Neiman Marcus InSite Blog

Neiman Marcus launched a blog that appears congruent with their brand proposition.

The blog has an RSS feed, appears to be created in TypePad, and the RSS feed is burned using Feedburner, so that they can measure subscriber stats.

Blog URL: http://insite.neimanmarcus.com/

Subscribe to the RSS Feed Here.

Folks can nitpick various elements of their approach. I look forward to seeing how they plan on building a sense of community, how they choose to give customers an inside look at their business. I subscribed to the feed.

Return On Investment (ROI) In Direct Marketing

Click on the image to enlarge it.

We hear a lot of talk about ROI, or "Return On Investment", when evaluating direct marketing programs.

Catalogers know that paper drives more total sales, and more total profit, than any other form of direct marketing.

E-Mail marketers know that e-mail drives the best "ROI", measured as "total profit divided by total cost". E-Mail marketing has almost no cost associated with it, making it a tool marketers must use, and use properly.

Paid Search marketers know that they reach customers at a "time of need", thereby providing the most "efficient" form of advertising known to-date. No other form of advertising cuts out the waste of uninterested shoppers like paid search ... except I guess for natural search, which has no cost associated with it.

Portal marketers know that they make the brand known to customers who have not purchased previously. They know their investment is best measured on a "lifetime value" basis ... short-term metrics are not appropriate for portal advertising.

In the table attached to the top of this article, each form of advertising has various strengths and weaknesses. Your job is to evaluate your advertising objectives.

Objective: Drive large volume of sales/profit from existing customers.
Solution = Catalogs.

Objective: Precisely target merchandise to existing customers.
Solution = E-Mail, Paid Search.

Objective: Precisely target merchandise to customers in-need.
Solution = Paid Search.

Objective: Make your brand aware to potential customers.
Solution = Portal Advertising.

Objective: Acquire new customers.
Solution = Catalog, Portal Advertising, Paid Search

I didn't even talk about affiliate marketing or shopping comparison marketing, which also fit into this story.

Obviously, there are many different objectives and solutions, my list above is abbreviated and short. Strategically, consider what you want to accomplish, and allocate your advertising mix on the basis of total sales, total profit, and your objectives.

Don't be swayed by folks who tell you that one form of advertising is "better" than another. Each type of advertising has a purpose. Each type of advertising excels within one specific set of metrics.

Catalog Profitability

Click on the image to enlarge it.

One of the challenges catalogers have to manage is determining the right circulation depth, and the right page count in a catalog.

Circulation depth is pretty easy to determine, once the number of pages are assigned. A straight forward calculation of sales and profit determine the right number of households to circulate to.

Page count presents more challenges. Merchants like to add pages, offering the customer more merchandise to purchase. Creative folks occasionally want to reduce density, adding pages that are less dense, easier to read.

More pages = more cost.

Are more pages better?

In the example at the top of this page, last year's catalog had 80 pages, and was mailed to 1.5 million households. The catalog drove $7,000,000 demand through the telephone and online channels.

When planning this year's catalog, the analyst builds a relationship between pages and demand. As pages increase, demand increases, but at an ever decreasing rate. Therefore, demand is maximized by sending as many pages as possible to as many households as possible.

Using a straight forward profit calculation, notice where profit is maximized. Based on last year's results, profit is maximized by sending a smaller catalog to as many households as is possible.

Here's a fundamental truth in catalog marketing:

• Increased Circulation Depth > Increased Pages

In other words, given the choice between adding pages to a catalog, or mailing a smaller catalog to as many households as possible, try to mail a smaller catalog to as many households as possible.

You can clearly see this when evaluating circulation plans. Businesses that like to mail catalogs with many pages tend to have shallow circulation, tend to be unable to do a lot of prospecting.

Businesses that are parsimonious with pages tend to circulate to many households, have robust prospecting programs, and a healthier housefile.

E-Mail Productivity Is Waning ... Or Is It?

Has your e-mail campaign productivity dropped significantly over the past three years?

For all of the glitz and vendorspeak surrounding e-mail, many companies tell me that e-mail campaign performance declined by between ten and forty percent over the past three years.

Often, the folks who analyze e-mail campaigns do not have the tools necessary to decompose the performance of an individual campaign. Often, these folks don't talk to the SAS programmers or Catalog circulation experts sitting down the hall from them, folks who could really help them out!

You've got to remember, these Catalog/SAS folks have seen every productivity problem under the sun. E-mail marketers often have much less business experience to draw upon. So why not get yourself some help???

On the surface, your e-mail campaign performance might look like this, over the years:

• 2004 $/E-Mail = $0.29.
• 2005 $/E-Mail = $0.26.
• 2006 $/E-Mail = $0.24.
• 2007 $/E-Mail = $0.23.

Things don't look too promising. Time to fire the e-mail director.

Here's where you go talk to that SAS programmer down the hall. Ask this person to segment your e-mail subscriber file into two groups:

• Group 1 = Customers who clicked-through an e-mail to the website at least two times in the year prior to receiving the current e-mail campaign. Call these folks "engaged" customers.
  
• Group 2 = All other Customers.

Within each group, measure $ per e-mail.

Many times, you'll see this kind of trend:

2004	Engaged Customers	10,000	$2.00
	All Other Customers	90,000	$0.10
	E-Mail Totals	100,000	$0.29
2005	Engaged Customers	11,000	$2.10
	All Other Customers	108,000	$0.07
	E-Mail Totals	119,000	$0.26
2006	Engaged Customers	12,100	$2.15
	All Other Customers	129,600	$0.06
	E-Mail Totals	141,700	$0.24
2007	Engaged Customers	13,310	$2.17
	All Other Customers	155,520	$0.06
	E-Mail Totals	168,830	$0.23

This is important! E-Mail campaign productivity is not decreasing. Instead, you have what catalogers call a "file mix issue".

Catalogers have known for a century the importance of "file mix", of having a healthy file of great customers. Catalogers seldom talk about the performance of the entire file when sharing results.

In this case, the file might actually be healthy. "Engaged" customers, those who click-through at least two e-mail campaigns per year are increasing in size, and productivity per e-mail campaign is increasing.

What is happening is that there is a significant portion of the e-mail file that is completely disinterested. This part of the file is increasing at a faster rate than the engaged portion of the file, and productivity per e-mail among this audience is decreasing.

The "file mix" is driving productivity down.

When the engaged audience is decreasing in size, or the engaged audience is spending less per e-mail campaign, you have a problem.

The good folks in the e-mail campaign management tribe can get some answers by simply talking to the folks in the SAS tribe, or the folks in the Catalog circulation tribe.

By simply segmenting the e-mail list into these two groups, one can quickly determine if there is a performance problem, or a file mix problem.

Accountability and Objectives

Sometimes your business leaders set objectives for you, and you are not satisfied with what you see.

For instance, you might be a merchant who is being asked to increase the sales of your merchandise division by ten percent.

In order for the merchant to exceed this objective, she has to buy fantastic merchandise.

She also has to depend upon a veritable plethora of folks that she has no accountability over.

She needs the visual merchandising team to present the merchandise in an appealing manner.

She needs the janitor to clean the gum off of the floor.

She needs the sales associate to treat the customer with respect.

She needs the marketing team to drive increases in traffic to help her achieve her goal.

She needs the Port of Tacoma to get her product from China to the distribution center.

She needs the truck driver to deliver the merchandise from the distribution center to her store.

She needs her inventory/buyer team to acquire enough merchandise so that she can sell through it --- but not too much merchandise so that she has to liquidate it.

She needs her circulation team to select the right people when mailing catalogs.

She needs her e-mail marketing team to send the right targeted e-mails to the right customers.

She needs the online production team to feature her merchandise in a place on the website that customers can easily find it.

She needs the paid search team to spend the right amount on various keywords to drive traffic into her department.

She needs the affiliate team to find sites with the proper demographics.

She needs the online marketing team to manage the right portal relationships.

She needs the information technology folks to provide a reliable online experience for her customers.

She needs the social media team to create a buzz in the blogosphere.

She needs the merge/purge vendors to not mail the same customer multiple times.

