Test Results!

Wednesday, you were the subjects of a test.

When asking you to download my paper, I gave you two hyperlinks to download the document. Each document was identical, but the file names were changed, so that I could measure which link was downloaded most.

First Link Text: Please download this brief and easy-to-follow online sales forecasting pdf. 56% of downloads came from this link.

Second Link Text: Download Here, NOW!! 44% of downloads came from this link.

I'm not going to say whether one link performed better than the other --- this wasn't an A/B test where results could be directly compared against each other.

Instead, I'm interested in the psychology of your choice. You tell me, why did you choose the link you downloaded the file from? Why do you think more of you chose the gentle and informative message over the command?

And if there is a difference here, imagine how tone plays a role in our e-commerce businesses?

Gliebers Dresses: Monthly Dashboard

Welcome to another Gliebers Dresses Executive Meeting.

Chip Cayman (Independent Marketing Consultant): "... Glenn will be back next week, fully rested from his staycation. And I'm 100% convinced that Dorothy will be glad to have him out of the house! There are only so many things that can be fixed in a home, you know?! Roger, you probably know all about this topic!"

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

Kevin: "Yup, it is me."

Chip Cayman: "I asked Kevin to join us today, so that we could go over customer reporting from the past thirty days. Kevin, the C-Suite awaits your commentary."

Kevin: "Ok, let's take a look at the data. The dashboard in front of you (click on the image above) illustrates a series of very simple metrics that outline why sales are increasing or decreasing. I usually look at a rolling twelve months of data, so that I can compare metrics without needing to consider any adjustments for seasonality."

Roger Morgan (Operations and IT): "That is one way to look at the information. Anytime I run metrics for finance, I like to create five year views of the data as well."

Kevin: "The top half of the table illustrates how well we're doing at retaining existing customers. The bottom half of the table illustrates our effectiveness at reactivating older customers and acquiring new customers.

Pepper Morgan (Interim Chief Marketing Officer): "This report suggests that we did a worse job of retaining customers over the past thirty days, is that correct?"

Kevin: "Just barely. The annual retention rate dropped from 53.20% to 53.15%, not a significant decrease. There are two problems right now. A third of our problem happens because the business has been in decline for awhile, so we simply have fewer existing customers to generate sales. Two-thirds of our problem happens because customers are actually purchasing fewer items per order, at a slightly lower price point."

Lois Gladstone (Finance): "Shouldn't our loyalty program cause the opposite outcome? For the past month, we've been heavily promoting the fact that if a customer buys four dresses, then the customer gets free shipping for the rest of the year. We should see an increase in retention, and an increase in items purchased per order, right? But so far, we aren't seeing an increase."

Kevin: "If the program is working, then theoretically, yes, you will see an increase in those metrics."

Lois Gladstone: "We've been promoting this for the past thirty days, have we been speaking with the right audience?"

Chip Cayman: "We have to give this loyalty program time, folks. We simply cannot expect the customer to see the obvious value in this program and respond immediately."

Pepper Morgan: "What is happening with new and reactivated customers, Kevin?"

Kevin: "The vast majority of decline in demand among new and reactivated customers is happening because there are simply fewer new and reactivated customers. We have fewer customers, in large part, because of the cuts in customer acquisition marketing."

Lois Gladstone: "And those cuts were in unprofitable areas, so our profit and loss statement is going to look better because we made those cuts."

Kevin: "As you can see, this creates a 'circular logic problem', if you will. We begin next month with 3,410 fewer twelve month buyers than we began last month with. Assuming that the loyalty program will work, we'll have fewer customers to feed into the loyalty program."

Candi Layton (HR & Chief Customer Officer): "If we have fewer customers, does this mean we'll have fewer orders in the call center in the future?"

Kevin: "Most likely, yes."

Candi Layton: "Does this mean that, if we're losing 2% of our demand per month, we might lose as much as 24% of our demand over the next year?

Kevin: "If every month replicated the results of the past thirty days, then yes."

Candi Layton: "And that means we'd have to ultimately reduce hours in our call center and distribution center again, given that the business is shrinking this much."

Lois Gladstone: "That's why we're really promoting this loyalty program. We absolutely need to increase the number of loyal buyers, to prevent that from happening."

Candi Layton: "But we started the new program a month ago, and already, the metrics are pointing in the opposite direction."

Roger Morgan: "Fortunately, our website conversion rate has increased over the past thirty days."

Pepper Morgan: "That's because we're doing less customer acquisition, so we're driving better traffic to the website, traffic that converts at a higher rate."

Roger Morgan: "Maybe the loyalty program is making a difference, causing customers to be more motivated to order when they visit the website?"

Pepper Morgan: "Then wouldn't the customer metrics illustrate improvements?"

Roger Morgan: "From what you've shown us, open rates and click-through rates in the e-mail campaigns where we've communicated our loyalty program are up, and website conversion rates are up. So at some level, the loyalty program has to be working, or those metrics wouldn't all show increases. Maybe this is a merchandising issue, maybe the business would be down even more than this if we hadn't started the loyalty program?"

Chip Cayman: "Let's not get into pointing fingers, here. We need to give the program a chance to succeed. Meredith, you have a lot of merchandising metrics that suggest we're making big improvements, right?"

Meredith Thompson: "Our back-to-school strategy is really doing well, it is up 24% compared with last year. And we have a new line of professional dresses that are up 39% compared with last year. So we have plenty of successes."

Roger Morgan: "Maybe the economy isn't doing us any favors. If conversion rates are up, if e-mail metrics are up, if many of the merchandising metrics are up, if our loyalty program is kicking-in now, then our business should be improving, right?"

Kevin: "There are a few challenges, here. Customer metrics are the aggregate of marketing strategy, merchandising effectiveness, and economic conditions. Some metrics are pointing up, some are not doing so well, and so the net impact is a negative. By and large, there is a file momentum issue, fueled by a decrease in customer acquisition. No matter how many metrics improve, the business will continue to struggle as long as there are fewer and fewer customers available to purchase again from Gliebers Dresses."

Pepper Morgan: "Good thing we're using Kevin's Zip Code Forensics tool to find new customers more efficiently, that should help us."

Chip Cayman: "How much does that cost us?"

Pepper Morgan: "It's free to any business that sells via e-commerce, right Kevin?"

Chip Cayman: "Free? Kevin, you're a dufus. I could sell that tool into packaged goods companies at $100,000 a pop. Good consultants know how to monetize their activities. Look at me, for instance. I don't do these Executive Meetings for free, you know."

Kevin: "We'll do a revenue share, we'll split incremental profit based on a percentage that you determine, how's that?"

Chip Cayman: "I'd need Glenn's approval for that, and you know that he loves free marketing, so that won't happen. Anyway, once this loyalty program really takes hold, we should see improvements in retention rate, orders per buyer, and especially items per order. Improvements in those metrics should hopefully offset any customer file momentum issues. Now on to the next topic, before we wrap up. Glenn wants me to remind all of you to explain to all of your employees that, for the second consecutive year, there will not be a contribution to the profit sharing plan. Glenn did decide, however, that he will bring back the 'lottery' system for a second year, whereby three lucky employees will be drawn at random to receive a $10,000 contribution to their profit sharing plan. Executives will once again not be eligible for this lottery."

Forecast E-Commerce 2010 Sales: Here's How!!

Recently, a respected industry conference issued a call for papers. This mini-presentation on producing a forecast for online sales for 2010 was not accepted.

However, there's no reason why you can't benefit from this simple application of Multichannel Forensics!

Please download this brief and easy-to-follow online sales forecasting pdf, suitable for CEOs, Marketing Executives, and especially for Web Analytics experts looking to broaden their skills in a way that is useful to the Executive Team.

Download Here, NOW!!

Gliebers Dresses: Gliebers Listens

Welcome to the Gliebers Dresses Executive Meeting.

Chip Cayman (Marketing Consultant): "... and that's when the six of us met at the hotel bar, drinks on me! That's a 'tweetup' folks, that's the real power of Twitter! How would we have ever gotten together without the burgeoning power of social media? Oh sure, the critics will say that we could have just sent e-mails to each other or could have made some sort of public announcement, but that completely misses the point. These social media Luddites keep nit-picking the details, they fail to see the power of the whole."

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

Kevin: "Yup, it is me."

Meredith Thompson: "Chip Cayman is leading the meetings this week, Kevin. Glenn Glieber is taking a 'staycation' this week. Anytime Glenn is out of the office, Chip takes over the meeting. Glenn wants to make sure that all of us on the Executive team ..."

Candi Layton (HR and Chief Customer Officer): "You know, we should be called 'The C-Suite', that's how the media refers to Executive Teams at other companies."

Meredith Thompson: "... makes sure that all of us in the 'C-Suite' realize that we're all equal in stature, that one isn't more important than the other."

Chip Cayman: "So let's get down to business. Lois, where are we at on implementation of the loyalty program?

Lois Gladstone (Finance): "The program has been in place since July 1. To date, no customer has purchased the four dresses required to earn free shipping for the year. From a financial standpoint, that's wonderful. But we're not yet seeing the improvements in loyalty that we anticipated."

Chip Cayman: "Kevin, is it possible that we're missing something here?"

Kevin: "Multichannel Forensics suggest that the average customer will purchase twice a year, two dresses per order. I'd expect to see a buildup in customers entering the program this fall. Not nearly enough time has passed to make any conclusions about the effectiveness of the program."

Chip Cayman: "Fantastic. Roger, where are we at on the 'Website 5.0' project?"

Roger Morgan (Operations and IT): "We're making good progress. Component 2.0 of the Website 5.0 project is scheduled for implementation on August 31. Component 3.0 and Component 3.1 of the Website 5.0 project are scheduled for implementation on September 30. Components 4.0, 4.1, and 4.2 of the Website 5.0 project are scheduled for implementation on October 31. Component 5.0 and Component 6.0 of the Website 5.0 project will not be implemented until early 2010, due to the Holiday systems moratorium. We simply won't implement any new projects during the busiest shopping season of the year."

Chip Cayman: "Outstanding. Pepper, have we overhauled the contact strategy yet?"

Pepper Morgan (Interim Chief Marketing Officer): "Kevin and I presented our strategy last week, we'll be implementing the new strategy in January."

Chip Cayman: "Good! Candi, how is the new 'Gliebers Listens' social media initiative going?"

Candi Layton: "We're really picking up steam. Listen to the metrics, folks! Our Twitter presence now has 1,294 followers ..."

Roger Morgan: "That's amazing!"

Chip Cayman: "One at a time, folks. Go ahead, Candi, continue."

Candi Layton: "We have 1,294 followers. Catch this. We put up a tweet last Monday. We said 'Glenn Glieber believes in treating customers like family. And this week, you, our family, are eligible for a 20% discount on one item only!" That comment was re-tweeted 86 times! Re-tweets garnered us another 447 followers."

Meredith Thompson: "Did anybody purchase anything because of our Twitter presence?"

Candi Layton: "Oh, that's not what 'Gliebers Listens' is all about. We're here to participate in the conversation, to listen to what is happening, to treat the customer with the respect she deserves. The sales will happen later."

Meredith Thompson: "How do you know the sales will happen later?"

