Shopping Cart Abandonment: A Flawed Metric

One of the strategies we're asked to review is shopping cart abandonment. In the past two weeks, I noticed a number of trade journals, bloggers, and consultants promoting shopping cart improvement strategies.

There's no doubt that the shopping experience can be improved ... we all agree with that.

But shopping cart abandonment is an inherently flawed metric, a metric that does not do a good job of measuring longitudinal customer behavior.

If a shopping cart abandonment project succeeds, you will observe improvements in the following customer metrics --- answer these questions if you recently worked on a shopping cart abandonment project:

1. In the six months after shopping cart abandonment improved, did the number of new customers increase at a rate faster than planned?
2. In the six months after shopping cart abandonment improved, did the number of reactivated customers increase at a rate faster than planned?
3. In the six months after shopping cart abandonment improved, did the retention rate of your twelve month buyer file improve?
4. In the six months after shopping cart abandonment improved, did the orders per retained customer improve?

If the answer to these four questions is "no", and yet your shopping cart abandonment metric improved, then you did not fundamentally change customer behavior.

Ask the consultant you are working with to verify that these four metrics were improved when the consultant worked on prior shopping cart abandonment projects. Good consultants can provide you with this data, or if they are under NDA, they can at least verify the magnitude of improvement in customer metrics.

E-Mail Civil War

Note to the trade journals, vendors, bloggers, commenters, subscribers, and practitioners who are engaged in e-mail civil war this week.

1. Maybe it is time to stop labeling many of us marketers as being "stupid".
2. Maybe it is time to stop labeling vendors/bloggers as "stupid".
3. Maybe it is time to consider not throwing trade journalists under the bus for unverified trade journal business strategies without verifying facts first.
4. Maybe it is time to better understand all company practices ahead of time so that vendors/bloggers aren't throwing folks under the bus..

These discussions are good for trade journal and blog readership, and result in a lot of comments on a blog ... an "engaged" social media audience, if you will.

These discussions do not make my clients one penny of profit. In our current economic climate, clients seem very interested in increasing sales and profits.

Let's try to focus on helping people use e-mail marketing to increase sales and profit. We can constructively point out strategic opportunities without malice. The e-mail channel is being chewed-up by RSS and Social Media. We don't need the e-mail community cannibalizing itself. We need the e-mail community to generate sales and profit, to make customers happy, to voluntarily help clients, to point out fewer faults.

Twitter And Multichannel Forensics And Nielsen!

This article absolutely warms my heart ... a great way to analyze Twitter using Multichannel Forensics. LOVE IT! David Martin at Nielsen uses the 40% level (Acquisition Mode) to make a point. LOVE IT!

http://blog.nielsen.com/nielsenwire/online_mobile/twitter-quitters-post-roadblock-to-long-term-growth/.

Channel Hopping And Multichannel Forensics

This week, many of you are busy chatting about an article from Peter Merholz at Harvard Business Publishing, an article about "channel hopping" ... and over on Twitter there's a whole lot of re-tweeting going on about articles related to channel hopping. Channel hopping and Multichannel Forensics are like peanut butter and jelly!

You can literally see Multichannel Nation swelling with pride once again. Somebody from Harvard said that people channel-hop, and that companies that develop channels in isolation are doing a bad job. The article gives Apple as an example of a company with a good strategy.

I'm still waiting for somebody to show that, by having integrated channels, the profit and loss statement swelled to 10% EBIT from a 6% EBIT, with an accompanying growth in sales. Use the comments section to include your own success stories.

For instance, I recently spoke with an Executive who told me that the creation of a new channel resulted in lower profits and greater customer attrition ... customers liked the new channel, shifted behavior to the new channel, and generated less profit as a result. This was all done as part of a coordinated, planned, centralized multichannel strategy. We're seeing examples of this all over the place, as unprofitable emerging channels replace wildly profitable legacy channels.

And we're seeing examples of chaos that work ... Zappos has 30% of the employee base doing non-integrated, uncoordinated conversations via Twitter. You don't centralize and coordinate 400+ voices, do you?

Not surprisingly, Multichannel Nation fails to report on all of the examples of stories that go bad ... we like to share positive stories that align with our worldview. And there will never be a shortage of those stories.

Every one of the three dozen Multichannel Forensics projects I've completed suggest that channel hopping is an automatic and assumed part of the customer experience.

However, the projects only sometimes suggest that having a coordinated, integrated, centralized, strategic multichannel response results in increased sales and profit. Those who work in the trenches know that life isn't so cut-and-dried.

More often, strong and knowledgeable business leaders with accurate data (i.e. Multichannel Forensics) know which levers to pull. It's sometimes more wise to kill a channel than to integrate a channel. It's sometimes more wise to let a channel seek it's own potential rather than to hamstring it as part of a centralized strategy. And it is sometimes more appropriate to have a centralized, integrated, cohesive strategy, as advocated in the article.

It is always best to know how customers interact with channels ... nobody can argue that one!

Customer Reactivation

One of the mysteries of the internet era is the reactivated customer.

Fifteen years ago, you had a file of customers who had not purchased from you in years. These customers were a valuable asset --- really valuable! And they didn't have as many shopping opportunities as they have today, so you could mail them a catalog, and they might purchase ... at least purchase at a rate that was profitable.

That was 1994. We have to think about 2014.

The next decade will require us to figure out how to "stay in touch" with the lapsed buyer --- I mean, how the heck are we going to reactivate these folks? Remember, so many of them don't want to receive an e-mail or a catalog from us. For others, we've already met their needs, they're done with us. And then you have that whole crowd that are loyal to Google, not to us.

The first step is to simply have the dashboard in place ... especially if you're an online marketer. Strongly encourage your web analytics team to move into reporting of this nature.

Next, look at what your trends are over time. Are you able to reactivate these folks?

Then ask yourself, "what tools do you have to reactivate customers"? If you don't have catalogs, how the heck do you stay in touch with folks who last purchased from your brand three years ago? It's a mystery! E-mail might be part of the story --- though half of your file doesn't want to get e-mail messages from you, so think about how the heck you stay in touch with the other half.

Today, Google represents the most effective way to keep in touch with lapsed buyers, should you not have a catalog or e-mail marketing or direct mail strategy for lapsed buyers. Your SEO or paid search or social media program keeps your business "out there" for that day when the lapsed customer is ready to buy again.

At some point, the social media folks might catch on to this ... the concept of staying in touch with lapsed buyers. And if this happens, there might be some promise in this whole social media thing.

As you can see in the table, lapsed buyers becoming reactivated buyers can represent between ten and twenty percent of your business ... so it isn't a trivial amount of sales, is it?

Ok, your turn. Pretend you don't have catalogs or e-mail campaigns or direct mail ... how do you encourage the customer who last purchased from you three years ago to buy from you again?

A Modern Catalog Square Inch Analysis (Squinch)

A Modern catalog square inch analysis (called squinch by some) is a different proposition than it was fifteen years ago.

For most of us, we don't have a housefile big enough to truly detect what a catalog drove to the online channel, at an item, department, or division level. So we have to make some assumptions.

Here's one way to approach a modern catalog square inch analysis.

Step 1: Conduct your standard mail/holdout test. If you're under fifty million in annual sales, you'll probably need at least 7,500 folks in your holdout group to get a halfway decent read of online results.

Step 2: At the conclusion of your test (say eight weeks after the in-home date), you'll measure your results as follows:

Catalog Square Inch Analysis Test Results
	Current	Other	Online
	Catalog	Catalogs	Sales	Totals
Mail	$3.00	$8.00	$6.00	$17.00
Holdout	$0.00	$9.00	$4.50	$13.50
Increment	$3.00	($1.00)	$1.50	$3.50

Ok, things are going to start getting interesting.

Step 3: Tally the total sales for your catalog, based on your telephone results. Let's assume that number is $2,000,000.

Step 4: Ok, we have to adjust for cannibalization. This catalog, based on the test results, cannibalized other sales by 33% (the dollar lost in the table above divided by the three dollars of incremental sales per customer. So, the $2,000,000 in sales is multiplied by 0.333, yielding $666,667 that will be taken away in Step 6.

Step 5: Now, we have to adjust for the sales we drove online. Based on the test results, we drove an additional $1.50 online, a 50% increase (the $1.50 driven online divided by the $3.00 recorded by the catalog). So, the original $2,000,000 in sales is multiplied by 0.500, yielding $1,000,000 that will be added in Step 6.

Step 6: Let's come up with a final demand number. We take the $2,000,000 telephone sales number, we subtract $666,667 for cannibalization across other catalog phone demand, then we add $1,000,000 of incremental online volume. In total, the catalog drove $2,000,000 - $666,667 + $1,000,000 = $2,333,333.

Step 7: Take $2,333,333 and divide it by the $2,000,000 your systems recorded, yielding a "lift factor" of 1.167.

Now we can calculate a semi-accurate DMPC (demand per thousand pages circulated) for each item. DMPC is a very good measure when doing a square inch analysis.

Step 8: Record the phone sales for an item. Say that amount is $10,000.

Step 9: Multiply that number by the lift factor in Step 7 of 1.167, yielding $11,670.

Step 10: Record the percentage of a page that the item occupied in the catalog. Let's assume an item took up 0.25 of a page.

Step 11: Record the total circulation of the page in the catalog. Let's pretend the number is 750,000.

Step 12: DMPC (Demand per Thousand Pages Circulated) is calculated as:

• ((Lifted Demand) / (Fraction Of Page * Circulation)) * 1,000.
• Or ... ((Step 9) / (Step 10 * Step 11)) * 1,000.
• ($11,670 / (0.25 * 750,000)) * 1,000.
• = $62.24.

And that's it. Just twelve easy steps. You compare the DMPC of this item against other items. You calculate a "break-even", and compare items against the break-even level.

Big companies have an advantage, in that they can calculate lift at a merchandise division or department level --- there are enough customers in a holdout group to do this. At Nordstrom, we learned that we didn't have to offer Mens merchandise in a catalog ... the very presence of Womens merchandise drove customers online (and into stores) to buy Mens product.

Anyway, that's how we conduct a modern catalog square inch analysis.

Your thoughts?

