Two More Catalog Brands Are Using Social Media

For those of you who enjoy seeing how our industry leverages social media, here's two more examples for you:

• Gardener's Journal, from Gardener's Supply Company.
• Bakers' Banter, from King Arthur Flour.
  

Promoting Non-Competing Brands In E-Mails, Catalogs, And Homepages

Alaska Air used their e-mail channel to promote a wine club.

REI is promoting ten songs in a recent e-mail campaign.

Per Alan Rimm-Kaufman, Wal-Mart ran ads for Presidential candidates on the homepage.

We used to be known as catalogers or retailers. Then we were labeled "multichannel". And now we're slowly becoming media companies.

When we become a media company, we have a new set of responsibilities. We ask ourselves new questions. Maybe the most important question is "What is the nature of the relationship between customer and brand?"

If the customer and brand jointly believe that it is acceptable for the brand to introduce wine and music to the customer, then the brand can further monetize the customer relationship, and the customer can theoretically benefit from new offers.

More important, we cannot trade short-term revenue for long-term customer mistrust.

Increasingly, we're going to be asked for access to an e-mail list of a million customers, or for access to a mailing list of four million customers --- we're no different than a network television executive looking to monetize a thirty second spot on The Office. We have an audience, we're like a television or cable channel. Brands want to get a message in front of our audience. Do we protect our customers, or do we open the door? And when we open the door, do we open it a crack, or is it wide open?

And as response rates plummet, the temptation to take the money will become greater.

Executives and customers will have to make joint decisions here, decisions that shouldn't be made solely in a board room.

Twenty-Seven Questions For A Multichannel Marketing Candidate

In 2009, some multichannel marketers are going to have to find new jobs. Others will have to filter a veritable plethora of candidates.

If you are an interviewer, or you are looking for a job, you might want to be prepared to ask/answer these questions.


Question #1: Do you think "CRM" if a four letter word?

Question #2: You send a weekly e-mail campaign to your opt-in audience. Your inventory executive wants to add a monthly "outlet" campaign to clear merchandise, one not integrated with those executed by the marketing department. Explain the reasons why you would or would not allow this new monthly campaign to exist.

Question #3: The merchandising team is upset because each merchandising leader does not get to feature merchandise equally on the homepage. Some of the merchants are being pressured into improving sales productivity by the CEO. Should their under-performing merchandise get more access to the best real estate in the company, the home page?

Question #4: Describe the marketing strategy you would employ with a customer who lives in Butte, Montana, far away from retail stores.

Question #5: Describe the marketing strategy you would employ with a customer who lives in a condo off of Michigan Avenue in downtown Chicago.

Question #6: What is the role of a catalog marketing program in a modern multichannel brand?

Question #7: Your CEO wants to decide where additional money should be spent, either retaining existing customers, or finding new customers. What metrics and facts do you need to determine where to spend marketing dollars?

Question #8: Thirty percent of demand flows-through to profit. Your marketing program generated $100,000 in sales, and costs $40,000 to execute. Was the marketing program profitable?

Question #9: Under what circumstances are you willing to lose money on a marketing program?

Question #10: Should all channels look and feel the same, offering the same prices and promotions and merchandise? Explain your answer.

Question #11: Describe one company that is what you would call an "excellent" multichannel marketer. What is it that is "excellent" about the marketing this company does?

Question #12: Describe one company that is what you would call an "excellent" single-channel marketer. What is it that is "excellent" about the marketing this company does?

Question #13: Is it important for a company to employ industry-standard "best practices"?

Question #14: Describe what innovation means to you in multichannel marketing?

Question #15: Your retail channel generates $10,000,000 in net sales a year, and $200,000 profit. Your online channel generates $2,000,000 in net sales a year, and $200,000 profit. Should your marketing efforts focus on improving retail productivity, on growing a profitable online channel, or growing the overall brand? Describe your thought process.

Question #16: Your CEO wants for you to execute an e-mail campaign where you sell your opt-in e-mail list merchandise from a non-competing company that wants to pay your company $300,000 for access to your list. Your company is losing money. Will you execute the wishes of your CEO, or are you willing to lose your job to not violate e-mail marketing best practices?

Question #17: You work for a company that has a catalog advertising channel, an online channel, and a retail channel. Your web analytics guru tells you that paid search campaigns generated a 4.386% online conversion rate in the month of September. Assuming all online data is tabulated in your web analytics package, was your company-wide conversion rate 4.386%?

Question #18: If you know that multichannel customers are the best customers, are you willing to shut down what appears to be an unprofitable channel, knowing that the decision is likely to disappoint your best customers? Why?

Question #19: Describe the skills that a Chief Marketing Officer needs to have to be an effective multichannel marketer.

Question #20: Describe what metrics are needed to illustrate that your company is doing a great job of multichannel marketing.

Question #21: Would you accept advertising from non-competing brands on your homepage? Why or why not?

Question #22: Is the purpose of a website to drive traffic to a retail store, or to convert visitors into e-commerce buyers? Can a website do both? How?

Question #23: If e-mail marketing drives $0.20 per e-mail delivered, while paid search generates $2.00 per click, is e-mail marketing effective? What is the role of e-mail marketing in a multichannel brand?

Question #24: How would you lead employees who have two decades of experience in old-school marketing techniques like cataloging, compared with employees who have a few years of experience, but the experience is in online marketing or social media? What role do each set of skills play in your organization?

Question #25: Should social media efforts drive a positive return on investment? If you answer no, describe your thoughts.

Question #26: Describe the role of radio advertising, newspaper advertising, and television advertising in a modern multichannel brand.

Question #27: Describe the role of mobile marketing in a modern multichannel brand.

Database Marketing Outlook For 2009

I'm asked a lot of questions by direct marketing CEOs and Executives about where I think the future of our industry is heading. I've prepared a presentation for our business leaders, now you can download this presentation for free.

Outlook 2009, The Year Ahead: By Kevin Hillstrom, 42 Slides, PDF Format

Williams Sonoma: WOW!

Have you had a chance to read this press release from Williams Sonoma yet?

Comp store sales of -26.6% for the month of October? Are you kidding me? We're looking at a -9% comp in Q1, -8% in May, -14% in July, -20% in September, and almost -27% in October.

Direct-to-consumer revenue is down as well.

Brands have a habit of canning a lot of employees when this happens. There aren't enough variables in a retail environment to improve profitability without bouncing hard-working individuals who did not cause this business downturn.

We know that catalog volume was seriously cannibalized by the inception of the internet, we know that internet volume is thwarted by store expansion, and now we have a dominant retail channel that cannot "flex" when the economy implodes.

What happens if comps are down by 20% for a full year, especially when a brand is in "hybrid mode"? Take a peek at the Multichannel Forensics simulation below --- one where a brand goes -20% for a year, then sees all metrics return to normal for the next four years.

Multichannel Forensics: Scenario #1
	Year 1	Year 2	Year 3	Year 4	Year 5
Buyers	100,000	110,000	115,000	117,500	118,750
Repurchase Rate	50.0%	50.0%	50.0%	50.0%	50.0%
Retained Buyers	50,000	55,000	57,500	58,750	59,375
$ / Buyer	$325.00	$325.00	$325.00	$325.00	$325.00
Total Demand	$16,250,000	$17,875,000	$18,687,500	$19,093,750	$19,296,875
Newbies	60,000	60,000	60,000	60,000	60,000
$ / Newbie	$175.00	$175.00	$175.00	$175.00	$175.00
Total Demand	$10,500,000	$10,500,000	$10,500,000	$10,500,000	$10,500,000
Total Buyers	110,000	115,000	117,500	118,750	119,375
Total Demand	$26,750,000	$28,375,000	$29,187,500	$29,593,750	$29,796,875
Spend / Buyer	$243.18	$246.74	$248.40	$249.21	$249.61
Multichannel Forensics: Scenario #2
	Year 1	Year 2	Year 3	Year 4	Year 5
Buyers	100,000	90,000	105,000	112,500	116,250
Repurchase Rate	45.0%	50.0%	50.0%	50.0%	50.0%
Retained Buyers	45,000	45,000	52,500	56,250	58,125
$ / Buyer	$300.00	$325.00	$325.00	$325.00	$325.00
Total Demand	$13,500,000	$14,625,000	$17,062,500	$18,281,250	$18,890,625
Newbies	45,000	60,000	60,000	60,000	60,000
$ / Newbie	$175.00	$175.00	$175.00	$175.00	$175.00
Total Demand	$7,875,000	$10,500,000	$10,500,000	$10,500,000	$10,500,000
Total Buyers	90,000	105,000	112,500	116,250	118,125
Total Demand	$21,375,000	$25,125,000	$27,562,500	$28,781,250	$29,390,625
Spend / Buyer	$237.50	$239.29	$245.00	$247.58	$248.81
Change In Demand	-20.1%	-11.5%	-5.6%	-2.7%	-1.4%

When in hybrid mode, like many retailers are, one bad year causes another two years of sub-standard performance. Even though metrics return to "normal", the loss in file power causes a hangover.

When a business plummets like this for a second year, the results are catastrophic --- a -20% expectation in year two becomes a 29% decrease due to file weakness, followed by -16% in year three, -8% in year four, and -4% in year five.

The more loyal the customer base, the longer the hangover is. Brands in acquisition mode bounce back much faster.

This is why I am hopeful that you will, when possible, keep the gas pedal on customer acquisition during a downturn --- we don't want to crush the future to minimize pain today.

We're facing a challenge that is going to be with us for several years. The more "catalog focused" a brand is, the more able the brand is to flex expenses without catastrophic consequences. As a brand migrates online, flexing becomes harder. When a brand goes into retail, the brand goes into the world of fixed costs --- a fixed cost retail brand cannot tolerate -26% comps without eliminating expense. Guess who represents "expense" in a retail environment.

Gotta love multichannel retailing.

J. Crew Traffic Up 64% On Tuesday

Michelle Obama appeared on The Tonight Show on Monday night, where she announced that her outfit was purchased at J. Crew.

According to CNBC and NY Daily News, traffic at http://jcrew.com increased by 64%, with traffic to the skirt that Ms. Obama wore increasing by 464%.

Here's a link to the outfit, courtesy of The Styleist.

J. Crew already had a paid search link up (no competition) on Google. The blogger willing to respond quickly also gets traffic.

It's a new, nimble world, a dynamic ecosystem rewarding folks who participate.

Final Pricing Strategy For Hillstrom's Zip Code Forensics

I received your feedback about Hillstrom's Zip Code Forensics, arriving at a final pricing strategy for the cutting-edge direct marketing zip code model segmentation strategy.

Beta Clients: Free, plus your own customized zip marketing model. Not too bad, eh?

Hillstrom's Zip Code Forensics: Free to those who contribute anonymous sales by zip code. Did you read that correctly? Yes you did! Free! FREE!

If you do not wish to contribute anonymous sales by zip code, the cost is $5,000 per year, a price that is dramatically cheaper than what you'll pay for PRIZM clusters/segments available from Claritas!

Did I mention that if you elect to contribute anonymous sales data by channel by zip code, you receive the product for free? Show me anybody else in the industry who is trying to help you through a challenging economic environment by offering something of significant value ... for free?

Hillstrom's Zip Code Forensics offer six segments that span all zip codes in the United States.

• Catalog Crazies: Zip Codes that have customers who crave catalog marketing and spend twice as much as the average zip code.

• Online Bliss: These folks are all about e-commerce --- spending nearly twice as much as the average zip code.

• Catalog Fans: Average performing zip codes with customers who like catalog marketing.

• Online Spend: Average performing zip codes comprised of consumers who prefer e-commerce.

• Catalog Preference: Urban and rural zip codes with customers who only spend 1/3 of the national average, skewing toward catalog marketing.

• Online Preference: Urban and rural zip codes with customers who only spend 1/3 of the national average, skewing toward e-commerce.

Based on results obtained from folks participating in the beta test of the product, e-mail marketers, direct marketers, and catalog marketers may experience profit increases when applying Hillstrom's Zip Code Forensics to lapsed customers (those who haven't purchased in more than a year) as well as prospect lists.

The chart at the end of this post illustrates the average improvement in performance across lapsed customers, if customers in the top two segments (catalog crazies and online bliss) are targeted.

If you are interested in participating, please contact me for instructions on obtaining the free version, or to purchase the $5,000 version without providing your anonymous sales totals by zip code by channel.

How The Economy Impacts Gap Comp Store Sales

Maybe you've heard about the implosion of capitalism? Banks did wild things, salaries didn't increase, we borrowed against our homes, and now the infection spreads across the globe.