Candi Layton: "Because we're building actual relationships with customers, Meredith. Let me give you an example. @jessica_partygoddess tweeted last week. She said 'A seam ripped on my new dress from Gliebers. Pure rubbish. Don't buy from Gliebers.' Well, I tweeted her, I said 'I am so sorry to hear that. I will refund your order, send a new dress, and enter you in our loyalty program for free.' We eventually connected, I refunded her order, Roger sent her a new dress, and Lois made sure she was enrolled in our loyalty program. That's what 'Gliebers Listens' is all about, Meredith. What's also important, Meredith, is that we get to the bottom of quality issues with our merchandise."

Meredith Thompson: "Quality issues? We don't have any quality issues."

Candi Layton: "Of course we have a quality issue. @jessica_partygoddess said we have a quality issue. She told every one of her 92 followers about problems with the quality of our dresses."

Meredith Thompson: "How do you really know she had a quality issue. Did you ask to have the dress sent back to us so that we could inspect it?"

Candi Layton: "Well, no. I thought that would make for a bad customer experience."

Meredith Thompson: "Let's do that next time, so that I can inspect the dress."

Pepper Morgan: "And why was she auto-enrolled in our loyalty program?"

Candi Layton: "Because I thought that would make for a good customer experience."

Lois Gladstone: "So let's better understand this. We hear a customer complain about a quality issue. We send her a free dress, and we offer her free shipping for the next twelve months. This customer will have to purchase five incremental dresses in the next year, just to cover the cost of this 'Gliebers Listens' interaction."

Chip Cayman: "Lois, that's not at all what Gliebers Listens is all about. You only chose to focus on what we're giving away."

Candi Layton: "We should really focus on the quality issue."

Meredith Thompson: "Let's get more than one customer criticism, let's compile the evidence that there is a quality issue, and then yes, I'll be happy to focus on quality. Do we have a database that sums all of the sentiments on Twitter, so that we can truly discern if there is a pattern around comments related to quality?"

Roger Morgan: "Kevin, is there any way we can better utilize Candi's information"?

Kevin: "Absolutely. Companies are actively creating social media databases. In other words, they record every interaction that happens in Twitter or in the blogosphere. They record the twitter user who says something, they record the sentiment, be it positive or negative. If the Twitter user is an existing customer, they create a link from the social media database to the customer database. This allows the company to mine the relationships to understand the relationship between Twitter activity and customer loyalty."

Roger Morgan: "Wow. We could do that!"

Pepper Morgan: "You could use that information to better mail catalogs or deliver e-mail campaigns, correct?"

Kevin: "Certainly. You can also understand if you change the perception of a person on Twitter. If a person was saying negative things, and then Candi's actions cause the person to say positive things, you can use the social media database to understand how the people who interact with the Twitter user act, going forward. You can use the social media database to actually measure if Candi's activities are resulting in sales improvements. Fortunately, almost nobody is doing this level of database integration today, so you have a real opportunity to get a head start using Twitter from a database marketing perspective. The social media database is a part of the Twitter story that is fundamentally missing when folks talk about having a 'conversation'."

Roger Morgan: "Let's get that on the book of work!"

Kevin: "And it doesn't have to take up a lot of resources, Roger. Have a half-dozen folks in your contact center work with Candi to tabulate this information. Have your IT team integrate their tabulations into a social media database. Then have Boris Feldman (Bow Tie Guy) analyze it."

Chip Cayman: "Ok folks, that's enough for one day. Good meeting!! Now on to the next topic on the agenda. Next Tuesday at 9:00am, in the Hoodie Dress conference room, we'll invite all employees to watch my new video, 'How To Cultivate Deep Customer Relationships 140 Characters At A Time'. This video is designed to teach all employees how to use the free micro-blogging tools that are revolutionizing global micro-communications. There's no reason every Gliebers Dresses employee should not be using these tools to build customer relationships. This is modern CRM folks!"

Roger Morgan: "Which conference room is the Hoodie Dress conference room again?"

A Multichannel Marketing Rally?

This article makes the case that multichannel marketing, cross-channel marketing, bricks & clicks, whatever you want to call it, is one of the secrets to sales growth.

It's an interesting argument, supported by metrics.

There are other metrics to look at.

Back on March 16, 2007, I selected two groups of stocks ... one set of stock represented online and online/catalog brands, while one set of stocks represented "multichannel" brands, brands with a retail channel to support the online/catalog brands.

Online Brands: Amazon, Blue Nile, CDW, Dell, Drugstore.com, eBay, Overstock.com, PC Connection.

Retail Brands: Best Buy, Cabelas, Circuit City, Coldwater Creek, Eddie Bauer, J. Crew, J.C. Penney, Nordstrom, Office Depot, Office Max, Talbots, Williams Sonoma.

I compared the price of the stocks, on March 16, 2007, and today, July 27, 2009.


Online/Catalog Brands: The average value of these stocks decreased by 17% during the last 28 months.

Retail Brands: The average value of these stocks decreased by 65% during the last 28 months. Excluding two bankruptcies (Circuit City & Eddie Bauer), the average value of these stocks decreased by 58% during the last 28 months.


There are many ways to slice and dice data. In many cases, sales are aggregating among larger companies. This doesn't mean this is the best way for a business to be more profitable. Run your multichannel forensics analytics carefully, so that you thoroughly understand how your customers interact with channels. The right answer lies in your own customer data, not in the analysis of stocks, or in the analysis of aggregate sales totals.

Conversion Rates Across Time

Customers. They mess up all of our conversion rate metrics, don't they?

Two weeks ago, I visited Zappos on a Monday night. I copied thumbnails of twelve pair of shoes that I liked, pasted the thumbnails into an e-mail, and sent the e-mail to my wife.

The next morning, my wife reviewed the thumbnails, and gave her thumbs up to one pair of shoes.

On Wednesday, I purchased the pair of shoes that my wife liked.

From a customer standpoint (i.e. from my standpoint), this process was a complete success.

From a metrics standpoint, this could be considered a flawed process. We have two visits with just one conversion. Your software tool might consider this to be a unique visitor with 100% conversion. Your software tool might consider this to be two visits yielding a 50% conversion rate.

From a Multichannel Forensics standpoint, we try to take some of the mystery out of conversion rate. Instead of looking specifically at the mystery of conversion rate, we look at how a customer with specific attributes behaves in the future.

Let's look at a very simple example. We take all visitors from the month of May, and categorize them into one of several segments, based on the depth of website activity during May:

• Homepage or Landing Page Visit Only.
• Multiple Pages Visited.
• Shopping Cart Abandoned.
• Purchaser.

Clearly, this segmentation strategy can be expanded upon (source = PPC or e-mail ... or looking at visitors from April or March, or looking at new buyers vs. multi-buyers, you get the picture).

The next step is to create a "grid". For all customers who visited the site in the month of May, we categorize them based on behavior during the month of June:

• No Subsequent Visit.
• Homepage or Landing Page Visit Only.
• Multiple Pages Visited.
• Shopping Cart Abandoned.
• Purchaser.

Our job is to populate the grid, categorizing customers based on May behavior and June behavior. The grid looks something like this:

		Home or		Shop
	No	Landing	Multi-	Cart	Pur-
	Visit	Page	Pages	Abandon	chaser!!!
Homepage/Landing Page	78.2%	10.3%	5.2%	4.3%	2.0%
Multiple Pages	49.6%	12.5%	22.4%	7.3%	8.2%
Shopping Cart Abandoned	32.3%	15.7%	24.4%	13.7%	13.9%
Purchaser	25.8%	20.4%	29.4%	9.3%	15.1%

This table is pretty simplistic, but it gives us a lot of "business intelligence", if you will.

For instance, take a look at the "No Visit" column. The converse of this column is the "Re-Visit Rate". The table suggests that 21.8% of homepage/landing page visitors re-visited.

Now look at the Shopping Cart Abandoned customer. The "Re-Visit Rate" for these customers is 67.7%. That's important. If you know that customers who abandon a shopping cart are unlikely to come back to your website, then shopping cart abandonment is a REALLY bad thing. If you know that two-thirds of the visitors will come back over the course of the next thirty days, well, you think about abandonment with a little bit less fear.

In my Multichannel Forensics projects with online marketers, the important word is always "context". In the table above, the customer who drills down into the site and then leaves is not necessarily considered a failure. More than half of the visitors in that segment come back to the website next month, with 8% converting. The data suggest an element of "engagement" that may not be easily conveyed by a 3% conversion rate or a 47% shopping cart abandonment rate.

Context is derived by knowing the state of a customer in pre/post timeframes. When we step outside of measuring campaigns, focusing instead on measuring customer behavior across time, we obtain a different level of customer understanding.

Gliebers Dresses: Contact Strategy

Welcome to the Gliebers Dresses Executive meeting!

Glenn Glieber (Owner): "... and overall, I'm very happy with the new names we've assigned to the conference rooms. I always hated '1A' and '1B', I mean, who wants to go to a meeting in '1G"? Maybe that's why people haven't been attending meetings lately? Anyway, the three main conference rooms will now be named Sundress, Hoodie Dress, and Dinner Dress. Roger, please make sure that Microsoft Outlook maps 1A, 1B, and 1G to the new names, ok?"

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

Kevin: "Yup, it's me".

Pepper Morgan (Interim Chief Marketing Officer): "I'm really glad that Kevin is here today. We've been working together on the Spring 2010 catalog contact strategy, and we've got some dramatic changes to share with you."

Roger Morgan (Operations & IT): "Oh, contact strategy management is a really important part of a vibrant multichannel marketing strategy. I read in a recent Woodside Research White Paper (WRWP) that there are something like six easy steps to a perfect contact strategy ... target customer, advertising channel, merchandising strategy, creative strategy, investment strategy, and contact frequency. Get those things right, and you maximize return on investment. At least that's what the white paper suggested."

Pepper Morgan: "Correct. For the past fifteen years, Gliebers Dresses employed what is called a 'remail' strategy."

Candi Layton (Chief Customer Officer & HR): "What is a remail strategy?"

Pepper Morgan: "A remail strategy means that you create a catalog, send it to the customer, then you create a new front cover and back cover and send the newer version to the customer two more times. This allows you to save a lot of money."

Candi Layton: "Are you serious? We mail the same customer the same catalog three consecutive times? This has to create a terrible customer experience. Why would the customer want to receive the same catalog three times? That's stupid."

Meredith Thompson: "Candi, this is an established catalog marketing best practice. Most companies that want to save money employ some type of remail strategy. Don't you want to save money? Even more important, I get an early read on merchandise, and can react accordingly, so that inventory is well managed for the second and third releases of the same catalog."

Lois Gladstone (Chief Financial Officer): "I think it is really important to minimize expense, with the cost of paper always going up and that awful postage increase in 2007."

Candi Layton: "It's still a terrible customer experience. It's absolutely boring."

Pepper Morgan: "Well, folks, all of that is about to change. Kevin, what did Multichannel Forensics teach us about page counts."

Kevin: "First, each time you send a remail to a customer, the remailed catalog is 30% less productive. Say you send three 124 page catalogs to a customer, one catalog and two remails.

• The first catalog generates $3.00 per customer.
• The second catalog generates $2.10 per customer.
• The third catalog generates $1.45 per customer.
• Total for the three catalogs = $6.55 per customer.

Candi Layton: "That's what I'm talking about, it's a terrible customer experience. By the time you get to the third catalog, the customer is bored to death."

Kevin: "So we can do something different. Let's assume that over the course of six catalogs, the remail strategy would generate $13.10. Instead of six 124 page catalogs, with four of the catalogs being remailed, we'll try a new strategy."

