Kevin Hillstrom: MineThatData

Digital Profiles: What Data Do You Need?

2010-02-08T20:15:00.001-08:00

For the next few weeks, we're going to talk about what I call "Digital Profiles". These are segments of customers that exhibit similar behavior. You might have 'Golden Girls', a segment of customers who are likely age 60+ purchasing via traditional channels. Or maybe you have "Robert Scobles", technology fans who eschew old-school marketing tactics.

Now how the heck do you create "Digital Profiles"? I mean, you don't have the lifestyle/psychographic/demographic data you need to do this the right way, correct?

Well, let's keep things as simple as possible.

Let's take all purchases that happened in the past twelve months. Among these orders, you know several things.

The method the customer used to pay for merchandise (Cash, Check, Visa, MasterCard, Amex, Gift Card, etc.) Hint --- cash/check are proxies for a 60+ year old customer.
The day the customer purchased merchandise (Sunday - Saturday ... yes, this matters).
The time of year the purchase happened (Valentines Day vs. July 4 vs. Cyber Monday ... you get the picture).
The merchandise divisions the customer purchased from (think about the tabs running across the top of your website ... yes, this matters, too!).
Average number of items per order.
Average price per item (hint, this is important). Items 5 and 6 yield AOV.
Total number of annual orders.
Sale customer.
Promotional customer (free shipping, % off).
Zip Code Forensics (Urban, Suburban, Rural customer).
Physical Channel the customer purchased from (Phone, Web, Store).
Advertising Channel that influenced the order (Catalog, Paid Search, E-Mail, Affiliates, Social, Mobile).
Did customer return more than 40% of merchandise purchased?
Does customer pay for expedited shipping?

This is not a finite list, use your imagination.

Create a "spreadsheet", with one row per customer ... the fourteen characteristics mentioned above are columns in the spreadsheet.

We'll stop here. If you can collect this kind of information, you have a fighting chance to create interesting Digital Profiles.

Dear Catalog CEOs: Monday Notes

2010-02-07T20:15:00.000-08:00

Dear Catalog CEOs:

Here's a few random thoughts for you to consider.

Vendor Partners: I listened to a vendor-based e-mail marketing Vice President address an audience, and rip those who market to customers via print. This is a person who works for a company that many Catalog CEOs hire to execute e-mail marketing. Carefully scrutinize your vendor partners. Why pay companies money, only to have the company use your money to illustrate how outdated you are to an audience of prospects?

Awareness: One of the 'secrets' of this new decade is the age-old concept of 'awareness'. Last decade, you had a website, you did paid search or SEO, and you generated volume. Now that online volume has flattened out, this will be the big land-grab of the new decade. You don't create awareness by renting a name and sending them a catalog, or by sending e-mail campaigns to an opt-in list, or by executing paid search. You might be able to do it via social media, though the odds are poor (hint ... individuals can do this via social media a lot easier than brands can). You're not likely to do it via mobile. Crack this nut, and it won't matter what channel you market in.

Opt-Out Services: I was completely wrong about them, they didn't shut down the industry. Have you recently visited the most popular catalog opt-out service? Less than 1.2 million members, about the same number as last year.

Conferences: I receive a steady stream of e-mails from Catalog Marketing leaders, asking for advice on what conferences are worth attending. Let's turn this around. What do you think you need to learn? And what kind of forum would you want to learn it in? Let's think about the kind of conference that is truly needed. Send me your thoughts, click here!

Gliebers Dresses: Sitting With The Owner

2010-02-04T20:15:00.000-08:00

Today, a private meeting with Glenn Glieber.

Glenn Glieber: "You're aware that we lost $800,000 last year, Kevin."

Kevin: "You bet."

Glenn Glieber: "Explain something to me, Kevin."

Kevin: "What's that?"

Glenn Glieber: "We've done everything we were told to do. We were told that we had to be 'multichannel'. Our paper rep would come in here and tell us horror stories, he'd remind us that Lands' End cut back on circulation in 1999 and it killed them, then he'd sell us more paper. Our printer came up with all sorts of fancy technologies that allowed us to do great things and add pages at minimal cost. We have an e-mail program, and we don't 'over-mail' because our e-mail vendor told us not to or we'd have customers unsubscribing at huge rates. ResponseShop does our matchbacks, and even though business is declining, they keep telling us our catalogs match to more and more and more online orders, resulting in us using their services more and more and more. Think about that one for a minute. Our list rental vendor keeps telling us to maximize revenue by selling our list to competitors --- so we do that, only to have a third party opt-out service hammer us publicly for sending catalogs to customers who don't want them, causing us to honor their requests, to be a slave to their opt-out process. We have a loyalty program that does not appear to be causing any increase in loyalty whatsoever. Our loyalty program is based on free shipping, something all of the consultants tell us we have to do to make customers happy, but when we do it, we don't seem to make any customers happy. We were told to jump into social media, and we did that with absolutely no results --- we could measure the sales from social media on our hands and toes. We optimized our site for search, only to have Google change the rules every twenty minutes. The USPS killed us in 2007 and now they demand that we continue to put catalogs in the mail, because doing so benefits their business, not ours."

Kevin: "So you did what the marketing experts told you to do."

Glenn Glieber: "We sure did. And here's the thing, Kevin. None of it worked. These marketing experts, they don't have any skin in the game. They make these statements to benefit their business, not to benefit my business."

Kevin: "Then why do you listen to them?"

Glenn Glieber: "Their arguments sound so convincing, and so easy. They tell us that if we have a free-shipping based loyalty program, then we'll make customers happy and loyal. You ever see one of those fancy case studies, the ones with beautiful fonts and fancy colors and the grand proclamations of unfettered profit?"

Kevin: "Have you ever noticed that only positive case studies are published?"

Glenn Glieber: "What do you mean?"

Kevin: "Well, when you read a case study, you read about a success. Who is going to publish a case study outlining ten companies that failed? Who benefits from a negative case study? It's like somebody writing a case study about playing Roulette ... the person has a 'system' where betting on '27' worked for them ... the person won $12,000 by putting $400 on '27'. Never mind that every single person who bet on '27' the next thirty times lost money, this person won, and the way the person won was by putting $400 on '27'" If a person lost by betting on '27', the person will be told that he 'did it the wrong way', that he failed because he bet $350 on '27', had he bet $400, he might have done better".

Glenn Glieber: "And then the entire catalog ecosystem decided to pick a series of numbers, only to have green zero come up ... and the house cleared the table."

Kevin: "That's what our recession is all about, isn't it?"

Glenn Glieber: "So how do I get a customer to buy from a catalog?"

Kevin: "Is that the right question?"

Glenn Glieber: "Look, I'm not going to do what Anna Carter did. I am not going to discontinue my catalog marketing program. We love catalogs."

Kevin: "But does the customer love catalogs?"

Glenn Glieber: "Where is this all going, Kevin?"

Kevin: "Oh, it's going somewhere. Your business was built off of the Baby Boomer generation. And this generation is changing habits in a way that is not complimentary to your business model. They have unlimited choice, and for the first time, they don't have unlimited money. Twelve years ago, this customer was 43 years old, spending $3,000 a year across a dozen catalogers. Today, this customer is 55 years old, spending $3,000 a year across fifty catalog and online and retail brands. And remember, this $3,000 is really $2,000 after adjusting for inflation."

Glenn Glieber: "And now the Baby Boomer generation has to save for retirement, with no home equity and a 401k account that is two-thirds what it was in late 2007."

Kevin: "So given those facts, how can you grow your business?"

Glenn Glieber: "We have to find new customers."

Kevin: "Most of the new customers are likely to be younger than 45 years old, right?"

Glenn Glieber: "Gen-X has the most money right now. But I don't get Gen-X. That generation isn't motivated by the same things that Baby Boomers were motivated by."