Retail Testing: Matched Markets

You are a retail executive. Those folks in the online division talk all of the time about how they test different issues in real time. You don't have that type of flexibility.

Or do you?

Matched market testing has been around since, oh, I don't know, 1,200 BC? You take markets that have similar demographics, psychographics, lifestyle attributes, and customer spending levels at your brand, and you match them up for testing purposes.

Examples (there are infinite combinations):

• Seattle and Portland
• Los Angeles and San Diego
• San Francisco and San Jose
• Oakland and Sacramento
  
• Phoenix and Denver
  
• Minneapolis and Chicago
• Detroit and Cleveland
• Pittsburgh and Cincinnati
• Philadelphia and Baltimore
• Boston and Washington, DC.
• Richmond and Raleigh
  
• Atlanta and Miami
• Tampa and Charlotte
• Jacksonville and Orlando
  
• New Orleans and Birmingham
• Memphis and St. Louis
• Nashville and Louisville
  
• Omaha and Kansas City
• Houston and Dallas
• Salt Lake City and Boise

Once you match similar markets, you randomly assign one market to the test group, one to the holdout group. Then execute your test --- take 20% off orders over $75 in one set of markets, don't do so in the other set. Or test different price points --- you name it.

Matched markets. Give it a shot!

Multichannel Solutions From The Catalog Success 200

A sampling of some of the multichannel solutions offered by companies in The Catalog Success 200.

• Jann's Netcraft offers an "Ask The Experts" section ... anybody want to learn more about weedless jigs?

• Park Seed Company has digital online catalogs that you can browse through.

• DharmaCrafts gives the readers a chance to read "love letters" from customers.

• Audio Editions will soon offer a new version of their website, with customer reviews.

• Raintree Nursery allows you to see the impact of climate change over the past century.

• Ginny's Catalog has a forum where you can share your cooking and kitchen ideas.

• Brisky Pet Products cares about starving prairie dogs.

• Crazy Shirts has a freelance artist program ... get paid!!

• Dakin Farm has recipies for Keilbasa.

• Christian Tools of Affirmation has a social media presence that exceeds the efforts of most catalogers.

• Speak Spanish? Auto Mart Toolmart has you covered with a Spanish language site.

• The Atlanta Cutlery Corp. experiments with video marketing.

• Back To Basics Toys offers readers articles from Scholastic Inc.

• TherAdapt Products provide several medical letters to assist with product purchases.

• MindWare categorizes award winning games for you to browse.

• Paul Fredrick MenStyle has a box on the homepage if you heard about their brand on a television commercial --- allowing you to enter the password from the commercial. Nice tracking tool!

• Valley Vet Supply lets you sign up for RSS from the homepage --- the icon is boldly featured above the fold.

• Done with your FLOR product --- recycle it!!

• SeaBear hosts once-per-year culinary events --- register now!

Three Easy Steps To Instant Viral Marketing Success

Would you like to author content that spreads like a virus? It's not that difficult, folks! Just follow these three easy steps to instant viral marketing success!

1. Write great content. Nobody wants to read something boring and dry.
2. Use a catchy subject line, like "Five easy steps" or "Four easy steps" or "Three easy steps".
3. Build a loyal following, one that is willing to share your content on micro-blogging sites like Twitter.

Have you ever noticed that this type of content is rampant in the marketing world? Ever wonder why?

I recently tested different writing styles. For instance, this article on Multichannel Cannibalization offered fairly useful insights. Nobody linked to the article.

This article (49 Vital Multichannel Modeling Tips) spread like a rampant, unchecked virus. The content, while absolutely useful, was disorganized and lacked depth or true explanation --- it was a bullet-point filled, connect-the-dots and color-within-the-lines style of writing.

A consultant told me two years ago that "... stop trying to make your readers think, just tell the audience what you want them to do".

Why do you think we respond to the canned, checklist style of writing so much more frequently than we respond to thoughtful essays? Is it true that we marketers don't want to think, that we simply prefer to be told what to do?

ACCM 2009, Multichannel Forensics, Zip Code Forensics

Are you coming to my session at ACCM? If you are, and you want to include your data in the Zip Code Forensics database, bring a year's worth of data (one row per zip code, each column represents total annual sales in that zip code by channel), and I'll be sure to include your data in the database. Please contact me for additional details.

For those of you who are scheduling time with me to talk about your Multichannel Forensics for Catalog Marketers projects, review the slide presentation below. This explains what a typical Multichannel Forensics project for Catalog Marketers is, and illustrates the cost of a project. The projects are great for reducing catalog expense while minimizing demand loss. Let me know if you want to schedule time to meet at ACCM 2009.

Multichannel Forensics Projects For Catalogers: 2009

View more presentations from MineThatData.

Kevin Hillstrom, Jim Novo, and Akin Arikan. Oh My!

Is there a better way to spend an hour at work than listening to three multichannel marketing folks talking about online and offline marketing?

You make the call!!

Here is your opportunity to participate in a session hosted by the Web Analytics Association titled "What Online Marketers Can Teach Their Offline Colleagues (and vice versa). On Tuesday, May 19, the venerable Jim Novo, multichannel marketing guru Akin Arikan, and the Godfather of Multichannel Forensics (that's me) get together to share our thoughts on online and offline marketing strategies and measurement.

Web Analytics Association events are exceptionally well attended. Given the quality of speakers and the reputation of the Web Analytics Association, this is (IMHO as the Twitterati say) a can't miss hour of knowledge exchange.

So why not join us on Tuesday, May 19, at 12:00pm EDT / 9:00am PDT? Register here!!

E-Mail Marketing: At An Inflection Point

This week, I read a blog post where an e-mail marketing proponent was relaying a Twitter conversation with others on the blog, in chronological order. One might think that the e-mail community might use e-mail for communication instead of Twitter, if e-mail is as valuable as we're told.

Today, I visited the homepage of a very popular e-mail marketing service. On the homepage alone, there are four references to blog posts, one to subscribe to a podcast, one to download a white paper, one to a message board, one to press releases, one to "resources", two opportunities to subscribe to content via RSS, and one to subscribe via e-mail.

Wouldn't it make sense for the e-mail marketing vendor to create a double-opt-in, permission-based list of eager B2B subscribers who love to learn about e-mail marketing? Why defer to RSS?

E-Mail marketing is at a major inflection point. The micro-channel is being seriously cannibalized by social media. Seriously cannibalized. Conversations have moved from e-mail to Twitter and Facebook.

And when conversations move, marketers follow.

E-Mail vendors might blame e-mail marketers for any perceived failures in e-mail marketing. And that's probably a fair assessment. Here is every subject line from every e-mail marketing message I received from one brand in just the past twenty-three days.

• Free Shipping Ends Today.
  
• 25% Off And Free Shipping.
• 25% Off Ends At Midnight.
• Free Shipping And $10 Off.
• Free Shipping And $10 Off.
• $10 Off And Free Shipping.
• Today Only, 25% Off And Free Shipping.
• Last Day For Free Shipping.
• Today Only, 20% Off.
• Free Shipping On Everything.
• Free Shipping, No Minimum.
• Free Shipping On Everything.
• 20% Off Sitewide, One Day Only.
• Free Shipping, One More Day.
• Last Day, Free Shipping.
• First Time Ever, Save 30%.
• 30% Off, Exceptional Savings.
• 30% Off Sitewide.
• 30% Off, Three Days Left.
• Reminder, 30% Off.
• Ends Today, 30% Off.
• 6 Hours Left, 30% Off.
• Free Shipping On Everything.
• Free Shipping On Everything.

Honestly, there's nothing wrong with that strategy, especially if your target customer is a discount/promo loving brand advocate who signed up for a daily promo-based message.

But we are at a serious inflection point. E-mail is going to be one of a very small number of ways that a marketer can push a permission-based message to a customer ... so for marketers, this is an incredibly valuable tool. It just seems like something is going to change, and our industry is going to need some leadership to navigate the discount/promo side of e-mail marketing and the serious cannibalization that is happening due to social media. I wish I had the answers, I don't. All I know is that my Multichannel Forensics work indicates that e-mail marketing has significant value as a bridge between older channels and emerging channels, so I care about the craft of e-mail marketing.

Are You On The Wrong Side Of Technology?

Are you on the wrong side of technology?

I've been there. Nordstrom, 2004. Higher-end retailers were the first to witness the death of the 1980s catalog business model. Outside lists stopped performing long before the collapse most catalogers are experiencing today. Customers raced online, then stayed online, then stopped using the catalog for shopping inspiration. Mail/Holdout tests proved this ... matchback analytics that were promoted by the vendor community were much less accurate.

At some point, the economics of catalog marketing stop making sense to somebody who is good with numbers, a high-level person in the finance department, for instance. This is a bad day, if your entire career was based on the catalog business model, like, say, my career was.

You're stuck defending a dying business model, while all around you bad ideas circulate, ideas that will make your company less money than the catalog marketing they deride. One executive said that e-mail marketing will replace catalog marketing just fine --- he never looks at catalogs, and would welcome a highly targeted e-mail message. The whole room agrees ... then it's your job to remind the room that e-mail marketing generates $0.18 per e-mail, while catalog marketing generates $4.50 per catalog ...and oh, by the way, half of the customer file hates e-mail marketing and refuses to participate.

Oh.

The room gets quiet for a moment, but then the ideas keep on coming. What if we stopped renting names and let the customer determine how many catalogs to receive? What if we only mailed catalogs to store customers? What if we only put the most most fashionable merchandise in catalogs and stopped focusing on what actually sells?

What if we just killed the catalog altogether?

That becomes the inevitable conclusion, because any other idea is just a poor, sub-optimal compromise.

You're told that you will wind down the catalog program over the next year. You get to eliminate a third of the jobs in your department. You get to watch your favorite co-workers leave for other departments, sticking their tongue out at you as they head out the door. Worse, however, is the fact that most of your favorite catalog employees flee the company, looking for their next challenge.

So you do the hard work. You downsize, you re-structure most of the jobs so that your employees will thrive in a digital future. Nobody thanks you for this job. It took about thirty months to make this transition, and by the time the transition was complete, my job as I knew it was over. A new regime took over, and I didn't have much else left to do. Time to move on.

