sales and stock price by beating up the very multichannel retailers who purchase their research reports.

I value multichannel leaders who focus on strategy more than day-to-day tactics, who focus on vision more than ten hours of back-to-back meetings, who let their Directors manage all of the day-to-day tactics, who do not micro-manage every aspect of multichannel marketing.

I value catalogers who use the paper they send to customers to tell a compelling story about their products and services, who add warmth and humanity to their marketing.

I value multichannel CFOs who have artfully managed advertising and capital spend between cataloging, online marketing, e-mail marketing, multichannel inventory systems, and physical stores.

I value database marketers who have accurately measured the incremental contribution of catalogs, online marketing, e-mail marketing, multichannel inventory systems, and physical stores by using test/control methodology.

I value creative staff who artfully manage the balance between taking creative risks, who visually present merchandise using time-honored techniques, who communicate a warm and humble marketing voice to the customer.

I value database marketers who understand that must-have merchandise, presented in an attractive manner, sold at a fair price, and coupled with excellent customer service is what drives the success of a company --- and as a result, stay out of the way by not complicating the business with theoretical concepts like "return on customer" or "lifetime value".

I value merchandising staff, the folks who truly 'get' multichannel marketing, the folks who pay all of our bills. No vendor, no research organization, no executive, no director, manager or analyst makes any money without brilliant merchandisers who intuitively understand what the customer wants to purchase six to twelve months before the merchandise will ever be available.

I value brand marketers who focus on small details like sponsoring a cancer run over big concepts like television advertising.

I value compensation, human resource and executive teams that give analyst and manager staff much more than meager three percent cost-of-living salary increases when multichannel businesses are successful.

I value compensation, human resource and executive teams who reward star performers in creative ways, and are not limited by a mythical budget or performance review cycles.

I value multichannel vendors that keep scorecards of their successes and failures, and openly share these scorecards with their clients and prospects.

I value compiled list vendors that are trying to develop viable matchback algorithms for the catalog industry.

I value staff who work at list vendors, folks who grew countless multichannel businesses in the pre-search era, folks who are now being 'consolidated' or 'downsized' in spite of continued excellent and selfless work.

I value anybody who has the courage to stand up to Google and suggest that they are siphoning profit off of all of our profit and loss statements for transactions that would have occurred anyway.

I value online marketers who understand that Google is siphoning profit off of all of our profit and loss statements for transactions that would have occurred anyway, and react to this by better balancing natural and paid search activities.

Realize, of course, that we are to blame for this by participating in paid search, but kudos to those who balance natural and paid search.

I value database marketers who have accurately measured the amount of profit that Google has siphoned off of our profit and loss statements.

I value web analytics folks who measure customer behavior across multiple visits, instead of solely focusing on individual visit metrics.

I value information technology experts who serve internal customers (i.e. those of us who request work of IT folks) in a humble and helpful manner.

I value multichannel leaders who allocate enough investment in information technology so that IT folks can serve us in a humble and helpful manner.

I value multichannel HR departments that focus on cross-pollination of skills between online, catalog and retail channels, and reward employees for their total contribution, not just their channel contribution.

I value multichannel leaders who have the courage not to outsource catalog circulation.

I value multichannel leaders who support an 8-5 workday filled with meaningful and rewarding work over a 7-7 workday filled with meetings.

I value multichannel leaders who allow employees to work from home, and have the courage to hire employees who may not live in the same geography as the corporate office, allowing those employees to contribute from their existing home sans relocation.

I value multichannel leaders who openly communicate with their employees, are visible to their employees, and share the issues the executive team are dealing with so that employees can do their best to help the business succeed.

I value the efforts of analysts and managers at multichannel retailers, the folks who execute all of the gaudy strategies that executives attempt to implement. Without loyal, talented and dedicated analysts and managers, executives couldn't possibly enjoy the millions of dollars they receive in salary, stock options and bonuses during their leadership reign.

I value the efforts of call center and distribution center staff, the folks who are the real engine behind multichannel marketing. You can thrive without great systems. You cannot run a business without poorly paid humans taking phone calls, managing live chat, or picking/packing/shipping merchandise. The day somebody figures out how to properly compensate these folks for their true contribution is the day some 'brand' goes bonkers.


Your turn. What do you value about multichannel marketing?

Does Online Marketing Truly Increase Net Sales For Multichannel Retailers?

