The Direct Marketing Customer Continuum

Please click on the image to enlarge it.

I'm about to eclipse one year as a multichannel forensics proprietor. If there is one thing I've learned during the past year, it is that customers who shop website and catalog brands have fundamentally changed their behavior over the past ten years.

The concept of a "customer" fundamentally changed. Multichannel Forensics projects repeatedly illustrate a pattern of customer evolution, one that progresses from advertising as the reason for sales increases to one where the customer purchases because of faith and trust in a brand.

This process, what I call the "Direct Marketing Customer Continuum", can be hard to understand. We've been trained to analyze campaigns. We blast an e-mail to 794,000 customers, we get 1,000 orders. We achieve a $30 cost per order on a paid search campaign. We send a catalog to customers and observe a surge in website orders. My goodness, we're a multichannel brand, everything we're doing works!! We think customers love interacting with us in a multichannel manner.

Until you view this from the perspective of a customer.

See, the customer is simultaneously progressing through a relationship with a brand, and with technology, a collaborative relationship that has fundamentally changed over the past decade.

In the image at the beginning of this post, the upper-left portion of the image reflects a customer at the start of the continuum. This customer requires advertising to place an order. Catalogers and e-mail marketers love this customer! This is the customer we've always known. We controlled this customer.

But then a funny thing happens. The customer discovers that the internet can be used to help determine if she is making the right decision. At this point, catalog and e-mail marketing are augmented with search campaigns, a true multichannel nirvana.

And just when we think we've mastered multichannel marketing, the customer moves even further along the continuum. This move is frustrating for us, because the customer no longer needs our advertising. She starts researching what other customers say, in blogs or on MySpace. As she participates in these forums, her behavior shifts even further away, to Facebook, and then to 140 character mini-conversations in Twitter. She trusts the opinions of her virtual friends, choosing to buy from us because she trusts us, she trusts technology, and she trusts her virtual friends.

This is where we mess up the whole relationship. The customer buys from us for completely different reasons, but we "match back" her purchase to our marketing strategies. Our measurement abilities and ego attribute her purchase to our brilliant marketing strategies, when in reality, she purchased for completely different reasons.

So the customer moves ever closer to a place where she buys from us simply because she trusts us. She doesn't need marketing anymore. She's ready to be "hyper-profitable" to us. Yet we market to her even more, making her "less profitable" to us.

We have four different things happening, all at the same time.

1. We execute marketing campaigns because that's what we've always done, it is the way customers have always interacted with us.
2. Customers are no longer static, their behavior moves along a direct marketing customer continuum, making it harder for us to understand what it is that motivates the customer.
3. Customer acquisition completely changed. We used to market to a static audience that we controlled. Now, customers jump into this continuum anywhere the customer wants to. This lowers response to marketing. We blast a catalog to a prospect who now uses Facebook to learn what others think about us --- of course the catalog is going to be thrown out! In some cases, we observe this via lower response rates. In other cases, we mistakenly match the order back to our advertising. In either case, we're wrong.
   
4. You simply cannot move a customer from the upper left portion of the image to the lower right portion of the image overnight. The customer decides when she wants to move from one box to another.

More and more, catalogers and e-mail marketers tell me that certain marketing strategies "don't work", especially those in the lower two rows of the image. There's no way these strategies can work if the customer base still resides in the top row of the continuum.

Conversely, the marketer is trapped, because a large portion of the population is silently moving from the top row to the bottom two rows of the continuum. As this happens, response to marketing activities tailored to the top row of the continuum drop. This disconnect has catalog and online brand executives worried.

It is becoming obvious that future opportunities reside in identifying where our customers reside on the direct marketing continuum.

• Traditional marketing can focus on customers in the top row of the continuum.
  
• Online marketing focuses on the middle row of the continuum. All of the emerging social media opportunities focus on the bottom row of the continuum.
  
• The bottom row represents the biggest opportunity, because these customers buy because they trust us, not because we market to them. We eliminate marketing waste among this audience, greatly increasing profitability.
  

I believe this is the direction our customers are taking us in. Our current tool set and mindset are not yet calibrated for the direct marketing customer continuum.

Your thoughts?

Secret Sauce

Eighteen months ago, I was invited to a breakfast session on customer behavior, hosted by a large management consulting organization.

I think there were maybe seven of us who bothered to attend, four of us from Nordstrom. The session hosts waited and waited for more folks to show up. We got off to a late start.

About thirty minutes into a Powerpoint presentation typical of a breakfast session hosted by management consultants, an attendee sitting next to me raised his hand.

Attendee: "Ok, what's the secret sauce?"

Speaker: "Excuse me?"

Attendee: "Just tell me what the secret sauce is. What should I do?"

Speaker: "You should segment your customers, and market to them as unique segments".

Attendee: "Thank you".

The attendee picked up his briefcase, pushed his chair back, stood up, and walked out of the room. For the next thirty minutes, the six of us who remained progressed through another dozen Powerpoint slides.

Secret sauce.

We seemingly want to know what we can add to our existing products/services to make them great. We want this information for free. We want this information now. We want the secret sauce to work across all industries. And when somebody tells us that the secret sauce is ketchup, we're offended. Surely the secret sauce can't be ketchup, any rube can use ketchup!

Maybe this person felt that ninety minutes of his time was a fair trade for free muffins and profound enlightenment at no cost to his organization.

In the past two decades, I've rarely seen an instance where something more exotic than ketchup solved problems in a dramatic way. The biggest problem I had to fix was at Nordstrom in 2001, having to do my part to turn a $30,000,000 loss into profit in short-order.

The secret sauce?

• Have the circulation team decide who receives a clearance catalog, not the clearance merchandise manager.
• Hire experienced people to solve a problem now.
• Hire inexperienced people, and train them to solve tomorrow's problems.
• Implement a hotline program to mail catalogs to customers immediately after a first purchase.
• Replace RFM selection techniques with statistical models.
• Eliminate remail catalogs, replacing them with new creative that was more productive.
• Circulate customer acquisition catalogs below breakeven, paying back within 0-24 months.
• Evaluate housefile circulation based on incremental profit, after factoring in cannibalization.
• Mail internet customers differently than catalog customers.
• Use matchback analytics to understand how catalogs drive business to the website and to stores.
• Use test/control groups to measure incremental volume, offsetting the overstated results of matchback analytics.
• Build a routine to send multiple targeted versions of an e-mail campaign to different segments of customers.
  

Nothing in that list represents "secret sauce". It's ketchup and sugar and spices all blended together.

If you do all of those things well, and all of your executive counterparts do comparable things in their field of expertise, you suddenly have something that appears to be a "secret sauce" to outsiders.

Looking For Work?

I've learned of a few jobs that are available in the multichannel catalog circulation world --- if you're an experienced practitioner looking for a new challenge, send me an e-mail.

Hint To L.L. Bean: Giant Whooshing Sound In Chicago

L.L. Bean to open a store in Chicago, courtesy of DMNews.

Hint: The giant whooshing sound L.L. Bean leadership and database marketing professionals could hear is the transfer of catalog and online customers from the direct channel (online, catalog) to the retail channel.

One of my five favorite projects of all time was understanding the shift in customer behavior at Eddie Bauer when new stores were opened in new markets (the forerunner to Multichannel Forensics).

As is often the case in Multichannel Forensics, direct-to-consumer channel customers make a bold move to retail. The new retail customers are unlikely to buy online or via the catalog. This pattern happened at Nordstrom, and consistently happened in the Multichannel Forensics projects I worked on in the past year. Retail is a drug ... for customers and executive leadership.

There are exceptions to every rule, of course. Ultimately, all one really cares about is driving incremental profitable revenue, even if cannibalization of the direct channel occurs. The analytical folks at L.L. Bean have a reputation for understanding cannibalization issues. This particular challenge is tailor-made for Multichannel Forensics.

Update From The F. Curtis Barry & Company Executive Forum

We just completed day two of the three day F. Curtis Barry & Company Executive Forum here in Ft. Lauderdale (a place that, if I may be so bold, is somewhat more temperate than Seattle).

CEOs, Principals and Owners from across the industry have gathered to talk about pressing issues in the multichannel marketing industry. We also have Monica Smith, President/CEO of Marketsmith and merchandising expert Jon Reagan on hand to help facilitate each session.

There's a few things worth mentioning about the forum.

First, these executives are real people. They are not the demonized leaders we read about all the time. These folks agonize about postage increases that cripple a business, they feel terrible about having to make tough decisions to keep a brand afloat. They won't cash a check for a hundred million dollars when their time is up. They care about their employees.

Second, there need to be more forums like this, forums where executives can share ideas, concepts, sales/profit performance, and get help in a safe and collaborative environment. I should have attended a few years ago when I worked at Nordstrom.

Third, we're covering topics that are important to multichannel brands.

• The devastating impact of the postage increases of 2007.
• What does cataloging look like in 2013?
• Benefits of joining the ACMA.
  
• Prospecting challenges, lists, co-ops, prospect catalogs & page counts.
  
• Marketing to online customers.
• Matchback analytics and allocation of orders to marketing activities.
  
• Smaller catalog formats.
• E-mail marketing and prospecting.
  
• Presentation of merchandise (creative).
• Mix of new/existing merchandise and changes in productivity.
• Niche merchandising vs. commodity merchandising strategy.
• Free shipping.
• Impact of search marketing for big vs. small brands.
• Delivery partners (UPS, FedEx, DHL).
• Benchmarking all aspects of the profit and loss statement.
• Getting your staff the skills necessary to manage a future multichannel business model.
• Website hosting strategies.
• Partnering opportunities with Amazon.
• Google Checkout and PayPal.
• Projected inflationary pressures in China.
  

We openly share our thoughts with each other on these topics, helping each other out in a collaborative yet confidential manner.

Fourth, Curt and Jeff Barry host this event (and host a good blog) in an unselfish manner. Participants share ideas in a positive environment.

This has been a great experience. Hopefully this event will continue to thrive!

Separate Audiences

With each passing day, I become convinced we're approaching the concept of being "multichannel" in the wrong way.

Fifteen years ago, we had epic discussions at Lands' End about "incrementality". We had several catalog titles. Not surprisingly, the VP in charge of each catalog title kept her job if her catalog title increased sales and profit. So each executive mailed the "best" customers.

Which meant that the same customers received everything.

