Case Study: Insider View Of An Executive Meeting

Every day at 8:30am, Glenn Glieber gathers his leaders for a brief business update. The team reviews sales results from the prior day, and then they openly discuss key issues in a group setting. Today, I've been asked to Skype-in and share my findings.

Let's join the meeting.

Glenn Glieber (Owner): "... so it looks like we have consensus. Next April, the catalog will be 108 pages with a 16 page prom insert. We all believe that the creative presentation will be more beneficial for the brand than simply churning out another 124 pages. It's up to creative to call out this key distinction, and make it resonate with the customer. Sarah, was your team able to measure the financial impact of an April 5-7 in-home window vs. an April 7-9 in-home window?"

Sarah Wheldon (Marketing): "My team says that a April 5-7 in-home window will generate a 2% increase in demand, so let's go with April 5-7."

Glenn Glieber: "See, folks, just fifty more ideas like this, and we double our sales for the year. This business is all about discipline, about pushing the peanut 2% at a time. Big ideas are few and far between. There's a thousand 2% ideas, low hanging fruit, money lying on the ground waiting to be picked up. PICK IT UP!"

Meredith Thompson (Merchandising): "Kevin, is that you?"

Kevin: "Yup, nice to see you all".

Lois Gladstone (Finance): "Many of you have already met Kevin. He's working on a ... um ... uh ... what do you call it, Kevin?"

Sarah Wheldon: "Multichannel Forensics, right Kevin??!!"

Kevin: "Yes, I'm working on a Multichannel Forensics project. Basically, we're studying how customers interact with advertising, products, brands, and channels."

Glenn Glieber: "From time to time, we'll have Kevin share with us what he calls 'tidbits', facts about our customers. Kevin, what do you have today?"

Kevin: "Today I'm going to share with you a slide that illustrates how loyal your customers are."

Meredith Thompson: "Oh, they're really loyal. I spent time in the call center last week listening to customer calls. I participated in live chat. You should have heard these people, they absolutely love us. This woman in Buffalo said she purchased something like a hundred dresses from us over the past few years."

Sarah Wheldon: "And they like us across channels. They get our catalogs and they subscribe to our e-mail campaigns."

Lois Gladsone: "Loyalty is important. It costs more to acquire a new customer than it does to retain an existing customer."

Kevin: "Thanks for your thoughts, everybody! I always include simple, basic statistics on my first slide. Here we go. We're looking at customers who purchased in 2007, measuring the percentage of customers who purchase again in 2008."


Kevin: "The data tell us that 53% of the customers who purchased in 2007 will purchase again in 2008. This puts your business in "Hybrid Mode", a situation where you grow it by working hard to retain customers and by working hard to acquire new customers."

Glenn Glieber: "53%? That can't be right. Our customers are so loyal. Are you only looking at international customers, they don't get catalogs you know?"

Meredith Thompson: "That has to be wrong. I told you I heard this woman in Buffalo talking about how she purchased something like a hundred dresses from us."

Roger Morgan (Operations and Information Technology): "And our call center staff are the best. I'm telling you, that cross-sell promotion we ran last fall had to increase loyalty by ten or twenty points. Did you see some of the bonus payouts that some of our associates earned?"

Lois Gladstone: "This is great, Kevin!! This totally validates what I've been saying about loyalty for the past month. We need to plug the holes. If I'm reading this metric the right way, and I think I am, we are losing half of our customers every single year. That's pathetic! If we focus our efforts on retaining customers, we wouldn't have to lose all this money trying to acquire new customers. Think about programs like Amazon Prime. All that free shipping for a small fee keeps customers loyal. I'll bet Amazon doesn't lose half their customers every year."

Pepper Morgan (Creative): "You all know that I've been advocating the refreshment of our creative brand platform for some time. This idea that our customer is married to one version of merchandise presentation is simply inadequate when considering the modern, fashion-forward customer. We're boring our customers to death by showing the same dress in the same presentation style 24 times a year.

Meredith Thompson: "We've gone round and round on this topic. When we change the merchandise presentation, our sales decline, by ten or fifteen or even twenty percent. We have the data to prove it. We even have the website conversion data, when we shift our creative strategy, conversion rates drop by twenty-five percent.."

Pepper Morgan: "And now Kevin has given us the data that proves that half of our customers leave us each year. So what we've been doing isn't working."

Meredith Thompson: "Maybe this is a website issue. Sarah, what is our conversion rate online?"

Sarah Wheldon: "Eight percent".

Meredith Thompson: "Eight percent. Eight stinkin' percent? That website, all of that 'sterile shopping' and getting the magnifying glass out to look at thumbnail images 1 - 100 and the like, that's the problem. If we didn't lose 92% of all of our visitors, we'd retain more than 53% of our customers, right? It's just simple math."

Roger Morgan: "Our website is ranked #487 by Internet Retailer, I'll have you know. The website is fine. Customers either don't like the merchandise on the website, or we're driving the wrong traffic to the website That's the real reason why we only convert eight percent of our visitors."

Sarah Wheldon: "We're driving the wrong traffic? Help me understand what the 'right' traffic would look like, and show me the data that suggests we are driving the wrong traffic?"

Pepper Morgan: "The 'right' traffic would be a fashion-forward consumer who cannot afford the luxury of Neiman Marcus but wants to attend the same social functions as the Neiman Marcus crowd. I'm fearful that you're driving the Olive Garden crowd to our website, and they get intimidated when they see our offering and head off to Anna Carter instead. What is the conversion rate on the Anna Carter website, 37%?? 42%?? It's got to be high."

Sarah Wheldon: "Do those people exist on some magical list somewhere? If so, I'd pay $200 per thousand for access to that list. I mail two audiences, people who purchased from us in the past, and people who have never purchased from us. And we only e-mail customers who opted-in to receive e-mail messages. So the majority of the audience that hears from us already purchased from us."

Lois Gladstone: "And we lose a ton of money on the audience who never purchased from us. I think the answer lies in increasing customer loyalty. If we put marketing programs in place to increase customer loyalty, then all of this talk becomes a non-issue."

Roger Morgan: "Did you read that J. Crew cut circulation by 27% and didn't see a difference in direct-to-consumer sales? That's loyalty ... these retailers have learned that they don't even have to mail catalogs anymore. Maybe we could cut both retention and acquisition circulation!"

Sarah Wheldon: "Seems like a lot of people know what the marketing strategy should be."

Glenn Glieber: "Like I said earlier, if we focus on fundamentals, then this business works. If we find fifty 2% solutions, we double the size of our business. Man, this has been a great discussion. The vibe is back! Meredith, this is like 1994 when we were scrambling to find lists to mail our catalog to after your Oscar mention."

Kevin: "All of your viewpoints are supportive of what I call 'Hybrid Mode'. Anytime a business retains between 40% and 60% of last year's customers, it is in 'Hybrid Mode'. These businesses grow by retaining customers and by acquiring new ones. 53% isn't good. 53% isn't bad. 53% simply 'is'. The retention rate determines your strategy. If your retention rate is 23%, like it is for some of my clients, we'd be having a one-way discussion about the best ways to keep acquiring new customers. If your retention rate is 84%, we'd be having a one-way discussion about all of the ways to keep best customers loyal to us. At Gliebers Dresses, we have to focus on everything."

Lois Gladstone: "I still think we need to focus on loyalty".

Glenn Glieber: "Kevin, can you come back on Wednesday to offer us another 'tidbit'?

Kevin: "Certainly, we'll see you then."

Glenn Glieber: "Ok folks, back to the agenda. The next topic is "Day Dresses ... a hyperlink or an actual tab on the homepage? Roger and Pepper are proposing demotion of the tab to a hyperlink, what do all of you think?"

Case Study: The Chief Marketing Officer

Sarah Wheldon turned from her keyboard, and offered me a very warm greeting.

"I'm just finishing up a few tweets, I thought I would be done by now. Give me a minute please, thanks!".

Ms. Wheldon's office was a veritable marketing library, with books scattered everywhere. The entire Seth Godin collection was pinned against an old CRT monitor. Social media books, search marketing books, e-mail marketing books, even books from Jim Novo, Akin Arikan, Simms Jenkins, and Avinash Kaushik's web analytics book had a place on her crowded desktop.

I asked Ms. Wheldon how the Gliebers Dresses Twitter presence was performing?

"Here's the odd thing. My personal Twitter page has 507 followers. The Gliebers Dresses Twitter page has 129 followers. I work so hard to get customers to follow us on Twitter. We offer special incentives and discounts and promotions, and I end up with four times more personal followers than corporate followers. I subscribe to the daily social media newsletters, and I follow all the rules. What a shame."

Ms. Wheldon started her career at Gliebers Dresses in 1987 as a customer acquisition manager, renting and exchanging lists with key competitors like Anna Carter.

"Do you remember those wild parties that Direct Tech used to host, Kevin? Oh, those were good times, back in the early 1990s! It was a different world. We really had no information at all, but we were perceived as being smart marketers. Today, we have all the data in the world, and we're perceived as being lousy marketers."

Her career ascended in the typical manner, promotions to Circulation Manager, Circulation Director, followed by a brief detour as the E-Mail Marketing Manager back in 2000. She became the Chief Marketing Officer in 2003 when Glenn Glieber felt it was critical to become a fully integrated multichannel brand.

