Answer The Poll Question!

This month's poll question, found on the right-hand sidebar of the homepage, asks what three things a CEO should focus on.

So far, the choice of "Brand Building" is a surprising answer, given the quantitative nature of this audience.

What would you suggest are brand building activities that a CEO could engage in, activities that you feel would demonstrate a positive ROI?

Bubble Spending Levels

There are three key areas every web analyst, business intelligence guru, e-mail analyst, catalog circulation director, and business executive should be monitoring these days.

1. Annual Repurchase Rates By Segment.
2. Spend Levels By Segment.
3. Customer Acquisition Counts & Spend.

These three dimensions typically explain why a business is growing or shrinking.

We want to compare the metrics over the past decade. Often, we see a chart similar to the spending chart in this post. Spend per customer ramped-up during the bubble years, then crashed in late 2007 or in 2008.

If spending crashed, then we want to go back to the pre-bubble years, and understand what spend per customer looked like back then. We want to plug those spend levels into our forecast models, to understand what impact pre-bubble spending has on the future of our business.

It's pretty darn important to have a five year sales forecast, built off of actual customer file dynamics. We need to give our leadership teams better visibility into the different ways our businesses are likely to evolve, given new customer spending habits.

1-800 Flowers & Catalog Prospecting In Kids/Home

A few comments worth sharing from their most recent investor conference call.

• Management says the business is "solidly profitable", $50 million in profit, 10% pre-tax. Nice results in a gloomy environment. Not everybody is failing.

• About 10% of the salaried workforce were downsized.
  

• "We are significantly downsizing our Home and Childrens gift business segments including reductions in catalog marketing (see page 2 of the document) ..."

• Kudos to the 1-800-Flowers Database Marketing Team!!! It isn't often you hear figures quoted in these calls. 1,000,000 new customers during the holiday period, 57% of orders from repeat customers (not how I prefer to calculate this metric, but so what!) , and 30,000,000 customers in the database. This tells me that this business is probably in Acquisition Mode --- that may sound strange, but with 30,000,000 customers in the database, they should be pulling in 80% of orders from repeat buyers if they had better customer loyalty.

• Comment From Joseph Pititto: "I think on the marketing channels the least productive channel we have is catalog marketing especially on the prospecting side."
  

Our job, as industry leaders, is to synthesize all of the feedback we're getting from business leaders. The vendor community continues to advocate multichannel marketing via catalogs. Business leaders continue to shut down catalog marketing efforts, clearly telling the world that catalog prospecting is dying.

Every one of us should have a five year customer acquisition plan that migrates us out of the co-ops (if performance warrants) and catalog prospecting (if other avenues can be developed) during the five year period. This plan requires considerable testing of alternate ideas over the next eighteen months, in order to keep us moving ahead of this trend.

Bloodbath At The Fiscal Year End

Based on your feedback, companies are going off the deep-end right now, in order to book severance expense in the final days of the fiscal year. Catalog jobs and management jobs seem to be in vogue.

Meanwhile, others are taking a hatchet to catalog circulation. Then this individual suggests that the CMO of Epsilon is predicting the end of marketing via the mail. Epsilon, if I recall, owns Abacus. What is Epsilon doing to help you through the transition? Or do you keep paying four cents a name for a channel that is not getting the job done? At some point, we have to change. It's up to us.

Some of the stories you're telling me are amazing. One individual was relocated to a new job in December, forced to move the family all the way across the country, only to be let go three weeks later.

Maybe the worst part of all of this is that we've created a feedback loop that dooms our own future. We're outsourcing day-to-day work. So much of the multichannel marketing work is now done by list brokers and co-ops and list processing vendors and database marketing vendors that we've created an impression among leadership that we're not needed.

And what did all of that outsourcing do for us, anyway? Some short term profit, of course. Short-term profit seems to be the curse of capitalism.

Please PAY CLOSE ATTENTION ALL YOU ONLINE MARKETERS. You're two years away from this. If e-commerce sales go sideways for the next few years, you're next. You, too, outsource key elements of your strategy (paid search, e-mail marketing) --- and at some point, somebody is going to decide that a retail executive or one of the more experienced catalog people or a merchant can do your job. It's been happening in cataloging for the two decades I've been in the business. It is coming to a online marketing department near you, once you aren't increasing sales at +15% per year, every year.

Online marketers, it's a good time to start thinking about how to wean yourself from Google, a good time to start driving sales independent of catalog marketers and television advertising and newspaper advertising and radio. How will you drive sales on your own, using your tools? Will Social Media save you? Twitter? Time for some social media accountability.

Of course, we'll get through this, and we'll innovate our way to new jobs and new responsibilities. And with luck, we'll remember the lessons of outsourcing, and of clinging to the traditional aspect of evolving business models.

Co-Ops And Long-Term Value

You may have heard me be critical of the co-ops.

One place where co-ops deserve praise is in the targeting and modeling they've done over the past two years. Long-term value of customers acquired via co-ops have consistently been above-average, after seeing very different results in the past. Whether competition or better algorithms or better data capture, the result is highly positive.

Often, subsequent merchandise purchased by co-op customers is different, and subsequent channels purchased from by the customer are different than the merchandise/channels purchased by online customers using algorithms like Google.

Also pay attention to Zip Code Forensics --- a few of the larger co-ops skew heavily toward Catalog Crazies & Catalog Fans, not good, not bad, just means they are going after the rural catalog customer, directly or indirectly. Conversely --- Google --- those customers skew to the Online Bliss and Online Spend segments in Zip Code Forensics.

Your E-Mail And Catalog Contact Strategy, And Profit

If you read the multichannel marketing literature, you're unlikely to find any discussion about how marketing channels truly interact with each other.

And that's a shame, because the interactions are where all of the magic happens!

Folks who test different combinations of catalog mailings and e-mail campaigns observe interesting results.

Take a look at the table in this post. Seven different combinations of catalog mailings were tested against five different combinations of e-mail campaigns, yielding thirty-five different test groups.

What do the results tell us?

• The organic percentage can be directly calculated ... the $20.00 generated at 0 catalogs / 0 e-mails divided by the $99.00 generated at 24 catalogs / 52 e-mail campaigns. The organic percentage is 20.2%. This is soooooooooo important!! If this company does nothing, customers will still spend 20.2% of the volume they spend if all direct marketing activities are executed. For most catalogers and e-mail marketers, results are over-stated, because organic demand is being falsely attributed to marketing activities. Ask your co-op or database provider to calculate the organic percentage for you, or ask your database marketing expert to calculate this metric for you.
  

• Notice that demand does not increase in a linear manner. Each additional catalog, and each additional e-mail campaign yield an ever-decreasing amount of additional demand. This rate of diminishing returns is not well known in the direct marketing community, and causes direct marketers to significantly over-invest in marketing.

• Notice that e-mail is able to re-capture demand that is lost as catalog mailings are reduced. This "re-capture" is not well known in the direct marketing community, and causes direct marketers to significantly over-invest in catalog marketing.

• E-Mail marketing is actually very productive at small quantities ... thirteen contacts are much more productive, on a per-e-mail basis, than are fifty-two contacts.
  

• As catalogs and e-mail campaigns are increased, profit begins to shift. Notice that the most profitable combination is 12 catalogs and 52 e-mail campaigns. However, if you only delivered 26 e-mail campaigns, you need 16 catalogs to maximize profit, and if you don't execute e-mail marketing, you need 20 catalogs to maximize profitability.

• "Profit Shift" is a very important concept. As more and more "free" or "nearly free" marketing channels become available, the profitability of traditional, expensive marketing channels (like catalog marketing) becomes worse, requiring less investment in traditional, expensive marketing.

When e-mail marketing and catalog marketing collide, a rich array of insights become immediately apparent. All you have to do is set up tests to identify the insights!

Job Outlook

This wasn't hard to predict.

It is sooooo easy to say that things look bad.

Find the individual who says things are going to improve, and shows you a path out. That person may be wrong, but she has the courage to stick her neck out there. If you can't find that person, BE that person!

In basketball, when things look bad during a game, you call a time out and regroup. You don't fire the team during the game.

So call a time out.

On Data Analyst Day (February 2), celebrate all that is still good about working in our profession. Then come back to work on February 3, and start putting some positive mojo out there --- no matter what anybody says, no matter how many jobs are lost, you're going to fix your corner of the world.

And if enough of us do that, things will improve.

The End Of Multichannel Marketing 1.0

Last week's news that Williams Sonoma is reducing staffing levels by 18%, and is continuing to cut catalog circulation (this year by 15-20%), may well nail the lid shut on the coffin of version 1.0 of Multichannel Marketing.

Toss in Circuit City's failure (buy online, pickup in store --- a great, customer-friendly idea that doesn't seem to fundamentally move the sales needle), and we've got trouble!

It's really hard to point to a brand that executed multichannel marketing the way our leadership told us to execute it, and as a result is thriving in this economy. It is even harder to defend traditional multichannel marketing when Amazon and Zappos are steamrolling us.

Traditional multichannel marketing was proven as viable via the matchback algorithm. Folks would mail 26 catalogs a year, then take credit for all of the online and retail orders from customers receiving the catalogs.

Mail and holdout tests seldom defend this style of analysis and attribution.