Online Marketing. For some businesses, it has been a revolutionary marketing tool that drives incremental sales and profit. Many online businesses thrive, using online marketing techniques like paid and natural search, affiliates, and portal advertising. A business like Zappos grows exponentially using online marketing strategies.

Our metrics seem to indicate that online marketing works. We've spent a lot of money installing software on top of our websites, and the software indicates that we get incremental traffic, conversion, and sales as a result of our marketing efforts. We see this in real-time, so it must be true.

Multichannel businesses often have different challenges than online-only business models. Multichannel businesses use traditional advertising, catalog advertising, and physical presence (retail stores) to drive sales.

Many multichannel businesses are seeing diverging trends, trends that lead to frustrating conclusions.

• The amount of money spent on marketing is increasing, when you add catalog, traditional and online advertising together.
  

• Annual retention rates, when measured across channels, are generally flat.
  

• The rate at which new customers are added to the business is generally slower than the rate at which investment in new customers is increasing.

For multichannel businesses, this suggests that increases in advertising expenditure are not yielding an overall positive return on investment. Any one advertising activity, when measured in a silo, appears positive. But the lump sum of advertising activities, and the increase in advertising over time, are not yielding a positive return on investment.

Just for fun, do a comparison. Look at your customer file in 1994, 2002, and 2006. Back in 1994, look at your ad-to-sales ratio, in the pre-internet era. In 2002, look at your ad-to-sales ratio, pre-search era. In 2006, look at your ad-to-sales ratio post-mass-media-collapse.

Similarly, look at your annual retention rate, and your annual purchase frequency, in 1994, 2002 and 2006.

If you see that your annual retention rate is flat or decreasing, your annual purchase frequency is flat or decreasing, or your ad-to-sales ratio is increasing, it suggests several possible challenges.

First, you might have to spend more on advertising today, because our customers are being carpet-bombed by competitors at every angle.

Second, there is one thing that fundamentally changed between 1994 and 2006 --- the internet! If ad-to-sales ratios are increasing, while retention rates or purchase frequency has remained flat, it suggests that online marketing has not fundamentally moved the needle at increasing customer loyalty, or cultivating new customers.

Third, if online marketing has not fundamentally moved the needle, it may mean that traditional advertising or catalog advertising needs to be trimmed-back in order to optimize the ad-to-sales ratio, and ultimately, profitability.

One way to evaluate online marketing is to see what percentage of those who respond to online marketing are truly "new-to-file" ... in other words, does online marketing truly drive new customer acquisition? Many multichannel organizations are observing that online marketing drives "existing" customers toward a purchase more than it drives "new" customers toward a first purchase. This could be a positive trend, in that online marketing rescues a customer about to defect.

More likely, this is a negative trend --- it simply means we've trained the customer to shop a certain way, and we spend additional money to achieve the same result. We calibrate our metrics to reflect that this is a "good" decision, when in reality, it isn't.

In conclusion, take a look at your advertising metrics, and your customer file information from 1994, 2002 and 2006. Are you spending more, as a percentage of sales? Are your annual retention rates increasing, flat, or decreasing? Are your annual purchase frequency metrics increasing, flat, or decreasing? This represents the starting point toward understanding if all the money multichannel marketers are now spending on online marketing are truly generating a positive return on investment.

Analyst or Manager Compensation

When business doesn't meet expectations, heads roll. One or more executives will receive a tidy compensation package as part of their exit from the struggling business.

Professionals, folks who are not Directors or Vice Presidents, are also ousted when business stinks.

For those of you who are not Directors or Vice Presidents, which compensation package would you sign up for, if your company offered you a choice? Alternatively, recommend a different package if you don't like any of the three presented here.


Package #1 = A base salary of $62,000 per year. Employee is not bonus eligible. Employee is at risk for downsizing if business is poor.

Package #2 = A base salary of $60,000 per year, plus a bonus that could be up to ten percent of your base salary, depending upon company and individual performance. Possible salary range = $60,000 to $66,000 per year. Employee is at risk for downsizing if business is poor.

Package #3 = A base salary of $40,000 per year, plus a bonus (paid quarterly) that could be up to one hundred percent of your base salary, depending upon company and individual performance. Possible salary range = $40,000 to $80,000 per year. Employee is at a much lower risk for downsizing if business is poor.