"Multichannel was the buzzword of 2003, wasn't it? Send that catalog, and watch the customer shop on the website. That almost seems like an ancient concept now that you can use your iPhone to photograph a sold-out item and then ask Amazon to share with you the merchants who have that item in-stock. We went from a quaint form of marketing to living in a world not unlike 'The Jetsons' in just five or six years. Nobody trained us to deal with that kind of transformation."

I wondered who is responsible for training us?

"My older staff think it is my responsibility. My younger staff just do it themselves, and it takes every ounce of energy I have to keep up. You should hear the discussions we have. They openly mock me when I ask them to come up with sales scenarios for a 116 page catalog vs. a 124 page catalog. They tell me it is futile, that page counts don't make any difference in modern marketing."

"They don't understand why we don't have a company blog, they say our Twitter presence is calcified, they demand to know why we don't have instant messaging campaigns. And yet, Glenn requires us to have a sales scenario crafted for a 116 page catalog vs. a 124 page catalog. I don't get to keep my job without crafting the sales scenarios. So yes, I guess it is my job to train everybody ... I need to teach my younger staff why we need to craft sales scenarios, I need to teach our Executive team why an instant messaging campaign matters to our future. I need to do all of this while learning it myself, on the fly. That's why I read a lot of marketing stuff, much of it really awful. I mean, how many times will I have to read about three easy steps to dig out of a recession, or five easy steps to social media sales success, or free shipping, the key to customer loyalty? We've been burned so many times by such bad advice."

I asked Ms. Wheldon to share information about Gliebers Dresses customers.

We know that our catalog customer is a lot older than our online customer, and that makes multichannel integration almost impossible. The more we integrate, the worse the catalog and website perform as independent entities. The less we integrate, the farther away our channels drift from each other --- prom is optimized online, extended sizes are optimized in catalogs. Not a lot of people talk about solving problems like the ones I just mentioned. It isn't a cut-and-dried, black-and-white strategy. It is an art, not a science."

"We also know that our recent customers with multiple lifetime orders generate most of our sales and profit."

I asked Ms. Wheldon to discuss customer acquisition activities, given the discussion I had with the CFO earlier in the day.

"We're failing on all fronts. We dramatically cut back on customer acquisition in 2007, following the brutal postage increase. I think that decision is hurting us today. We do all of our customer acquisition through RelationshipShop (one of the big co-op databases in the industry), with the exception of our list exchange relationship with Anna Carter. Co-op response was a lot better than response through our list vendor, so we just switched everything over to RelationshipShop. That being said, customer acquisition performance is falling faster than housefile performance, dropping by about 30% in the past three years. I honestly don't know how we'll acquire new customers in three years."

Ms. Wheldon is using industry-speak to say that when she markets to customers who have already purchased from Gliebers Dresses, she hasn't seen a big decrease in productivity over the past few years. When she rents names from other companies through her co-op database, she notices that customers are spending less, every single year, than the year before.

I asked Ms. Wheldon what trends she followed in online marketing and online customer acquisition?

"Search was really big for a few years. We spend the vast majority of our online marketing budget in search. Mr. Glieber is big on 'doing things for free', so we've tried just about everything imaginable with social media --- all of it has been a big flop. I don't think a 55 year old catalog customer in Vermont cares that a blogger is in love with our brand. I don't think a 55 year old catalog customer in Wyoming is seeking a free shipping key-code on Twitter. And I really don't think a 55 year old woman wants to be 'friended' by Glenn Glieber on Facebook."

"We have had some success using social media to promote our prom assortment. My Twitter presence kind of validates a hypothesis I've had for awhile --- social media helps promote individuals, not brands."

I asked Ms. Wheldon if she though she could grow her business by doing far more of her customer acquisition activities online?

"I don't think so. We do all of the tactics that we're supposed to be doing, search, affiliates, display, shopping comparison, e-mail, you name it. If the metrics supported us spending more, we'd already be spending more. It comes back to a 55 year old customer in New Mexico, we have to use the tools that she is most comfortable using. I have to put myself in the mind of the 55 year old woman every day. Not many marketers try to do that."

I kept taking notes.

"At some point, we have to acknowledge the reality of our target customer. We're a New England based business that caters to an older woman. We basically followed the baby boomer audience from early adulthood to age 55-60, occasionally selling merchandise to Gen-X and Gen-Y in the process. I've been advocating a strategic offsite session for years, one where we talk about the customer we want to serve in 2019. Mr. Glieber keeps telling me that if we don't fix this thing, none of us will be here in 2019. So we have to balance the needs of staying in business today with the equally important issues surrounding who our target customer will be in 2019."

"I don't think it will be in our best interest to market to a 70 year old woman in 2019."

I asked Ms. Wheldon what would happen if she stopped mailing catalogs altogether?

"Did Lois Gladstone (the CFO) get to you? She's been floating that balloon for the past month, telling everybody we could save the planet and eliminate expense at the same time. It simply doesn't work that way. We do a matchback analysis, where we take all online transactions and see if a customer was mailed in the 90 days prior to the catalog mailing. About half or more of our online transactions match back to a catalog. Our website conversion rate is 10% during the week of a catalog in-home, it is 6% during non in-home weeks. Shopping carts are abandoned less when catalogs are in-home. E-mail campaigns have a 20% better open-rate when catalogs are mailed. Our ecosystem depends upon the catalog, and the catalog depends upon the target customer, and the target customer is aging, and our business is failing. Sheesh!"

And yet, Gliebers Dresses has a thriving prom business that is largely independent of the catalog.

"I don't get that one. It seems like it is all word-of-mouth, like the customer somehow magically finds that stuff. I doubt we have an 18 year old customer. I think we have a 50 year old mother who receives the catalog, then shops online for prom dresses for her beautiful daughter. My bias is toward the catalog, because that is what I know. I almost have to believe that the catalog is responsible for causing everything."

This kind of feedback is essential when crafting a Multichannel Forensics project. We want to get as many hypotheses on the table as possible, so that the analysis can address various assumptions.

Next week, we begin our analysis!

Case Study: The Chief Merchandising Officer And Multichannel Item Profitability

Meredith Thompson's desk was covered in catalogs. In fact, the catalogs appeared to be sorted by size, except for the deep pile of Anna Carter catalogs piled to her left.

"I know you're looking at the catalogs, Kevin. I also have folders in Outlook that have every e-mail our competitors send to customers."

Ms. Thompson began her career at Gliebers Dresses as an inventory manager in 1981, and the experience of relentlessly forecasting sales at a sku level still permeates her personality today. As a buyer in 1994, she stumbled upon a halter dress similar to one worn by an actress at the Oscars. The sales from what some of her co-workers called a “coincidence” coupled with a shrewd evaluation of fashion trends earned her the opportunity to become the Chief Merchandising Officer in 1998, a position she’s held ever since.

We began to review a series of merchandise reports.

“The kids don't refer to documents as reports anymore, do they? I think they call the metrics in the reports KPI’s, key performance indicators, right?”.

The report that Ms. Thompson evaluated did not capture the complexity of the modern merchandise selling process.

“Take a look at this scoop neck dress. The item generated $26,000 in March, $10,000 via the telephone, $16,000 online. My merchandising data system tells me that the item was in our Spring Catalog, it was featured three times in the catalog, a full page in total, to 800,000 circulation. That's the extent of the business intelligence I've been given."

Ms. Thompson begins her personal version of business intelligence.

"I know that the item was featured in our March 10 e-mail campaign. I know that the merchandise division this item is classified in was featured as a tab in our March 24 e-mail campaign. And I know that this item was featured on a popular blog on March 16. That’s what I know.”

How profitable was the item?

“That’s a good question. We can assume that the $10,000 of phone demand came from the March catalog. But how do we parse out the $16,000 of demand that happened online? Our e-mail reporting suggests that the March 10 campaign generated $6,000 demand, but the reporting doesn’t tell us if all that demand was generated by this item or by other items. Our e-mail marketing team tells me they cannot answer that question. Our catalog matchback reporting suggests that for every $1.00 we generate over the telephone when mailing a catalog, we generate an incremental $0.75 online, but our catalog marketing team cannot tell me which items receive the incremental online demand, they can only tell me what happened in aggregate. Our search marketing team tells me that keywords in this merchandise division were responsible for $3,000 demand.”

“I have to cobble together a profit and loss statement out of an assortment of misinformation.”

And that is exactly what Ms. Thompson did. She assumed that the catalog drove $17,500 of demand, $10,000 over the phone and $7,500 that the catalog allegedly drove to the online channel. She assumed that e-mail marketing generated $3,000 of demand (she discounted demand by a half, assuming that the e-mail campaign drove demand to other items … strictly a guess). She assumed that search marketing drove $3,000. And she made a guess … she thinks that the mention in a popular blog drove $1,000.

In total, Ms. Thompson credits $20,500 to catalog and search marketing efforts (expensive marketing), $4,000 to e-mail marketing and blogs (marketing without much cost), and she guesses that the remaining $1,500 was “organic”, demand that would happen if all other marketing were discontinued. Ms. Thompson runs a profit and loss statement against the $20,500 of “expensive” marketing. I find this method of categorization of demand across marketing types interesting (expensive, free, organic). Every client seems to do something that is innovative and unique.