Kevin: "Does it matter that you don't understand Gen-X? Shouldn't you have merchandising and marketing experts who understand that generation?"

Glenn Glieber: "Couldn't we just work harder to gain market share among Baby Boomers? Couldn't I do that for a few years, fix this business, then retire?"

Kevin: "How has that strategy been working for you?"

Glenn Glieber: "Baby Boomer kids, I get them, heck, we've all had kids. I understand what motivates them. I don't understand the technology they use, but I understand how to speak with them. These Gen-Xers, there aren't enough of them in their generation to fuel growth, and nobody knows how to reach them. That's going to create problems, isn't it?"

Kevin: "What's amazing is that your generation created what is called 'multi-channel', and then Gen-X is the generation most likely to straddle old-school channels like television and catalog and newer channels like the internet and emerging channels like mobile and social media. This is what you wanted, and when you got it, you didn't know what to do with it."

Glenn Glieber: "I think we wanted Gen-X to use all of the new channels to facilitate a purchase from the channels we managed, like catalogs. And when it didn't work out that way, we suffered. I suffered. My business suffered."

Kevin: "You can't wait for Gen-Y to arrive, either, they are a decade or more away from spending the kind of money that fuels a business. So if you want to grow, you're going to have to figure out how to crack that Gen-X nut, aren't you?"

Glenn Glieber: "Can I tell you something, Kevin?"

Kevin: "Sure."

Glenn Glieber: "I'm going to bring in some private equity folks, have them look around, see if they might want to buy my business."

Kevin: "Really? Wow. Why private equity folks?"

Glenn Glieber: "You and I both know this business doesn't have much value. We've lost money for several years. Amazon isn't going to overpay for my business like they did with Zappos."

Kevin: "Does your staff know about this?"

Glenn Glieber: "No, and I haven't decided yet when I'm going to tell them. You know, I just don't have any answers left. We've tried everything, and nothing worked. Maybe somebody else can figure out how to make this business profitable, and I can at least retire with something to show for my efforts."

Kevin: "The private equity thing can be positive, or it can be ruthless. I think they'd really test the mettle of your folks."

Glenn Glieber: "Maybe it is time that my people have their mettle tested."

Rebuilding: Mistakes

2010-02-03T20:15:00.000-08:00

We began our discussion of rebuilding projects with a sports analogy. Football teams have "systems" ... on offense, they follow a "west coast" or "spread" offense. On defense, football teams employ a "4-3" or a "3-4" defense. When players have skills that are complementary to the system being employed, success is possible.

In Marketing, we also have "systems". Systems in Marketing are based on the existing capabilities of the Marketing team. I outlined five different Marketing Personality types ... The Organizer, The Miner, The Targeter, The Futurist, and The Strategist.

Each personality type represents a "system", when compared to football "systems".

The CEO hires an Organizer when the data infrastructure is in peril, or when simple customer reporting doesn't exist.

The CEO hires a Miner when the company doesn't have insights into customer behavior beyond standardized reporting.

The CEO hires a Targeter when the company knows how customers are behaving and needs to take action upon what has been learned.

The CEO hires a Futurist when the company is good at Organizing, Mining, and Targeting, but is stuck in the past, not pushing into new micro-channels like Social Media or Mobile Marketing.

The CEO hires a Strategist when the company is great at Organizing/Mining/Targeting, and is willing to take risks with a Futurist.

Here's what I've learned during twenty-two years in Database Marketing. Many marketing failures can be linked to an inability of Sr. Management to link the Analytics Personality with the needs of the company.

Too often, the CEO looks for a person that is above-average across all five Analytics Personality traits. There might be eleven people, world-wide, who excel at each of the five traits.

Too often, the CEO assumes that an analytics individual is good at the very trait the CEO is looking to hire. The CEO wants to hire a Futurist, but only interviews Miners. This is a recipe for failure.

Too often, the CEO assumes that an Organizer/Miner/Targeter infrastructure is in place, when truly, it is not in place. As a result, the CEO hires a Futurist/Strategist who does not have the tools to succeed. Remember, a Futurist/Strategist is dependent upon an Organizer/Miner/Targeter to achieve anything.

Too often, Executives are bamboozled by the vendor community. Web Analytics packages focus on Organizer/Miner capabilities, but sometimes these brands sell themselves as Futurist/Strategist tools. Conversely, consultants offer Futurist/Strategist capabilities without ever providing an actionable Organizer/Miner/Targeter infrastructure.

Too often, individuals over-sell themselves. The Targeter confuses her skills with those of a Strategist. For instance, I tend to be a "Futurist". Sure, I have "Strategist" tendencies, and I tend to have significant "Targeter" tendencies. But for the most part, I am a Futurist. This is why I turn down consulting projects that focus on building a database infrastructure. This is why I turn down projects that focus on building customer dashboards. Those are projects that require an Organizer.

Too often, companies fail to see themselves for what they are. Catalog companies, for instance, are obsessive "Targeters". They live for linking a customer with a paper marketing vehicle. Catalog companies do not want a Futurist or a Strategist pointing them in a direction that takes them away from their core competency of targeting via paper. When a Cataloger that loves Targeting chooses to hire a Strategist, you have a mis-matched systems.

Too often, a CEO fails to hire complementary skills. A CEO that wants to make all of the decisions is well-served by hiring an Organizer. A CEO that must make money RIGHT NOW is well-served by hiring a Targeter. A CEO that is obsessed with customer service needs to hire a Miner. A CEO that is being pushed to have a five year business plan needs a Futurist. A CEO that wants to evangelize customer understanding across the entire company needs a Strategist. When the CEO fails to hire for need, the opportunity for failure is increased.

Ok, it is time for your thoughts. You've read essays on The Organizer, The Miner, The Targeter, The Futurist, and The Strategist. What questions do you have? Do you think this framework makes sense for your business? Can you use this framework to make more successful hiring decisions? Does the quiz help you identify candidates appropriately?

Rebuilding: The Strategist

2010-02-02T20:15:00.000-08:00

You are a CEO. And you believe you have covered all of your bases. Your have an Organizer who maintains accurate, precise, and organized data that yields high-quality automated reports. You have a Miner who can tell you anything you want about how customers are behaving. You have a Targeter to makes your business a ton of profit by linking the right ads with the right customers. You have a Futurist who pushes your company in new directions, and is willing to fail most of the time in order to hit the next big thing.

It is time to rebuild your marketing department around a Strategist.

The Strategist operates on a whole different level than a Futurist.

The Futurist will push a company into Social Media or Mobile Marketing, simply because somebody has to push the company in a new direction.

The Strategist understands the need to push the company into the future. More important, The Strategist knows when to cut the cord on experiments. Most important, The Strategist knows how to integrate the skills of the Organizer, Miner. Targeter, and Futurist in a way that benefits all employees within a company.

For example, The Strategist knows when Social Media efforts need to be moved out of experimentation mode within the marketing department, and actively convinces folks in the contact center to take ownership of something that marketing initiated. The Strategist knows when Mobile Marketing needs to be something that is embraced by the Merchandising organization, and actively sells the benefits of the technology to teams that may not perceive there to be inherent benefit.

The Strategist pairs different marketing individuals with different Executives. If the Merchandising leader needs dashboard reporting, then The Strategist pairs the Merchandising leader with a Marketing Manager responsible for Organizing information. If the Information Technology department is pushing for data mining tools, then The Strategist links Marketing and IT together, in order to benefit the company. The Strategist listens to the Merchandising leader, and when clearance activities need to be pursued, The Strategist links a Targeter to the Merchandising leader. The Strategist listens to the Executive team, and directs a Futurist to explore new marketing channels that are likely to be embraced by the Executive team.