Try this one on, for size. If we believe that matchback analytics are accurate, then the Democratic Party could have sent 60,000,000 postcards to prospective Democratic voters two weeks before the Presidential Election --- and then matched each vote back to the postcard. The Democratic party could prove, via matchback analytics, that the postcard was responsible for the election results, right?!

You don't agree with that?

Then why do you believe in your matchback analytics reporting?

The tenants of Multichannel Marketing 1.0 are teetering. Nordstrom killed a $36,000,000 catalog marketing program and saw e-commerce sales increase in the absence of catalog marketing. Saks killed catalog marketing before Nordstrom did, Bloomingdales recently followed suit. Williams Sonoma is taking catalogs out of the mail stream at a breathtaking rate.

E-Mail marketing evolved outside of our expectations, optimizing itself along open rates and click-through rates and conversion rates that can only be maximized when offering up to 40% off and free shipping. E-Mail marketing represents a classic case study of optimizing around the wrong set of metrics.

We were told to make sure the look and feel of all marketing activities were the same, without any proof, without any single case study that demonstrated that the strategy worked on a long-term (i.e. six month or annual) basis. We were told to offer the same product in every channel at the same price --- never mind that in another industry it is a best practice to get a hotel room at the Hilton for $129 via Hotwire while paying $259 on the Hilton website, or that you can buy a seat on an airplane for $309 at 2:00pm, then pay $269 at 2:15pm, then pay $329 at 2:30pm.

Meanwhile, Google gladly takes our paid search dollars while re-allocating customers to other brands, customers we drove to Google with traditional advertising. This leaky bucket is best reflected in the 20% to 70% reduction in catalog customer acquisition performance over the past decade. This is a leaky bucket that cannot be fixed unless you do everything the way Google wants for you to do it, and even then, there's no guarantee you fix the leaky bucket!

Maybe it is time to retire Multichannel Marketing 1.0. This version of marketing represented the transition from traditional marketing to e-commerce. We're now going through the transition from e-commerce to something we cannot define just yet. Eventually, we'll go through the transition from whatever this is to Hologram Marketing --- and the e-commerce folks will repeat the multichannel marketing argument all over again!

Time for your thoughts. Is it time to retire Multichannel Marketing 1.0? If not, what data would you use to defend your argument? What brands would you point to that are shining examples of Multichannel Marketing done very, very well? Any catalog brands or retail brands come to mind?

False Metrics

In our world, we've heard the phrase "Multichannel customers are the best customers" for about a dozen years.

This phrase is used by retail and catalog CEOs, by consultants, and especially by the vendor community. It is frequently used as the reason for implementing various marketing strategies, opening stores, or for purchasing software systems. It is sort of like telling somebody to buy an oven because really good food comes out of the oven --- not understanding all of the dynamics that go into making and baking good food.

The multichannel metric is an easy one to calculate. Folks will filter only the twelve month buyer file, and will query that file, summing past demand based on past physical channels (phone, web, stores) purchased from. Others calculate the metric in a "forward looking" way, measuring twelve-month future spend as a function of past channels.

Here's an example, using aggregated and dummied-up multichannel data.

• 1 Channel In The Past = $169 in the future.
• 2 Channels In The Past = $226 in the future.
• 3 Channels In The Past = $362 in the future.

So, we've proven the statement, right?

Well, there's another way to validate the information. We can build models --- Logistic Regression for the repurchase rate, Ordinary Least Squares for spend per repurchaser.

In this example, I built models using numerous variables for a traditional business that has three physical channels.

• Square Root Of Months Since Last Purchase.
• Purchases In The Past 12 Months.
• Purchased 13+ Months Ago.
• Average Order Value
• Is Customer An E-Mail Subscriber? 1 = Yes, 0 = No.
• Number Of Physical Channels Customer Purchased From.
• Number Of Merchandise Divisions Purchased From.
• Number Of Online Channels Purchased From (Paid Search, Affiliates, Natural Search, Blogs, Shopping Comparison Sites, Portal Advertising, etc.).
• Square Root Of Catalogs Mailed In Subsequent Twelve Months.

Here's the Logistic Regression Coefficients And Wald Statistics

• Constant = -2.386.
• Orders Past 12 Months = 0.324, Wald Statistic = 2800.
• Square Root Of Subsequent Catalogs Mailed = 0.293, Wald Statistic = 1800.
  
• Orders 13+ Months Ago = 0.084, Wald Statistic = 1300.
• Square Root Of Recency = -0.187, Wald Statistic = 720.
• Number Of Merchandise Divisions Purchased From = 0.049, Wald Statistic = 200.
• Number Of Web Advertising Channels Purchased From = -0.073, Wald Statistic = 100.
• E-Mail Subscriber = 0.110, Wald Statistic = 65.
• Physical Channels Purchased From = -0.070, Wald Statistic = 40.

And here's the Ordinary Least Squares Regression Coefficients, and T-Statistics.

• Constant = -105.943
• Average Order Value = 1.343, t = 87.
• Number Of Twelve Month Orders = 73.483, t = 77.
• Number Of 13+ Month Orders = 6.384, t = 25.
• Number Of Web Advertising Channels Purchased From = -18.483, t = -15.
• Square Root Of Subsequent Catalogs Mailed = 14.395, t = 13.
• E-Mail Subscriber = 28.548, t = 8.

Now, the statisticians out there will start "nibbling on the cookie", trying to pick apart all of the problems they see with the modeling strategy and variable definition. Go ahead, pick away.

The CEO will want to understand the strategic implications of the model results. What did we learn?

• Traditional RFM variables are the most important variables. We want recent customers who order frequently and spend a lot each time they order. Traditional catalogers would say "duh", but this is news for many web analysts and e-mail gurus and e-commerce leaders. An entire set of KPIs can be developed to understand if the business is evolving in a favorable manner.

• Catalog mailings are important, but have a diminishing rate of return as they are mailed, meaning each additional catalog is less and less important.

• Merchandise divisions are somewhat important. You want a customer who purchases DVD players and LCD televisions --- that is more important than having a customer who buys just iPods. Notice that the coefficient is "small", meaning it isn't nearly as important as having customers who purchase multiple times.
  

• Physical channels have a negative coefficient. In other words, after controlling for RFM factors, having multichannel customers means nothing, in fact, it is negative!

• E-mail is interesting --- e-mail as a program has the same value as getting a customer to purchase about 1/3 of an order --- so e-mail doesn't have a huge amount of value. Now in the spending model, e-mail adds $29 of value, so that is good. Here's the thing, folks. Take your twelve month audience, and for each subscriber, plug the customer data into the model. Sum, across all customers, total 12 month future value due to e-mail marketing, and compare that with the demand your e-mail reporting system told you that you generated over the past twelve months for customers who were twelve month buyers at this time last year. Do the numbers tie out? They shouldn't. The model coefficients, if derived properly, are going to be more accurate at communicating true e-mail value than the open-rate, click-through-rate, conversion-rate metrics everybody is taught to look at.
  

• Web advertising channels are negative --- in this case, you don't want a customer buying because of paid search and affiliates and portal advertising. These customers might be doing too much comparison shopping and won't build long-term loyalty the same way as other customers do.
  

Similar trends happen in the spending model.

You see, we don't always need to build models for targeting purposes. We build models for strategic purposes, for communicating to CEOs, for determining a marketing strategy.

And the models frequently debunk established best practices, don't they?

This data suggests it is more important to get customers to buy from multiple merchandise divisions than from multiple channels. So why not focus on revamping an e-mail marketing program by offering multiple merchandise divisions in the creative template you are using? Why not focus on landing pages that offer multiple merchandise divisions?

This data suggests that catalog marketing has a point of diminishing returns. Why not test the appropriate number of catalogs to send to different customer segments?

This data suggests that customers age rapidly --- orders 13+ months ago are worth maybe 15% or 20% as much as recent orders --- and response decreases as months since last purchase increase. So when you have a customer who hasn't purchased in six months, think strategically about how you re-engage that customer --- or let the customer go and acquire a new one.

This data suggests that physical channels ultimately have little meaning --- you don't care if the customer buys online and in stores --- you need to care about what the customer is buying, not the channel they are buying it from. Now channels may have importance if you cannot acquire customers in the catalog/phone channel that you currently acquire online. It's important to understand these dynamics --- and these are dynamics we seldom talk about.

Strategy, as outlined in this article, is sorely missing from multichannel marketing. We don't instruct our statisticians, if we're blessed enough to be able to afford one, to create strategic models. And we sure don't lead our co-ops, who have these answers and many, many more answers embedded in their databases --- we don't demand answers from them, we just pay them for access to inexpensive prospects. The large web analytics vendors can help us with this as well.

The title of this post is "False Metrics". We are surrounded by false metrics.

• "The open rate of the e-mail was 19%, therefore, it failed".
• "Our website conversion rate increased to 4.04383%, so we're doing better".
• "Multichannel customers are the best customers".
• "The matchback algorithm says catalogs drive 80% of web sales, so catalogs matter."
• "Paid search isn't working, but a lot of catalog buyers seem to be using it."

We'll move our industry forward when we start focusing on strategic analyses that parse customer data into understandable and actionable components.

Ok, You're A Catalog Person

Anonymous recently left us a comment. He mentioned that he formerly worked for a Big Box Retailer, and is now applying for e-commerce merchant jobs, without success. The e-commerce folks want a merchant with e-commerce experience.