We'd test how much incremental business we received from this strategy. Standard reporting said a catalog generated $4,000,000 sales. Using test/control groups, some catalogs generates as little as $1,000,000 sales, meaning if you didn't mail the catalog, $3,000,000 would be reallocated to existing catalogs mailed previously.

Fast forward to today.

We're getting better at aligning merchandising and inventory management strategies.

From a marketing standpoint, we're still all about doing what we can to be everywhere our best customers are. We mail catalogs, lots of catalogs, to our best customers. We entice these customers to give us their e-mail address, so that we can send them e-mail marketing as well.

Then we make sure we are where our customers are. We have paid search programs to anticipate every possible want our customers have, not to mention portal advertising and shopping comparison marketing and affiliate marketing. If the customer wants to order online, great! If the customer wants to order in a store, great! If the customer wants to order over the phone, out of a catalog, great!

At the end of the day, we put all of our eggs in the best customer basket. Great!

The secret sauce seems to be in finding separate audiences. Yup, we should find unique customers who like e-mail marketing, then serve them with e-mail campaigns. Another subset loves catalogs, so we serve them with catalogs. The wild west of the internet is for customers who love "self-service", the do-it-yourselfer, so online marketing could focus on the self-service audience. We just re-allocate the marketing dollars we control to potential channels offering a unique audience (all of this assumes this can be done profitably, or else, all bets are off).

Separate audiences serve the same purpose as "diversification" in your stock portfolio. When one audience is unresponsive, the other audiences protect sales and profit.

I'm fearful (especially among catalogers) that we put all of our eggs in just one basket, focusing heavily on catalog mailings to drive online sales among a homogeneous customer audience. When sales for this one segment of customers slump, the entire business slumps.

The opportunity to diversify still exists today, but it is a long-term solution. Let's start diversifying, right now.

Multichannel Customers Are Not The Most Profitable Customers

This will probably stick in the craw of the multichannel establishment.

Have your data guru run this query.

• Step 1: Identify all customers who purchased via catalog or online channels during 2006.
• Step 2: Identify customers who were between the 30th and 40th percentile in 2006 spend. In my case, this is $200 - $300 in 2006 spend.
• Step 3: Split this audience into three groups, based on 2006 activity.
• Catalog-Only customers in 2006.
  
• Online-Only customers in 2006.
  
• Multichannel Customers (Catalog + Online) in 2006.
  
• Step 4: Measure repurchase rate, total sales, marketing cost, and profitability for each segment during 2007.

This is a forward-looking set of metrics, the type you need to run to really understand multichannel customer value, after controlling in some limited way for historical spend.

Take a look at this example from a catalog brand:

Future Twelve Month Value Of Last Year's Buyers: $200 - $300 Spend Last Year
Catalog	Web	Cases	Rebuy	Spend	Sales	Mktg	Profit
Yes	No	8,839	50.2%	$295.08	$148.13	$20.00	$24.44
No	Yes	6,217	43.6%	$288.39	$125.74	$9.00	$28.72
Yes	Yes	2,374	55.2%	$295.67	$163.21	$23.00	$25.96

Oh oh. Those vaunted multichannel customers are not the most profitable. Why?

One of the realities of multichannel marketing is that the "best" customers are most likely to be receptive to the "most" advertising channels. So in this case, the catalog brand bombs this customer --- saturating her with a veritable plethora of catalog and e-mail campaigns.

In addition, this customer does her own shopping, independent of catalog and e-mail marketing. She uses Google to search for merchandise. She utilizes affiliates, shopping comparison sites, portals, you name it. The cataloger spends money on all of those channels, so in essence, the customer is spending your marketing money on your behalf!

Your multichannel customer, the one you're focusing all this energy on in order to create a seamless multichannel experience, often end up being less profitable ... and we haven't even factored in systems integration costs yet.

We must find ways to reduce our investment in marketing to multichannel customers, so that self-directed customer investment (paid search, shopping comparison sites, affiliates, portals) doesn't cause an overall "over-investment". History is littered with ways to increase investment in multichannel customers, it is time to go the other way.

I'm guessing three out of four catalogers reading this blog will observe similar results, if this query is run at leading catalog brands.

Is this what you are observing when you measure the total profitability of customer segments?

Multichannel Forensics: Online/E-Commerce Startup Example For Venture Capitalists And Founders

My work is increasingly focused on internet startups, focusing on the challenge of forecasting long-term sales based on almost no customer purchase/usage history.

I try to keep things simple. Here's a business that has been in existence for less than a half year. By recency, here is the probability of a customer buying in any given month.

Recency	Custs.	Buyers	Resp.
1	1,239	88	7.1%
2	812	47	5.8%
3	522	26	5.0%
4	279	12	4.3%

Given the limited amount of information available here, let's take a wild guess at incremental response rates for twelve months of recency.

Recency	Custs.	Buyers	Resp.
1	1,239	88	7.1%
2	812	47	5.8%
3	522	26	5.0%
4	279	12	4.3%
5			3.7%
6			3.2%
7			2.8%
8			2.5%
9			2.3%
10			2.2%
11			2.1%
12			2.0%

Obviously, your guess is as good as mine. We have no idea what will really happen. But it is important to make a guess.

Given that guess, we can estimate a twelve month repurchase rate (using an extension of the life table as described in the Database Marketing book:

• 1 - ((1 - 0.071) * (1 - 0.058) * (1 - 0.050) * (1 - 0.043) * (1 - 0.037) * (1 - 0.032) * (1 - 0.028) * (1 - 0.025) * (1 - 0.023) * (1 - 0.022) * (1 - 0.021) * (1 - 0.020) = 35.5%.

An annual repurchase rate of 35.5% (and the actual rate will be lower, because we average all twelve month buyers, not just following a cohort through a twelve month period) puts this startup in "Acquisition Mode".

Now you might say, "duh, they're a startup, of course they are in Acquisition Mode". And you'd be right. But we're talking about the dynamics this business will need to deal with when it becomes mature, not what it needs to do for the next few years.

The dynamics suggest that if this business survives, its number one focus will always be to aggressively acquire new customers.

Fortunately, there's time to see how the business really evolves. And as the business evolves, these estimates are re-calibrated.

VCs like this information because it gives them tangible data about the long-term trajectory of the startup. If this startup can acquire an ever-increasing number of customers in a cost-effective manner, the startup has potential. Venture Capitalists get an early glimpse into the direction the startup is headed in.

Multichannel Forensics: How A Cataloger Becomes An Online Brand

Times change. Multichannel Forensics are a great way to illustrate how times change if you are a catalog brand.

Let's analyze the repurchase index for the catalog channel and the online channel for a catalog brand.

1999: Catalog to Online = 0.06, Online to Catalog = 0.59. Catalog customers are unwilling to shop online. Online customers transfer back to the catalog channel after purchasing online.

2000: Catalog to Online = 0.11, Online to Catalog = 0.48. To the catalog executive, things don't look dramatically different. Online customers still shift back to the catalog channel. For two consecutive years, it appears that the online channel depends upon the catalog for business.

2001: Catalog to Online = 0.17, Online to Catalog = 0.41. Same old same old, if you're the catalog executive. The online channel grows, but online customers switch back to traditional catalog shopping. However, pay attention to each index, one increasing, one decreasing.

2002: Catalog to Online = 0.23, Online to Catalog = 0.33. At this time, the catalog executive notices that catalog productivity is struggling, while the online channel continues to grow. Something seems fishy.

2003: Catalog to Online = 0.28, Online to Catalog = 0.29. The catalog seems to flounder, while the online folks gloat about their wonderful channel. This is when matchback analytics became popular, "proving" that online orders are driven by catalog orders.

2004: Catalog to Online = 0.32, Online to Catalog = 0.23. Here's where management changes occur. The catalog channel continues to flounder, now shrinking. Conversely, online purchasers are on the verge of becoming unlikely to buy over the telephone.

2005: Catalog to Online = 0.36, Online to Catalog = 0.15. We've passed a key inflection point, no longer able to return to "the good 'ole days". Catalog customers are willing to shop online. Online customers are no longer willing to pick up the phone and place an order. It is here that the traditional cataloger mails online customers like they are going out of style, using matchback analytics to "prove" that the catalog drives online orders.

2006: Catalog to Online = 0.40, Online to Catalog = 0.13. The cataloger doesn't realize it, but the online customer is in many ways becoming a fundamentally different customer, not needing catalog advertising to place orders. Yet, because the cataloger mails most online customers, the cataloger mistakenly "proves" that catalog mailings drive online orders. Multichannel Forensics metrics diverge from matchback analytics.

2007: Catalog to Online = 0.43, Online to Catalog = 0.12. The transition is basically complete. The catalog brand is now an online brand that uses catalog advertising. Online customers keep shopping online, while the remaining segment of catalog customers continue to leak into the online channel.

If a catalog executive sees this trend, then she knows that the days of catalog marketing are winding down.

Once again, the trend looks like this:

• 1999 Cat-Web = 0.06, Web-Cat = 0.59.
• 2000 Cat-Web = 0.11, Web-Cat = 0.48.
• 2001 Cat-Web = 0.17, Web-Cat = 0.41.
• 2002 Cat-Web = 0.23, Web-Cat = 0.33.
• 2003 Cat-Web = 0.28, Web-Cat = 0.29.
• 2004 Cat-Web = 0.32, Web-Cat = 0.23.
• 2005 Cat-Web = 0.36, Web-Cat = 0.15.
• 2006 Cat-Web = 0.40, Web-Cat = 0.13.
• 2007 Cat-Web = 0.43, Web-Cat = 0.12.

What does the relationship look like when the catalog business still matters?

• 1999 Cat-Web = 0.06, Web-Cat = 0.59.
• 2000 Cat-Web = 0.11, Web-Cat = 0.48.
• 2001 Cat-Web = 0.17, Web-Cat = 0.41.
• 2002 Cat-Web = 0.22, Web-Cat = 0.34.
• 2003 Cat-Web = 0.25, Web-Cat = 0.32.
• 2004 Cat-Web = 0.26, Web-Cat = 0.31.
• 2005 Cat-Web = 0.28, Web-Cat = 0.30.
• 2006 Cat-Web = 0.29, Web-Cat = 0.29.
• 2007 Cat-Web = 0.30, Web-Cat = 0.28.