An Organizer, Miner, or Targeter focuses on what is "known", and is averse to risk. A Futurist focuses on what is "unknown", and is willing to accept risk in order to learn more about customer behavior. A Strategist possesses "intuition" ... a learned response to many years of trial and error as an Organizer, Miner, Targeter, or Futurist. A Strategist has the experience to understand how people respond to Organizers, Miners, Targeters, and Futurists, putting those individuals in places where they can be successful.

A CEO hires a Strategist only when Organizer, Miner, Targeter, and Futurist roles have been clearly defined. A Strategist is unlikely to be successful without an Organizer skilled at providing a quality data infrastructure. A Strategist is unlikely to be successful without a Miner skilled at telling the company how customers are behaving. A Strategist is unlikely to be successful without a Targeter who takes profitable action on customer insights. A Strategist is unlikely to be successful without a Futurist who pushes the company in new and interesting directions that are likely to fail.

In other words, a CEO rebuilds a marketing department around a Strategist only after a series of successes generated by building a marketing department around Organizers, Miners, Targeters, and Futurists.

Rebuilding: The Futurist

2010-02-01T20:15:00.000-08:00

You are a CEO. You have a good customer data infrastructure in place. You have great customer reporting, filled with key performance indicators that populate a daily dashboard. Your team does an outstanding job of mining your database for new and exciting customer insights. You have individuals who are highly motivated by targeting strategies ... they actively generate sales increases and profit improvements via their techniques.

All of that is good, right? And yet, you feel like something is missing. You aren't actively moving your business into the future. You aren't actively trying new marketing micro-channels. You feel like you are stuck.

Maybe it is time to rebuild your marketing department around the skills of a Futurist.

Let me make this very clear. You do not rebuild a marketing department around the skills of a Futurist unless you already do a great job of Organizing, Mining, and Targeting. These are three areas that must be mastered before you rebuild a department around uncertain and unproven marketing strategies.

The Futurist is a very different kind of marketing leader. The Organizer, The Miner, and The Targeter are very focused on "certainty". They demand perfect and accurate data, they demand well-defined queries, and they demand targeting strategies that will yield sales increases and profit improvements. The Futurist is willing to forgo strategies that used to be successful for unproven tactics that may or may not work in the future.

Take Social Media as an example. If you polled 100 marketers, you'd find 99 that said that Social Media doesn't work. The Futurist doesn't care that 99 marketers fail. The Futurist cares about what can be learned from the 99 failures.

This is a major change of pace. The Futurist will leverage the skills of The Organizer, The Miner, and The Targeter to take action on what is learned from all of the failures.

For instance, The Futurist will aggressively pursue a Mobile Marketing strategy. The Futurist has a thick skin, and is willing to absorb punishment from a Merchandising Executive who thinks that an iPhone app is a huge waste of time. The Futurist will partner with an Organizer to integrate Mobile Marketing data into the customer database. The Futurist will partner with a Miner to understand how existing customers and new customers behave after being exposed to an iPhone app. The Futurist will partner with a Targeter to exclude iPhone app users from traditional direct mail campaigns, knowing that the iPhone app user has "moved on" from traditional marketing.

In other words, The Futurist can only be successful if s/he has the skills of an Organizer, Miner, and Targer at his/her disposal. The Futurist pushes a company in a direction that the company doesn't want to move in, but probably needs to in order to be successful in the long term.

Remember, The Futurist doesn't care about failure (whereas the Organizer, Miner, and Targeter actively try to avoid failure). The Futurist cares about what can be learned from failure.

If you have already built a marketing infrastructure that has Organizer, Miner and Targeter skills, then the next leader could easily be a Futurist. The CEO needs to have thick skin, because The Futurist is going to fail, because the Futurist is going to take the brand in unanticipated directions. Futurists tend to fail when they aren't on the same page as the CEO, or when the Organizer/Miner/Targeter infrastructure is not in place to support the direction The Futurist wants to take the business in.

The Futurist is destined to fail when the brand does not want to evolve or change.

If you feel confident that you have adequate Organizer/Miner/Targeter skills, it is time to consider hiring a Futurist to push your marketing department into the future.

Dear Catalog CEOs: The Super Bowl

2010-01-31T20:15:00.000-08:00

Dear Catalog CEOs:

This week, America celebrates a national holiday, called "The Super Bowl". This Sunday, the two best teams in football meet to decide who is champion.

How would you decide who is the best catalog brand in the world? Well, Super Bowl style catalogers do many things well, don't they?

A Super Bowl cataloger doesn't mail catalogs to customers who don't want them, and doesn't mail catalogs to customers who don't respond to them. A Super Bowl level cataloger uses sophisticated mathematics to identify the half or more of the customer base that simply won't respond to catalogs. Contact me for help with this!

A Super Bowl cataloger is a true merchant. A merchant believes in product. A marketer believes in offers and audience development. Both are needed, but marketing is feckless if the customer doesn't want the merchandise you have to offer.

A Super Bowl cataloger believes in operational excellence. The Super Bowl cataloger realizes that delivering product in two days with free shipping or $5 shipping generates more long-term revenue than charging $14.95 for seven day shipping.

A Super Bowl cataloger doesn't listen to the pundits. Instead, the Super Bowl cataloger charts a course, and causes others to follow. Multi-channel, Social Media, Mobile Marketing, Conversion Rate Optimization, and a plethora of best practices are just noise to the Super Bowl cataloger. The Super Bowl cataloger cares about meeting the needs of the target customer.

A Super Bowl cataloger doesn't care about catalogs. The Super Bowl cataloger only cares about connecting customers with merchandise, and does not care about the distribution channel that facilitates the connection.

A Super Bowl cataloger develops people. A Super Bowl cataloger has a plan for every employee, capitalizing on strengths, and where appropriate, correcting weaknesses. The Super Bowl cataloger does not outsource proprietary knowledge to vendors.

A Super Bowl cataloger respects vendors. A Super Bowl cataloger does not try to squeeze vendor profit margin --- but instead pays more if the vendor helps generate success.

A Super Bowl cataloger obsesses about online landing pages more than the brand obsesses about catalog spreads. Why? Because landing page optimization can be done in real-time, whereas catalog spread optimization happens soooooo slowly. A Super Bowl cataloger is interested in learning in real time.

A Super Bowl cataloger thoroughly understands that customer loyalty marketing is mostly bunk.

A Super Bowl cataloger thoroughly understands that customer acquisition is the "secret sauce" that fuels long-term business health.

A Super Bowl cataloger listens to customers.

A Super Bowl cataloger leads customers.

A Super Bowl cataloger creates a forum where old-school catalog experts teach the time-honored rules of direct marketing to online newbies. A Super Bowl cataloger creates a forum where online experts teach old-school catalog experts how modern customers behave.

A Super Bowl cataloger does not blindly believe the results of matchback analytics.

A Super Bowl cataloger understands that contact strategy testing and holdout testing is as important as any other marketing tactic.

A Super Bowl cataloger understands how to make tradeoffs in contacts between e-mail marketing and catalog marketing.

A Super Bowl cataloger knows that Paid Search is an important customer acquisition tool.

A Super Bowl cataloger knows that Paid Search complements catalog mailings to housefile customers --- without Paid Search, catalog response decreases. The Super Bowl cataloger allocates Paid Search expense against the catalog (i.e. searches that do not result in purchases are expensed in the catalog profit and loss statement).

A Super Bowl cataloger pays employees who generate orders outside of their job description at the same rate that a Super Bowl cataloger compensates Affiliate Marketers.

A Super Bowl cataloger sees the contact center and distribution center as an arm of marketing, and not as an expense to be managed by Finance.

A Super Bowl cataloger understands the critical importance of gross margin management.

A Super Bowl cataloger would rather be out of stock on items than overstocked.

