Retail And Mass Transfer

This is the line waiting to get in to the Old Country Buffet in Factoria, WA, on a Friday evening at 7:30pm.

Two years ago, you could walk past this dining establishment and you'd be lucky to see twenty patrons dining on a veritable plethora of hot-light heated goodies. Now, you wait fifteen minutes for a table.

In the same mall, there is a specialty apparel retailer. Within ninety seconds of taking this low-res image, I snapped an image of the traffic within this store. Yup, you guessed it --- no traffic
at all. In fact, I didn't see a single employee either --- maybe management read the Sequoia Capital Death Spiral presentation.



The last image is of the Apple store in Bellevue Square. These are products you don't need, and yet, this store is absolutely nuts. And when you walk into the store, it feels vibrant. Plasma monitors telling you where you stand in the queue, recommending you sign up for future Genius consultations online due to the long wait --- tons of employees, yet not nearly enough to handle the throng.



From a Multichannel Forensics standpoint, we're experiencing transfer, actually, mass transfer. As our perception of the world changed, we made immediate changes to our shopping habits. Instead of spending $42 on dinner for two at Chili's, we transferred our loyalty to a $22 dinner for two at the Old Country Buffet. Instead of buying apparel, we hang on to what we already own, but we transfer apparel dollars to music and accessories at the Apple store.

Obviously, we don't have the ability to understand macro-economic transfer (HINT ABACUS & THE CO-OPS --- YOU HAVE THIS CAPABILITY AND COULD CREATE A PRODUCT THAT CAN HELP YOUR CLIENTS UNDERSTAND THIS ACTIVITY!).

But we do have the ability to observe transfer when it comes to the products we sell. It is critically important to analyze how customers are migrating out of expensive items, into inexpensive items --- migrating out of fashion and into staples.

As these trends become evident, we forecast the long-term trajectory of the trends --- capitalizing on the trends without having to fire employees as an expense management best practice.

Debunking An Article/Study: Response From Abacus / Chad Elmendorf

From Chad Elmendorf, Manager of Customer Communications at Abacus, in response to "Debunking An Article/Study: Catalogs Still Rule". This was left as a comment to the original post where I mistakenly assumed that Abacus tossed the DMA a few bucks to underwrite the survey --- my error in assuming what the term "underwrite" meant:

"First off, Abacus supports the DMA and their efforts to provide catalogers with industry research. That being said, I wanted to clarify Abacus' involvement with the DMA State of the Catalog Industry Report. As a sponsor of the report, Abacus promoted participation in the survey to our clients through a client newsletter to support involvement. The survey was completely conducted, and the results compiled, by the DMA. Abacus had absolutely no involvement with compiling the data from the survey or giving the DMA survey data. The DMA survey results are from survey respondents only. Abacus supplied the DMA with the executive summary from our annual Multichannel Trend Report which is printed in it's entirety as an appendix in the State of the Catalog Industry report under the title "Industry Trends According to Abacus Multi-Channel Trend Report. If you would like to receive a copy of the executive summary from our Trend Report please email me directly at chad.elmendorf@epsilon.com. The executive summary is available to anyone who requests it (current client or not) whereas the complete data findings included in the full report are for the exclusive benefit of current Abacus clients."

Debunking An Article/Study: Catalogs Still Rule?

Multichannel Merchant published an article titled "Print Catalogs Still Rule, Survey Shows". The first sentence says "If you think the print catalog is a dying channel, you better think again." Sounds like an agenda will be shared. Let's explore this article, which is an advertisement for the DMA's State Of The Catalog Industry Report, 2008 Ed, a $245 article for members, $445 article for non-members.

Quotation #1 = "Of 106 merchants polled by the Direct Marketing Association". Who was polled? Is the polling representative of all catalogers? We don't get to know in this article.

Quotation #2 = "And our data suggests a consensus among successful marketers that there are consistent and integrated standards across all channels". Could we get a definition of a "successful marketer"? Bloomingdales just killed their catalog division. Nordstrom killed their catalog division, and enjoyed the most profitable years in the history of the company. Is that success?

Quotation #3 = "And despite buzz to the contrary, the number of print catalogs in circulation has actually increased since 2003." Ok, let's assume you are right. Tell me what has happened since 2006? In the past two years, you have a postage increase averaging about 30% that wreaked havoc, an economic downturn that is shredding circulation, and the implosion of catalog customer acquisition. None of those points are mentioned in the article. From 2003 to 2006, we enjoyed the buoyancy of the home equity piggy bank.

Quotation #4 = "The survey estimates that total annual housefile circulation reached about 15,463,891 while total annual prospect circulation reached about 5,536,424. That's up significantly from the total annual housefile circulation of about 5,169,011, and total annual prospect circulation of 3,423,389, recorded in 2003." What does this mean? Are these total numbers in the survey, or are they averages per survey respondent? And how about the word "about", bantered around in the quote? What does "about" mean? Does it mean that 5,536,424 is really 5,536,429? Or does it mean that 5,536,424 really means 2,536,424? Help us understand!! Finally, let's assume these numbers are accurate, representing an average cataloger. Let's ask a question. Have you tripled your housefile circulation in the past five years? Have you nearly doubled your customer acquisition circulation in the past five years? Ask Talbots, or J. Jill, or Nordstrom, or Lands' End, or L.L. Bean, or Eddie Bauer, or Bloomingdales, or Lillian Vernon, or Hanna Andersson if they tripled their housefile circulation in the past five years. If the numbers are accurate, this suggests that the sample of respondents are small catalogers that are growing rapidly. Heck, I know of several small catalogers that are growing rapidly --- that's the nature of a young, growing brand. These businesses rent/exchange names with big companies, growing from the hard work of the larger brands that preceeded them, while big companies already have all the names available. Catalogs are wonderful for small, growing catalog brands.