“The item was unprofitable, Kevin. It had a 30% return rate, almost 50% above the company average. We’ll carry the item next year, but we won’t advertise it in catalogs. And that’s a dangerous thing. Half my team thinks if you don’t advertise merchandise in the catalog, you won’t sell any merchandise online, and they have the metrics to prove their point of view. Half my team thinks if you don’t advertise merchandise in the catalog, the customer will find it online anyway, and the company will be wildly profitable as a result. And they have the metrics to prove their point of view.”

“Who is right, Kevin?”

Such is the state of modern multichannel analytics at Gliebers Dresses.

I point to the six empty cans of Diet Pepsi sitting on top of a pile of catalogs, all slightly dented from the tension in her fingers.

"Oh those!" she says. "Diet Pepsi keep me going. I need to stay on top of all of this multichannel merchandise analysis. My husband thinks I'm killing myself by drinking thirty cans of Diet Pepsi a week."

I ask Ms. Thompson what issues keep her awake at night.

"My Diet Pepsi habit!"

"Honestly, this internet thing is really odd, Kevin. Have you ever tried shopping for a dress online?"

I answer, "No".

"You go to our website, and you are immediately presented with images 1 through 2,366, sorted by popularity or price or color or style. You can look at 25 results per page or 100 results per page or all 2,366 on the same page. I call this 'sterile shopping'. There's no story, no point of view, just a bunch of M&Ms thrown on the floor for you to choose from. Who is responsible for telling the story?"

I wonder aloud if it isn't Ms. Thompson's job to tell the story?

"Let's run with your hypothesis. If it is my job, then I should own e-mail marketing, right? If it is my job to tell the story, then I want to own every e-mail campaign, the in-home date and time it is sent, the creative, the merchandise featured. I want to own the text associated with every paid search ad on Google, because it's my job to tell the story, right? I already have a pseudo-ownership relationship with catalog marketing, because I've worked with the creative team for the past decade, and we know our roles."

"I should own the website, too, right? I should own landing pages. I should be able to draft a version of a website that doesn't represent 'sterile shopping' without having to submit a request (called an 'SR' in Gliebers Dresses lingo) to make subtle changes to the website and then wait 18 months for my request to be completed. I should be able to get my merchandise mentioned on blogs and on Twitter. I don't own any of those areas."

"That's the problem with this multichannel thing. We own what makes common sense to any management expert --- I own merchandising. But I don't own the things that matter. And if you talk to marketing, they'll tell you the same story, from a marketing perspective --- they'd like to own the merchandise that is featured in marketing vehicles."

How would somebody solve this problem?

"Oh, I've aired my grievances with Glenn. He just tells me to find something for the customers to buy, or I won't have my job. He's become really cranky the past few years."

"We haven't figured out this internet thing ... how a catalog interacts with e-mail, how e-mail interacts with search, how a customer interacts with an iPhone app, how to install a widget on the website in less than fourteen months, how to bring online merchandising to life without having support from the technology department ... it is really quite mysterious, and nobody is studying the subtleties surrounding the mystery. Figure out this internet thing, and you figure out the organizational structure, right?"

I continue to take notes.

"The internet thing is like a big bowl of cioppino. It is the fusion of offline marketing and online marketing and Google and organic customer preference. You really can't separate out the influence of any one thing on another --- you mail a catalog, and your search activity skyrockets --- you feature a ruffle slipdress in an e-mail campaign, and for some odd reason for two days off-shoulder dresses perform really well. What sells in the catalog also seems to sell online, but you can clearly see a demographic difference. I kid my merchant team that the catalog will become an elastic specialty channel over time!"

"How are other people dealing with telling a story across channels? I mean, how the heck do you communicate a story via thumbnails? How do you sell 500 items in a catalog and then sell just three items in an e-mail campaign and then let your customer pick and choose from 2,366 items online? Is 500/3/2366 the right mix, or should it be 100/5/2366, or should it be 1200/9/2366? How do you forecast it accurately? It becomes really hard to know if you're still a good merchant, you simply cannot know all of the inter-dependencies that now exist between channels and merchandise divisions."

"And then you have micro-events, like prom. All of a sudden you have a different core customer. For forty-five days, you have a whole new product line that sells so well online, but you strongly sense that those customers won't ever come back again. What do I do with those customers? Or how about extended size customers? They have completely different interests. Do I integrate all of this stuff, or do I let every unique area grow independent of each other?"

I don't have any easy answers for Ms. Thompson. I can only offer her another Diet Pepsi, and share a bit about how this Multichannel Forensics project will begin to address her concerns.

Case Study: The Chief Financial Officer

Lois Gladstone is the newly appointed CFO at Gliebers Dresses. Her job is a simple one ... "Clean Up The Mess!" In other words, it is her job to find a path to profitability, the kind of profitability that Gliebers Dresses enjoyed earlier in the decade.

Ms. Gladstone operates like any good CFO. She thoroughly reviews the profit and loss statement, looking for areas where expenses can be reduced.

The Gliebers Dresses profit and loss statement indicates that the biggest line-item expense is marketing. And within marketing, the biggest line-item expense is customer acquisition. Gliebers Dresses loses money acquiring new customers.

Ms. Gladstone thinks she found her area of focus ... if she can reduce unprofitable customer acquisition activities, she can fix the profit and loss statement.

Ms. Gladstone shared her opinions with me.

"As best I can tell, we're losing a ton of money acquiring customers, Kevin. This has to stop."

I pulled out a slide that I share with a lot of Executives (the image above, click to enlarge it). The top portion of the slide shows what happens when you profitably acquire 175 customers per year for ten years. The bottom portion of the slide shows what happens when you lose money acquiring 539 customers per year for ten years. The secret, of course, is to find the optimal payback period. In this example, a two-year payback period is sufficient to justify losing money on customer acquisition.

"This isn't Gliebers Dresses data Kevin, so this doesn't apply to our business. After all, isn't it always cheaper to retain a customer than to acquire a new customer?"

I explain that in theory, the statement is true, but the practice you won't have any customers to retain if you stop acquiring new customers.

"Then why do so many companies have loyalty programs, Kevin? People wouldn't have loyalty programs unless they worked, right? Why don't we simply shift our unprofitable customer acquisition budget to customer retention activities? Wouldn't you rather give best customers promotions and discounts than waste that money on new customers that may never buy again? Or wouldn't it be smarter for us to invest money in improving the website buying experience? Why spend all this money acquiring customers if we don't provide them with a great online experience? I really don't want to chase bad money with bad money."

It becomes clear that my simple slide isn't sufficient to explain the concept of customer acquisition and customer retention dynamics. I'm going to need to build a simulation tool that lets Ms. Gladstone play with the evolution of her business on her own terms.

And I'm going to have to get the facts. Ms. Gladstone may be right, or she may be 100% wrong. The data will point us in the right direction.

"You know, Mr. Glieber told me that I have one year to fix this business, so I don't have time to waste, Kevin. I'm going to have to make changes to the way that we invest scarce resources. Historically, our online division has posted solid gains, just go look at the data over the last ten years. Even now, in the midst of this mind-numbing recession, the online division is hanging in there. Maybe it is time to shift our marketing activities online, where all of the profit is."

I asked Ms. Gladstone how her thoughts compared with the intense catalog legacy that permeated the building.

"I think you have to follow the dollars, Kevin. Profit seems to have migrated online. The profit and loss statement quickly leads you to a strategy where you are retaining customers online as a business model. Our business model seems skewed toward acquiring customers using traditional media. I don't think you need to be a futurist to understand that there is a disconnect. But this will probably be a tough sell, Kevin. We will have to figure out a game plan for teaching the company that online strategies need to replace traditional marketing strategies. And then there's the whole legacy skill-set issue --- how do you teach a merchant used to optimizing selling square inches to now optimize landing pages? It will be a lot to achieve in the course of just one year."

I face challenges like this in the majority of my projects. The key is to let the customer data speak for itself, to not pre-judge any strategy until we have the facts. In this case, it is time to start acquiring appropriate metrics to either prove or disprove Ms. Gladstone's hypotheses.

Case Study: A Visit With The Owner

When you make the long walk from the reception area to Glenn Glieber's office, you are immediately struck by the history of the company. The walls of the hallway are lined with images of the merchandise that made Gliebers the leading dress purveyor in all of New England.

I arrive at Mr. Glieber's office with visitor badge #159 clipped to my dress shirt pocket. Mr. Glieber met me at the door with a warm, but tired smile.

Mr. Glieber's office reflected the history of the company. He sits in an old executive leather chair behind a solid oak desk that may have been brought over on the Mayflower..

"What's the mood out there, Kevin?" boomed Mr. Glieber. Many of my visits start this way. It's always easier to discuss the misery of others.

Mr. Glieber points to a copy of DMNews on his desk ... "They say that Anna Carter is struggling, that she's thinking of shutting down the catalog division altogether. Who would have ever thought that Anna Carter would eliminate the catalog division?"

Anna Carter is a key competitor of Gliebers, selling dresses to largely the same audience.