Ok, time for your thoughts. What else does a Super Bowl cataloger do?

Rebuilding: The Targeter

2010-01-28T20:15:00.000-08:00

Ok, so you are the CEO, and you have a customer data infrastructure in place. You have outstanding customer reporting via Dashboards filled with KPIs (key performance indicators). You have always been able to answer any customer question, because your marketing team loves to drill down into the data to answer questions.

Now you want to act upon what you've learned. It is time to rebuild your marketing department around an individual called The Targeter.

The Targeter doesn't care about how data is organized, and doesn't care about learning new and insightful things about customers. No, The Targeter is hyper-focused on one thing ... getting the right message in front of the right individual.

If you want to rebuild your marketing department around a Targeter, you are taking a risk. The Targeter demands complete control over customer decisions. The Targeter wants to make decisions that are the most profitable decisions for your company.

In other words, The Targeter is going to potentially go after sacred cows. The Targeter may decide to cut your catalog circulation by 30%, because it is the most profitable thing to do. The Targeter may decide to go from two e-mail contacts per week to four e-mail contacts per week, because it is the most profitable thing to do. The Targeter may decide to give Google additional customer and merchandising information because it is the best way to put the right ad in front of the right individual. The Targeter loves tactics like Free Shipping, or % Off Promotions, or GWPs (gifts with purchase), or Shopping Cart Abandonment re-marketing programs. The Targeter actively tries to link the promotion with the customer in order to grow the top line.

In many ways, The Targeter is a classic direct marketer. You do not rebuild your department around a Targeter when the marketing world is changing, because The Targeter loves to compile knowledge about past successes in order to drive future sales increases. The Targeter is not motivated by emerging channels that have minimal ROI. Instead, The Targeter is motivated by Best Practices, by things that have been proven to work in the past.

The Targeter will rebuild a department around campaigns, not customers. The Targeter is motivated by customer understanding, but only to the point of linking customers to campaigns. The Targeter is not going to enjoy a month-long strategic project with McKinsey Consulting, because that project is not as likely to deliver ROI as is a project that links customers who love Free Shipping to various promotional vehicles.

A CEO rebuilds a marketing department around a Targeter only when the existing data infrastructure is in place, and only when there are folks in the marketing department who are great at "Mining" for customer insights. If those two criteria are met, then a Targeter becomes a valuable marketing leader, one who can deliver significant sales increases and profit improvements.

Rebuilding: The Miner

2010-01-27T20:15:00.000-08:00

You determined that you need to rebuild your marketing department, and are looking for an analytically oriented leader. You've taken the quiz, and you understand more about the five different Analytics Personalities.

Under what circumstances is a Miner a good investment?

You want to rebuild your marketing department around a Miner when you want to learn more about how your customer is behaving.

You don't hire a Miner until you had an Organizer build a customer data infrastructure for you ... the Organizer links customer data across all channels, and creates a reporting infrastructure that allows all Executives to be able to understand basic facts and findings about customers.

Once this infrastructure exists, you are ready to rebuild your marketing department around the skills of a Miner.

The Miner is motivated by "drilling down" into customer data to understand how customers are behaving. This type of individual is perfect when business is "changing". If you are dipping your toe into social media or mobile marketing, then this type of marketing leader will provide the data necessary to explain to the company how these emerging channels influence customer behavior.

You'll want a Miner if the rest of your Executive team is highly inquisitive. You'll want a Miner if the type of questions that your Executive team asks are "unique" ... in other words, if you want the same answers to the same questions, you hire an Organizer ... but if your questions evolve and change over time, seldom repeating, you want a Miner, because the Miner is motivated by an evolving and changing customer ecosystem.

If you can cope with uncertainty, hire a Miner. You hire an Organizer when you thrive in a world of certainty and consistency.

Once you hire a Miner, it is your job to motivate this person. Do not put this person in charge of KPIs and Dashboards and customer table development, because this person isn't motivated by these challenges. The Miner is motivated by answering new, unique, challenging questions.

Do not, however, expect the Miner to lead the company to a new strategy. The Miner is motivated by the act of mining data, not by leading the company down a new strategic path. You will be responsible for determining strategy if you hire a Miner. A CEO with strategic focus and a Marketing Executive with Miner tendencies can be a powerful combination.

If your customer data infrastructure is in place, but you don't know how customers are behaving, a Miner is a good choice for your rebuilding efforts.

Free Shipping

2010-01-26T22:05:00.000-08:00

The nice people at Zippycart and I had a fun exchange about free shipping strategy.

Please click here and visit Zippycart to read my take on Free Shipping as a part of a catalog/e-commerce business model.

And please click here to visit Zippycart, read their take on Free Shipping!

Now that you've read each perspective, why not leave a comment to describe your perspective regarding Free Shipping. Join the discussion about Free Shipping as a profitable component of an e-commerce business model.

Rebuilding: The Organizer

2010-01-26T20:15:00.000-08:00

So you are an Executive looking to rebuild your marketing department, and you've decided that an analytics-focused individual is the kind of person you want to run your department. And you took the analytics personality quiz a few days ago, so you have a general idea who the five different types of analytics individuals are ... The Organizer ... The Miner ... The Targeter ... The Futurist ... and The Strategist.

Let's assume that you gave this quiz to prospective marketing executive candidates, and you chose to hire an Organizer. What have you accomplished?

Rebuilding your marketing department around an Organizer can be a great decision. Remember, an Organizer loves to collect data from different sources, loves to make sure that the data is accurate, and loves to create dashboards and reports that allow other individuals to make decisions.

If you believe that your customer data infrastructure is broken, then hire an Organizer to run marketing, so long as you give this individual authority over the information technology team. Organizers work well in environments that are a few steps past the entrepreneurial stage. Organizers integrate e-mail marketing with traditional direct marketing. Organizers integrate social media into the existing customer database. Organizers combine offline data with clickstream data.

As a business leader, it is your job to know what your marketing department needs at any point in time. When the need exists to integrate data across all channels, an Organizer will get this job done for you. You may only need this marketing leader for two or three years, and that's ok.

Organizers can also be trusted companions for business leaders who like to make all of the decisions. I once worked with a CEO that needed to make every decision regarding customer analytics. This individual demanded reports and KPIs that were consistent with his way of thinking. He rewarded individuals who audited data for accuracy. He rewarded individuals who provided him with a report that was formatted exactly as he wanted to see it. He rewarded individuals who provided him with the exact customer analysis outcomes he was expecting. In situations like this, the CEO needs to be paired with an Organizer, or the CEO will be highly disappointed with the working relationship.

If your marketing department is in a state of customer analysis chaos, an environment where data is scattered across the enterprise, not linked together in a meaningful manner, then an Organizer is a perfect fit for your rebuilding efforts.

Online Marketing Simulations: Merchandise Growth

2010-01-25T20:15:00.000-08:00

Open your spreadsheet (contact me for your copy), and take a look at cells J19 - N19.

Cells J15 - N27 illustrate simulated/projected growth in different merchandise divisions during the next five years. Remember, this is a business that is forecast to shrink significantly over the next five years.

But the merchandise division in cells J19 - N19 is forecast to grow!

In fact, this isn't the only merchandise division forecast to grow in the next five years. Look at J23 - N23.

When a business is struggling, there is often data available, data that shows the Executive a path to a profitable future. You just need the tools to demonstrate the profitable path to the future.

Click here to buy the book on Amazon.com ... or have me build an OMS spreadsheet for you by clicking here.