The implosion of capitalism is reflected by the S&P 500 index. We can measure the change in S&P 500, year-over-year, and compare it with the year-over-year change in sales at the company we work for, year-over-year.

Let's use Gap as an example.

The image demonstrates a relationship (not perfect, but directional) between changes in the S&P 500 and Gap comp store sales.

If the S&P 500 drops by 20%, Gap comps drop by an average of 7%.

If the S&P 500 is flat, Gap comps drop by an average of 4%.

If the S&P 500 increases by 20%, Gap comps drop by an average of 1%.

The relationship only has an R-Squared of 31%. But this is good to know, folks!! It suggests that the economy is responsible for about 31% of the change in Gap comps, while issues controlled by Gap employees account for 69% of the change in Gap comps. In other words, Gap management plays a bigger role in the success of the brand than the economy plays.

Ultimately, this lousy economy drags Gap comps down by maybe six points.

As Executives, we have to communicate a message of hope to our employees. The goal should include a ten percent improvement, so that when the economy drives the business down by six points, we still achieve a four point increase. Improvement is achievable!

Every one of us can run this analysis for the businesses we work at. S&P 500 data is freely available, and our own annual sales performance (retail, online, telephone) is freely available. The x/y non-linear regression fitting software (Curve Expert) is freely available. Go analyze your business, and feel comfortable with the notion that you still control the destiny of your brand!

Books

This industry leader is frustrated with people like me who recently sent him an advance copy of a newly published book.

How would you inform people about your new book, when you know that Amazon won't promote it, and you know that Barnes & Noble and Borders have zero interest in carrying the book?

You tell me --- if you were me, how would you market the next book I write? What is an appropriate price point? What is an appropriate cross-channel platform (paperback, hardcover, e-book, mp3 audio, give away free digital copies but charge for dead-tree versions)? How would you market a modern book? Or are books finished, just write stuff on the blog and hope money magically arrives, or take the advice of the author and condense the message to 800 words in a trade journal?

If you like marketing books, here's a few from folks who've been very kind to me in the past.

• Web Analytics An Hour A Day, by Avinash Kaushik. A well-done book by a humble individual who donates the proceeds of the book to charity.

• The Numerati, by Stephen Baker.

• Best Practices In Multichannel Operations And Fulfillment, by Curt Barry. Curt and his team assembled a series of articles in this new text.

• Multichannel Marketing: Metrics And Methods For On And Offline Success, by Akin Arikan.

• The Truth About E-Mail Marketing, by Simms Jenkins.

Employee Orders: A Barometer Of Business Success

Maybe your company offers employees a discount when they place an order. If so, good for you!

If you analyze customer information at this company, great for you! You have the inside track to fascinating information.

You're likely to have a merchandising team that has passion for the products they offer. This merchandising team might believe that they are just a competent marketing team away from having tremendous success.

If you find yourself being blamed by your merchandising team for not driving sales and profit, give this analysis a try:

1. Identify how many employees you had last year at this time.
2. Identify how many employees you currently have. Somebody in Human Resources would love to help you identify an accurate number!
3. Sum total demand from employees during September 2007.
4. Sum total demand from employees during September 2008.
5. Calculate spend per employee, September 2007 and September 2008 (i.e. $10.00 in September 2007, $8.50 in September 2008).
6. Calculate comp employee sales ($8.50 / $10.00 - 1) = -15%.

Twice in my career I was pummeled by a merchandising executive for being a lousy marketer. Twice I ran this series of queries. Twice I observed that employees didn't like the merchandise any more than customers liked the merchandise. Twice I ended up with a grumpy merchant, unable to blame marketing for sales shortfalls.

There are few things in database marketing more convincing than the sales generated by employees. If employees don't believe in the merchandise, how the heck are customers supposed to believe in the merchandise?

The Five Ways We Generate Demand

Each business model has unique dynamics. You can find low prices at Wal-Mart, or you can buy exotic items at Neiman Marcus.

Within each business, however, there are five ways that we generate demand. We'll rank each method on the basis of overall profitability..

Method #1 = Organic: There is nothing more profitable than organic demand. When you want to purchase an MP3 song and you go straight to Amazon.com or iTunes to purchase the song, you are generating organic demand. It's awfully difficult to generate organic demand, and we spend almost no time as marketers figuring out how to encourage customers to do this, a shame.

Method #2 = Social: Here's a method that we're getting better at. Social shopping combines word of mouth and social media and any viral strategies that essentially have no marketing cost. Whether it is an employee blog from Patagonia or an iTouch review on Crutchfield, customers are doing the marketing for the marketer. Again, this is a highly profitable way to generate demand, but it is awfully difficult to get customers to do the work for you! Overall, we're terrible at this, aren't we?

Method #3 = Algorithmic: We're all heading down this path, and we're all going to rue the day we gave control of our business to algorithms. Catalogers are miles ahead of other brands on this one, yielding control of customer acquisition to co-op statisticians while at the same time working on SEO strategies that game Google into a favorable position. Small online brands exist almost entirely because they can game Google. The more that companies figure out how to game algorithms, the less effective this form of demand generation becomes. The algorithm forces us to do things we wouldn't normally do. We have to write code in a certain way to make sure that the algorithms give us a fighting chance. We beg for links on other sites so that the algorithm likes us better. We change our behavior to make good with an algorithm. Long-term, this is a bad thing, because as computing moves into the cloud, we continually lose control --- the cloud becomes a self-organizing force that dictates our fate.

Method #4 = Advertising: Here's where marketers get to have their say, eroding profit margins while creating demand. Paid search, e-mail marketing, portal advertising, catalog advertising, postcard marketing, radio/television/newspaper advertising, you name it, it falls into this category. The goal, of course, is to get the customer to buy something that the customer wasn't necessarily planning on buying, or to make the customer aware of options the customer didn't know she had. This style of advertising is dying. Customers have been lied to and cheated and manipulated and over-hyped for so long that they've become downright grumpy about advertising. Still, this is what we've been taught, so we continue to execute it, and we'll continue to execute advertising as long as Wall St. demands that sales increase every single quarter.

Method #5 = Begging: Oh, we're really good at this, and we're really good at integrating advertising and begging! Select items up 60% off, or free shipping this week only (even though there will be a free shipping promotion starting mid-week next week), or take 20% off your order of $150 or more, or the biggest sale of the season, we know how to combine words and discounts and promotions to create demand. Of course, begging has limits, because we don't beg on a 1-to-1 basis, do we? We "market" a promotion to a "target audience", causing customers who would have ordered via any of the prior four methods to take advantage of begging. We also teach our customers to expect us to beg to them, ruining e-commerce.


These days, Multichannel Forensics projects focus on the five methods of demand generation. Channels seem to be becoming less important, while migration of customer activity from begging to organic or organic to begging becomes essential to understand. We've been repeatedly manipulated to believe that customer interaction with channels is "where it is at", when in reality, our ability to manage demand across these five dimensions matters more, and is more actionable.

A simple scorecard is all one really needs to understand how the business is evolving.

	2008	2007	2006	2005	2004
Method #1 = Organic	$18.5	$18.4	$16.9	$12.7	$9.4
Method #2 = Social	$1.6	$0.8	$0.5	$0.3	$0.1
Method #3 = Algorithmic	$19.2	$17.6	$14.2	$9.5	$5.2
Method #4 = Advetising	$35.4	$46.9	$49.3	$53.4	$57.3
Method #5 = Begging	$14.5	$9.2	$8.8	$9.0	$8.5
Totals	$89.2	$92.9	$89.7	$84.9	$80.5
	2008	2007	2006	2005	2004
Method #1 = Organic	20.7%	19.8%	18.8%	15.0%	11.7%
Method #2 = Social	1.8%	0.9%	0.6%	0.4%	0.1%
Method #3 = Algorithmic	21.5%	18.9%	15.8%	11.2%	6.5%
Method #4 = Advetising	39.7%	50.5%	55.0%	62.9%	71.2%
Method #5 = Begging	16.3%	9.9%	9.8%	10.6%	10.6%

The key is to understand how each method of demand generation is evolving. In this case, 2008 is a year of heavy discounts and promotions, significantly increasing the "begging" demand generation channel. Notice how customers are leaking out of advertising, into algorithms.

The database marketer measures the long-term value of customers purchasing from each demand generation method, using Multichannel Forensics to understand how customers migrate between each method. We want to understand the long-term trajectory of the brand on the basis of these critical methods of demand generation.

A final note --- we need to become much, MUCH better at figuring out how to generate demand via organic or social methods.

Ok, time for your thoughts. Do you view the world in this manner, or do you have a different method for thinking about demand generation?

Northern California Coast: More Catalog Crazies

Another place where catalog marketing matters is along Highway 101, from north of San Francisco, into Southern Oregon.

In this region, customers are not offered the variety of retail brands available in San Francisco, Los Angeles, or San Diego. The lifestyle is different, more relaxed.

Again, when marketing to existing customers, we have enough information to infer channel preference. But when marketing to prospects, we can utilize Zip Code Forensics or internal zip models to improve our chances.

Cape Cod: Home Of Catalog Crazies

Just a few hours south of Boston, we find a quaint little world known as Cape Cod.

Hillstrom's Zip Code Forensics suggest that this corner of the world is home to some of the most productive catalog customers in the United States. With limited retail options and a less hectic lifestyle, catalog marketing is perfectly suited to individuals who choose to live in this area.

This is our opportunity. We identify areas where customers have specific marketing preferences, then we capitalize on those areas. When we have actual customer data, we leverage that. When we are mining prospects, we use Zip Code Forensics or internally built zip models to improve productivity.

Catalog Industry Trade Journal Bloggers Don't LIke Us Either

More grumbling about catalogs from a blog hosted by a trade journal that used to be called Catalog Age --- the same trade journal that now co-sponsors what was formally known as the Catalog Conference.

I'm still on your side :)

It is so easy for all of us to pick on companies. Try running a marketing department at a big company someday --- seriously, if everybody in the world is so good at pointing out all the flaws at big companies, then have the courage to go fix those problems at big companies. Or go work at a catalog brand and evangelize your message about the waste of this style of advertising --- prove that your commentary matters.

We all (me too) need to stop flapping our gums about how flawed everybody is, and actually go out there and solve some problems for once, or start our own company, one that is perfect in every way.


Addition Four Hours Later: Ok, I re-read this, and it is grumpy and preachy. Folks are 100% allowed to have their opinion, and they are under no obligation to prefer various types of marketing, regardless of the company they work for.

It is just way too easy to preach these days, way too easy to be right. It is so much harder to make things happen within a company than it is to point out flaws from outside of a company. I do this, too, I'm guilty.

Being Multichannel

I don't do this often --- here's a quote from Seth Godin:

If you have a presence on twitter, squidoo, blogs, facebook, myspace, linkedin and 20 other sites, the chances of finding critical mass at any of them is close to zero. But if you dominate, if you're the goto person, the king of your hill, magical things happen. One follower in each of twenty places is worthless. Twenty connected followers in one place is a tribe. It's the foundation for building something that matters.

This is the essence of being a multichannel marketer, isn't it? We're told that we have to be in mobile marketing, social media, e-mail marketing (best ROI, right?), pay-per-click, SEO, affiliate advertising, shopping comparison sites, portal advertising, catalog advertising, retail stores, radio advertising, television advertising, newspaper advertising, eBay, blah blah blah blah. Almost nobody has been able to demonstrate that actively being in all these channels increases sales and profit for the corporation at a rate that is greater than being outstanding in just one channel.

Don Libey says this in a different way on page 37 of the Expanded Second Edition of "Libey and Pickering on RFM And Beyond" (link to first edition on Amazon here):

"You never want to chase your market. It costs money to chase the market; it costs much less when the market chases you. That difference in cost is pure profit."

There's nothing wrong with having multiple channels, we need to have multiple channels. But when we chase channels as a solution, we lose.

Bob Lefsetz positions the challenge another way via the music industry.

"We’ve moved on to a new marketplace, where iPod penetration is gargantuan and the CD is antiquated, a worse fit for the times than network television shows. The goal is to get on someone’s iPod, how do you do that?"

Doesn't that sum up multichannel marketing in a nutshell? We chase channels. However, the goal is for us to have our brand appear in someone's browser, how do we do that?

How do we do that? Not by diving into mobile marketing because it is the next big thing, or e-mail marketing because it has the best ROI, but by understanding the needs of our customer, allowing our customer to "pull us in" however she wants, not by pushing fifty-four channels at her, or by pushing fifty-four versions of one channel at her.

When we view the challenge this way ... "the goal is for us to have our brand appear in someone's browser, how do we do that?", a whole new world opens up for us.