Quotation #5 = "The findings are also based on a detailed analysis of billions of transactional records from 100 million households in the Abacus Alliance database, maintained by marketing firm Abacus, a division of Epsilon, which helped underwrite the report." Ah! So the DMA did a survey, Abacus kicked in a few bucks to complete the study, and results were merged together so that the reader does not know in this article which statistics are from the study and which statistics were paid for by Abacus. Why doesn't the mystery author honestly tell us which stats are from the study, and which stats are from Abacus? And how come the information in the article is so glowingly positive? How come there is no discussion about the true hardships facing catalogers, including but not limited to declining response rates across housefile and especially customer acquisition segments? And why isn't the fact that Abacus contributed metrics and underwrote the study not mentioned in the title of the article --- the title of the article says this is a survey?

Why do our industry leaders continue to offer us misleading information? This style of writing/selling is exasperating to me, a sales pitch to continue to execute the practices that make sure the DMA and Abacus stay in business.

Or am I way off base? If I'm off base, please use the comments section to defend the article ... I'll even publish your responses as a complete post if you wish. What do you think?

Brookstone Q2 2008 Results. Oh Oh.

Recently, we were told about strategic changes at Brookstone, a brand that was outsourcing strategic circulation functions to co-op business partners.

• Brookstone Signs With Abacus For Direct Marketing Needs: This August 2006 article lauds the combination of Bookstone merchandise and co-op database products.
  
• Brookstone Counts on Abacus. The June 2007 article talks about increasing circ & response at the same time and all that good stuff.
• Merchandise Mix Aids Brookstone, While Sharper Image Suffers. The February 2008 article praises Brookstone for increasing circulation, increasing response, and lowering costs by working with co-op database products.
  

Now, an industry blogger shares with us recent results (read the company press release here).

• Direct-to-Consumer sales were down 3.8% on a 23% increase in circulation in the past three months. Oh my goodness.
  
• Same store sales were down 4% in the past three months.
  
• Direct-to-Consumer sales were up 9% on a 37% increase in circulation in the past six months. Imagine what the p&l looks like for this relationship?
  
• Circulation will be scaled back in the 2nd half of 2008. Density will be increased to increase productivity as a response to rising paper costs --- contradicting what was written last year.
• The company lost an additional $5,000,000 of profit in the first half of 2008, compared with the first half of 2007.

Folks, this is not an critique of using co-op databases, there's nothing wrong with working with the co-ops on a database and circulation strategy solution as long as you have control over the database and circulation strategy. This is not a critique of Brookstone either --- many folks are struggling in this economy.

This is a direct criticism of how "solutions" are marketed to us. We need to demand better from our business partners.

Redirection: How Catalogs Create Demand For Online Pureplays

Given that catalogers seem to enjoy yesterday's discussion about the failure of catalog and multichannel marketing, is is appropriate to share the following outline concerning demand generation in 1994, 2001 and 2008. Of course, what follows in the image is only a theory of mine --- no hard evidence to prove one way or another. Click on the image to enlarge it.



















My theory suggests that catalog marketing is as effective as it has ever been. However, Google and Social Media have stepped in and redirected demand that would have gone to your brand.

Redirection (otherwise known as "transfer" in Multichannel Forensics) happens in many different ways.

• Google and SEO --- think about how many of you found my blog via Google/SEO?
  
• Google and Paid Search.
• Social Media --- Check out Manolo's Shoe Blog as an example.
• User Generated Reviews --- You see an item advertised in the Crutchfield catalog, you read a review from a customer on Amazon.com, and you ultimately buy the item on Amazon instead of Crutchfield.

Redirection is lethal for a brand that doesn't play along. Since this is just a theory, I don't have any solid numbers to back up my thesis --- I would surmise, however, that maybe 25% to 50% of your demand is "at risk" for redirection.

This theory suggests that we have two important objectives.

1. Prevent redirection of demand away from our brand.
2. Induce redirection of demand to our brand.

A metric like the "net promoter score" would be useful, wouldn't it? You look at the percentage of demand that is redirected to your brand, then subtract the demand that is redirected away from your brand. The net is your score --- positive is good, negative is bad. Think of Zappos. Their score has to be amazingly good, right? Footsmart sends a catalog, the customer checks prices online, and buys at Zappos where she gets the item tomorrow via free shipping. Footsmart gets a negative score in this instance.

Abacus/Epsilon --- what do you think? You could so easily help the catalog industry that pays your freight by generating an index of this nature for your clients. There you go, free product development information from The MineThatData Blog! You've got bright people, make something happen! Heck, toss me a few pennies, and I'll develop the prototype.

Too often, we view the world through tactics, like catalog marketing or e-mail marketing or paid search or SEO or affiliate marketing. How often do we view the world in the context of "redirection"? How might we approach competitive advantage via the concept of redirection?