Mr. Glieber doesn't waste much time with small talk. He pulls out a profit and loss statement, showing the trajectory of the business over the past four years, illustrating the plight of 2009.
There are the obvious metrics you look at when reviewing a profit and loss statement. Profit peaked at $6.5 million (all numbers are in thousands above) in 2006. You can see the impact of the postage increase in 2007, circulation had to be cut in order to meet the catalog budget, hurting demand. In 2008, the bottom fell out.

2009 is not trending well, though severe labor and capital cuts brought the expense structure in line with sales. This was a $58 million dollar business that generated an 11.7% pre-tax profit in 2006. This is forecast to be a $45 million dollar business that will probably break-even in 2009.

I also like to review the mix of demand that comes in by physical channel. The "catalog" channel represents orders that are taken via the telephone. The "online" channel represents orders that are placed online, regardless of the marketing vehicle that drove the order. Notice that catalog demand is in rapid decline, while online demand has stalled.

This doesn't mean that the catalog is "failing", necessarily. But it certainly opens the door to a lot of reporting, analysis, testing, strategy, and disagreement! Clearly, advertising is becoming less effective as a whole, take a look at the ad-to-sales ratio at the bottom of the profit and loss statement. When this percentage is increasing, it suggests that the productivity of the advertising is getting worse.

This is where Mr. Glieber and I begin our chat.

"You know, I think the world just changed. I wanted to retire with the business on healthy ground, and I cannot do that now".

How did the world change?

"I don't know. I do know that it used to be more fun. My leadership team and I used to sit in a room and just think how we wanted to creatively present the brand to the customer. We rented names, we went on photo shoots, we went to Milan to see the latest in fashion dresses. It was a blast!"

I ask Mr. Glieber to give an example of how things changed.

"You know, yesterday, I met with our search marketing vendor. They tell me they're tracking the performance of 8,400 keywords. What's up with that? When we were selling mini-skirts to customers in the early 70s, we didn't have to think about all of the combinations of ways that the customer might think about shopping for a mini-skirt, we just had to present it in an appealing way, and she bought the darn mini-skirt."

"Here's another problem. I met with our e-mail marketing vendor a few weeks ago. They fought me tooth and nail about adding a second e-mail campaign per week. Since when did it become a crime to want to increase sales? She kept telling me about opt-out rates and how we'll anger the customer. Back in the 90s, we doubled the number of catalog mailings from 12 per year to 24 per year, and nobody got upset about that. Now all of a sudden, I want to double the number of e-mail campaigns to a customer who asked to receive e-mail campaigns, and I'm told we must not do that. You don't stay in business very long by reducing marketing and by shrinking sales. An entire generation of marketers seemed to have not learned that. That's how the world changed."

I asked Mr. Glieber what the essence of his "brand" was.

"Our brand is a combination of fashion and catalog artistry. Every part of our multichannel experience starts with creating demand via the catalog --- the merchandise we offer, the way we paginate the catalog with a story about our target customer, it is all designed to inspire the customer to purchase whatever she wants, via any advertising channel she wishes to purchase from."

I noticed that catalog spreads and catalog covers were on all the walls in the building. I ask Mr. Glieber where his staff presented online home pages and landing pages. I ask which wall the e-mail marketing campaigns are posted on?

"Why would we do that? I just told you that our multichannel experience starts with the catalog. The homepage and landing pages are merchandised to support the creative presentation in our catalogs."

I asked Mr. Glieber what he thought about new companies, companies like Zappos?

"Sometimes I'd like to throw a shoe at Zappos! Seriously, they've done a great job of customer service, haven't they? It takes a lot of positive interactions to capture a billion dollars of gross sales. I just don't understand how they, or any online business for that matter, creates demand. FootSmart sends a customer a catalog. The customer is interested in something and goes online to search for competing brands offering that product. The customer finds Zappos. Zappos closes the sale. I simply don't understand how Zappos create interest in products, how they create demand, how they romance the customer. I don't get it."

I keep writing.

"You asked earlier what changed, Kevin. I think the world changed in 2003. CAN-SPAM and Do-Not-Call legislation gave the customer power, and the customer is never going to let an old-school guy like me take the power back. The post office ruined us in 2007, but the real end of the game came in 2003 with CAN-SPAM and Do-Not-Call legislation.

I asked if the internet made things worse?

"The internet took all of the fun out of marketing. We used to obsess about the right model and the right dress and the right presentation. We obsessed about the optimal page count needed to stimulate demand. We obsessed about getting access to the Anna Carter mailing list, then we obsessed that we were on the right side of the exchange balance. We used to obsess over the way the printer brought that image to life. That whole process required passion and discipline, Kevin."

"It's so different now. Not only do we have to create a beautiful image that inspires the customer to shop, but we have to figure out the 296 ways a customer might inquire about the keyword "sundress", and then write the correct copy so that the Google-inspired fashion consumer chooses us over 27 competitors. We're selling to an algorithm, not to a customer. I just don't believe that you can win, long-term, by selling to an algorithm. And then we have to replicate our marketing strategy across every advertising channel, each with strengths and weaknesses. My buyers fight for e-mail real estate, homepage and landing page real estate, mentions on blogs or Twitter. The worst part is that the harder we work, the more response declines."

I asked Mr. Glieber what he thought it would take to turn his business around?

"We're going to need to get back to the basics. We're going to have to use this internet thing to somehow inspire and romance the customer. Maybe we could get Oprah to Tweet about our merchandise, what do you think about that idea? Honestly, I don't know the answer. That's the frustrating part of this. That's why we're hiring people like you."

Given this feedback, I need to gain insight from the Executive team, and the marketing team. I need to learn more about how each individual views customer relationships. These views will be incorporated into the Multichannel Forensics analysis.

Case Study Begins Monday Night

Beginning tomorrow, we will dive head-first into a Multichannel Forensics case study of a fictional online marketer and catalog brand named "Gliebers Dresses".

We will explore how modern Multichannel Forensics and analytics are used to solve problems at a struggling purveyor of Women's Dresses.

I would like to make this amply clear. The characters and the business are a work of fiction. Any resemblance to real humans, living or dead, is purely coincidental. I'm trying to help, folks!

The business problems and solutions are real, they are the problems my clients ask me to solve for them.

Each story will have one analytical problem that we talk about. I will try to make sure that the analytical problem is early in the story, so that you can skip the actual story if you're only subscribing for the analytical elements of a Multichannel Forensics project.

Many of you ask for just three things:

1. Fewer posts.
2. A simplified message.
3. More case studies.

We're about to head down this path. Please support this attempt to meet the needs of our audience.

An Open Letter To E-Mail Marketers: Shopping Cart Abandoment E-Mail Campaigns

There appears to be some criticism about my view of shopping cart abandonment e-mail marketing programs.

So my fellow e-mail marketers, the vast majority of which act in an honest manner, marketing opt-in campaigns with integrity, let's consider the following:

Let's pretend that 100 customers abandon a shopping cart on Monday. On Tuesday, you send a targeted e-mail campaign, and you observe the following statistics:

• 30 customers click-through the e-mail campaign, 50% of those individuals buy something, meaning that 15% of the customers purchased because of the campaign.

So these are good numbers, right?! I mean, who in their right mind would ever complain about an e-mail campaign that delivers a 15% response rate?

One of the challenges of e-mail marketing is that e-mail marketers like you and I are used to measuring "positives". We are driven to measure positive outcomes. Our metrics are calibrated to highlight anything we do that is good.

But what about the 85% that did not purchase? What if we angered 25 of the 85 customers, and they don't ever come back and buy from us again, because of our marketing program? Are we measuring this important KPI? Probably not ... because it is truly hard to measure negatives, isn't it?

There are three things we can to do prove that shopping cart abandonment e-mail campaigns are good for us, and good for the customer.

1. Execute e-mail campaign mail/holdout groups. If 15 of 100 customers purchase in the shopping cart abandonment e-mail campaign, and 11 of 100 customers purchase in the holdout group, then we got an incremental 4 customers to purchase. 4 is still better than 0, right? But we do need to measure the incrementality of our marketing activities, don't we? We cannot take credit for orders that would have happened anyway.
   
2. Follow the mail/holdout group for a year. See if, at the end of twelve months (or even three months), the group that received these type of marketing campaigns spent any additional money. If so, good, it means that as a whole, the campaigns are working. But what if the groups have equal performance, when measured over the long-term? If this happens, then we are simply shifting demand, we're not actually creating demand.
3. Quickly identify customers who do not interact with these campaigns, and create a field in your database, so that we don't necessarily send these campaigns to that audience.

If any marketing campaign works, e-mail or otherwise, then we'll observe an improvement in at least one of the following metrics/KPIs:

• An increase in the annual customer retention rate, maybe from 44% to say 47%.
  
• An increase in the annual customer reactivation rate, maybe from 13% to say 15%.
  
• An increase in orders per retained/reactivated customer, from 2.25 to 2.35 as an example, measured annually.
  
• An increase in average order value, from $125 to maybe $132, measured annually.
  
• An increase in new customers, measured on an annual basis.
  
• An increase in customer profitability, measured on an annual basis.
  

As an e-mail marketing community, we need to demonstrate to others that shopping cart abandonment e-mail marketing programs increase one or all six of the metrics I just listed, while not angering other customers. Given the tools listed in this blog post, that's not hard to do, is it?