I don't force you to visit my blog. 80 out of every 100 folks view the blog in an RSS reader, 40 out of 100 via Google Reader. I don't force you to consume the information the way I want it consumed. I'm blessed to know that, for some reason, this information appears in your browser.

Being Multichannel means that we create an environment that allows the customer to pull us into her life. Being Multichannel does not mean that we pummel her by pushing channels at her.

Get Elastic: A Value-Added Vendor Blog

One of the blogs I enjoy following in Google Reader is the Get Elastic Blog. In my opinion, these folks do a really nice job of trying to help us improve business performance, and they generally call out positive things that people are doing, rather than tearing down folks who fail.

Sure, I disagree with some of the things they talk about, but that's to be expected. I wish more vendors put a human face on their efforts in the way that these folks do.

Amazon Shares Tumble ... How To Stimulate E-Commerce?

Amazon warns of a tough Q4 --- shares tumble.

Here's the real question that we have to wrestle with ... a generation of marketers have been raised online, where the greatest organic demand updraft in direct marketing history made us all look like we were brilliant.

Do we have any online marketers who know how to create demand when organic traffic declines?

The real magic is about to begin, as a few talented online marketers will figure out how to create demand, while everybody else continues to attempt to game an algorithm named Google.

Use the comments section of this post to list the online marketing leaders you think will be able to create demand. Or share with us how you will create demand without having the money available to do traditional marketing!

A Co-Op Solution For The Folks Who Hate Us

This site was promoted on a popular third party opt-out service blog. The site returns the favor today.

There's several million people out there who hate marketers of our ilk. The hate is growing, especially in the past twenty-four months. While not necessarily due to causation, it is worth mentioning that as we swing our customer acquisition efforts to co-ops, we seem to absorb an increasing amount of venom.

Contempt happens when we send catalogs to folks who don't want them, and that happens in the realm of customer acquisition. Our job, over the next twenty-four months, is to identify ten or fifteen micro-channels that allow those who want to shop with us to purchase, while reducing customer acquisition efforts among those who feel contempt.

Is this easy to accomplish? Heck no! Is it necessary? Absolutely.

There's plenty of things to be angry about in the world. Seeing your 401k drop in value by 40% is a bit more troubling than finding an unwanted catalog in your mailbox. Selling your home for a loss and having to bring $100,000 to close is a bit more troubling than finding 40 unwanted catalogs in your mailbox. Sometimes we need to have a little perspective.

But we can (and should) do a much better job of minimizing the negativity spread by those who are upset with us. Our co-ops can help us by using their modeling genius to create "synergy" models that identify folks who hate us, suppressing these folks from our mailings. Wouldn't it make sense for the co-ops to import third-party opt-out service lists, model those names and identify similar ones likely to hate us, and create a suppression list that we avoid? It's the same principal used in finding the best customers to mail, why not use the methodology to find the folks most likely to hate us? And why not sell this list to us --- the "hate list", folks who hate getting rogue catalogs in their mailbox, even if they get the rogue catalogs because they've ordered from catalog brands in the past? Charge us for a suppression list of folks who are likely to hate us --- and we can save $$$ and allow the haters to spend time hating something else.

If this service is being marketed by one of the co-ops, please leave a comment, and I'll contact the co-op to give them a bit of publicity.

Using Soap Opera Data To Understand Multichannel Marketing Trends

It's my birthday, so I get to pick an unusual topic!

Assuming Wikipedia is correct, we can draw considerable inferences from the history of Soap Operas.

Going back to the early 1950s, Soap Operas have been a staple of afternoon network programming. The image below illustrates two trends --- the number of afternoon network Soap Operas, and the average rating of the top three Soap Operas.



Notice the trends. Soaps increased from just four in 1953 to a peak of nineteen different shows in 1970. During this time, ratings were generally on the decline. A brief surge in ratings around 1980 (Luke and Laura on General Hospital, I am told) fueled a short-term increase in the number of shows. But as ratings decreased, shows were cancelled. Another brief ratings burst in 1993 - 1994 led to one final surge in the number of shows. Notice the lag in ratings and shows. When ratings improve, there is a one or two year gap until new shows come in to capitalize on increased ratings. By the time the new shows arrive, the ratings bump is gone.

We multichannel marketers know this trend all too well, don't we? Something works well in a catalog --- by the time we capitalize on the trend, the trend is already over! We have such an opportunity to use the online channel as our channel of experimentation --- test, learn quickly, iterate, evolve --- using print to capitalize on the immediate learnings available online. Our method of measuring "winners" must change, must become more flexible, so that our survival is guaranteed.

Also notice that ratings are absolutely awful --- in an irreversible downward decline that shows no hope of changing. This isn't any different than the downdraft observed in telephone sales. Sure there are blips from time to time, but on average, there is no stopping this trend --- the genre is dying, just like catalog marketing is dying.

Next, take a peek at the "death" rate of new shows during the past fifty-plus years.


The dark bars indicate the likelihood of a show being cancelled in any given year, provided that the show survived up to that point. The lighter colored bars indicate the cumulative probability of a show being cancelled by year.

What matters here is the steep hurdle a show has to get over to survive. Nineteen percent of shows are canned after just one year, fifty percent of shows are killed within the first three years.

If a show could survive the first three years with reasonable ratings, it had a chance for long-term success.

• The Edge of Night took five years to crack the top three rated shows, then hung in the top three for five of the next twelve years.

• As The World Turns took four years to crack the top three rated shows, then stayed in the top three for twenty-one consecutive years.

• General Hospital took nine years to make it into the top three, then was in the top three for twenty-four of the next thirty-eight years.

• Another World made the top three in year five, staying in the top three shows for eight of the next eleven years.

• Days Of Our Lives made the top three in season seven, staying in the top three for the next four years.

• One Life To Live finally made the top three in season fourteen, staying in the top three for six of the next nine seasons.

• All My Children made the top three in season nine, and stayed there for sixteen of the next eighteen seasons.

• The Young And The Restless made the top three in season four (1976), and has not left the top three in ratings since 1984.

• The Bold And The Beautiful cracked the top three in season seven (1993), and has not left the top three in ratings since 1996.

In other words, it takes time to build a winner. Zappos is an overnight success, one that took nearly a decade for anybody to notice. Amazon.com was lambasted in the mid and late 1990s for their reckless approach --- now, they own e-commerce, while some of us beg for the opportunity to sell our wares on their site.

Look how long it took those folks to build success. And we sit in conference rooms with jaded executives. We describe how we want to experiment with channels, only to have power brokers tell us "we tried that in 1997, it didn't work then, but somebody at a research organization published a $389 paper that says we should align all of our merchandise across channels, so by golly, let's invest in the information systems that allow us to do that, and then we'll innovate."

Notice that once a show "made it", the show stuck around. Humans are creatures of habit, it takes something innovative (or more important, something our friends talk about) to knock us out of established habits.

But when we're knocked out of an established habit, we generally don't go back to what we used to count on. Take a look at these shows.

• Search For Tomorrow was a top three show from 1953 to 1966. After dropping out of the top three in 1967, the show only had two additional top three appearances before being cancelled in 1987.

• The Guiding Light, still on television today, was in the top three every year from 1954 to 1968. The show experienced two top three performances between 1969 and 1977. The show has not been in the top three in the past thirty-two seasons!

• As The World Turns dropped out of the top three in 1979, appearing only once more, in 2008, at a time when one-fourth of the audience is left.
  

• General Hospital and Days Of Our Lives have been able to survive problems. GH survived slumps from 1974-1978 and 1996-2000. Days survived a twenty year slump from 1976-1995 (but never had bad ratings during that time), and has only been in the top three once since 2002.

• One Life To Live has not appeared in the top three rated shows since 1989.

We experience these trends all the time in our businesses, don't we? Sears and K-Mart are like One Life To Live --- consistently declining comps, but churning out too much cash to kill outright.

The data indicate that it is very hard to turn a floundering Soap Opera into a perennial favorite. Retail is littered with comparable trends. When Eddie Bauer comps turned negative in 1998, there were a few years when comps turned positive --- but positive comps weren't sustainable, and were offset by huge declines in performance.

When momentum works against you, it's downright difficult to reverse the mojo. Those who are able to reverse momentum are gifted --- those who reverse momentum at multiple companies should be in the Direct Marketing Hall of Fame! Quick, name an executive who fixed two companies in a sustainable manner?

We have merchandise lines that exhibit these trends too, don't we?

At Nordstrom, we sold stirrup pants --- store managers and merchants HATED stirrup pants --- yet we had a passionate and decreasing niche of customers who craved them in catalogs. Multichannel pundits might suggest that we offer this merchandise across all channels, yet it may make more sense to bury the product in catalogs where the product can profitably serve a small niche.

Soap Operas are all-or-nothing propositions, they have to be on television every day, every week, without repeats (or do they?). Multichannel merchandising allows for considerable flexibility in the merchandise assortment across channels. We need to merchandise to the customer who is passionate about a channel, not merchandise to the ten percent of customers who shop all channels. Whoever made up the rule that we have to serve the ten percent of customers who love shopping all channels? How did that become a best practice?

One wouldn't think that Soap Opera metrics are worthy of comparison to the business models we manage. A quick review of the information suggest there's a lot to learn from other disciplines.


Added 2008/10/24: Take a peek at the long-term ratings decline --- this image illustrates soaps that were on the air for at least five years, so that you can see the life and death of various shows over time. Again, pay attention to the huge ratings decline --- your thoughts, what becomes of television as ratings continue to implode?

Let's Slash Some Jobs!

Yahoo!, a company that announced profit excluding one-time charges of $123 million dollars in the last quarter, will slash ten percent of the workforce. When job cuts come to Wall St., we hear about how sad it is for those folks. When job cuts happen at Yahoo!, Wall. St. drives up the stock price more than four percent in after-hours trading. Ya-hoooooooo!

I've been asked to slash jobs ... 1998, 2001, 2002, 2005.

You are assigned a representative from Human Resources. The individual assists with talking points, prepares documents to aid the employee in understanding this "necessary reduction in human capital". Both you and the poor individual in HR greet the downsized employee, asking him/her to sit down.

The thought crosses your mind ... "I'm about to destroy this person's life." Then you think, "Who helps the HR executive eliminate an HR position?"

Your mouth is dry. No, really dry.

You wonder if the employee can see your heart throbbing at 140 beats per minute through your dress shirt?

Your hands get cold.

The employee sees a Vice President sitting next to an undisclosed Human Resources representative, with a beige folder opened in front of the seat the employee is being asked to sit in, and immediately gets that ashen look that, as a Vice President, you wish you didn't ever have to see.

You're supposed to read from the script, explaining to the employee that external market forces dictate a leaner and more nimble organization, and that unfortunately, as of this morning, the individual is no longer employed by the organization.

I've found that it is better to just wing it, to just say what's on your mind.

At this point, you lose any ability to predict what comes next.

I've had just about every possible scenario happen after uttering the pre-written or ad-hoc paragraph. I've been thanked (sincerely). Crying. Silence. Anger. Fist-smashing anger. Fear for my own safety (I've had security assigned to protect me from a potentially dangerous employee). Questions about how the employee will make rent payments. Questions about how the employee will pay for health care for her sick child. Disgust. One employee told me that s/he thought I was a mentor, somebody s/he could believe in ... prior to today.

Honestly, I cannot judge one single response. They're all valid, and understandable given the circumstances.

The first time you go through the exercise, you want to throw up after the employee leaves your office. By the time you've destroyed the lives of a dozen folks, you simply appear cold and unfeeling. Cold and unfeeling is a coping mechanism that only heightens the frustration of the employee being terminated.

When somebody from up high (a VC, a Board Member, the CEO, or an EVP) unilaterally decides to crop ten percent of the workforce, and makes you do the dirty work, you feel a bit of resentment.

The employee feels a lot more resentment than you do. And in 2008, the terminated employee must feel a rage that is unique to our business era.

• You stayed with the company through positive comps and negative comps.
• You stayed with the company even though the company only increased your salary by 3% a year, suggesting that you were "in the upper quarter of your salary band". Salary bands are the worst thing to ever happen to hard working employees.
• You dutifully contributed to your 401k account, supporting the company initiative to be "Healthy, Wealthy, and Wise", only to learn that, through no fault of your own, forty percent of your retirement money is now gone. Imagine being in your late 50s or early 60s right about now?
  
• You dutifully contributed to your employee stock purchase program, only to see the value of the stock you purchased drop by 67%. You could have got braces for your child, but you caved in to management's request to invest in your company, to "demonstrate" to Wall St. that you believed in your company. Now that things went sideways, is Wall St. (or your Sr. Management team) there to demonstrate that they believe in you?
  