Attention Catalogers: Co-Ops (Abacus) And Matchbacks

If you do customer acquisition via catalog marketing, you undoubtedly elected to drink the co-op kool-aid. And why not? Based on our reporting (sometimes provided by co-ops like Abacus), co-op lists outperform outside lists.

I've mentioned this before, and I want to mention it again, because the topic keeps coming up in various projects I work on. Co-op customers tend to be more likely to purchase over the telephone than rental/exchange customers.

And since phone orders are nearly 100% attributable to the advertising vehicle sent to the customer (whereas online orders are at best semi-attributable if matchback analytics are performed properly), co-op names may "appear" to perform better simply because of the channel preference of the customer selected by the co-op.

This has long-term implications for the brands we shepherd. If co-op names work "best", with co-op customers more likely to order over the phone, we then "have" to mail catalogs in the future to get the demand. And by having to mail catalogs, we have to keep feeding the entire catalog ecosystem --- printers, merge/purge houses, USPS, the paper industry, and the co-ops.

By feeding the catalog ecosystem, we anger some customers and prospects, which feeds the rampant growth of Catalog Choice.

We create our own problems, folks!

If you are a heavy user of co-ops, please consider extensive matchback analytics. At minimum, use the Migration Probability Table as outlined in Multichannel Forensics to understand future channel preference of co-op sourced names. You're in for a treat if you do!

Social Media, Competitive Intelligence, And Web Analytics

Have you ever wondered why I occasionally write obtuse articles like this one on free shipping at Lands' End (check the organic/natural results for Free Shipping Lands' End on Google).

Or this article about Williams Sonoma and Multichannel Growth?

Or an article about Abacus, a popular co-op in the multichannel catalog world?

All are part of a strategy to gain what I call "Competitive Intelligence".

Maybe you noticed that Father's Day is just around the corner? There's a veritable plethora of folks who are interested in getting Dad a lightweight coat from Lands' End. They also want free shipping. Because I wrote the article about Lands' End free shipping, Google sends visitors to my site. In kind, I use Google Analytics and SiteMeter (here are my site statistics) to understand the rhythm around free shipping for Father's Day. I get to see the build-up prior to Father's Day, the days customers are most interested in obtaining Free Shipping, and the drop-off prior to shipping cutoffs.

Now if I can do this with my humble little blog, imagine what L.L. Bean could learn about Lands' End, Eddie Bauer, Orvis, you name the competitor, by hosting comparable content? And imagine how much more effective these brands would be, given their scale, compared to my humble efforts?

Miller Brewing Company accomplishes this style of competitive intelligence with their "Brew Blog", writing about their competitors on a daily basis.

This stuff isn't rocket science.

For me, the Lands' End example is more fun than anything else. More important is the work I do to understand my competitors.

For instance, I frequently write about matchback analysis, especially as it relates to co-ops like Abacus. Because Multichannel Forensics indirectly compete with matchback programs from companies like Abacus, it is a good thing for me to have folks searching for matchback solutions, searching for products from Abacus, to visit my site.

I get to track the evolution of terms that folks use. Catalog marketers use the phrase "Lifetime Value" to understand the long-term potential of customers. Online marketers and E-Mail marketers seem to prefer the term "Return on Investment" or "ROI". If I want to partner with online marketers on long-term customer value studies, I won't attract them to my site by writing about Lifetime Value.

I also have numerous competitors, folks who provide similar products and services to those offered by yours truly. By writing about these folks, or by hosting their RSS feed on my site, I get occasional visitors from Google who are searching for information about my competitors. I assure you, this information is very enlightening!! I get to see who the companies are that want to hire my competitors. I get an idea for the type of service the company has a need for. If necessary, I adjust my content, products, and services accordingly. I get to see the articles you like, ones written by my competitors.

Once, a competing organization fired a long-standing and high-ranking employee. The company announced the firing on a Tuesday. One day earlier, I had numerous visitors who arrived via Google searches that combined the competing brand name and the name of the individual who was fired. If I wanted to, I could have fact-checked the story and "scooped" the mainstream media.

Hosting a blog is so much more than the social media pap spewed by the punditocracy. The competitive intelligence gained from this effort means everything to a small business like mine. And best of all, the tools needed to obtain the competitive intelligence are free. FREE!

Now imagine for a moment what your brand could accomplish with a combination of Social Media, Competitive Intelligence, and Web Analytics?

Micro-Channel Challenges: Abacus And Co-Ops

I am continually told by traditional catalogers that there isn't a viable way to get away from a paper-based advertising model. Regardless of the sales success of folks at Zappos or Blue Nile or Amazon or Overstock.com, folks who do not use a catalog marketing channel, traditional catalogers usually have data (and more important, a belief system), to support the need for a paper-based advertising model.

Many (most?) catalogers have annual repurchase rates under fifty percent. In other words, fewer than fifty percent of 2006 purchasers buy again in 2007. When this happens, the business model demands a disproportionate focus on customer acquisition.

Catalogers look to outside lists and co-op databases (with Abacus being the primary co-op) as the primary way to acquire new customers, looking at paid search and online marketing as a secondary source.

Micro-channels like Abacus / Co-Ops present unique challenges. We need to seriously look at WHO the customers are that we acquire via these channels.

Have you completed this exercise? The exercise is valid for any micro-channel (not just e-mail or co-ops or rented lists or paid search).