Pepper Morgan: "Here's the new strategy. We will do three new catalogs, with about 124 pages each. We'll do three small catalogs, maybe 64 pages each. The small catalogs will basically pick up existing creative, with new pagination in each catalog. We'll only pick the very best merchandise in the 64 page catalogs, so that the smaller catalogs will perform better. We'll alternate ... big catalog, small catalog, big catalog, small catalog."

Kevin: "And because the smaller catalogs with best product perform better, we can mail a lot deeper, we can mail to a lot of prospects. Now on a comp customer basis, with the current strategy, we'd generate $3.00, then $2.10, then $1.45, then $3.00, then $2.10, then $1.45, for a total of $13.10 over six catalogs."

Pepper Morgan: "But with the new strategy, we'll generate more demand. The first catalog of 124 pages will still generate $3.00. But then the smaller catalog, with best products, will generate $2.20. And then we mail another 124 page catalog, new creative, at $3.00. Then a smaller catalog at $2.20, a big catalog at $3.00, and a small catalog at $2.20. This six catalog series generates $15.60 ... a 19% increase over the old strategy!"

Kevin: "And here's the best part. You generate 19% more demand on 24% fewer pages."

Pepper Morgan: "But wait, there's more! The smaller page count catalogs perform so well, because of their reduced cost, that you can mail many more prospects and reactivation segments. This allows us to extend our reach, and acquire/reactivate more customers!"

Lois Gladstone: "Does it cost more to create all of these new catalogs?"

Pepper Morgan: "Not much. We don't have to shoot new images in the smaller catalogs, we just pick-up existing creative. Across a six catalog series, we only have to create one extra catalog, and I'm willing to have my team do the extra work. I project that we'll be able to save 10% in catalog advertising cost, per year, using this strategy, while generating 19% more demand.

Lois Gladstone: "Seriously?"

Pepper Morgan: "Kevin says other companies are doing this, and they are seeing this kind of result."

Kevin: "The strategy should generate an additional $2,000,000 to $3,000,000 of profit, per year."

Lois Gladstone: "Seriously?"

Pepper Morgan: "Seriously!!!!"

Roger Morgan: "Why didn't Sarah Wheldon ever suggest doing something like this?"

Meredith Thompson: "I think Sarah knows, from all of her experience, no offense Kevin, that there's a lot of risk in doing this. We've never done something like this, so how could we ever know that this will work? Your list rental and co-op partners advocate the remail best practice strategy for a reason! And my team will have no idea how to forecast demand for these smaller catalogs. I'd like to have a lot of say in what goes into the smaller catalogs, after all, it is my merchandise. I'm not sold on it, yet. There's a reason we've always done the same thing, year after year --- it works. I just don't know about diving in head first on a strategy based off of some spreadsheet simulation, I'd rather work with reliable metrics and a reliable history of results. This would change everything, and if it doesn't work, we'll just go right back to what we used to do, and then we lose a year of valid metrics and profit. Risky, folks, risky."

Roger Morgan: "Well I'm sold!"

Candi Layton: "I think this makes for a better customer experience."

Lois Gladstone: "Obviously, I'm sold."

Meredith Thompson: "Folks, this is just so risky. We're only exposing my new products to best customers. How will potential new customers ever know about our new products?"

Pepper Morgan: "We make all of the profit off of this concept. New products are risky, and they don't perform well. So why should we lose so much money introducing low productivity products to low productivity customers. Bad times Bad = Really Bad! Instead, why not introduce new products to our best customers, and let new customers subsidize the advertising expense? Finally, if the new customer wants to explore new products, they can do so online --- we're not saying that the customer can't buy new products. And if it makes you happy, Meredith, we can create spreads in the smaller catalogs that encourage the customer to view new products online on special landing pages."

Glenn Glieber: "This is one of those times when I think we have to take a risk. Let's try the strategy for Spring 2010, and if it doesn't work in Q1-2010, we can go back to the current strategy for Fall 2010. See, folks, this is what I'm talking about ... this is one of those 2% solutions that actually gets us several million dollars in profit. Just reach down and pick up the money!! Great job, Pepper, great job! Now, on to the next topic. Tomorrow, in the Hoodie Dress conference room ..."

Roger Morgan: "Which conference room is that?"

Lois Gladstone: "1A".

Meredith Thompson: "I thought it was 1G?"

Candi Layton: "No, it is 1B."

Multichannel Forensics And Online Marketing

During the dog days of summer, we're going to explore some of the unique challenges that online marketers face when measuring business performance.

One of the biggest challenges online marketers face is conflicting metrics. For instance, this article suggests that Starbucks and Dell greatly benefit from their social media efforts. That sounds good, of course, until you realize that Starbucks is struggling mightily, suffering from a 75% drop in profit in the first half of the most recent fiscal year. In the case of Dell, they are about to be passed for second place in computer market share by Acer.

So did Social Media help these companies stem what would have been even bigger declines? Or do the metrics in the article fail to measure reality? It's hard to know the truth, we cannot easily separate out the positives and negatives.

In online marketing, we constantly face these challenges. We work really hard to improve conversion rates, we'll make ten or fifteen improvements, only to learn that we have metrics to prove that the improvements made a difference --- but actual annual sales and profit did not increase.

For the remainder of the summer, we're going to couple our Gliebers Dresses story with a series on Multichannel Forensics and Online Marketing. In some ways, we'll explore how the concepts in the book Moneyball apply to online marketing --- we'll talk about how our metrics and KPIs and dashboards give us information that isn't always aligned with the business results we're seeing. We'll talk about how we might use tools like Multichannel Forensics to give us insight into what is actually happening.

Gliebers Dresses: Which Number Is Right?

Welcome to the Gliebers Dresses Executive meeting.

Glen Glieber (Owner): "... but these kids don't know the difference between an SCF and a KPI, instead, they're all about PPC! They're simply not aware of the fundamentals anymore. Meredith, you remember Stu Bletsky, don't you? Oh, he was a trail-blazer. He was one of the first ones to make the "two for" strategy work ... you know, you have a dress for $59, and he'd offer you two for $99. Or what about Art Popper and Mildred Rosen, and the things they did to advance catalog pagination? They studied every single spread in a catalog, trying to find the right combination of presentation and copy. Those folks, they really knew their stuff. Oh, the good times we all had."

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

Kevin: "Yup, it's me!"

Meredith Thompson: "Ok, Kevin, we've got a few questions for you today, and we're glad you here to help, now that Sarah Wheldon is telling all of our trade secrets to Anna Carter."

Pepper Morgan (Interim Chief Merchandising Officer): "Here we go. Kevin, what reporting should I be looking at, to understand business performance?"

Kevin: "What do you mean?"

Roger Morgan (Chief Operations Officer): "Let's just look at online demand for the month of June. In our order entry system, that's the system I use, it says we generated $4,000,000 of online demand online during the month of June."

Pepper Morgan: "But in the customer database, it says we generated $3,725,000 demand in the online channel during the month of June."

Meredith Thompson: "That's because the customer database subtracts canceled orders. My merchandising system says the online demand total for June is $4,125,000. Our number is probably right because we included canceled orders for demand forecasting purposes, and we include employee orders, whereas the order entry system doesn't include employee orders."

Pepper Morgan: "But if you are analyzing true customer performance, you want to exclude employee orders, right?"

Candi Layton (Chief Customer Officer): "No, you need to keep employee orders in the database, because eventually people like Sarah Wheldon aren't employees, and then you need to analyze former employees just like they were customers."

Meredith Thompson: "Well, I need to forecast employee orders, because I have to have enough inventory for them. And then employee orders screw up my gross margin numbers, because if too many employees order merchandise at a discount, then my gross margin numbers are lower."

Lois Gladstone (Chief Financial Officer): "Our systems report a different gross margin number than do the merchandising systems, because we like to plug all marketing discounts into the cost of goods sold. We usually don't do discounts unless we're having a problem selling the merchandise, so the discounts are truly part of the gross margin metric. And we don't care about demand in finance, we really only care about net sales."

Meredith Thompson: "My merchandising systems care about demand, because we have to forecast the right number of units sold, then we have to forecast returns too. We have to have both metrics to do our job right."

Pepper Morgan: "And in Marketing, Sarah always had marketing discounts as a line item in her profit and loss statement, so that she could see the impact of the discounts as a percentage of advertising expense."

Roger Morgan: "When we offer discounts and promotions in the call center, like if a customer is really mad at us and we want to give her free shipping, we just pick up one of the old marketing promotions and use that code. Sure, that taints the reporting marketing looks at, but it does make the customer happy."

Candi Layton: "It is important to keep the customer happy, so I support that."

Pepper Morgan: "Then how do I truly know if my marketing promotions are working, or if operations is artificially inflating the total?"

Lois Gladstone: "Can't we just buy one of those off-the-shelf ERP or CRM or BI or MRM or SAP systems, and then the system will just know how to categorize everything for us? I'd really like to see every employee using the same point-and-click system to get the same metrics, you know, have everybody speaking off of the same page?"

Roger Morgan: "Oh, that's a really big project. I think we'd have to put that one on the book of work and prioritize it against all of the other initiatives. And it is expensive, too. We're really in a situation here where we are simply filling potholes. Let's look at the big picture, folks. When we're profitable, then we can think about tacking a project of this scale."

Pepper Morgan: "We also have our web analytics tool. That tool tells us that we generated $3,200,000 online during the month of June, why is that number so different?"

Roger Morgan: "We know why that number is different. The web analytics tool only captures about 80% of the sales transactions. It's a level of error that our web analytics vendor says we can feel comfortable using."

Lois Gladstone: "So does that mean that our conversion rate is truly 8%, or is it better because we're missing 20% of the transactions? Is our conversion rate actually 9% or 10%? And how about all of the other metrics that Bow Tie Guy quotes from our website, can we trust any of them if 20% of the purchase transactions are missing? Is our shopping cart abandonment metric truly bad, or is it just fine? Do customers truly drill deep into the site, or do they only look at the home page? How does this impact all of the other metrics?"

Roger Morgan: "Our web analytics vendor suggests that we should triangulate our metrics. In other words, if the web analytics tool says we generated $3.2 million and our order entry system says $4.0 million and our customer database says $3.7 million and our merchandising systems say $4.1 million, we're supposed to kind of focus on $3.7 million as an average, and then adjust all of the other systems accordingly. It's not that hard, really. And then don't get me started on cookie death. We're always losing data in the web analytics system because cookies disappear or computers are thrown out of windows or users delete their cookies or whatever the reason is. So we're constantly assigning new cookies, and that really mucks up our new customer vs. existing customer online reporting. But our vendor tells us that everybody else deals with this issue, so we can trust the numbers as being as accurate as they can be, given the current state of technology."

Meredith Thompson: "You also have the concept of demand, you know, being different online vs. on the telephone. If an item isn't available in the catalog, we record it as demand in the telephone channel. Online, we pull the item off the site if it isn't available, and as a result, we don't record that the customer ever wanted to buy the item. As the mix of demand shifted over the past decade to the online channel, this has really helped us achieve a much better final fulfillment rate, and ultimately, better bonuses for my employees!"

Pepper Morgan: "Kevin?"