She needs the customer acquisition or compiled list vendor to find customers who have never experienced the brand, but are likely to be interested in her merchandise division.

She needs the printer to depict the item as it was photographed.

She needs the creative team to depict the item in an aspirational manner.

She needs the post office to deliver the catalog to the customer.

She needs the e-mail vendor to deliver the e-mail to the customer.

She needs magazine, radio, newspaper and television marketing teams to execute well.

She needs the competition to avoid selling the same item at a significantly reduced price.


If all of these teams do their job, then the merchant has a chance to succeed. If a portion of those teams fail, and she misses her ten percent targeted increase, she loses her job.

Similarly, all of us are going to be stuck with objectives that we feel we don't have accountability for. The e-mail marketer might not like the product he has to feature in the e-mail. The circulation expert might not like what is being presented in the first twenty pages of the catalog. The paid search marketer might be embarrassed by the performance of the website.

Ultimately, none of this matters. Shared objectives cause us to evaluate all aspects of the food chain. Ever had a merchant tear your head off after seeing next year's circulation plan? Now you know why. Her job depends upon you doing your job well. Similarly, your job depends upon her skill in buying great product.

Shared accountability can be a good thing, so long as folks work in a collaborative manner.

All too often, collaboration fails, causing folks to fall back into their respective silos. And when you work in silos, you're going to focus on what you have accountability for. I've been there, I've done this. Ask anybody who's worked for me.

Therefore, you have to have strong leadership at an Executive level. You need leaders who require that business units work together.

I've worked for Presidents who love to pit people against each other. I've worked for Presidents who support the entire team. Who would you prefer to work for?

Creating An Objective

Assuming your company outlined high-level goals and objectives, it is time to create personal objectives for your team.

Say you have an objective to grow online sales by twenty percent in 2008. If you are responsible for the e-mail program, with a list of 100,000 subscribers receiving 52 e-mails a year that generate $0.25 per e-mail, your e-mail program drives 100,000 * 52 * $0.25 = $1,300,000 on an annual basis.

If online sales are supposed to grow by twenty percent, your e-mail volume had better grow by at least twenty percent next year!

Therefore, your objective might look something like this:

Increase annual e-mail volume by at least twenty percent in 2008 on a program that includes one campaign per week and a twenty percent increase in the total e-mail marketing budget. Increases can come from file growth and productivity per e-mail delivered.

Performance Measurement:

• "A" = $1,755,000 or more annual volume.
• "B" = $1,625,000 to $1,754,999 annual volume.
• "C" = $1,495,000 to $1,624,999 annual volume.
• "D" = $1,365,000 to $1,494,999 annual volume.
• "F" = $1,364,999 or less annual volume.

Notice that a grade of "C" is average --- a "C" represents expected performance.

Notice that the objective says little about "how" the objective will be met. There is language that insures that e-mail campaigns will be "weekly" --- the team cannot achieve this goal by sending a campaign every-other-day. There is language that dictates the annual marketing budget, this language will limit the ability of folks to go hire a high-powered vendor, for instance.

After outlining the rules, it is up to the staff managing the program to figure out "how" this will happen.

At the end of 2008, performance is measured against this standard. Employees should feel good about earning a grade of "C" --- it means they delivered performance necessary to meet company objectives.

It is really important to set these objectives before the fiscal year starts. Employees need to be given a chance to impact business, to be given a chance to plan ahead and secure the resources necessary to achieve great performance. Some companies roll out objectives or bonuses well after the fiscal year begins. Employees cannot impact annual results when this happens.

Your turn --- what have you observed when it comes to creating performance objectives?

Priorities And Objectives

Assume your fiscal year starts on January 1. When do you learn what your personal objectives are for next year (i.e. the projects you will be held accountable for)?

• Before January 1.
• On or around January 1.
• After January 1.
• My company doesn't give me personal objectives.

Every company manages this process differently. There probably isn't a right or wrong way to set personal objectives. There are some guidelines that make sense for executives, directors or managers who set personal objectives for employees.

Guideline #1 = Link To Corporate Objectives. Say your CEO wishes to reverse a three year trend of negative comp store sales. Your team should have objectives that directly link to the stated corporate objective of increasing comp store sales. The e-mail manager might set an objective to increase the sales driven into stores by the e-mail program by ten percent over last year.

Guideline #2 = Link To Divisional Objectives. If you are in the catalog division, and you have to reduce expenses by ten percent to pay for the postage increase, it might be a good idea to have an objective that focuses on the ways each person reduces expenses.

Guideline #3 = Link To Department Objectives. This might be the year your team uses web analytics to drive business results. Each person might be evaluated against an objective to have one actionable finding from Omniture each quarter.

Guideline #4 = Each Individual Sets An Objective. The manager allows each individual to set one objective that the individual will be evaluated against. This represents something the individual strongly believes will increase sales and profit, or allow the department to run more efficiently. In this way, each employee isn't treated as a robot --- each employee can contribute unique ideas that drive sales and profit.

Guideline #5 = Each Individual Has A Development Objective. Maybe the catalog marketing expert wants to try her hand at e-mail marketing. The executive partners with each staff member, and creates a plan to develop the skills of each employee. At the end of the year, the employee is evaluated against the developmental objective.

Guideline #6 = Flexibility. Each person needs to have a significant percentage of the objectives allocated for projects that cannot be anticipated today.

Guideline #7 = Measure How One Works With People. Some level of attention needs to be paid to how each employee works with others. When led appropriately, it becomes easy to prove who should be eligible for management consideration.

Guideline #8 = Weighting. For executives, some objectives (i.e. corporate objectives) carry the most weight. For entry-level analysts, individual and development objectives might be most important.

It is always interesting to ask employees how they "know" if they are doing a good job. More often than not, employees have a feeling if they are doing a good job, though they struggle to tell you "why" they know.

As you march toward 2008, consider approaching personal goal setting with a little more rigor than is usually reserved for this process --- our employees deserve it.

Web Analytics Standards

Playing right into my discussion about "tribes", Robbin points us to a PDF from the Web Analytics Association, a document that features standardized definitions of various concepts.

The Web Analytics folks want everybody to speak the same language.

Catalogers spent more than a hundred years disagreeing about metrics, and still do (ask anybody how they define the methodology used in their version of a matchback analysis, and you'll see what I mean).

Multichannel advocates have one metric (multichannel customers are worth 'x' times more than single-channel customers), though nobody agrees upon the timeframe to use to determine 'value'.

These are interesting times.

Time for you to speak your mind ... should disciplines have standardized definitions that everybody agree upon?

Self Actualization And Tribes

My inbox is full of excited colleagues getting revved-up for next month's Shop.org conference in Las Vegas. The online "third" of the multichannel marketing world really seem to enjoy this annual opportunity to hear great speakers, to network with colleagues, to learn.

If only employees could get this excited about projects within their own company.

Somewhere during the past twelve years, the world of multichannel business changed.

In sports, it is the performance of "the team" that matters. Athletes strive to win the Super Bowl, or World Series. Everybody shares equally in such an accomplishment.

The accomplishment is analogous to something Maslow called "Self Actualization". You're not at the top of your game if you go to the All-Star game. You're at the top if your team wins the World Series.

In multichannel business, we're in the process of "joining tribes". You might be the e-mail director at a multichannel retailer. One might think your "tribe" includes the department you manage, or the executive team you support.

Increasingly, your "tribe" includes e-mail analysts, directors, and VPs at other companies. You look to these folks for affirmation.

Each tribe develops their own communication style, identifies what is important for that tribe.

If you're part of the e-mail tribe, the important things might be subject line testing, spam filters, html, Outlook 2007 rendering issues, segmentation, personalization, CheetahMail.

If you're part of the paid search tribe, the important topics might be branded vs. non-branded search terms, static urls, page rank, whitehat, keywords, RKG Group, Google, Yahoo!, MSN.

If you're part of the web analytics tribe, you might focus on tags, kpis, conversion rate, landing pages, unique visitors, bounce rates, Omniture, Coremetrics.

If you're part of the business intelligence tribe, you talk about SAS, Business Objects, Microstrategy, cubes, KPIs, lifetime value, regression models.