Some folks see that the names they acquire from Abacus / Co-Ops are disproportionately rural. These customers are likely to stay in the catalog / telephone environment (which, by the way, is a more measurable environment, making Abacus / Co-Op names appear to perform better, simply because the phone/mail channel is the most measurable ... an interesting and unintended outcome).

Some folks observe that the names they acquire from Abacus / Co-Ops buy fundamentally different merchandise than customers acquired from other sources. This implies that the future value of these names will be different (maybe better, maybe worse). This also implies that, depending upon how many new customers are acquired from these sources, the future merchandise assortment is being driven by co-op statisticians applying sophisticated algorithms.

There are significant differences between names acquired from various sources.

• Rented / Exchanged Lists are brand loyal, this loyalty to another brand drives their future behavior within your brand.
  
• Abacus / Co-Op names are selected by a human using an algorithm. Future behavior is driven by the choices made by the human using the algorithm.
• Paid Search names self-select themselves on the basis of an algorithm. Future behavior is driven by the needs of the person self-selected by the algorithm.

Profiling the names acquired via these micro-channels will give you an idea where your brand is heading. Increasingly, algorithms and outside individuals are driving the future success of our multichannel brands. This is neither good nor bad, it is simply part of our new marketing reality.

Use tools like Multichannel Forensics (or simple future value tables) to understand the long-term trajectory of customers acquired via micro-channels.

Catalogers And Co-Ops: A Question

A question for my catalog readers.

Would you like for your co-op vendor (i.e. Abacus or Z24 or others) to do a multichannel forensics analysis, one that tells you the companies your customers are in transfer mode with (i.e. the companies your customers are leaving you to shop at), one that tells you which companies transfer customers to you?

And if you knew that information, would it be actionable?

Many of you already pay companies for panel data that provide you with similar information. Your co-op has a much better sample of information than organizations that use panel data.

Your thoughts?

More On Compiled Lists Like Abacus

Talking about Abacus caused this blog to have it's top-rated day ever, in terms of RSS/E-Mail subscribers reading content.

It's always good to stimulate the 25% of the audience that reads this blog because of the catalog content.

You catalog folks tend to be shy, so I'm not expecting a lot of comments on the following questions. If you'd like, please join in on the conversation.

Question #1: If you were in the list rental/brokerage business (i.e. Millard/Mokrynski among many others), how would you restructure your business to compete against the likes of Abacus?

Question #2: If you were in the compiled list business, how would you evolve your business to compete against marketing activities like paid search (the digital/online version of a compiled list)?

Question #3: If you are a catalog circulation expert, what are the reasons you choose compiled lists over traditional list rental/exchange activities?

Discuss!

Abacusification

Please click on the image to enlarge it.

I'm about to board a plane to visit a traditional cataloger.

Traditional catalogers think differently than online pureplays, think really different than retailers who execute direct marketing via websites, catalogs and e-mail campaigns.

Most of the traditional catalogers I've worked with have annual repurchase rates that are under fifty percent. When the annual repurchase rate dips below forty percent, the traditional cataloger is in what is called "Acquisition Mode".

Anytime the annual repurchase rate is under fifty percent, the focus of marketing activities is on customer acquisition.

These days, catalogers shifted their focus on new customers from the list rental industry to the compiled list industry.

There are a half-dozen B2C compiled list vendors of note. Ask most catalogers about compiled list vendors, and they will focus on one "brand" ... Abacus., now a division of Epsilon.

Most of the catalogers that communicate with me put at least half of their customer acquisition circulation in compiled lists, with Abacus often getting the lion's share of the circulation.

Abacus deserves kudos for transforming catalog customer acquisition. Few companies have been as disruptive in catalog marketing as Abacus --- that includes all the companies associated with online marketing, including Google. Abacus had to do something right, or catalogers wouldn't have generously allocated the majority of their customer acquisition circulation to the guiding hands of Abacus-based statistical modelers.

One of the interesting theoretical discussions about Abacus, and the "Abacusification" of cataloging, surrounds the long-term impact of having a statistician in a far-away outpost determining the strategic direction of your catalog brand.

Try this analysis on for size. If you are a cataloger with half of your acquisition circulation in Abacus, then segment your file into two groups. The first group represents all customers who were acquired in 2006 from Abacus. The second group represents all other new catalog customers acquired in 2006.

Next, analyze the merchandise that the Abacus group purchased. Compare the "taper report" as some call it (ranking best sellers from #1 to #whatever) for Abacus names, vs. all other names. Does the merchandise rank order the same way, or are there variances?

If the merchandise ranks in the same order, there's no need to take the analysis farther, no need to read the rest of this article.

But if the best selling items for Abacus-sourced names are different than the best selling items for all other new names, you're about to be plopped in the middle of a unique theoretical challenge.

If this is happening to your business, it means that Abacus is providing names that are interested in your brand for fundamentally different reasons than the rest of your new customers.

Long-term, this will have a profound impact on your brand. In the chart at the top of this article, I outline the trend that many catalogers are heading toward, a trend where in five years, 3/4th of the active customer file will be sourced from Abacus.

And if the merchandise that Abacus (and honestly, this works for all compiled list vendors, not just Abacus) customers purchase is truly different than the merchandise purchased by other customers, then the merchandising and creative decisions you make over the next five years will evolve.

Without even noticing, you will respond to what your customers "want". Certain items will "work well". You'll feature those items more often. You'll feature the items other customers purchase less often, less prominently.