Dear Catalog CEOs: Rebuilding

2010-01-24T20:15:00.000-08:00

Dear Catalog CEOs:

The Washington Redskins football team completed a 4-12 season in 2009 (four wins, twelve losses). The coach was fired, and a "rebuilding" process was initiated. A new coach was hired. This individual has a "system", a way of doing things (west coast offense or spread offense or zone blocking scheme ... 4-3 defense or 3-4 defense, cover-2 or man-to-man coverage). The team will draft new players in April, players that are suited for this "system". In 2-3 years, if things work out, the rebuilding process will result in a successful team, causing the coaches and players to be rewarded. If things don't work out, a new rebuilding process will be initiated.

In sports, this is an accepted process. The process gives teams and fans hope.

In merchandising, this is an accepted process. Every company has a merchandising "system", and when one system doesn't work, the Chief Merchandising Officer is fired, and a new "system" is put in place.

In catalog marketing, this process is fundamentally broken.

The vast majority of catalog marketers employ just one system.

The reason the company exists is to use catalog marketing to sell merchandise.
Online micro-channels (paid search, e-mail marketing, affiliate marketing, banner ads) are there to support the catalog. Orders generated from these micro-channels are matched back to the customers who received a catalog. If the customer received a catalog, the catalog gets credit for the order.
Customer analysis is designed to illustrate how the catalog is the "sun" in the marketing solar system, with online micro-channels representing planets that orbit the sun.
The catalog vendor ecosystem can be perceived as important as the future viability of the business. As a result, co-ops, matchbacks, paper reps, printer relationships, etc. are given as much weight as internal co-worker relationships.

Almost everybody is running the same catalog marketing "system". And when somebody attempts to run a new system (i.e. Bloomingdales dropping their catalog), many participants in the existing catalog marketing system mock those who decide to run a new system.

In the next two weeks, we're going to talk about rebuilding through people. Chances are, you are strongly considering "rebuilding" your catalog marketing team. And, based on what I'm hearing, you believe that a new catalog marketing leader needs to be "highly analytical". Your new "analytical leader" has "a system". If you don't understand the system employed by this individual, you may make a hiring mistake.

In preparation for our exploration of "catalog marketing systems", please take this quiz (click here for the quiz), as if you were interviewing for your open position. The outcome of this quiz will determine what your needs are, and will guide you as you begin to rebuild your catalog marketing department.

Gliebers Dresses: The Return

2010-01-21T20:20:00.000-08:00

Welcome to the Gliebers Dresses Executive Meeting. I've been invited back this week, in fact, I've been invited to sit in, in person.

Glenn Glieber (Owner): "So that's the year in a nutshell. We lost $800,000, yet another year where we didn't meet expectations. But maybe we weathered the storm. Maybe we have something to look forward to in 2010. We have a new catalog contact strategy that is off to a good start, thanks to Pepper Morgan, in fact, the new strategy is 15% over plan, so that's amazing! And we're going to ride our loyalty program through mid-year, to see if it can deliver the results that were promised."

Roger Morgan (Operations and IT): "I see we have Kevin in the room today. Did we want to ask him questions now, so that he can leave and then we can focus on more important things like company strategy?"

Meredith Thompson (Merchandising): "Hi Kevin, nice to have you back. We heard you worked on a project for Anna Carter during the past month, is that correct?"

Kevin: "Yes, I worked on an Online Marketing Simulations project with their Executive team."

Roger Morgan: "What did you learn? Did they kill their catalog and now they're struggling to stay afloat? I'll be that's what happened, right? They probably wanted you to talk about our catalog strategy secrets. Idiots."

Kevin: "You know I cannot share those findings with anybody."

Lois Gladstone (Finance): "I'll bet they wanted to know all about our loyalty program, didn't they? They are probably having big problems without having a catalog to support their business. I heard their business last Fall was down 30% to last year. HA! Serves them right. I'll tell you what, we sure weren't down 30% last Fall."

Roger Morgan: "But did you learn anything about how they drive sales without a catalog? I heard from our Woodside Research rep that they're doing some really interesting things with landing pages, something about the way they are leveraging their IT staff to create customized employee stores. I'd love to learn about that."

Kevin: "They did share a lot of their strategies and initiatives with me. Of course, you know I cannot share those findings with you."

Pepper Morgan (Marketing): "I'm following the Twitter feed of their Chief Merchandising Officer. She has a daily special on Twitter ... she introduces one new item a day, and her items do not appear anywhere else on the site except via a landing page that you click through via Twitter. When you check out, you have to enter her Twitter ID in order to be able to purchase the item. It's like she's developed her own marketing program for new items, she's created exclusivity. And heck, she has 14,995 followers. I've never seen a strategy like that. Does that work, Kevin?"

Lois Gladstone: "Their CFO also has a Twitter presence, with 82 followers. And she's hawking merchandise, too. You know, I cannot imagine an environment where you'd let your own employees do their own marketing. What do you do, pay them a commission each time they sell something?"

Roger Morgan: "And imagine the IT nightmares you'd have. You have to enter a Twitter ID on the order form in order to purchase the item? What a terrible customer experience! You make things as easy as possible for the customer, you don't ask them to enter a Twitter ID. Heck, we'd have to put something like that on our book of work, and prioritize it with everything else we're doing."

Meredith Thompson: "Honestly, my time is better spent finding great new fashion merchandise than hawking my own wares. I don't have the time to do what they're doing. I think it is the job of marketing to promote my product. And Pepper's new catalog strategy is +15% to plan, so she's clearly doing her job the right way!"

Pepper Morgan: "I counted over 100 employees who have either a Twitter presence or a blog on the company blog page. It seems like it is an organized yet decentralized marketing strategy they are trying to employ."

Roger Morgan: "It sounds like the desperation of a company that killed a catalog program and is now trying to find ways to recoup the 30% sales drop they experienced. Idiots. Our rep at ResponseShop told us they'd be doing desperate things once they didn't have the multichannel marketing support of a catalog, and now, sure enough, they are doing amazingly desperate things."
Lois Gladstone: "I noticed that they have an iPhone app that takes you to a micro-site that has merchandise that is only available on the micro-site. Isn't that nuts? Aren't you supposed to integrate all channels? Why would you only offer special merchandise for iPhone users? That's arrogant. It seems like they are grasping for straws."

Roger Morgan: "Woodside Research says that mobile commerce will outpace e-commerce by 2021. That's way out in the future. So why would you want to be on the bleeding edge of mobile commerce? I'll tell you what, there's still nothing like receiving a catalog in the mail, thumbing through it, and then carefully ordering merchandise on a secure e-commerce website. Who even wants to shop on a 320x240 pixel screen? What a terrible customer experience! Don't these new marketing gurus know anything about how actual customers shop? Did Anna Carter adopt a marketing strategy from the blogosphere? Geez. That's desperate. Those vendors and bloggers don't have any skin in the game. It's easy for them to tell us to do something, they don't have p&l responsibility like we have."

Meredith Thompson: "And Pepper's new strategy is up 15% to plan, so the key to catalog marketing is all about finding the secret sauce. I think marketers spend too much time on the shiny new toy, and not enough time optimizing existing marketing channels."

Roger Morgan: "I heard that we're going to be eligible for all sorts of paper discounts this year as well, so if catalog marketing becomes a bit cheaper, we can leverage it to a greater degree."

Lois Gladstone: "Kevin, why would Anna Carter's CFO be on Twitter? It doesn't make sense."

Kevin: "Again, I cannot share their strategies or their reasons for executing different strategies."

Roger Morgan: "Well then why are you even here?"

Kevin: "Let me ask you a couple of questions, Roger. First, you've been here throughout the entire downturn that Gliebers Dresses experienced. What percentage of the downturn would you attribute to your strategies, to company strategies, to the economy, and to the shift from print marketing to digital marketing?"

Roger Morgan: "I doubt my strategies play a role in our sales, I'm only the operations guy. I think our problems are half due to the economy, and half due to the shift from print marketing to digital marketing."