If you're part of the catalog tribe, you talk about matchbacks, DMPC, RFM, Response, AOS, Dollar per Book, USPS, digital printing, merge/purge, housefile names, Abacus and ChannelView, 38 pound paper, perfect bound vs. saddle-stitched.

Each tribe hosts their own conferences. Each tribe touts experts who are revered. Each tribe deals with controversy. Each tribe advances their own agenda for improving the sales of the businesses each tribe member represents.

Tribe members freely share trade secrets (even on public forums and blogs) that, if their companies knew they were sharing them, would provide grounds for dismissal.

Within the tribe, you feel loved, you feel welcomed. You exchange ideas, you learn. At conferences you go out for fancy dinners. Vendors host evening parties with free mixed drinks. You feel valued. You have a connection with "like-minded people". You give awards to those who excel at the work done within the tribe. There's recognition.

Compare all of that with what you deal with in your own company. When is the last time your company made you feel the way your tribe makes you feel? Did you formally celebrate last year's scintillating 9.4% record pre-tax profit performance? Did you receive a promotion, or recognition? Or did you get a 3% cost of living increase?

Boomers dominate Director, VP, and C-Level jobs. They aren't going anywhere anytime soon. As a charter member of Gen-X, I've repeatedly observed how my generation is stuck in idle. Companies struggle to provide a reward structure for employees trapped behind tenured leaders.

I've watched with curiosity as my generation (and folks from other generations, too) splintered into these tribes.

I've also watched with curiosity when individual members of these tribes gather in the same conference room within a brand --- all speaking different languages, nobody able to truly understand each other. A C-Level executive recently said to me that "I don't understand a word any of these people are saying".

Within each individual tribe, the C-Level executive would be the problem ... "s/he doesn't get it".

For the tribe members, this splintering offers opportunities to achieve professional self actualization.

What impact does this have on the businesses tribe members support? How can a brand meet the needs of an individual employee choosing to express himself/herself through a tribe? Or does it even matter anymore?

And think about the leadership opportunities for the individual who can unite all these tribe members, creating a high-functioning team within a business? That's where the real opportunity exists.

Why can't that person be you?

Customers Who Do "X" Spend More

When trying to convince somebody to do something, it is considered a best practice to tell the audience that customers who do "X" spend more than customers who don't do "X".

"Customers who shop multiple channels are worth seven times as much as customers who shop just one channel".

"Customers who research items online and buy in-store spend $72 more during their in-store visit than other customers spend".

"Customers who conduct a live chat session are three times as likely to convert to a purchase as customers who don't conduct a live chat session".

Once the quote has been uttered, the person "selling something" shares their solution, using the quote to justify the reason why the perceived solution is so valuable.

Next time a vendor or blogger or research organization offers you this logic, ask them if they "controlled for all factors". If they haven't controlled for all factors, don't buy the product or logic they are promoting.


Look at these four customers.

Customer Number One: Household income = $200,000 per year. Buys online and in stores. Spends $1,000 per year with the brand.

Customer Number Two: Household income = $70,000 per year. Buys in stores only. Spends $300 per year with the brand.

Customer Number Three: Household income = $50,000 per year. Buys online only. Spends $200 per year with the brand.

Customer Number Four: Household income = $30,000 per year. Buys in stores only. Spends $100 per year with the brand.


Some vendors, bloggers, or research organizations will "slice and dice" this information, producing the following fact: "Customers who buy from multiple channels spend five times as much ($1,000) as customers who buy from a single channel ($200)".

The data indicate, however, that household income is what truly drives spend with the brand. Buying from multiple channels is a byproduct of having a handsome annual income.

The vendor, blogger or research organization, however, uses the byproduct as justification for promoting their "solution".

When you see this logic used, challenge the publisher of the information to provide metrics that show they controlled for other factors. If the vendor, blogger or research organization can't or won't give you this information, be careful.

Meetings and Presentations

You are a diverse audience.

Some of you manage catalog circulation. Some of you manage e-mail campaigns.

Some of you manage the craft known as web analytics, or work in the parallel world of business intelligence, using SAS to analyze customer behavior.

Some of you manage online marketing programs. Some of you manage paid and natural search.

Some of you are executives at direct-to-consumer and multichannel organizations.

All of you attend meetings, where you are required to present findings, hoping to influence decision makers.

If you are an Analyst or Manager, you might get one opportunity each year to present to Sr. Management.

If you are a Director, you might get one opportunity each week to present to Sr. Management.

If you are a Vice President or CEO, you might hear eight presentations per day!

Today, I sat in a meeting where an Analyst was presenting to a diverse audience, including an Executive. The Analyst was four months into his job, and dearly wanted to impress the audience.

So much so, that he frequently took the discussion off-topic. He brought up numerous issues that had little to do with the stated agenda. The Executive, a consensus-builder (in my opinion), allowed him to divert the audience to other topics.

We didn't cover every item on the agenda.

We did cover a half-dozen topics not on the agenda.

The meeting went eight minutes longer than scheduled.

I've been the Analyst who has one shot a year to impress somebody. I've been the Executive who had to keep the room focused on the stated topic. I've failed at both roles.

Both roles are absolutely critical. A crisp, concise, confident presentation from an Analyst-level individual, one that directly benefits the Executive, pays big dividends.

Conversely, the Analyst is forming an opinion of the Executive based on this one interaction. The Executive has a responsibility to run an efficient, actionable meeting.

If you count the number of meetings you've been in where both sides performed well, you'll know how hard it is to have a great meeting.

What examples can you share where you've seen great presentations from Analyst-level staff? Are there Executives who are particularly good at leading meetings? In your opinion, what makes for a good meeting, and what presentation style works best?

E-Mail Quiz

Your sell apparel to customers. You have two versions of an e-mail campaign that will be delivered next week ... a Mens version, and a Womens version.

These three customers have different historical behavior. Which version (Mens or Womens) would you send to each customer?

Customer #1: Spent $200 on Mens merchandise eleven months ago. Spent $50 on Womens merchandise earlier this month.

Customer #2: Spent $200 on Mens merchandise eleven months ago. Put a Womens item in the shopping cart earlier this month, but did not purchase it.

Customer #3: Spent $200 on Mens merchandise earlier this month. Customer filled out an online form yesterday saying customer wants to receive Womens e-mail campaigns.

We have a lot of folks responsible for executing e-mail campaigns who subscribe to this blog. Which version would you assign to each customer? What analytical techniques would you employ to determine which version the customer receives? Do you focus on which version is most profitable, based on past behavior? Discuss your thoughts with the audience!

My experience: Recent Purchases > Older Purchases > Recent Shopping Cart > Recently Viewed Items > Stated Preferences > Demographics / Lifestyle Information

Online Volume at Sharper Image

The Sharper Image recently shared information about year-to-date sales across channels, compared with last year.

Catalog/Phone Sales in 2007 = $2.1 million (-91%).
Catalog/Phone Sales in 2006 = $22.2 million.

Online Sales in 2007 = $19.9 million (-38%).
Online Sales in 2006 = $32.3 million.

Total Direct Sales in 2007 = $22.0 million.
Total Direct Sales in 2006 = $54.5 million.

Total Retail Sales in 2007 = $121.0 million (-21%).
Total Retail Sales in 2006 = $153.7 million.

Total Company Sales in 2007 = $143.4 million.
Total Company Sales in 2006 = $208.2 million.

Ok experts, time for your brilliance to shine!

Given the data you see in the tables above, do you think that pulling back on catalog advertising had an impact on online or retail sales, given that retail sales have been declining at similar rates for several years now?

Company Heritage

I spent this evening watching a videotape of the day I was married, nineteen years ago (yes, today is our nineteenth wedding anniversary).

We used an antique device called a "VCR" to watch the video. This unit utilizes oversized versions of cassette tapes to record and play images. At times the image isn't perfect, so a function called "tracking" self-adjusts the image, improving clarity.

When we watched the video, we could see how we ended up where we are today. We saw our Grandparents in the video, folks who are no longer with us. Our history, our heritage, revealed themselves in the images.

Which gets one to thinking about companies. Sometimes you'll hear a new CEO talk about "going back to what made us great".