Within five years, the merchandising of your brand will have evolved out of your control. With 3/4th of your active customer file coming from Abacus, you'll be offering product that Abacus names like, presented in a way that Abacus names like to see merchandise presented.

This might be perfectly acceptable for your catalog brand. You might generate robust profits, your business might grow beyond your wildest dreams. I'm not saying this is a bad thing.

I am saying that as a business leader, you won't own your brand.

Abacus will own your catalog/telephone customers.

Google will (and already does) own your online customers.

You will merchandise your catalog, and present merchandise the way Abacus customers want the catalog merchandised. You will ultimately respond to the wants and needs of customers who buy from your business because of the actions of a small number of statisticians who made decisions based on equations developed years ago.

The end result is something that I call "Abacusification". Again, I'm not saying this is a bad thing --- your business might thrive because of this.

It is, however, a fascinating end-game for the catalog industry, one I would never have envisioned in 1990 when I sat down for my first day of work at Lands' End.

Prospect Catalogs

The concept of special catalogs used to minimize prospecting expense is not a new one. Given the increases in the expense structure facing most catalogers, it is a concept worth revisiting.

Simply put, the prospect catalog is merchandised with the best products, products that perform well in the short-term, and cause customers to be acquired that spend a lot in the future (i.e. high lifetime value).

The prospect catalog features a proven creative presentation, there is no time for experimentation in prospect catalogs. However, be concerned if at least half of your circulation is in compiled lists like Abacus or Z24. If you prospect in these universes, you don't have as much control over who receives your catalogs, based on the models the compiled list vendor uses. It is possible you are prospecting to the same name repeatedly --- this can be a problem when using the same creative and same merchandise presentation. Ask your compiled list sales representative to provide reporting for you that proves the same prospects are not being mailed repeatedly,

Liquidation and sale merchandise is typically avoided as a merchandising strategy. This is a customer acquisition tool, not an inventory management platform.

Many marketers apply lower price points on the items in the prospect catalog. Many marketers use free shipping or a percentage off orders achieving a certain hurdle in order to entice customers. If this is an effective short-term and long-term strategy, feel free to use these tactics in the prospect catalog.

The prospect catalog is often half the size of the main catalog being mailed, with a minimum of forty-eight pages of merchandise offered.

Circulation managers employ three different circulation strategies with prospect catalogs. The starting point is to determine how productive a catalog half the size of a main catalog will perform. Typically, you'll get seventy percent of the demand on fifty percent of the pages, though it is not uncommon to achieve ninety percent of the productivity on half the pages. If you find that you are getting half the sales you get on half of the pages, you know your merchandise and creative strategy is not appropriate for a prospect catalog.

One strategy is to send the prospect catalog to everybody. This results in a highly productive mailing mailed very deep into the housefile and prospect list. This can be a better strategy than wrapping an existing catalog with new cover and back cover (i.e. a remail), though adequate testing is required to prove this.

Another strategy is to mail your housefile and outside lists to "breakeven", or whatever your lifetime value threshold is. After that point, you mail the prospect catalog to customers down to "breakeven", or whatever your lifetime value threshold is.

A third and more profitable strategy is to simultaneously compare which catalog is more profitable across every segment you plan to mail. This strategy results in a shallow circulation depth for your main catalog, with the majority of your circulation in your prospect catalog.

As always, it is important to track online orders driven by main and prospect catalogs. It is not uncommon for a smaller catalog to drive just as much volume online/in-stores as a larger catalog.

One limitation of prospect catalogs surrounds the average order size of the prospect catalog. With fewer pages, customers tend to place orders that are between ten and twenty percent smaller than in the main catalog. As we all know, customers with initial order sizes that are smaller than average tend to have lower lifetime value than customers placing average or above-average initial order sizes.

As you develop your Spring and Fall 2008 mail plans, it may make sense to sit down with your creative team, merchandising staff, compiled list vendor, outside list broker, and print vendor to discuss the opportunities surrounding prospect catalogs. There are cost efficiencies in leveraging existing creative, and your printer can help you understand cost efficiencies at various page counts.

Coremetrics, Abacus, Experian and Catalog Matchback

Notice the last paragraph of this article about Hanover Direct working with Coremetrics on Catalog Matchback algorithms.

My e-mail inbox and phone have been buzzing lately with queries from online analytics organizations looking to take market share away from established catalog attribution folks like Abacus and Experian.

It will be interesting to watch this trend unfold as executive leadership transitions to those with online marketing experience. These individuals have relationships with online vendors, not catalog vendors.

People Matter

Two things struck me this afternoon, two things from different realms.

• If you're addicted to motor racing like I am, then you were saddened today by the loss of former NASCAR leader Bill France Jr.
• An article from Bookstone about the merits of their relationship with Abacus.

What do these two completely unrelated topics have to do with each other?

The first article illustrates the importance of people, in this case, how one leader shaped thousands of lives and influenced millions of people.

The second article ignores the importance of people. Quotes attributed to a Brookstone executive suggest that a revolutionary product is responsible for unfettered business success.

Catalogers have always known that the creativity of people (and an steely-eyed focus on every detail of efficiently running the operations of a business) drive success.

All too often, multichannel marketing and online marketing focus on technology, on algorithms. We brand our technology, creating demand for a product or service.

But behind the scenes, people invent technology. People create algorithms.