• You trimmed expenses from your budget so that your company could "make the third quarter numbers" promised to Wall St.
  
• You stayed loyal to your company, because relocating would have required you to sell your home, and your home is now worth only 70% of what it used to be worth and there are maybe two qualified buyers out there looking for a new home.
  
• You worked 60 hours a week to get that information system implemented, the system that the company now says provides enough efficiency to eliminate costly human capital.
• You listened to the IBM commercials that suggested you work in an "on-demand" environment --- an environment that worked wonders for the profit and loss statement until your Sr. Management team built an entire business ecosystem off of on-demand easy credit that no longer exists due to no fault of your own, throttling the ability of your business to operate efficiently.
  

Yup, that's you. You did all of those things to support your brand. And now, all across America, folks like you are being terminated, all in an effort to help the brand meet quarterly profit projections demanded by Wall St. We're sold the excuse that the cuts help the brand become more nimble and responsive.

Ya-hoooooo!

Forty-Three Important Attributes For Mining Lapsed Buyers

Customers who last purchased 13-60+ months ago are big-time fun for folks who mine databases. If you have direct mail, catalog, online marketing, or e-mail marketing programs, consider use of the following attributes.

Attribute #1 = Returns: Customers who return at least sixty percent of the merchandise they purchased are likely to return merchandise in the future. If you're looking to trim marketing expense, here's a place to do so without negatively impacting profitability.

Attribute #2 = Fulfillment: Customers who failed to receive items in their last order are often less likely to order in the future than are customers who receive what they wanted to purchase.

Attribute #3 = Geography: Hillstrom's Zip Code Forensics indicate that about a quarter of the United States feature customers who spend twice as much as the national average. Use zip code modeling to your advantage!

Attribute #4 = Channel: Customers who order from catalogs over the telephone "age slowly", meaning these customers can be profitably targeted for a long time. Customers who order online age faster, meaning that after "x" months they become unresponsive. Customers who order via stores age very fast, becoming unresponsive soon after a purchase.

Attribute #5 = Items: Customers ordering multiple items tend to be more responsive in the future than customers ordering just a single item.

Attribute #6 = Price Point: Customers ordering expensive items tend to be more responsive in the future than customers ordering less-expensive items.

Attribute #7 = Social Media: Increasingly, we observe that customers who respond due to social media are "buying because of the buzz". Segment and learn!

Attribute #8 = Merchandise: Identify products that have long repurchase cycles. Every company has a diverse assortment of merchandise, with some products leading to repurchase cycles that are more beneficial to the brand.

Attribute #9 = Promos / Free Shipping: Closely monitor if these customers buy again, and observe whether they will ever buy merchandise at full price. You are in business to generate profit, not to give goodies away to customers.

Attribute #10 = Gross Margin: Always segment customers who buy products that have healthy gross margins. Classify these customers differently than those who buy products with razor-thin margins.

Attribute #11 = Online Visitation: Customers who last purchased three years ago, but visited your website in the past week represent an opportunity!

Attribute #12 = Referral Activity: Among customers who visited your website recently, infer causality from the referring URL.

Attribute #13 = Lifetime Activity: Lapsed customers fall into two groups --- those with a rich purchase history, and those without. Guess which customer is more likely to purchase again?

Attribute #14 = Multiple Merchandise Divisions: Customers who embrace a diversity of merchandise tend to be more valuable than customers who focus on just one product line.

Attribute #15 = Day Of Week: Monitor the day of week when a customer last purchased. Online and telephone customers are frequently more valuable if the last purchase happened on a Monday or Tuesday. Retail customers are sometimes more valuable when the last purchase happened late in the week.

Attribute #16 = Employee ID: Many companies know that a small subset of employees do a nice job of treating customers well. Conversely, some employees anger customers. Identify the employees who polarize customer repurchase activity, and use it as a segmentation variable.

Attribute #17 = Expedited Shipping: Identify customers who, in non-holiday periods, pay to receive merchandise fast! This can be a positive or negative, depending upon the circumstances of the request.

Attribute #18 = Open To Buy: If you have proprietary credit, then you know that customers lapse when they consume the majority of their credit limit. Pay close attention to customers who are within ten percent of their credit limit.

Attribute #19 = Hits: If you are able to track hits against competitor housefiles, you know this variable identifies customers who are responsive.

Attribute #20 = Tender Type: Visa, Master Card, Amex, you name it, each tender type used impacts future activity.

Attribute #21 = Seasonality: Pay close attention to holiday shoppers, who are frequently unresponsive in non-holiday periods. Conversely, customers who last ordered during the same season we're in experience an increase in responsiveness.

Attribute #22 = Visit Depth: Among customers who recently visited your website, segment those who got deep into the site, vs. those who only visited a landing page or the homepage.

Attribute #23 = Titles: If you are a catalog brand, you understand the importance of having multiple titles to serve the customer. Customers who respond to multiple titles behave differently than customers who respond to only one title.

Attribute #24 = Outlet Site: If you house your discount channel under a separate URL, you know that the customers who visit different URLs behave differently than customers who visit the main URL.

Attribute #25 = Sales Tax: Monitor whether customers who are required to pay sales tax have reduced repurchase activity. In most cases, sales tax does not have a big negative impact, but it is worth monitoring.

Attribute #26 = Product Cycle: The customer who buys a blu-ray DVD player is fundamentally different than the customer who purchases a 480p DVD player.

Attribute #27 = Want vs. Need: The customer who purchases product out of need is different than the customer who buys a fashion-based item.

Attribute #28 = Demographics: Demographics play a much smaller role in data mining than most folks realize. We're trained to believe that the 40-44 year old female head of household with annual household income of $100,000+ matters --- sure, she matters, but not because she is 40-44 years old with income of more than $100,000. Some demographic variables do matter --- incidence of kids for merchandisers of kids product, for example.

Attribute #29 = Change of Address: For some businesses, this is a big deal --- sellers of home products know this matters.

Attribute #30 = Dwelling Type: It's not hard to obtain data that indicates the type of home the customer lives in. A customer living in a high-rise condo is different than a customer living in a single family home.

Attribute #31 = Stores: If you have a retail business, you know that a customer spending $167 at each of three stores is more valuable than a customer spending $500 at just one store. You also know that certain stores drive more loyalty than others.

Attribute #32 = E-Mail Subscriber: If you have two lapsed customers, one who subscribes to e-mail marketing and one who does not, you know that the former is more interested in your brand than the latter.

Attribute #33 = RSS Subscriber: In particular, RSS subscribers of various product lines warrant considerable attention!

Attribute #34 = Blog Subscriber: Many catalogers and online marketers host blogs. Customers subscribing to blogs are not necessarily more profitable, but are certainly more engaged.

Attribute #35 = Source of Acquisition: Pay attention to customers acquired via different online sources, list rentals, and co-ops. Always remember that Google is a channel, separate from all other online activities.

Attribute #36 = Amazon: If you have an Amazon store, you're probably aware that customers ordering from Amazon are less likely to order in the future than are customers ordering via your own e-commerce website. As long as we're going down this path, segment customers from affiliates as well, as these customers buy for different reasons.

Attribute #37 = Brands vs. Proprietary Product: When you sell branded merchandise and merchandise you sources yourself, you wind up with customers who have different interests. This can be a telling variable, all companies have different relationships here.

Attribute #38 = Replenishment Merchandise: Product that is replenished on a period basis, or product supportive of continuity programs yield customers with different subsequent behavior.

Attribute #39 = Auction Behavior: For those of you who have auction sites, you know that customers visiting these sites are fundamentally different than are customers looking to buy merchandise at a fixed price.

Attribute #40 = Upsell / Cross-sell: Brands that eek out an extra $25 of unanticipated merchandise from a customer can tag these buyers, as their future behavior is likely to be different.

Attribute #41 = User Generated Reviews: Customers who also aid in the process of selling merchandise are frequently more engaged, and can generate indirect profitability via influencing other consumers. Pay attention to these buyers!

Attribute #42 = Blogoshpere: Tag customers who visit the website via various blogs or social media websites. These customers have a different relationship with us than do customers we outbound market to.

Attribute #43 = Buy Online, Pickup In Store: For those of us managing multiple physical channels, we know that connections between physical channels are important.


Your turn --- leave a comment, stating attributes that are important to your business!

1 To 1 Marketing

Abacus / Epsilon is running this banner ad above an article about layoffs at Oriental Trading Company on the Multichannel Merchant website.

When you receive a catalog in the mail from a company you have never purchased from, a catalog sourced by a statistician at Abacus, do you feel like you are having a 1:1 conversation with that brand? Good gravy. Not the fault of Abacus, necessarily --- in theory, they would make it possible for somebody to have a 1-to-1 conversation.

A Google search for 1-to-1 marketing yielded more than 1.2 million results. When reading some of the articles, it is obvious that 1-to-1 marketing is initiated by a vendor community trying to sell technology to the marketer.

We don't read much about the customer craving 1-to-1 marketing, do we (though we read plenty about customers wanting a brand to behave in an authentic and fair manner)? When is the last time you read text from a customer on a social media site telling the world about how they loved their 1-to-1 relationship with a catalog or online marketing brand, communicating how they loved the way they influence how a catalog or e-mail message is merchandised?

1-to-1 marketing is a myth. We simply don't have the data needed to be effective marketers. And when we have enough data, we're challenged by our ability to execute.

For instance, assume you have a brilliant trigger-based e-mail marketing and catalog marketing program. You have a customer who buys both mens merchandise and womens merchandise in their order. Do you trigger mens merchandise in an e-mail? Womens merchandise? Something else? How could you possibly predict what the customer wants or needs? And you're not really executing 1-to-1 marketing, because it is unlikely you will ever let the customer have a say in your contact strategy, right?

If we step back from failed concepts like 1-to-1 marketing and CRM, and simply focus on being really efficient with marketing dollars, then we have endless opportunities. There's a bunch of profitability to be had marketing to folks who have not purchased in the past year --- catalogers over-mail these customers, while online marketers under-contact these folks --- if you haven't purchased from Zappos in a year, how are they going to reach out to you in a meaningful way?

We simply cannot have 1-to-1 marketing conversations with customers when we force everybody to get the same catalog, or one of five versions of an e-mail marketing message, or when we don't give the customer any say in the contact strategy.

Let's be honest with ourselves. Let's focus on being as efficient as possible with our marketing dollars, a fair and noble objective.

Dallas / Ft. Worth

So often, we see trends that repeat across metropolitan areas. Such is the case with the Dallas / Ft. Worth market.

North of each city is where the responsive customers reside. These customers clearly prefer the online channel.

Go well north of either city, or well west of Ft. Worth, and you see customers who like to talk to somebody over the phone when ordering merchandise.

We repeatedly observe trends not often talked about in the multichannel literature.

• Retail is an urban/suburban phenomenon.
• Online is a suburban/exurban phenomenon.
• Cataloging is an exurban/rural phenomenon.
  

Selling Saturday

For the half of the subscriber base that is new, I'll take a moment to humbly remind you of some of the resources available here. For the long-time blog loyalist, go ahead and move on to the next article in your RSS reader!

Hillstrom's Database Marketing is a resource for the business intelligence analyst and web analytics expert. The reader is immersed in analytical techniques that illustrate customer behavior across channels. The $95.00 book is available from Amazon.com and For Better Books.

Hillstrom's Multichannel Forensics is how I make a living! The book provides a soup-to-nuts approach for analyzing how customers interact with advertising, products, brands, and channels. I've worked on Multichannel Forensics projects for more than three dozen brands, debunking many of the multichannel trends we're taught to observe. This $95.00 book is also available from Amazon.com and For Better Books.

Hillstrom's Multichannel Secrets is a quick read for folks looking for tips about multichannel customer behavior. This book has been popular among multichannel leaders. Hillstrom's Multichannel Secrets is available from Lulu.com for $14.95 (paperback) or $7.95 (download).

Hillstrom's Contact Strategy Optimization On A Budget is an e-book and spreadsheet tailored to the multichannel executive or business intelligence analyst looking to quantify how many catalog and e-mail contacts are "right" for any given customer segment. This leader is looking to get 80% of the ROI for 1% of the cost! For just $79, the leader obtains valuable tools that will yield a huge ROI boost. Hillstrom's Contact Strategy Optimization On A Budget is available at the MineThatData Store on Lulu.com.