Kevin: "Ok, well, you cannot control the economy, so then the stuff that is within your control is, in your opinion, due to the shift from print marketing to digital marketing, right?"

Roger Morgan: "I guess so."

Kevin: "So let me ask you another question. If the shortfall in business is due to a shift from print marketing to digital marketing, do you not have a responsibility as a Vice President at a major company to try digital marketing strategies, in the hope of finding something that might work? Is it not your job to mitigate the decrease in sales with a new strategy?"

Roger Morgan: "Of course it is. That's why we have a book of work. That's why I prioritize all projects, focusing on those that have the best ROI."

Kevin: "Why don't you tell us what the top three projects are, based on your estimation of ROI?"

Roger Morgan: "Let's see. The top three projects right now are to eliminate invalid free shipping codes found on rogue sites on the internet, then to enable employees to get 15% off of all merchandise purchased in employee orders instead of the standard 20% they've always had due to a new expense control project, and third is to log the number of minutes employees in the contact center spend talking to customers to see if we can trim expenses in some clever way."

Kevin: "If in your words the biggest issue within your control as a business is the shift from print to digital, then why have you prioritized the three projects you mentioned as most important, given that not one of those projects deal with the shift from print to digital?"

Lois Gladstone: "I don't see how this line of questioning benefits any of us. Roger does a good job."

Kevin: "I'm sure he does a good job. But none of the three most important priorities on Roger's book of work have anything to do with selling merchandise in a digital marketing environment. If your company is being hurt by the transition from print to digital, as Roger suggested, shouldn't the top three priorities have something to do with facilitating a digital customer experience?"

... silence ...

Kevin: "What I can tell you is that there are companies out there who are fully embracing this transition. There are companies that use web analytics to measure website performance in real time, and make strategic merchandising changes on the fly. These companies are re-wiring their own neural systems to handle the complexities of modern digital marketing. What they are doing isn't easy, and is fraught with failure. But they are trying. They prioritize digital projects over analog projects, forcing themselves to manage a future they don't yet understand."

Lois Gladstone: "Those are good points, we'll take them under advisement. But I look at what Anna Carter is doing, and I just think they are grasping at straws. I think with Pepper's new catalog strategy, and the 15% increase we're seeing, that we can just double-down and try harder and make 2010 work. Then we'll address 2011, we'll keep making incremental improvements. Customers love catalogs. I was at Applebees last week, and there sat a couple, probably in their early 60s, each reading catalogs while waiting for dinner. The wife wanted a new sofa, the husband said something about buying new shoes. See, that's what we're talking about here. We can grab market share among a receptive audience."

Roger Morgan: "EXACTLY! Kevin, I think we're done with your questions for today. You can leave now. Folks, let's move on to the strategic portion of our meeting. Let's talk about the change from 20% off of company merchandise for employees to 15% off. Lois, how much profit will this generate in 2010, based on your estimates?"

Planning: Forecast Accuracy

2010-01-21T20:15:00.000-08:00

Ok, you've finally submitted your Annual Sales Plan for 2010. Now what?

It's time for forecast accuracy!

In e-commerce activities, I like to evaluate forecast accuracy on a monthly basis. In other words, each of your primary e-commerce micro-channels are evaluated against their forecast each month. You sum all Affiliate demand, and compare it against your forecast. You record the absolute value of your forecast error (-8% and +8% are both reset to 8%).

Repeat this process for all micro-channels (e-mail, paid search, natural search, each catalog you mailed last month). Calculate the absolute average forecast error (8%, 3%, 20%, 4%, 1% = 7.2%).

Your absolute average forecast error should be less than 8%. This is the number you evaluate your forecasting experts against. Each month, your absolute average forecast error should be less than 8%.

Now, here's the good part! After the first month is in the books, you are allowed to adjust your forecasts by advertising micro-channel. In other words, if e-mail marketing exceeded plan by 15%, and you have reason to believe that e-mail marketing will perform at 15% above forecast/plan for the rest of the year, go ahead and adjust your forecast. In subsequent months, you compare your forecasts to the revised forecast.

You'll find that your inventory team and your finance team will LOVE you if you get this part of the job done right!

In fact, you'll become THE person the company looks to, when wanting to know "what the future holds".

This is the best way, in my experience, for a garden variety analyst to gain Executive exposure. Simply own the forecast for where your business is heading, and you'll become an integral part of your Executive team, without having to deal with the pressures of being a real-life Executive.

Planning: 5 Things To Avoid

2010-01-20T20:15:00.000-08:00

As you've heard me say previously, Annual Sales Planning is a lost art.

For many of you, a new fiscal year begins on or around February 1. Your Finance department demands an air-tight financial forecast for the year.

Your job is to provide the air-tight financial forecast. Here are five things to avoid.

Avoid This: Do not put a "merchandise productivity" factor in your forecast. Just because the merchandising division believes that this year's assortment is "trend right" doesn't mean that you "put belief in the bank". Do not add a 5% factor to your forecast, or you are likely to miss plan, causing you to liquidate merchandise, causing you to miss your gross margin forecast, causing a lot of employees to not get bonuses, causing your business to be less profitable, potentially causing employees to lose their jobs.

Avoid This: Do not put a "conversion rate scalar" in your forecast. Just because you are working with a wizard who knows how to improve homepage or landing page conversion by 11.3% doesn't mean you are smart enough to forecast the improvement eight months ahead of time. Too often, improvements are "short lived", meaning that the customer becomes bored with the change, or the competition catches up with you, or you improve conversion rate but that only reduces visits (i.e. the customer would have purchased across two visits --- and now purchases in just one visit). Allow the changes to work, then "beat your plan", and let everybody look good.

Avoid This: Do not put a "creative factor" in your forecast. Your creative and marketing organization might feel strongly about their new initiatives. Never bank on these initiatives! How could anybody ever know if new imagery will result in a 4% sales increase, six months before the new imagery is to appear?

Avoid This: Do not put an "economic uptick factor" in your forecast. How the heck do you know that the economy will be 7.2% better in Fall 2010, compared with Fall 2009? Let people talk about this, but protect your company from buying inventory to cover a theoretical economic improvement that may never happen.

Avoid This: Do not put a "marketing improvement factor" in your forecast. How does anybody know that the October 6, 2010 e-mail marketing campaign is going to outperform a comparable campaign in 2009 by 13.4%? Focus on what you know, and what you know is how things performed last year.

I've seen entire profit and loss statements ruined, not because of customer productivity issues, but because of terrible planning assumptions that caused a company to over-buy merchandise, requiring markdowns and liquidations and gross margin erosion. Don't go there! Stick to the facts, please!

Planning: Tops-Down and Bottoms-Up Approaches

2010-01-19T20:15:00.000-08:00

There are two steps that happen in typical Sales Planning strategies.

Tops-Down Sales Estimates.
Bottoms-Up Sales Estimates.

The typical "Tops-Down" Sales Estimate is generated by a business leader. This person estimates what is likely to happen as strategies change.

The typical "Bottoms-Up" Sales Estimate is generated by a business analyst. This person is "in the trenches", generating a forecast from segment-level data, marketing campaign performance, key performance indicators, or customer projections.

The "Tops-Down" forecast and the "Bottoms-Up" forecast should be directionally similar. If they aren't, somebody must reconcile why the numbers are not directionally similar.

I tend to spend all of my time in the "Tops-Down" realm. My job is to create forecasts that are reasonable. So when a CEO wants to increase the marketing budget by 20%, I need to generate a reasonable sales increase to pair with the marketing increase.

When I don't have good data, I use a simple "square root" relationship to quantify my "Tops-Down" forecast. Let's say that we can attribute $20,000,000 to marketing efforts, and Management wants to increase marketing spend by 20% next year.