Another person named Anonymous responded to our article about "The End Of An Era In Catalog Marketing". When asked why nobody commented on the article, this individual said "How do we begin to imagine changing our business model in the midst of such uncertain economic times? How can we be certain that the 'new' methods we need to develop will outperform the dying model we prefer to cling to? I guess we would rather sink slowly than jump into a whole new boat."

Ok, you're a catalog person --- or a former retailer. The world changed. You used to work on important offline issues, generating demand that made the e-commerce people look brilliant. Now you are scorned by eco-friendly types, your marketing efforts are 2/3 as productive as they were five years ago, the USPS hammered you two years ago --- accelerating the free fall, the e-commerce folks have shut you out, and your company is shedding jobs right and left.

This trend repeats itself, over and over again. The credit card and contact center combined to end sending orders to the brand via the mail. Targeted, 80 page specialty catalogs nibbled the edges off of the 600 page Spiegel, Wards, or JCP catalog, ending that business model. E-commerce is in the process of ending catalog marketing as we know it. And some day, Hologram Marketing will destroy e-commerce --- we'll view e-commerce websites as quaint artifacts --- the e-commerce folks will tell us that paid search and e-commerce combine with hologram marketing to form a multichannel "solution" that most valuable customers adore. Search marketing will implode while a new service provides us with real-time search via a hologram personality right in our own home.

Ok, you're a catalog person. What do you do today? Others struggle with these concepts in the music industry. And the issue is more dire, more immediate, in the newspaper industry.

First of all, the catalog industry isn't going to die next month ... or next year. There will be a niche for the next ten or fifteen years that supports the rural customer living in Vermont or Wyoming. And if you're willing to ride that wave, go right ahead, there's nothing wrong with that.

Maybe you're like me. You're in your early 40s, and you're realistic about the fact that you have a 30 year career ahead of you without the promise of a viable Social Security program or a 401k swelling from the myriad benefits of an ownership society. And the same dot.commers who we watched implode in the late 1990s now refuse to hire us in 2009 because we're considered "old school".

For this individual, there are challenges and opportunities.

You can take a step back, and learn e-commerce from the bottom-up. Maybe you give up the Director or Manager title for a Manager/Analyst title, and you learn.

Or you can "sidestep" e-commerce. That's what I did. I was mocked by the e-commerce folks for being "old school". Once it became obvious to me that cataloging was dying, back in 2002, I worked hard, developing skills that apply to any "channel".

Multichannel Forensics was actually created in 2003 and applied in real-time at Nordstrom in 2004. The key elements of the methodology were documented in a book written in 2005. A blog was started in 2006, the Multichannel Forensics book was available in 2007, a consulting practice started in 2007, and the whole thing is now sustainable in 2009, even though many in the catalog establishment criticize it and many in the e-commerce establishment don't understand it.

In other words, you create a plan, and you adapt the plan as times change. And by having a plan, your future is sustainable.

For me, it became obvious that you don't beat e-commerce, you don't force a dying business model down the throats of others, and you don't force those who are loyal to a dying business model to change. You simply move sideways.

At Nordstrom, I was outside of the e-commerce ecosystem. My skills weren't relevant. So I had to find skills that mattered. Forecasting the future mattered. Social media, while not a sales driver, mattered as a new skill set. Understanding customer behavior mattered. Measuring ROI mattered.

Combine all of those skills, and you've got The MineThatData Blog, you've got Multichannel Forensics. You've got something that catalogers and e-commerce brands and retailers and social network businesses can use.

Ok, you're a catalog person. It's not all gloom and doom. Ride catalog marketing as far as you can. Or start developing your e-commerce skills, or build your social media skills. Or start testing micro-channels like there is no tomorrow. Or invent hologram marketing, or build mobile marketing from scratch.

Don't be worried or frightened.

Have a plan. And adapt as the industry adapts.

2009 Goals And Objectives For Catalog Brands

In business, everybody is evaluated against strategic goals and objectives.

So here's a short list of goals and objectives for fiscal 2009, with an eye toward learning things that benefit our business in 2010 - 2011.


Objective #1 = Use Mail / Holdout Groups To Understand How Many Catalogs And E-Mails To Mail To Each Audience, On An Annual Basis. Determine The Organic Percentage For Each Segment.

• Audience = Loyal online shoppers, regardless of source.
• Audience = Loyal retail shoppers (if applicable), especially those in urban/suburban areas.
• Audience = Rural customers who place orders over the telephone.
• Audience = Lapsed buyers, those without an order in the past 13+ months.
• Audience = Customers with no e-mail address.
  

Objective #2 = Test New Micro-Channels For Customer Acquisition Potential. Measure The Results Across Channels And Develop A Roll-Out Sales Plan For 2010.

Objective #3 = Thoroughly Understand The Relationship Between The Merchandise Offered In Outbound Marketing And The Merchandise A Customer Actually Purchases. Are There Items That Drive A Customer To Your Website To Buy Other Products, And If So, How Does This Change Your Merchandise Advertising Strategy?

Objective #4 = Partner With An Agency To Measure Your Net Google Score. If You Find That You Are Driving More Sales To Your Competitors Than To Your Own Brand, How Will You Change Your Marketing Strategy? Coupled with this strategy, measure how much paid search your catalogs generate, and then allocate paid search costs created by catalog mailings back to the physical cost of mailing a catalog, re-analyzing segment-level profit and loss statements.

Objective #5 = Hold Innovation Forums With Key Vendors.

• Visit at least one non-competitive online pureplay to understand their customer acquisition strategies.
• Meet with every co-op vendor to discuss business strategies when catalog customer acquisition is no longer viable.
• Meet with your printer to determine unique targeting and pagination opportunities.
• Meet with key ecosystem vendors like Google, Yahoo!, your E-Mail vendor, your Paid Search vendor, your Web Analytics vendor. Open your books and share your 2009 strategies, then ask for feedback.

Objective #6 = Determine A Viable Shipping And Handling Strategy, Going Forward. Free Shipping may not be sustainable, Free Shipping with a hurdle may be sustaining, $3 or $5 shipping may be sustainable, $16.95 shipping is no longer sustainable.

Lands' End E-Mail Follow-Up

I wrote earlier in the week about what I felt was an odd image in a Lands' End e-mail campaign.

A reader forwarded a YouTube video from the photo shoot where the image came from. The video is embedded below.

We'll assume that the image is real. Thank you, readers, for providing "checks and balances".

Comparable Segment Performance

One of the pieces missing from our multichannel analytics and web analytics toolkit is the Comparable Segment Analysis.

Here's a common way to run the analysis.

• Create a segment of customers with similar performance --- maybe all customers who purchased three or more times in the past twelve months.

• Isolate these customers --- 3x buyers from 12/1/2007 to 11/30/2008.

• Measure performance in the next thirty days --- repurchase rates and spend rates during the month of December, for all customers in this segment during the past twelve months.

• Repeat the analysis by moving all dates back twelve months. Then repeat again, and again, and again, going back as far as you have data to replicate the analysis.

This analysis allows you to see how a core group of good customers are performing --- similar to the retail same store sales metric, but applicable to your typical direct-to-consumer or e-commerce channel.

This analysis is important, because it helps you understand just how much your loyal customers are spending, compared with prior years. You'll know how much the "economy" is hurting your business, independent of your reactivation and customer acquisition strategies, independent of channel shift.

Most important, you'll truly know when your business is starting to recover.

Business Cycles

Prior to the Iraq War, business performance moved in cycles.

Every 3-4 years, new highs or new lows were recorded.

Both Lands' End and Eddie Bauer moved in similar cycles. 1992 - 1993 were good years. 1994 didn't meet expectations, followed by a lousy 1995.

1996 was good, 1997 was good for awhile, followed by a horrible 1998, and a better 1999.

Then the dot.com bubble popped in 2000, and 9/11 took a bite out of 2001, with the corresponding recession lasting into 2002.

In other words, there were ups and downs, not predictable, but cyclical.

Cycles keep us humble. We were never more than a few years away from a downturn, we remembered the lessons of the last downturn.

Now take a look at Nordstrom performance, from 2003 - 2007. You don't see a cycle, do you? In fact, you see unbridled success, a meteoric rise into the stratosphere. Online, the trends were even more dramatic --- online, we could do no wrong, we were brilliant!

Or so it seemed.

Maybe the reason this recession is going to be so severe is because we have to correct for more uninterrupted years of success than we corrected for in the past.

One thing is certain. We are re-learning the importance of business fundamentals.

Businesses don't succeed because they have a brilliant social media strategy, or because they embraced mobile marketing, or because television ads are funny.

Businesses succeed when inventory is managed so well that there are few markdowns to be had during a downturn..

Businesses succeed when capital expenses are proportionate to conservative forecasts of profit. Businesses succeed when profits are reinvested, as opposed to borrowing in anticipation of future business success.

Businesses succeed when advertising and marketing dollars are viewed as scarce resources, not as a budget line derived by multiplying net sales by 0.20.

We're going to be in much better shape, once the scars of this recession heal. Humble marketers are smart marketers.

What Is Important To Us?

It turns out that I created a unique lab experiment this week.

I wrote three articles that have varying levels of importance.

• Strategic Importance And Profit Importance: The End Of An Era In Catalog Marketing.
• Profit Importance: Zip Code Forensics, Version 2 Is Free And Now Available.
• Simple Attention To Detail: Creative And E-Mail, When Did We Stop Caring?