Kevin: "My personal belief is that you have different metrics for different reasons. However, I believe that there should be one set of metrics that are communicated to every employee in the company. Those metrics are shared between the finance department and the marketing department. Demand, initial fulfillment, final fulfillment, returns, gross margin, promotional discounts, orders, advertising expense, all of those metrics are basically owned by finance. Marketing is responsible for communicating customer metrics like repurchase rates, orders per customer, items per order, discount dollars per customer, average order value. Marketing and Finance work together to make sure that metrics tie out. Operations/IT is responsible for implementing all systems related improvements to make sure that Marketing and Finance are in sync."

Roger Morgan: "Do you really believe that Finance owns metrics? That seems like something that I should own."

Kevin: "I like to see metrics development as a collaboration between marketing and finance, because finance is responsible for publicly publishing profit and loss information. Almost nobody ever questions the metrics in the profit and loss statement. And the profit and loss statement is influenced by marketing, so there has to be collaboration between the two parties. Information Technology needs to support the two systems, and assist in selection and implementation of the appropriate software tools and dashboard platforms. Marketing leads the implementation, because marketing owns the customer, and most of the data at the core of the company is customer related. Information Technology owns the data schemas necessary to link merchandising, finance, marketing, web analytics, and operations. Information Technology never forces metrics upon employees. Marketing is responsible for determining the customer metrics that are communicated to all employees."

Roger Morgan: "Oh, I don't agree with that at all. My information technology team can come up with some really innovative metrics. I think marketing should just execute promotions and send catalogs and e-mails to customers. I'd rather see the people who know the data the best, the information technology folks, spend time analyzing the data and sharing what the metrics say."

Pepper Morgan: "Bow Tie Guy is responsible for all of the customer reporting. Are you suggesting that your team is better equipped than he is at analyzing and communicating customer metrics to the company?"

Roger Morgan: "Absolutely. I'm sure he's good, don't get me wrong. But he's not a trained information technology leader. My employees are in a different pay grade for a reason, they're more talented and their skills are more in-demand than the typical marketing geek. It's simple economics, really. And honestly, when people have ad-hoc requests, they come to me, and my team runs the ad-hoc customer queries for them. Just last week, I ran a query for finance, and told them that the average customer has 1.7 purchases over the past five years in the customer database."

Pepper Morgan: "You mean those requests don't go on the book of work? And what the heck are you doing? Kevin told us that the average twelve-month buyer purchases about twice a year. So what is the context around 1.7 purchases?"

Roger Morgan: "Oh, well, we didn't look at just the last twelve months. We wanted to give finance a 'holistic' view of the customer, using data for the past five years. I don't think twelve months is the right timeframe to analyze customer behavior."

Candi Layton: "Seems to me that you'd want to look at at least two years of data, so that you could get a little trending, but you wouldn't want five years, because our business really changed over the past five years."

Lois Gladstone: "I like three years of data, that causes us to look at data at the peak of the housing bubble through now, rock bottom. That makes for a good representation of history, in my opinion."

Kevin: "Well, you've articulated the issues, and you've gotten a lot of points of view out on the table. It is my opinion that Finance own all metrics related to the profit and loss statement, while Marketing owns all customer related metrics and advertising related metrics. It is the job of Information Technology to implement the wishes of Finance and Marketing. It is the job of everybody else to trust those accountable for the three areas I outlined. Nobody tells finance how to calculate profit. Nobody tells information technology folks what software tools they should use. Similarly, other departments could better support marketing when marketing reports on customer behavior."

Glenn Glieber: "Another stimulating discussion, folks. It's all part of being a matrixed organization with shared accountability. Matrixed organizations are what multichannel brands are all about --- no silos here! Now, on to the next topic on the agenda. Penny Crandall down in inventory management wants to see us implement a series of landing pages that better support sales of the merchandise she is responsible for."

Pepper Morgan: "That's probably something I can work with her on."

Meredith Thompson: "Shouldn't merchandising have input on this issue?"

Roger Morgan: "Well, I'm responsible for the website, so maybe we're better off having my team work with Penny on that topic."

Alan Rimm-Kaufman

Today, we learned of the passing of Alan Rimm-Kaufman, founder of the Rimm-Kaufman Group.

I only met Alan once, at the 2007 Spring NEMOA conference. We sat together on a two hour panel discussion, sharing our thoughts on the future of catalog marketing. Alan was kind enough to leave positive comments about the things I said during the panel discussion. This pattern of kindness continued, as Alan recommended my books to his audience, and interviewed me about a fledgling methodology called Multichannel Forensics.

If I had questions about search marketing, Alan freely answered them. He genuinely wanted others to succeed.

The last e-mail I received from Alan was on May 17. Here is the text of his e-mail message to me.

• Hi Kevin -- Saw you quoted int he cart abandonment article in this morn's Sunday NYT -- nice ink! Congrats -- Alan.

I looked through my e-mails from that week. Alan was one of a very, very small number of industry members to send me a positive e-mail comment, amid numerous negative messages and internet criticisms. Maybe he disagreed with my point of view, maybe he agreed, it didn't matter. He chose to focus on something positive.

Clients hired me because Alan represented my work in a positive light. When you are starting a business from scratch, this type of help is dearly appreciated.

If you have memories of Alan, or wish to leave the employees of his company positive thoughts, please visit this blog post on the Rimm-Kaufman blog. Our industry lost a genuine leader, one who was willing to help anybody who asked. I'm appreciative for the kind words, printed or spoken, over the past few years.

Proven And Influenced Advertising Channels

There are two types of advertising channels in the Multichannel Forensics framework.

1. Proven Channels
2. Influenced Channels

The proven channel is what we enjoyed back in the 1980s and early 1990s. We mailed a catalog. Then the customer ordered from us, and was kind enough to provide us with a key code, allowing us to track with accuracy the proven channel that drove the order.

Oh, those were heady times.

These days, everybody is obsessed with fractionally allocating orders based on the advertising channels that they perceive to be driving orders. First touch? Last touch? Allocation across touches.

Of course, all of the allocation rules are bogus. We don't really know, do we? Especially if we don't do mail/holdout groups, and you really cannot do mail/holdout groups for paid search (though you can do some innovative spend/no-spend strategies).

So why the obsession with first touch, last touch, and fractional allocation? The end result is clouded with fiction, anyway.

There's another way to approach this challenge. Instead of investing all of our efforts on the art of allocation, why not categorize orders based on proven and influenced sources, then track how customers evolve over time --- allowing us to reduce catalog or e-mail marketing expense in the future?

Let's say that you have three advertising channels that resulted in an order:

1. Catalog received on June 1.
2. E-Mail received on June 3.
3. Order on June 5, using Pay-Per-Click.

One could label pay-per-click as the "proven" source. One could also label catalog and e-mail marketing as "influenced" sources --- in theory, these advertising channels influenced the order.

Here's the marketing analytics secret for you --- shhhhhh, don't tell anybody!

• When catalogs and/or e-mails move from "proven" to "influenced" advertising sources, you don't have to send as many of these to the customers using them as "influenced sources" in the future --- once customers move away from these advertising channels as their primary reason for purchasing, they become less likely to use them in the future.
  

Fractional allocation or first touch or last touch cannot provide you with this marketing analytics secret --- all of these forms of allocation just allow you to make guesses about what happened in the past. We need to know how to market to individual customers in the future.

This is where Multichannel Forensics, and micro-channels in particular, make a big difference.

Gliebers Dresses: List Rental and Sarah Wheldon

Welcome to another Executive meeting at Gliebers Dresses (please click on the image to enlarge it):

Glenn Glieber (Owner): "... so I never, EVER, expected this. Anna Carter sent out a press release this morning, announcing that Sarah Wheldon, our very own Sarah Wheldon, has been hired as a Sr. Vice President of Consumer Insights. That's bad enough. But get this, folks. The press release says that Ms. Wheldon is immediately cutting off list rental and list exchange activities with all major competitors. This means that we no longer have unfettered access to the Anna Carter buyer file. As the kids say, 'OMG'."

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

Kevin: "Yup, it's me!"

Meredith Thompson: "Kevin, have you run the scenario I asked you to run for us this morning?"

Kevin: "Yes, I ran it. You have the slide in front of you. Basically, Anna Carter is saying that you can no longer rent or exchange lists with them. At this time, 13% of the new customers you acquire are from the Anna Carter customer file."

Roger Morgan (Operations): "You must be kidding. Are you telling me that without access to the Anna Carter customer file, we will lose 13% of our new customers?"

Kevin: "Unless you find a new source of names to replace those you'll lose, then yes, that's what I am saying."

Candi Layton (Chief Customer Officer): "Kevin, are you saying that we rent and exchange names with other companies?"

Pepper Morgan (Interim Chief Marketing Officer): "Yes Candi, renting and exchanging names with your biggest competitors is an established best practice in the catalog industry."

Candi Layton: "How long have we been doing this?"

Meredith Thompson: "About forty years."

Candi Layton: "Forty years? Are we nuts? How many customers absolutely hate us for doing this? This is a terrible customer experience. A customer trusts us, she buys from us, and the minute the transaction is complete, we rent her name to another company --- worse, we rent her name to our biggest competitor? Think of all the trees we cut down, for no good reason. Do we pay the customer royalties each time we rent her name?"

Meredith Thompson: "Absolutely not. But we do make about $250,000 a year in sheer profit by renting our customer base to competitors. Right now, that income is the difference between us being profitable and having to lay off another five employees."

Kevin: "Ok, here's what the slide says. If we are not able to gain access to new names that perform as well as the Anna Carter list, then the customer file will begin to decay. Over the course of the next five years, Gliebers Dresses will lose $2.5 million in profit because there won't be enough new customers to fuel the growth of the business. In five years, the business will be at $56 million instead of $64 million. That's what the data in the slide tells us."

Pepper Morgan: "Wow. I love Multichannel Forensics! But I hate what it tells us."

Roger Morgan: "She's downright vengeful, that Sarah Wheldon. How can she do this to us? Didn't we offer her a generous severance package when she retired?"

Candi Layton: "Absolutely. But she elected to not sign the document. She turned down a boatload of money to stay retired for a year. Had she taken the money, she couldn't work for any competitor for one year."

Roger Morgan: "She's basically their Chief Marketing Officer now. Maybe that's not so bad. A recent Neptune Research report said that the average tenure of a Chief Marketing Officer is only 23 months, so she won't be there all that long."

Pepper Morgan: "HEY!"

Roger Morgan: "I'm just saying that's the average. The average CMO at Gliebers Dresses lasts longer."

Meredith Thompson: "You know, we're going to have to be nimble, here. This is something like five percent of our circulation that just disappeared for the Fall. Can't we just go to our favorite co-op, ResponseShop, and just ask for replacement names?"

Kevin: "You could do that, though the names probably won't perform all that well. That being said, there aren't a lot of short-term options available. However, there will be names that come out of the merge that you'll get through the co-op that are on the Anna Carter mailing list, so you'll get some of the sales back that way."

Candi Layton: "Can you explain what a co-op is?"

Meredith Thompson: "A co-op is a company that we send the name and address of all of the customers who recently purchased from our business. The co-op compiles this information from numerous competitors, creates a bunch of equations and algorithms that rank-order potential customers from best to worst, and then sells the best customers to all of us. We get to mail names that haven't purchased from us for something like $0.04 or $0.05 or $0.06 per name --- the rates vary based on the size of each business, and the ability of somebody in the legal or marketing department to negotiate the best possible rates. We get one time use of the name."

Candi Layton: "Does the co-op pay a royalty to the customer, since the co-op is making all of this money off of the customer?"

Meredith Thompson: "Oh heavens, no, Candi."