You feel like a dweeby boy at the High School prom, one who had this wonderful girlfriend, only to have the girlfriend find somebody in a nicer tuxedo. They race off to an after-prom party while you remind everybody that you were responsible for bringing her to the prom in the first place.

In my case, I got a wonderful head-start on my consulting career, because Don Libey was willing to publish two of my books before Nordstrom went in a different direction. I had a one year head-start on my blog before leaving Nordstrom. The combined efforts of the books and blog positioned me for a post-catalog world.

I entered this post-catalog world with a lot of good experience, only to find that almost nobody wanted to listen. The very catalog community that could benefit from my experience largely shunned what I learned, occasionally with a condescending attitude. You walk this fine line between desperately wanting to help your industry and wanting to scold your industry for not "listening".

As we all know, five mega-trends or events ended 1980s-style catalog marketing. Our industry only likes to acknowledge the first two events.

1. The great postage increase of 2007.
2. The great implosion of 2008 (i.e. the "financial crisis").
3. The aging of the baby boomer generation, a cohort being replaced by younger individuals who do not shop the way baby boomers shop.
   
4. The power of search to re-direct demand generated by offline efforts to those who play by Google's rules the best.
   
5. Do-Not-Call and CAN-SPAM legislation, which gave customers the power to say NO, which ultimately resulted in the amazing declines in customer acquisition productivity catalogers are experiencing.
   

And it isn't fun to realize you need help. Your business model may still be profitable, while all around you, the sharks swim, blasting your Luddite-style of marketing with 140 sharp teeth called "Twitter". Never mind their business model doesn't work either, they're the new experts, the anointed ones. They praise Dell, a sixty-billion dollar brand, for generating a measly million dollars using their technology --- they mock you without offering a credible transition plan. And they'll be gone in two years when Twitter isn't fashionable, lauding the next shiny new toy. Websites, E-mail, Geocities, MySpace, Blogs, Facebook, Twitter ... it never ends, with each new tool seemingly attracting a smaller audience. If this keeps up, we truly will be executing 1-to-1 marketing.

These days, the collapse of the newspaper industry is all around us. You can't help but feel bad for the journalist who loves her job, only to have a business model implode. How will she make a living?

The music industry isn't much different --- with the imminent death of the compact disk causing a complete restructuring of the way music is made and sold. What do you do if you worked in an independent record store for the past fifteen years, how will you make a living?

The catalog industry is different, in that e-commerce forms a bridge between the catalog marketing of the 1980s and the hologram marketing that is coming. Still, the traditional business model of buying and selling lists, of planning a merchandise assortment 124 pages at a time, fifteen times a year, nine months before the catalog drops, is going away. And as it goes away, an entire generation of marketers, highly passionate about what we've always done, are on the wrong side of technology.

What will we do?

For us, the future is really quite bright!

See, we have to make a decision. Do we love putting catalogs together, or do we love selling merchandise? We have to choose.

If we love putting catalogs together, we can still do that. There will be many companies that, for the next fifteen years, will cater to the rural baby boomer audience. For the traditional catalog marketer, this will be a nice capstone on a wonderful career.

If we love selling merchandise, there's never been a better time to sell merchandise! There are a nearly infinite number of micro-channels that allow the merchant to have a relationship with the customer. What a wonderful time to be a merchant, to learn!

Me? I've already made the hard transition. It took five year to go from spending every ounce of energy trying to defend a dying business model to downsizing a department to saying goodbye to my friends to the end of my job at Nordstrom to starting a consulting practice and being laughed at by some in my industry to finally having a thriving consulting practice. Multichannel Forensics is channel agnostic --- the methodology will explain whatever comes to us in the future.

My goal is to never be on the wrong side of technology again. Of course, I already am on the wrong side of technology, being one of the few remaning long-form bloggers in a world dominated by 140 character tweets about people spitting on pizzas at Dominos. But the goal remains ... to keep up with technology.

Your thoughts?

ESPN: Multichannel Considerations For Online, Catalog, and Retail Marketers

We're given a lot of rules for how to execute multichannel marketing, without any proof that any of the rules actually increase ROI outside of one-off campaigns.

ESPN breaks almost all of the rules that online marketers, catalog marketers, and retail marketers have been taught.

Think of all the micro-channels that ESPN utilizes.

Start with the cable channel, the original "ESPN". The "mothership" is basically the hub of the experience. Most of the major sporting events are broadcast on ESPN. SportsCenter has evolved into a sports magazine, opinion, and entertainment-based program. In fact, entertainment and opinion programming now dominate non-sports and non-SportsCenter programming hours.

Now we begin to branch out. ESPN2 shares many of the programs that are on ESPN, though many of the sports programs are "less major league" than are the ones on ESPN. The look and feel of ESPN2 is comparable to ESPN. Both ESPN and ESPN2 have a distinctively "national" flavor.

At this point, the network begins to cater to specific niches of individuals.

You have ESPN Classic, with an odd array of programs for unique audiences. You have ESPNU, dedicated to college programming. You have a series of pay-per-view programming for most major league sports and college sports. ABC, which owns ESPN, brands all sports under the ESPN name. And then you have ESPN News, a more formal network that skips much of the entertainment-based aspect of ESPN, focusing on scores, highlights, and the meaning of the games. The look and feel of ESPN News is significantly different from that of ESPN.

There's ESPN Radio. In Seattle, you can hear Mariner games on ESPN Radio, and you can hear national sporting events on ESPN Radio. There are local radio personalities, and there are national radio personalities. ESPN Radio is much more "local" than the national television channels are.

Need online updates right now? Visit espn.com. Network clips are published and re-used on the website. You get to "drill down" into any facet of sports you like, and you'll be able to read content from sports journalists who focus on specific sporting leagues. Want to personalize your results? You can do that too.

There are RSS feeds that cater to your interests. Or mobile options ... tons of mobile options!

There are tiers of content here, too. You can become an "insider", paying for premium content. And ESPN360 allows you to have a television experience online, offering sporting content not available on any of the television or radio networks. Do you speak Spanish? Then ESPN Deportes is for you. Or you can pay for ESPN The Magazine, if you enjoy content in a traditional sense.

You're allowed to leave your comments on articles, you can participate in Fantasy Sports, you can interact with others and participate in polls via SportsNation.

You can add widgets to your own site.

And you have the traditional social media channels like Twitter and Facebook.

This is the essence of "micro-channel" marketing. The only theme that runs through all of these micro-channels is that this is "ESPN, The Worldwide Leader In Sports". Sure, there's cross-promotion between platforms.

But by and large, ESPN deviates away from the "look and feel" and "integration" mantras of multichannel marketing. We've been taught for a decade to make sure that the look and feel of all channels are the same. We've been taught to integrate all activities --- we've been taught that we have to offer everything in all channels. Not at ESPN. You pick and choose the content that you desire, and you get to find individuals that have common interests with you.

In so many ways, this micro-channel blitz represents the future of the online marketer, catalog marketer, or retail marketer. A veritable plethora of content is available via television, radio, print, mobile, RSS, online. You pick and choose your experience.

I'm not saying any of this is right or wrong. I am saying this is a level of micro-channel marketing that few of us practice, and is more representative of our future than the version of multichannel marketing we currently practice.

Your thoughts?

49 Vital Multichannel Modeling Tips For Analysts And Statisticians

Here are 49 Multichannel Modeling Tips, for those of you who know how to interpret a "Wald" Statistic.

Tip #1: More business insight can be gained by modeling response over the course of a year than can be gained by modeling response for a campaign.

Tip #2: If you are modeling more than 100,000 customers, t-statistics are useless in Ordinary Least Squares Regression. You'll probably need a t-score of 10 or 25 to detect true significance. And at 1,000,000 customers, this measure increases to 50 or 100.

Tip #3: For many businesses, seasonality matters. Create variables to detect seasonality.

Tip #4: Recency usually isn't a linear relationship. Often, the square root transformation works well for recency.

Tip #5: If you are modeling just the twelve month file, try using dummy variables for each month of recency. This allows you to detect the right transformation to use if recency is a continuous variable, and can help you detect seasonality.

Tip #6: Dummy variables are beautiful!

Tip #7: Parsimony matters. A model that has four variables is usually better than a model that has four-hundred variables.

Tip #8: Models with four variables are boring. Build your model with four-hundred variables, so that you can gain as much business insight as possible. Then implement the model with four variables.

Tip #9: Decide whether you will specialize in business insight, or mathematical brilliance. Don't focus on both. Your career path depends upon which path you choose.

Tip #10: Business leaders are yearning for business insight, the kind gleaned from statistical models.

Tip #11: Business leaders hate geeky math ... unless, of course, the business leader is a lover of geeky math.

Tip #12: In multichannel modeling, recency, frequency, and monetary information capture the vast majority of variability.

Tip #13: If frequency and monetary value are highly correlated, use frequency in your Logistic Regression models, and use average order value in your Ordinary Least Squares spending models.

Tip #14: Some people are able to get away with violating about 22,483 assumptions, combining response and spend models into one model analyzed with Ordinary Least Squares regression.

Tip #15: Residual analysis across 295,483 customers is a challenge! Summarize across individual values in your variables, and then conduct your residual analysis.

Tip #16: Enter into a drawing for a free copy of my "Hillstrom's Database Marketing" book if you know how to apply the "Durbin-Watson" statistic to multichannel modeling issues.

Tip #17: Annual response/spend models should be created for each important channel you analyze.

Tip #18: Consider a dummy variable for each micro-channel you analyze.

Tip #19: Use separate dummy variables for each important combination of paid search engine (Google, Yahoo!, MSN), branded/non-branded, and any important keywords. There is a richness of business intelligence to be understood from these variables!

Tip #20: If you have an Amazon store, be sure to have a dummy variable that captures the impact of Amazon purchases on your business.

Tip #21: Consider using dummy variables that capture the impact of geography on your business --- urban, suburban, and rural variables do make a difference.

Tip #22: If your business generates sales from stores, use dummy variables to capture the impact of being 0-4, 5-9, 11-25, 26-50, and 51+ miles from a store.

Tip #23: Consider building completely different models for estimating who will purchase during the holiday shopping season.