Based on RSS readership stats, site stats, clicks, and comments, here is the rank-ordering of what you interacted with.

1. Simple Attention To Detail: Creative And E-Mail, When Did We Stop Caring?
2. Profit Importance: Zip Code Forensics, Version 2 Is Free And Now Available.
3. Strategic Importance And Profit Importance: The End Of An Era In Catalog Marketing.

Regarding e-mail, you loved clicking through the link, you wanted to see what I was talking about. Then you told me to get back on topic, you defended the notion that the foot did touch, you defended the artificial match of images via software --- a match creating a false version of reality, and you stated that this won't impact sales at all. You interacted with the article, you thought about the implications, you formulated opinions, and you openly criticized me.

When given an opportunity to learn about a free way to make your business more money. you interacted much less with the content. Who wants to ignore making additional profit at no cost? Apparently a lot of us!

And when offered the opportunity to consider one of the most important strategic topics of our time in catalog marketing, we were completely silent. Why?

What is important to us? Explain this inverse relationship by leaving a comment below.

Zip Code Forensics: Version 2 Is Free And Now Available

I welcome all of the companies that volunteered anonymous zip code sales data during the past three months. Your contributions result in an improved version of B2C Zip Code Forensics!

If you are interested in participating in Zip Code Forensics, at no cost, please download the following documents.

• A Graphical Representation Of Version 2 Of Zip Code Forensics.
• Spreadsheet With The Actual Segment Assignments For The State Of Washington.

And by the way, what do you notice about urban/suburban/rural zips in Washington? Most of the Seattle/Tacoma and Spokane area is green (e-commerce). Most of the zips in the Cascades and Rockies (rural) are orange (catalog focused). Keep thinking about this urban/suburban/rural thing, and the place for catalogs in the future of direct marketing.

Test results from our participants indicate that if a cataloger only mails the Catalog Crazies and Online Bliss segments, the quantity in the RFM segment or outside list will be reduced by about 75%, with improvements in performance of between 7% and 20%.

There aren't many folks offering you the ability to improve your marketing efforts at no cost --- and the algorithm suggests that the more participants we get, the better the algorithm performs!

So join us ... contact me for information on how to participate, for free!

And B2B marketers --- we're very close to having a version of Zip Code Forensics that works in a reliable way for your channel. We need a few more participants to make this work well!

Here are the six segments:

1. Catalog Crazies: The most productive traditional direct marketing zip codes.
2. Catalog Fans: Average performing traditional direct marketing zips.
3. Catalog Preference: Marginal performing traditional direct marketing zips.
4. Online Preference: Marginal performing e-commerce zips.
5. Online Spend: Average performing e-commerce zips.
6. Online Bliss: The most productive e-commerce zips.

Creative And E-Mail: When Did We Stop Caring?

Look at the right foot of the male in this e-mail marketing message ... it is not touching the platform he is standing on.

Honestly, I am no better. I have typos and grammar errors on my blog, all the time. We fail the customer when we're sloppy.

Overstock.com Had 3,400 Affiliates In New York State

Pay attention to the small print toward the end of this argument about internet sales tax collection.

While it is important to consider the issues with internet sales tax (issues that are largely meaningless, because customer behavior doesn't fundamentally change as sales tax is added), it is so much more interesting to consider that Overstock.com had 3,400 affiliates in New York State!!

You're probably looking at, what, 30,000 to 50,000 affiliates in total, nationwide, at Overstock?

This is what I mean when I talk about micro-channels. It is easy to go to Abacus and ask for one-time access to 1,000,000 households that yield you 8,000 new customers after matchback.

It is hard work to manage 40,000 affiliates that will drive 8,000 new customers to your brand. You'll quickly note that this style of marketing "doesn't work --- half of your affiliates wouldn't generate any new customers over a two month period of time"!

And yet, each method generates the same result. Results are all that matter.

Our future is an endless array of 200,000 micro-channels that yield one or two or three or seven-hundred new customers a year. There will simply be too much competition to leverage Google effectively, and all of the old-school mass-audience methods are slowly dying.

The End Of An Era In Catalog Marketing

It is nice not to be the only person out there (thanks Mr. Rimm-Kaufman) willing to publicly state the obvious ... that catalog customer acquisition is nearing the end of an era.

Even the best conferences aren't covering this important topic. The Spring 2009 NEMOA Conference. features a talk from REI guru Mike Bowcut on "Why Catalogs Still Belong In The Toolbox". Certainly, you'll learn something valuable from this talk. Mike is brilliant, his discussion won't lead you astray.

Our industry also has an opportunity to allocate time to talk about one of the two biggest issues our industry ever faced:

1. Catalog Customer Acquisition is dying.
2. Catalog brands with strong retail channels have loyal multichannel buyers who no longer generate any incremental volume when a plethora of catalogs are mailed to them --- the "organic demand" concept we observed at Nordstrom back in the first half of this decade.
   

Combined, these two trends represent the giant red blinking lights we see as we approach a railroad crossing. We are being given unmistakable warning signs that change is coming. Why won't our best and brightest talk publicly about these issues?

Analyze your data from fourth quarter, for the past ten years. Take a look at customer acquisition productivity, using your matchback analytics, combining data across all channels. You're going to see productivity declines of between twenty and seventy percent over the past ten years. Heck, when Google generates 32 billion searches a month compared with 2 billion searches a month just four years ago (and zero more than a decade ago), we know the world is changing ... dramatically changing!

Why aren't we asking strategic questions?

1. If catalog customer acquisition is dying, and the majority of our new customers come from catalog customer acquisition, how will we acquire new customers in five years?
2. If the soul of our organization is built around catalog marketing, what does this mean for the soul of our organization?
3. What kind of talent do we need to meet the future marketing needs of our business?
4. How are online pureplays acquiring new customers --- how does Zappos do it? How does Amazon do it? How does the $10 million dollar online business down the street do it? What can we learn from others? When can we schedule a field trip to visit the online pureplay?
   
5. If we have a retail channel, and customers are not spending incremental revenue in spite of catalog marketing, why do we have a catalog marketing channel?
6. If rural customers still require catalog marketing, but urban/suburban catalogs no longer need catalog marketing, how do we configure a contact strategy that meets the needs of a significantly smaller universe of shoppers? And how does this new catalog contact strategy impact merchandising, creative, and inventory staffers?
   
7. What is the future of the co-op brand, brands that ran list rental organizations out of business on the basis of cheap, targeted customer acquisition names? These brands will undoubtedly provide significant future value to your business, right? But how? Are we working with them to map out our future?
   

Since a portion of our country is embracing "change", it might be helpful for all of us in the multichannel retailing industry to embrace change as well.

Geographic Differences

This is a map of the Northern Great Plains and Northern Rocky Mountain states.

Orange zip codes represent customers who are responsive to traditional direct marketing. Green zip codes represent customers who shop via e-commerce.

Notice the big difference between the Great Plains states and the Rocky Mountain states!

We have a lot of marketing challenges in the future, given that so much of marketing is becoming "pull" marketing (the customer pulls the information they want, using the channels they wish to use). One of the advantages we have is data. We control what we push, and we don't have to push something to an individual who doesn't want information pushed to them.

If we want to test a new merchandise line in an e-mail campaign, there's no reason we couldn't select the "green zip codes" in the map above, coupled with responsive e-mail subscribers who have a propensity for the merchandise we're sharing with the customer. We don't have to annoy the customer in North Dakota.

Take advantage of geography --- it is going to be a part of our multchannel, multi-platform future.

Lifetime Value And Organic Buyers

We're being asked to reduce marketing expense in 2009.

A current best practice is to calculate lifetime value. Customers with sufficient "LTV" receive outbound marketing, while customers with low "LTV" are not targeted with outbound marketing.

This year, the process is changing. We're being asked to not only forecast lifetime value, we're being asked to identify customers who experience lifetime value reductions because of our actions.

This sounds odd, but it really isn't an unusual concept. In the past, we'd identify a 13-24 month customer who loses $10.00 per order, and has $5.00 of LTV. This customer would be suppressed from subsequent campaigns because net LTV is -$5.00.

In 2009, we need to identify the customers who are likely to generate "organic demand" in the future. Amazingly, these customers can experience lifetime value reductions if we market to them, because the customer was going to purchase merchandise anyway.

The majority of CEOs working on Multichannel Forensics projects are asking me to identify organic customers. This is becoming an important part of the marketing process.

For the Statistical Modeler, this represents yet another "offshore drilling" opportunity --- a chance to work on something unique and new.

For the Catalog Marketer, this is a chance to reduce expense while not harming the top line.

For the E-Mail Marketer, this is a golden opportunity to reduce contacts to customers likely to order anyway.

And for the optimization whiz, go ahead and set up a bunch of marketing experiments. Testing is the best way to identify customers likely to generate organic demand!!

Multichannel Forensics For Social Networks

99% of the time, the Multichannel Forensics examples I offer are related to what you might loosely call "retail" --- physical stores, online businesses, catalog brands.

When we deal with retail, we deal with long periods of time. We measure repurchase rates over the course of a year, or in some brands, four or five years.

In subscription-based businesses, we often convert churn rates into the Multichannel Forensics framework --- a 4% monthly churn rate yields a 60% percent annual retention rate, while a 7% monthly churn rate generates a 40% annual retention rate.

But what about something like Facebook, an application where half of users visit every single day?