If you don't have a videotape recording of the time when your company was "great", and you're a new CEO who came from outside the company, how do you bring the heritage of your company to life when you (and in all likelihood, your executive team) weren't part of the heritage that originally made the company great?

Next Year's Online Sales Forecast

Click on the image to enlarge it.

We keep getting closer the day when we have to have an accurate forecast for online volume for Fiscal 2008, assuming you're on a Jan/Jan or Feb/Feb fiscal calendar.

There's a lot of ways to do forecasting. Simple is always better than complicated.

But it is important, when using simple forecasting techniques, to decompose your forecast into "components".

How much of next year's forecasted increase is planned because of improvements in merchandising strategy?

How much of next year's forecasted increase is planned because of improvements in how merchandise is presented on the website?

How much of next year's forecasted increase is planned because of improvements in the functionality of the website?

How much of next year's forecasted increase is planned because of increases in marketing spend, or more efficient marketing spend?

How much of next year's forecasted increase is planned because of an improved cross-sell / up-sell program?

How much of next year's forecasted increase is planned because of changes in the competitive landscape, or anticipated changes in the economy?

How much of next year's forecasted increase is planned because of the inertia of the business --- in other words, how much of the increase will happen simply because we have more loyal customers than last year?

In the example provided in this post, more than sixty-two percent of the sales increase will happen simply because we have more loyal customers than we had the prior year.

It is important to decompose the elements that contribute to a forecasted increase. At minimum, we need to explain to our Executive Management Team what we believe will cause our business to succeed next year.

I've had first-hand experience with this. At the end of my tenure at Eddie Bauer, back in 1998, customer productivity was decreasing at a fast rate. It was my job as Director of Circulation to provide the sales forecast for 1999.

I produced a forecast that had a sales decrease. That didn't go over well.

I had to find a way to demonstrate why we were plummeting. After all, the merchants told us the product would be better than ever. The creative team reminded me that their presentation was appropriate, aspirational, clean.

Therefore, I was the problem.

By using these methods, I was able to show that the sins of 1998 were causing the potential shortfall of 1999. We didn't have enough loyal customers to fuel the future of the business.

I wasn't popular. But I was able to explain why things were trending where they were trending.

By the way, sales increased in 1999, and we had the most profitable year in the history of the direct division, in part because of the expense management initiated because of the challenging forecast issued in late 1998.

Seth Godin, Blogging Trend

Click on the image to enlarge it.

There's an awful lot of chatter these days about the evolution of the "conversation".

Some say the conversation is changing. Some say it is moving to other platforms. Some have gone on sabbatical after becoming grumpy. Some wrote the book on executive and corporate blogging, only to make a mistake implementing the process. Others quit after receiving threats.

Among the popular bloggers, it seems like something is up. So why not analyze the esteemed Seth Godin's blog? He's been posting content since January 2002.

The attached image illustrates the number of monthly posts he's written. Look at the orange line, fitted from the data (with an r-squared statistic of 80% for those of you who like to know that stuff).

The orange line peaks at month #52, which represents April 2006. On average, since April 2006, Mr. Godin posts less and less often. Some months go up, most go down. Since April 2006, he's eliminated one post every other day, fifteen per month, from his steady diet of expertise.

Among the trendsetters, behavior may be changing. And yet, ninety percent of my family knows little about blogging, and nothing of Twitter or Facebook. We're at an interesting crossroads --- the leaders are evolving their individual behavior, the masses are trying to understand how to make sense of everything, while large numbers of folks are not even aware of blogs or RSS or Facebook or Twitter or MySpace or LinkedIn, and many others don't even have the financial means to own a computer.

More interesting than these trends, however, is an analysis of the content Mr. Godin wrote about. Go read what he wrote back in 2002 and 2003. In many ways, the world changed a lot in five years. In many other ways, everything is exactly the same.

My favorite post came from September 2002: "A blog I like a lot is called 'sherpablog'. Anne Holland is the sherpa. She's awfully smart"!

Online Marketers And Predicting The Future

These days, I make a living by using Multichannel Forensics to predict the future.

In essence, I present five or six versions of "the future" to a business leader. The business leader picks the version that meets or exceeds the expectations of her board of directors, or her ownership team. With luck, the leadership team executes to that scenario, and will experience success over the next three to five years.

The feedback I receive from business leaders is usually positive. Increasingly, leaders tell me they like the strategic debate about "the future" a lot more than rehashing "what worked and what didn't work" in recent marketing campaigns.

So when Jim brings up a parallel topic about "prediction" in online marketing, I stop and think ... What is it about predicting the future that holds back our new generation of bright, talented online marketing experts?

There are fundamental truths about predicting the future.

• We are guaranteed to be wrong all of the time.
• Our prediction is likely to be more accurate if we incorporate historical results into our prediction.
• Our prediction is likely to be more accurate if we use better tools, better math, to make the prediction.
• Our prediction is likely to be more accurate if we have enough business experience to have "seen everything" before, allowing us to blend numbers/facts with gut instinct, vision, and competitive intelligence.
  
• Our prediction is likely to be perceived as being more likely to be accurate if we state it with confidence.
• Our prediction is likely to be perceived as being more likely to be accurate if we've been reasonably accurate in the past.
  

When I visit companies or talk with business leaders on the phone, I note that the catalog marketing, retail marketing or finance folks are more likely than the online marketing folks to build "budgets". "Budgets" are essentially the prediction for what will happen next year.

Maybe this makes sense. Catalog, retail or finance individuals tend to have more experience, tend to have more history to fall back upon, tend to have "seen everything" already.

Online marketers tend to have better tools, in my opinion.

Read any blog or trade journal about web analytics, e-mail marketing, or search engine marketing, and you won't see a lot of talk about "prediction". You'll see a lot of talk about "optimization". You'll see a lot of talk about "targeting". You'll see a lot of talk about "operations". You'll see a lot of talk about metrics, "KPIs" as they are popularly called these days.

This is my opinion, so I invite you to disagree with me in the comments section of this post. I perceive that the online marketing folks have spent a decade building an infrastructure for this new marketing thing called "the internet". Spend all your time focusing on executing campaigns and developing measurement techniques for said campaigns, and you get really good at those things!

As leaders, it is our job to mentor today's brilliant online marketing managers and directors, because these folks will be the CEOs and EVPs of the direct marketing ecosystem in the not-so-distant future.

Conversely, if you're a catalog expert looking for a niche in a world increasingly dominated by online marketing, spend your time becoming great at predicting the future of direct marketing --- be it the future of tools, techniques, or best of all, the future sales of the brands we support. Today's CEOs are looking for this type of leadership, and are not getting enough of it from the current generation of marketing experts.

Restoration Hardware

Multichannel merchant Restoration Hardware announced plans to reduce corporate staffing levels by about one hundred souls.

Restoration Hardware lost more than thirteen million dollars during the first quarter, compared with a loss of four million dollars in the first quarter last year.

Buried in the 10-Q statement for the first quarter were interesting quotes about a shift in retail sales to the direct channel. Restoration Hardware increased catalog pages circulated by more than forty percent. This resulted in a thirty-eight percent increase in catalog/online sales.

Management blamed an eight percent reduction in retail sales on the fact that the catalog strategy had a broader merchandise assortment than was offered in retail stores, causing customers to shift spend from the retail channel to the online channel.

If you subtract the retail difference from the direct channel, you'll see that the direct channel increased by about twenty percent, on a forty percent increase in pages circulated. These figures suggest that it is possible that the catalog merchandise assortment cannibalized retail sales.

For the most part, I've observed that online/catalog customers will migrate to the retail channel, but retail customers are generally unwilling to migrate online, or to order over the telephone.

But when the merchandise assortment changes, you throw those rules out the window. You've given the customer a reason to change behavior.

These are real-world issues that multichannel pundits struggle to offer solutions for.

Whether the two are correlated or not, it is clear that sub-optimal earnings performance coincided with a significant multichannel strategy shift to the catalog channel. This strategy may work, and may be the right strategy for the customer.

For one hundred employees who helped implement the multichannel strategy at Restoration Hardware, the outcome isn't so positive.

Merchandise That "Starts Orders"

Online marketers do a great job of following "where" a customer goes when she visits a website.