Tip #24: Web Analytics click data ages QUICKLY. Catalog purchase data ages SLOWLY. Be sure to capture the impact of each dynamic in your models.

Tip #25: Model the recency of clicks in your e-mail campaigns. But remember, e-mail campaign purchases are much more important than e-mail campaign clicks.

Tip #26: Include dummy variables that record the "source of acquisition" for each customer. Customers acquired from many sources have minimal future value.

Tip #27: Include dummy variables that record "when" customers were acquired. A customer acquired twenty years ago spending $100 in 2008 is worth more than a customer acquired in 2006, spending $100 in 2008.

Tip #28: If you are a Web Analyst, seriously consider making the transition to statistical analysis.

Tip #29: More variables matter when predicting response than when predicting spend. Often, spend can be well predicted by frequency and average order value.

Tip #30: Throw out many of the traditional "rules" that statisticians require when modeling hundreds of thousands or millions of customers. Modeling customer behavior is more of an art than a science.

Tip #31: Get yourself a REALLY FAST rocket-ship of a computer! At one company, I literally offered to buy my own hardware, when the finance department refused my capital request for new equipment. One month later, I resigned.

Tip #32: Use software that you are comfortable with. That might be "R", SPSS, SAS, Statistica, Excel/SQL, whatever, use what you like to use.

Tip #33: If the business conditions that existed when you built your model no longer exist, BE CAREFUL!

Tip #34: When working with different micro-channels (Twitter, Facebook), use age-based dummy variables if possible. In other words, create dummy variables for 18-29 year olds, 30-39 year olds, you get the picture. Go ahead and use any age range you wish.

Tip #35: Very interesting findings await the multichannel statistician who runs a Factor Analysis.

Tip #36: Business leaders intuitively know what an "A" customer is, compared with a "B", "C", "D" or "F" customer. So instead of reporting on different predictions, simply grade your customers, and speak to business leaders in terms of grades.

Tip #37: If you are analyzing categorical data, give Correspondence Analysis a try --- one of my personal favorites!

Tip #38: Never run a Neural Network model and then try to explain the results to a person who does not know how to run models but thinks s/he knows how to interpret regression models.

Tip #39: Use dummy variables for each store your business generates sales from.

Tip #40: Interaction terms MATTER! This is where you learn that "Multichannel Customers Are Not Always The Best Customers"!

Tip #41: Create dummy variables that evaluate every employee who answers customer questions via Live Chat. Do the same thing for Telephone Reps, and Store Employees. You'll learn who your most valuable employees are!

Tip #42: Create dummy variables for the blogs responsible for sending you the most traffic.

Tip #43: MERCHANDISE MATTERS! Include variables that feature the merchandise divisions or departments that customers purchase from.

Tip #44: Actively model future return rates, and then stop marketing to customers who are predicted to return too much merchandise.

Tip #45: A customer who purchased five $50 items behaves different from customers who purchase one $250 item.

Tip #46: The best projects are projects you initiate. Always do what management asks you to do. But keep Friday afternoons free, if you can, to run your own models, to investigate your own ideas.

Tip #47: Never quit. Do not listen to folks who mock you, who call you a "geek", who demean your math in favor of their gut opinions.

Tip #48: Always have a validation sample to validate your results against. In other words, build your model against half of the data (or 70% or whatever you think is the right percentage), and then rank-order the holdout sample to make sure you did a good job.

Tip #49: Some of the best models are built against mail / holdout groups. In other words, you build a model for folks mailed an e-mail or catalog --- and you build a model for folks held out (an equally random sample of customers). Subtract the predicted values of the mailed and holdout models for the "inbcremental" value of your campaign. But be careful! This style of analysis is subject to big problems if the models have unstable or non-linear coefficients.

Making A Mess

Give this article from Get Elastic a read. In particular, enjoy this quote:

• My first retail job was selling shoes in the mall. When the mall was “dead” and the store empty, we would begin to make a mess. We’d pull shoe samples off the shelf and throw them all over the floor. The idea was people browsing the mall are more likely to enter a store with activity than one where the sales girls are leaning over the counter tapping pencils and blowing bubble-gum.

Somewhere in our "best practices" world, we stopped trying to sell, we stopped trying to create demand.

Modern e-commerce would never disrupt the online store in the way that a retail employee would willingly make a mess of the physical store.

Best of all, this stuff can be tested. We can "make a mess", and then see if making a mess increased sales.

Channel Alignment

In a recent investor conference call, Talbots management spoke of "aligning their channels".

Channel alignment is one of the most challenging aspects of being a multichannel marketer in the year 2009.

In 2001, the concept was easy. The dot.com crowd had just flushed billions of dollars in the hope of monetizing eyeballs. Traditional direct marketers were looking to take control over marketing, doing so by astroturfing the concept of "multichannel", the concept that if we simply align all of our channels, customers will be satisfied. Research organizations surveyed customers, customers told the research organizations what they wanted to hear, brands purchased research organization reports and heard what they wanted to hear, and then pursued the "multichannel route" under the mantra that "Multichannel Customers are the Best Customers".

By and large, the multichannel playbook consisted of the following strategies.

• Offer the same merchandise in every channel --- stores, online, catalogs.
• Offer the same merchandise at the same price in every channel.
• Offer promotions that can be redeemed across all channels.
• Promote all products via all channels --- catalogs, e-mail, etc.
• Make the website a resource for cross-channel research.
• Match your online orders back to traditional marketing activities, to prove that traditional marketing activities were responsible for online orders.
  

All of this sounded good, in theory.

Eight years later, we're left with so few success stories. From time to time, we'll hear of a standalone marketing campaign that delivered a 2,493% increase in ROI. But we seldom hear of a brand that "connected the dots" and "reaped the benefits" that we were astroturfed into believing.

If you disagree, pick the brand that did this well, and outline in the comments section the financials that demonstrate that the multichannel industry script worked.

I recall my CEO at Eddie Bauer, the venerable Rick Fersch, asking me a unique question back in 1999. Our website skewed toward a male demographic, our catalog skewed toward a female demographic. He asked me "Why would we want to use a catalog to drive sales online if the catalog customer is female, and the online buyer is male?"

Of course, one might use the catalog to drive female shoppers online to buy womens merchandise, but that wasn't quite how our business worked back in 1999.

Instead, Mr. Fersch was asking a rational question --- "Should these channels be aligned?"

I dare you to find industry experts who publicly ask this question. But this question is fundamental to understanding marketing in 2009.

For instance, say your "traditional" marketing department dreams up a promotion --- 25% off of your order if you spend $200 or more.

• Should this promotion appear in your catalog?
• Should this promotion be offered in e-mail marketing?
• Should this promotion be broadcast on Twitter?
• Should this promotion be part of your search marketing strategy?
• Should this promotion be part of a blogger outreach program?
• Should this promotion be part of a direct mail campaign?
• Should this promotion be offered on the e-commerce homepage?
• Should this promotion be part of our radio, newspaper, and magazine ads?

Traditional multichannel marketing suggests the answer to all questions is YES!

Modern channel alignment suggests we might want to explore the audience that participates in each micro-channel. Each micro-channel attracts a different audience, with different demographics, psychographics, needs and expectations. Why not consider leveraging the strengths of each micro-channel?

Multichannel Forensics: The Adjusted Index

The "Adjusted Index" helps the business leader who manages an "emerging channel", like Twitter for instance, to understand the future role an emerging channel is likely to play.

Here's the deal --- when customer counts are small, in relation to the dominant channel, it is very difficult for the emerging channel to do anything but appear to "feed" the dominant channel, while the dominant channel doesn't appear to do anything but stay in "isolation", hoarding customers from the emerging channel.

Time takes care of this problem. But we want to be able to see what role each channel might play in the future.

So give this a try. The formula was created from the composite of the majority of Multichannel Forensics projects I've worked on.


Existing Channel:

Step 1: Calculate "Indexed Customers" --- Existing Channel customers divided by Emerging Channel customers. In yesterday's example, this is 25,000 / 500 = 50.

Step 2: Record your repurchase index. In yesterday's example, the index for Online customers migrating to Twitter is 4%.

Step 3: Calculate "X", from the following formula: 1 / (2.55 * (Indexed Customers) + 2.36). In this case, "X" is equal to 0.0077.

Step 4: Calculate the "Adjusted Index": Adjusted Index = (Repurchase Index / X). In this case, the Adjusted Index = (0.04 / 0.0077) = 5.19. If this index is greater than 1.00, then it is likely that the Existing Channel is going to fuel the growth of the Emerging Channel. If the index is less than 1.00, then it is unlikely that the Existing Channel is going to fuel the growth of the Emerging Channel. In this example, the Online Channel is likely to fuel the growth of Twitter, with customers eventually leaving the Online Channel for Twitter. Your mileage may vary.


Emerging Channel:

Step 1: Calculate "Indexed Customers" --- Emerging Channel customers divided by Existing Channel customers. In yesterday's example, this is 500 / 25,000 = 0.02.

Step 2: Record your repurchase index. In yesterday's example, the index for Twitter customers migrating to the Online Channel is 80%.

Step 3: Calculate "X", from the following formula: 1 / (2.55 * (Indexed Customers) + 2.36). In this case, "X" is equal to 0.415.

Step 4: Calculate the "Adjusted Index": Adjusted Index = (Repurchase Index / X). In this case, the Adjusted Index = (0.80 / 0.415) = 1.93. If this index is greater than 1.00, then it is likely that the Emerging Channel is going to fuel the growth of the Existing Channel. If the index is less than 1.00, then it is unlikely that the Emerging Channel is going to fuel the growth of the Existing Channel. In this example, Twitter is likely to fuel the growth of the Online Channel, with customers eventually leaving Twitter for the Online Channel


In this example, Twitter and E-Commerce are likely to evolve toward a synergistic relationship, where customers willingly switch back and forth between each channel.

This methodology allows you to understand the trends that are likely to emerge in the future, and gives the proponents of emerging channels an opportunity to be excited about the future trajectory of the emerging channel.

And with the explosion of social media channels that appear to have almost no impact on sales, we need this index to help us understand what the long-term potential might be.

A Multichannel Forensics Discovery

One of the issues many of you have with Multichannel Forensics happens with "start-up micro-channels".