What would happen if a vendor marketed the people responsible for a product? Instead of branding a product as being wonderful, what if the vendor publicly praised the people who created the product? Would we view a vendor differently if we knew that reputable multichannel expert "Bill Smith" is responsible for a product, and puts his reputation behind the product or service?

People matter. If we want multichannel marketing to succeed, we need to reward people for their efforts.

Answer me this: Name three individuals who are well known and respected for their expertise in multichannel marketing? Go ahead and write their names in the comments section of this post.

People matter. Let's start cultivating tomorrow's leaders.

More On Abacus, Google, And Customer Biodiversity

Please click on the image to enlarge it.

One of the most popular pieces I've written this year was Tuesday's discussion about Abacus, Google, and Brand Implosion.

Almost nobody chose to leave a comment. But you're reading this article, you're forwarding this article to friends and co-worker. When you come to the site to read it, you're interacting with the site much more than usual.

Interest in the article made yesterday the busiest day on the blog in the past eight weeks.

Why is this article interesting to you, and why is the topic so divisive among the catalog marketing community?

Why is this topic of interest to me? To me, it all boils down to "customer biodiversity".

Online marketers excel at using customer biodiversity to their advantage. They drive traffic through a massive network of affiliates, often numbering in the thousands or more. Online marketers utilize portal advertising to reach larger audiences. Brilliant online marketers cultivate traffic through natural search, at close to no incremental cost. Most online marketers use paid search across hundreds, thousands or more keywords. All of this guarantees a diverse audience of potential and existing customers. Some strategies work, some fail. The marketer manages a complex ecosystem of marketing strategies and customers.

Retail marketing is all about a complex interaction between "who you hang out with" and "target customer demographics". Nothing happens when you put a physical presence in front of the wrong target demographic. The right demographics and the wrong shopping center or wrong set of competitors cause problems. Combine the right demographics, competitive biodiversity, and a modern shopping environment, and cash registers sing.

Catalog marketing, however, is being threatened by a lack of customer biodiversity. The entire left side of the diagram represents potential customer biodiversity for catalog marketers. In the past, the list broker was the gatekeeper of biodiversity. S/he managed hundreds of outside lists, s/he even fueled the growth of compiled lists because s/he wanted to do "what is right for the client". In the process of doing that, s/he ceded market share to the compiled lists. This hastened the decline of the list broker, and accelerated the rise of the compiled list vendor. In 1990, one list broker ensured customer biodiversity by simultaneously managing a hundred relationships with competitors. Today, the same service can be provided by one statistician creating a statistical model at a compiled list vendor.

There was a lot of discussion about postal rate increases at last week's catalog conference. Obviously, this is an important topic in the short term.

Long term, there must be a significantly increased focus on customer biodiversity. The success of a multichannel business is predicated on the ability of the retailer to align with the target customer across a wide variety of potential sources.

My experiences tell me I want to spread my marketing efforts across a thousand affiliates, several large portals, natural search, paid search focusing on several hundred or more keywords, e-mail marketing, RSS and applicable Web 2.0 marketing, several compiled lists, several dozen or more rented/exchanged catalog lists, catalog requests, and other prospect lists. This gives me a portfolio of opportunities to manage.

I do not want one statistician who knows nothing about my brand culling prospects out of a compiled list as my primary source of new customers. I'd love for this statistician to be a piece of the puzzle, not be the entire puzzle.

Your turn, what do you think?

Abacus, Google, And Brand Implosion

Using Abacus for customer acquisition has always been a hotly debated topic in catalog marketing.

Many circulation experts have always enjoyed their relationship with their favorite list broker. It's fun to exchange 50,000 names with Talbots, to net out 24% and realize, by default, that you share the exact same customer as your competitor. It can be a rush to test a Crutchfield 0-3 month $100+ select, and see the list work. List rental, exchange and brokerage requires gut feel, instinct, business savvy, and negotiation skills.

Then along came Abacus. You dump your housefile into their database. You then have access to modeled prospect names for something like seven cents a name. You have no idea which names you're getting, you just know their model picked "good" names, names that have an "affinity" to your brand.

At first, big companies hated this idea --- why should a big company dump six million names into the compiled list, only to realize that sixty percent of the compiled list is your customer?

Once Abacus achieved scale, all contributors theoretically benefited. Another funny thing happened along the way. The performance of Abacus names rivaled that of rented/exchanged lists. Why go through the hassle of managing 73 different lists in a mailing, when Abacus can automate the process for you?

The evolution of catalog customer acquisition is driving companies toward Abacus, away from the good folks at Millard and Mokrynski.

Everything seems peachy.

Except for one person I recently spoke with. This person made an interesting observation. He told me that almost all of his customer acquisition is from Abacus. He told me that the performance of Abacus names continues to be good. But, his housefile names are not performing well anymore.

I asked this individual what his twelve month buyer annual repurchase rate was. The answer ... thirty percent.

Remember, this individual does almost all of his customer acquisition via Abacus.

So, two years ago, this individual had 100 buyers. 30% repurchase. This person has to recruit 70 new customers ... almost all from Abacus.

In year two, there are 30 existing buyers, and 70 from Abacus. 30% of each list repurchase. This leaves us with 9 existing buyers, 21 existing buyers from Abacus, and 70 new customers from Abacus.

Within two years, 91 of 100 customers are from Abacus. Obviously, some names come from other lists, or from lapsed buyers. So let's assume that just 75 are from Abacus, not 91.

