Dear Catalog CEOs: Contact Strategy

Dear Catalog CEOs:

How often should you contact your customers?

Well, back in the day, the only way customers purchased was when you mailed them something.

Today, this relationship has been blown up by the internet. In the "multichannel era" (2001 - 2007), it was suggested that you had to mail catalogs or you wouldn't get any online demand. Many now use mail/holdout tests, and know that this is no longer the case. In fact, it is not uncommon to execute a mail/holdout test, and observe that half or more of the demand does not disappear when catalogs disappear.

To think that all of our measurement/matchback systems get this wrong, costing us a ton of profit. Hmmmmm.

If you want to greatly simplify this mystery, segment your twelve-month customer file into three groups.

1. Customers who ordered via the telephone.
2. Customers who ordered online, and previously ordered via the telephone.
3. Customers who ordered online, and only order online.

Customers in the first segment still follow the "old rules" ... meaning that you have to mail catalogs, or you won't get demand from these customers.

Customers in the second segment might follow the rules of the "multichannel era" of 2001 - 2007. Often, you can reduce contacts by 15% to 25% without detriment to the top-line.

Customers in the third segment follow rules that the catalog industry isn't used to. These customers tend to be less loyal (that has been known for a decade or more). These customers do spend money online without the aid of catalog mailings. These customers can be managed very profitably, in fact, total company profit can be increased by 15% to 40% simply by managing these customers in an appropriate manner.

How many other ideas do you have for increasing company profit by between 15% and 40%, right now?

And if you don't have any ideas for increasing company profit by between 15% and 40%, right now, why wouldn't you capitalize on this methodology? What are the reasons that limit your ability to capitalize on this methodology?

Most of my Multichannel Forensics projects focus on these three audiences, trimming mailings in order to increase profit. The money saved here is re-invested in customer acquisition and in online marketing (search, e-mail, re-targeting, mobile, and in some cases, social media).

As always, I'm here to help you through this transition --- e-mail me now for details.

Dear Catalog CEOs: Mobile, Social, Media, Algorithms, Tradition, Service

Dear Catalog CEOs:

I am preparing presentations for several conferences I am speaking at between now and June 1.

Two things have become obvious to me.

1. What our industry knew as "multichannel marketing" is dead. It cannot be resuscitated.
2. The customer decided what her version of the future looks like. We didn't anticipate her vision of the future.

Classic multichannel marketing looked something like this. Our industry mailed a catalog to a customer. The customer walked to her mailbox, full of anticipation. She opened her mailbox, and found nine of her favorite catalog brands offering 124 pages of sheer delight. The customer entered her home, fed her family a wholesome dinner, then covered herself in a blanket next to the fireplace, thumbing through more than a thousand pages of content. Her laptop sat beside her, her credit card securely stored in separate accounts at each of her favorite catalog retailer websites. She placed orders, she keyed in source codes off of the back of each catalog, she paid $14.95 for shipping and handling. In just six days, her merchandise arrived.

Classic multichannel marketing predicted that this process would repeat, evening after evening, in perpetuity.

And the script, written in 2001-2002, never varied. Even in 2010, this is the way the script is read. Worse, the e-mail marketing community picked up on the script. They claim that e-mail, a mature marketing channel, is the engine that fuels social media. Does that sound familiar to the script you've been following for a decade?

The script can always be justified, because there are always instances where the script is 100% correct. We'll always be able to find women in rural Maine who act the way we want them to act, causing us to believe that we're on the right track.

We're not on the right track.

There are many forces driving our customer base in different directions.

1. Mobile.
2. Social.
3. Media.
4. Algorithms.
5. Tradition.
   
6. Service.
   

Mobile is going to be unpredictable. Mobile is what the internet was in 1995. Your early investments in Mobile are unlikely to be fruitful. And yet, you have no choice but to be there, to experiment. So get busy!!

Social is the digital version of tradition. It is the place where humans digitally interact. People eat at a food court in a mall and chat. Now, people put a sign up on a digital property in Farmville, or share thoughts online.

Media is something that catalog brands need to embrace, immediately. Media must be created to engage customers. Media will be shared by folks in the social space. Media will connect people to brands in the mobile space. Heck, the iPad and successors are devices that will bring Media to life. Where is your high-definition programming channel? Instead of a tactic of creating a blog, what is your content strategy? How will you "entertain and inform" customers in a way that causes them to visit your website twice a week without the expense of a rented name from a co-op?