Here's the deal. Let's say you have a Twitter presence. And you do a really nice job of 140 character merchandising, whatever that is.

Maybe 500 customers purchase from Twitter in the course of a year. And of the 500 customers, 250 will purchase again next year ... 200 via e-commerce, 75 via Twitter (the overlap of 25 customers is the hallowed "Multichannel Customer").

Now you have your e-commerce channel. You had 50,000 customers who purchased via e-commerce last year ... of them, 25,000 will purchase again next year, 24,500 via e-commerce, 1,000 via Twitter (the overlap of 500 being "Multichannel").

This leads us to the Migration Probability Table.

		Online	Twitter
Repurchase Rate	Company	50.0%	50.0%
	Online	49.0%	40.0%
	Twitter	2.0%	15.0%
Repurchase Index	Online	98.00%	80.00%
	Twitter	4.00%	30.00%

The index for the Online Channel to Twitter is 4% ... Isolation Mode. The index for Twitter to the Online Channel is 80% ... Transfer Mode.

This scenario is unacceptable to those who promote the emerging channel. The emerging channel is growing and thriving, while the existing channel fails to drive enough customers to the emerging channel to allow the emerging channel to truly grow at a breathtaking rate.

Many of you working in emerging channels have asked me to re-think the concept of emerging channels, as the Multichannel Forensics framework seems to limit the importance of the emerging channel.

Tomorrow, we'll explore a discovery that should benefit those who are advocates of emerging channels.

Web Analytics: The Value Of A Website Visitor

Companies that analyze longitudinal website behavior know that a purchase happens after a series of website visits. For many, a website purchase happens after, say, four visits.

But that's not how we measure things, is it? We try our hardest to allocate orders to the advertising vehicle that caused the order, seldom considering a series of events.

For instance, take paid search as an example. Assume that a paid search campaign results in a 3% conversion rate and a $100 AOV. We run a profit and loss statement on the 0.03 * 100 = $3.00 demand generated by the campaign, factoring in the cost of the campaign.

But what about the 97% of visitors who did not purchase?

What if you had this data?

• Of those who are left, 50% will visit the website again within one week, with 3% converting, spending $100 each.
  
• Of those who are left, 50% will not visit again. Those who are left will visit again within three weeks, with 3% converting, spending $100 each.
  
• Of those who are left, 50% will not visit again. Those who are left will visit again within one month, with 3% converting, spending $100 each.
  
• Of those who are left, 50% will not visit again. Those who are left will visit again within four months, with 3% converting, spending $100 each.
  
• Of those who are left, 50% will not visit again. Those who are left will visit again within six months, with 3% converting, spending $100 each.

There is value in each case, value that most of us choose not to measure.

When I iterate through the five cases above, I calculate an additional $2.75 of future visitor value.

In other words, we measure the $3.00 generated by short-term conversion. We don't always measure the $2.75 of future conversions.

Now there may be additional expenses associated with the $2.75 number --- that customer might require additional paid search expense or might use a shopping comparison site, whatever. So we need to run a true profit and loss statement on the additional $2.75 generated by future visits.

If each first-time visitor (one that doesn't convert immediately) is worth $0.30 profit over the next twelve months, you think differently about attracting visitors, don't you? Now you're ready to experiment, like the folks at Drugstore.com and Zappos recently experimented.

Talbots

Very interesting comments from leadership.

For our direct marketing and social media readers, enjoy the following two paragraphs:

Look, we’re doing some very innovative things that frankly aren’t a huge investment but creates some great buzz. So obviously we are thrilled that Michelle Obama engaged in the brand. We ran a really great contest for Valentine’s Day. We really are using things, even like Facebook and blogs and outreach programs that are very different for this brand, in order to attract a new customer in. And we will continue on the reactivation side. We are really prioritizing consumer facing spend.

In terms of catalogue circulation, the one part of our circulation that wasn’t successful in 2008 was really the amount that we had invested in prospecting circulation. We got much better results with reactivation. So we have rationalized that for 2009. We have brought our circulation down in terms of not doing as much prospecting circulation. We will use these grass roots efforts to attract a brand new customer in and we will prioritize our spend with the house file and with the reactivation circulation.

SNL Skit: The Alliance Of Direct Mail Marketers

If you've been looking for a link to the Saturday Night Live video (The Alliance Of Direct Mail Marketers) that takes potshots at folks like Dell, Radio Shack, Victoria's Secret, and Sharper Image, you've come to the right source.

http://videocafe.crooksandliars.com/media/play/wmv/7843/ Windows Media Player
http://videocafe.crooksandliars.com/media/play/qt/7843/ Quicktime.

Fortunately, it only takes a small amount of electricity (generated from non-renewable clean coal), to allow millions to watch SNL skits on TVs and computers. And the plastics used to make televisions and computers and servers only require the harvesting and processing of modest amounts of oil ... a non-renewable resource that has been linked by some to climate change. Fortunately, that kind of stuff can be smoothed over by a branding campaign that features a "green" NBC peacock in the lower right hand corner of the screen. Do your part to save the planet, just don't turn your TV off. And according to Wikipedia, GE (NBC's parent) is the fourth largest corporate producer of pollutants in the United States, based on 2000 data.

Or maybe the whole skit is just well done and funny.

Bricks And Clicks And Multichannel Experiences

I'm looking for feedback. Based on what I've read on Twitter, the 2% of America that uses the micro-blogging service that will become the greatest marketing tool of all time until everybody switches to yet another platform in 2010 have strong opinions on these topics. What do you think?

Issue #1: Is it acceptable for a big-box retailer to offer merchandise online that is not available in stores?

Issue #2: Is it acceptable for an online merchant to require you to place an item in the shopping cart in order to find out what the price of the item is?

Issue #3: Is it acceptable for big-box retailer to offer the same merchandise at different prices in different channels? For instance, can a retailer sell a television for $1,299 online, but the same TV costs $1,329 in stores?

Issue #4: Is it acceptable for a big-box retailer to offer the same merchandise at different prices in different markets? For instance, can a retailer sell a television for $1,299 in Milwaukee, and for $1,329 in Philadelphia?

Issue #5: Name one online brand that demonstrated an increase in sales and profit because they allowed customers to leave reviews of merchandise online, and attach a link to the case study you are referring to.

Issue #6: Name at least two catalog brands that dove head-first into physical retail stores, avoided crippling debt, and still managed to have a direct channel that grew at the same rate prior to diving head-first into retail stores?

Issue #7: It is generally accepted as a best practice that the airline industry charges customers different amounts for identical seats on an airplane. Is it acceptable for a multi-channel brand to charge customers different amounts for the same sku on the same day, akin to what the airline industry does?

Issue #8: If multichannel customers are the best customers, and all businesses have gone "multichannel" over the past several years, why aren't there more "best customers" to prop up the economy during these trying economic times?

Issue #9: Is it truly necessary for a retail brand to have an outstanding "bricks and clicks" experience?

Issue #10: Is it acceptable to allow an algorithm to fully optimize your search marketing campaigns, or should humans control the process, albeit at lower levels of profitability?

Psychographics

Up until about two years ago, I was not a proponent of demographics / psychographics.

Times have changed. The "multichannel era" and the era of "best practices" have made understanding demographics / psychographics more important than ever.

Take the folks at comScore. They are suggesting that Twitter users skew older than average.
And guess what? Twitter users are likely to live in urban areas (thanks Don Libey of Libey's DailyDM and Multichannel Advisor). That's a micro-channel, folks --- urban baby-boomers communicating in passionate 140 character bursts.

If you were forced to fill in the demographic and psychographic profile of users of the following channels, could you do it?

• Catalogs, Especially Customers Coming From Co-Ops.
  
• E-Mail Marketing.
• Mobile Marketing.
• Twitter.
• Facebook.
• MySpace.
• Paid Search.
• Retail.

The future of micro-channel marketing demands that we thoroughly know the following about the user of each micro-channel:

• Age.
• Income.
• Gender.
  
• Urban / Suburban / Exurban / Rural.
• Merchandise Preferences.
• Price Point Preferences.
  
• Physical Channel Preferences.
  
• Online Visitation Preferences.
• Advertising Preferences.
  
• Lifestyle Preferences.
• Opt-In And Pull Marketing Preferences.
  

Modern micro-channel marketing demands a thorough understanding of these characteristics. You're already using Multichannel Forensics to understand the linkages.

Free > Discount > Full Price

The heading says "Expert: Giveaways Can Work Better Than Discounts".

Of course, the spirit of the article isn't to instruct us to give everything away.

But at some point, we have to stop the marketing hype that suggests we can solve all of our problems by giving the customer something for nothing. Multichannel Forensics work continually shows that customers move from full price to discounts to freebies ... they don't move the other direction nearly as fast.

I Almost Predicted Something Accurately!!!!!!!!!

Most of my 2009 predictions aren't going to come to fruition.

But one will come close --- read the Multichannel Merchant article on a "Summer Sale" for catalogers.

Here was my prediction:

• The ACMA will partner with the USPS to offer catalog brands a significant one-time mailing discount in November 2009, in response to dramatic reductions in catalog mailings during Q1-Q2 2009.

Role Of A Channel: Google

Google. There's a channel. The algorithm that is managed by algorithms!

• Does The Channel Scale? This depends upon who you are. I've yet to meet an online business that says that Google scales. In fact, every online business I speak with looks to "detether" from Google. You're less likely to detether from a channel that has unlimited sales potential. If you're tiny, like me, then yes, Google scales. But if you're everybody else?
  

• Does the channel do a good job of acquiring new customers? For a period of time in the middle of this decade, when we went from 2 billion searches a month to 32 billion searches a month, Google did a good job of helping us acquiring new customers. I fear our potential peaked in 2008. How do you break through now? Search for a sundress, and all the big and mid-sized players are there in paid search (JCP, Victoria's Secret, Target, Macys, Zappos, Nordstrom, American Eagle). Algorithm fanatics dominate natural search. There was a time, five years ago, when you could make some hay here. Now you're just part of the echo chamber.
  