Catalog marketers do a great job of understanding "which" items "start an order".

Why not apply old-school catalog techniques to the data-rich environment known as your e-commerce website?

Here are three orders, from three different customers:

Customer #1:

• Item #1
• Item #2
• Item #3

Customer #2

• Item #1
• Item #3
• Item #4

Customer #3

• Item #3
• Item #4
• Item #5

In many order entry systems, as items are added to the shopping cart, or are recorded by the contact center agent, the items are added to the database in the same order as requested by the customer. If this is the case, you can conduct an analysis called the "order starter" analysis. Your mission is to identify the items that "start" orders.

Let's analyze the five items ordered by these three customers.

• Item #1 = Average of 1.0: (Appeared 1st, 1st)
• Item #2 = Average of 2.0: (Appeared 2nd)
• Item #3 = Average of 2.0: (Appeared 3rd, 2nd, 1st)
• Item #4 = Average of 2.5: (Appeared 3rd, 2nd)
• Item #5 = Average of 3.0: (Appeared 3rd)

In terms of "starting orders", item #1 was the item most likely to start orders, as it had the lowest average "position" in each order. Item #1 was the first item listed in both orders it appeared in.

Now look at item #3. This was the best selling item, it appeared in each order. However, its average position was second. Therefore, this item not the top priority of the customer. The customer wanted something else, and complemented their order with this item.

Compare item #1 to item #4. Item #4 always appeared later in the order. We assume that this item doesn't "start" orders.

In cataloging, it is frequently desirable to put items in the first twenty pages of the catalog that sell high unit volume and have very low order starting scores. I've analyzed catalogs that significantly missed plan, and found that the lack of high-volume, low-order-starting scored items in the first twenty pages are the cause for sub-optimal performance.

In online marketing, there are countless items that are buried deep within the site, selling a small number of units because the item has no way to be "advertised" to a large audience. By analyzing the order-starting score, the online marketer can move items with low scores to landing pages that receive a decent amount of traffic. This gives items a fighting chance to "start orders'.

This is an example where you don't need a rocket scientist to make improvements. Spend a few minutes with your SAS programmer today, and learn which items customers start orders with.

Free Shipping

Every once in awhile, marketing experts point out the problems with shipping and handling costs. Granted, it might not be fair to charge $8.00 shipping on a $2.00 item. Now, let's review some facts.

Fact: It costs money to ship merchandise to a customer. Think about the last time you sent Christmas gifts to your family in Florida, or Oregon. Did you get to do that for free, or did the USPS, UPS or FedEx demand to cover their costs and earn a profit to ship your gifts to your family?

Fact: Many companies profit from shipping and handling. Obscene profit from shipping and handling probably is wrong, we can all agree on that. Let me ask you a question ... is it wrong for Apple to markup the iPhone at levels far greater than competitors markup their phones? Brand experts seem to love the fact that Apple really hammers the customer because they have 'brand equity'. Every company picks and chooses how it prices items. Some companies make their money on gross margin, others on shipping and handling, others on volume. The customer ultimately decides 'what is right', she votes with her pocketbook.

Fact: Customer loyalty is fickle. Really, really fickle. Pundits and bloggers proudly proclaim how they will change their own behavior and no longer support these awful companies that charge for shipping and handling. Customers sometimes act differently.

• In 1999 at Eddie Bauer, we tacked on a $3.00 'handling' fee, on top of wildly expensive shipping fees. Customers never flinched. A few complained. Annual online/catalog retention rates did not change. Customers did not change their behavior.
  

• In 2005 at Nordstrom, we reduced shipping and handling from an average of $10 to $17 per order, down to a flat fee of $5.00 per order. That seems reasonable, doesn't it? Go ask somebody at Nordstrom if annual online/catalog retention rates increased, stayed the same, or decreased.
  

Fact: Zappos has free shipping, but Zappos prices items at a more expensive level than competitors. We love to tell the story that Zappos has free shipping. Yet, the items they sell cost about $3.00 more than at comparable online retailers. Buy five pair of shoes, and you're paying $15.00 more than you are at Macy's. We can probably all agree that a $3.00 fee per item is a fair cost to ship an item, but it isn't truly "free shipping", is it?

Free shipping is a shell game. A brand that truly leverages free shipping is hoping that the increased brand loyalty offsets the loss in shipping/handling revenue. As customers, we get to vote for our favorite scheme with our pocketbooks.

Prospect Catalogs

The concept of special catalogs used to minimize prospecting expense is not a new one. Given the increases in the expense structure facing most catalogers, it is a concept worth revisiting.

Simply put, the prospect catalog is merchandised with the best products, products that perform well in the short-term, and cause customers to be acquired that spend a lot in the future (i.e. high lifetime value).

The prospect catalog features a proven creative presentation, there is no time for experimentation in prospect catalogs. However, be concerned if at least half of your circulation is in compiled lists like Abacus or Z24. If you prospect in these universes, you don't have as much control over who receives your catalogs, based on the models the compiled list vendor uses. It is possible you are prospecting to the same name repeatedly --- this can be a problem when using the same creative and same merchandise presentation. Ask your compiled list sales representative to provide reporting for you that proves the same prospects are not being mailed repeatedly,

Liquidation and sale merchandise is typically avoided as a merchandising strategy. This is a customer acquisition tool, not an inventory management platform.

Many marketers apply lower price points on the items in the prospect catalog. Many marketers use free shipping or a percentage off orders achieving a certain hurdle in order to entice customers. If this is an effective short-term and long-term strategy, feel free to use these tactics in the prospect catalog.

The prospect catalog is often half the size of the main catalog being mailed, with a minimum of forty-eight pages of merchandise offered.

Circulation managers employ three different circulation strategies with prospect catalogs. The starting point is to determine how productive a catalog half the size of a main catalog will perform. Typically, you'll get seventy percent of the demand on fifty percent of the pages, though it is not uncommon to achieve ninety percent of the productivity on half the pages. If you find that you are getting half the sales you get on half of the pages, you know your merchandise and creative strategy is not appropriate for a prospect catalog.

One strategy is to send the prospect catalog to everybody. This results in a highly productive mailing mailed very deep into the housefile and prospect list. This can be a better strategy than wrapping an existing catalog with new cover and back cover (i.e. a remail), though adequate testing is required to prove this.

Another strategy is to mail your housefile and outside lists to "breakeven", or whatever your lifetime value threshold is. After that point, you mail the prospect catalog to customers down to "breakeven", or whatever your lifetime value threshold is.

A third and more profitable strategy is to simultaneously compare which catalog is more profitable across every segment you plan to mail. This strategy results in a shallow circulation depth for your main catalog, with the majority of your circulation in your prospect catalog.

As always, it is important to track online orders driven by main and prospect catalogs. It is not uncommon for a smaller catalog to drive just as much volume online/in-stores as a larger catalog.

One limitation of prospect catalogs surrounds the average order size of the prospect catalog. With fewer pages, customers tend to place orders that are between ten and twenty percent smaller than in the main catalog. As we all know, customers with initial order sizes that are smaller than average tend to have lower lifetime value than customers placing average or above-average initial order sizes.

As you develop your Spring and Fall 2008 mail plans, it may make sense to sit down with your creative team, merchandising staff, compiled list vendor, outside list broker, and print vendor to discuss the opportunities surrounding prospect catalogs. There are cost efficiencies in leveraging existing creative, and your printer can help you understand cost efficiencies at various page counts.

E-Mail Campaign Management And Data

The vendor community has many suggestions for improving e-mail marketing campaign performance.

Data plays an important role in determining which version of an e-mail campaign a customer should receive. There are several different attributes that should be considered.

• Lifetime Purchase History. This is often the most important attribute in determining which version of an e-mail campaign a customer should receive. Marketers will categorize purchases by merchandise division, and use the merchandise divisions to determine which version of a e-mail campaign a customer receives.

• Most Recent Purchase. In many instances, what a customer purchased five years ago no longer has relevance to what a customer will purchase tomorrow. Consider giving more weight to recent orders, giving less weight to older orders. Some marketers give purchases in the past three months a weight of 1.00, purchases 4-12 months ago a weight of 0.50, purchases 13-24 months ago a weight of 0.25, and all older purchases a weight of 0.125. If you have a statistician, you'll delight her with the task of assigning these weights!