Candi Layton: "Does the co-op pay a royalty back to us, like in list rental?"

Meredith Thompson: "No".

Candi Layton: "So let me get this straight. We rent out our list to competitors, and we get a royalty. We also get access to their buyers, so that we can grow our business. And then we willingly provide name and address to this thing called a co-op. They basically re-shuffle the deck, pull out all of the black cards, and then re-sell us the good red cards, the face cards that we don't already have, if you will. We don't get a royalty, and the customer isn't paid a royalty, but the co-op gets paid over and over and over and over and over and over again for the same name and address. That's the business practice we've been engaging in for the last forty years?"

Meredith Thompson: "Yup. Well, we've only participated in the co-ops for the past thirteen years."

Candi Layton: "How does the customer benefit from all of these shenanigans?"

Meredith Thompson: "I don't think of these as being shenanigans, I think they are best practices."

Lois Gladstone (Chief Financial Officer): "I don't think the customer benefits at all. Everybody seems to be profiting from the customer --- especially these co-ops, but the customer just ends up with a mailbox full of catalogs from Anna Carter that she never asked for. This is why we need to focus on customer loyalty and get out of this expensive customer acquisition stuff."

Candi Layton: "I'm thinking we should put a six month moratorium on all list rental and co-op activities, until we can think of a better way to protect our customer."

Meredith Thompson: "Have we collectively lost our minds?"

Roger Morgan: "Didn't Chip Cayman say that social media is a great way to get new customers for free?"

Glenn Glieber: "I love free marketing!"

Kevin: "Ok folks, I've been listening to this conversation, and you're going down an interesting path. I just ran a quick scenario, assuming you discontinued all list rental and co-op mailings. If you choose to do that, your business begins to erode ... to $48 million this year, then $37 million next year, then $31 million, then $29 million, and finally $28 million. Worse, you'll lose a lot of long-term profit ... $8.7 million over the next five years. Essentially, you'll be out of business."

Candi Layton: "You mean if we stop abusing our customers and we stop abusing the customers who shop from competitors, we'll be out of business?"

Kevin: "The secret is to find new ways to acquire customers, new ways that do not, as you say, 'abuse' the customer. Until there is a strategy in place that allows you find new customers in a cost effective, 'opt-in' manner, you are tethered to the list rental and co-op business model."

Roger Morgan: "That Sarah Wheldon really stuck it to us, didn't she? Think about this. She tethers us to a horrible list rental and co-op practice that isn't customer friendly, then retires, then goes to our biggest competitor and cuts us off when she knows darn well that we have to have access to these names or we go out of business. She's been playing us all along, I think."

Meredith Thompson: "Impossible. We've worked with Sarah forever, decades in my case. She's angry at us, and Anna Carter took advantage of a golden opportunity to put a stake in the heart of a competitor."

Pepper Morgan: "It's so much worse than sticking it to us, Roger. Remember last night when we were talking over dinner about all of the Multichannel Forensics stuff we've learned over the past two months? Well that's all common knowledge now, because Sarah Wheldon is at Anna Carter, and she's going to share every single detail with those folks --- every single detail. She'll tell them the ins and outs of our loyalty program, she'll tell them about our five year sales forecast predicated on customer behavior across channels. She'll tell them that we retain 53% of our buyers. She'll share the results of every mail/holdout test that Bow Tie Guy executed. They're already thinking of shutting down the catalog, now they've got more data to support either side of their decision. And if they are going to shut down their catalog, they don't care about participating in list rental, they don't care about being in the co-ops."

Lois Gladstone: "That Sarah Wheldon really stuck it to us. We need to take legal action against her."

Candi Layton: "What would you have done if you were Sarah Wheldon?"

Lois Gladstone: "I would have taken the money and truly retired. I'd be sitting on the deck of a cabin in Northern Vermont drinking Jagermeister every night."

Candi Layton: "That money only lasts for a year or so, then what? You eventually need to go back to work. We all knew this day was coming, we just didn't expect it to happen two days after she officially retired from Gliebers Dresses."

Glenn Glieber: "It's time for us to move on, the past is the past. We survived Rebecca DeBarton and Chance Hawthorne. We'll survive Sarah Wheldon, too. Now let's go to the next topic on the agenda. We need to find $100,000 to fund Candi Layton's customer initiatives. Pepper, I'd like to see where in marketing you can cut the budget so that we can fund her customer initiatives. Please have a plan on my desk by 4:00pm today."

Gliebers Dresses: The Chief Customer Officer

Candi Layton unloaded boxes stuffed with items from her old office. Sarah Wheldon's office was emptied just a few hours ago. A security agency boxed her possessions, and via taxi, delivered them to her home.

Candi lit a candle. "I need for this office to smell like it is my office. Please, Kevin, sit down." Candi then placed a picture of "Peppers & Rogers", the famed customer gurus, up on her new office wall.

Candi Layton is a ten year veteran of Gliebers Dresses. She began her career as a Human Resources Jr. Associate in 1999, then a Human Resources Associate in 2000, then a Human Resources Sr. Associate in 2001, then a Human Resources Manager in 2003, then a Human Resources Sr. Manager in 2004. Her meteoric rise to leadership continued unfettered in 2006 as Ms. Layton was named Director of Human Resources, following the scandulous departures of Rebecca DeBarton and Chance Hawthorne. Mr. Glieber wanted to restore honesty, integrity, and ethics to the Human Resources department. Ms. Layton has yet to disappoint anybody.

Ms. Layton processed the paperwork that enabled Sarah Wheldon to become Chief Marketing Officer back in 2003. Yesterday, she processed the paperwork that enabled Sarah Wheldon to "retire" ahead of schedule. I quietly wondered who would sign the paperwork that would one day allow Candi Layton to retire ahead of schedule?

Candi is now the Human Resources Director and Chief Customer Officer, a new role, a role that I wanted to explore in more detail.

Kevin: "Describe what the Chief Customer Officer is responsible for, given your understanding of the role?"

Candi Layton (speaking rapidly, always): "Oh I'm so excited! For the past ten years, it has been my job to advocate on behalf of the employee. What a treat, I mean, my team and I are the reason we have a new and cheaper dental plan. Everytime an employee smiles, I literally see the fruits of my labor! Now I am going to take my passion for the employee and translate it into an unprecedented advocation of the customer."

Kevin: "So can you describe what the Chief Customer Officer is responsible for?"

Candi Layton: "See, if we want to increase customer loyalty, and I think we all believe that customer loyalty is the key to the profit vault, then we need to be closer to the customer. And we simply cannot be closer to the customer by asking her multiple choice questions via pop-up menus after she abandons yet another shopping cart. No. We have to listen, and we're going to use social media to listen. I'm going to be everywhere. Twitter, Facebook, you name it, I'm going to be listening to what users are saying about dresses. And when a customer has a bad experience with us, I'm going to solve it. When a customer has a bad experience with a competing brand, I'm going to solve it."

Kevin: "Do you have a budget? In other words, if a customer had a problem with a dress, do you have the authority to overnight the customer a free dress?"

Candi Layton: "You know, that's a really good question!"

Kevin: "Give me an example of a problem you've already solved?"

Candi Layton: "We set up a new Twitter presence this morning, '@GlieberDressesListens'. Then I read this message from @Lucy394ever. She received her package from UPS, and the delivery guy left it on her driveway, and then this big thunderstorm hit and thoroughly saturated the package. Well, she refused to even open the package, and grumbled about the poor customer service she received from Gliebers Dresses. Then @bettyhatesbrands wrote about the issue on her Twitter page. That's where I had to nip this in the bud, before it went viral. I went into the order entry system, identified the merchandise she purchased, overnighted her a new dress, and in the process, I hope I surprised and delighted @Lucy394ever. I also hope I stopped the venemous pap being spewed by @bettyhatesbrands, too."

Kevin: "How will you measure the success of your efforts? In other words, how will you know if the work you do on behalf of the customer results in increased sales and profit?"

Candi Layton: "That's a good question! Do you think you can measure that for us?"

Kevin: "Of course. Most important is that we need to begin to capture data in the customer database. Any customer who comes to Gleibers Dresses from a social media site should be recorded in the database, so we can mine the information. Also, we need to create a new database. We need to record every single Blogger or Twitter user who ever mentions Gliebers Dresses. In this database, we capture everything we know about this individual --- job title, geography, followers, # following, # of comments, that kind of thing. We want to closely follow who is talking about Gliebers Dresses. We need to track their links, we need to identify all of the folks who listen to them. All of this information goes in a database, and is correlated with subsequent sales trends. If a customer has a good experience because you helped them out, we record it in this new database. We look at the individuals following the person who had a good outcome, and identify if they talked in a positive or negative way. We record all positives, we record all negatives. The new "social media database" becomes your biggest tool for understanding how your efforts result in positive outcomes or negative outcomes. This data needs to be reported to your management team on a period basis. Yes, I'll help with this!"

Candi Layton: "Groovy!"

Kevin: "How will you work with the other members of the Executive team?"

Candi Layton: "Oh, that will be so much fun! I really hope to be able to shape the direction of the brand, based on customer feedback. Let's say that a customer hates the fit of a dress. Well, that's a problem I'll work with Meredith Thompson (Chief Merchant) on. Or let's say that a customer had a bad experience at the call center. That's a problem I'll work with Roger Morgan (Chief Operations Officer) on. I will represent the 'Voice of the Customer' in our Executive meetings. Seriously, it will be like the customer as a seat at the table. How cool is that?"

Kevin: "Will this new role interfere with your traditional Human Resource job responsibilities?"

Candi Layton: "I have what I call a 'deep bench'. I'm certain my team will 'pick up the slack' and 'step up to the plate'.

Sometimes there's a small window of opportunity for a newly minted Executive leader. We'll see if Ms. Layton can offer new thoughts and a positive attitude in a way that results in an increase in sales and profit.

Gliebers Dresses: Management Changes

As usual, it is time to Skype-in to the Gliebers Dresses Executive meeting.

Glenn Glieber (Owner): "... and she basically became unwilling to change anything. She was unwilling to pay for the loyalty program with savings in catalog pages or circulation reductions, she was unwilling to reduce the paid search budget, she managed an e-mail program that we all think is uncompetitive, and she was publicly badmouthing all of us at every opportunity --- many employees heard the snide comments that she made at the fashion show. So last night, I informed Sarah Wheldon that she is no longer with the company. I'm still waiting for Ms. Wheldon to sign her severance agreement and one year non-compete clause, I'll let you know when that process has been completed."

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

Kevin: "Yup, it is me."

Glenn Glieber: "Kevin, we decided to let Sarah Wheldon go last night, and I'd like to announce a few additional changes."

Kevin: "Ok."

Glenn Glieber: "We will immediately begin a global search for the next Chief Marketing Officer of Gleibers Dresses. This is a key position, one that is essential to the success of our brand. We're going to look for an individual that has a balanced perspective between traditional catalog marketing and modern e-commerce and social media. We all know that Sarah lacked some of the modern skills we desperately need, though she was fantastic at marketing a traditional catalog. Until we find the right individual, I would like to announce two job changes. First, Pepper Morgan has been named Interim Chief Marketing Officer. Pepper will retain her creative responsibilities, and will oversee our marketing activities until we assign a new Chief Marketing Officer."

Pepper Morgan (Creative & Marketing): "Thank you everybody, and thank you Glenn for having the confidence in me to do this job. I look forward to working with all of you, and I look forward to implementing some short-term changes that will have a positive impact on the business."