• Does the channel aid in profitable customer retention? Have you seen a study that indicates that, without Google, customer retention drops by "x" points? I haven't seen such a study, either. Then consider that many of you tell me that half of your paid search customers are existing customers. Does that mean that Google is helping us? Is Google sending our customers to competitors (you bet they are). If Google isn't helping you retain customers, and half your paid search customers are existing customers, well, then, who the heck is benefiting from that relationship? Just something for you to think about the next time you hand over $0.40 for the phrase "sundress" so that Google will steer your own customer back to you.
  

• Does the channel aid in customer service? At best, a "maybe".
  

• Does the channel feed other channels? Google customers are loyal to Google, aren't they? They're more loyal to Google than to our e-mail or catalog marketing programs. And we consistently find that Google customers have lower lifetime value estimates than customers from other channels. Too often, Google is in isolation mode, yielding low value customers.
  

• Does Google generate profit? The secret to making Google a profitable channel seems to be two-pronged: Step 1 = Hire somebody to manage a bidding algorithm that outperforms other bidding algorithms. Step 2 = Hire somebody to game the natural search algorithm --- you're not selling to your customer when you work with Google, you're selling to an algorithm that reserves the right to change the rules of the algorithm without your consent. Do these two steps well, and Google generates profit for you.
  

• Does Google educate customers? Google does educate your customers. Google tells your customers what your competitors are doing. Customers have never been more educated! Google might be the best thing that ever happened to small businesses, but is frequently detrimental to the brand that uses offline advertising to drive a customer online for research purposes.
  

• What is the exit strategy for Google? What are the business scenarios that would cause you to not participate in paid search, and to not care about natural search results? Or what if you're a small business owner that hosts your blog on Google, runs your RSS feeds through Google/Feedburner, analyzes your visitors via Google, and obtains a third of your traffic through Google (oh oh, that's me)? Many online businesses seem to have an active strategy to grow the business independent of Google.
  

• What is your R&D strategy for Google? This means so much more than adjusting your keyword bidding algorithm. In our world, Google offers things like Google Checkout, and some of you have told me that Google offers some companies the opportunity to tie inventory systems into Google's systems in exchange for preferred search outcomes. That's exciting and terrifying all at the same time, huh?
  

• Does Google lend itself to in-house expertise or vendor expertise? More and more often this expertise is best managed via the vendor community. It seems to make sense to couple smart in-house knowledge with outstanding vendor-based knowledge.
  

The Channel Advisor walks a fine line working with Google, almost playing the role of a "risk manager". The Channel Advisor recognizes that Google is important, while realizing that one cannot let Google control more than a small minority of the total sales volume --- the volatility makes inventory management very challenging. The Channel Advisor works overtime to find micro-channels within Google (i.e. keywords) or advertising micro-channels (catalog + Google, e-mail + Google) that deliver significant value.

Of course, Google isn't my area of expertise, so your thoughts about how a Channel Advisor manages Google are welcomed.

Multichannel Interaction, Multichannel Forensics, Cannibalization

George speaks of a term we talk about all the time here in MineThatData Nation --- it is the essence of Multichannel Forensics, a term called "Multichannel Interaction". In the old days of direct marketing, we called it "cannibalization".

Let's think about this in an old-school sense. You need to purchase a lawn mower this weekend. There are two Home Depot stores within driving distance, and one Lowes store within driving distance. You are brand-loyal to Home Depot. Home Depot closes one of the two stores that are within driving distance.

Which store will you shop at? Home Depot? Lowes? Or will you simply not purchase your lawn mower?

If customers are brand loyal, they will transfer their dollars from the Home Depot store that closed to the Home Depot store that is still open.

If customers are not brand loyal, some will transfer their dollars from the Home Depot store that closed to the Lowes store that is still open.

Both the remaining Home Depot store, and the Lowes store, will experience sales increases with the closure of the Home Depot store. This is the definition of cannibalization --- the store that closed was cannibalizing existing stores.

We're seeing this dynamic, in real time, with the closure of Circuit City stores.

This dynamic happens online all of the time --- and guess what? We seldom measure this dynamic! WHY? Hey Web Analytics professionals, why don't we spend more time focusing on what George calls "Multichannel Interaction"?

My Multichannel Forensics work shows that when you remove one online micro-channel, you don't lose all of the sales that the micro-channel previously captured.

For instance, if some imperial wizard were to shut down Google for one day, the sales that would normally happen via Google are not all lost. Some customers would shift their search activities to MSN or Yahoo!. Many customers would purchase without the aid of search. Some customers would not shop at all.

Many clients ask me to illustrate what happens when one micro-channel is shut down (usually a dramatic slowdown in online marketing or the elimination of catalog marketing). The sales never disappear. A percentage flow out into the ether --- much of the sales (often between 30% and 70%) redistribute across the micro-channels most aligned with the channel being discontinued.

For Web Analytics professionals, this is maybe the most fertile ground that exists. Cannibalization is happening on your own site --- when you introduce a new product line, do you believe that all of the sales in the new product line are incremental, or do you believe that customers transfer dollars from old merchandise lines to the new product line?

These are wonderful times to be a Multichannel Forensics professional!

ACCM 2009: Attend My Session And Get A Speaker Discount For The Conference

I've heard from many of you who plan on attending my talk at ACCM 2009 in New Orleans. Now how about the rest of you??

My session is on Wednesday, May 6, from 11:15am - 12:15pm, and is titled "Multichannel Customer Behavior: Profit By Understanding The Role Of Geography". We'll do a deep dive into the magical world of Zip Code Forensics, the leading (and free) geographical segmentation tool for direct marketers.

There's still time to register, and if you use this form, you can receive a 25% discount because you are a loyal member of MineThatData Nation.

I'll be around on Wednesday (5/6) if you wish to get together to talk about your Multichannel Forensics project, or you wish to discuss an upcoming Multichannel Forensics project.

And I might even bring along a couple of Multichannel Forensics books to share with loyal blog readers.

So please attend my session!!!!

Drugstore.com: "Green This House" Micro-Channel

Courtesy of John Cook at TechFlash, we learn about another direct marketer, Drugstore.com, as they head into the television / entertainment / video micro-channel.

Each of the videos are about three minutes long, and have that "HGTV" / "DIY" network feel, in my opinion.

We've talked frequently with MineThatData Nation about how direct marketers will basically be their own "television channels" in the future. Well, the future is coming faster than one might have expected.

Watch the four videos that Drugstore.com produced, to date, to get ideas about how this micro-channel might work in your business.

Channel Transition

Half of my Multichannel Forensics projects focus on measuring the future trajectory of one channel. We try to understand when "the channel is likely to change in stature".

Channel transition happens years before the channel actually transforms itself. Three conditions need to be satisfied to declare a transformational condition.

• The traditional channel is experiencing a decrease in the number of new customers, a trend that has happened over multiple years.

• The traditional channel is in "equilibrium mode" with the emerging channel. This is a classic "slow leak" situation. Seldom does the traditional channel go into "transfer mode" with the emerging channel.

• The emerging channel is in "isolation mode" with the traditional channel. In other words, customers utilizing the emerging channel do not go back to the traditional channel.

We focus a lot of effort on major channels, but the real secrets exist across an array of micro-channels that facilitate channel transition.

In the newspaper industry, channel transition began a long time ago. An inability to monetize emerging channels coupled with reductions in advertising revenue in traditional channels fueled the death of the traditional channel.

In the music industry, an intermediate micro-channel (ripping CDs) slowed channel death. For a period of time, CDs remained relevant, as long as customers purchased CDs and ripped songs into the MP3 format. Once this intermediate micro-channel was replaced, death of the traditional channel became apparent.

E-Mail marketers are going through this transition. People are using Facebook and Twitter in ways they would have used e-mail five years ago. You read the articles in the e-mail marketing community, articles where they talk about combining e-mail marketing and social media, and you now hear the same arguments that came from the catalog community five years ago when e-mail marketers and online marketers mocked catalog marketers.

And if you're a big fan of Google, well, you're watching the early stages of channel transition. Look at how this individual is able to modify Google results with a Twitter app (I also use this app). Twitter and Google become a micro-channel, in combination. The Web 1.0 community, the very folks who mocked the catalog industry and newspaper industry, are entering their own transitions.

So again, we use Multichannel Forensics to understand when customers are making the transition from one channel to another channel.

Zappos Map: Actionable Data?

By now many of you have become enthralled with Zappos Map, a real-time image of product sales across North America (tip of hat to The Snow Patrol). The Twitterati are certainly enjoying it, aren't they?

This is one of those projects that gets killed in 99 of 100 companies. How many times have you had an idea like this, only to have the VP of Intergalactic Strategies tell you that the data isn't "actionable"? The leader will badger you ... "who cares that somebody bought the New Balance MX840 in Tuscaloosa in the last thirty seconds ... how is that actionable?" The VP of Intergalactic Strategies strides away from your cube, heading to the all-important "Multichannel Inventory Alignment Task Force Daily Brief" in conference room 6K while you're left to watch Zappos innovate in real time on your 15" CRT monitor built in 1999.

Well, it is actionable. About thirty members of the Twitterati are mentioning the tool to their loyal following of 165 individuals ... each hour. So that's a bunch of free advertising, isn't it? And when you watch the map, you notice that Zappos is featuring seven different items ... and the items are always changing. Zappos found a way to feature merchandise, just like you find a way to feature items in your e-mail marketing campaigns.

Zappos found a way to get content on to your computer screen, they found a way to market directly to you without executing traditional direct marketing. And Zappos, courtesy of a lot of hard work in the world of social media, found an audience willing to share the content --- doing the advertising for them.

Let's consider the opportunities in front of us, before the VP of Intergalactic Strategies asks us to develop a dashboard filled with inventory KPIs.

Role Of A Channel: E-Mail

Your Channel Advisor creates a profile of each channel, determining the role each channel plays in your business. Let's look at an easy marketing channel like e-mail.

• Does The Channel Scale? The answer, undoubtedly, is no. For most businesses I work with, e-mail comprises somewhere between 2% and 10% of total annual sales ... usually closer to 2% than to 10%. You could really do a spectacular job of e-mail marketing, and you might increase sales a few percentage points. So this isn't going to be a channel that carries the freight. E-mail is a support channel, an important role, but a role of support.