Tops-Down Forecast = $20,000,000 * (1.20 ^ 0.5) = $21,909,000.

I use the "square root" approximation because I want to discount the benefit of additional marketing spend. We seldom see cases where an incremental $1 investment in marketing yields an incremental $1 of sales. The "square root" approximation does a reasonable job of generating a "Tops-Down" forecast.

When the marketing analyst generates a sales forecast at a "Bottoms-Up" level, it should be directionally similar to the $21,909,000 estimate I generated. If I see $21,600,000, or $22,300,000, I feel confident that the analyst did a good job. If I see $24,000,000, I know that the analyst did something wrong --- there must be proof offered to demonstrate that a 20% increase in advertising will yield a forecasted 20% increase in demand.

These are the ways that "Tops-Down" and "Bottoms-Up" approaches reconcile to yield accurate sales forecasts. Ok, your turn. What methods do you use to reconcile sales forecasts?

Online Marketing Simulations: The Secret!

2010-01-18T20:15:00.001-08:00

Recently, we worked through a spreadsheet exercise (e-mail me for a copy of the spreadsheet) that illustrated how hard it was to make sure that good customers stay good customers.

In fact, it is very, VERY hard to keep a customer for life. Customers evolve and change. You enjoy every moment the customer wishes to share with you, then you let the customer go and find a new one to replace her.

Just look at how important customer acquisition is in the spreadsheet. Enter "0.00" in cells C6 - G6 ... by year 5, a $63,000,000 business becomes a $28,000,000 business.

In other words, you can focus on customer retention until the cows come home, but it is customer acquisition that, for all businesses except maybe Wal-Mart, Target, McDonalds, and Starbucks (and other businesses of their scale), fuels the future success of the business.

Almost nobody talks about finding new customers. This means that few people have discovered "the secret" to a healthy business. Why can't you apply "the secret" to your business, before others discover it?

Find new customer sources that have positive traits:

Customers who purchase multiple items on a first order.
Customers who purchase from multiple merchandise divisions on a first order.
Customers willing to pay full price on a first order.
Customers willing to pay for shipping.handling on a first order.
Customers who buy expensive, not discounted items.
Customers who are likely to purchase again in the next twelve months.
Customers who are likely to buy from another advertising micro-channel in the next twelve months.
Customers who buy from your brand (i.e. your website) and not from your brand via another brand (i.e. Amazon, Affiliates).
Use Online Marketing Simulations to identify these traits in new customer acquisition sources, and grow your business!

Click here to buy the book, "Online Marketing Simulations". Click here to hire me for your OMS project!

Dear Catalog CEOs: Improved Conversion

2010-01-17T20:15:00.002-08:00

Dear Catalog CEOs:

A quick read through the marketing literature suggests that there are few things that are more important in the online world than improving conversion rate.

I will concede this. It is important to improve conversion rate among first time visitors, or among visitors who have never purchased before.

Now, let's think about our existing customers, those who have previously purchased from our business. Does conversion rate matter?

If you look at simple web analytics metrics, you'd be inclined to think that conversion rate means everything. If the customer doesn't convert, you lose the sale.

If you look at customer metrics, measured over the course of a year, you'll see a completely different story.

In the past decade, conversion rates have declined. And yet, on average, existing customers repurchase at the same annual rate, ordering a similar number of times per year, buying a similar number of items per order, and paying a similar price per item.

In the past few years, marketing experts have done outstanding work developing tools and techniques that greatly improve conversion --- we read about the techniques every week in trade journals. And yet, on average, existing customers repurchase at the same annual rate, ordering a similar number of times per year, buying a similar number of items per order, and paying a similar price per item.

Among existing customers, conversion rate is seldom an optimal metric. Consider this situation:

In 2008, 1,000 existing customers visited your website an average of twelve times per year. 300 existing customers purchased, purchasing two times each. Total purchases = 300 * 2 = 600. Total visits = 1,000 * 12 = 12,000. Conversion Rate = 5.0%.

Now, in 2009, you create a marketing program where you have a daily web special, one where customers visit to learn about discounts on various popular items. Your website metrics change:

In 2009, 1,000 existing customers visited your website an average of thirty times per year. 320 existing customers purchased, purchasing two times each. Total purchases = 320 * 2 = 640. Total visits = 1,000 * 30 = 30,000. Conversion Rate = 2.1%.

As a merchant/marketer, you have done everything right. You were successful, getting 7% more existing customers to purchase than last year.

According to conversion rate metrics, you are a failure. A thousand different individuals offer solutions to solve your conversion issues.

I want my best customers to visit my website every single day. I don't care if they convert or not, so long as on an annual basis, retention rates increase, orders per buyer increases, items per order increases, and price per item purchased increases.

If you need help analyzing whether conversion rate changes are truly an issue, please contact me.

Planning: The Smell Test

2010-01-14T20:15:00.000-08:00

When you are reviewing your sales plan for 2010, does it pass "the smell test"?

One of the first things you do when creating an annual sales plan is you build a sales forecast assuming that there are no changes in your advertising budget.

In other words, if all things are kept the same, what will the business look like in 2010?

When you look at this table, are there any numbers that stand out, that don't look right, that don't pass "the smell test"?

Look at the catalog marketing number. Sales via the telephone (catalog marketing) have declined by ten or twenty percent, per year, for the past three years. And yet, the business leader that approved the forecast is projecting an increase in 2010. Just looking at the numbers, assuming no advertising changes whatsoever, what would you project for a catalog marketing number in 2010?

Look at the Paid Search number in 2010. In a case like this, one needs to challenge the marketing executive, asking for the facts that cause this number to increase. What is being executed, from a Paid Search standpoint, that causes the marketing executive to think that sales will increase this much without a change in advertising spend?

Look at Online Demand for 2010. Again, this appears to be a reasonable increase, but what are the underlying metrics that cause this to happen? Increased traffic? Improved conversion rate? The marketing executive must demonstrate that, without a change in advertising budget, these metrics tie out in a way that causes an increase in volume.

When planning sales for 2010, you first create a "base case", one that shows what happens to the business without any changes to the advertising budget. This forecast must pass "the smell test". Once it passes "the smell test", you may move forward with changes to the marketing plan.

Planning: E-Mail Marketing

2010-01-13T20:15:00.000-08:00

Annual Sales Planning is a lost art. In E-Mail Marketing, Annual Sales Planning is an art that was never crafted!

Here's the problem. Traditional E-Mail Marketing metrics (open rates, click-through rates, conversion rates) only measure what a customer does during a small window of time. So if an E-Mail Marketing program is delivered on a Monday, causing a customer to buy on Monday, but causes the customer to skip a purchase that would have happened on Thursday, you miss the lost sale on Thursday --- you only record the positive, you never record the negative.

That, my friends, is a problem. It means that you significantly overstate the importance of e-mail marketing.

Marketers avoid this problem by analyzing the results of mail and holdout groups. For instance, say you have an e-mail marketing list of 1,000,000 users. In each e-mail campaign, you mail 80% of the list, and you hold out 20% of the list.

(At this point, folks in the e-mail marketing community can be heard shrieking, as this goes against all established best practices).

We want a huge holdout group so that we can accurately measure what impact e-mail marketing has on other micro-channels. Does e-mail marketing help or hurt search marketing, for instance? I'd want to know that, wouldn't you?

A typical mail/holdout result looks something like this:

This table represents the secret that is obscured by traditional e-mail marketing metrics (open rate, click-through rate, conversion rate). Look at Telephone Demand --- if you send an e-mail marketing campaign, then Telephone Demand decreases. This means that the e-mail marketing campaign caused some customers to change their behavior, switching previously planned telephone orders to the e-mail channel.

E-Mail marketing generates $0.23 of demand ... this is what would typically be measured by e-mail marketing programs.