How Does Your Organization Use Research Information?

Toward the end of my tenure at Nordstrom, we had a meeting about multichannel marketing with Sucharita Mulpuru, an analyst at Forrester Research. This bright individual knew the challenges facing a multichannel retailer, demonstrating superior subject matter expertise.

These days, it seems trendy to use external subject matter experts to help leadership understand important business issues. I've attended many a presentation where the Director or Vice President gives research information more "presentation time" than actual customer behavior and company metrics. In other words, the presenter may feel that the research company has more credibility with executives than internal database marketers have.

How does your organization use research information? Do you use it to complement internal database marketing metrics and marketing research information? Do you use outside research information as the primary source of credible information? If the latter is the case, why does research information trump internal understanding of customer behavior, an understanding based on actual customer purchase activity?

Multichannel Independence Day

Independence Day gives all of us a chance to reflect upon the events that led to the creation of the United States of America.

We might think that "July 4th" is all about sparklers and snakes and lighting things on fire. Or about loading the family into the eco-friendly Ford Escape Hybrid SUV for a trip to the fairgrounds to watch the annual fireworks show, only to complain that the county didn't spend enough of our property taxes on a finale that beat the simulated weapons they sent skyward in a neighboring county last Saturday night.

Deep down, we realize that the fireworks simulate events that transpired more than two hundred years ago.

In the "multichannel marketing" world, trade journals, vendors, research organizations and conferences provide our fireworks.

We look skyward, waiting for the next big article or announcement. Suddenly, a firework is launched. A research organization commissions a study that suggests ninety percent of multichannel retailers fail at everything. BOOM! We ooooh and aaaaah at the revelation that almost everybody but Best Buy is highly flawed. We willingly fork over money from our budget to obtain additional PDF files that further humiliate the organizations we work for.

Maybe the next firework will be about a study that illustrates all the failures of research organizations.

Wait, here goes another firework! At the zenith of the firework, we see one white light, then a tenth of a second later, one loud BOOM! That's sort of like an article that hypes a product or service ... we get so excited, only to hear a big loud BOOM five-hundred words later. Without the recommended product or service offered by the vendor, our customers will defect in an instant. We'll be destined for the scrapheap occupied by previously wondrous brands like Montgomery Wards.

Oh oh, here comes the finale. The PA system plays "Stars and Stripes Forever", as thirty-six of the finest fireworks explode skyward, all within one-tenth of a second of each other. This is like attending an industry conference. A star-studded lineup of speakers, the exhibit hall dazzling one and all with the latest and greatest advances in multichannel technology, networking dinners, you name it --- it's a fun-filled assault on the senses.

At the end of the fireworks show, we head home in our eco-friendly Ford Escape Hybrid SUV. The real world awaits us. Similarly, when the conference is over, we head home in a middle seat on a three hour flight, hoping that somebody will listen to what we learned at the conference.

As we approach Independence Day, give a little thought to ways in which your department, or your brand, can achieve "multichannel independence" --- how can you be innovative, different, creative, dare I say "revolutionary"? What unique ideas do you have?

Help SuperValu Grow!

SuperValu is a $37 billion dollar grocery chain, earning 2% pre-tax profit on an annual basis.

Their website is the 443,801st most visited website in the world, according to Alexa.

The MineThatData Blog is the 357,705th most visited website in the world, according to Alexa. For those of you who are interested, The MineThatData Blog generates considerably less than one billion dollars of annual revenue.

As many of you know, I like to use the first day of the month to talk about something positive. Today, I'm asking the Social Media / Marketing folks to combine forces with Database Marketers and my loyal readers to develop a social media and marketing strategy that benefits a grocer like SuperValu.

Question Number One goes to these folks (John, Mack, Ann, Mike --- get healthy!, Drew, Joseph, Paul, Harry, Becky). What kind of blogging / marketing / social media strategy would you develop to help SuperValu have a better relationship with the customers who support this grocery brand?

Question Number Two goes to the Database Marketing / Analytics folks (Avinash, Alan, Jim, Robbin, Ron, Adelino, Tamara, David, Jeff). How would you use the marketing tools you specialize in to grow online awareness for SuperValu, or, how would you measure the effectiveness of any strategy on a $37,000,000,000 store-based business?

Question Number Three goes to my readers. How would you grow online participation in a way that helps SuperValue increase retail sales?

Discuss!