Social Networks are best measured on a daily or weekly basis. All the laws of Multichannel Forensics still apply, but the timeframe is seriously compressed.

This becomes important for the Social Network, because you can quickly identify the amount of time that passes before the "user" is about to defect --- you can build "KPIs" around a "time to defection" metric generated by the Multichannel Forensics framework.

Also important is the type of activity the user participates in --- you want to measure which activities are in "Equilibrium Mode" or "Transfer Mode" with each other. For instance, are a ton of folks in Friendfeed following Robert Scoble, only to slowly defect to another social media evangelist? If this happens, you'll notice because Robert Scoble is a "micro-channel" that is transferring users to a new individual. You'll be able to react to the fluid dynamics within your social network.

So, what are the key takeaways?

1. For most social networks, reduce the timeframe to a daily (Facebook, Twitter) timeframe, or a weekly timeframe, measuring retention and user acquisition over short intervals.
   
2. The definition of a "channel" changes. Micro-channels in a social networking framework include various activities (e-mail, search), widgets, or even key individuals (Robert Scoble) that attract or cultivate users.
3. These activities can be simulated over time, to understand the long-term trajectory of your social network.

What Kind Of Data Would I Need For The Competitive Co-Op Multichannel Forensics Analysis?

Ok folks, here's what you need to tell your co-op to send to me, if you are interested in understanding the impact your competitive set has on your business.

Data Requirement: A .csv file with two years of summarized purchase activity.

• Column A = Anonymous Customer Identification Number
  
• Column B = Year (2007 or 2008, for example).
• Column C = Description of competitive-set, or your business.
• Column D = Annual Demand.

Here's what a sample dataset might look like:

Customer	Year	Company	Demand
1	2007	Your Brand	200
1	2008	Your Brand	50
1	2007	Competitor Set 1	800
1	2007	Competitor Set 2	300
1	2008	Competitor Set 2	500
2	2008	Your Brand	200
2	2008	Competitor Set 1	500

With this information, a three-channel Multichannel Forensics analysis will tell you:

• How the loyalty of your business is impacted by changes in customer behavior at competitors.

• Where new customers come from.

• The impact your business has on competitors.

• The long-term trajectory of your business, compared with your competitors.

• The impact customer acquisition has on your business and competitors, as well as customer loyalty / retention.

See if your co-op provider will provide you with this analysis. If they won't do that, see if they are willing to send anonymous data to me. If they won't do that, ask them why they won't help you!!!!

Nordstrom Notes

With my Nordstrom Visa, I earn $20 Nordstrom Notes every time I spend "$x" at other retail stores, or when I fill up the car with gas ... an expensive proposition last summer.

Today, I cashed in $80 of Nordstrom Notes on two shirts --- total cost, with tax, was $80.01 --- one of the shirts was about 60% off.

It is an interesting transition ... going from being an apparel merchant to giving me free merchandise for the right to harvest money from my transactions with Shell, Olive Garden, Kohl's, Apple, and my annual physical co-pay.

When we conduct the post mortem on the death of retailing (2003 - 2008 edition), we'll want to create a few powerpoint slides on this topic.

Co-Op Overlay And Multichannel Forensics

Overlaying co-op attributes on your customer file is a common multichannel marketing best practice.

Maybe you have a housefile segment that is expected to spend $1.50 per catalog. The cataloger matches the names in the segment to their favorite co-op subsegment, dividing the list into matches and non-matches. In theory, matches will perform at $1.75 (mail these names), non-matches will perform at $1.25 (do not mail these names).

Co-op information is typically used for targeting purposes.

Co-op information is seldom used for strategic purposes. That's a shame, folks.

See if your co-op will do this for you.

Have your co-op determine a "competitive set", a group of a half-dozen companies that directly compete with your brand. Have your co-op determine a "non-competitive set" of a half-dozen companies that indirectly compete with your brand --- these companies are not your competitors, but your customers love to shop with these companies.

Now that this has been done, have your co-op perform a three channel Multichannel Forensics analysis for 2007 and 2008, projecting future sales for 2009 - 2013 given the trends of 2008.

Why do this?

You'll get to see how changes in competitive and non-competitive brands are directly influencing the future trajectory of your brand. You'll get to see if your customers are defecting to the competition, and if so, you'll get to see what impact defection has on your future sales trajectory.

If your co-op won't perform the analysis for you, see if they will put together a dataset with anonymous information that they'll send to me, so that I can do the analysis for you --- or so that you can perform the analysis yourself.

Partner with the co-ops to obtain strategic insights into how your competition impacts your business!

When Metrics Lie

Our metrics continually lie to us.

Some are so easy to debunk ... "Multichannel Customers Are The Best Customers".

Some are much more complex.

Back in 1993, Lands' End was caught up in the "targeting" movement. In other words, the core monthly catalog was not driving large enough sales increases to please management and shareholders. As a result, management chose to create specialty catalogs, targeted to customers who previously purchased niches of product. What was once a catalog strategy that yielded thirteen catalogs, one every four weeks, became a catalog strategy that offered some customers thirteen monthly catalogs, nine Kids catalogs, nine Home catalogs, six Mens Tailored Merchandise catalogs, four Womens Business Merchandise catalogs ... you get the picture.

The finance department ran profit and loss statements for each business. As the businesses matured, the profit and loss statements indicated that these new, targeted catalogs were working really well, while the monthly catalogs were struggling. Here is an example (numbers dummied-up to protect the innocent):

Financial Profit And Loss Statement
	Core	Startup Line	Total
	Business	Of Business	Business
Demand	$80,000,000	$20,000,000	$100,000,000
Net Sales	$64,000,000	$16,000,000	$80,000,000
Gross Margin	$32,000,000	$8,000,000	$40,000,000
Less Mkt Expense	$16,000,000	$2,720,000	$18,720,000
Less Pick/Pack/Ship	$7,360,000	$1,840,000	$9,200,000
Variable Profit	$8,640,000	$3,440,000	$12,080,000
Less Fixed Costs	$6,400,000	$1,600,000	$8,000,000
EBIT	$2,240,000	$1,840,000	$4,080,000
% of Net Sales	3.5%	11.5%	5.1%

On the surface, the specialty catalog, the one targeted to prior customers of various merchandise assortments, performed well.

This didn't sit well with some of us. So we created year-long tests, where some customers did not receive specialty catalogs.

At the end of the year, we learned that one of the specialty businesses, if terminated, would hand sixty percent of the business back to the core monthly catalogs. In other words, the specialty catalog was cannibalizing the core catalog ... making the core catalog look bad, from a performance standpoint.

We worked with the finance department to re-state the profit and loss statements. Look at the difference a 60% cannibalization rate creates.

Actual Customer Behavior Profit And Loss Statement
	Core	Startup Line	Total
	Business	Of Business	Business
Demand	$92,000,000	$8,000,000	$100,000,000
Net Sales	$73,600,000	$6,400,000	$80,000,000
Gross Margin	$36,800,000	$3,200,000	$40,000,000
Less Mkt Expense	$16,000,000	$2,720,000	$18,720,000
Less Pick/Pack/Ship	$8,464,000	$736,000	$9,200,000
Variable Profit	$12,336,000	($256,000)	$12,080,000
Less Fixed Costs	$6,400,000	$1,600,000	$8,000,000
EBIT	$5,936,000	($1,856,000)	$4,080,000
% of Net Sales	8.1%	-29.0%	5.1%

This profit and loss statement is one that reflects actual customer behavior. The targeted specialty catalog is truly only adding $8,000,000 of incremental volume, and is actually losing $1.9 million a year.

Needless to say, this information was not well received.

But the information represents the truth.

We're so quick to believe the metrics we read every day that we seldom question them. "Oh, this landing page had a 6.3% conversion rate, that's good, that must have worked!!". It is possible that something else caused the landing page to work, that the landing page itself wasn't successful, but that something we aren't measuring caused the success?

We learn that our metrics are wrong when we operate in a "testing culture". A testing culture demands that we ask questions, that we develop hypotheses, and that we test our hypotheses. All of the magic happens when different strategies are tested.

The KPI/Dashboard maven is right to want to create nine important metrics that dictate success --- most employees struggle with multidimensional issues and complexity.

But if you are reading this, you are not like "most employees". You are different. You are curious. You do not accept the version of truth the trade journals, bloggers, vendors, or consultants paint for you.

Truth isn't illustrated by a metric. Truth is multidimensional, and is always available to those who seek it.

10 Awesome Gifts For Data Analyst Day

With Data Analyst Day less than three weeks away, you're probably already thinking about the gift you are going to get your favorite data analyst. As you already know, Data Analyst Day is the third biggest gift-giving holiday of February, behind only Valentines Day and Presidents Day.

Here is a top-ten list of gift ideas for the Data Analyst in your life.

Number 10 = iPod Classic, at Best Buy. The honest truth is that your data analyst wants to listen to her iPod with earbud headphones, mostly because she doesn't want to be distracted by last-minute requests to create KPIs that summarize Shopping Comparison Site performance. If you are an Executive, pay close attention to your data analyst --- do the earbud headphones go in every time you approach to ask a question?

Number 9 = Notebook Computer with Horsepower, from PC Connection. There is nothing more demeaning to the data analyst than being required to use the same desktop computer purchased during the go-go days of the internet bubble. Granted, the legal folks hate it when data analysts are given laptops with critical company data --- you never know when the laptop will be stolen from your car while enjoying after-work drinks and appies at Red Robin. Nevertheless, a notebook computer with dual processors tells the data analyst that the company cares about her.