Now look at Paid and Natural Search. There are small increases. This means that e-mail marketing causes a customer to go out and search for information. Your e-mail marketing program may actually cause an increase in the Paid Search budget. Don't you want to know that, and budget for that accordingly?

Notice that e-mail marketing cannibalizes ordinary online channels.

In this example, e-mail marketing is estimated to generate $0.23 demand per customer --- but in reality, it is truly generating $0.02 demand per customer.

This is a common outcome among online brands and catalog brands.

For retail brands, we often see the opposite outcome.

Often, in retail, we see that e-mail marketing generates MORE demand than is measured via typical e-mail marketing analytics. Classic e-mail marketing fails to capture all of the incremental retail volume driven by e-mail marketing.

I find it fascinating that e-mail marketers don't ever talk about this --- their marketing programs generate tons of retail volume that they don't ever get credit for, and e-mail marketers don't seem to care about this.

CARE!

The modern Executive knows exactly what happens to every channel when e-mail marketing is increased, or withheld. The modern Executive uses this information in Annual Sales Planning, knowing that the information gives the leader tremendous strategic latitude. The modern Executive is not a slave to "comping what was done last year".

Planning: Customer Retention

2010-01-12T20:15:00.000-08:00

We're talking about Annual Sales Planning this month, a lost art in the e-commerce era. With most web analytics tools heavily focused on the tactics surrounding conversion, few people now focus on the strategic art of planning the future of a business.

Last week, we studied a business that was forecast to decline by 4.4%, due to having fewer good customers after a lackluster 2009. One way to grow the business is to dramatically ramp-up new customer acquisition. This can be an expensive proposition.

We can go through another exercise. Let's identify what has to happen in customer retention, in order for the business to be flat in 2010.

The cells in red are the ones that I changed. I increased customer retention rates by 6.1%, across the board. When I do this, the business is flat, year-over-year.

As an analyst, it is your job to communicate the productivity improvement needed to keep the business moving in the right direction. And if there isn't a marketing strategy that can improve retention by 6.1%, then it is up to the merchandising organization to sell product that is 6.1% more compelling than last year.

Do you understand how this style of analysis takes the pressure off of the marketing organization? The marketing analyst sets the table, communicating to all business leaders what is likely to happen if "all things remain constant". All Executives now know that there has to be a 19% increase in new customers, or a 6.1% increase in customer retention, in order for the business to just stay afloat.

Armed with this information, marketing outlines what it will do in order for the business to get closer to growth. The merchandising organization outlines what it will do in order for the business to get closer to growth. The e-commerce team outlines what it will do in order for the business to get closer to growth. All parties have a job to do, accountability can be assigned.

This is why we do Annual Sales Planning, a lost art in the era of e-commerce real-time software conversion analysis.

An Analysis Of Social Media Users And Behavior

2010-01-12T11:05:00.000-08:00

A Social Media Consultant named Mack Collier holds a weekly blog chat on Twitter. This Sunday evening forum gives users an opportunity to discuss various Social Media issues. Users review content via the #blogchat hashtag.

I took 71 page transcript from an April 2009 blog chat, coded each of 988 tweets among 131 users, and categorized each user into one of four Social Media user segments, based on behavior exhibited during the chat.

Why not give the analysis a read, and let me know your thoughts about the analysis and findings. There are many different ways to analyze Social Media activity, this is one attempt with potentially actionable findings for companies looking to participate.

Click Here For The 71 Page Blog Chat Transcript.

Click Here For My Analysis Of 988 Tweets Among 131 Users.

Open Your Spreadsheets: Customer Quality

2010-01-11T20:15:00.000-08:00

Time to open up your Online Marketing Simulation worksheets (click here to have me send you a copy, buy the book here).

In the spreadsheet, enter "0" in cells B101 - B188, and enter "0" in cells B190 - B580. This means that we are going to analyze just one segment of customers, a segment that is at a grade of "B" on an "A / B / C / D / F". Recall that I grade all customers in Online Marketing Simulations, so that I can measure where these customers migrate over time.

Ok, 7,062 customers with a grade of "B" don't stay as "B" customers for long, do they? At the end of five years, the majority of customers slump to grades of "D" and "F". In other words, good customers don't stay good customers forever. Here's what we see in our simulation:

Grade of A = 436.
Grade of B = 503.
Grade of C = 695.
Grade of D = 1,202.
Grade of F = 4,226.

Now, marketers think they can "fix" this problem. By initiating a loyalty program, or by simply dazzling the customer with outstanding marketing programs, we're told that marketers and vendors can "retain" your best customers.

So, let's assume that you can do a better job of retaining these customers. In cells C5 - G5, enter the value "1.30". This means that we're going to do a 30% better job of retaining customers, due to a loyalty program that does a spectacular job of retaining customers. What does the distribution of customers look like after five years?

Grade of A = 1,047.
Grade of B = 742.
Grade of C = 756.
Grade of D = 1,110.
Grade of F = 3,406.

If you can develop a loyalty program that somehow increases retention rates by 30% per year for each of five years, you can make a difference.

Good luck with that!

It is more common that new marketing efforts, as long as existing programs are being executed reasonably well, will lift retention rates by maybe 5%. So plug the value "1.05" into cells C5 - G5. Now take a look at how customers migrate over time:

Grade of A = 510.
Grade of B = 543.
Grade of C = 717.
Grade of D = 1,199.
Grade of F = 4,093.

Look at that! You improve retention rates by 5% a year, every year, and you basically get nowhere, do you? A 30% increase by year, every year, makes a significant difference, but is virtually impossible to achieve.

So, if you want to add an additional 500 customers at a Grade of "A", how are you going to do it? Your thoughts?

Dear Catalog CEOs: Over-Contacting Customers

2010-01-10T20:15:00.000-08:00

Dear Catalog CEOs:

There are four ways that modern Catalog Marketers over-contact customers. Let's explore how each strategy is costing you profit ... lots and lots of profit.

Strategy #1 = Matchbacks: When I analyze matchback analytics vs. mail/holdout tests, I observe a gross over-representation of catalog marketing effectiveness as stated by matchback analytics. We are over-circulating, usually by 10% to 50%, when we blindly follow our matchback results. I can help you fix this problem. If you are a $50,000,000 catalog brand, this level of over-circulation due to the inaccuracies of matchback analytics costs you, on average, $200,000 to $1,000,000 of annual profit.

Strategy #2 = Pages: Excessive catalog pages can be poison. Given printing/postage discounts, there is a swing toward adding pages these days among some catalogers. Every time you add four pages to your catalog, you reduce circulation depth, because the incremental pages will perform below break-even to marginal customers, causing you to shrink circulation ... and when you shrink circulation, you shrink your twelve month file, and when you shrink your twelve month file, you shrink the future potential of your business.

Strategy #3 = Contacts: It is common for contacts to have more impact these days than incremental pages ... two 64 page contacts a month usually outperforms one 128 page contact a month. Remails, however, should be used only when there is an absolute dearth of employee resources to create new pages ... remember, your online competition are changing landing pages dynamically, creating newness that cannot be matched by a remailed catalog. And be sure to execute contact strategy tests ... test thirteen contacts a quarter vs. four contacts a quarter vs. zero contacs a quarter ... use the results to determine the "optimal" contact strategy per segment.

Strategy #4 = Catalogs vs. E-Mail vs. Search: In every business I've analyzed, there is a unique relationship between Catalog Marketing, E-Mail Marketing, and Search Marketing. Carefully test combinations of Catalog Contacts and E-Mail Contacts ... measuring the sales results across all channels.

In 2010, every Catalog CEO should have an initiative to understand how each strategy outlined above impacts the bottom line.

If you need my assistance with these issues, please do not hesitate to contact me.

Thanks,
Kevin