Still, in just two years, 75% of the active housefile are Abacus-sourced buyers. And this individual points out that his housefile names aren't working well anymore.

If your annual repurchase rate is in "Acquisition Mode", under forty percent, and you do the vast majority of your customer acquisition work with Abacus, you've got an interesting dilemma. In just two years, the vast majority of your active housefile is sourced from Abacus.

Remember, this individual says his housefile names no longer work well. Hmmmmmmmm.

This isn't the fault of Abacus. They are simply providing a service that clients are willing to pay for.

No, this is the fault of circulation experts. It is our fault! We're doing this to ourselves. Not smart!

Our business models participate in a big ecosystem. Unwittingly, we are moving our ecosystem away from something we control, toward something we no longer control. In this example, Abacus now owns the brand I spoke of, with housefile productivity imploding as we speak. The success or failure of the brand is no longer in control of the merchants who pick great product. Instead, the brand depends upon the type of names that Abacus makes available for the client.


And all you online marketers, if you think you're immune to this, you're not. Where do you get all of your customers from? Google? Abacus is tiny. Google owns the world. Once we've saturated the online customer market, Google plays the role for online marketers that Abacus plays for catalog marketers today.

Multichannel CEOs and CMOs: If your annual repurchase rate is under forty percent, be wary of sourcing the majority of your new customers from one vendor. The dynamics of your housefile dictate that, within just two years, that vendor determines the fate of your brand, not the product/creative/service/brand strategies you initiate.

Matchback Analysis Challenge

Catalogers --- here's what I'd like for you to do on your next catalog.

Step 1: Randomly select 10,000 customers from your mailing.

Step 2: Divide these customers into two groups.

Step 3: In the first group, code these customers as "mailed". Send these customers a catalog.

Step 4: In the second group, code them in your promotional history as "not mailed". Do not send these customers a catalog.

Step 5: After these catalogs have been mailed and results have been measured, send each group of customers to your favorite matchback vendor, be it Experian or Abacus or anyone else.

Step 6: DO NOT TELL EXPERIAN OR ABACUS THE DIFFERENCE BETWEEN THE TWO GROUPS. Simply perform the matchback analysis on each group.

Step 7: Carefully analyze the results in each group. Remember, the second group DID NOT RECEIVE A CATALOG. Therefore, every order that Experian or Abacus attributes to a catalog in this group represents an "overstatement", a "matchback bias" in web orders that are attributed to catalog mailings. Remember, these customers DID NOT GET A CATALOG, you're just communicating to your matchback vendor that they got a catalog, so that you can measure the "matchback bias" that exists in all of these analyses.

After you've done this little experiment, share the results with my audience. I'll be happy to publish what you've found, regarding "matchback bias". I think you'll be surprised by what you learn from this experiment. I think you'll see that you are over-stating the importance of catalog mailings at driving web sales.

NEMOA Thursday

There were many interesting discussions today.

A couple of memorable things from the Small Cataloger Panel

• Jim Ruma, Ruma's Fruits and Gift Baskets ... "A lot of sales cover a lot of sins".
• Peggy Glenn, Firefighters Bookstore ... "Sales were down in 2001. You have to remember, I lost 345 firefighters / best friends on 9/11".

If only the folks who write about customer service could see the passion these folks had for their customers. Their desire to please reaffirms one's faith in business.

Industry legend Tim Litle hosted the lunch discussion, talking about the sixty year history of NEMOA. When we think about tricks for measuring things, we sometimes forget our history. Tim spoke of putting mail orders (the orders that came in envelopes in the 1970 and early 1980s, with a check inside the envelope) on a scale. The weight of the envelopes was directly correlated with the sales expected for that day. Wow.

Today's badge of honor goes to Laura Wojtalik of Abacus. She spoke about developments at Abacus surrounding the allocation of orders to the advertising path that led to a customer purchasing merchandise (frequently referred to as a 'Matchback Analysis').

Laura exhibited a tremendous amount of professionalism, following her presentation in front of a standing room only crowd (and the term is appropriate here, there wasn't a place to sit in the overcrowded room). Many in the audience peppered Laura with "what if" questions that were theoretical in nature, questions that don't necessarily have (and may never have) straightforward answers.

The audience had every right to ask the questions of Laura. It is not easy to measure the vehicle that drove the response when a customer received three catalogs and six e-mails in a twenty-one day period of time, and yet purchases following a search on Google on day twenty-two.

In today's world, Google gets paid for this --- yet online and catalog marketers are aware that the three catalogs and six e-mails played an equal or greater role in driving the order. I think the audience wanted a definitive answer on how to quantify this in a way that makes the audience feel comfortable. I don't think a definitive answer will ever happen, it is part of our new reality. When Laura gave honest and fair answers, some in the audience weren't thrilled.

This is yet another reason I harp on online businesses and catalogers getting in too deep with Google. I don't think Google is trying to be evil. But we pay them anyway for actions/purchases they didn't fully cause, because Google takes the credit for the last action in the "path to purchase", as coined by Coy Clement of Clement Direct.

A Brief History Of The Internet, And Leadership Development

In 1995, I accepted a job at Eddie Bauer as Manager of Analytical Services. One of my 'demands', was to have a personal computer with internet access, and an e-mail account. One could sense that the internet channel was about to change the way we worked.