• Does the channel do a good job of acquiring new customers? In most cases, the answer is no. The number of new customers from e-mail, on an annual basis, are generally under five percent of the total number of new customers ... and for many businesses, under two or three percent. This tells you that e-mail isn't a channel that you use to start new relationships (though it certainly could be if the right formula is discovered), and is probably not a channel you'd launch new businesses or product lines with. Your mileage may vary.
  

• Does the channel aid in profitable customer retention? Yes and no. E-mail doesn't dramatically move the annual customer retention metric --- without an e-mail marketing program, the retention rate might be 40%, with a program, maybe 44%. However, the channel has essentially no variable cost, so all the sales (if the channel isn't a discount/promo/free-shipping channel) flow through to profit at a high rate.

• Does the channel aid in customer service? Maybe a little bit, though certainly not in the way that folks use social media to solve consumer complaints. Because e-mail isn't a "human" channel, it fails many of the customer service tests that retail and call centers pass.
  

• Does the channel feed other channels? Yes, and other channels feed e-mail. Many businesses acquire e-mail addresses through their catalog channel and through their retail channel. So e-mail is utterly dependent upon those two channels for survival. However, e-mail feeds other channels. Retailers know that half of their e-mail generated sales happen in stores, so that's a big deal. And e-mail fuels paid search --- you send an e-mail marketing campaign to a customer, and the customer goes to Google to do some research. Google loves e-mail marketing! Finally, most catalogers know that up to half of their e-mail orders come from a customer who received a catalog in the past "x" days, so e-mail can feed the catalog channel. E-mail makes your online marketing executive look good! As a result, e-mail is an important link in the "channel chain".

• Does e-mail marketing generate profit? Oh yes! With essentially zero variable cost (don't give me that argument about the need to hire people to execute e-mail, all marketing channels have to hire people to get the work done), e-mail flows-through to profit at the best possible rate. I know of catalogers who break even on nearly all activities --- making all of their profit from e-mail marketing, even though e-mail marketing only represents ten percent of total annual sales.
  

• Does e-mail marketing educate customers? Yes again! In fact, if we're not using e-mail to educate customers, we're failing. E-mail marketing is maybe the most inexpensive way to teach customers about us. In many ways, we ruin e-mail marketing by trying to "sell" all of the time --- using our open rate and click through rate and conversion rate metrics to go to the lowest common denominator of free shipping and %-off promotions.

• What is the exit strategy for e-mail marketing? Oh, this is a delicious question. Under what circumstances would you shut down your e-mail marketing program? If I asked 100 of you this question, I doubt more than 5 would say that e-mail marketing should be shut down, ever But please, be realistic. If your e-mail list was declining by fifteen percent a year, would you consider shutting the channel down? If productivity fell to $0.05 per e-mail (as many of you tell me is happening), would you just stop wasting time and give up, allocating resources elsewhere?
  

• What is your R&D strategy for e-mail marketing? This isn't as simple a question as "we're testing subject lines". Do you have an R&D strategy that includes completely ending your current version of "creative", scrapping it for something so new and different that you'd frighten your e-mail marketing manager? How about the 80% of e-mail subscribers who don't click on anything ever --- why keep doing the same thing over and over and over and over 104 times a year, might this represent an R&D opportunity --- you're certainly not risking any sales here?! Anyhow, every Channel Advisor has an R&D strategy for e-mail marketing, whether the e-mail marketing manager wants to honor it or not.

• Does e-mail marketing lend itself to in-house expertise or vendor expertise? Oh boy. OH BOY! The answer is yes. Your in-house staff know how to work with merchants, they know how to work with that pesky inventory manager who wants to keep dumping overstocked goods in a third-weekly e-mail campaign. Your in-house staff knows that the CFO is demanding a 5% sales increase NOW and therefore you have no choice but to add the third weekly e-mail campaign that the inventory manager is waiting to pounce on. But wait! Your vendor knows the best targeting algorithms. Your vendor knows more about getting the e-mail in the inbox than anybody. Your vendor knows the right days of the week to send e-mails, and knows how many is "too many". Your vendor might hurt sales by asking you to reduce frequency or to trim your e-mail marketing list. So you're best off going with both in-house and vendor expertise, in my opinion.

So what is the role of e-mail marketing? It appears that e-mail marketing is a support channel, one that marginally improves customer retention, fails to attract scalable amounts of new customers, and contributes a minority of sales that are usually very, VERY profitable. This channel educates customers, it interacts with catalog marketing and paid search, and it generates sales in other channels without directly getting credit for the sales. E-mail easily lends itself to significant R&D efforts with minimal impact on top-line sales.

Now, given this profile, how would you, the newly appointed Channel Advisor of your company, propose using e-mail marketing? How would you educate each and every employee in your company about the important (but support-level) role that e-mail marketing plays?

The Role Of Channels

In basketball, we all look to superstar players for inspiration. We enjoy watching the player that can record a "triple-double", ten or more points, ten or more rebounds, ten or more assists, in one game.

The "triple-double" is like "multiple channels".

Here's the thing. A superstar player has a hard time achieving a triple-double without serious help from his/her teammates. You cannot score more than ten points unless somebody passes you the ball. You cannot achieve ten assists unless your teammates can make shots.

In other words, each player has a role.

Now, allow me to ask you a question. Who, when you are meeting in your strategy sessions, assigns the role of each channel, so that all employees know what role each channel plays in your business?

Don't feel bad if you haven't identified who plays that role in a business. And don't expect that person to be the CMO, either. We haven't trained chief marketing officers to think strategically about the roles that channels play.

I will say that the most talented multichannel employees tend to intuitively know what role each channel plays. This could be just about any employee in your business, couldn't it?

On a piece of paper, write down the following channels, and the role each channel plays in contributing to the success of your business.

• Catalog Marketing.
• E-Mail Marketing.
• Paid Search.
• Natural Search.
• Banner Ads.
• Affiliate Marketing.
• Shopping Comparison Sites.
• Orders Via Your Call Center.
• E-Commerce Orders.
• Sales Force.
  
• Live Chat.
• Google.
• Amazon.
• Video Commerce.
• Landing Pages.
  
• Retail Stores.
• Outlet Stores.
• Outlet Tabs On Your E-Commerce Website.
• Facebook.
• MySpace.
  
• Twitter.
• Your Blog.
• Radio.
• Television.
• Newspapers.
• Auction Sites.
• eBay.
• Drive-Through.
• ATM Machines.
• Local Branches.

How did you do? Ask yourself the following questions, for each channel:

• Does the channel scale? In other words, can it become one of the top two or three sales volume channels? If the answer is no, why do you participate in the channel?
• Does the channel do a good job of acquiring new customers? If the answer is yes, do the customers have an acceptable long-term value? If the answer is no, what is your strategy to deal with low-LTV customers?
  
• Does the channel aid in profitable customer retention? In other words, if you eliminated social media, would your annual retention rate change? If the answer is no, why are you participating in social media?
• Does the channel aid in customer service? In other words, does the channel solve customer problems? If the answer is yes (i.e. call center), ask yourself why you pay those folks $11 / hour while you take home $175,000 a year while not speaking directly with your customers?
  
• Does the channel feed other channels? If television advertising drives customers to your website, and your website drives customers to your stores, and customers generate profitable sales in your stores, then you established a successful micro-channel path. Hint --- the secret to successful multichannel marketing is to thoroughly understand and exploit profitable micro-channel paths. Quick ... name your five most profitable micro-channel combinations?
  
• Does the channel generate profit? Having an unprofitable $3,000,000 store doesn't do your brand any favors.
• Does your channel educate customers? Catalogs, websites, and e-mail are good at education. And education leads to demand generation. And demand generation is the secret to profitable success. Most of the Web 1.0 advertising channels are not capable of demand generation --- they focus on demand interception, an important but different role for those channels.
  
• What is the exit strategy for each channel? In other words, what is the future of, say, e-mail marketing? What are the conditions under which you would decide to discontinue e-mail marketing?
• What is your R&D strategy for emerging channels? It is one thing to be on Twitter, telling your customers that chinos are on sale for $29.99 and that your chief merchant ate a burrito for lunch. It is quite another thing to think strategically about how you will use the channel for research and development. How much time and money do you invest in an emerging channel, and when do you pull the plug?
  
• Does the channel lend itself to in-house expertise or vendor-expertise? There are advantages to both, aren't there?

If a channel fails to deliver across most of the questions listed above, ask yourself why you participate in that channel? What would happen if you dropped that channel, and re-invested your money elsewhere?

Your homework assignment for April is this:

• Assign one individual in your company the role of "Channel Advisor". This individual determines the role of each channel, and actively communicates the role each channel plays in the success of your business (using tools like Multichannel Forensics) to every employee in your company.

Mega-Analytics: Factor Analysis

If you're a multichannel analytics guru, it is very likely that you've learned an awful lot about customer behavior by running a procedure called a "Factor Analysis".

At a simplistic level, a factor analysis takes a bunch of variables that are highly correlated, and transforms them into variables that are not correlated.

For instance, your "best" customers all have common attributes.

1. They all purchased recently.
2. They purchase all the time.
3. They tend to buy from multiple channels.
4. They tend to buy from multiple merchandise divisions.
5. They tend to buy across seasons.
6. They tend to buy full price and sale priced merchandise.
7. They tend to pay for shipping and take advantage of free shipping.

All of this "multi" behavior becomes hard to understand. The factor analysis makes this a lot easier.

When I run a factor analysis for my clients, I tend to observe the following trends.

1. All multi behavior ends up being combined in the first factor.
2. Unique channel activities end up being separated out in subsequent factors. You'll see a factor that focuses on online customers who only buy when a free shipping promotion exists as a unique factor, for instance.
3. Unique merchandise activity ends up being separated out in a subsequent factor. You'll see customers who purchase iPods, and they are fundamentally different from the customer who purchases a Blu-Ray DVD player.

Once you have identified each factor, you run your typical logistic regression (response) and ordinary least squares regression (spend) models. Now, you truly know what attributes are driving your business! The factors that are statistically significant are the ones that matter.

I like to take the top 2-3 factors, and segment customers into eight or nine combinations based on the values of each factor. Then, I watch how customers migrate between the segments, over time. You'll notice trends like catalog ---> e-mail ---> e-commerce ---> retail happen when you evaluate migration across factor segments.