Hillstrom's Zip Code Forensics is a popular geography-based segmentation tool that allows the multichannel executive to identify high spending customers who live in catalog-preference or online-preference regions. In actual tests against real customer data, multichannel executives have been able to improve segment response by ten percent. Learn more by clicking here!

Succeed!

This writer thinks 30% of us will not survive 2009. Let's prove him wrong. Succeed!

Limitation Of Social Media: Online Introverts And Online Extroverts

In the real world, when folks gather in a meeting room, we notice that extroverts voice their opinion, while introverts remain quiet. If we listened only to the extroverts, we'd obtain a biased viewpoint.

Online, we're told to cater to web extroverts, folks who blog and twitter themselves into a froth. We're encouraged to build a community, we're encouraged to cater to a vocal minority.

But what happens when we are successful, when we build a community, only to learn that this segment of customers are online extroverts, and are not representative of the overall customer? What happens when this segment of customers demands free shipping and 30% off, all day, every day? What happens when this small but vocal minority makes demands that aren't in the best interest of the brand we manage? Do we listen? Do we act?

In some ways, the business intelligence analyst and web analytics expert must learn to segment customers into online introverts and online extroverts, catering to each segment in a unique manner.

The CEO gets to have less fun. She needs to remember that her vocal social media community only represents a minority of her customer base, a loud minority that disproportionately communicates their needs. She needs to satisfy the needs of the online extrovert, while protecting the interests of the online introvert who does not communicate needs. The CEO knows that catering to online extroverts may result in alienation of online introverts.

Debunking An Article/Study: E-Mail ROI

Always keep in mind that e-mail has almost no variable cost, thereby guaranteeing that it has the best ROI. Nobody ever talks about the fact that you get $0.10 of sales per e-mail delivered, whereas other forms of marketing deliver twenty or thirty or fifty times the sales volume per unit, do they?

Seven Scenarios That Outline How A Business Is Imploding

By now, unless you're working at Urban Outfitters, there is a good chance that your business is struggling. Let's review seven scenarios (inspired by Multichannel Forensics) that help the business leader understand what is causing the implosion of a business.


Scenario #1 = Across The Board Loyalty Decline. In this scenario, customer retention is down, spend per buyer is down, and there is no file momentum. This business is down 33% to last year because the sky is falling.

	HHs	Rebuy	$/Buyer	Net Vol.	Tot. Vol.
2008	100,000	38.5%	$200.00	$77.00	$7,700,000
2007	120,000	42.6%	$225.00	$95.85	$11,502,000
Change	-16.7%	-9.6%	-11.1%	-19.7%	-33.1%

Scenario #2 = Fewer Loyal Customers Buying. This scenario is common, and while not as troubling as in Scenario #1, is very troubling. Given the choice between customers and spend, always take the side of having an increase in customers.

	HHs	Rebuy	$/Buyer	Net Vol.	Tot. Vol.
2008	100,000	38.5%	$200.00	$77.00	$7,700,000
2007	100,000	42.6%	$200.00	$85.20	$8,520,000
Change	0.0%	-9.6%	0.0%	-9.6%	-9.6%

Scenario #3 = Customers Spend Less. This is bad, but not as bad as Scenario #1 or Scenario #2. Customers are just spending less than last year, giving you hope that you at least still have a loyal customer base.

	HHs	Rebuy	$/Buyer	Net Vol.	Tot. Vol.
2008	100,000	42.6%	$180.80	$77.02	$7,702,080
2007	100,000	42.6%	$200.00	$85.20	$8,520,000
Change	0.0%	0.0%	-9.6%	-9.6%	-9.6%

Scenario #4 = Lack Of File Momentum. This is likely to be a big problem in the second half of 2009 or 2010. At some point, the economy will recover, but we won't notice the recovery because we don't have enough customers to fuel growth.

	HHs	Rebuy	$/Buyer	Net Vol.	Tot. Vol.
2008	80,000	42.6%	$200.00	$85.20	$6,816,000
2007	100,000	42.6%	$200.00	$85.20	$8,520,000
Change	-20.0%	0.0%	0.0%	0.0%	-20.0%

Scenario #5 = Reactivated Customers. Take a look at how well you are converting customers who last purchased 13-60+ months ago. These customers sometimes foreshadow future problems among loyal buyers.

Scenario #6 = New Customer Acquisition. Before this economic downturn began, catalogers realized that customer acquisition was imploding. Customer acquisition is a leading indicator of future business performance. Pay close attention to upticks and downturns in the number of new customers, by source. And always remember that customer acquisition fuels our businesses, regardless of what the loyalty punditocracy communicates.

Scenario #7 = Implosion. Implosion occurs when we fail to have file momentum, when repurchase rates are down, when spend per purchaser is down, when reactivated customer conversion is down, and when new customer acquisition is down. Implosion fuels layoffs, layoffs fuel decreased spending, decreased spending fuels implosion, a recipe for disaster in 2009. And here's a little nugget of information --- nobody is going to bail out the $10,000,000 online pureplay or $30,000,000 cataloger with a hundred year history of running business with honesty and integrity. So we have to fully understand the implosion scenario before it hits really hard.


If you are a business intelligence analyst or a web analytics expert, you have a fiduciary responsibility to communicate the manner in which your business is dying, so that your Sr. Leadership team can begin to take steps to improve business. The days of sitting around monitoring the conversion rate of customers arriving from MSN are over!

For instance, if your brand lacks file momentum, then you do not have a merchandise or creative problem --- you are simply struggling because your business struggled in the past --- you do not need to re-invent your merchandising or creative or pricing strategy.

But if your business is stuck in Scenario #1, your management team will need to re-energize the brand.

So let's figure out what is ailing our business during this unique time in history.

Six Steps To A Well Executed Free Shipping Or %-Off Campaign

Read through each step, and ask yourself if your brand follows these steps.

Step 1: Always Execute A/B Tests. It's a good idea to make sure that some of your e-mail marketing list or catalog marketing list or paid search keyword campaign does not receive the promotion, and measure the performance of customers who receive the promotion vs. those who do not receive the promotion.

Step 2: Measure A/B Tests Long-Term. I cannot stress this enough. If you execute a free shipping test in November, re-visit the results of the test next May or June. Seriously. Measure the short-term impact and long-term impact. If you see a 20% lift in weeks 1-3 (the test period), and a -20% lift in weeks 4-26, you know that the promotion did not help your brand --- at all! Few folks actually execute this level of testing discipline. Those who do know secrets that the rest of us fail to understand.

Step 3: Quantify Incremental Orders And Flunked Orders. Incremental orders are those that were generated because of the promotion. Flunked orders are those that would have happened anyway, but now you gave away profit that lowers your bonus amount. If the test/control groups suggest that the promotion gave you a 20% increase in sales, while almost all of the orders happened with the key-code, then you know that 80% of the orders would have happened anyway. Flunked orders are bad --- they are orders where the customer believed in your brand, and would have spent hard-earned dollars that generate profit. We choose to flush that profit away. See Step 2 to understand if flunked orders generate long-term profit.

Step 4: Quantify "Staying Power". At Eddie Bauer, we measured the incremental value of the promotion by day. If the promotion lasted three weeks, we measured the lift by day. Those who execute this style of analysis know secrets about the staying power of tests that the rest of us simply make guesses about. Staying power is important, because if a promotion loses impact after a few days, you're required to constantly pull promotions off the board, then put them back up a few days/weeks later. And that isn't healthy for a brand --- it is like constantly hitting the gas pedal and then hitting the brakes while driving a car on the freeway. It means you are shifting power away from merchandise and to promotions. That's not a good thing --- you're in business to sell merchandise, not to sell promotions and gimmicks.

Step 5: Understand Who Utilizes Promotions. We don't do nearly enough of this, do we? Good analytics teams profile the customers who take advantage of promotions. Are they the best customers? Full price customers? Sale customers? Promotional customers? New customers? Lapsed customers? After profiling the audience, measure the long-term value of the customers utilizing promotions, comparing them to the customers who pay full price and pay for your bonus check.

Step 6: Understand Channel Dynamics. There's nothing wrong with executing promotions in e-mail campaigns and not in other advertising channels. But it is important to understand what this does to your business. Do the promotions cause e-mail subscribers to not buy from full-priced catalog marketing? If so, adjust the contact strategy accordingly, and realize that your e-mail marketing strategy lowers response in your catalog marketing channel (or vice versa). And seriously consider why your e-mail subscribers are more deserving of discounts and promotions than all other customers.

Best Buy CMO Barry Judge Hosts A Blog

Enjoy interacting with Best Buy CMO Barry Judge on his blog. I recall being in all day meetings with him in Minneapolis back in 2000 when I was at Avenue A and he was the online executive at Best Buy ... he's a character!

Free Shipping: Today Only

Speaking of selling money, valuing it over merchandise, can you find any place in this e-mail where Lands' End is promoting merchandise?

This isn't a criticism of Lands' End. Instead, this is an illustration of our addiction to money & gimmicks. It's obvious there is an inventory problem that requires an e-mail message like this, and to cure the inventory problem, we, without hesitation, elect to poison the e-mail customer file. And then next spring, we'll wonder why we generate $0.04 per e-mail marketing message when promoting full-price outerwear, forcing us to promote free shipping again.

Free Shipping 24/7/365

One of our loyal readers left a comment recently, suggesting that it was ok to run a free shipping or 20% off offer if you gave up $7 of margin but increased profit by $8 due to increased response.

I've run hundreds of p&ls for free shipping or %-off promotions, always having to prove that the promotion would be profitable.

So when this reader suggested that it was acceptable to run the promotion because it is more profitable to do so, it raised a theoretical question:


If the promotion is truly more profitable, then why isn't the promotion part of your standard business model? In other words, if it is truly more profitable, why ever stop running the promotion? Why stop running the promotion and then accept less sales, and less profit? Aren't we here to maximize sales and profit?


Discuss.

Poison Percentage

Ever wonder how you're really impacting your business with all of those free shipping and 20% off offers and bogos and whatever additional incentives you're offering the customer to buy merchandise?

One metric I've run for folks is called the "Poison Percentage" --- the percentage of volume, on a rolling twelve month basis that is generated because of a promotion.

I tend to stay away from item-level discounts, as those are influenced more by price elasticity and clearance activity --- those can be analyzed via a separate metric.

So the poison percentage focuses on free shipping, cheap shipping, percentage off an order, any promotion contrived by the marketing folks, any promotion that comes between the customer and the merchandise.

If that percentage is "high", maybe more than twenty percent of the total sales volume, then the business is being "poisoned", or so the theory goes. If you can drive enough volume and profit on discounted transactions --- and increase lifetime value in the process, then of course, you're not poisoning the business.

You'd run a profit and loss statement as follows:

Business With Discounts
	Clean Sales	Promotions	Tot.Company
Demand	$20,000,000	$10,000,000	$30,000,000
Net Sales	$16,000,000	$7,700,000	$23,700,000
Gross Margin	$8,800,000	$4,235,000	$13,035,000
Less Marketing Expense	$3,200,000	$1,309,000	$4,509,000
Less Discount Expense	$0	$1,200,000	$1,200,000
Less Pick/Pack/Ship Expense	$1,840,000	$885,500	$2,725,500
Varaible Profit	$3,760,000	$840,500	$4,600,500
Less SG&A Expense / Fixed Cost	$2,000,000	$1,000,000	$3,000,000
Earnings Before Taxes	$1,760,000	($159,500)	$1,600,500
Business Without Discounts
	Clean Sales	W/O Promos	Tot.Company
Demand	$20,000,000	$7,000,000	$27,000,000
Net Sales	$16,000,000	$5,390,000	$21,390,000
Gross Margin	$8,800,000	$2,964,500	$11,764,500
Less Marketing Expense	$3,200,000	$916,300	$4,116,300
Less Discount Expense	$0	$0	$0
Less Pick/Pack/Ship Expense	$1,840,000	$619,850	$2,459,850
Varaible Profit	$3,760,000	$1,428,350	$5,188,350
Less SG&A Expense / Fixed Cost	$2,000,000	$1,000,000	$3,000,000
Earnings Before Taxes	$1,760,000	$428,350	$2,188,350

You make assumptions about what would happen if you drop the discounts and promotions --- maybe within that audience, you lose 30% of your business, but you end up managing a smaller but more profitable business.

New Blog From Chief Marketer / Multichannel Merchant

For those of you who enjoy reading multichannel marketing insights delivered from the perspective of the trade journal industry, give The Big Fat Marketing Blog a try.

If you are aware of any marketing blogs from little guys trying to get a start without the support of big organizations, leave a comment so that we all might benefit from diversity of thought.