If this is the relationship you see, you likely have three separate customer segments:

• Pure catalog customers who buy over the phone when catalogs are sent to them.
• Online customers who are inspired to purchase by catalogs.
• True online customers who do not respond to catalog marketing.

What does the relationship look like when the catalog business IS the business?

• 1999 Cat-Web = 0.06, Web-Cat = 0.59.
• 2000 Cat-Web = 0.08, Web-Cat = 0.48.
• 2001 Cat-Web = 0.11, Web-Cat = 0.41.
• 2002 Cat-Web = 0.14, Web-Cat = 0.35.
• 2003 Cat-Web = 0.16, Web-Cat = 0.32.
• 2004 Cat-Web = 0.17, Web-Cat = 0.31.
• 2005 Cat-Web = 0.17, Web-Cat = 0.30.
• 2006 Cat-Web = 0.18, Web-Cat = 0.30.
• 2007 Cat-Web = 0.18, Web-Cat = 0.30.

If this is the relationship you see, you are truly a cataloger. Your website basically serves the purpose of a glorified order form. Your survival depends upon the mailing of catalogs. Your future, however, depends upon your ability to cultivate a segment of customers who are willing to shop online, not needing catalogs to purchase merchandise.

The future is a bit murky for some catalogers. Many catalog companies have a head start building a segment of the customer base that shops online not because catalogs are mailed, but simply because the customer loves the brand.

Catalogers who do not have this "insurance policy" will struggle, because everything depends upon the cataloger mailing catalogs. Third parties like the USPS eat away at the brand from a profitability standpoint. Third parties like the DMA and Catalog Choice, via opt-out lists, facilitate customer backlash (though the backlash is ultimately our fault, not theirs), further lowering catalog productivity.

Catalogers who have this insurance policy, a segment of customers who buy exclusively online without the aid of marketing, are able to generate profit without the cost of advertising. This profit offsets the lowered profit from USPS cost increases, increases in paper cost, and customer backlash facilitated by Catalog Choice and the DMA.

So the goal for a cataloger is to understand where the customer is in the evolution from catalog marketing to online purchasing. By using Multichannel Forensics, executives are able to discern where a catalog brand stands on the evolutionary path to an online future. The executive then understands what must be done to protect the business, both short-term and long-term.

Multichannel Forensics: An E-Mail Example

Please click on the image to enlarge it.

I recently read a statement about a multichannel brand ... the statement sounded something like this:

"We boast an e-mail marketing file of over 2,000,000 addresses."

What does that really mean? Is it good to boast an e-mail marketing file of over 2,000,000 addresses?

How do I judge the importance of that number?

Ultimately, I want a healthy e-mail marketing file, not a big e-mail marketing file.

I want my e-mail file to exhibit at least two characteristics.

1. E-Mail recipients click-through content in an e-mail, and visit my website. At least I know these individuals are "active", or "engaged".
   
2. If the customer clicks-through to the website, the customer buys something.

Even more important, I want to know the long-term impact of these two activities. For instance, what is the long-term value of a customer who clicks-through an e-mail campaign, visiting a website, but chooses not to purchase anything?

Enter Multichannel Forensics.

The image at the start of this post features the behavior of an e-mail list of 2,000,000 names, but only looks at the names that are "active". In other words, we only look at folks who click-through e-mail campaigns, and those who purchase merchandise. This audience is considerably smaller, around 150,000 names. Your mileage may vary!

The free two-channel Multichannel Forensics spreadsheet can be used to analyze these cases.

In the example in this post, I can measure the five-year value of 1,000 e-mail customers who clicked-through to the website due to an e-mail campaign, but didn't buy anything last year. Here is what 1,000 clickers in 2007 are forecast to do over the next five years:

• Year 1: 480 Clickers-Only, 120 Purchasers, $30,000 sales.
• Year 2: 254 Clickers-Only, 118 Purchasers, $31,478 sales.
• Year 3: 145 Clickers-Only, 90 Purchasers, $24,404 sales.
• Year 4: 87 Clickers-Only, 63 Purchasers, $17,125 sales.
• Year 5: 54 Clickers-Only, 42 Purchasers, $11,512 sales.

Notice that there is long-term value in a customer who only clicked on campaigns last year, but didn't purchase anything. However, the value of this "clicker" decreases over time.

See, e-mail marketers view everything in the short-term ... a 22.4% open rate, a 6.3% click-through rate, a 3.9% conversion rate ... everything is measured within forty-eight hours, measured in repeated campaigns. There's no context in this type of measurement, there's just measurement!

What if I told you that each customer who clicked-through an e-mail campaign in 2007, but chose not to purchase anything, was worth $123 sales over the next five years?

Would you re-think the importance of getting your e-mail customer base actively involved in your campaigns? Mind you, they don't have to buy anything over the next forty-eight hours. Instead, they simply have to at least click-through one campaign in the next twelve months.

Multichannel Forensics are good to use when you're trying to make a case to truly invest in a smart e-mail marketing strategy, one that goes beyond 20% off your next order or buy-one-get-one-free, one that goes beyond free shipping, one that actually encourages engagement. Clicks are one way of measuring engagement, and engagement (as demonstrated here) yields tangible, long-term, quantifiable sales and profit.

If you're an e-mail marketer, it is a good time to challenge your e-mail vendor to help you move beyond short-term, campaign-based outcomes of $0.09 per e-mail. Partner with your e-mail vendor, or even your favorite e-mail blogger! Start using Multichannel Forensics (or any other analytical tool that demonstrates the long-term strategic impact of short-term decisions, by no means is Multichannel Forensics the only tool) to validate the long-term benefits of your craft, to get the funding you need to improve your e-mail marketing program.

Multichannel Forensics: PPC, SEO and Online Marketing Example

Please click on the images to enlarge them (you'll need to do this!).

From time to time, I'm asked to describe how Multichannel Forensics can be used by online marketers.

Honestly, the methodology is ideally suited for online marketers ... as long as the online marketer stores key information in a centralized customer database.

Take a look at this online ecosystem. The online marketer tracks source of order in the customer database, categorized as follows:

• Google, Paid Search
• Google, Natural Search
• Yahoo!, Paid Search
• Yahoo!, Natural Search
• MSN, Paid Search
• MSN, Natural Search
• Portal Advertising, All Sources
  
• Shopping Comparison Sites, All Sources
• Affiliate Marketing, All Sources
• E-Mail Marketing, All Campaigns
• Catalog Marketing via Catalog Key Code
• All Other Online Marketing Sources
• Organic Online Orders, No Marketing Attribution

Your first instinct might be to nitpick the categorizations, so feel free to use whatever categorizations make the most sense for your business when you apply the methodology. My purpose is to simply illustrate how the methodology might be used.

The second image shows the Migration Probability Table. This illustrates how customers who purchased by various sources last year migrated to different purchase sources this year.

The first image maps the ecosystem.

What can we learn from this analysis? Plenty!

• Google matters. It is a primary source for new customers. Customers who evolve to loyal status migrate from a newly acquired customer via Google to a Natural Search customer to finally placing Organic Online Orders. In fact, Google has a disproportionate influence over the direction of the brand, as other forms of advertising eventually feed back into Google.
  

• Customers are slowly migrating from Yahoo! and MSN to Google. Some customers who used to use Yahoo! and MSN to place orders last year now use Google this year. The Multichannel Forensics analyst should monitor this trend over time, leveraging it in the development of paid search budgets.
  

• Yahoo! and MSN purchasers migrate to the E-Mail Marketing channel. The E-Mail services offered by Yahoo! and Microsoft allow a unique multichannel element to occur. In essence, Yahoo! and Microsoft benefit because the customer shifts from purchasing via search to purchasing via E-Mail ... allowing Yahoo! and Microsoft to continue to stay active in the customer relationship with this brand.

• Customers who respond to Portal Advertising migrate to E-Mail and Catalog Marketing. Obviously, there is a subset of this customer base that takes matters into their own hands (search), and there is a subset responsive to advertising (Portals, E-Mail, Catalog).

• Shopping Comparison and Affiliate Marketing customers are least loyal in this example. These customers are apparently getting their needs met on a one-time basis, unlikely to shop again.

• Once a customer purchases without the aid of advertising or search, the customer is the most loyal of all customer types. These customers appear to order because the like the brand, not because they need search or marketing to drive them to the site. This is what a brand ultimately wants. However, the metrics indicate that these customers still use Natural Search via Google results to place orders in the future, clearly illustrating the importance of SEO, even among best customers.

• The most loyal customers are those who order without advertising, as well as those who order via E-Mail or Catalog Marketing.

• There is a hurdle for this brand to get over. Recall the disproportionate influence Google has over this brand. Notice that Google responders are not as loyal as are Organic, E-Mail or Catalog Marketing responders. In other words, an over-dependence upon Google results in a less loyal customer base. There is an opportunity to try to convert Google shoppers to other forms of advertising.

If the proper information can be stored in the customer database, really interesting Multichannel Forensics projects can be constructed, limited only by your imagination.

An analysis of this nature also illustrates the limitations of web analytics, where metrics are configured to allow analysts to focus on what a customer does within a single visit. An entire generation of professionals are being trained to believe that the customer relationship is best measured within a single visit. We need well-rounded web analytics professionals who understand how customer relationships evolve over time, folks who can measure the complex relationship between customers, advertising, products, brands and channels. This is the promise of Multichannel Forensics.

The Role Of A Website Inspired Store Purchase (WISP) And Multichannel Forensics

Industry pundits like to point to Circuit City and their "buy online, pickup in store" strategy as a glowing example of customer-friendly multichannel synergy. Surveys of hundreds of consumers seem to validate these statements.

But how do you know if this strategy is right for your business? In other words, is this really the way a multichannel customer shops your brand?

In reality, multichannel retail store leaders have to answer fundamental questions.

1. Do customers use my website primarily for research purposes, or for E-Commerce?
2. If customers prefer to use my website to facilitate store purchases, will they ever use the website for E-Commerce?
   

A few retailers do a nice job of linking website visitation behavior with store purchases. Those retailers are able to see a new channel ... "website inspired store purchase". Customers who purchase merchandise in a store within seven days of researching a product online are classified as a "website inspired store purchase" buyer.

In this framework, you have three channels:

• E-Commerce.
• Website Inspired Store Purchase.
• Retail/Store Channel.