Glenn Glieber: "The other announcement I'd like to make today is the appointment of Candi Layton to our Executive team. Candi has been our Director of Human Resources for the past three years. She will retain this title, and will also take on the role of 'Chief Customer Officer'. In this important new position, Candi will partner with our Executive team on doing the right thing for the customer. We strongly believe that Candy will implement programs that significantly improve customer loyalty."

Candi Layton (Chief Customer Officer), speaking rapidly: "Thank you so much, everybody, thank you, THANK YOU! I am so looking forward to jumping in with both feet and making a difference."

Roger Morgan (Operations): "Congrats, Candi".

Candi Layton (Chief Customer Officer and Human Resources Director), speaking rapidly again: "Everybody, before we wrap-up our meeting, I want to share with you the press release we just sent out regarding the departure of Sarah Wheldon. All employees received this message in the past ten minutes. Here is the press release."



FOR IMMEDIATE RELEASE: GLIEBERS DRESSES ANNOUNCES MANAGEMENT CHANGES

July 13, 2009: Gliebers Dresses, the leading purveyor of fashion dresses in all of New England, is excited to announce a series of management changes designed to launch Gliebers Dresses into the next decade, a decade full of e-commerce and social media promise built on a proven catalog marketing platform.

Pepper Morgan has been named Interim Chief Marketing Officer and Chief Creative Officer. Ms. Morgan will be responsible for implementing the new customer loyalty program, catalog marketing, online marketing, and social media. Ms. Morgan was previously the Chief Creative Officer at Gliebers Dresses, and was the Creative Director at Anna Carter prior to arriving at Gliebers Dresses. Earlier today, Ms. Morgan stated that she is "... thankful for this unprecedented opportunity, and is looking forward to improving customer loyalty at Gliebers Dresses." Gliebers Dresses will immediately begin a global search for the next Chief Marketing Officer.

Candi Layton has been named Director of Human Resources, and Chief Customer Officer. Ms. Layton will be responsible for taking care of the individuals who make Gliebers Dresses the most successful dress purveyor in all of New England --- employees and customers. Ms. Layton said the following: "I've always been an advocate of our biggest asset, our employees. This new position gives me an opportunity to be an advocate for our customers as well. It's a logical fit. I am eagerly looking forward to jumping in with both feet and meeting this important challenge."

At this time, we would like to celebrate the tenure of Sarah Wheldon, our Chief Marketing Officer since 2003. Sarah has chosen to leave Gliebers Dresses in order to pursue other opportunities and to spend more time with her family. We warmly wish Ms. Wheldon her the best of luck.

Sarah spent her entire career at Gliebers Dresses, and was largely responsible for the unbridaled success Gliebers Dresses experienced as a fashion dress cataloger in the mid-1990s. Sarah shepherded Gliebers Dresses as the brand transitioned from a catalog business to a multi-channel retailer. Her contributions fueled the profitability that allows Gliebers Dresses to thrive in the era of e-commerce.

Glenn Glieber, owner of Gliebers Dresses, said of Wheldon's decision to leave the company to pursue other opportunities that he was "... saddened by her decision, but fully understood her desire to spend more time with her family. She represented the ideals and values that made Gliebers Dresses a great company. She will be missed. We all wish her the best of luck, and look forward to seeing how she adapts to this next chapter in her life."

Please direct all media inquiries to Candi Layton.

Old-School Cataloging: Optimization Of Pages And Circulation Depth

Old school catalogers spend considerable time optimizing circulation depth and pages per catalog (please click on the image for more information).

There is a formula that you can use to make high-level estimates of sales performance at different circulation depths and page counts. We've talked about this previously, but it is worth mentioning again.

Demand Prediction = ((Proposed Pages / Last Year Pages)^0.5) * ((Proposed Circulation Depth / Last Year Circulation Depth)^0.5) * (Last Year Demand).

Many catalogers play with the (0.5) factor, testing different combinations and then fitting the appropriate factor.

Using this formula (and the factors that are right for your business --- a free software tool called CurveExpert can help you find the right factor to use), you can create a table like the one at the start of this post. The table clearly shows that the "optimal" circulation depth and page count for this catalog is at any one of the following combinations:

• 80 pages to 500,000 customers.
• 96 pages to 500,000 customers.
• 112 pages to 400,000 customers.
• 128 pages to 300,000 customers.

When you look at the four optimal combinations, what do you observe?

Yup, smaller page counts allow one to contact many, many more customers. This is why you see so many companies with small prospecting catalogs.

The equations were created at Eddie Bauer, way back in 1998. We used the equations to optimize page counts for each merchandise division, then rolled-up the pages, and optimized circulation depth. It was like sweeping up money, tremendous fun for a math geek, lots of profit for the company.

By the way, e-mail folks ... you can run a similar exercise. But the metrics change.

• Circulation Depth still matters. If you have an e-mail list of 100,000 customers, you'll generate less demand mailing only the top 20,000 customers.

• Pages are replaced by contacts. Instead of 64/80/96 pages, you have 1/2/3 contacts per week.

• Using this framework, you can quantify demand by circulation depth and number of contacts.
  

Gliebers Dresses: Paying For Loyalty

It's time for another Executive Meeting.

Glenn Glieber (Owner): "... and I swear, if I ever have to sit in the same room with Tanita Walker of 'Wake Up New Hampshire!' again, I'll punch her right in the mouth. She had the nerve to invite me on the third-highest ranked morning television show in all of New Hampshire to talk about weathering the economic storm, and then she rips me about fair labor practices in China. Fair labor practices. Show me a plant in Nashua that can produce a dress at the cost of goods I need to stay in business and pay a Nashua resident a living wage, and I'll move everything there."

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

Kevin: "Yup, it's me."

Glenn Glieber: "Kevin, we need a few of your Multichannel Forensics tidbits today."

Lois Gladstone (Finance): "Yes. As you know, our entire team believes that loyalty is the key to returning our business to profitability. We implemented our 'buy four dresses, get free shipping for the rest of the year' program on July 1. Soon, we'll need to pay for free shipping."

Sarah Wheldon (Marketing): "The belief is that there are wasteful marketing dollars out there that can be trimmed without hurting the business, that marketing is somehow clueless about managing a marketing budget."

Roger Morgan (Operations): "You sure can't trim our Information Technology department, our Call Center, or our Distribution Center budget, I can tell you that. And you all know the old joke, 'I know that half of my marketing dollars are wasted, I just don't know which half!'"

Lois Gladstone: "So Kevin, here's what we're thinking. We want to reduce the page count of every catalog we mail by eight pages, across the board, in 2010."

Meredith Thompson: "I hate the idea. HATE IT! If the customer doesn't see my merchandise, she can't buy my merchandise."

Roger Morgan: "You know, we could create some sort of e-mail pdf document, like we could scan all the pages of the catalog, and then send it as an e-mail to the customer. You could have 644 pages if you wanted to, because e-mail is free. Why wouldn't we do something like that? I got a flyer in the mail last week from a company that does digital catalogs, they sounded reputable, we could work with them."

Lois Gladstone: "So Kevin, what would be the impact of eliminating eight pages per catalog? We're talking about saving $600,000 in expense, but we don't want to lose any top-line sales. In fact, I'd like to see us cut expense and grow sales."

Kevin: "Here's what our Multichannel Forensics project told us about page counts:

• Telephone demand is reduced by 5% each time we cut catalog pages by 10%.

• Online demand is not impacted at all when we cut catalog pages by 10%.

• Total demand is reduced by 1.7% when we cut catalog pages by 10%.

• It would be more profitable for Gliebers Dresses to mail smaller page counts than larger page counts, because customers are driven online by the mailing of the catalog, where more than a thousand pages of merchandise technically exist.

• The more sales a customer generates online, the more pages you can cut to that specific customer.
  

• Our frequency test also indicated that we can cut contacts, and be more profitable.

• However, with telephone shoppers, cutting pages or frequency is a bit risky.
  

Sarah Wheldon: "We've always known this, Glenn. You ask me to run these scenarios all of the time, and this is what we always see. Why do we need Kevin to analyze this now, no offense, Kevin?"

Meredith Thompson: "I'm not sure I'm on board. If you take the results at face value, you could make the argument that we should do 108 pages instead of 116. And then you'll argue that we should do 96 pages instead of 108. And then you'll argue that we should do 64 pages instead of 96. Where does it end? 0 pages? Then we're not even a cataloger anymore. What are we, at that point?"

Pepper Morgan: "At that point, if we did free overnight shipping, we'd be the Endless.com of dresses. And we'd have a lot of money to fund free overnight shipping without catalogs."

Meredith Thompson: "There are days when you scare me, Pepper."

Lois Gladstone: "If I do a back-of-the-envelope profit and loss statement, we can cut pages, lose up to 2% of top-line demand, be more profitable, and then fund free shipping with the $600,000 we save by cutting pages. No downside here. Good. It is decided, then. We'll cut eight pages from all catalogs, starting in January."

Sarah Wheldon: "Doesn't marketing make these decisions?"

Meredith Thompson: "Nobody decided anything. I already have orders for Spring 2009 merchandise. We have minimums to meet. If I don't feature the merchandise in a catalog, how am I going to sell it? I need the pages so that I can move the merchandise I've already ordered."

Roger Morgan: "I read on Twitter where Dell sold $3 million in merchandise using social media. Couldn't we move merchandise on Twitter? I mean, of course, we'd have to blow out the number of Twitter followers we have, but once we did that, we could probably sell anything on Twitter. Isn't that what Chip Cayman has been saying."

Lois Gladstone: "That's exactly the kind of fresh thinking that Chip Cayman brings to the table."

Sarah Wheldon: "We've tried Twitter and blogs and all that social media stuff. It doesn't work. Social media works if you're an individual trying to build a personal brand. Some people apparently want to know that Chip Cayman has a toe cramp, they re-tweet it, and his unending pain goes viral. Unfortunately, you cannot sell dresses 140 characters at a time without context."

Meredith Thompson: "EXACTLY!"

Roger Morgan: "Toe cramps really suck."

Pepper Morgan: "We sell dresses 140 characters at a time via pay-per-click, right? And that is without context, it's just a blue link."

Sarah Wheldon: "The customer is already shopping for dresses, that's why search works."

Lois Gladstone: "And that is why we can cut eight pages from each catalog. The customer is already shopping for dresses. Eventually, we'll have a robust e-commerce platform that enables us to do natural search so well that we won't even have to do paid search. Good 'ole free natural search will be our meal ticket!"

Roger Morgan: "Huh?"

Glenn Glieber: "I like free marketing!"

Pepper Morgan: "Put it on the book of work!"

Sarah Wheldon: "Yeah, great idea, we'll trust the future of our business on some dweeby algorithm that always changes, an algorithm that nobody ever gets to know about."

Pepper Morgan: "That's what Snoozur does. They don't have a catalog. They sell dresses online, and basically use natural search and paid search to drive their business. I heard they're already up to $10,000,000 in sales."

Meredith Thompson: "Impossible. And why does every online startup have some stupid name like Snoozur?"

Pepper Morgan: "They're Snoozur: The Laid Back, Low Stress Dress Company. I think they're based out of San Jose. They do free ground shipping on all orders, they build the cost of shipping into the margin of their merchandise."

Meredith Thompson: "Customers trust real companies with real names. You trust Glenn Glieber because you know he stands behind my product, you know there's a real person behind the curtain. I'd never trust a name brand like Snoozur."