Number 8 = Neural Network Software from Advanced Software Applications. Sure, complex analysis can be done in Excel, or in a free tool like Google Analytics. That being said, your data analyst is tired of "setting up goals", or calculating sales tax for orders in Idaho. She wants to do something creative, innovative, something nobody will ever be able to adequately explain to an Executive. Neural network technology is perfect for this!

Number 7 = HP 7250 Wireless Printer from Amazon. Your information technology department doesn't see anything wrong with the 1995 black-and-white, four-page-per-minute laser printer located in your cafeteria --- it still works!! But your data analyst wants to be inspired, and wireless printing is one way to inspire an analyst. A key point, folks ... this printer isn't for everybody. Even though anybody could, in theory, print wirelessly to this unit, your data analyst wants sole use of the wireless printer, and wants the wireless printer in her cube.

Number 6 = Glossy Paper from Office Max. When you're getting ready to print a pie chart, you want the confidence of knowing that "magenta" slice is going to look the way it looks on the screen. This is best accomplished by having an ample supply of glossy paper.

Number 5 = Open Office Software Suite from Sun Microsystems. Your data analyst and your finance department will love you for this gift --- heck, it is FREE! Most important is the fact that the data analyst can create documents, spreadsheets, and presentations using odd extensions. This helps the data analyst gauge the technological sophistication of the recipient of the document --- to the data analyst, it is big-time fun to be able to say to an Executive "You mean you don't know how to open a .ODS file?"

Number 4 = 32" 1080p Samsung Monitor from Newegg.com. Business leaders frequently overlook the importance of computer monitors. After all, you can still do your job using one of those old CRT monitors from the 1980s, the ones that have green-on-black or orange-on-black screens. The data analyst knows that a 32" 1080p monitor conveys credibility. Nobody wants to learn about the details of the hyperbolic tangent function on a small screen.

Number 3 = Presidential Tufted Executive Leather Office Chair from BizChair.com. A data analyst requires comfort and back support. Both are sorely missing from today's array of standard, $170 office chairs with mesh seats. Why not spend a little more, and provide your data analyst with a chair that adequately conveys your appreciation for the "Top Ten Referring URL's" powerpoint slide she created for you last week?

Number 2 = Vintage Gas Pump Liquor Dispenser. Your data analyst may have grown up watching "Dallas" on Friday evenings. If so, she learned about the importance of alcohol in the workplace. If there was a problem at a refinery, Bobby & JR solved key business issues in JR's office with a glass of hard liquor in hand. Your data analyst probably suffers productivity issues when required to purchase Fanta soft drinks from the vending machine.

Number 1 = T-Bills. Why not give each data analyst at your company a $100,000 security direct from the U.S. Treasury? Your employee will thank you, your government will thank you, and the money you spend will be immediately re-distributed to financial institutions all across America.

Data Analyst Day: February 2, 2009!!!!!!

Economy got you down? Layoff pending? Tired of going to work and seeing -18% on the comp store sales report, or tired of seeing e-commerce sales at -3% every day?

Let's start the new fiscal year on a good note!

Today, I am formally announcing a new holiday. Monday, February 2 will be "Data Analyst Day", a world-wide day-long celebration of all that is good in the world of data analysis!

Maybe you are an Information Technology expert who just worked a weekend to create a dashboard for your Executive team.

Maybe you are a Business Intelligence staffer who recently used Business Objects to prove that certain store employees are worth 20% more than others.

Maybe you are a SAS/SPSS Programmer who calculated the lifetime value of multichannel customers.

Maybe you are a Web Analytics professional who demonstrated that branded search terms have a 15% larger average order value than other search terms.

Maybe you are a Catalog Circulation manager who saved your company $1.2 million dollars in expense by trimming unprofitable customer acquisition names.

Maybe you are an E-Mail Marketing director who developed six customized, personalized versions of a campaign that delivered a 20% improvement in $-per-e-mail.

Maybe you work in a fulfillment center, and you saved your company $300,000 in efficiencies, and you did so without touting yourself to Sr. Management.

Maybe you work at a Catalog Co-Op and you anonymously made your clients $3.5 million in profit by targeting the best names available.

Maybe you work in Online Marketing, and your portal advertising strategies caused a 4% increase in website traffic on the same ad-spend as last year.

Maybe you work at Catalog Choice, and your analytical efforts helped influence catalogers in a way that saved 222,000 trees last month.

Maybe you work at a Social Media startup, and you proved that certain users are "uber-influencers" who deserve special treatment.

Maybe you just deserve some recognition!

No matter the job or reason, you all work hard to analyze data to help your company succeed, or to help customers get more targeted communications. You deserve a day just for you!

If you have any great stories or bios of data analysts who made a difference, forward them to me in Microsoft Word or E-Mail or .PDF format and if I get a suitable quantity of good nominations, I'll publish a "top 50" or "top 100" list on February 2.

So SPREAD THE WORD --- February 2, 2009 is a world-wide event --- it is Data Analyst Day, celebrating all that is good in the world of Analytics!!!!

Poll Question: Who Is Most Responsible For Online Sales?

On the right-hand sidebar I posted a survey --- "Who Is Most Responsible For Online Sales?" Please take a second to take the poll.

For example, if you receive a Coldwater Creek catalog, then visit the Coldwater Creek website to buy merchandise, then "offline methods" are responsible --- they created interest that caused the customer to visit the website and buy something.

If you answered "Online Marketing", please use the comments section to describe the online methods you believe create online sales. In other words, what are the online marketing strategies that cause a customer to "want" something they previously didn't want --- methods that don't simply intercept a customer on a mission stimulated by an offline campaign? We might think about e-mail marketing (which is really direct marketing, not online marketing) and portal advertising as two options. What else?

The Death Of Seattle Print Newspapers?

The Seattle Post Intelligencer can be added to the list of newspapers on death row.

Catalogers, I'm begging you to consider what this means to the "multichannel industry".

The newspaper industry and catalog marketing industry aren't fundamentally different --- the newspaper industry collects money on the front end, while catalogers have to collect on the back end. Both industries are based on a paper-based habit that is dying among folks age 18-40.

Newspapers have 10x or 20x the readership online that they have in print ... they just failed to convert online readers into sustainable revenue.

Catalogers have maybe 5x to 20x as many visitors online, compared with monthly circulation ... we're doing better at converting online readers into sustainable revenue. Our key is to migrate the model away from paper, should paper become untenable in the future.

I have yet to observe one catalog industry expert, blogger, vendor, or consultant face up to this reality in a public forum. The longer it takes for us to consider our future, the more painful the transition will be --- maybe as painful as it is for the folks in the Seattle P.I. newsroom.

Your thoughts?

Sprint Cell Phone Coverage And Zip Code Forensics

There are many applications of Zip Code Forensics in marketing (free to you if you contribute anonymous annual zip code sales).

One of the more interesting applications is in understanding channel preference.

This map illustrates Northeast Minnesota and Northwest Wisconsin. The orange zip codes represent "Catalog Crazies" and "Catalog Fans", zip codes that spend a lot of money because catalogs are sent to these customers.

Now take a look at the next image, one from the Sprint website, illustrating cell phone coverage on the Sprint network.




Green is good on the map ... it means that your phone will actually work!

Now compare the areas on the Sprint map that are white (no coverage) with the Zip Code Forensics map. Areas that are white on the Sprint map are often orange on the Zip Code Forensics map (orange represents old-school catalog responsiveness).

There is a correlation (not causation, mind you) --- no mobile marketing channel correlates with a robust old-school catalog marketing channel.

This is where we, as marketers, repeatedly fail.

We try to integrate everything, to make everything the same, as if the same customer is using mobile marketing and social media and e-mail marketing and television marketing and radio marketing and newspaper marketing and direct mail and catalog marketing to make the crucial decision to purchase a $19 shirt.

The maps suggest an opportunity. Why not work with the natural constraints that customers live with? In other words, in areas where mobile marketing isn't possible, why not fully capitalize on catalog marketing? And in Minneapolis / St. Paul (heavy e-commerce --- with ubiquitous 3G mobile broadband available), why not take full advantage of communicating with users who are updating Facebook pages on their 3G phones?

The data suggest we could do this.

And why not contribute your anonymous annual sales data at a zip code level, so that you can have access to the insights available in Zip Code Forensics?

Merchandise

When you look across acres of 60% off signs, buy-one-get-one-free, $3 shirt clearance racks, and other assorted discounts at the mall, you realize we've lost our connection with merchandise.

The folks at Apple haven't lost that connection. Your average Apple store has customers waiting outside the door.

A walk through the mall today indicates that the average store has one employee, and few customers.

At Nordstrom, our Chief Accessories Merchant was Margaret Myers. This merchant had PASSION. She fully believed in her merchandise. I could bring her 37 pages of customer data indicating that customers wanted "x". She would spend ten minutes, passionately arguing her case. I'd walk out of her office happily executing the exact opposite plan I wished to implement.

A merchant with passion is a terrible thing to waste.

When you walk through one of the large "brands" occupying space in a mall, do you see love and passion for merchandise? You can't replicate love and passion by paying Ashley Judd to use her image next to a pile of sale merchandise with the quote "I Love This Stuff!" on her image.