The intriguing channel, of course, is the "website inspired store purchase" channel. We want to understand what these customers do after buying from this new channel. Do these customers become loyal e-commerce buyers? Do these customers shop exclusively in stores? Or do these customers stay in this "new" channel?

Multichannel Forensics are ideally suited for answering this question.

Let's take a look at a retailer that manages these three channels:

Migration Probability Table
		E-Commerce	WISP	Retail
Repurchase Rate:	Total	38.0%	65.0%	53.0%
	E-Comm.	32.0%	18.0%	4.0%
	WISP	11.0%	43.0%	9.0%
	Retail	2.0%	24.0%	49.0%
Repurchase Index:	E-Comm		27.7%	7.5%
	WISP	28.9%		17.0%
	Retail	5.3%	36.9%
Classification:	E-Comm		Acquisition / Equilibrium
	Web/Store		Retention / Equilibrium
	Retail		Hybrid / Isolation

Let's review this study, one channel at a time.

The E-Commerce channel is in "Acquisition / Equilibrium" mode. This means that for the E-Commerce channel to grow, new customers have to constantly be recruited. E-Commerce customers are not likely to shop retail on their own. Instead, the E-Commerce customer is willing to use the website to research product, then buy it in the store. The logical path to get this customer to buy in stores is to use the website to educate the customer.

The "website inspired store purchase" channel (WISP) has interesting dynamics. These customers are the most loyal to the brand, and therefore, are most important to management. Pay close attention to the repurchase index information. WISP customers are more likely to migrate to retail purchases than they are to migrate to E-Commerce purchases. Over time (and this will take a long time, given index information in this example), this segment of customers will become self-sufficient retail customers who become less and less likely to use the website.

Now take a look at the retail customer who doesn't use the website. This customer is in "Hybrid / Isolation" mode. This customer does not want to use the website, for research purposes, or for E-Commerce. This segment either represents an opportunity, or a strategic inflection point. Management might view this as an opportunity to encourage more customers to research the website, might view this as an opportunity to improve the website. Or management might believe that a large group of customers are simply unwilling to use the website, allowing the website to facilitate E-Commerce transactions as a first priority.

What we can see is an (at this time) irreversible path that customer follow:

• E-Commerce -----> WISP -----> Stores

E-Commerce loses customers to WISP status.

WISP customers will shop E-Commerce, and really like shopping Stores.

Store customers do not go back.

So, the natural customer progression results in customers becoming store customers. Leadership can choose to enable this evolutionary behavior. Leadership can try to change the marketing and website strategy to change customer behavior.

The next step is to run five year simulations on different business strategies, understanding which strategies yield positive outcomes.

We spend too little time talking about the role of a website in a retail business. We think customers use a website in a "multichannel" manner, using the website to buy in stores. In reality, life isn't this clean. Each retailer that chooses to run this analysis will obtain different results, results that often buck conventional wisdom. But by and large, Multichannel Forensics teaches retailers that the primary objective of a website in a retail brand is to educate customers. The secondary objective of a website in a retail brand is to facilitate E-Commerce. And increasingly, a third objective of a website is to entertain a customer. Use Multichannel Forensics to allow your customer to help you decide what the primary objective is of your website.

Multichannel Forensics: Calculating Migration Mode

Before we go into various studies, we need to know how to calculate the migration mode of each product, brand, or channel.

Here's an example for the online channel of a multichannel retailer.

Step 1: Calculate the annual repurchase rate for online customers, across all channels. Answer = 55%.

Step 2: Calculate the annual purchase rate for online customers within each channel.

• Total Company = 55%.
• Catalog Channel = 5%.
• Online Channel = 35%.
• Retail Channel = 30%.

Step 3: Calculate the purchase index for each channel, measured as the channel purchase rate divided by the total company purchase rate. Though we will calculate the metric for the online channel, we're only interested in the metric as it relates to the catalog and retail channels.

• Catalog Channel = 5% / 55% = 0.091.
• Online Channel = 35% / 55% = 0.636.
• Retail Channel = 30% / 55% = 0.545.

Step 4: Classify each metric into isolation mode, equilibrium mode, or transfer mode (oscillation mode occurs when two channels transfer to each other).

• Isolation Mode = Index between 0.00 and 0.20.
• Equilibrium Mode = Index between 0.20 and 0.50.
• Transfer Mode = Index greater than 0.50.

• Catalog is in Isolation with the Online Channel.
• The Online Channel Transfers customers to the Retail Channel.

Given the dynamics of this business, customers ultimately migrate from the website to retail stores.

Multichannel Forensics: The Building Blocks

We'll start our Multichannel Forensics series with a quick refresher course.

There are three loyalty modes for every product, brand or channel.

• Retention Mode: When at least 60% of prior year customers purchase again this year (if your business doesn't support a twelve month repurchase period, use a timeframe that is appropriate.

• Hybrid Mode: When between 40% and 60% of prior year customers purchase again this year.

• Acquisition Mode: When fewer than 40% of prior year customers purchase again this year.

We need to classify each product, brand or channel into one of these three modes, so that we can understand the primary way that growth will happen. So many brands are in "Acquisition Mode" and don't realize it, depending heavily on customer acquisition for long-term health.

There are also four Migration Modes that each product, brand or channel fall into.

• Isolation Mode: This happens when the customers in a product, brand or channel do not migrate to other products, brands or channels. For instance, customers who purchase Mens apparel are unlikely to buy Womens apparel. Mens apparel buyers are in "Isolation Mode".

• Equilibrium Mode: This happens when the customers in a product, brand or channel are willing to try other products, brands or channels. For instance, customers who purchase Womens apparel might purchase Mens apparel for their spouse. Womens apparel buyers are frequently in "Equilibrium Mode". This mode is common, and is responsible for all of the interesting dynamics that occur when customers shift from one product line (DVD Players) to another (Blu-Ray DVD Player).

• Transfer Mode: This happens when the customers in a product, brand or channel are actively switching loyalty. Over the next decade, automobile purchasers will actively transfer loyalty from gas-guzzling cars to hybrid cars and other technologies. CEOs need to recognize this mode, and react in a positive way in order to protect jobs.

• Oscillation Mode: Sometimes, customers switch back and forth between products, brands or channels. This is known as "Oscillation Mode". Computer buyers purchase software and peripherals, then switch back to buying a new computer, then switch to software and peripherals, resulting in "Oscillation Mode".

The combination of Loyalty Mode and Migration Mode yield the unique situation a product, brand or channel resides in.

Maybe you are a catalog CEO. If your catalog channel is in "Acquisition/Transfer" mode, your job is to scale back on catalog advertising over time, as your customers won't allow you to grow this channel anymore.

Maybe you are a Merchandise EVP. If your product is in "Retention/Isolation" mode, you thoroughly control your merchandise line. Your customers are loyal to your products, and do not switch loyalty to another merchandise line. You have the potential to be a rock star.

Maybe you are the General Manager of the Online Channel of a Multichannel Brand. If your channel is in "Hybrid/Equilibrium" mode, you have a very interesting channel to manage. Your customers want to shop your store channel, but aren't avid store customers. Strategically, you can influence your customers by the marketing techniques you use. Do you want your customers to shop online, in stores, or anywhere? In many ways, you get to decide!

This week, we'll look at several case studies, examples that help CEOs understand how to manage multichannel complexity!

Multichannel Forensics Week

The coming week will feature insight into several ways that Multichannel Forensics can be used to gain insight into critical business issues.

• When to cut back on catalog mailings.
• Multichannel Forensics for internet startups.
• The interplay between retail stores and the websites that support stores.
• E-Mail as a marketing channel.

Are there any other topics you'd like for me to explore this week?

Sour Business, Catalog Prospecting, And E-Mail

More struggles for Lillian Vernon, Sharper Image, Red Envelope, and Flax Art & Design.

A significant downturn in catalog prospecting performance (for some) is coupled with last year's postage increases, causing problems.

This is a really good time to test all possible online and e-mail marketing opportunities. For e-mail marketers and vendors, this is your opportunity to shine. We need e-mail productivity to double or triple in order to begin to reduce catalog mailings and protect jobs. Is this type of improvement possible?

Williams Sonoma / Pottery Barn And Multichannel Growth

The DMA is selling a research report suggesting that "Retailers Have Multichannel Skills But Need Help Integrating Channels". The conclusions are based on questions brands answered in a recent survey.

Is there any place we can verify the claims outlined in the report?

Let's look at long-term sales trends from a respected and profitable multi-brand retailer, Williams Sonoma (WSM), owner of the flagship Williams Sonoma brand and the popular Pottery Barn brand.

One can go back to at least 1991 to understand how Williams Sonoma grew sales in the direct-to-consumer (catalog + website) channel and in the retail channel (here are results from the past five fiscal years).

Williams Sonoma introduced the e-commerce channel in 1999. In the table below, annual results are listed, as well as pre-internet and post-internet results:

Williams Sonoma: Comp Store And Direct Channel Growth
Year	Direct Growth	Retail Comps
2007 (Nine Months)	2.9%	0.5%
2006	4.5%	0.3%
2005	13.6%	4.9%
2004	17.1%	3.5%
2003	20.8%	4.0%
2002	10.2%	2.7%
2001	8.4%	1.7%
2000	33.1%	5.5%
1999	34.2%	6.4%
1998	15.7%	5.0%
1997	11.2%	2.8%
1996	11.9%	4.6%
1995	16.2%	3.4%
1994	55.0%	16.5%
1993	23.9%	13.8%
1992	-0.2%	2.1%
1991	-3.8%	0.5%
Results: 2000 - 2007	13.5%	2.9%
Results: 1991 - 1999	17.1%	6.0%

It isn't a stretch to suggest that Williams Sonoma and Pottery Barn do an above-average job of integrating channels, per the recommendations offered in the DMA research report.

And yet, during this era of multichannel goodness, direct-to-consumer sales are growing slower post-internet than pre-internet. Retail comp store sales are growing slower post-internet than pre-internet.

Some of this is due to scale --- as a business grows, it becomes harder to grow sales as a percentage of prior year sales.

Could some of this be due to a failure of perceived multichannel best practices? Adding an e-commerce channel to an established catalog channel should result in new customers, a new audience, and much improved growth, right?

Instead, we see slower growth rates.