• Clickstream Data. What a customer looked at, especially in the past month, can be very relevant to determining which version of an e-mail a customer receives. Some marketers use shopping cart data, others categorize items viewed by merchandise division.

• User Preferences. At Nordstrom, we asked customers what type of e-mail the customer wants (mens, womens, petites, plus-size, sale, etc.). We balanced preferences with purchases, weighting each differently when determining which version of an e-mail a customer received.

• Demographics And Lifestyle Attributes. Traditional marketers like these factors. It can be easy to conceptualize a campaign for a 35-44 year old woman who owns a Lexus SUV. These attributes are often less powerful than the purchase history of a customer.

If you ever want to unite your marketing teams over a single idea, e-mail marketing is one place to do that. To execute an exceptional e-mail marketing program, with many targeted versions of an e-mail sent to different customers during one campaign, you'll want to leverage these folks:

• Catalog Marketers, who have excellent experience determining "who" receives versions of a catalog.
• Database Marketers, who have integrated data from all channels to provide a complete view of the customer.
• Web Analytics Gurus, who can help summarize clickstream data for the Database Marketing team.
• E-Mail Marketers, who oversee the entire process, are accountable for the end result, and manage vendor relationships, and understand the promotions/subject-line/template stuff that makes e-mail campaigns tick.
  
• Traditional Marketers can help with the creative presentation most likely to be effective with customers.
• Online Producers need to put the merchandise on the website, and make sure that landing pages work properly.

Sometimes all of the data nuances can become overwhelming. Performance can still be improved by simplifying the number of data dimensions, or by reducing the number of versions. Your e-mail delivery vendor may have the resources to help you with version assignment, if your budget provides you these opportunities.

Don't expect miracles from targeted e-mail versions. In reality, you have limited data for eighty percent of your e-mail file, so you won't do a great job of targeting to these folks. Among the top twenty percent of your e-mail file, these folks are so productive that many different versions of an e-mail campaign can work. If you can get a fifteen to thirty-five percent improvement in total campaign performance by targeting, you're well on your way to success.

Time Travel

Assume you could time travel back to 1999.

Knowing what you know today about the evolution of online, catalog, retail and multichannel marketing, what would you change about how executed Paid Search, Natural Search, Affiliate Marketing, E-Mail Marketing, Shopping Comparison Marketing, Catalog Marketing, Direct Marketing, Magazine Ads, Newspaper Ads, Television Advertising, Radio Advertising, and any other kind of advertising ... so that your company would be far more successful today?

How would you change the org-structure in 1999 so that your company would evolve in such a way that yields a more flexible organization today?

Career Advice: Joyce, The Online Marketer

This is another composite, reflecting a situation I see repeated in our multichannel organizations. At the end of the story, please offer Joyce career advice.

Joyce is a 31 year old Director of Online Marketing at a multichannel retailer. She is responsible for Paid and Natural Search, Affiliate Marketing, Portal Marketing, E-Mail Marketing, and Shopping Comparison Marketing.

Joyce quickly rose through the ranks at her company. Hired right out of college, Joyce chose the E-Mail vendor, Web Analytics vendor, and Search Marketing vendor at a time when her company barely understood the online channel. The infrastructure she put in place is industry-leading.

However, almost nobody in her company understand her true contribution to the organization. She is routinely battered by store managers who want to run their own e-mail marketing campaigns. In fact, many store employees are running their own e-mail campaigns via gmail and hotmail accounts, campaigns that are not CAN-SPAM compliant. Some store managers and employees run their own personal blogs and websites, selling directly to customers.

Her catalog marketing partners are highly critical of her team, suggesting her team lacks the experience and analytical rigor necessary to manage the ad budget given to Joyce. The catalog marketing director routinely picks on Joyce, mocking $0.29 sales per e-mail results that are just one-fifteenth that of a catalog mailing.

Joyce reports to the Chief Marketing Officer. The CMO is a traditional marketer. He understands television, newspapers, radio, and magazine ads. He has a consumer package goods background, and knows how to "launch brands". He doesn't understand why Joyce has to manage six thousand keywords, doesn't understand why she has to bid more for some words than others. He doesn't understand why Joyce wants to launch a blog, he doesn't understand why a blog might help natural search results ... "our PR department speaks to the community, not you" was his response to a recent request for blogging tools and resources.

Joyce depends upon the Information Technology team for website improvements. Joyce has cost-justified various site improvements, improvements that could improve the profitability of her division by twenty percent. The Information Technology team appears to "pick and choose" the projects they want to provide support for, and because IT doesn't report to Joyce, she cannot directly influence what they should work on.

The CMO recently asked Joyce if she would be interested in a "Vice President of Direct Marketing" position, one that would combine all catalog marketing, direct marketing and online marketing responsibilities. Joyce knows that she would be responsible for managing a catalog marketing program she doesn't understand. Joyce knows that it is likely that catalog marketing leadership will leave the company in protest over this promotion.

Still, Joyce knows that she needs to expand her knowledge of marketing, if she wishes to influence her organization.

What should Joyce do? Should she accept the promotion? Should she decline the promotion and focus on online marketing? Should she quit the company, and work for an organization more appreciative of the value online marketing brings to the organization?

The Reminder E-Mail

It's 5:47am. I'm walking my dog, a dog that wants to investigate every newspaper lying in every driveway.

Each newspaper was wrapped with an advertisement from a large retailer. The ad tells the newspaper reader to eagerly anticipate a catalog that will be mailed to select customers in the near future.

This reminds me of all the e-mail campaigns you see, campaigns reminding the customer that an important catalog is going to be mailed in the near future.

Pundits sometimes like these e-mail campaigns, suggesting they provide an effective 1-2 punch in generating response. They call these "integrated multichannel marketing campaigns".

I'll grant you that these campaigns probably work.

But what does this say about you, the humble employee?

What, exactly, are you "selling"?

You are selling the customer the dream that better advertising is coming soon.

It may be in the best interest of the customer, and it probably is in the best interest of the brand, to execute these multi-step advertising campaigns.

But how do you, the employee, benefit from telling your co-workers and your customers that better advertising is coming soon?

E-mail will always be a second-class citizen in the minds of employees and customers when it is used to communicate that better advertising is coming soon. The employees executing these campaigns deserve better. These employees need to work on campaigns that are as close to selling directly to the customer as possible.

Praise To Infrequent Customers!!

We've been taught to love "best customers". We worship "customer loyalty" in print and in practice.

Loyal customers are always going to purchase in stores. When infrequent customers decide to make unplanned purchases, retail profit sizzles.

In catalog, the opposite situation is true. Customers could not purchase unless the marketer sent the customer a catalog. The cataloger determined who purchased, and how often the customer purchased.

The internet is a hybrid of retailing and cataloging. Traditional marketing, catalog marketing, paid search, natural search, e-mail, affiliate marketing, shopping comparison marketing, portal marketing and word of mouth all blend into a slurry of online purchase bliss.

Therefore, principals of retail "passers-by" pertain to the online channel.

This profit and loss statement demonstrates what happens if you didn't accept purchases from the 40% of your online purchase file that buys infrequently.

Profit And Loss Statement			40% Loss Of
			Infrequent
		Actual	Purchasers
Net Sales		$65,000,000	$52,000,000
Gross Margin	53.0%	$34,450,000	$27,560,000
Less Marketing Expense		$16,250,000	$14,625,000
Less Pick/Pack/Ship	11.0%	$7,150,000	$5,720,000
Variable Operating Profit		$11,050,000	$7,215,000
Less Fixed Costs		$7,800,000	$7,800,000
Earnings Before Taxes		$3,250,000	($585,000)
EBT % Of Net Sales		5.0%	-1.1%

This hypothetical example illustrates the power that infrequent customers, customers that don't require a ton of marketing, have on the profitability of the online channel.

All too often, we marketers and business leaders spend our time worshiping our best customers. There's no doubt these customers should be rewarded for their contribution to the profit and loss statement.