1,000 Posts ... And Marketing Being "Non-Essential"

Today we celebrate one thousand posts --- it has to be some sort of record. I doubt any other database marketer has the time to reach this milestone! Thank you for making this possible, I sincerely appreciate your readership and loyalty. I appreciate 115,000 visitors, 650,000 page views (RSS + E-Mail + Website), 1,400 subscribers, 250 loyalists who visit within hours of a post and buy books & e-books, and all the folks who work with me on Multichannel Forensics projects.

I hope that I have represented you (the humble marketer trying to do good out there in the world) well during what is now close to three years of writing. Marketers get a bad rap a lot of the time, heck, I've taken us to task for all of the foibles we're responsble for ... discounts and promotions, anybody?!

Once in awhile, I read something that doesn't sit right with me. Today, I read about comments a technology CEO allegedly made about downsizing decisions. I say allegedly, because the comments are not made on his blog.

Here's the comment that didn't sit right with me: "... he just cut jobs that aren't core to the mission of Seesmic. Designers. Marketers. PR".

It doesn't sit right with me, in part, because I've heard dozens of business leaders say this to me.

If marketers aren't core to the mission of a company, why were marketers hired in the first place?

Maybe marketers and designers need to team up with the public relations folks and mount a re-branding campaign.

Given that our economy is not going to magically fix itself in the next few years, we have time as marketers (catalog marketers, online marketers, e-mail marketers, database marketers, brand marketers, multichannel marketers, social media marketers and any other kind of marketer I forgot to mention) to demonstrate that we are essential.

At Eddie Bauer and Nordstrom, I kept a scorecard of every dollar of incremental profit my employees generated for the company. Want to downsize a few marketers? Here's what you lose in sales and profit! When you have 24 employees who generate $1,500,000 incremental profit (after factoring in salaries/benefits), you aren't as likely to be considered "non-essential".

Store managers are evaluated all the time --- every person in the company can see a report that illustrates if a store is performing well or not. Merchants are evaluated all the time --- every person in the company can see a report that demonstrates if the merchandise line the merchant is responsible for is responsible for is working or not.

Dear Marketers ---- show me the report that the CEO sees, illustrating your value to the company? What report does the CEO look at that indicates that you, the humble person who puts images of merchandise on the website, are valuable to the company? What report does the CEO look at that proves that the 249,394 names you just pulled from the Abacus database will provide a half-million dollars of profit over the next eighteen months? What report does the CEO look at that proves that the e-mail marketer added $300,000 of profit by doubling e-mail frequency? What report does the CEO look at that proves that the web analytics department should be expanded, not contracted? What report does the CEO look at that proves that the online marketer should expand the affiliate marketing program, not contract it?

Over the next two years, some of us are going to lose our jobs. Between now and then, start proving your worth to your organization. Demonstrate to management what happens if the tactics you employ and/or your position are eliminated.

Hillstrom's Zip Code Forensics: Baltimore And Washington, D.C.

Another fun map for your weekend viewing pleasure!

Notice all of the dark green to the west of Washington --- an e-commerce hotbed. Then notice the dark orange in rural areas. We see this all of the time when viewing metropolitan areas.

For a White Paper on Hillstrom's Zip Code Forensics, download here.

Hillstrom's Zip Code Forensics: Cincinnati & Columbus

During upcoming weekends, we will take a look at key markets across the United States via Hillstrom's Zip Code Forensics.

Today, we focus on Cincinnati and Columbus.

Dark orange zip codes are "Catalog Crazies". These folks love catalog marketing, spending twice as much per capita as do customers in average zip codes.

Dark green zip codes are "Online Bliss". These folks love e-commerce, spending nearly twice as much per capita as do customers in average zip codes.

Light orange (catalog fans) and light green (online spend) are average performing zip codes.

Yellowish (catalog preference) and very light green (online preference) spend about one-third as much, per capita, as do the average zip code.

Are Discounts And Promotions Ruining E-Commerce?

A quick quiz: If we removed every one of the twenty boxes in the image (click on the image to enlarge it) and all of the potential permutations of the boxes in the image, what would happen to net sales, and earnings before taxes?

Discuss.

Marketing Tactics Cannot Save Nordstrom Comps

Many marketing pundits talk about branding and social media and word of mouth and multichannel marketing and online marketing and catalog marketing as if they were a magical elixir.

Now take a peek at Nordstrom's comp store sales results from September.

• Nordstrom Rack (lower-price channel) = +2.6%.
• Nordstrom Full-Line Store Sales (full-price channel) = -14%.

That's a price-sensitive customer responding to the end of easy money.

Nordstrom does all the things the pundits tell them they should ... they've worked hard to align merch and creative across channels. They have a credit program with a loyalty component. They offer high price channels and lower priced channels. They mail advertising-based catalogs. They have an e-commerce website with reasonable integration with stores. They have a presence on Facebook and MySpace. They offer better customer service than almost anybody. They offer free shipping promotions from time to time, and offer a reasonable $5 flat fee for shipping. They drive hundreds of thousands of visitors from blogs due to buzz-worthy merchandise. They have in-store events that drive traffic. They minimize sales events so that the three sales events they do have drive traffic and profit. They do outbound telemarketing, not CRM/computerized junk, but actual calls from actual store employees. They have an integrated database with data from all channels. They hired a plethora of highly qualified MBAs to drive marketing strategy fused with customer research and database insights. They have an experienced management team that tries to drive volume with honesty and integrity. They have more word-of-mouth marketing than almost anybody could ever hope for. They execute a solid paid-search program. They do portal advertising. They have an affiliate marketing program. They execute versioned e-mail marketing campaigns where customers can choose the e-mail marketing versions they receive. They do magazine advertising. They do radio and newspaper advertising during sales.

But all of those things mean almost nothing, when the customer is faced with challenges. The marketing tactics sure didn't enhance shareholder value, did they? The price of a share of JWN stock dropped by at least sixty percent in the past nineteen months --- wouldn't want to count on that for retirement --- my investment in Nordstrom, encouraged by management during my tenure, is now underwater.

Marketing pundits, here's your opportunity to fight back. Would Nordstrom comp store sales have dropped by 20% or 30% without all the tactics you've told retailers they must execute? Or are the strategies utterly feckless in the face of changing consumer sentiment?

And if the strategies are this impotent when faced with changing consumer sentiment, did they ever have any real worth in the first place?

Discuss!

Catalog And Retailer Differences In Matchback Strategy And Contact Strategy Optimization

There's this huge shift in multichannel marketing strategy in recent years, with catalog matchback algorithms playing a significant role in the shift.

Fashion retailers (Neiman Marcus, Saks, Bloomingdales, Nordstrom) either eliminated traditional catalog marketing programs, or are in the process of significantly reducing circulation. Folks at Williams Sonoma are significantly trimming circulation.

When I talk to some of you, you tell me that these folks can cut circulation because they are retailers --- the retail channel somehow generates brand awareness that fuels a brand in a way that minimizes the need for advertising. You might be right, we simply cannot test your hypothesis.

Mechanically, retail brands are better at developing a testing discipline.

Here's an example. We randomly sample twenty customers, ten receive a catalog, ten do not, and measure performance across channels during the three weeks that a catalog is active. Here's what we observe:

Mailed			Holdout
Cust 1	Buy Store		Cust 11
Cust 2			Cust 12
Cust 3			Cust 13	Buy Online
Cust 4			Cust 14
Cust 5	Buy Phone		Cust 15
Cust 6	Buy Online		Cust 16
Cust 7			Cust 17
Cust 8			Cust 18
Cust 9	Buy Online		Cust 19
Cust 10			Cust 20	Buy Online

Here's the fundamental difference between the retailer and the catalog brand.

The retailer will compare the mailed group and the holdout group. In the mailed group, four out of ten customers responded --- in the holdout group, two out of ten customer responded. The retailer calculates response as (4 - 2) / 10 = 20%.

The cataloger does not execute the test. Instead, the cataloger takes the mailed group, identifies the four responses, matches the responses back to the mail file, and calculates response as 4 / 10 = 40%.

Again, notice the significant difference in response, using the two methodologies.

• Retailer = 20% Response Rate.
• Cataloger = 40% Response Rate.

In this comparison, the organic percentage is 20% / 40% = 50%. Half of the demand would happen without any advertising.

This fundamental difference in approach causes a shift in strategy.

• Retailer = Cut Circulation, Re-Allcoate Marketing Dollars Elsewhere, Learn!!
  
• Cataloger = Maintain Circulation, Ask For Additional Funding For Online Marketing, And Significantly Over-Spend In The Catalog Marketing Channel, Driving Down Profit.
  

This problem is systemic across the catalog industry. Matchback vendors aren't trying to rip you off, they simply aren't. But there isn't an incentice to create a "best practice" that accounts for the differences that retailers observe when executing contact strategy testing and what catalogers measure via matchback analytics.

A simple solution for catalogers is to execute a test similar to the one designed above. Do not tell the matchback vendor about the holdout group. Have the matchback vendor run the control group through the matchback algorithm, and see how many orders are allocated to the holdout group. Subtract the results of the holdout group from the results of the mailed group, and you have true incremental demand as illustrated in the retail example at the beginning of this post.


Hillstrom's Contact Strategy Optimization: A New E-Book.

My Keynote Address At The DMA08 Conference & Exhibition

If I were invited to give the keynote address at the DMA Conference in Las Vegas (I realize I cannot compete with the multichannel marketing knowledge of Playboy CEO Christie Hefner or the direct marketing brand known as Extreme Makeover Home Edition Host Ty Pennington, both delivering keynote addresses), it would go something like this:


Good morning attendees, and welcome to the final day of DMA08! For those of you who dipped your toe in some of the fine gaming opportunities available in the greater Las Vegas metropolitan area, you probably enjoyed a better return on investment than you recently observed in your 401k account ... or in your recent direct marketing campaigns.

I had a conversation with the CEO of a very traditional direct marketing brand last night. This individual painted a bleak outlook of her brand. She's done all of the things she is "supposed" to do. In spite of a thirty percent increase in postage in 2007 and a twenty-five percent decrease in customer acquisition performance in 2008, she continues to mail catalogs to her customers and prospects, because it is considered a multichannel marketing "best practice". She boosted the amount of recycled paper in her catalogs in an effort to "go green", even though tests suggest that recycled paper reduces response to the catalog by two percent. In her head, she knows the days of catalog marketing are waning. In her heart, she badly wants to see if she can do something to delay the inevitable, because catalog marketing is part of her soul.

She continues to maximize her paid search campaigns, though the cost of each click is twenty percent more than it was three years ago, and she doesn't understand the algorithmic bidding process for keywords.

She doubled the frequency of her e-mail marketing campaigns to two per week, allowing her customers to choose which version of a campaign they receive. In the past three years, the performance of her e-mail marketing campaigns declined by twenty percent. E-Mail marketing vendors preach to her that e-mail marketing has the best ROI, but she knows that the medium drives very little volume, and works less well with each passing year.

She dove head-first into social media. Her CEO blog is one of the most read in the industry, and her pages on Facebook and MySpace invite conversation. She listened to customers who complained about her products via Twitter and Plurk, investing money in a new quality assurance department, a department that reduced defective merchandise by ninety percent. And she tried to measure the performance of her social media entourage. Social media loyalists have only one-fourth the conversion rate of her loyal e-commerce purchasers, causing the finance folks to fume about her disproportionate focus on emerging marketing technologies.

Her marketing team tried numerous word of mouth campaigns, without any success. She's hired the best digital marketing agencies to create the campaigns, only to be told by agency leaders (after the campaigns failed) that she must offer merchandise that is buzz-worthy. If it were only that easy.

Her brand was one of the first to embrace mobile commerce, though her Executive team feels the time required to experiment in this space is not worth the six hundred customers who are experimenting with this channel.

In fact, if the suffix "2.0" is behind any term, her social media team gave it a try. She's been lauded for being an innovator. One of the leading social media bloggers praised her for being "a bright light in the dark tunnel of permission marketing".

In terms of the topics discussed at this conference, her brand is one to be admired. She and her team have done all of the things the experts speaking at this conference told her to do.

And yet, it isn't working. If all of these speakers are right, then why are her results so wrong?

In 2007, her sales were down 3% compared with 2006, due to softness that began in November 2007.

In 2008, year-to-date, her sales are down 12% compared with 2007. Telephone sales are down 20%, and e-commerce sales are down 4% compared with 2007. Her e-commerce team is facing the first sales decline they've ever experienced.

