Multichannel Retailing Week: The Chief Marketing Officer

With each passing day, I become more convinced that the role of Chief Marketing Officer is the hardest job in Multichannel Retailing.

The issues facing the CMO are very similar, regardless whether you're looking at a Catalog/Online retailer, a Retail/Online organization, or a Catalog/Retail/Online business.

Retail and Direct Marketing trade journals hound CMOs to "integrate" their marketing efforts, providing a common look, feel and theme across all activities. Catalogs should look like the website, the website should be reflective of the stores, catalogs should drive traffic to stores, stores should acquire traffic that will ultimately buy online, and merchandise offerings should be common across channels.

However, actual cross-channel marketing results measurement indicates that consistency and integration, while most likely beneficial to the customer, is not beneficial to the profit and loss statement. What performs best in e-mail campaigns (look, feel, style, merchandise assortment) is often different than the style and merchandise offering that works best in catalog. Online marketing requires a different merchandising strategy. The affiliate programs that work best may not be "brand appropriate". Traditional marketing activities frequently drive traffic to stores, not to websites or telephone channels --- with a different messaging, promotional rhythm and creative style required to drive the store traffic.

CMOs are heading toward a series of compromises that protect the p&l statement, while helping fulfill consultant/vendor/customer vision of a good multichannel customer experience. CMOs do use available resources to align promotions, retail floorset and website homepage merchandising changes. It appears unlikely that multichannel retailers will ever achieve the nirvana recommended by consultants/vendors. And that is probably fine.

Investment allocation has become a huge challenge for the multichannel retail Chief Marketing Officer.

There are many marketing activities that the CMO manages. Each activity has varying levels of measurement accuracy, and varying lengths of time to evaluate profitability. Today, the CMO does not have the right information necessary to make or defend investment decisions. CFOs know this, frequently challenging CMOs to do better.

• Catalogs are probably the best measured activity. Specific profit and loss can be tracked across any timeframe, in the telephone channel, the online channel, or retail channel. Because it is so thoroughly measured, catalog marketing ends up benefiting from over-investment.
• E-mail campaign performance is often under-reported. E-mail campaigns can drive sales far beyond the 1-2 days the campaign is active. E-mail campaigns frequently drive as much business to a retail channel as they do to the online channel. Most CMOs do not have the analytical resources necessary to understand either phenomenon. As a result, e-mail investment is compromised.
• Paid and natural search, portal marketing, and affiliate marketing performance are all under-reported for multichannel businesses with a retail channel, due to the same issues observed in e-mail marketing. In addition, we don't understand what a "shared" brand relationship between Google and our brand means to the long-term loyalty of the customer.
  
• Traditional advertising (television, radio, newspaper) can never be accurately measured. Vendors are providing solutions to estimate the impact of these advertising channels. CMOs can use these tools to estimate the impact of traditional advertising across channels. However, "double-counting" of sales can occur with these methods --- i.e. the e-mail marketer counts a sale as being driven by e-mail, while the traditional advertising marketer counts the sale being driven by newspaper advertising. Again, vendors are working hard to develop fractional allocation methods.
• Brand Advertising is dying. Since so many CMOs know this arena far better than catalog/online/e-mail advertising, this arena receives a disproportionate amount of focus. This is the hardest marketing activity to measure, requiring the longest timeframe to evaluate for success. In reality, "branding" has never been more important --- everybody offers the same merchandise at the same price. Our "brand" becomes the only real differentiator for the customer. The sum of all experiences the customer has with a business becomes the "brand" perceived by the customer. To properly manage a "brand", the CMO should be given accountability for all aspects of the customer relationship. To date, not many CMOs have this experience. The COO may be a stronger individual at managing the call center experience than the CMO, may be better at responding to customer complaints.

Over the next ten years, the multichannel CMO will acquire skills that will make the CMO position more valuable than it is today.