So sit down with your analytics expert, and run a factor analysis with all of those highly correlated variables in your database, looking to identify the factors that truly drive your business.

Social Media Expert

Google searches, all terms must be consecutive:

• Multichannel-Marketing-Expert = 266,000 results.
  
• Catalog-Marketing-Expert = 268,000 results.
• Database-Marketing-Expert = 293,000 results.
  
• Affiliate-Marketing-Expert = 381,000 results.
• Retail-Marketing-Expert = 539,000 results.
  
• Email-Marketing-Expert = 12,700,000 results.
• Search-Marketing-Expert = 16,900,000 results.
• Social-Media-Expert = 383,000,000 results.

If each result generated just $8,000 in sales somewhere in the United States this year, we'd add $3 trillion to the GDP, ending the recession and creating seven million jobs in the process.

Oh well.

Mega-Analytics: File Power

When is the last time you reviewed the dashboard your business intelligence folks prepared for you and saw a "file power" metric/kpi?

It's important to measure the file power of your customer file, folks.

"File Power" is defined as the average amount of demand your twelve-month customers will spend in the next twelve months.

There are easy ways to define this variable, and there are those that are more insightful from a business intelligence standpoint.

Let's work with the latter --- statisticians, I'm keeping this simple, you can build upon it.

Step 1: Take all customers who purchased during 2007. For those customers, tabulate the following metrics.

1. Demand spent during 2008.
2. Demand spent in 2007.
3. Demand spent in 2006.
4. Demand spent in 2005.
5. Demand spent prior to 2005.

With this data, build a very simple regression model, with 2008 demand as your dependent variable, and 2007, 2006, 2005, and pre-2005 demand as independent variables. Your model will look something like this:

File Power Coefficients
	2008
Constant	$30.004
00-12mo. Demand	$0.391
13-24mo. Demand	$0.165
25-36mo. Demand	$0.110
37+mo. Demand	$0.041

So, let's look at a sample customer:

• Twelve Month Demand = $100.
• 13-24 Month Demand = $0.
• 25-36 Month Demand = $100.
• 37+ Month Demand = $0.

Future Value = 30.004 + 0.391*100 + 0.165*0 + 0.110*100 + 0.041*0 = $80.04

In other words, given the attributes of this customer, this customer can be expected to spend $80.04 in the next twelve months.

So, the next step is to calculate the metrics for your customer file as of the end of 2008. Once you've calculated your metrics for the twelve month file as of the end of 2008, you apply the equation (above) to every customer.

Finally, you average the scores for every customer in your twelve-month buyer file. This average is your "file power".

Most folks analyze file power over time, paying close attention to the relationship between file power and file size. For many, file power decreases as the customer file increases --- the brand keeps acquiring customers, but each customer acquired has marginally less value. Conversely, you'll see situations where the customer file is shrinking (i.e. Fall 2008 - Spring 2009), but the customers who are left tend to be more loyal than the ones that are leaving the business.

	Households	File Power
1-Jan-08	122,318	$145.38
1-Feb-08	122,794	$146.62
1-Mar-08	123,834	$146.39
1-Apr-08	124,840	$145.72
1-May-08	124,941	$144.60
1-Jun-08	125,005	$143.39
1-Jul-08	125,252	$142.88
1-Aug-08	125,365	$141.56
1-Sep-08	125,790	$140.40
1-Oct-08	123,686	$142.38
1-Nov-08	120,597	$144.63
1-Dec-08	118,398	$146.39
1-Jan-09	117,043	$148.55
1-Feb-09	116,750	$149.38
1-Mar-09	116,591	$149.77

We measure file power so that we can understand if our marketing, merchandising, and creative efforts are contributing to a customer file that is more robust, more loyal, willing to spend more than in the past.

Pandora And Micro-Channels

You might be familiar with Pandora, the streaming online music service? You list a half-dozen of your favorite artists, and then "the algorithm" streams you a series of songs that you, in theory, will enjoy listening to.

I have 1.5mbps DSL service, not anywhere near as fast as cable, but fast enough for me to get streaming Netflix movies via my Roku player, and more than fast enough to handle Pandora. I listen to Pandora through my Grace Wireless Internet Radio ($176 with free two-day shipping at Amazon), and I set up all of my NPR podcasts through this player as well.

Why the two-paragraph description of my viewing and listening habits?

Micro-channels.

Once you head down a path that is both convenient and more entertaining than a prior channel, you become less likely to go back.

There's no reason to listen to 103.7 FM (The Mountain) and endure twenty minutes of commercials and a half-dozen songs that I'm not interested in when Pandora delivers most of what I want, for free.

Once again, a profitable channel (radio) is replaced by a popular (to me) channel that is hard to monetize (Pandora).

And there's no way that 103.7 FM (The Mountain) can fight their way back into my life under the confines of the current business model. They can move their channel online, streaming what you hear on the radio. They can add "HD" stations, truly becoming "multi-channel". But the core premise of the brand is to sell twenty minutes of advertising, per hour, every hour, and to get me to listen to the advertising. That worked when music was scarce.

The problem for my preferred micro-channel combination (Pandora + Grace Wireless Internet Radio) is that maybe a few hundred thousand people (at most) prefer this combination. This combination, while futuristic, does not represent the future.

That's the challenge that we, the "multichannel generation", are facing. Somehow we were all smart enough to jump on the internet bandwagon a dozen years ago --- we could see that e-commerce was going to be important. Today, it's a lot harder to see the future. We simply cannot point to the "next big thing". We probably need to experiment in a hundred or a thousand micro-channels. But because none of it scales, we don't experiment, hastening our current trajectory.

The next generation of merchandising and business leaders will solve this problem. Oh, the opportunity!

Customer Acquisition: How? Now! And The Future

We've talked some about the two questions, coming from different camps:

• Catalog Marketers: How are we going to acquire customers when catalog customer acquisition becomes too expensive and unproductive? How are the online folks doing it?

• Online Marketers: How can we "detether" from Google, and start acquiring customers on our own? How do the catalog marketers do it?

If the internet were a baseball game, it would be entering the top of the third inning.

• Top of the 1st = Dot.Com Mania.
  
• Bottom of the 1st = The "Multichannel Era".
• Top of the 2nd = Social Media & Social Networking, aka Web 2.0.
  
• Bottom of the 2nd = "The Great Implosion", Global Economic Distress.
  

In the top of the third inning, marketers have figured something out. The secret to success, as it turns out, is the ability of a business to acquire customers in a profitable manner. It turns out that the "traditional" approaches, used by specific marketing genres, are not sufficient to grow a business.

It also turns out that nothing scales anymore. No one source, not even the big sources (catalogers = co-ops, online brands = Google) provide enough new customers to allow the business to grow. And it turns out that all of the micro-channels provide a micro-amount of new customers. Social media, in particular, has proven to be anything but a vehicle that drives new customers.

So the desperate plea from CEOs that inquire via my inbox is this ... "How do we acquire new customers ... NOW!!??"

We're in uncharted territory.

In so many ways, we're pioneers, taking the Oregon Trail out west. And when we get to the West Coast, we'll find that Seattle and Portland and San Francisco and Los Angeles and San Diego and Vancouver haven't been built yet. Traditional channels like catalog co-ops & lists are dying a slow death. Web 1.0 channels like paid search have plateaued for many. And emerging channels don't provide enough volume to matter.

In other words, it's our job to build the future.

The future requires that each company build a "prospect" list. This is old news to the catalog marketer, it is revolutionary to the online marketer.

The prospect list will have two components.

1. "Known Prospects". We will work extra-hard to identify ANYTHING that we can about prospects. We'll link cell phone numbers, e-mail addresses, credit cards, physical home mailing addresses, social security numbers, cookies, post office boxes, work addresses, home phone numbers, user-ids, confirmation numbers, registration numbers, you name it. Each piece of information is gold, and we'll purchase information when we can to complement what we already know about a prospect.
2. "Unknown Prospects". We're going to do just about anything in order for prospects to follow along, to become "fans". Think about the music industry --- there are bands that you enjoy listening to, though you've never purchased an MP3/CD, and you've never attended a concert.

Unknown Prospects are going to be a difference-maker in the future. This is counter-intuitive to the traditional direct marketer, one who always marketed to an existing customer or a known prospect.

We're going to see traditional direct marketers and online marketers morph into entertainment marketers. We'll see companies like Orvis (for example) offering multi-faceted entertainment programming. Think about the possibilities.

• Traditional catalog marketing for the 55+ exurban/rural audience.
• Classic e-mail marketing campaigns for the multichannel customer.
• Online marketing tactics like paid search and affiliate marketing and portal ads.
• Social media to connect fans to employees.
• Advertising via cable, radio, etc.
  
• The "Orvis Channel", a component of the website, offering original programming that exemplifies the Orvis lifestyle. Why advertise when you can produce your own programming? This programming will stream --- prospects can watch programming in real-time, or download programs at their convenience. Customers and prospects will be able to interact with the programming, making it different than watching a static episode of "ER", for instance.

Traditional conversion rate marketing becomes a thing of the past. We won't care that only 0.3832% of the audience of a show on the "Orvis Channel" purchased something. We will care that 148,903 prospects watched an episode on the "Orvis Channel", and that 20% of those prospects watched multiple programs, recruited other prospects, and eventually bought something eighteen months later.

The programs on the "Orvis Channel" will have a social media component to them, allowing prospects/fans to interact with other prospects/fans. There will be a viral component to this level of interactivity, generating conversation on other platforms. We won't care about having a Facebook or MySpace presence, we will care about having our prospects/fans evangelize our "programming" and merchandise outside of the "Orvis Channel" community.

We'll measure the process that a prospect goes through --- prospect to fan, fan to customer, customer to loyalist, loyalist to evangelist. Lifetime value will be the sum of future profits generated by a customer plus the sum of future profits generated by fans recruited by evangelists.

Is this futuristic? Maybe. Is this style of marketing becoming necessary? Probably. The future is all about acquiring new customers --- and the traditional, Web 1.0, and Web 2.0 methods of acquiring new customers are failing. We're going to need a new, sustainable approach.

What are your thoughts?