Glenn Glieber: "Well, I haven't heard anything that dissuades me from cutting pages, so we're taking the hatchet out and we're cutting pages. It feels like 1981, 1987, 1991, 1995, 1999, and 2002 all over again. Ok, on to the next topic. Somebody is parking a motorcycle in the Employee of the Month parking spot. Now granted, our performance was so bad last month that I chose not to pick an Employee of the Month, but that doesn't mean you get to park your motorcycle there just because the spot is vacant. I want that motorcycle out of there. Roger, tow that cycle by 2:00pm."

Selling Your Business? Shutting Down A Channel?

Sometimes you're looking for an exit strategy. You might want to sell a business, or you might want to shut down a brand/channel. Or maybe you just want to know what would happen if you were ever forced to make a key business decision.

I'm asked to look at these situations. The company sends me data, and then asks me to project how the business is going to evolve over the next five years. Here's an example (click on the image to see it more clearly).


This brand wants to save expense by not doing any customer acquisition in channel #2. Well, we can estimate the long-term impact of that decision. Take a look at this scenario:


This is a pretty typical outcome. I usually find that products, brands, and channels interact with each other. In other words, when you make significant changes to one part of your business, another part of the business either improves, or suffers. In this case, the primary channel begins to decay over time, as it is starved of the customers that were acquired by customer acquisition activities that have been discontinued in another channel.

The tools and techniques to do this kind of work are readily available in my Multichannel Forensics book.

If you are thinking of selling your business, or you are thinking of shutting down a business unit, or you are thinking of discontinuing expensive customer acquisition activities in a channel, give me a holler. These projects are easily addressed by the Multichannel Forensics framework, and I can turn them around really fast if there isn't a lot of data exploration or segmentation work required.

Gliebers Dresses: E-Mail Marketing

It's time to Skype-in to another Gliebers Dresses Executive Meeting.

Glenn Glieber (Owner): "... and I don't understand why the ratings for the evening news are down, because quite honestly, I still watch it every night, don't you all?"

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

Kevin: "Yup, it is me!"

Glenn Glieber: "I asked Kevin to hop on today, so that we could talk a bit about e-mail marketing. Sarah, go ahead and take the lead."

Sarah Wheldon (Marketing): "Thanks, Glenn. As all of you know, we have what we believe to be one of the better e-mail marketing programs in the industry --- not as good as what Anna Carter has, but pretty darn good."

Lois Gladstone (Finance): "Let's just see a show of hands, really quick. How many of you have purchased from any e-mail marketing campaign in the past year?"

Roger Morgan (Operations): "Oh, I have, I have! I love Amazon.com. They do those 'customers who liked product-x may be interested in product-y' e-mail campaigns. Why don't we do any campaigns like that?"

Sarah Wheldon: "As I was saying, our program is pretty darn good. We have two targeted versions of each e-mail campaign. We have one version which goes to customers who purchase 'younger' merchandise, and we have one version which goes to customers who purchase 'older' merchandise."

Lois Gladstone: "How do you decide who gets each e-mail version? Do you look at the age of the customer, and then draw an arbitrary cutoff, like at age 35 or something like that?"

Sarah Wheldon: "No, we don't know the age of the customer. That information is not stored in our database."

Lois Gladstone: "Seems like you should know that."

Sarah Wheldon: "How would you like for me to find out that information for each of three hundred thousand e-mail subscribers? Should I send a quick text message to each of them? Should I visit each of their homes, criss-crossing the country in the Gliebers Dresses RV?"

Roger Morgan: "Woodside Research recently released a report that says that the customer is in control --- that the new best practice is to let the customer decide everything regarding e-mail marketing. Let the customer pick e-mail frequency, let the customer pick the version she wants to receive, let her volunteer whatever information she wants to volunteer. We will store the volunteered information in a tiny little database, and then mine it for gold, folks, we'll mine it for gold!!!"

Meredith Thompson: "That sounds great. But doesn't something like that that need to go into the book of work?"

Sarah Wheldon: "Yes, that sounds great. But we've tested e-mail frequency, remember, Kevin was here and he presented those results. When you give the customer fewer e-mails, the customer spends less."

Roger Morgan: "But the customer would be happier, right? And if the customer is happier, she'll become more loyal. Loyal customers spend the most money."

Sarah Wheldon: "That's lizard logic. We tested a reduced frequency, and the customer spent less when she received fewer contacts."

Roger Morgan: "You didn't let the customers who wanted fewer contacts dictate their own strategy. You just arbitrarily sent fewer e-mails. Get the strategy right, and everything will work out. And think about all of those customers that opt-out. We're disappointing each and every one of those customers. How much damage does that cause our brand?"

Lois Gladstone: "Yeah, let the customer decide the strategy! Who wants to be spammed?"

Sarah Wheldon: "We're not spamming anybody. When the customer buys from us online, we make it very clear that the customer is agreeing to participate in our e-mail marketing program, and that the customer can expect between 50 and 150 campaigns per year. She can opt-out at anytime she wants. We're fully CAN-SPAM compliant."

Roger Morgan: "Oh, that's not an industry best practice. The customer should be the one who decides if she opts-in to the program, she shouldn't be auto-enrolled."

Sarah Wheldon: "That's exactly how Anna Carter executes their campaigns. And if we let the customer make the decision, then we lose out on all of the sales associated among customers who we automatically opted-in to the program. We're just not in a position to lose sales, are we?"

Pepper Morgan: "Kevin, how do the e-mail campaigns perform, anyway?"

Kevin: "Here are some key metrics about your e-mail customers."

• Half of all customers who purchased in the past twelve months subscribe to e-mail campaigns.
• E-mail buyers have a 77% annual repurchase rate, among the most loyal of any channel.
• Only 25% of your e-mail file bothers to click on at least one e-mail campaign, per year. The remaining 75% are inactive.
• Only 5% of your e-mail file buy something from your e-mail campaigns, on an annual basis.
  
• E-mail is what I call a "transition channel". It is the channel that your customers migrate to as they begin to rely upon catalog marketing less. After the customer buys from an e-mail campaign, the customer is likely to buy from your website, without attribution to any other marketing campaign.
• 80% of your e-mail purchasers buy merchandise on sale, or buy when free shipping is offered. As a result, your e-mail buyer file is over-populated with discount shoppers.
• When you offer full price merchandise via e-mail, you generate $0.05 per e-mail campaign.
• When you offer sale merchandise, or you offer free shipping, you generate $0.25 per e-mail campaign.
• Over time, you optimized e-mail performance based on the metrics you had available to you ... open rates, click-through rates, conversion rates. As a result, your optimization best practices resulted in a program that sale/promo customers love. Your customers are no longer interested in e-mail marketing unless there is a marketing promotion.
  

Lois Gladstone: "Oh my goodness. That's a disaster."

Sarah Wheldon: "It's simple Darwinistic evolution, Lois. We're always been asked to maximize the productivity of our e-mail campaigns, we can never plan for a sales decrease, right! So we offer sale merchandise, we pop a promotion like free shipping on top of the merchandise, and then the campaigns work. Sure, this attracts a sale/promo customer, and the circular logic requires e-mail to be a sale/promo channel. But we all know that. And we've all accepted this. I've presented the options to you previously, and none of you like it when we generate just $0.05 per e-mail, you tell me the program is broken when that happens."

Roger Wheldon: "Isn't it a best practice of a multichannel brand to align all channels? Now we have an advertising channel that only works when you offer sale merchandise with free shipping? This means that the e-mail customer isn't aligned with our website or catalog customer. That's a bad thing."

Meredith Thompson: "Oh, we're aligned. We offer the same merchandise in e-mail campaigns that we offer online and in catalogs, and we offer it at the same price, and we honor free shipping if the online customer specifically asks for free shipping, or if a catalog customer yells at somebody in the call center."

Pepper Morgan: "But the e-mail customer, by definition, is a different customer. She likes sales and promotions. So technically, we're serving a different customer. So what is the goal of e-mail marketing, my dear teammates? Is the goal to optimize e-mail marketing performance? Because if that is the goal, you should be praising Sarah right now. Or would you rather have performance that stinks, but is reflective of the whole brand?"

Lois Gladstone: "I want it all. I want to sell a ton of full price merchandise, I want to fully integrate all channels, I want to have the customer pick and choose what she gets, when she gets it, even if that means a significantly reduced contact frequency, and I want the customer to be happier and to spend more as a result."

Pepper Morgan: "I'd like trigger-based programs, too, but we don't have the technological resources to be able to manage that."

Roger Morgan: "Pepper, we can put that on the book of work, and prioritize it. If it is the most important project, it will get top priority. Now Lois, you seem frustrated with the concept of e-mail being a discount/promo advertising channel."

Lois Gladstone: "I am."

Roger Morgan: "But you're the biggest advocate of offering our customers free shipping if they buy four or more dresses in a year. Doesn't that mean you're causing all advertising channels to migrate toward promotions?"

Lois Gladstone: "My strategy only gives perks to the most loyal customers. Sarah's e-mail strategy gives perks to any dweeb confused enough to not opt out of our automatic opt-in process."

Sarah Wheldon: "So it is ok when you decide to offer loyal customers free shipping, but it isn't acceptable for marketing to optimize the e-mail marketing program around the sale/discount customer?"

Lois Gladstone: "I'm just saying we have to be a lot more strategic about how a multichannel business like ours evolves. I'd rather give a loyal customer a reward than give a customer who has an e-mail address a reward. We need to use tools like CRM to get customers to do the right thing. The right thing isn't to give us an e-mail address. The right thing is for the customer to spend a lot of money!"

Pepper Morgan: "Kevin, what is the lifetime value of an e-mail address?"

Kevin: "If we control for all other factors, the lifetime value of an e-mail address is approximately $40 of profit. It's a reasonably high number because there's almost no variable marketing cost associated with e-mail marketing."

Glenn Glieber: "I love free marketing!"

Pepper Morgan: "So the real question you're asking is this: Can we move away from discounts/promotions for e-mail customers, and in the process, increase the $40 lifetime value of an e-mail address? Because if we can do that, we don't care if we generate only $0.05 per e-mail selling full-priced merchandise without free shipping, right?"

Glenn Glieber: "That's a tough question, folks! Sarah, why don't you tackle that one, and have an answer for us by later this afternoon? Thanks. Ok, time to move on to the next topic on the agenda. I'm schedule to appear on 'Wake Up New Hampshire!' tomorrow morning. I'm participating in a round table discussion on weathering challenging economic times. I need a cheat-sheet that illustrates all of the things we've done to weather challenging economic times. Please send me your list of the top five things you've done to weather challenging economic times in your department by 4:00pm today. Thanks, great meeting!"

MeritDirect Co-op

If you're attending the MeritDirect Co-op this week, and want to chat about your Multichannel Forensics project, send me a message via e-mail or via Twitter.

Better yet, come to my session at 3:00pm on Thursday. You'll learn all about how Micro-Channels are playing a key role in the Multichannel Forensics projects I'm working on ... and you'll learn how to save money and increase profit in your online marketing and catalog marketing activities. What's not to like about that?!

Ralph Drybrough, JoAnne Carrier, and the rest of the nice folks at MeritDirect do a solid job. I feel fortunate to be able to share my findings with the audience on Thursday!

Twitter. NASCAR. Customers.