We're also told that catalogs and e-commerce drive comp store sales increases. Pages circulated increased a total of 36% in the past four years, but comp store sales increases are, at best, tepid.

Williams Sonoma is a respected brand with increasing sales and robust profit, profit levels that any company would be proud of. Williams Sonoma exhibits most of the multichannel marketing behaviors and cross-channel integration that we're told we must employ to be successful.

To date, multichannel best practices at Williams Sonoma have not translated to incremental increases in direct-to-consumer sales or retail comps.

Why do you think this is the case? Are the multichannel experts missing something? Is Williams Sonoma an anomaly? Is there a multichannel brand that executes multichannel marketing well, demonstrated via publicly reported sales and profit increases?

The Multichannel Customer Merch Curse

It is always interesting to hear different catalogers tell me different things.

• "If we didn't mail a catalog, our online business would not exist".

• "Our catalogs don't drive a lot of sales to our online channel".

Similar brands sometimes say contradictory things.

Here's a query that your business intelligence team should run for you.

• Identify anybody who purchased during 2007.
• Group them into telephone-only, phone + website, and website-only customers based on 2007 activity (if you're a retail multichannel brand, use retail-only, retail + website, website-only).
• For each of your three segments, calculate the percentage of 2007 sales spent on classic products (those introduced to the customer a long time ago), and the percentage spent on new products (those introduced to the customer recently --- you decide on the timeframes based on your product cycles).

Sometimes you'll see this:

• Phone-Only = 63% spent on classic product.
• Phone + Website = 45% spent on classic product.
• Website-Only = 43% spent on classic product.

When this happens, it is very possible that your catalog is not effective at driving sales online.

Sometimes you'll see this:

• Phone-Only = 63% spent on classic product.
• Phone + Website = 53% spent on classic product.
• Website-Only = 43% spent on classic product.

When this happens, you catalog drives customers online, but the customer finds something else to purchase.

Then you might find this relationship:

• Phone-Only = 63% spent on classic product.
• Phone + Website = 61% spent on classic product.
• Website-Only = 43% spent on classic product.

In this situation, you'll probably find that your catalog drives a ton of volume online.

The reason your business intelligence team runs this query for you is to better understand how to merchandise your catalog. If multichannel customers buy product that is somewhat different than what is offered in your catalog, you will want to test different creative strategies in your catalog, from repaginating the merchandise to creating an entirely different catalog for multichannel customers.

Your turn ... what have you observed when running this type of query, and how did you change your marketing practices as a result of learning this information?

Survey Results: What Purpose Does Catalog Choice Serve?

Please visit the homepage for the latest survey, asking why you read The MineThatData Blog.

You were given a chance to speak out about Catalog Choice, the customer-friendly and eco-friendly organization that protects customers from the misery of receiving unsolicited catalogs.

Here is how you responded:

• 43% = Catalog Choice simply gives customers a way to opt-out of unwanted and unsolicited catalog mailings.

• 14% = Catalog Choice uses this service to promote an eco-friendly agenda.

• 29% = Catalog Choice wants to dictate a new business model to catalogers.

• 14% = We cannot possibly know or understand what Catalog Choice wants to accomplish.

As you can clearly see, our readers are split in their perception of what Catalog Choice wishes to accomplish.

I truly believe catalogers want to honor opt-out requests. I have yet to hear information contrary to this.

Catalogers want to trust one or both organizations (Catalog Choice and the Direct Marketing Organization, contrasting organizations promoting common objectives). Catalogers are reading your press releases and blog discussions, scrutinizing your words and actions. Use your platforms to do good!

Abacusification And The Merch Curse

We spent the past two days talking about the problems e-commerce and catalog brands have with loyal customers who adore the merchandise the brand used to sell.

1. The curse of great merchandise.
2. For best customers, the merch curse is worse.

In yesterday's example (averaged from actual e-commerce and catalog transactions), best customers spent 65% of their dollars on classic merchandise, stuff offered by the brand for at least the past four years.

Conversely, new and marginal customers spent 37% of their dollars on classic merchandise, 63% of new products offered by the brand for at least the past four years.

This brings us to the concept of Abacusification, named after the venerable catalog co-op (Abacus) that enables catalogers to mail prospects at a comparatively low cost. To be fair, the concept applies to all co-ops and list rental brands.

Abacusification occurs when a catalog/e-commerce brand shifts a disproportionate percentage of circulation (usually 20% or more) into co-op names. At this point, the co-op statistician has a disproportionate amount of influence over response rates, long-term customer retention rates, and the merchandise assortment offered by the catalog/e-commerce brand.

Using yesterday as an example, Abacusification is demonstrated by the fact that new customers spend two-thirds of their money on new products, while loyal customers spend two-thirds of their money on existing products.

What the heck do you do if you are the merchant responsible for this brand? Over time, you end up aligning your merchandise with the Abacusification of your customer file --- it happens naturally, without you even noticing it. Conversely, you notice that long-time loyal customers start to disappear --- well, you probably don't notice this, you simply notice that time-honored merchandise no longer performs as well, so you de-emphasize classic merchandise.

Within a few years, the Abacusification of your customer file is complete. Your customer file is composed of co-op dominated names that have merchandise preferences different than your legacy customers.

To be fair, this may have always happened when you worked with your list rental and list management partners. The difference is this --- in the past, the lists you selected determined your long-term merchandise assortment --- as you acquired customers from your competitors, you ultimately evolved your merchandising assortment along with the interests of the customers shopping your competitors.

Under Abacusification, the co-op statistician drives the evolution of your merchandise assortment.

There may be nothing wrong with having a co-op statistician have this much influence over the direction of your brand --- you may find the evolution to be more profitable than strategies you otherwise would have practiced. That being said, it makes business sense to have oversight into the practices of the co-ops you partner with. The co-op should be transparent, opening the books for you, showing you exactly how they determine who they decide to mail on your behalf, providing reporting that makes it perfectly clear who is being chosen.

Ok, your turn. What have you learned when you've analyzed your customer file in this manner? How often do you produce this reporting? How do you manage this challenge? Or do you view all of this as bunk?

For Best Customers, The Merch Curse Is "Worse"

We talked earlier about The Curse of Great Merchandise.

Frequently, the curse is even worse among the best customers you have.

In this query, I grade each customer, just like in school, based on life-to-date purchases. Look at the results:

By Customer Grade	Classic Products	Newer Products
Customer Grade = A	65.0%	35.0%
Customer Grade = B	48.0%	52.0%
Customer Grade = C	42.0%	58.0%
Customer Grade = D	39.0%	61.0%
Customer Grade = F	31.0%	69.0%
First Time Purchasers	37.0%	63.0%
Totals	53.5%	46.5%

The percentages skew even worse among the very best customers. The very best lifetime customers are most likely to keep purchasing the same merchandise you've always offered.

So think about this problem, multichannel CEOs. When you want to move your brand in a different direction, your very best customers are going to be the ones that are most likely to resist your direction.

What to do?

If your business is failing, and you want to try a different merchandise assortment, create two versions of a catalog. For your very best customers, send them what you've always sent them, protect your sales. For your "Bs", "Cs", "Ds" and "Fs", you test your new strategy --- these customers are the ones most likely to embrace newer merchandise. New customers might accept new product, I'd test them in either version.

For your website, if you have the ability to create two versions of landing pages or home pages, merchandise them differently based on the customer who visits.

For e-mail, you have huge testing opportunities among your "Bs", "Cs", "Ds" and "Fs". Try anything/everything here ... your risk is so minimal, given that probably 1 in 1,500 of these folks even bother to purchase from an e-mail.

Business leaders --- keep the merchandise curse top-of-mind, when thinking of taking your brand in a new direction.

The Curse Of Great Merchandise

E-commerce, catalog, retail and multichannel merchants focus more energy on merchandise than on customers. As disappointing as this may be to customer advocates, vendors and research organizations, it is probably a necessity.

Many find the customer/merchandise relationship akin to the chicken/egg relationship.

In reality, there are few brands that start with a throng of customers, then question what they should sell to the throng. Brands start with a merchandise offering, then build a community of customers who purchase the merchandise/experience offered by the brand.

Some brands are wildly successful. They offer merchandise that customers love. This audience becomes the "core customer audience". Customer advocates suggest you don't anger the core customer.

And yet, merchandise has a life expectancy. Merchandise eventually becomes unpopular, or no longer has utility.

This is the curse of great merchandise. Your best customers want you to keep offering the merchandise your best customers fell in love with. Take the latte away from the Starbucks customer, and you'll have a mutiny.

When you have a moment, have your business intelligence team run this query for you. This is a very common relationship among e-commerce, catalog, retail and multichannel brands.

Percentages By Customer Acquisition Year
		Year Merchandise Was Introduced
When Acquired	Old Products	Recent Products	New Products	Grand Totals
Long-Time Customers	64.0%	28.0%	8.0%	100.0%
Recently Acquired	46.0%	38.0%	16.0%	100.0%
Newly Acquired	37.0%	40.0%	23.0%	100.0%
Grand Totals	53.5%	33.3%	13.2%	100.0%

In this example, the most loyal customers, those with the brand the longest, spent sixty-four percent of their 2007 sales on old products, products introduced to customers more than four years ago. They only spent eight percent of their sales on products introduced during 2007.

Recently acquired customers, those acquired two to four years ago, strike a balance across product offerings.

New customers, those acquired in 2007, are much more willing to purchase new merchandise, merchandise offered for the first time in 2007.

This is a huge challenge for the direct-to-consumer CEO, especially if the brand is struggling.

If the CEO elects to offer a lot of new product, the core customer group will be offended, lowering annual sales, response rates, and conversion rates.

If the CEO focuses on best merchandise, the core customer group is pleased, but new customer acquisition struggles, hurting the long-term potential of the brand.

Each week/month, the e-commerce, catalog, retail or multichannel CEO should receive a report that illustrates the customer segments who purchased each item offered to consumers. By scrutinizing the customers who prefer each item, the CEO knows just how far s/he can push new merchandise to customers. By understanding how best customers interact with new merchandise, the CEO can hopefully avoid the curse of great merchandise.

The Writers Strike And Multichannel Employees

You might not think there's a link between the tentative end of the writer's strike and multichannel employees. I think there are many parallels.