You want to have a merchant who communicates the story, who conveys passion, who wills you to want to buy the item.

Marketing and the credit devils (employees aren't credit devils, by the way, they're just doing their job) fill the void when passion isn't present.

We see desperation, not passion, when we see 60% and 70% off signs on every rounder. I understand this measure is necessary to clear inventory that is ready to spoil. But every second those signs sit on the rounders, a message is conveyed that is contrary to what the customer needs to hear.

A walk through the Bellis Fair Mall indicates that an era is coming to an end. Since about 1980, the Baby Boomer generation fueled retail commerce. Stores illustrated innovation and magic. Competitors filled the mall, then saturated the landscape. We bowed down to the credit devils, borrowing in order to over-saturate, to "capture marketshare" and "increase shareholder value". Ultimately, the Baby Boomers aged, they moved out of the prime shopping demographic. Half of Boomers now live outside of the coveted 25-54 demographic.

And Gen-X, of which I am a charter member, is the generation of e-commerce. We created a sterile, drill-down, algorithmic environment fueled by the lowest price, one where Google indirectly skims pennies from all of us. The mall owned the retail merchant. Google owns the online merchant. If Baby Boomers perfected traditional brand advertising, we perfected e-mail marketing, paid search, affiliate marketing, and shopping comparison sites. Not one of those tools convey passion for merchandise, though e-mail marketing has a chance if it doesn't land in your junk mail folder.

Maybe the Millenials will save us. Maybe they will focus on merchandise, on the importance of creating something that somebody "has to have", something that doesn't come with a mandatory e-mail signup, or a 15% off offer if you sign up for credit. Maybe we'll learn that it is truly important for a brand to have 23,048 followers on Twitter.

Or maybe we'll pull out of this by having a few bold merchandisers who are willing take a stand. Maybe we need to give more authority to the Margaret Myers' of the world.

Credit Devils at the Bellis Fair Mall

The sign inside the Macy's at the Bellis Fair Mall says "Customer Service". Below the sign are three messages.

• Open a Macy's Account.
• Make a Payment.
• Buy a Gift Card.

Surprisingly, none of the messages communicate the reason you go to a store ... to buy merchandise.

We didn't do any of the three options. Instead, we paid for the merchandise with a co-branded Nordstrom Visa, entitling us to future $20 merchandise certificates from Nordstrom, all because we purchased merchandise at Macy's.

At Kohls, we were asked if we wanted to open a Kohls credit account --- they would take 15% off of our order (which was, for the most part, discounted 60% from full price) if we opened up an account. We declined.

Both Macy's and Kohls had numerous images of pop-culture superstars with quotes like "I love this merchandise". There were numerous signs promoting credit. There were few employees.

Credit is seductive. The credit devils can move you away from a focus on merchandise. I mean seriously, how does Nordstrom benefit by giving me a $20 merchandise certificate for spending $2,000 at Macy's?

2009 is a good year to focus on merchandise innovation, to focus less on credit innovation. The credit devils won't be happy. Maybe customers will be happy.

Retail CEOs: Before You Close Stores, Give This A Try

If you are a retail CEO, you're probably feeling the pressure to close stores right about now.

Some of the trade journal articles and blog posts suggest that e-commerce may be able to pick up the slack for retail --- in other words, if Ann Taylor closes 100 stores, the Ann Taylor website will be able to pick up some of the orders that disappear when the store is no longer operational.

Tread carefully, folks!

Retail, e-commerce, and catalog ecosystems are fundamentally different, based on the Multichannel Forensics projects I've analyzed over the years. Over and over again, I see the following:

• Catalog customers in Exurban/Suburban areas willingly transition to E-Commerce.
• E-Commerce customers in Suburban/Urban areas willing transition to Retail.
• Catalog customers in Suburban areas willingly transition to Retail.
• Retail customers (especially urban folks) are unwilling to transition to E-Commerce, but are very willing to use websites to research merchandise.
  

The retail CEO can use Multichannel Forensics to understand how customers interact with stores. In fact, this is one of the most powerful uses of Multichannel Forensics --- identifying unprofitable stores that have customers willing to shop at other stores in your franchise.

Simply run a Migration Probability Table against each store, and identify the stores that are in equilibrium/transfer mode with neighboring stores. Here's an example --- this brand has three stores in the market, and has an e-commerce website.

		Store 001	Store 002	Store 003	Online
Rebuy Rate	Company	46.3%	41.9%	40.3%	33.7%
	Store 001	42.3%	13.9%	15.7%	10.4%
	Store 002	4.9%	25.3%	2.2%	6.5%
	Store 003	3.6%	14.3%	28.7%	11.3%
	Online	4.5%	4.0%	8.7%	14.7%
Rebuy Index	Store 001	91.4%	33.2%	39.0%	30.9%
	Store 002	10.6%	60.4%	5.5%	19.3%
	Store 003	7.8%	34.1%	71.2%	33.5%
	Online	9.7%	9.5%	21.6%	43.6%

What does the table tell us?

• Store 001 customers are unwilling to shop anywhere else. Close this store, and you'll lose the vast majority of the business generated at Store 001.

• Store 002 customers are very willing to shop at Store 001 and Store 003. Store 002 customers are not very willing to shop online. If you close this store, you'll likely recoup some of the sales in Store 001 and Store 003.

• Store 003 customers are willing to shop at Store 001, and to some extent, online. If you close this store, you may get some of the sales back online, but are more likely to get sales in Store 001.

• Online customers are likely to shop anywhere --- in any store or online. Strategically, you can use the online channel to acquire customers, because stores benefit from the customer acquisition strategy in future years.

Retail CEOs --- you may be going through retail closure pain in future months. Before you make the decision to close stores, run the Migration Probability Table to understand if you can re-capture lost sales in other stores, or online.

Good Article, Bad Timing

Here's an article from the Omniture Blog (a decent vendor-based web analytics blog), with some interesting tidbits about Borders and online analytics. Too bad the interview features improvements at Borders, just one day after Borders announced sweeping management changes amid significant sales declines.

One of the big challenges for our industry is to prove that software or analytics improved business at a time when the rest of the business cratered. It is 100% possible that software/analytics made a difference. It has been my experience that almost nobody wants to hear that message.

Update: 11:36am 1/6/2009: This article suggests that customers at Borders maintained spend in Nov/Dec 2008, compared with 2007. If you are to believe this, then in order to achieve a -13% comp, new customer traffic had to completely fall off the table.

Vendors: Above I mention two articles that demonstrate flat or improved performance, at a time when the company is struggling mightily. If our industry is going to improve credibility, if anybody is going to believe in us, we have to find a different way to communicate.

Twitter Update: Two Weeks In

Thought you might like to know a little bit about the audience following my posts on Twitter.

• About 10% are big company CEOs, EVPs, or VPs, most at multichannel (catalog + online & maybe retail) companies.
  
• About 25% are Entrepreneurs, running their own startup businesses, and they represent a very diverse set of business models!
  
• About 30% are Consultants or members of the Vendor community.
  
• About 25% are either Web Analytics experts or Business Intelligence experts.
• About 10% are difficult to classify, or are in the Social Media field.

• About 20% of the audience is from Europe.
• The audience is concentrated in NY/NJ/PA, the Midwest, and Seattle/Portland.

• The audience has few members of the multichannel/catalog industry, or the e-mail marketing industry. Wow. Wow.
  

Remember, I am doing this different than the social media elite suggest Twitter needs to be done. My goal is to link to thought provoking articles, those I agree with, and those I disagree with. The goal is to get you, the loyal reader, to consider different concepts.

Twitter Page: @minethatdata, or the old-school http://twitter.com/minethatdata.

Follow along, or subscribe to the Twitter MineThatData RSS feed.

Modern Segmentation, Modeling, And Planning

Much of the segmentation/modeling/planning process involves predicting a future purchase, followed by the determination of an appropriate targeting strategy.

For instance, in this catalog example, we predict two things.

1. We predict the Response Rate to a future catalog.
2. We predict the Average Order Size for a segment being mailed a future catalog.
   

Based on these two predictions, and a forecast for the cost of mailing a catalog, we arrive at the following segment-level mailing prediction and profit/loss statement (after online/retail matchback):

	Prediction
Response Rate	1.8%
Avg. Order	$125.00
$ Per Book	$2.25
Flow-Through %	35.0%
Flow-Through $	$0.79
Book Cost	$0.70
Profit	$0.09

The marketing world of 2009 requires a different level of sophistication.

In the future, we will change the planning and prediction process. This segment will be split into two sub-segments.

1. Subsegment #1 = Customers with the same RFM-style classification, but never historically purchased using Paid Search, Affiliates, or Shopping Comparison Sites.
2. Subsegment #2 = Customers with the same RFM-style classification, but historically purchased using Paid Search, Affiliates, or Shopping Comparison Sites.

In each case, we'll measure future response, but we'll also predict the expected marketing cost associated with self-service customers using Paid Search, Affiliates, or Shopping Comparison Sites. If the catalog or e-mail drives customers to these micro-channels, we incur additional marketing expense. Here's the sub-segment prediction:

	Subseg #1	Subseg #2
Response Rate	1.8%	1.8%
Avg. Order	$125.00	$125.00
$ Per Book	$2.25	$2.25
Flow-Through %	35.0%	35.0%
Flow-Through $	$0.79	$0.79
Book Cost	$0.70	$0.70
Pred. Search/Aff/SC Cost	$0.02	$0.18
Profit	$0.07	($0.09)

In this example, Subsegment #2 generates additional expense, because they like to use Paid Search, Affiliates, and Shopping Comparison sites after receiving a catalog. Therefore, we have to predict what the amount of incremental expense is likely to be. The same level of prediction is required to properly manage future e-mail campaigns.