And guess what? The long-term testing is just as likely to prove that the value of this marketing program is more than what is illustrated by traditional metrics as it is likely to prove that the value is less. When you convert a customer to a purchase, their future value is significantly increased --- so the testing may show that this style of marketing is essential.

Let's have a balanced perspective ... marketing works positively for some, works negatively for others. The sum of the two can be measured via testing. This is what I'm advocating in the article --- summing the positive, negative, and incremental outcomes. To only focus on half of the metric set is misleading.

We can do this kind of testing!

A Forthcoming Multichannel Forensics Case Study

It's been an interesting fourteen days.

From a mention in a NYTimes article to being publicly lampooned by a fellow consultant starting a new blog to participating in a wonderful webinar put on by the good folks at the Web Analytics Association to speaking at ACCM where the good folks organizing the conference dealt with a confluence of industry challenges and swine flu fears and economic collapse, to being derided by a long-time industry consultant/expert about the future of direct marketing to the end of the Catalog Success publication ... it is a two-week period that makes an industry insider step back and take notice.

Where the heck is the direct marketing industry headed?

What I've learned is that the real story is being told in meetings at the companies that you and I work for, by our co-workers. The future of direct marketing is being scripted, one meeting at a time, based on the perspectives and personalities of the individuals making decisions.

Every time you attend a meeting to discuss whether the merchandising team wants an additional four pages in your October catalog ... every time your web analytics funnel analysis suggests that you're losing customers with $14.95 shipping and handling ... every time you're told that you are making the business too complicated because you manage 125,000 keywords ... every time you're told to add another e-mail campaign to make up for sales that the online marketing team failed to generate ... every time store sales suffer when you cut back on banner advertising ... every time you meet with your co-op about improving customer acquisition performance by building new models ... every time you listen to a phone call in your call center and hear a 66 year old woman struggling with your website ... every time your online marketing executive laughs at you when you suggest monitoring conversations via Twitter ... every time your catalog marketing director tells you that only 29 customers are actually using iPhone apps in your customer base ... every time one of these things happen, the future of direct marketing is being written.

Nobody can talk about these meetings. Consultants sign non-disclosure agreements, and employees will get fired if they share trade secrets publicly. That being said, members of MineThatData Nation continually ask to see case studies that can be used to map-out the future of direct marketing.

What's a person to do?

Next week, I'm going to introduce a Multichannel Forensics case study. We'll spend a few weeks talking about these issues at a fictional company, and we'll discuss how Multichannel Forensics can be used to help guide the direction of this company.

Maybe best of all, we can have an honest discussion about the future of direct marketing, while talking about a fictional company!!

E-Commerce Growth At Macys: Retail E-Commerce Strrategy

One of our loyal readers forwarded me this article about e-commerce growth at Macys. Their e-commerce channel is growing at a time when retail is imploding.

Retail e-commerce couldn't be more different than the business model that online brands manage, and is fundamentally different than what catalogers manage.

Strategically, the retailer must answer each of three fundamental questions:

• Is the primary role of our website to function as a research tool for in-store purchases?
• Is the primary role of our website to drive e-commerce sales?
• Is the primary role of our website to function as an entertainment and social hub?

The answer to the questions drives the strategy.

Most of us were trained to "optimize" website metrics --- maximizing page views and landing page performance and shopping cart abandonment and conversion rates. Most of those metrics fail to capture the reality of a website-to-retail shopping experience.

Back in the day at Nordstrom, we had the "3-2-1" rule for best customers ... three website visits, two store visits, one purchase (mostly in stores) ... each month. Conversion was measured monthly, linking website visits with store purchases --- never assuming that the website visit caused the store purchase. You didn't care that you had a 4% conversion rate while an online or catalog competitor has a 11% conversion rate, so what? As long as your website facilitated a seamless shopping experience, kudos to you!

The secret is to measure future shopping activity. Once that customer purchases online, or once the customer uses the website to purchase in a store, you measure the "next" most likely behavior. Many retailers find that the e-commerce customer migrates into stores easily, but is less likely to migrate from store purchases to e-commerce. This is a guideline, not a rule --- your mileage may vary.

Retail brands eventually optimize around different parameters than the rest of us:

• Create an entertainment and social experience online that fuels store growth.
• Acquire e-commerce customers who live close enough to a store to eventually shop in a store.
• Calibrate the website as an "information channel" to support retail customers who have no intention of shopping online, but want to use the online channel to learn about merchandise.
• Be willing to accept sales from customers outside of a retail trade area, so long as it can be done profitably.
• Ignore traditional metrics that optimize individual visits in favor of longitudinal metrics that demonstrate increased customer value.

You can throw a lot of money at technology, and you'll see sales increase.

You can also view the retail website via strategic options ... knowing how customers flow through the e-commerce and retail ecosystem coupled with a strategic purpose for the website can also result in a sales increase. That's the whole secret behind Multichannel Forensics.

P.S. For all of the web analysts out there --- the retail web analyst has a great job. Retail web behavior is all about art, not science. It's all about discovery and intuition, it's about learning that a 1.3% online conversion rate is really a 13.3% company-wide conversion rate. There's so much to learn, so many secrets. Enjoy!

Twitter KPIs, Including The Twitter Quality Score (TQS)

We hear an awful lot about Twitter, don't we? @Oprah is on Twitter, with more than a million followers. CNN Breaking News has 1.4 million followers. It seems like you can solve all of your marketing woes by simply having a presence on Twitter. And then, you're reminded that customers buy from you because they like the merchandise you sell.

Of course, there's the rest of us, the 3% of the United States population that have a Twitter presence, and have somewhere south of a million followers.

@minethatdata is a tad north of 500 followers. But even with a modest audience like mine, there are many interesting metrics / KPIs that can be derived from the profile of those who follow me. Let's see what the faithful 500 look like:

Median Number Following = 281.
Median Number Followers = 273.
Median Number Updates = 158.

These are humble numbers, folks. And there's nothing wrong with humble numbers. Few people publish numbers like this, nobody would pay any attention to Twitter if this were the published promise of the tool. The numbers reflect the reality of the Twittersphere, not the reality of the Twitterati. And it's just fine, isn't it?

Let's put the number of people my audience follows into decile cutpoints.

• 1st Cutpoint = 39.
• 2nd Cutpoint = 73.
• 3rd Cutpoint = 123.
• 4th Cutpoint = 190.
• 5th Cutpoint = 281.
• 6th Cutpoint = 406.
• 7th Cutpoint = 624.
• 8th Cutpoint = 993.
• 9th Cutpoint = 1844.

Similarly, let's put the number of followers my audience has into decile cutpoints.

• 1st Cutpoint = 33.
• 2nd Cutpoint = 67.
• 3rd Cutpoint = 114.
• 4th Cutpoint = 186.
• 5th Cutpoint = 273.
• 6th Cutpoint = 386.
• 7th Cutpoint = 544.
• 8th Cutpoint = 888.
• 9th Cutpoint = 1321.

At the 7th cutpoint, the number of followers and the number of those followed begin to diverge. It's darn hard to encourage large numbers of people to follow you! Also notice that the top decile for followers has at least 1,321 followers ... a credible number, but not what the Twitterati might have you believe (the top user had more than 600,000 followers ... @zappos).

Here are the decile cutpoints for the number of updates:

• 1st Cutpoint = 8.
• 2nd Cutpoint = 25.
• 3rd Cutpoint = 54.
• 4th Cutpoint = 91.
• 5th Cutpoint = 158.
• 6th Cutpoint = 254.
• 7th Cutpoint = 370.
• 8th Cutpoint = 687.
• 9th Cutpoint = 1,111.

There's a lot of diversity here. We have folks who update infrequently, we have folks updating daily, and we have folks updating ten times a day.

Let's see if we can draw inferences from the metrics / KPIs.

I created a very simple model, trying to predict the number of followers based on how many people others follow, how many updates a person has, and the order in which the individual chose to follow me (1 = 1st, 500 = 500th). Here's the equation:

• Followers = 55.5 + 0.788*#Following + 0.161*#Updates - 0.128*Order.

Let's discuss the business intelligence embedded in this equation. Remember, one key reason we build models is to gain business intelligence, not necessarily to predict the future.

• For every 100 individuals you follow on Twitter, you'll earn 79 followers.
  
• For every 100 updates you have on Twitter, you'll earn 16 followers.
• Each additional follower you earn tends to have fewer and fewer followers ... to be expected as a social media tool grows in popularity.
  

Your mileage may vary ... just do the work and see what the data tells you!

I was very interested in the relationship between updates and followers ... each blog post I write results in 1.5 followers. Each Twitter update results in 1.1 followers. For my audience, each update results in 0.16 followers. No numbers are good or bad ... they're just interesting to track and to think about, and they are representative of the objective of the user.

The relationship between followers and following folks is interesting. The data strongly suggest that if you want to build an audience, you follow other individuals, the current "best practice". I do not execute this strategy, simply because I want to "test" alternate strategies.