Writers wanted to make sure that they were compensated as the business model they helped build moves online. Because they are represented by a union, they were able to halt their industry, allowing negotiations that protected their future.

Conversely, retail, catalog and online multichannel employees are not unionized. And look at what is happening across our industry. Merchants, catalog marketers, inventory managers and copywriters are being displaced by technology, though we're frequently told that the macro-economic environment is to blame.

Displaced workers now contact me, asking about the future of our industry.

We can speculate about a few things that could happen down the road:

• Internet technology will eliminate retail jobs as consumers shift a small minority of purchases online.
  
• Internet technology will eliminate call center jobs.
• Multichannel integration will cause the elimination of white collar jobs.
• Catalog jobs (especially customer acquisition jobs) will be eliminated by green initiatives.
  

Since we won't have the power of a union to defend folks in our industry, we'll need to protect ourselves. We need to add relevant industry experiences to our resume.

Employees who have been displaced, or who might be displaced in the catalog and retail marketing fields might consider the following:

• Volunteer to help a non-profit or startup execute/measure e-mail campaigns or paid search programs.
• Start a small, humble little blog, in order to learn all about SEO and social marketing.
  
• Leave your big-company job, and acquire relevant skills at a smaller company.
• Attend web analytics conferences, and learn the craft. Install Google Analytics on your small, humble little blog, in order to get yourself oriented with web analytics.
  
• Go out on your own, providing services for businesses going through multichannel transition.

Obviously you'll have better ideas than I have. This is a really good time to build a skill set that prepares you for the future.

Multichannel Customer Value: A Case Study

Click on the image to enlarge it.

We make a lot of decisions on the basis of multichannel customers. And why not? Our industry leaders tell us our customers demand a seamless multichannel customer experience.

For me, frustration boiled over this past week, when industry leaders cheered J.C. Penney's decision to consolidate marketing and merchandising functions across channels.

When did it become so fashionable for industry leaders to cheer the loss of jobs, all in the name of operational efficiencies that allow vendors to profit from the sale of multichannel solutions?

The phrase that vendors, industry experts, research organizations, and trade journals most frequently use to promote a multichannel agenda is this one:

"Multichannel customers are the most valuable customers".

We now know that this statement isn't accurate. Business Intelligence teams that use fair queries, controlling for other factors, do not observe this relationship.

The analytics used to defend the statement are highly biased. The metric is backward looking, not forward looking. Analysts query a database, splitting customers into two groups --- those that purchased from multiple channels last year, and those who purchased from a single channel last year. Next, the analyst computes the mean of last year's net sales in each group.

By default, the multichannel group will have spent more. The query is designed to make this happen. A single channel customer is disproportionately skewed toward one purchase. A multichannel customer, by definition, had to purchase at least two times. This greatly biases the results of the query.

The bias benefits our entire vendor industry, from those offering inventory solutions to those promoting the use of paper advertising to those offering e-mail solutions to those promoting pay-per-click marketing to those providing website marketing products and services.

Now honestly, you might find that multichannel customers are your best customers. But it will be because your unbiased queries prove they are your best customers, not because somebody surveyed 849 customers and extrapolated the results to 300,000,000 residents of the United States.

What happens if we try to eliminate this bias?

The image at the start of this post illustrates future twelve month net sales, based on customer activity in the past twelve months for a client. Sure, this metric will be viewed by some as being biased. Maybe I'll spur a discussion that improves how we view our field.


Here's how you run the query.

Step 1: Identify all customers who purchased from your brand in 2006.

Step 2: Within this audience, select customers who were customers prior to 2006 (in other words, eliminate all new customers in 2006).

Step 3: Identify the top 25% cutoff point for spend in this audience in 2006. Say that amount is $350. Keep that amount in mind for subsequent analyses. Select only customers who spent at least $350.

Step 4: Within this universe of great customers, calculate the average number of channels the customer purchased in during 2006.

Step 5: Calculate the mean net sales spent by this audience in 2007. If a customer did not purchase in 2007, the customer spent $0.

Step 6: Repeat steps 1-5 for all prior years, using the $350 cutoff (or whatever your dollar cutoff is for really good customers) in each year you run the analysis.

Step 7: Plot average channels purchased from (x-axis) by mean net sales in the next twelve months (y-axis).

Step 8: Review your graph (the graph attached to this post).


If the experts are right, then this graph should have a linear relation, with future sales increasing as prior channels increase.

In this example, we don't observe a linear trend, do we? In fact, the correlation is negative. Among really good customers, years where there was high multichannel activity were followed by years of lower spend.

What caused increased spend? Merchandise productivity! When the brand offered great products, customers spent more. When the brand didn't have great products, customers spent less. Channels didn't play a significant role in increasing or lowering customer spend.

Our industry demands that we improve the multichannel customer experience, offering little proof that customers will spend more.

Data consistently tell us that when customers love the merchandise we offer, customers spend more.

Focus on merchandise, the main reason customers buy from your brand. Then allocate proportionately fewer resources to the vendor / expert / research / trade-journal agenda of multichannel excellence.

Seven Ways To Get Your CEO To Follow You

Ever had a good idea that just sat there, collecting dust?

There are many ways that effective leaders make things happen. And leaders aren't always executives. Leaders are people who have a vision, who get things done, and are able to get people to follow them.

Sometimes you need to get your CEO to follow you. Believe it or not, your CEO wants to follow you. She can't possibly come up with all the ideas on her own.

Here's seven ways to get your CEO to follow you.


Just Do It

I know of an employee who wanted to start a blog. This employee presented the idea to the executive. The executive turned the idea down. A day later, the executive asked the employee why the employee didn't just execute the idea, guide it to success, then ask for forgiveness? The executive couldn't possibly authorize the idea, but could have potentially saved the idea if it had been implemented and become successful without the knowledge of the executive.

Seasoned employees, those trusted by leadership, have a longer leash than those who are new to a company. Sometimes the idea needs to be implemented in order for leadership to understand the potential of the idea. The seasoned employee gains much by learning how to read the tea leaves.


Profit And Loss

Two employees have an idea. One has a beautiful powerpoint presentation, chocked full of facts and figures and market research. The other employee has a simple presentation, but presents two profit and loss statements --- one illustrating minimal risk, one showing a reasonable expectation of potential.

Over time, the latter presentation has more potential for success than the glitzy powerpoint presentation. Know your facts, but also know the profit and loss implications of your idea.


Budgets And Timing

Ideas are more likely to succeed at the start of a fiscal year, and at the end of a fiscal year. Your CEO has a budget for projects. At the start of the year, that budget is full of money. At the end of the year, especially if your company had a good year, there may be money left in the budget that can be spent. Time your presentations around the rhythm of your fiscal year accounting cycle.


Evangelize The Idea

Back in 2002, I was the VP of Direct Marketing at Nordstrom Direct, the catalog/online channel at Nordstrom. Our employees were divided. Some liked catalogs, and believed that catalogs were the reason the website was so successful. Others loved the online channel, and thought the catalog folks represented a fossilized group of old-timers.

I took a presentation "on the road". I scheduled meetings with every department at Nordstrom Direct, illustrating to every employee how the combined efforts of all team members contributed to a happy customer, reminding each employee that Nordstrom was about pleasing customers, not about in-fighting over which channel was most important.

Sometimes, you sell your idea to the masses, not to leadership. When the masses align on a concept, leadership falls in place.


Be Humble And Confident

Leaders listen to humble, confident employees. Leaders are turned off by arrogant employees.


Align With Leadership Objectives

Ideas that foot with leadership objectives have a far better chance of succeeding than ideas that do not, on the surface, help leaders accomplish their objectives. Your CEO wants to be successful, and will do what it takes to keep her job. Help her succeed, and you succeed in the process.


Leave

Is your idea really important to you? Instead of fighting a battle you can't win, find a company that believes in your idea, and become a happier employee in the process.

Forrester Research Survey On Green Direct Marketing

Last fall, you asked me to cover "green" issues in cataloging. We've had many good discussions, haven't we?

Today, Forrester Research analyst Dave Frankland asked direct marketers to participate in a survey on green direct marketing. Here is a link to the Forrester blog post, and here is a link to the survey. Let your voice be heard!

Required Multichannel Reading

I want to give you an opportunity to download required multichannel reading for folks wrestling with understanding multichannel customer behavior in the catalog, online, and retail industry.

Included in the document is a discussion of how we approached multichannel customer behavior and marketing strategies during my tenure at Nordstrom.

The document serves as the basis for the group discussion I'll lead on Multichannel Forensics at the F. Curtis Barry & Company Executive Forum, February 24-26.

What Would Happen If Each E-Mail Cost $0.05 To Deliver?

When I read what e-mail vendors/bloggers write, I feel pain. I witness folks wishing that the world was different, wishing that e-mail marketers "practiced" great techniques.

When I meet with real-life e-mail marketers, I feel pain. I witness folks who are understaffed, overworked, and underfunded, folks tired of being hounded by vendors/marketers/trade journals telling them they aren't good enough.

It's not a good system ... having one well-intending group badger another to do their best, only to have the other well-intending group not have the resources or incentives to do their best.

What if each e-mail cost $0.05 to deliver to an individual?

Look at pay-per-click. PPC marketers obsess about getting the most profit for the least cost. If you're going to pay $0.50 for 100 clicks ($50.00), you must get at least one order of $120 at a 50% gross margin just to have a fighting chance of profitable success.

Look at cataloging. Catalog marketers must get $2.00 a book in order to pay for the hefty $0.75 cost to print and deliver a catalog. Catalogers must get $5.00 a book to be highly profitable.

Pay-per-click and catalog marketers are driven to excellence because they have no choice ... the cost of marketing is so expensive that performance must be outstanding, or the craft cannot even exist.

E-mail marketers do not have this hurdle. Sure, there are fixed costs associated with e-mail ... but the same level of fixed costs exist in pay-per-click, and more prohibitive fixed costs exist in catalog marketing.

Instead, e-mail marketers can deliver a message for almost no variable cost per e-mail delivered. This really works against everybody in the e-mail, online, catalog and retail marketing channels.

What if each e-mail cost $0.05 to deliver to an individual?

• If each e-mail cost $0.05 to deliver, the e-mail marketer would need maybe $0.15 to $0.20 per e-mail to cover the cost of goods, pick/pack/ship expense, and e-mail delivery expense just to break even!