• Ownership of the "customer experience". It is my opinion that marketing will evolve. Marketing will be more about "pleasing" a customer than about "creating demand". The CMO will have to own the end-to-end customer relationship. This means the information technology folks cannot own the website. The COO cannot own management of the call center. One can envision a CMO utilizing Human Resources staff to support customers, much in the same way that Human Resources staff support employees today.
• Holistic Measurement. Over the next decade, measurement tools will improve. The CMO will trust an analytics expert who "speaks the language of the CMO" to holistically measure catalog marketing, portal marketing, paid/search marketing, affiliate marketing, e-mail marketing, and traditional advertising along the same set of metrics, across all channels, over the same timeframes.
• Investment Strategy. Via holistic measurement, the CMO is armed to defend investment strategies as a partner to the CFO. Today, the CMO is often viewed as being far less "analytical" than the CFO. As a result, the CFO owns the business investment strategy. In the future, the CMO and the CFO will have to be partners for the CMO to succeed.
• Online Proficiency. Today, CMO skills are frequently skewed toward traditional advertising. Over the next ten years, a generation of online marketers will assume CMO roles, and will bring a new and refreshing view of the marketing world to the executive table.
• Metric Proficiency. Today, CMOs are comfortable with market research metrics. Over the next decade, the generation of online marketers who assume CMO titles will bring a proficiency to understanding metrics that will greatly enhance the credibility of the CMO.
• Management Style. The CMO of the future will be very gifted at managing individuals with wildly divergent skills and interests. The CMO will balance the career needs of traditional advertisers and catalogers who are experiencing the decline of their craft. The CMO will mentor online and e-mail marketers who, to-date, do not have the cross-functional skills and abilities of other marketers. The CMO will be more adept at selling long-term strategies to business partners. The CMO will be able to get more done through strong partnerships with the Information Technology leader. The CMO will get creative individuals to work with analytics staff.

If vendors/consultants/research organizations/customers ever hope to see their vision of multichannel retailing fulfilled, management will need to hire CMOs with a broad set of skills, skills required to manage the business of the future. Management will need to give CMOs more responsibility than they have today. As we go through this transition, it appears the opposite is actually happening --- CMO tenure is under two years. I believe this is a temporary phenomenon, necessary because of the transition from traditional advertising to our new multichannel marketing reality. We are transitioning from campaign-based management of the business to a holistic, long-term management of the customer. Eventually, marketing leaders will acquire the skills necessary to complete this transition.

Those are my opinions. It is time for your thoughts. What challenges do you think the CMO faces in multichannel retailing, and how should the CMO address them?

And The Winning Catalog Cover Is ... J. Jill

Earlier this week, I asked which multichannel retailer sent a catalog without the name brand on the cover.

The winner is J. Jill, who sent the sale catalog on December 23.

J. Jill's new Chief Marketing Officer is Hilary Chasin. I wonder how she perceives this unique marketing strategy?

J. Jill has struggled for the past several years. Since being acquired by Talbots, J. Jill earnings have dragged down Talbots performance. 2007 should be an interesting year for multichannel specialty apparel businesses.

Setting Your Online Marketing Budget

Undoubtedly, many of you are putting the finishing touches on your online marketing, e-mail marketing, or catalog marketing budget for 2007. Oh, the excitement!

Is there anything more enjoyable than sitting across from your Chief Financial Officer, having to defend why it is important to advertise with a certain affiliate at a time when expenses need to be trimmed by ten percent?

CFO's demand rapid, financially-based answers to questions. The humble Chief Marketing Officer or Online Marketing Executive needs to be able to respond in a credible, but timely manner.

Most of the time, when asked a random question, you don't have the appropriate data with you to answer the question quickly. This is where the "square root" function comes into play.

Frequently, sales generated by advertising follow a "square root" function. In other words, if you had the opportunity to increase your marketing budget by twenty percent, your net sales would increase by the square root of 1.2. This number is (1.2 ^ 0.5) = 1.095. In other words, a twenty percent increase in marketing spend yields a 9.5% increase in net sales.

This becomes important when the CFO makes a random statement like,"Please reduce your marketing budget by ten percent, you have no choice in this, everybody must share in the pain."

Look at this example, where the online marketing budget is reduced by ten percent:

High-Level Online Marketing Scenario
		Reduce Ex-	Incremental
	Base Case	pense by 10%	Sales Lost
Orders	90,909	86,244	4,665
Average Order Size	$110.00	$110.00	$110.00
Cost per Order (CPA)	$22.00	$20.87	$42.87
Net Sales	$10,000,000	$9,486,833	$513,167
Gross Margin @ 40%	$4,000,000	$3,794,733	$205,267
Marketing Cost	$2,000,000	$1,800,000	$200,000
Pick/Pack/Ship Expense @ 13%	$1,300,000	$1,233,288	$66,712
Variable Operating Profit	$700,000	$761,445	($61,445)
Profit as a % of Net Sales	7.0%	8.0%	-12.0%
Ad to Sales Ratio	20.0%	19.0%	39.0%

Notice how the profit and loss statement changes. In this case, the CFO may have a good suggestion, as the incremental advertising dollars are not yielding a sufficient return on investment. Conversely, the numbers might work out in your favor, giving you the ammunition to actually ask the CFO for more money!

Not every business follows the "square root" rule. Your analyst can help you figure out which relationship makes the most sense to build the scenarios around. But in a pinch, go with the square root function. And then ask your CFO to quickly cost-justify some of her investments!!