Within a year, we had individuals focusing on internet marketing. If I remember correctly, we called the channel 'I-Media'.

Our Vice President of Marketing would kid our 'I-Media' person. "How many orders did we get yesterday, six or seven?" he would joke. The 'I-Media' person would just plug along, doing work that none of us really understood.

Six or seven orders a day became an annual total of $65,000,000 three years later. Vice Presidents paid attention to that number. These sales appeared to be largely 'free'. We didn't have to spend $10,000,000 marketing to the customer to get these sales ... at least on the surface, it didn't appear that way.

In 1999, I was Director of Circulation for a $500,000,000 catalog business that was stumbling along. Sales were no longer increasing, in fact, catalog demand was decreasing year-over-year, on a comp basis. But we had $65,000,000 of 'I-Media' demand. What's not to love about that? The P&L looked great. We earned nice bonuses.

By late 1999, the 'I-Media' channel was garnering attention at Eddie Bauer. The E-Mail and 'I-Media' folks were moved to another building, to focus on growing sales in the online channel. The rest of us were sequestered in our building, trying to figure out why we couldn't grow sales in the catalog channel anymore, in spite of the fact that 'customers buying from multiple channels are the best customers'. If those customers are the best customers, why do they keep spending less and less in catalog? Today, we know why. Back then, it was a bit of a mystery.

I don't know if these trends happened at other companies. What I do know is that, in many cases, the internet marketers and e-mail marketers developed their analytical tools, marketing strategies, and a network of co-workers/friends outside of the regular processes within our businesses.

While the rest of us tried to maintain a robust profit and loss statement by cutting costs, circulation and pages --- by shifting management of customer acquisition to businesses like Abacus, the online marketing folks were frequently off in their own world, building relationships with CheetahMail, Google, AOL, Yahoo! and MSN. They literally built their own businesses, independent of the core business.

Over the past five years, there has been an enormous focus on integrating the internet channel into the rest of the business, across all of our multichannel businesses. Our failure to integrate the business sooner caused us to spend too much time developing skills in our specific niche. We didn't build enough skills across functions or channels. Couple this fact with an ever-decreasing number of 30-40 year olds in our businesses, and we're now heading for talent trouble.

The only folks who tried, in some way, to integrate business units were merchandisers. Customers liked buying merchandise online, in catalogs, or in stores. The merchandising folks, keenly aware of the importance of growing sales, probably did the best job of understanding how merchandise sold across channels. They didn't understand how the channels worked together, but they did get to see how merchandise sold across channels.

The rest of us were busy tackling unique issues that caused us to not have the skills necessary to lead a business in the year 2007.

Catalog folks focused their energies on a dying business model, trying every technique possible to improve efficiency and profitability, becoming more and more like a fossil in the process.

Retail folks feared that the online channel would cannibalize their sales, and viewed the internet as an enemy, never understanding that so many of their customers were researching merchandise online before coming into the store.

Online marketing folks, never knowing the pain of having the distraction of managing a downturn in business, integrated their businesses with Google, to a point where they depend on the search channel for between ten and forty percent of their sales. More on that in a future post.

Like everything else in the first decade of the 21st century, we fragmented ourselves into targeted niches. Not enough of us built General Management skills to manage a fragmented, multichannel business, in the year 2007.

The result is an utter lack of General Management talent in the multichannel retailing industry. There simply aren't enough people who know the entire business. There are plenty of people who know one specific aspect of the business.

A decade of focusing on keywords yielded thousands of talented individuals who know exactly how to work with Google. These folks have not been given the experiences to manage anything outside of a relationship with Google.

A decade of writing copy that is search friendly yielded thousands of talented individuals who know exactly how to write copy that is appealing to Google. These folks were never given an opportunity to write copy that romanced a customer.

A decade of writing catalog copy that romances the customer yielded thousands of talented individuals who know nothing about writing copy that is appealing to Google. These folks were cut off from the future of the business, and failed to acquire necessary skills for the future, through no fault of their own.

A decade of reducing catalog expenses yielded thousands of talented individuals who know how to communicate to Abacus what type of model they want built for catalog customer acquisition. These folks don't have the tools necessary to understand what type of customer they are acquiring with their catalog mailings. They are giving up management skills, in exchange for the skillset of working with Abacus.

A decade of managing open rates, click through rates, and conversion rates yielded thousands of talented individuals who know how to send an e-mail that converts a customer to a sale today. These folks were never given an opportunity to build something that lasts, something that customers save --- as evidenced by the fact that 75% of people don't even bother to open a marketing e-mail.

Because merchandisers had to sell product across all channels, we now focus our leadership opportunities on these folks. Leadership jobs in the multichannel industry are likely to go to merchandisers over the next five years.

Our businesses must do a better job of cross-training our highly talented online marketing individuals, so that they can assume leadership positions in our multichannel organizations.

If we don't do this, we simply yield more control of our business to algorithms, Darwinian-style evolution of merchandising strategy, Abacus, and Google. At some point, we must grow our talented online marketers, giving them broad cross-functional opportunities to become leaders. If we don't do this, we're subject to a world where merchandisers tell us to tell Abacus and Google what to do. We won't be left with a meaty, meaningful job.

Multichannel marketing is moving ever-closer to an algorithm-driven business that lacks warmth, humanity, and gut instinct. We need to begin adapting to this trend now, and need to begin developing marketing leaders capable of doing more than working with Google and Abacus.