The majority of the e-commerce marketing team honed their skills during the updraft of the e-commerce channel, and have no experience driving sales in an environment where the customer no longer wants to or needs to or can afford to buy non-essential items. The e-commerce team responded to sluggish sales by offering the only incentives they've ever tried --- free shipping and 20% off offers. Sales increased slightly, but the impact on the bottom line was unfavorable. The finance team lacks confidence in the ability of the e-commerce team to "move the sales needle". The finance team realized, for the first time, that it is really, really hard to create demand via e-commerce. How the heck do you get your award-winning website in front of a customer who has never heard of you, and has no interest in buying from you ... today?

The inventory management team is also frustrated with the e-commerce team. Over the past decade when there were big inventory issues, the catalog marketing team churned out clearance catalogs that moved excess merchandise. The clearance catalogs were targeted to sale buyers, folks who loved sale merchandise. The e-commerce team, however, lacks the marketing tools necessary to advertise overstocked items to a mass audience --- they can only advertise to folks in a "state of need". The inventory management team are afraid they are not going to get bonuses this year.

The inventory management team isn't as worried as the catalog marketing team is. This team believes that layoffs are coming in 2009. They don't know where they are going to find a job in a world where catalog marketing continues to contract. They know more about how to drive a profitable direct marketing program than anybody else in the company, and feel like they would fit well in the e-mail marketing department. The e-mail marketing team is already well-staffed with experienced e-mail marketers, however. Not surprisingly, the catalog marketing team is busy building relationships on "LinkedIn". You can tell how strong the economy is by simply counting the number of LinkedIn requests you receive each week. LinkedIn has the potential to be very popular during 2009.

Most marketing folks are resentful of the social media marketing team. This team has been unable to prove that their efforts drive sustained sales or profit, but they seem to have a lot of fun with their campaigns. They receive a ton of public praise from bloggers and followers on Twitter, are asked to speak at all the major social media conferences. They are very proud of a three point increase in "share of voice" over the same period of time when sales decreased. In reality, the other departments are jealous of the social media folks, just like folks were jealous of the e-commerce folks eight years ago. It's much more fun to be on the cutting edge than to be left holding the bag for the majority of the business.

The merchants are under pressure, too. They spent two years building a state-of-the-art multichannel merchandise analysis system, and spent the past year learning how to analyze multichannel merchandise trends. Many of the staffers feel frustrated, because the "art" of merchandising is being replaced by the science suggested by the new system.

The merchandising team heaves their frustration on the information technology team. If the merchants want to present items in a new and creative manner in the catalog, they simply shoot the models and merchandise as they wish, partnering with creative services. Online, everything is templated for them. Sure, the shopping cart is in the upper right hand corner of the screen, complying with established best practices, but the merchants and information technology team are constantly grumbling about the direction of "Web Tech 2.0", the new version of the multichannel e-commerce website (the first significant upgrade since 2002).

Speaking of multichannel marketing, the CEO told me that she cannot find one example of the "1+1+1=6" principal that the multichannel marketing vendor community keeps telling her exists. Her experience is that the channels are cannibalizing each other, not adding significant incremental value. Worse, she feels like she'll have to use a hundred channels five years from now in order to get the same level of sales she obtains today with a handful of channels.

Now the CEO deals with new challenges. Her finance team pressured the organization into "turning" merchandise six times per year, because it was far more profitable to do so. Now that this discipline is part of the DNA of the company, the CEO cannot obtain the short-term financing she used to receive to fund frequent inventory turns, due to the credit crisis gripping the global economy. She's afraid that her merchandise assortment will be stale and meager in 2009, further alienating customers. She's upset that she ran her business with honesty and integrity, only to see Wall St. greed create instability in her business model. She doesn't understand why the taxes her organization paid in an honest manner are going to help folks who misbehave, while she has to consider downsizing her staff in response to their actions?


How many of you feel like the CEO of the company I spoke with last night?


Of course, conferences offer great networking opportunities, and offer the chance to learn about best practices being employed by leading brands and gifted leaders. All of this is good.

Few speakers at this conference are allowed to present the reality I just described.

The reality is that direct marketing, the craft many of us have practiced since the 1960s, is disappearing. So is e-commerce, as we know it ... a cold, discount/promo/low-price wasteland that offers few emotional benefits. Conversely, social media offers the humanity that is missing from e-commerce. If only social media drove sales and profit instead of comments and feedback.

One might consider this to be a dire message. On the contrary, I believe we are on the precipice of what I call a "direct marketing reformation". We're about to become direct merchants once again, dropping fancy marketing hype in favor of an honest relationship with the customer.

Direct marketers make progress when times are tough --- when times are easy, we simply enjoy the updraft, focusing on ideas that are easy to implement, calculating whether our annual bonus will be 27% of our salary or 33% of our salary.

But when times are tough, "the tough get going" (the music video plays in the background ... audience sings along, clapping). It's like we're "living on a prayer" (another video pops up, remember those three minute masterpieces from the 80s? That's when you had to be "multichannel", video on MTV and song on the radio --- now, videos are dead, hmmmmmm). Big applause from the audience.

We're halfway there.

It won't happen in 2009, and it probably won't happen in 2010. But sometime during 2011, somebody is going to figure out how to fuse traditional direct marketing, e-mail marketing, digital direct marketing, e-commerce, social media, Google, widget-based marketing, mobile marketing, portal advertising, and whatever comes between now and then. And when somebody fuses these elements together in a way that resonates with the consumer, LOOK OUT! A hundred micro-channels all interacting seamlessly, effortlessly, without coordination from a centralized marketing borg. A fusion of algorithms and sweat equity that actually brings humanity to the cold, lowest-price buying process. We will recapture the spirit of the "direct merchant".

Multichannel marketing is not about pummeling the best customer with messages from twenty-seven channels while at the same time having a conversation with the customer via social media. We're going to figure out something new, something relevant to the way the customer behaves in 2008. A direct merchant is not a direct marketer. We're about to go through a reformation.

I leave you with the words of Richard C. (Dick) Anderson, the second President of Lands' End. You can read the words from this link on the Lands' End website. They are copied here, word for word, unchanged from his presentation to the audience at DMA91.

"When I first became involved with Lands' End as a director in 1978, it was on the strength of my extensive experience in advertising. And both Gary Comer and I wanted to convey the uniqueness of the Lands' End experience. Somehow, reflecting on how best to do this, on a trip through the warehouse, my guide — the manager, chose to say: "I just wish we didn't have to call our business mail order." Mail order, at that time did not enjoy the most savory reputation, you may remember.

This triggered in me a vision of the original great merchants of British history, for some reason or another. The way they prowled the seven seas and brought treasures back to London from the four corners of the earth, and a phrase occurred to me which is now a part of our name and certainly a part of our philosophy. We are, as you will recognize...direct merchants.

I call this to your attention because the majority of you in attendance here — and I who represent Lands' End — may differ widely in the ways we do business. But, however distribution possibilities evolve — old ones, new ones — we share the same identity. We are all merchants. And for me, that is an honorable and vital identity — even in this day when it is fashionable to hold forth on the subject of marketing in all its forms. I don't decry that exactly, but I'm more comfortable considering myself a merchant. And here's why. In my view...

• A marketer deals with many; a merchant deals with one.
• A marketer moves from the mind; a merchant moves from the heart.
• A marketer is logical; a merchant is perceptive.
• A marketer does business across the world; a merchant does business across the counter.
• And finally, a marketer bets his all on a System; a merchant bets his all on His Store.

Fellow merchants, I salute you on behalf of each of the 5,500 employees of Lands' End, in whose behalf it has been my privilege to address you.

They thank you for that privilege. As do I."

I recall being at Lands' End when this statement was made. I was a marketer. I would have bet my all on my system, a series of statistical equations that determined who received nearly every single Lands' End housefile catalog. Today, I side with Mr. Anderson. Our future is about betting on our store, not on a marketing system.

Hillstrom's Contact Strategy Optimization On A Budget

Hillstrom's Contact Strategy Optimization On A Budget is a new e-book and spreadsheet available from the MineThatData Store at Lulu.com.

Contact Strategy Optimization is not a new concept. During my time at Lands' End in the early 1990s, we worked with a team of IBM researchers on an optimization solution that formed the embryonic version of the solutions offered by Decision Intelligence.

During the past two weeks, many of you told me that you don't want to spend tens or hundreds of thousands of dollars on black box algorithmic solutions that optimize the number of catalog contacts to various customer segments. That being said, you told me you want a solution ... one that can be implemented by Business Leaders, Analysts, and Managers ... one that can be implemented on a budget.

So I wrote this e-book, outlining a reasonably simple approach to identifying the most profitable combination of catalog mailings and e-mail marketing messages to different customer segments.

What Do You Get, What Will You Learn?

• You'll learn that matchback algorithms over-state the importance of catalog marketing, causing us to mail too many catalogs to our customers.

• You'll learn that the "organic percentage" is the most important metric to understand when considering an appropriate contact strategy.

• You'll learn that contact strategy testing is critical to understanding multichannel customer behavior.
  

• You'll learn how cannibalization between catalog mailings and e-mail marketing messages directly influence a profitable contact strategy.

• You'll apply versions of the "square root rule", identifying profitable strategies.

• You'll receive access to a URL where you can download a spreadsheet that allows you to play "what if" games using your own assumptions and your own customer segment performance.
  

This is not meant to be an elegant or mathematically perfect solution. This e-book and spreadsheet are written for you, the Executive or Analyst who has to come up with solutions on a limited budget.

Do you not have a quarter of a million dollars to spend on an optimization solution, but have access to $79? If so, purchase "Hillstrom's Contact Strategy Optimization On A Budget"! For those of you who criticize me for giving away too much information, you'll be happy, because the contents of this e-book will not be made available on this blog.

$79 is a fair price, considering you'll be given tools that could result in hundreds of thousands of dollars of annual profit, don't you think?

So visit the MineThatData Store on Lulu.com, and download this e-book for the nominal fee of $79.

Neiman Marcus To Reduce Catalog Mailings

Courtesy of the folks at Internet Retailer Magazine, read the article here.

You are seeing a parting of the sea when it comes to multichannel marketing.

Retailers like Saks, Bloomingdales, Nordstrom, and Neiman Marcus de-emphasized or eliminated catalog marketing --- and can do so because the interaction between retail and online channels allows them to generate a high organic percentage.

The traditional cataloger, without the benefit of retail, struggles, because as catalog dies a slow death, there isn't a channel that has achieved critical mass, ready to supplant catalog advertising. We may never find one or two channels to replace catalog marketing. We will need to find one hundred tiny micro-channels that, collectively, replace a dying advertising channel.

The Most Important Catalog Marketing Metric: Organic Percentage

The most important metric in catalog marketing is called the "organic percentage".

The metric is defined as the percentage of demand, at a segment level, that would occur if no catalog mailings were delivered to a customer.

Most of the catalogers I speak with assume that the organic percentage is zero --- in other words, if catalogs were not mailed to a customer segment, the segment would not spend any money.

Of course, this assumption is false, perpetrated by biased matchback algorithms that incorrectly assign online orders to catalogs mailed to the customer, when in reality, the catalog had nothing to do with the generation of the order in question. You'll know that your matchback results are biased if the percentage of demand you add on to your acquisition segments (after matchback) is significantly lower than it is for housefile customers.

Catalogers who attempt contact strategy tests, say over a three month period of time, find relationships like this.

• Telephone - Only customers have an organic percentage around 10%.
• Telephone + Online customers have an organic percentage around 25%.
• Online - Only customers have an organic percentage around 40%.

In other words, if no catalogs are mailed to an online-only customer, the online customer will still spend 40% of the demand they would spend if they are mailed all of the catalogs during the quarter.

The organic percentage metric is critical, because it dramatically impacts your calculation of profit and loss. If you have a high organic percentage, then you are significantly overmailing customers, regardless of what your matchback analytics vendor tells you. If you have a low organic percentage, then you have no choice but to mail catalogs in order to generate demand.

The image at the beginning of this post shows the difference in profitability for the same segment of customers, comparing a 10% organic percentage to a 40% organic percentage. The ten percent level requires four mailings per quarter. The forty percent level maximizes profit at just one mailing per quarter. Think about what you could do with the expense from the three additional mailings?

If there were just one metric I'd ask catalogers to track at a segment level, during 2009, it would be the "organic percentage" metric. Knowing this metric fundamentally changes how you decide to contact different customer segments.

How important is this percentage? Take a brand like Nordstrom. This is an $8.5 billion dollar business that is luck to generate ten percent of that total from marketing activities. Therefore, the organic percentage is ninety percent. This brand generates ninety percent of sales without the aid of traditional marketing activities. That's a strong brand.