• If we had to get $0.15 to $0.20 per e-mail just to break even, we would quickly segment our entire e-mail list into best customers, marginal customers, and unprofitable customers. We wouldn't have a list that we blast messages to. We'd have meaningful segments of customers, and we would plan the sales and profit we'd expect from each segment. Yes, we'd run a profit and loss statement on each segment for each e-mail we deliver ... and we'd do this 50 or 100 times a year.
  

• The performance of unprofitable customers would prohibit us from mailing them, allowing us to adhere to the advice of the e-mail vendor/blogger community.

• The performance of marginal customers would prohibit us from mailing them multiple times per week, allowing us to adhere to the advice of the e-mail vendor/blogger community, allowing us to not "over-mail" or "spam" customers.
  

• The sales loss from not mailing unprofitable and marginal customers would drive us to maximize the productivity of best e-mail customers, causing us to demand sales increases.

• In order to improve the productivity of best e-mail customers, we would send multiple versions of e-mail campaigns to multiple customers, based on the merchandise and personal preferences of each customer.

• In order to improve the productivity of best e-mail customers, we would send trigger-based e-mails at the times each individual e-mail customer was most likely to buy something. The message would be targeted and relevant because it had to be targeted and relevant to offset the cost and cause a sales increase.
  

• In order to improve the productivity of best e-mail customers, we would experiment with creative presentation and merchandise assortment. We'd be driven to discover best practices, not simply follow best practices.

• To measure the profitability of our experimentation, we would implement dozens or hundreds of mail/holdout tests annually. We would be required to prove that our new strategies truly drive incremental sales across phone, website and retail channels.

• The mail/holdout groups would teach us so much more about true incremental sales and true incremental profit (across all channels, not just online) that we'd become skeptical of our traditional click-through and conversion rate metrics for evaluating online performance.
  

• By learning the association between featured merchandise and what customers actually purchase across channels, we'd create customized and personalized campaigns that drive the customer to do whatever the customer wants to do, not simply what we want the customer to do.

• By being required to achieve excellence, we'd earn a seat with our leadership teams, helping leadership appreciate the incremental sales and incremental profit driven by e-mail marketing. We wouldn't be seen as that free channel that generates a measly $0.10 per e-mail delivered.

• By delivering e-mail campaigns that actually generate $0.50 or $0.75 or $1.00 per e-mail delivered, we could focus on replacing catalog marketing (expensive) with e-mail marketing (much less expensive), saving trees, helping the environment, reducing expenses.

Right now, none of this is likely to happen, because the incremental cost to deliver an e-mail is too low. At such a low cost, the fundamental laws of direct marketing are not yet applied to e-mail in a meaningful way.

In the catalog industry, we desperately need e-mail marketing to generate enough sales to offset the catalog sales we'll eventually lose due to environmental concerns. We're nowhere close to being there today. I'd like to have a reason to feel optimism. Maybe the reason for optimism is a true incremental cost to deliver an e-mail to a customer.

Need A Multichannel Database Marketer? Macy's Just Fired A Boatload Of Folks

2,300 white collar jobs is ... substantial.

Survey Results: What Will E-Mail Marketing Look Like In 2015?

Please visit the homepage for this week's survey about Catalog Choice.

About a third of The MineThatData Blog are e-mail advocates. That's what makes the results of this survey so interesting.

Question: What Will E-Mail Marketing Look Like In 2015?

• 24%: E-Mail continues to be a campaign-based branding and promotional tool.
• 8%: E-Mail becomes a trigger-based targeting strategy that increases sales among engaged consumers.
• 56%: E-Mail evolves in ways we cannot yet forecast.
• 12%: E-Mail marketing is a craft that is irreparably harmed by spam, over-mailing, and/or better technology.
  

Very few of you believe e-mail marketing will continue in its current form, even though so many of you actively practice this form of e-mail marketing.

Even more interesting, almost nobody believes what many e-mail pundits tell us e-mail should become, a personalized, trigger-based targeting system.

More than half of you think e-mail will evolve in some way that we cannot yet forecast.

Care to offer your opinion as to how you think e-mail marketing will evolve?

E-Commerce And Catalog Management Case Study: Optimal Profitability

So far, we've studied numerous aspects of a failing e-commerce/catalog business:

• Profit And Loss Statement of the Failing Business.
• Operational Management
• Managing P&L Details
• Comparable Segment Performance

In the final installment of this series, let's extend the analysis, and review the ways in which customer investment influences the profit and loss statement.

When a business is struggling, it is common for the executive team to reduce marketing investment. When a business is thriving, it is common for the executive team to increase marketing investment.

Changes in marketing investment (which, in reality, is a change in investing in customers) cause short-term and long-term ramifications.

Let's assume that the business we've been analyzing can return to good operational profit performance --- in other words, the business does a reasonably good job of fulfilling merchandise, minimizing returns, increasing gross margin, and reducing pick/pack/ship expenses.

We can simulate the short-term and long-term impact of different investment strategies (this is the essence of a Multichannel Forensics project).

In the table below, I outline this year's Earnings Before Taxes (EBT) as a function of how much we invest in each twelve-month buyer, and as a function of how much we invest in acquiring new customers and reactivating older customers.

Maximize Profit This Year
12 Month
Investment		Customer Acquisition Investment
per Buyer	$600,000	$1,050,000	$1,500,000	$1,950,000
$6.00	$1,091,000	$1,011,000	$857,000	$661,000
$9.00	$1,115,000	$1,035,000	$882,000	$686,000
$12.00	$1,098,000	$1,018,000	$864,000	$668,000
$15.00	$1,051,000	$971,000	$818,000	$622,000

Which combination yields the most profit? If our brand invests $9.00 of marketing in twelve-month buyers, and invests $1,050,000 in new/reactivated customers, EBT is maximized.

This is where those of us in e-commerce/catalog typically stop our analysis. We simply look to "optimize" current year profitability, smile, create an investment plan, and move on.

Let's take the analysis a step further. Why don't we look at the EBT of this business in five years, given each of the sixteen strategies we just reviewed?

Maximize Profit Five Years From Now
12 Month
Investment		Customer Acquisition Investment
per Buyer	$600,000	$1,050,000	$1,500,000	$1,950,000
$6.00	$261,000	$388,000	$400,000	$346,000
$9.00	$339,000	$479,000	$501,000	$457,000
$12.00	$382,000	$529,000	$556,000	$515,000
$15.00	$399,000	$546,000	$574,000	$534,000

Which strategy is best in five years? It appears that investing $15.00 in twelve-month buyers, coupled with an investment of $1,500,000 in new/reactivated customers yields the best EBT/profit.

I can count on one hand the number of catalog/e-commerce businesses that I've seen simulate the long-term impact of short-term investment decisions. Sure, some businesses calculate "Lifetime Value". Even among those businesses, the calculations are rarely plugged into a simulation that measures short-term and long-term EBT.

The CEO should be given a series of simulated results, results that help the CEO determine the best short-term and long-term profit paths based on existing and new/reactivated customer investment strategies. Owners and Boards should always have ample access to simulated business outcomes, and should actively shepherd growth of the brand on the basis of simulated results.

Here is what happens to the long-term trajectory of this brand, when maximizing short-term results.

• Year 5: Demand = $20,400,000, EBT = ($259,000).
• Year 6: Demand = $17,300,000, EBT = $1,073,000.
• Year 7: Demand = $16,100,000, EBT = $813,000.
• Year 8: Demand = $15,600,000, EBT = $659,000.
• Year 9: Demand = $15,400,000, EBT = $548,000.
• Year 10: Demand = $15,300,000, EBT = $450,000.

Conversely, here is what happens to the long-term trajectory of this brand, when maximizing long-term results.

• Year 5: Demand = $20,400,000, EBT = ($259,000).
• Year 6: Demand = $21,400,000, EBT = $818,000.
• Year 7: Demand = $21,600,000, EBT = $774,000.
• Year 8: Demand = $21,800,000, EBT = $718,000.
• Year 9: Demand = $21,900,000, EBT = $651,000.
• Year 10: Demand = $22,000,000, EBT = $574,000.

The CEO has interesting challenges ahead.

The most profitable route is to shrink the business by about fifteen percent. However, this strategy constrains long-term profitability.

Conversely, the CEO can operate under tepid to flat growth, resulting in a healthier business in the long-term.

Regardless, marketing is not going to drive sales increases. Merchandise productivity will have to significantly increase, in order to drive improvements in sales and profit.

Let's try an example. Say the leadership team is able to increase customer demand for merchandise by fifteen percent. Now look at what happens when we try to maximize long-term profit:

• Year 5: Demand = $20,400,000, EBT = ($259,000).
• Year 6: Demand = $24,700,000, EBT = $1,692,000.
• Year 7: Demand = $25,900,000, EBT = $1,801,000.
• Year 8: Demand = $26,700,000, EBT = $1,829,000.
• Year 9: Demand = $27,100,000, EBT = $1,810,000.
• Year 10: Demand = $27,400,000, EBT = $1,758,000.

Wow!

In other words, the leadership team can play with investment in customers/marketing, significantly improving the profitability of this brand. But if the merchandising folks can find product that customers like fifteen percent more than prior products, the profit and loss statement sings a beautiful tune!

Armed with this information, the new CEO is likely to require the following of this e-commerce/catalog brand.

• Objective: Improve final merchandise fulfillment to at least 93.0%.
• Objective: Reduce the return rate to 25.0%, or lower.
• Objective: Target a gross margin of at least 50.0% or better.
• Objective: Reduce the pick/pack/ship expense to 11.5% or less of net sales.
• Objective: Improve merchandise productivity by at least 15%.
• Objective: Invest $15.00 marketing expense per twelve-month buyer.
• Objective: Invest $1,500,000 marketing expense in new/reactivated buyers at the most efficient cost per new customer possible.
  
• Objective: Grow net sales to at least $24.5 million on an annual basis.
• Objective: Increase EBT to at least $1.7 million, about 10% of net sales.

Realistically, it will take two years for the brand to implement the steps necessary to achieve lofty objectives like these.

In theory, every executive, director, manager and analyst should be accountable for at least one of these objectives. The new CEO gives the entire team a two-year timeframe for making this happen, demanding significant progress during year one.

And that, ladies and gentlemen, concludes our case study! Your thoughts?