But in online retailing and in stores, the infrequent customer plays a key role in determining business success. We don't read anything about catering to the needs of the infrequent customer. Why?

Coremetrics, Abacus, Experian and Catalog Matchback

Notice the last paragraph of this article about Hanover Direct working with Coremetrics on Catalog Matchback algorithms.

My e-mail inbox and phone have been buzzing lately with queries from online analytics organizations looking to take market share away from established catalog attribution folks like Abacus and Experian.

It will be interesting to watch this trend unfold as executive leadership transitions to those with online marketing experience. These individuals have relationships with online vendors, not catalog vendors.

Career Advice: Jane

This character, "Jane", is a composite of numerous individuals I've met during the past three years. At the end of this brief career description, you are encouraged to offer "Jane" career advice.

Jane is the Director of Circulation for a multichannel cataloger. She worked her way up the corporate ladder, from an entry-level merge/purge analyst in 1992, to a housefile circulation analyst in 1995, to a housefile planning analyst in 1997, to a circulation manager in 1998, to her current position, which she was named to in 2002.

During the past five years, Jane has helped her organization go through a significant transition. In 2002, just twenty percent of transactions occurred online. Today, sixty-five percent of purchases occur online, and half of the online transactions are driven by Jane's catalog mailings.

Earlier this year, Jane's boss, the Vice President of Marketing, left the company to pursue other interests. The CEO decided to name the Online Marketing Director as the new Vice President. This angered Jane. The new VP of Marketing had just six years of total experience, though all of it was in e-mail marketing, paid search, affiliate marketing, portal marketing, and shopping comparison site management.

Since the promotion, the new VP of Marketing and Jane are not getting along. The focus of marketing has clearly shifted toward the online channel. With catalog marketing appearing to be less effective, the new VP asked that Jane give up catalog advertising dollars, so that the dollars could be allocated to online marketing activities, regardless whether the catalog marketing activities drive online sales or not.

Jane mentioned that her "file forecast" indicates that if this strategy is employed, the online channel is likely to lose sales, not gain sales. The VP of Marketing chided Jane for her comments, pointing out that online conversion rates are at a two-year high of 3.294%, thirty percent of all site visitors come from paid search, and that online sales are up thirteen percent over last year. Conversely, "telephone" sales are down seventeen percent vs. last year.

Jane also inquired about taking over the Online Marketing Director position. The new VP of Marketing informed Jane that catalog marketing skills are not relevant to the needs of the Online Marketing Director position.

If you were in Jane's shoes, what should the next step be in her career?

Evolution And "The Canyon"

Imagine four checkerboards, with pieces assembled, red vs. black. Four players will play against a computer. Five rules apply to our experiment.

The first player must move the far left third-row piece.

The second player must move the second-most piece to the left in the third-row.

The third player must move the second-most piece to the right in the third-row.

The fourth player must move the far right piece to the right in the third-row.

After each player moves their piece, the computer must move the same piece on all four boards.

After the first round of moves, each game is allowed to play out to it's inevitable conclusion.


If we assume that each player is equally skilled, and is playing the same computer algorithm, we will notice that after ten moves each of the four checkerboards look very different.

Each player can win the game. But the starting point, dictated by the initial rules, dictate the evolution of each game.

I am struck by "evolution" every time I visit a client. When we go through the Database Marketing audit, it becomes obvious that a set of circumstances at some point in the past sent the organization down a "path".

The "path" interacts with staff personalities and abilities, corporate strategy, the customer, competitors, and the general business climate. This unique combination of circumstances result in success or struggle.

If there is anything I am learning, it is that each business requires a unique solution, one customized on the basis of the unique path the business took to get to this point. The prescribed solution bridges the prior "path" to the
desired "outcome" the business wants to achieve.

Too often, articles in trade journals, speakers at conferences, and expert bloggers want us to "jump over the canyon", without understanding how we got to the canyon, without understanding which part of the canyon we are facing.

It's sexy. We love watching the "success stories" of folks rocketing over the canyon. Some love to clobber those stuck on the side of the canyon. Some love to clobber those who try to jump over the canyon, peak far short of the other side, then plunge to the riverbed hundreds of feet below.

While it may take longer, try listening to how folks got themselves to the edge of the canyon, then build a bridge over the canyon for them.

The Classics

With nearly half of you recently welcoming yourself to this blog, it's a good time to review some of posts you found useful.

A Multichannel Manifesto, talking about things a multichannel executive should be able to discuss about her business.

Multichannel Business Models is about six kinds of businesses that use the online channel to grow sales.

Ten Ways We Will Save Multichannel Marketing.

Ten Ways We Ruined Multichannel Marketing.

A White Paper On Multichannel Forensics, over 1,500 downloads, to date.

Online Brand Competition, with a map of how various online retailers are "connected" to each other.

The "1/3, 1/3, 1/3 Rule". Read more than 15,000 times, the most read article I've written.

Jim Fulton wrote three guest columns that have been well received. First is
"Mr. Krabs Is A Database Marketer". His second article reflects on the passing of Gary Comer. Finally, Mr. Fulton participated in the "Four Questions" segment of the blog.

One of the more controversial posts I've written came last fall, "Does Homepage Design Influence Net Sales?" Many felt that my analytical work was sloppy.

Facebook / Twitter / Blogs / MySpace / LinkedIn

I learned of an elderly man who passed away last night. On Tuesday, the caregivers realized that this individual had little time left. They notified hospice, and alerted the family to the condition of this individual.

The children of this elderly man arrived on Wednesday. Each individual slept in the same room with their father, through Friday evening. On Saturday, it became apparent the individual wasn't going to make it through the day.

I asked the caregivers if the elderly man died peacefully. He didn't. Each breath of air became an intense struggle for this individual.

The caregivers, visibly shaken from the experience of caring for a person passing in a difficult way, seemed to have experienced something special. You could see it in their eyes. They witnessed a family sharing the final moments of a long life.

All of these folks had one thing in common ... they went through this experience together, "in person", in one small room. They may have used Twitter, MySpace, Blogs, LinkedIn, Facebook, Instant Messaging, E-Mail, or an antique item called a land-based telephone to communicate with others.

But the most memorable part of their experience occurred "in-person". No stream of 140 words on Twitter could adequately replace this experience. No exciting new Facebook API enriched this process.

Those of us in the online and catalog marketing world have challenges ahead of us. Somehow, we have to use all of the wonderful tools and technologies available to us. But each step that moves us closer to digital 1s and 0s move us a little further away from a genuine human experience.

Multichannel Investment Options

In most multichannel businesses, there is one person responsible for combining all advertising investment opportunities.

At traditional catalogers, this person was the Director of Circulation. These days, the person could be the Director of Circulation, it could be the Director of Online Marketing. This person plays a critical role, one of the most important in any multichannel business.

Each organization has an annual budgeting process. This process is usually initiated by the finance division. The finance folks determine key dates when information is to be shared within the organization, with the executive team, and with ownership/board-level individuals.

In most companies, this investment process drives a series of discussions that can be exhilarating for some and frustrating for others. For most, the discussions are "circular" in nature.

The Circulation/Online Marketing Directors go through a process where they use internal analysis tools to forecast what they think sales will look like next year, for the marketing strategies they are accountable for.

In catalog circulation, changes in online/catalog customer files are measured, catalogs to be offered are determined, circulation cutoffs based on short-term and long-term profitability are established, resulting in a set of "rules" that are followed. A series of spreadsheets are crunched, resulting in a sales total across all channels, and profit estimates based on the investment totals.

A similar process occurs within the online marketing advertising channel. Traffic forecasts, conversion rate estimates, average order size guesses, keyword bidding projections, online marketing costs and affiliate strategies result in an estimated number of purchasers, yielding a sales total across all channels, and profit estimates based on the investment totals.

Catalog and online figures are combined, and presented to the executive team.

This is where things go haywire!

In most situations, the estimates yield sales and profit totals that are not acceptable to the executive team.

The executive team will immediately question the accuracy of the work done by the circulation/online marketing experts.