Think about Zappos. There's the volume they generate due to online marketing and search marketing, and then there's the volume they generate via word of mouth. I'd guess that half of their volume happens without the aid of marketing, plus or minus twenty percent.

And then think about a traditional cataloger. The traditional cataloger believes that the vast majority of demand happens becaue of catalog mailings. If mail/holdout tests validate this, then the cataloger is at the mercy of catalog marketing --- if customers are no longer responsive to this form of marketing, demand dries up.

The goal, of course, is to build a brand that has a high organic percentage, not needing advertising to drive sales and profit.

We can learn how much of customer demand is generated by advertising by executing thorough mail / holdout tests, in both catalog marketing and e-mail marketing.

Zip Code Marketing: Claritas PRIZM and Hillstrom's Zip Code Forensics

Some of you are wondering about the differences between Claritas PRIZM Clusters/Segments and Hillstrom's Zip Code Forensics. Here's a quick comparison of the differences.

Claritas PRIZM Clusters/Segments: Each zip code (or zip+4) is categorized into one of more than sixty different lifestyle segments. Each segment is given a clever name, describing the type of person who lives in that segment. Demographic studies, surveys, and data are compiled to create a profile of the type of person who lives in that segment. The segments are well defined, and help the user understand "who" lives in a particular area --- you hear the segment name "Shotguns And Pickups", and you have an immediate image of the demographic of that area. This segmentation scheme can be used to improve direct marketing activities, as each brand is likely to align with customers who spend a lot, and live in specific segments. The cost of using PRIZM clusters is reasonably expensive, though marketers can gain an acceptable ROI.

Hillstrom's Zip Code Forensics: Each zip code (not at a zip+4 level) is categorized into one of six different performance and channel preference segments, similar to traditional zip code models used in zip code marketing programs.

• Catalog Crazies: Highly productive zip codes that prefer traditional direct marketing.
• Online Bliss: Highly productive zip codes that prefer e-commerce and online community.
• Catalog Fans: Average zip codes with a traditional direct marketing preference.
• Online Spend: Average zip codes that lean toward e-commerce.
• Catalog Preference: Zip codes with customers who do not spend much money on direct marketing, but do prefer traditional direct marketing (i.e. catalogs).
• Online Preference: Zip codes with customers who do not spend much money on direct marketing, skewing toward e-commerce if they buy something.

The direct marketer will use Hillstrom's Zip Code Forensics to target geographies that have higher-spending customers --- especially when the direct marketer is looking at marketing activities that perform at or below break-even levels.

The direct marketer can expect to reduce marketing expense by about seventy percent by targeting only Catalog Crazies and Online Bliss zip codes --- while improving sales performance by about ten percent, yielding a significant increase in profitability.

Hillstrom's Zip Code Forensics is based on anonymous sales data by channel, at a zip code level, from leading catalog brands across the United States. Mathematical Algorithms and Census Data combine to yield the six segments mentioned earlier in this post.

Hillstrom's Zip Code Forensics is FREE (yes, I said FREE!) to customers who contribute anonymous, annual sales data by channel by zip code, with free quarterly updates as catalogers continue to add their sales data to the algorithm. For marketers using the segmentation scheme across at least 200,000 in annual marginal catalog circulation, it is expected that a positive ROI will be achieved, based on beta tests conducted earlier in 2008.

Folks who do not contribute anonymous, annual sales data by channel by zip code will be charged a fee of $5,000 for an annual license.

Contact me (kevinh@minethatdata.com) for details or to participate.

Customers Move From Catalog To Online To Retail

I've been telling you that Multichannel Forensics continually indicate that customers move from online to retail, glad to see others are also observing this relationship:

• IBM Research Suggests Customers Prefer To Move From Online To Retail, Not From Retail To Online, via Direct Magazine.

When you know that customers move from Catalog to Online, then from Online to Retail, then use Online to research future Retail activity, you view your multichannel marketing activities very differently than you view them through the multichannel marketing best practices we're currently being taught.

And long term, for those with a retail presence, the e-commerce channel is dwarfed by the "internet as a research channel" concept. The direct marketing community and web analytics community isn't ready for this reality.

If you are a retailer who has run simulations illustrating long-term customer migration, you've probably observed something like this (comparing an online/direct customer to a retail customer --- click on the image to enlarge it):



Again, you're likely to see this type of trend if you are Gap or J. Crew or Eddie Bauer or Best Buy or Ann Taylor or any brand with an online/direct and retail channel. Customers seem to migrate from online to retail. When that happens, they are much less likely to buy online, much more likely to research online. This changes how you view your website.

Williams Sonoma: Catalog And E-Mail Circulation Optimization

Courtesy of the folks at Multichannel Merchant, this article about huge circulation cuts at Williams Sonoma stimulates some thought, doesn't it?

The article mentions digital direct marketing as an alternative to catalog marketing. When you have a retail presence, it is much easier to go down this path, and sometimes it is more profitable to go down this path.

If you're a traditional cataloger, without a retail presence, life is more challenging. One of the things we have to do is more testing --- testing what happens when we combine catalog marketing with e-mail marketing.

Check out the sample test results, measured over a three month period of time to customers who receive both catalogs and e-mail marketing campaigns.

Catalogs	E-Mails	Phone	Online	Total	Profit
6	Yes	$6.50	$6.50	$13.00	$0.92
6	No	$7.50	$4.75	$12.25	$0.69
4	Yes	$5.50	$6.25	$11.75	$1.68
4	No	$6.50	$4.50	$11.00	$1.45
2	Yes	$3.50	$6.00	$9.50	$2.10
2	No	$4.50	$4.00	$8.50	$1.78
0	Yes	$0.00	$5.50	$5.50	$1.90
0	No	$0.00	$3.00	$3.00	$1.05

This is the style of test our industry can capitalize on. We compare combinations of catalog marketing contacts and e-mail marketing contacts, searching for the most profitable strategy. In this case, receiving two catalogs over the course of a quarter, coupled with a weekly e-mail marketing strategy, is most profitable.

Notice that this strategy doesn't yield the best result, in terms of total sales volume.

Also notice that sending no catalogs, and no e-mails, still causes customers to spend money. This might be the most important metric for you to obtain --- what percentage of volume happens if you don't execute any traditional direct marketing (catalog / e-mail)? Do you know this percentage? It's an awfully important one to know.

Where are we heading: We will slowly back off on traditional direct marketing --- and we will re-invest the advertising dollars we save in untested online marketing strategies. And over time, we'll identify online micro-channels that recoup the sales we lose by cutting back on catalog marketing, and we'll be more profitable!

E-Mail Marketing Gone Wild, Part 2

Ok, I corked-off plenty of you while ranting about e-mail marketing yesterday.

First, I fully understand the concept of offering discounts and promotions in the spirit of moving excess merchandise. So if your business is down 20% to last year, and you have no options for clearing excess product, I get why you have to go down this path. I also understand if you are trying to keep the customer file afloat so that there is file strength for next year.

But those are tactics in response to sluggish business.

Go look at Chad's subjectivity scanner, especially during the first half of 2007, a period not impacted by a sluggish economy. You'll consistently see 40% or 50% of messages focused on paying the customer money in exchange for a purchase. The strategy behind the channel is fundamentally broken. Why is the customer with broadband access in San Francisco worthy of a discount because she gave an e-mail address to you, while the customer in Vermont who orders over the telephone has to pay more when she gives you her telephone number?

Now, my wife just said, "why are you ranting when you should be offering solutions?" Point well taken.

What is the purpose of your e-mail marketing program? If the purpose is to facilitate low-profit purchases from customers craving discounts and promotions, then have at it. But clearly articulate your strategy to management.

Is the purpose to communicate a marketing story? If so, then do you care if the customer ever buys from your e-mail marketing program? Simply communicate the story, and measure if the sales are made up for in other channels. And if the sales are not made up in other channels, do you care? Do you quantify the impact of all of the copy you write for products online?

Is the purpose to drive the customer to the website? Then find the creative presentation that is most effective at driving customers online, and let the website convert the customer.

Is the purpose to communicate authority on key items? If so, then communicate your authority --- but you don't have to give promotions to accomplish this.

Is the purpose of e-mail marketing to clear excess inventory? If so, that is fine, go ahead and feature overstocked items at remarkable prices, and build an e-mail file that craves these opportunities. Be consistent, and communicate this strategy.

But if the purpose of e-mail marketing is to have e-mail marketing be part of an integrated multichannel marketing strategy, then listen to the pundits --- all promotions and discounts are offered in all channels at the same time --- build a congruent customer file that will respond in all channels.

The purpose here is not to belittle you. The purpose is to get all of us to view our channels strategically, and to optimize each channel based on what each channel is best at. I do not believe that the e-mail marketing channel is best served as the place where the customer gets to buy merchandise and not generate significant profit for the company.

A Veritable Plethora Of Updates

We talked about credit this week --- namely the way our industry sells money to customers as well as merchandise. I scolded our industry for this behavior. None of you elected to leave a comment, pro or con. But some of you sure liked the article on Ann Taylor's new credit/loyalty program, interacting with it and e-mailing it to your friends.



It's one thing if I suggest there's a catalog customer acquisition problem. It's a whole 'nother thing when it comes from a respected individual like Paul Imbierowicz.

Our challenge, as an industry, is to find the 100 micro-channels that replace the 15% drop in catalog customer acquisition circulation. Until we figure this one out (some folks have figured out some of the pieces, some catalogers are doing really neat stuff these days), mining lapsed buyers is a short-term fix.

Also notice that Mr. Imbierowicz promotes the concept of different marketing tactics for different customer segments. Good! Mr. Imbierowicz has always been one of the positive voices coming out of Abacus, in my opinion.



You've been enjoying the discussion about Hillstrom's Zip Code Forensics, based on my RSS stats and Google Analytics results and extensive beta test participation. Check out tip #1 from Lori Paikin, via Multichannel Merchant.



More on catalogers using social media:

• KooKoo Bear Kids.
• Michael Chiarello's Blog --- from NapaStyle.
• SwellBlog, from Swell.

Notice the brief comment in this Shop.org post about "questioning the ROI of blogging". Let me ask a question of the wise pundits who demand that the ROI of blogging be quantified ... Do you measure the ROI of the following activities?

• Do you measure the incremental value of each of the paragraphs of copy you write for the products on your website?
• Do you measure the incremental value of the color scheme you use on your website?
• Do you measure the incremental value of the font you choose to present information with on your website?
• Do you measure the incremental value of the periodicity of website updates ... i.e., do you measure whether it is right to update your homepage monthly, weekly, or in real-time?

If pundits aren't pontificating about measuring the ROI of these activities, then why in the name of Robert Scoble do the same pundits demand you measure the ROI of "blogging", which is really nothing more than a modern version of writing copy?


Multichannel Forensics A to Z: Interestingly, you enjoyed two articles more than any other during the last half of this series.

• Uncoded Demand
• Segmentation

Apparently, you want to know what to do with all those online orders that aren't directly attributable to a catalog --- and then you want to segment customers in a way that is actionable. Both are important. Both only scratch the surface of the real issues we face these days --- they are symptoms of bigger problems, like high blood pressure being a symptom of heart disease.

E-Mail Marketing Gone Wild

If you don't subscribe to Chad White's Retail E-Mail Blog, you have an opportunity to learn more about e-mail marketing. Where else are you going to find out what the popular retailers are doing with their e-mail marketing programs?

During the past two weeks, I looked through his "subjectivity scanner", trying to calculate the percentage of e-mail subject lines that focus on price/discounts/sales/free-shipping/promotions. Here's what I found:

• 61% of the e-mail marketing messages focused on price, discounts, sale, free shipping, bogos, or promotions.
• 39% focused on merchandise, disproportionately skewed to L.L. Bean, Lands' End, and Williams Sonoma.

Folks, how do we ever expect our customers to take us seriously, when six in ten messages tell the customer NOT to pay full price? We get upset that Wall St. drank the easy money kool-aid, now take a look at our own behavior?

E-mail marketing is fundamentally broken. We are poisoning our customer files, teaching customers to never pay full price anywhere. Why should a customer pay full price from the catalog when they can wait for the perfect promotion from an e-mail campaign?

Merchants should be taking us to the woodshed for a good 'ole fashioned paddlin'. We're poisoning their products with our endless quest for inflated open rates, click-through rates, and conversion rates. Heck, why don't we simply offer the merchandise for free???!!!! That would drive the metrics in the right direction, wouldn't it?

Until we, as an industry, stop trying to get an easy buck all in the name of best practices and inflated metrics, we won't be viewed by peers or customers as offering a respected marketing channel.