For Statistical Modelers, this opens up a whole new area of exploration --- it's like drilling for oil in areas where exploration was prohibited.

For the Catalog Circulation Director, this gives you the opportunity to fundamentally change the contact strategy for self-service online shoppers, while generating a boatload of profit for your brand.

For the E-Mail Marketer, you have a once-in-a-lifetime chance to motivate your Executive team to deliver e-mail campaigns to unprofitable customers less often --- and you'll have the proof!

For the vendor community, especially for matchback vendors, you have a whole new product you can develop --- one that integrates purchases and expenses in a holistic and actionable manner. Or maybe the folks at Coremetrics or Omniture can get a jump on the catalog vendor community, and take ownership of this new opportunity.

Best of all, all of you e-mail vendor employees who regularly read this blog have a chance to build an application that improves the profitability of e-mail marketing efforts for your clients --- a good thing!!!

Catalog ROI Is Overstated Because Of Search

Last week, we chatted about how E-Mail ROI is mis-calculated. My stats tell me that you found the article interesting.

Catalog advertising causes the same issues that e-mail marketing causes, often on a larger scale.

The typical catalog marketer matches paid search orders that occur within 30/60/90 days of a catalog mailing back to the catalog that the circulation team believes is responsible for creating the order.

However, the typical catalog marketer does not match back unconverted paid search expenses to the catalog responsible for causing unconverted paid search to happen.

Take a look at this profit and loss statement.


This is a fairly typical catalog profit and loss statement.

Notice converted paid search orders. These orders are matched-back to the catalog. Some catalogers match the paid search expense of those orders back to the catalog.

Almost nobody matches the unconverted paid search clicks back to the catalog that caused paid search to happen. In this example --- a reasonably honest assessment of a catalog profit and loss statement, the catalog caused 3,200 paid search orders to happen. However, at a 3% conversion rate, the catalog caused about 100,000 paid search clicks to happen.

The average cataloger does not allocate the cost of the incremental 96,800 unconverted clicks back to the catalog that caused the clicks to happen.

So three things happen.

1. The cataloger significantly over-circulates the catalog, because the additional expense is not allocated to the catalog driving paid search. The catalog marketing effort is less profitable than it appears.
   
2. The cataloger significantly mis-understands the impact of catalog marketing. In this case, circulating 1,000,000 catalogs caused 100,000 paid search clicks. The marketer fails to see that the catalog caused a 10% "engagement rate". This is a big deal --- the catalog is causing far more customer engagement than is typically measured.
   
3. A portion of the 100,000 paid search clicks result in purchases with the competition, reducing your Net Google Score.

Eventually, we'll create a database infrastructure that allows us to capture appropriate customer interactions. This will fundamentally change how we market to customers.

• We will attribute unconverted paid search clicks back to the customer/catalog combination, in our promotional history files. Instead of recording an $0.80 cost for the catalog, we'll record a $0.80 + $0.50 = $1.30 cost to the customer, incorporating the cost of the search. Ask your database, co-op, or web analytics vendor if they are able to do this for you.
  

• When we make mailing decisions (e-mail or catalog), we will make the decision based on the historical paid search expenditure of the segment we're considering. We won't send as many catalogs or e-mails to customers who augment their experience with unconverted paid search. This is a big deal, folks ... we'll be much more profitable when we make this transition.

• Example: Say your break-even on an $0.80 catalog is $2.50. Now you have a customer who loves to click on paid search ads when she receives a catalog. Your "real" cost of mailing the catalog is $1.30, driving your break-even over $4.00.

• Example: E-Mail marketing is essentially free, until it isn't free! The new e-mail marketing discipline will require us to make e-mail marketing decisions, at a segment level, based on anticipated paid search expense. All of a sudden, e-mail marketing is fundamentally changed --- the discipline becomes nearly identical to catalog marketing.
  

• Another Issue: We have the same problems with Affiliate Marketing and Shopping Comparison Sites. If catalog marketing drives a customer to an affiliate, and that affiliate skims 7% off the top of an order, the catalog needs to receive an expense penalty for driving demand to the affiliate.
  

We've spent a decade doing matchback analytics. Now, we need to provide the vendor community some leadership, so that matchback analytics account for the expense side of the ledger. We are continually making bad decisions because our database infrastructure fails to capture important information.

Who do you see doing this type of work out there, and what was the impact of this style of analysis?

Customer Resume

Take a look at this customer:

• One order, on October 29.
• Spent $200 on one item.

We like to classify customers in some sort of RFM segment. In other words, this customer is a 0-3 month, 1x, $150+ AOV customer. Based on this classification, we develop targeting strategies and we analyze business performance against this segment.

The customer resume demands that we compile a robust profile about the customer.

• Customer received a catalog on October 1.
  
• Customer did not return any of the merchandise ordered on October 29.
• Customer paid the standard fee for shipping.
• Customer did not use a discount code when placing the order.
  
• Customer is an e-mail subscriber.
• Customer only purchased one item.
• Customer ordered on a Wednesday, one day after receiving an e-mail campaign.
• Customer had a referring URL from a social media site.
• Customer ordered 28 days after receiving a catalog.
• Customer did not use a catalog key-code when ordering.
• Customer lives in a Zip Code Forensics zip code classified as "Online Bliss".
• Customer ordered from merchandise division "X", and did not order from merchandise division "Y" or "Z".
  
• Customer has not visited the website since.
• This was the first order placed by this customer.
• Customer lives more than 100 miles from a store.

The Web Analytics professional seldom deals with the customer, she is always evaluating anonymous outcomes, always looking into the past. The Business Intelligence professional is always summarizing customer data down to a small number of manageable dimensions. Mind you, this isn't the fault of the Web Analytics or BI guru --- software makes it difficult to create a "customer resume".

The Customer Resume demands that we evaluate the customer on the basis of everything we know about the customer. Here, we have a rich profile of who this person is, and if we know more about who this customer is, we can imagine what our relationship with the customer could be.

For instance, the fact that this customer ordered 28 days after receiving a catalog tells us that the catalog, at best, mildly influenced the order. The fact that this customer ordered on a Wednesday, one day after receiving an e-mail marketing campaign, tells us that the e-mail may have had a strong influence. This customer paid full price, a positive harbinger for long-term value. This customer only purchased one item, often a negative indicator of long-term value. This customer did not return to the website, which might be a negative harbinger.

The goal of the customer resume is to know as much about a customer as possible, to be able to learn about subtleties in customer behavior that may indicate changes in future behavior. We want to derive information about the customer, we don't want to reduce behavior to a small number of esoteric dimensions --- we can always do that later.

If you want to liven up a boring "Information Technology Steering Committee" meeting, bring the resume for just one customer to the meeting, hand it out to every attendee, and then ask each attendee to craft a communication strategy for this one customer.

Channel Differences

I recently read an article where the catalog marketing expert mentioned that customers who use the telephone to place orders are inherently "better" than online customers that purchase and do not visit again. The premise of the argument was to focus marketing efforts on telephone shoppers.

It is not uncommon for customers in different channels to have different motivations, and different levels of future value. When we attempt to break down silos and focus on "the customer", we harm our ability to think about the different needs of each customer. We need to get past this issue.

Customers using the telephone to place orders are often motivated by different needs. The telephone customer might need additional assistance. The telephone customer might want companionship. The telephone customer might feel unsure about buying a $300 item online, needing to ask numerous questions before pulling the trigger, while the online customer feels perfectly comfortable buying a $30 item on the website.

Analyze your customer data, and you're likely to notice that telephone customers purchase more items per order, and spend more per item than do self-service online buyers. This doesn't mean that phone customers are "better". Rather, they are "different". So treat them in a way that they want to be treated!

Many of you have children. Do you treat each child the same way? Is each child forced to wear the same clothing each day, or do you tailor the clothing to the unique needs of each child? Do you spend more time on homework assignments with one child, then spend more time at soccer practice with another child? You analyze the unique needs of each child, and then you tailor the experience for each child accordingly.

Why not do the same thing for your customers, across the many channels you now manage?

Churn Rates Mask Retention Problems

We frequently read about a metric called "Churn Rate".

For subscription-based services, the churn rate illustrates the percentage of customers who leave the service in any given month.

Typically, churn rates look favorable. A company will report a monthly churn rate of 6%, suggesting that it keeps 94% of subscribers each month.

But churn rate has a damaging cumulative impact that can be illustrated on an annual basis.

For instance, a 6% monthly churn rate yields an annual retention rate of just 48% (1 - 0.06) %^ 12.

In the Multichannel Forensics framework, monthly churn rates translate as follows.

• Retention Mode (60% or Greater Annual Retention) = Less Than 4% Monthly Churn.
  
• Hybrid Mode (40% to 60% Annual Retention) = 4% to 7% Monthly Churn.
• Acquisition Model (0% to 40% Annual Retention) = Greater Than 7% Monthly Churn.

In other words, if your monthly churn is less than 4%, you're in Retention Mode. If your monthly churn is greater than 7%, you are in Acquisition Mode.