E-Commerce And Catalog Management Case Study: Comp Segment Performance

Please click on the image to enlarge it.

We recently discussed how business leaders can improve business performance by focusing on key metrics like Final Fulfillment, Return Rate, Gross Margin, and Pick/Pack/Ship expense.

The catalog/e-commerce CEO sets objectives designed to drive improvements in these metrics.

Next, the business leader focuses on understanding if customers are truly spending more, or have curtailed spend over the past several years.

"Comp Segment Performance", something I learned about at Eddie Bauer back in 1996, is one of the better ways to analyze this issue. And there are an infinite number of ways to look at comp segment performance.

The process generally involves finding a segment of good customers, those in the top 25% to 35% of your customer file. Once you identify the segment, compare metrics like repurchase rate, spend per repurchaser, total revenue, and total profit on an annual basis, over the past five years.

Conversely, look at campaign-based catalog metrics like response rate, average order size, dollar per book, and demand per thousand pages circulated across a comp catalog over the past five years. In e-mail marketing, review open rates, click-through rates and conversion rates in comparable campaigns over the past five years.

In our example, management chose to look at annual metrics. Here is what total revenue looked like (indexed so that 1.00 is average):

• Five Years Ago = 1.00
  
• Four Years Ago = 0.90
  
• Three Years Ago = 0.97
  
• Two Years Ago = 1.05
  
• One Year Ago = 1.00
  

Notice that comp segment performance was roughly "average" last year. In other words, even though the brand experienced a terrible year, actual customer productivity is "average".

This suggests that the CEO does not have a serious merchandise issue to address. The CEO needs to focus on key operational issues, or needs to carefully review the marketing/advertising investment strategy.

Comp Segment Performance is an important component in the catalog/e-commerce CEO toolkit. All business leaders should have comp segment performance metrics readily available, produced on a monthly basis.


Homework Assignment: Review the following series of metrics. Which metric seems to have a disproportionate influence on the profitability of our brand?

	Demand to	Comp	Marketing	Profit /
	Profit	Segment	Expense	EBT
5 Years Ago	0.269	1.000	$3,000,000	$660,529
4 Years Ago	0.235	0.900	$3,150,000	($315,375)
3 Years Ago	0.219	0.970	$2,235,797	$63,008
2 Years Ago	0.235	1.050	$2,013,020	$550,175
1 Year Ago	0.244	1.000	$3,780,004	($258,027)

The Aberdeen Group Openly Belittles Catalogers

On the Multichannel Merchant website, Aberdeen Group Analyst Jeff Zabin has this to say about catalogers in this article:

Reflecting on Al Gore’s recent acceptance of the Nobel Peace Prize for his tireless work in raising international awareness of global climate change, and opening my mailbox to discover yet another deluge of post-holiday merchandise catalogs, I can’t help but think about the environmental impact of the direct mail industry.

Each year, more than 100 million trees are destroyed, three million cars’ worth of energy is consumed and reprehensible-by-any-measure amounts of greenhouse gas is emitted into the atmosphere—all in the name of producing, distributing and disposing of direct mail solicitations.

The Aberdeen Group is owned by Harte-Hanks, a company that provides products and services that enable catalogers to distribute direct mail solicitations. The brand that published this article is Multichannel Merchant, co-sponsor of the ACCM conference, formerly known as "The Catalog Conference", the "largest conference for catalog, internet and multichannel merchants".

These are odd times ... organizations that have made millions of dollars of sales/profit on the backs of healthy catalogers now publicly belittle the very brands they profit from.

Giving Away Information For Free

After writing about how catalogs drive sales for retail events, I was asked by a loyal reader, "Why don't you charge people for this, don't you think people would pay for this information?".

Honestly, our industry is struggling right now. We need to improve the performance of the brands we manage. We're not getting the kind of honest, actionable information from industry leaders, vendors, research organizations, and trusted advisers that we truly need. There are certain multichannel facts that should be understood by all in our industry, not hidden in a secluded monetization chamber. And then there are other facts that are proprietary.

In my opinion, here's a pretty good example of sharing important information, without going too far --- from Terry Jukes, published on the Catalog Success website.

Maybe the question should be asked of you, the loyal MineThatData reader.

1. Where should a vendor, research organization, industry leader, trusted adviser, consultant, or blogger draw the line between giving away information for free, vs. charging for information?
2. Who in our industry does a good job of sharing useful information without hurting monetization efforts?

Spring NEMOA Conference: March 12-14

Those of you in the catalog industry have an opportunity to attend the Spring NEMOA Conference, March 12-14 at the Royal Sonesta Hotel in Cambridge, MA.

NEMOA conferences are different than your average conference. The focus of the conference is on you, the catalog employee. You won't be forced to visit an exhibit hall packed full of vendors promoting the latest multichannel solutions. You'll hear from actual practitioners and respected industry veterans. You won't be pitched by vendors.

This year, you'll hear from Ken Burke, Alan Rimm-Kaufman and Brian Rainey of Abacus/Epsilon, among others. And you'll enjoy Thursday dinner at Fenway Park.

Downturns in the economy provide opportunities to learn. Put the Spring NEMOA conference on your agenda --- and save $50 if you register before February 18.

Mistake In The Multichannel Forensics Book: Figure 8.1

One of our loyal readers pointed out the Figure 8.1 in the Multichannel Forensics book is incorrect.

The image here (please click to enlarge) is what the actual image should look like.

Thanks for your attention to detail, folks, and my apologies for the incorrect figure in the book.

When Is The Best Time To Send A Catalog To Support A Retail Event And Drive Multichannel Sales?

Please click on the image to enlarge it.

I'm often asked what the best timing is for sending a catalog that supports a retail event. Here are a few guidelines for you to consider.

Let's assume you want to mail a catalog to support a retail event.

First, identify (via test and holdout groups, not via matchback analytics) the channel that benefits most from the mailing of a catalog. If the channel is the telephone channel, you'll probably have to mail the catalog at least three weeks ahead of the event, with a Monday/Wednesday in-home date. If the channel that benefits the most is the retail channel, you'll probably have to mail the catalog 1-2 weeks ahead of the event, with a Wednesday/Friday in-home date.

Similarly, you ask yourself who the majority of customers receiving this mailing are. Catalog/Online customers prefer Monday/Wednesday in-home dates, while Retail customers prefer Wednesday/Friday in-home dates.

The combination of these questions yields a matrix that tells you when to send the catalog, and tells you the expected performance of the catalog on a grading scale of "A" (excellent) to "F" (poor).

In many cases, the management of the dominant channel in your brand will require you to execute your mailing to give their channel the best chance of success. The grid helps explain the impact of compromise --- one of the things that multichannel pundits don't talk about much --- the fact that compromises to accommodate channels reduce the overall ROI of a catalog campaign.

February Good News

We read an awful lot about the economy heading into a deep slumber. So let's start February with good news! Urban Outfitters increased direct-to-consumer sales by 39% during the holiday season.

Regardless of economic conditions, compelling merchandise always drives sales increases.

E-Commerce And Catalog Management Case Study: Managing Details

Please click on the image to enlarge it.

Yesterday, we demonstrated how the little details make a big difference in the profitability of an e-commerce or catalog brand.

Unfortunately, few of us get to be a CEO, few of us get to learn this valuable lesson.

In our example, there are four metrics that require significant attention. Let's review each metric.


Merchandise Fulfillment Rate

This rate represents the percentage of merchandise a customer asked for that the merchant was able to deliver to a customer. Take a customer who orders over the telephone. She asks for three items, but only two are available, one item is sold out. The merchandise fulfillment rate is 2/3 = 67%.

The CEO uses this metric to understand how effective the inventory management team is at satisfying customer demand. If an item sells out, and the inventory manager is somehow able to procure additional merchandise, then everybody benefits.

There are problems with this metric. When business is bad, merchandise is always available. When business is great, merchandise is never available! So to some extent, the metric has an inverse relationship with brand success.

Online brands often fail to understand the importance of this metric. Customer advocates preach that online brands should "pull down" items that are sold out, so that the customer is not disappointed. It's great that a customer should not be disappointed, but it is terrible for next year's customer, because the inventory manager doesn't learn how much s/he "could have" sold.


Return Rate

Return rate measures how much merchandise is returned to the brand by the customer. This metric plays a disproportionate level of influence in the profitability of an e-commerce or catalog brand. A new CEO will look into different ways that return rates can be lowered. Are there indirect reasons why the rate increased, like merchandise preference skewing from low-returns items to high-returns items? Or are there direct reasons why the rate increased, like quality being lowered in order to improve gross margin?

Each brand has a return rate that is typical for the business model the brand manages. Within this range, brands can succeed or fail. The new CEO will try to eliminate the failures in returns, since every item that is not returned drives increased profit.


Gross Margin

Gross margin represents the difference between what a customer paid for an item, and the cost the brand paid for the item. Take a $100 item that the brand paid $40 to acquire. The gross margin is (100 - 40) / (100) = 60.0%. Now, take a $100 item that is on sale for $60. The gross margin is (60 - 40) / 60 = 33.0%.

Gross margin has a disproportionate influence on the profit and loss statement. When a business is failing, the CEO is required to liquidate or discount merchandise, in order to get rid of it. Consequently, gross margin will be low. When a business is succeeding, it can charge a premium for merchandise, driving up the gross margin.

Gross margin is also a reflection of the ability of the inventory management team to accurately forecast sales trends. When the inventory management team buys too much merchandise, regardless of business trends, merchandise must be liquidated, lowering the gross margin rate.


Pick / Pack / Ship Expense

This metric does not receive enough attention, yet is also important to the profitability of a brand.

This metric is defined as the cost to pick, pack and ship merchandise to a customer as a percentage of net sales. For instance, if a brand spends $10,000,000 delivering merchandise to your home, and generates $80,000,000 net sales, the rate is (10,000,000 / 80,000,000) = 12.5%.

Outstanding catalog and e-commerce brands drive this rate down relentlessly, via automation and efficiency. Other brands look for low-cost solutions, or look for shipping and handling revenue to offset delivery costs. Ultimately, automation and efficiency result in lower rates, and increased profit.


The new CEO will focus on these four metrics, seeking to drive all of these metrics toward historical best performance. The best leaders realize that as much as half the reason a catalog or e-commerce brand fails is due to mismanagement of these four simple metrics.