Let's create a new KPI, called Twitter Quality Score (TQS), calculated as (#Followers / #Following). The "best" Twitterers, in terms of content, should have more Followers than those Following them, leading to a Twitter Quality Score (TQS) of 1.01 or greater. Here are the decile cutpoints for the TQS:

• 1st Cutpoint = 0.49.
  
• 2nd Cutpoint = 0.60.
  
• 3rd Cutpoint = 0.67.
  
• 4th Cutpoint = 0.77.
  
• 5th Cutpoint = 0.84.
  
• 6th Cutpoint = 0.93.
  
• 7th Cutpoint = 1.03.
  
• 8th Cutpoint = 1.21.
  
• 9th Cutpoint = 1.64.

Clearly, it is hard to build an audience ... 70% of my followers follow more people than follow them.

The data suggest that if you want to look for quality, look for a Twitter Quality Score of at least 1.50, if not greater. If you see a TQS value of this magnitude, then the author is probably publishing quality content that is appreciated by the Twitterati. Pay close attention to a TQS of 6.00 or greater, these values are in the top 2% of my following.

Finally, I look at every individual who follows me on Twitter. Here's what is interesting:

• Those who hire me are Catalog CEOs, then Retail CEOs, then Online Marketing CEOs.
• Those who follow me include Entrepreneurs, Web Analysts, Members of the Vendor Community, Online Marketers, Data Miners & Business Intelligence Analysts, Retail Marketers, E-Mail Marketers, and last = Catalog Marketers. The relationship is nearly opposite of the folks who I am purposely speaking to, in order to make a living.
  

Twitter may be a flash in the pan, it may be a valuable marketing tool, it may be a place where folks chat. Regardless, Twitter is a wonderful laboratory to experiment in. Build the KPIs for your own following, or do this type of study with your favorite Twitterer to see what the data tells you. No Twitter metrics are good or bad. Simply explore the data, folks!

MineThatData Blog Frequency Test

You've responded in an overwhelming manner, folks. Mostly e-mails, but comments and voting on the poll question about the direction of this blog ... you have an opinion, and you wanted to share it!

27 of 31 folks who were kind enough to vote said that the content is fine, keep it coming. 15 of 31 folks say that the content is different than the rest of the industry, and that is a good thing.

3 of you thought I needed to stop talking so much about catalog marketing.

2 of you wanted to see more data, fewer opinions.

2 of you thought I needed to stop selling, and do more to help the reader. The first half of that sentence makes sense, I'm ok with that. The second half of that sentence? Wow.

Your e-mail messages are very different. You consistently asked that I consider reducing my posting frequency.

So we're going to do a test.

For the next thirty days, my posting frequency is going to be reduced. I'll make sure there is something worthy for you to read on Monday, Tuesday, and Wednesday morning. Other than that, posts will be hit-or-miss.

I will work exceptionally hard to make sure that the Mon-Wed posts are of high caliber. Many of you said I'm being too geeky, and that I make it hard for you to follow my logic. Some of you told me to "dumb my message down". I'm not a fan of that, at all. But during the next 30 days, I will attempt to be more clear.

At the end of 30 days, I'll evaluate how subscribers, visitors, search-visitors, comments, and paid consulting projects have changed. If your suggestions are right, all of those metrics will improve, right?

Analog, Digital, Social

Folks seem to be self-selecting themselves into three camps.

The first camp is the classic direct marketing crowd, rebranded as the "multichannel marketing" audience. I call this audience the "Analog" audience. This camp knows more about strategic direct marketing than anybody else in direct marketing, having been introduced to direct marketing as the credit card, the 1-800 number, and the database took prominence. This crowd reads Catalog Success and DMNews. This crowd attends ACCM and Internet Retailer. Ask this crowd to launch a new product or service, and they'll have a business plan for you in a couple of hours, one that spans multiple channels.

The second camp is what I'd call the "Digital" crowd, online marketers who burst onto the scene during the late 1990s and early part of this decade. This crowd knows more about classic online marketing than anybody. They can tell you that shopping cart abandonment is 43.84830048% if various criteria are met. They're great at SEO and Paid Search and Banner Ads, they know that the open rate on the last e-mail campaign was 22.438%. They know and love tactics. They can be strategic direct marketers, but seem to adore their form of marketing, are are willing to forego bigger opportunities to stay loyal to their niche. This crowd attends Shop.org. Ask this crowd to launch a new product or service, and they'll have your Google marketing plan coupled with an e-mail campaign strategy ready to go in just a few hours.

The third camp is what I'd call the "Social" crowd. This crowd is motivated by technology, the "shiny new toy", if you will. The shiny new toy might be an iPhone app, it might be getting 11,000 followers on Twitter, or it might be creating a viral campaign using Facebook. This person might be 55 years old, this person might be 25 years old. Ask this crowd to launch a new product or service, and you'll have your new product or service in a few hours!

What seems to be missing from the marketing departments of 2009 is a balanced representation of Analog, Digital, and Social strategy.

The traditional catalog brand spends 50 minutes of a 60 minute meeting debating whether 124 pages is better than 116, wondering if an 8 page insert will boost demand, considering whether a Wed-Fri in-home window might work better than Mon-Wed. Analog topics dominate the meeting.

The online brand struggles with driving traffic ... we'll over-think an e-mail campaign that will cause only 1 in 700 recipients to purchase, or we'll dig into our pile of 74,000 keywords to come up with micro-copy that will stimulate clicks. Digital marketers often need analog tools to drive traffic, but there's a fierce independence among this audience.

And then we have the social crowd --- everything is viral! If the product is good enough, it will stand out on its own and will create its own audience ... so let's make it free and social and then things will work. The wisdom of the digital crowd is missing, the strategy of the analog audience seldom surfaces.

In the 2010s, the opportunity exists for a leader to straddle each frontier ... analog, digital, and social. The leader doesn't have to be an expert in each area, but the leader has to hire folks proficient in each realm.

In the 2010s, the best strategies will incorporate percentages of Analog, Digital, and Social strategy.

In 2009, I sit in too many meetings where a faction with Analog, Digital, or Social experience dominates the meeting. Knowledge of the target customer, coupled with a strong mixture of varied experience, will yield positive results.

Answering Your Questions

Here's what you're asking me ... your actual questions, either live and in person, or via the magic of the digital realm:

Question: My core customer is 57 years old. She was 52 years old five years ago. Does this mean that all of my customers are going to be dying soon? Answer: Folks, this question actually comes up, and often. When catalogers entered the "multichannel era", as defined by our vendor/trade-journal leaders, we took our eye off of customer acquisition. We followed our best customers, we catered to their advertising preferences and merchandise needs. Houston, we've got a problem. Not an insurmountable problem, mind you, but one that we must address. The 2010s will be all about acquiring customers. We don't have a choice.

Question: What drives the organic percentage? Is it brand loyalty? Answer: Some of you have implemented mail/holdout tests in e-mail and catalog marketing, and have learned that a significant share of the business that was attributed to e-mail and catalog marketing campaigns actually happens anyway. This percentage of volume that happens anyway is known as the "organic percentage". It is a combination of convenience, brand loyalty, and marketing saturation. You'll shop from your local mall-based Bose store because it is convenient and because your friends have the Companion 5 series speakers. You'll shop from the L.L. Bean catalog, whether they send you 13 a year or 8 a year ... marketing saturation plays a role, too.

Question: Your Zip Code Forensics maps seem to indicate a growing problem. Rural, 55+ year old lower-income folks seem to align with old technology, while urban/suburban wealthy youngsters are aligned with newer technology. Isn't this a problem? Answer: There are the obvious sociological problems associated with technology, they are well documented. For the readers of this blog, multichannel marketing is being ripped apart by the differences in demographic/psychographic between old school marketing and technology-enabled marketing. The Catalog audience and Twitter audience are not complementary, they are mutually exclusive. The E-Mail audience and Social Media audience were identical six years ago, but now, the Social Media crowd is de-tethering from E-Mail, leaving two non-complimentary audiences. Multichannel Advocates will be forced to alter the marketing strategy of the 2010s, speaking with a similar voice to very different micro-channel audiences via different messages ... the opposite of what we've been taught.

Question: You don't follow anybody on Twitter. Why? Are you so arrogant to assume that you cannot learn from others? What is wrong with you? Answer: Oh, I enjoy getting this one. First of all, I follow a lot of folks on Twitter, but I purposely don't do it via the "follow" button in Twitter ... so you aren't counted. I've said it before, I do this because I want to show that you can gain a following by providing interesting content, not simply by getting followers by following others --- the current established best practice. I will say this. So much of what is put out there by the Twitterati isn't actionable. Are we using a tool because it has a strategic purpose, or are we using a tool because it is new and shiny, or are we using a tool because we want to tell people we just ate a tasty garden salad? If the latter, the content has to be really good in order for somebody to follow.

Question: Acquire New Customers or Retain Best Customers? Answer: I strongly lean toward acquiring new customers, with a caveat. If your business is in Retention Mode, then retaining your best customers is critical. If your business is in Hybrid Mode or Acquisition Mode, then the majority of your long-term success will come from acquiring new customers. I've literally run thousands of simulations ... in Hybrid or Acquisition Mode, the #1 key to long-term success is the ability of a business to acquire new customers. This is a secret that the vendor/trade-journal industry doesn't share with you.

What questions do you have? E-Mail them to me, and I'll offer answers.