Assuming that the work was done accurately, a new series of questions arise. "What happens if we spend more money in e-mail marketing? What happens if we spend more money on paid search? What happens if we decrease portal advertising? What happens if we increase affiliates from 1,000 to 1,500? Are the catalogs driving more or less business to our online channel? What happens if your circulate to a -10% profit cutoff level verses break-even? What happens if you shift catalog acquisition out of Abacus names, into list rental and exchange names? What happens if we have six targeted versions of an e-mail instead of three? What happens if we no longer offer free shipping?

These questions set off a round of chaos that is very frustrating to the foot soldiers who do the actual work. Typically, the questions are answered in a sequential fashion.

In other words, the executive team learns what happens if free shipping is dropped. Then, they learn what happens if six targeted versions of an e-mail are offered instead of three. Then they learn what happens if all remail catalogs are dropped from the plan. All choices are explained in isolation.

As a result, there is a ton of busy work done by the foot soldiers, and a ton of anxiety felt by executives. The teams work together on an iterative process that ultimately results in one sales plan for the next year. Often, this sales plan is the result of a time deadline ... in other words, the plan must be completed by, say, November 25th. All work done by November 25th is put into the plan, scenarios not completed by November 25th are excluded.

One way to start getting out of this rut is to provide your executive team "options".

In other words, if you are the online marketing director, you can present five different options, based on different investment scenarios. This gives the executive team something to think about. The executive team can center their questions around one or two options that seem to yield the best outcome.

Similarly, the catalog marketing director can offer five different investment options. There can be scenarios with deep cutoff levels, scenarios with shallow cutoff levels, scenarios with a lot of customer acquisition, scenarios milking the top of the customer file with remails.

These scenarios are advantageous for many reasons. Maybe most important is the fact that the foot soldiers get to see which scenarios the executive team like best. Next year, the budgeting process will be smoother, because the foot soldiers know what the executive team want to see.

Multichannel investment options are an area you seldom hear about in trade journals or vendor-based publications. Yet, when you talk to executives, directors and analysts, you continually hear this as being an area of frustration.

Over the next five years, you will see a continued focus on improving the annual budgeting process. Online marketing leaders who invest time honing skills in this area will have a great opportunity to move into C-level management positions.

Investment In Online Marketing

Online marketing is an enigma.

Considered by many to be direct marketing, online marketing more closely aligns with retail marketing than with direct marketing.

And this is a problem, if you are a traditional direct marketer.

Take paid search, as an example. In traditional direct marketing, you get to pick who receives your marketing message. In paid search, you get to pick how much you want to spend on a keyword. The search engine orders bidders on the basis of how much each bidder is willing to pay. The customer picks the bidder s/he wants to research.

The most popular and most effective online marketing craft is not really direct marketing.

Long-term, this means that the online marketer doesn't control her business.

The catalog marketer always controlled her business. She spent "x" percent of her budget mailing catalogs to best customers, "y" percent to marginal customers, and "z" percent to prospects.

The catalog marketer dictated the relationship with the customer.

The retail marketer did not control her business. She controlled location, product, presentation, and the channel she wished to advertise within.

In online marketing, the customer dictates the relationship with the marketer.

In catalog marketing, if your board of directors require you to double the size of your business and gives you infinite resources to accomplish the task, you can double the size of your business.

Can you accomplish this task via paid search?

Some Multichannel brands have learned that more than half of the customers who respond to paid search are existing customers, occasionally best customers.

If your board of directors wanted for you to spend $5,000,000 acquiring new customers via catalogs, you'd talk to Abacus, and open up the floodgates. You'd acquire a lot of new customers.

If your board of directors wanted for you to spend $5,000,000 acquiring new customers via online marketing, how would you accomplish this task?

Investment In Compiled Lists

Note: Response to Tuesday evening's "Multichannel Manifesto" is very positive. No comments, but a ton of page views for just that specific article ... thanks for taking time to read it and share it with others!

When industry experts suggest that more than half of catalog prospecting occurs via various compiled lists, you know the world of catalog marketing has irrevocably changed.

In all likelihood, you are measuring the lifetime value and multichannel evolution (i.e. multichannel forensics) of the customers you acquire via compiled list activity. You probably know if these names become online buyers, are responsive to catalogs, or eventually shop your stores.

What you may not be measuring is the "type" of customer you are prospecting to.

When I arrived at Eddie Bauer, my first job was to build statistical models that determined which housefile customers would receive catalogs. Our catalog manager had faith that I was doing what was 'right' for the business. However, she wanted to know "who" my models were mailing. She felt like she had just lost control of her business ... 'she' used to decide who would receive catalogs via RFM segmentation.

So, I had to develop reporting to "prove" to her that my models were choosing good customers ... I had to develop a lot of reporting that convinced her that I was doing a good job.

And when you do that, you identify problems. A small number of customers had "bad data" in the database. This meant that the models would not score the customer, would not select the customer for mailings --- but, the customer purchased recently and deserved to receive a catalog.

Compiled list modelers are generally talented, so this should not be an issue.

From a practical standpoint, a catalog executive really wants to know 'who' it is that the models are selecting out of the database. Having been a catalog executive, I've been pummeled by leadership over participation in compiled lists, and I've been challenged to prove that I am acquiring customers that match the target demographic of the company I worked for.

Maybe your compiled list vendor is already providing you this information.

I would want to learn the following characteristics about the prospects the compiled list vendor is choosing for my mailings:

• An 'RFM' style report that tells me how many names are available by months since last purchase, number of twelve month purchases, and average order size. I would want to see the percentage of names from each segment the model selected for my prospecting efforts. I would want to see this report on a rolling eighteen month basis, so I could compare file counts year-over-year. I would also want to do a time-series analysis of the change in the file and models used to select customers.
• A report that tells me share of catalog dollars, share of online dollars, share of retail sales by RFM segment, and change in share over time.
  
• A report that tells me, by RFM segment, how many times that name has been selected for prospecting purposes by other companies in the past three months.
  
• Instead of RFM, I'd want to see all reporting above for a "RC" scheme, recency by month and "# of catalogers" the customer purchased from in the past year.

I could go on an on ... but this should get a discussion started.

Over the next five years, the number of true "catalog buyers", those who purchase via a 1-800 number, will continue to decrease. If more names are being pulled from compiled lists by more catalogers --- pulled from a decreasing base of prospects, prospects in the compiled list database will be significantly over-mailed. This will drive down catalog response, confounding challenges related to postage and paper costs.

Maybe more troubling is the fact that most catalog companies have a completely new twelve-month buyer file every three years. Three years from now, most catalogers will have a housefile that is at least 50% to 75% comprised of compiled list names.

In reality, the compiled list vendor community will determine the future success of your cataloging efforts --- we as business leaders have made the decision to use this medium to determine who our future customers are.

Are these customers aligned with the target audience of your catalog brand? Have your compiled list vendor representative demonstrate to you that the prospects they are choosing for you meet your target customer, your target demographic.

The reality of this situation will demand transparency on behalf of the compiled list vendor. It's been my experience that compiled list industry leaders respond to market conditions, and respond to honest questions from catalog leaders who value collaborative relationships.

So if many catalogers communicate the need for better reporting and greater transparency, there will be a positive response from your compiled list vendor.

Your thoughts?

One Positive Day: August 1

I like to start the month with positive news. My perception has always been that positive news is hard to find in the blogosphere.

Want proof? Go to Google's Blogsearch tool, and see how often the terms "good-job" or "nice-job" were used during the past day. There are allegedly more than 70,000,000 blogs. In the past twenty-four hours, fewer than three thousand bloggers used either phrase in the content they created.


Here's a few posts that feature good news, or at least feature honesty!

Joe Wikert's blog on publishing usually provides good insights. Here he asks readers to check out the blog of the first person he ever hired.

The first person I ever hired was a woman named Peggy Mason. I would explain how she should do something, and she would always ask me "why"? If you ever want to challenge the assumption that you have an unbiased view of how things should be done, have somebody ask you the question "why" after every one of your proclamations.

Gretchen Rubin writes a blog called The Happiness Project. This is a place where you can find positive, interesting observations.

Glenn Kelman honestly writes about "The Flip Side of Entrepreneurship". Every day somebody asks me how my "new business" is going. An awful lot of the things Mr. Kelman speaks of in the article run through my mind before I reply "Good!!!".