For the next two minutes, put aside your thoughts (positive or negative) about NASCAR, and think about how your business interacts with customers.

On Saturday night, NASCAR hosted a 400 mile race in Florida. Most of the three or four million Americans who witnessed the event did so on television.

A small number of individuals, maybe just a few hundred, maybe a few thousand, watched the race on television and interacted with each other on Twitter. Their participation influenced the broadcast.

NASCAR beat reporter Jenna Fryer (@JennaFryer) mentioned to her 1,088 followers that TNT (the cable channel broadcasting the race) was not interviewing drivers who were involved in an accident. Around the same time, NASCAR blogger John Daly (@JohnDaly) asked his 1,062 followers the same question.

It's a good thing they asked their question, because one of the television broadcast announcers is former driver Kyle Petty (@KylePetty). During the race, he monitors what people are saying on Twitter, and during commercials, he interacts with his audience. He told his 10,723 followers that his team was not interviewing the drivers because those cars were being repaired, or because the cars had re-entered the race.

He also told the viewing audience the same information. In fact, several times during the race, he mentioned that folks on Twitter had questions, and he answered their questions on live television.

NASCAR fans followed the action using the #nascar hashtag. In fact, NASCAR was one of the top ten trending topics Saturday evening on Twitter.

So you had the press, bloggers, and fans interacting with the broadcast team, shaping the direction of the broadcast. One broadcaster from another network (driver Kenny Wallace, @Kenny_Wallace) was honest enough to mention on Twitter that the race was boring. He as a vested interest in making the event seem exciting, but willingly shared the feelings many fans had.

Fans could also learn about their favorite drivers during the race.

• Juan Pablo Montoya told what was happening prior to the race, his wife issued a few updates during the event (@jpmontoya).

• Richard Petty Motorsports (@RPMotorsports) gave periodic updates about their drivers during the race, including adjustments that would be made during upcoming pit stops, and informed fans of the safety of its drivers after a terrible accident at the end of the race.
  

• Joe Gibbs Racing (@joegibbsracing) shared information about its drivers during the race.

• DeLana Harvick (@DelanaHarvick) lamented a season of bad luck for her husband, Kevin Harvick.

Fans also got to air their complaints, with numerous tweets about what appeared to be a fake caution flag with 15 laps to go that bunched up the field to create more drama. Fans openly encouraged TNT to show a camera angle that pictured the debris that caused the caution. No camera angles were revealed.

The point of this isn't to make NASCAR and its fans appear to be technological wizards or visionaries, or to tell you to watch the 400 mile race from Chicago next Sunday.

The point is to share how different industries are being changed because of audience participation. NASCAR television ratings are down this year, so you can't make the argument that this level of interaction improves ratings. And with only a few hundred or a few thousand individuals participating, we clearly see that there isn't a groundswell of interest, yet.

It seems to me that individuals benefit greatly from social media. But brands (in my opinion), at best, receive (at best) indirect benefits from a social media presence. You'd be hard pressed to name a business (not an individual) that generates more than 3% of their sales from social media. Use the comments section to list the companies that are generating sales that are a respectable percentage of net sales (and no, Dell doesn't count ... a couple million on a base of $60,000,000,000 is essentially zero).

So if you're trying to figure out how to use this stuff in a unique way, consider this example, courtesy of NASCAR. NASCAR isn't actually managing the social media process. Instead, folks with a vested interest in NASCAR (press, bloggers, drivers, teams, broadcasters, fans) create their own social media ecosystem around weekly events.

We have similar opportunities, opportunities that go beyond offering Twitter followers 20% off, or go beyond telling our Twitter followers what we ate for lunch. From a long-term standpoint, we're going to have to figure out how to acquire new customers outside of list rental and pay-per-click. This represents one long-term opportunity that needs to be tested.

Gliebers Dresses: The Fashion Show

I'm standing in the back of the main conference room at Gliebers Dresses, with Sarah Wheldon (Chief Marketing Officer). We're here for the quarterly Gliebers Dresses Fashion Show.

Roger Morgan (Chief Operations Officer) is the Master of Ceremonies for this event. He's wearing a tuxedo. A catwalk splits the conference room in two. On each side of the catwalk are seated the hard-working employees of Gliebers Dresses. They cheer as their co-workers prance down the catwalk, donning the dresses that Ms. Thompson believes will be best sellers in the fall.

Speakers pump the rhythmic beats of Michael Jackson's "Billy Jean", paying homage to the deceased performer. Bart Conway (facility services) was even able to light up squares on the catwalk as each model/employee walked, giving props to the famous music video.

Most in the audience clap in unison. They erupt in enthusiastic applause as Pepper Morgan (Chief Creative Officer) strides with attitude in a beautiful one-shoulder gown, price = $99. And when Lois Gladstone, the Chief Financial Officer, strolls through the audience in a turtleneck dress suitable for the workplace (price = $79), the house comes down --- a standing ovation! In a well-choreographed exchange, Sonora (Pepper's daughter) hands Ms. Gladstone a bouquet of flowers, waves to the crowd, then sprints off-stage to text message her friends who are standing on the other side of the conference room.

Roger Morgan (operations) steps up to the microphone.

"Wow, what a show! Let's give a hand to all of the models who made this show a success (audience roars its approval). And a big thanks to the exquisite Pepper Morgan for creating an environment that feels like the runways of Milan (crowd applauds). And how about little Sonora Morgan? It won't be long before we see her in a reality show! (crowd chuckles, then murmurs)"

Mr. Morgan continues.

"Well, it's been a really difficult quarter at Gliebers Dresses. The global economic crisis is impacting our customer. Sales for the quarter totalled $10,850,000, a decrease of 20% compared with last year (the room becomes very quiet). However, the decrease in sales have been well managed, and we eked out a tiny profit of $8,000 in the quarter (a smattering of applause)."

In the back of the room, Sarah Wheldon (Chief Marketing Officer) whispers her comments to me.

Sarah Wheldon (whispering to me): "All of that profit happened because Lois (CFO) managed foreign exchanges rates in a favorable manner. These days, we make money because of the discipline of the finance department, not because of our ability to sell merchandise."

Roger Morgan (to the audience): "This quarter has been a time of reflection. We've had to figure out how to trim expenses. We survived the adjustment to workforce initiative ...

Sarah Wheldon (whispering to me): "A lot of employees call an adjustment to workforce initiative 'being fired'".

Roger Morgan (to the audience): "... and with our new contract with Royal Crown Cola, we believe we can save an additional $8,000 a year in subsidized beverage expense. So we're making the changes necessary to position this company for breakthrough profits once we emerge from this economic downturn."

Sarah Wheldon (whispering to me): "Imagine the howls we're going to hear when Roger switches out Lays potato chips for Old Dutch potato chips later this fall."

Roger Morgan (to the audience): "Our management team has been experiencing a period of quiet reflection and contemplation as well. We hired an industry consultant to come in and analyze our business. We learned some amazing facts about our customers. Let me ask you a question. If 100 customers purchased from our business in 2008, how many of the 100 customers will purchase again during 2009? Anybody have any guesses?"

Woman In the Audience: "94?"

Another woman in the audience: "97".

Male in the audience: "83".

Pepper Morgan: "53".

Roger Morgan (to the audience): "Who said 53? That's the right answer! 53. 53% of last year's customers will purchase again this year. Who thinks that 53% is a good number?"

Audience: "Boooooooooooooooooo!". Some of the men in the audience lift their fists in the air, then point their thumbs down in a sign of disapproval.

Roger Morgan (to the audience): "I agree. 53% is not where we want that metric to be. Not at all! Imagine what would happen if we could increase the retention rate from 53% to maybe 80%. I'm willing to bet that our business would almost double if we could pull that off, wouldn't that be great?!!!!'

Audience quietly applauds.

Sarah Wheldon (whispering to me): "Roger fails to count new customers in his assertion that business would almost double. Misinformation, we thrive on it."

Roger Morgan (to the audience): "Well, we're on a mission to double the size of our business. And our executive team is unified in the belief that our business will double if we make it easy for our customers to become more loyal ..."

Sarah Wheldon (whispering to me): "We're unified?"

Roger Morgan (to the audience): "... this most recent report from Neptune Research says it costs eight times as much to acquire a new customer as it costs to retain an existing customer. So our strategy is to get as many loyal customers as possible. And we're going to do that with a new program, a program that I am announcing today, publicly for the first time.

Sarah Wheldon (whispering to me): "Glieber and Roger and Lois think they can fund this loyalty program with a reduction in my paid search budget or via an across-the-board page count reduction."

Roger Morgan (to the audience): "The new program is this. Beginning on July 1 of each year, we will keep track of the number of dresses each customer purchases. Once a customer purchases four or more dresses in that year, the customer will receive free shipping and handling for the rest of the year."

The audience applauds politely.

Roger Morgan (to the audience): "We will also keep track of the annual retention rate. When you enter the global headquarters of Gliebers Dresses, starting tomorrow, you will see a large digital display with key customer metrics. We will closely track annual retention rate, orders per retained buyer, average order value, reactivated buyers, and new-to-file buyers on the new digital display. You will get to see, first hand, how well our new loyalty program is performing. Ok, folks, that's a lot of information to give to you today, do you have any questions? Yes, Elsie, what's your question?"

Elsie (an employee): "If a customer buys four dresses, then buys a dress and gets free shipping and handling, and then two months later returns two dresses, is she still part of the new loyalty program?"

Roger Morgan (to the audience): "That's a great question, Elsie. We're currently evaluating loyalty program best practices to identify appropriate solutions for customers who experience dynamic changes in behavior due to customer service issues."

Spike (an employee): "Because that ain't righteous, dude. Dude, if a customer gets a defective dress, you know, and then returns the dress, you know, and then we remove her from the loyalty program because the dress was of poor quality, right? That would tick me off if it were me ... not that I ever buy dresses, but you know what I'm talkin' about, right dude?"

Sarah Wheldon (whispering to me): "Look at Meredith ... she's just seething over there! There couldn't possibly be an issue with HER merchandise."

Beth (an employee): "But what about those rascals that buy dresses, wear them for events, and then return them? That's not a loyal customer, that's a criminal. She doesn't deserve to be part of our loyalty program."

Greg (an employee): "If the loyalty program works, can we get Coke products in the vending machines once again?"

Louis (an employee): "Do we resell the dresses that customers return? Because it is really disgusting if we do that."

Betty (an employee): "I wish we had Pepsi products in the vending machines."

Henrietta (an employee): "Are employees eligible for the loyalty program? Even though we only pay $5 for shipping and get 30% off the price of each item, I'd buy more dresses if I had free shipping."

Roger Morgan (to the employees): "People, PEOPLE! Let's focus for a moment. Obviously there's a lot of excitement about this new loyalty program. I'm sure Sarah Wheldon, our Chief Marketing Officer, will distribute a 'talking points memo' for all of us to review by the end of the day, with answers to your frequently asked questions."

Sarah Wheldon (whispering to me): "Oh sure, he loses control of a company-wide meeting and I have to issue a talking points memo."

Roger Morgan (to the employees): "Ok folks, that's all the time I have. Thank you so much for your continued support of Gliebers Dresses, as we dig out of this global economic crisis, and reclaim our rightful seat atop the leaderboard of great apparel companies of all time."

The audience politely applauds, then a hundred folding chairs make abrasive sounds on the hardwood floor as employees quietly banter about the merits of Coke vs. Pepsi vs. Royal Crown Cola.