Contact Strategy Optimization

Many of us avoided determination of an optimal contact strategy by simply taking a hatchet to customer acquisition marketing, helping us improve profit in the short-term.

Rest assured that there is a lot of profit to be had by creating tests that identify an optimal contact strategy.

So much of the work I do with clients is in this realm. We design a test that spans catalog marketing and e-mail marketing --- testing different combinations of catalogs and e-mails.

Most of the tests are conducted on a quarterly basis. There is a general fear of withholding marketing from customers for more than three months, so we generally stay away from longer-term testing. That being said, all of the fascinating findings are identified in longer-term tests. I learned that lesson back at Lands' End, in 1993-1994 when we conducted holdout tests that spanned a twelve-month period of time. Customer behavior really changes when the tests are that long.

In the test illustrated above, three catalog strategies (0, 3, 6) were tested against three e-mail strategies (0, 6, 12).

Pay close attention to the results.

The control group --- 6 catalogs, 12 e-mails, generated $35.05 demand and $9.51 profit.

No marketing at all --- 0 catalogs, 0 e-mails, generated $25.00 demand and $9.38 profit.

In other words, among the housefile customers tested here, it is just as profitable to do no marketing as it is to execute eighteen campaigns across three months.

Nobody in our industry wants to hear that news. And yet, I see this over and over again in the Multichannel Forensics projects I analyze. In this case, the organic percentage is reasonably high ... ($25.00 / $35.05) = 71%. Seventy-one percent of the sales volume happens without catalog and e-mail marketing.

The most profitable tested strategy is 3 catalogs and 12 e-mails, yielding $33.80 demand and $10.84 profit.

This is the kind of testing that all of us must execute this fall. Our job is to design and execute the tests in Fall 2009, so that we can greatly improve profitability in 2010.

Blog Direction

You go to a conference, and people start talking about "what are you trying to accomplish with your blog and online presence?"

So why not offer your two-cents worth of advice? If you're reading via e-mail or RSS, click here to go to the homepage and answer my poll question about the content you read on this blog ... page down and look on the right side of the blog for the poll.

Also, there's been a decent number of unsubscribes in the past few months because of "too many updates". Do you feel this way, and if the answer is yes, how many posts a week do you believe represent the "right" number?

E-Mail Marketing, Search, Matchback, Attribution

One of the mysteries of marketing in 2009 is the concept of attribution, a process where we matchback orders derived in one micro-channel to the advertising micro-channel that drove the order.

For whatever reason, the e-mail blogosphere and vendor community fails to capitalize on this opportunity.

My Mutichannel Forensics projects repeatedly indicate that e-mail marketing and search marketing play a unique micro-channel role. E-Mail marketing is a "love" channel, if you will. The 10% to 50% of your twelve-month buyer file that subscribes to e-mail marketing "loves you" more than the average customer. These customers have better "RFM" characteristics, not because of e-mail marketing necessarily, but because the customer is a good customer who wants to learn more.

And then we have search, which works in the opposite direction. The customer who "loves you" doesn't implicitly trust you. As a result, she wants to make sure that she's getting the best deal possible, the best combination of merchandise and value.

When you have customers who want to see your e-mail campaigns and then want to use search, you have a classic micro-channel combination that must be tabulated in your database, and analyzed going forward.

At minimum, we need to run matchback algorithms for e-mail marketing. Catalogers have been running matchbacks for the past fifteen years, taking credit for orders that were not necessarily driven by catalogs. E-Mail marketers, however, have been exceptionally slow to embrace attribution and matchback programs. I don't understand why.

It's a fairly simple process. Say you deliver an e-mail marketing campaign on a Tuesday. Take all customers who ordered on Tuesday, Wednesday, Thursday, and Friday, and match them back to your e-mail campaign. And by the way, make sure you have a holdout group, a group who did not receive the e-mail campaign, and do the same process --- subtracting the difference between mailed and holdout group for true incremental value.

Now, any orders that are generated by search marketing are matched back and attributed to the e-mail marketing campaign. And here's where we need to make an adjustment ... we need to make a guess at all of the unconverted searches that were caused by e-mail marketing, and allocate the cost of those unconverted searches back to the e-mail marketing campaign. If the typical search conversion rate is, say, 3%, you have to multiply converted searches by 33, and then multiply that total by the cost-per-click, in order to get at the right advertising cost.

Two things usually happen, two things that are highly relevant to e-mail marketers.

1. E-Mail marketing causes search activity, and that search activity results in orders that are normally credited to search and should be credited to e-mail. This can result in e-mail marketing being more productive that usually measured to be.
2. E-Mail marketing causes the "search audience" to do a bunch of unproductive searches. As a result, the "search segment" is actually unprofitable --- causing the e-mail marketer to withhold e-mail marketing campaigns to customers who search all of the time.

The latter point is worth noting ... the e-mail marketer should be creating segments in the database of customers who utilize search on a frequent basis ... electing to develop a different contact strategy for the "E-Mail / Search" micro-channel combination.

The Death Spiral

Last week, folks were actively talking about "The Death Spiral".

We deal with "The Death Spiral" in our Multichannel Forensics projects, don't we?

In this instance, we have a traditional multichannel business that is stuck at about $30,000,000 in annual sales. And given the state of the economy, the business isn't profitable. One of the opportunities is to give up on catalog customer acquisition altogether.

So here we go ... in year two, the Executive team makes the decision to stop acquiring customers via catalogs. This seems like a good idea, right? All of that customer acquisition activity is unprofitable, and causes folks to visit third-party opt-out services to get off your mailing list.

Here's what the business looks like, now that catalog customer acquisition has disappeared.

"Hasta La Bye-Bye", as a former co-worker used to say. This business is now in "The Death Spiral". A business that generated more than $30,000,000 begins to crumble (by the way, the annual retention rate here is more than 50%, reasonably healthy), falling to $23,000,000, then $15,000,000, then $11,000,000, and finally $10,000,000.

Each of these decreases would require the Executive team to take a hatchet to headcount ... especially in the call center and distribution center. The business, however, may be more profitable, allowing Management to hold on to corporate center staff. And at some point, Management will face the inevitable question ... "Should we kill the catalog altogether?"

Those of us who run Multichannel Forensics projects for our clients know the next question ... "How many online customers do we have to acquire to keep the business growing?".

The answer is ... "A Lot!"

This business will have to acquire about 42,000 new online customers per year, growing to that total ... and the business only gets back to $17,000,000 in annual sales.

This is "The Death Spiral" that folks talk about.

Customer Acquisition means everything to most businesses. We're being told to focus all of our efforts on retaining customers "during these challenging economic times". And we should do that. But for most of us, we should spend a lot more energy developing a credible customer acquisition strategy that fuels the future of our business.

The reality is that, for many of us, we're in the process of "resetting" the size of our businesses. Traditional customer acquisition strategies are dying, and if we don't formulate a strategy of customer acquisition "diversification", we're going to reset the size of our business, really fast.

Co-Ops And Multichannel Merchant

This theme came up at the ACCM conference --- response rates are down on dramatic decreases in circulation.

The concept of a "death spiral" is well known --- cut out prospecting, the business gets smaller, so you cut more, causing the business to get smaller, and next thing you know, you're out of business. It is a concept that the retention experts conveniently leave out when talking about catering to loyal customers.

What is interesting is that it is the co-ops that are dealing with the death spiral. The co-ops destroyed the list industry, and that's fine, America is all about competition and capitalism. But if the data in the article is true (30% drop in co-op names), then you have a whole new set of challenges in the catalog industry --- is there enough business to support all of the co-ops that exist today?

REI And Multichannel Marketing

Give this article a read --- Catalog Success interviews Mike Bowcut of REI --- a simple use of mail/holdout groups instead of matchback analytics improves marketing success.

Wrap-Up

I spoke at the ACCM conference in New Orleans this week.

New Orleans is a city that was decimated by Hurricane Katrina.

The Catalog Industry was decimated by the Internet and aging Baby Boomers. Some suggest the economy and the postage increase of 2007 decimated the industry, but the trend was evident long before these two events happened.

The exhibit hall was sparsely populated, and while the folks working there were enthusiastic, it was obvious that the exhibit hall is a different place than it was in 1997.

And many of the sessions were, at minimum, useful.

What was missing was "the vibe". And people.

Attend one of these things ten years ago, and you "met everybody". All of the folks you used to work with, all of the folks you wanted to work with, they were all there. Now granted, most of the meetings didn't "push the peanut" --- you didn't need sixteen people in a room to learn that your exchange balance was 24,994 names in the wrong direction. But at least there was a vibe.

I'm told that I'll see all of you at Internet Retailer next month. We'll see. This year, almost none of the crowd I ran with over the past twenty years was in attendance.

I attended a session hosted by four industry experts, a session on Multichannel Marketing. The attendees enjoyed the information --- twelve people in total, maybe half were consultants, based on a raise of hands at the start of the session. That was sad (my session had about 40 folks, plus/minus).

If you take the time to put together a presentation, fly 1,500 miles, pay your own airfare and hotel, you want to share your information with more than twelve people.

In so many ways, the message of the conference, 360-degree marketing and Multichannel Marketing, is not aligned with the world of real marketing practiced in 2009. There were 48 sessions on Tuesday and Wednesday, five were on social media, web analytics, and search. Five.

The concept of Multichannel Marketing is nice, in theory. In reality, there so little proof that sales and profit increased because of having a well executed and integrated multichannel strategy. You can prove that individual campaigns demonstrate improved performance. But you'll have a really tough time proving that annual retention rates, orders per retained buyer, items per order, or price per item increase. If it were easy to prove this, we'd see the metrics everywhere, wouldn't we?

This topic came up time and again during the conference. Almost none of the speakers talked about mail and holdout groups (techniques that prove that there is incremental value to multichannel marketing), and those that did talked about cutting marketing, not adding channels --- the opposite message that the conference leaders might be looking for.

The DMA and Multichannel Merchant are at a key inflection point. Marketers have gone in a different direction than the agenda these organizations promote. Do these organizations want to support catalogers? If the answer is yes, then the organizations might consider using the term "cataloger" more often --- not multichannel, not 360-degree marketer, but "cataloger". And if most "catalogers" have moved on to Internet Retailer and Shop.org conferences, then the DMA and Multichannel Merchant need to consider what audience this conference serves.

E-Mail Customers: They Can Be Valuable!

Part of any Multichannel Forensics project is an assessment of the value of e-mail subscribers.

Now this isn't some sort of qualitative "Brand 'X' uses great subject lines" or "E-Mail is a wonderful one-to-one relationship vehicle" analysis. Nope, we're actually controlling for key factors, understanding when all factors are equal if e-mail can carry the freight.

And it turns out that the fact a customer is an e-mail subscriber is important.

You'll see something like this:

• Logistic Regression Of 12-Month Repurchase Rates = -2.000 - 0.5*(months since last purchase ^ 0.5) + 0.8*(number of orders) + 0.3*(email subscriber).

• Spend Model = 120 + 0.30*(historical spend) + 4*(email subscriber).
  

So let's compare two "equal" customers, one an e-mail subscriber, one not. Each customer has a recency of 8 months, three orders, and $300 of historical spend. The first customer is an e-mail subscriber, the second customer is not an e-mail subscriber.

• Customer #1: Response = 32.9%, Spend = $214, Value = $70.34.
• Customer #2: Response = 26.6%, Spend = $210, Value = $55.89.

With two equal customers, e-mail is projected to deliver $14.45 of incremental sales in the next twelve months.

Your job is to compare this metric to the data you get via open rates and click through rates and conversion rates. Do you see a difference?

For instance, your forecasts might suggest that Customer #1 will generate $0.15 per e-mail, across 52 annual e-mail campaigns. If true, then you're forecasting this customer to generate $7.80 over the next twelve months.

In other words, the modeling procedure shows you that e-mail marketing is nearly twice as valuable as your traditional marketing metrics suggest. Complement this data with actual mail/holdout results, and you might really have something!

The important thing, of course, is to put your e-mail program through a full Multichannel Forensics analysis, thoroughly understanding the role e-mail plays in growing each channel.

Customer Returns: Catalogers Can Save Money Here Too!

Customers who return merchandise are an enigma. Some like to thwart returns policies. Some just don't like the merchandise. Some need money. Some feel ripped off due to shoddy quality or style issues.

It has been my experience that customers with consistent returns behavior tend to have predictable returns behavior in the future.

A simple rule-of-thumb is this: If the customer has placed three or more orders, and has returned more than 2/3 of his/her merchandise, the customer should not be marketed to. In other words, stop mailing catalogs to this customer, and stop sending e-mail marketing campaigns to this customer.

This isn't 1994, mind you. The customer can still order from your website. But why waste marketing resources on a customer that is going to cost your business profit?

In fact, if you want to really see if orders happen organically, this is a low-risk audience to "do a test", if you will. Just stop mailing catalogs and stop sending e-mail campaigns, and see if the customer continues to purchase. If the customer continues to purchase, those catalogs and e-mail marketing campaigns are probably not driving the volume we think they're driving.

ACCM / Twitter

I'll be posting a few updates over on Twitter, either visit my page (http://twitter.com/minethatdata), or look for the #accm tag for updates from all attendees using Twitter to share their thoughts.

And folks, if you want to prove that Twitter is a valuable communications tool, use it to spread the word, so that we can fill the room for my 11:15am Wednesday presentation on the role of geography in catalog shopping. How's that for a self-serving message?!

Online Buyers: An Easy Catalog Circulation Tip To Save Money

Catalog marketers looking to reduce expense often decide to not mail catalogs to online buyers.

This can be a challenge, because so many of those matchback algorithms suggest the catalog played a role in the online order (though we can not prove the catalog caused the order).

When I'm conducting a Multichannel Forensics analysis, I like to categorize every one of the 365 days of the year as a "catalog day" or an "online day". In other words, I sort every day based on sales totals ... days where telephone orders are dominant are called "catalog days". Days where telephone orders are not dominant are called "online days".

Not surprisingly, online buyers purchasing on "online days" are less responsive to catalog marketing than are online buyers purchasing on "catalog days". Toss in Google activity or e-mail activity, and you've got a recipe for catalog cost savings!

The Most Important Catalog And E-Mail KPI: The Organic Percentage

Last week, I received an e-mail from a loyal blog subscriber. This person did the mail/holdout testing that many catalog brands execute. This person learned that more than 70% of the business that you see in best-practice based catalog results analysis happened regardless whether a catalog was mailed or not.

This phenomenon is known as the "Organic Percentage". You execute a mail group and a holdout group, very simple testing.

Organic Percentage: Mail & Holdout Test Groups
	This	Other	Website	Total
	Catalog	Catalogs	Demand	Demand
Mail Group	$3.00	$4.00	$8.00	$15.00
Holdout Group	$0.00	$5.00	$9.50	$14.50
Increment	$3.00	($1.00)	($1.50)	$0.50
Organic %, Catalog = (3.00 - 0.50) / 3.00				83.3%
Organic %, Total = 14.50 / 15.00				96.7%

This outcome is seldom if ever mentioned by e-mail vendors or catalog marketing vendors. The opposite outcome is mentioned all of the time --- we hear that catalogs and e-mails drive sales across all channels. This outcome is more common than the oft-publicized "catalogs drive sales to all channels" outcome we read about.

Almost nobody talks about reducing marketing expense and increasing profit because we are mis-attributing orders to customers who would have ordered anyway. The vendor ecosystem would be hurt if this outcome were published on a frequent basis.

In this case, 96.7% of customer demand happens anyway .. only 3.3% of the $15.00 is because of catalog marketing.

Quantifying the organic percentage is the single most important thing that catalog and e-mail marketers will do in 2009.

Acting upon the organic percentage is the single most important thing that catalog and e-mail marketers will do in 2010.

At this time, the majority of my Multichannel Forensics projects require me to greatly reduce marketing expense while keeping demand coming in at a high rate. It is likely that you'll be spending a ton of time on this issue in 2010 as well.

Catalog Page Counts And The Square Root Rule

Many of you are looking to trim expense, while maintaining demand. For some, this means reducing the number of pages in a catalog.

Remember, there is a quick formula for estimating the demand impact of fewer pages in your catalog --- just use the Square Root Rule.

Example:

• You have a catalog with 124 pages.
• You expect the catalog to generate $5,000,000 in demand.
• Your CFO wants you to cut 8 pages, leaving you with 116 pages.
• Demand = (116/124)^0.5 * $5,000,000 = $4,836,021.

You run a profit and loss statement on 116 pages generating $4,836,021 ... is that more profitable than 124 pages generating $5,000,000. Your printer can help you with printing efficiencies at different page counts, efficiencies that point to optimal page counts.

Also, your "DMPC", demand per thousand pages circulated, improves as pages are reduced ... this means that you can actually circulate deeper into your file as pages are reduced.

Multichannel Forensics: Sales Forecast

One of the most simple yet important elements of any Multichannel Forensics project is the five year sales forecast. Our job is to help the Executive team (the "C-Suite", for those of you predisposed to the language of the day) understand what happens to the future trajectory of the business.

This is done by evaluating probabilities. Let's keep things simple, looking at just the twelve month file.

Say we have 100,000 customers who purchased during 2007. In 2008, 50% of these customers purchased again, spending $300 each.

• Sales = 100,000 * 0.50 * $300 = $15,000,000.

Now your marketing department stops by ... they want to implement some sort of loyalty program. They believe that sales to your twelve month file will increase by 10%.

Often, 70% of the benefit of a program is in the retention rate ... while 30% is in spend per repurchaser. Your mileage may vary, but this is sort of an average that you can use to track performance.

Here's what you can expect.

• Sales = 100,000 * (0.50 * 1.07) * ($300 * 1.03) = $165.

Most important, however, is that you now have 53,500 customers purchasing, instead of the 50,000 customers purchasing in the first example. The additional 3,500 customers provide "long-term value" that is not typically captured in the evaluation of marketing programs.

The impact of the 3,500 customers are multiplied out over the course of five years, yielding a "truer" level of impact on the business.

As an example, download this three-channel spreadsheet, a spreadsheet I generate for the majority of my Multichannel Forensics clients. You'll get to see the long-term impact of short-term changes in strategy.