The future of Algorithms is uncertain. In a pre-Social world, Algorithms were the way that customers found information. Google decided who won and lost. That type of dominance is not likely to last this decade. Social and Algorithms and Mobile will interact in ways we cannot possibly anticipate today. We know how Algorithms used to work. Our customers will use our innovations to decide for themselves how they will interact in the future. One thing is certain. We need to be there.

We focus a disproportionate amount of time on Tradition. We mail our catalogs, we debate whether 64 pages are appropriate or whether 72 pages are appropriate. We contemplate a Monday-Wednesday in-home window or a Wednesday-Friday in-home window. We wonder whether we should add four pages of editorial in order to "make a statement". In 1994, this was a valid discussion. In 2010, this is 17% of what the discussion should be about. Tradition goes in other directions as well. Tradition relates to television, radio, newspaper, billboards, direct mail, e-mail marketing. Tradition relates to the competitive advantage a 35 year old catalog has over a 6 year old online startup. Tradition can be marketed a positive. Today, we let the customer decide what Tradition means, and all too often, she sees Tradition as being stodgy.

Service should never wane as a critically important component of a brand strategy in a digital world. Companies like Zappos choose to execute Service via operational excellence (i.e. rapid and free shipping), unfettered selection, and the use of Social to deliver the Service message. Nordstrom goes old-school, using real humans in physical stores to deliver Service. We must have a Service solution. It cannot be $14.95 shipping with six day delivery. It cannot be a bare-bones staffed call center.

Again, every Catalog CEO should demand that every member of the Executive team have an answer for how every strategy fits within each of these six dimensions.

1. Mobile.
2. Social.
3. Media.
4. Algorithms.
5. Tradition.
   
6. Service.

Take your website, for instance. How does your website interact with Mobile? Why would folks in the Social world recommend your website to somebody? What Media are you producing on your website that would cause the customer to voluntarily visit your website every-other-day? Do the Algorithms favor your website, driving new traffic? Do you leverage Tradition (i.e. your catalog) to drive traffic in a cost-effective manner? And what Service do you offer that is superior to anybody else?

Your website no longer represents technology, your website IS your store, it is the embodiment of who you are. Your website and your merchandise and your pricing strategy are essentially the same thing. You leverage Mobile, Social, Media, Algorithms, Tradition, and Service to grow your business. These dimensions replace traditional campaigns, the building blocks of classic marketing. No tactic within any dimension scales to a level that replaces a campaign, which is a problem of the 2010s that we simply cannot avoid.

Again, every strategy you implement should tie in to each of the six dimensions outlined in this article.

Ok, your thoughts?

Dear Catalog CEOs: Customer Loyalty

Dear Catalog CEOs:

Here's a question I get all of the time. "Hi Kevin, I stumbled across your blog, it's really informative. Say, could you offer me some free advice? I want for my customers to become more loyal. We all know that it costs 27 times as much to acquire a new customer as it costs to keep a loyal customer. Could you please tell me three best practices that I can implement right now to make my customers more loyal? Thanks, I'm really looking forward to your answer."

The most interesting part of the question is the word "make". Most of the time when somebody asks this question, the word "make" is included in the question.

I honestly don't think you "make" customers do anything. Go make your spouse stop playing Farmville sometime. If you can't make your spouse change behavior when standing alongside him/her, why do you think you can make a customer become more loyal, based on a relationship that lasts for all of five minutes a month, at most?

In every analysis I do, customers who have a relationship with a real human being have better long-term value than do other customers.

Let me say that again: "In every analysis I do, customers who have a relationship with a real human being have better long-term value than do other customers."

Nobody wants to hear that. We want customers to be dazzled by a shopping cart abandonment e-mail message that "wins back" the customer along with a 20% off offer coupled with free shipping and a big blue buy button that was tested to increase conversion rates by 9.2%.

Algorithms and tech solutions are good.

Humans are better.

Human interactions come in many forms.

Example: I mention on Twitter that Zappos has a new home page design. Zappos sends me a thank you message via Twitter in less than sixty minutes. That's a human interaction.

Example: A customer spent $750 last year. Instead of enrolling her in a points-based loyalty program, you assign an employee to this customer. This employee is there to meet every need the customer has. What do you think would work better, a points-based loyalty program, or an employee who will go above and beyond to exceed customer expecations?

Example: Imagine if you, the CEO, participated one hour a week, helping in live chat sessions. You think that wouldn't leave an impression in the mind of a customer. You think that wouldn't create Social Media "buzz"?

This advice is opposite of just about everything you hear out there. It is easy to set up a points-based loyalty program. It is easy to send a direct mail piece that appears to be handwritten but in reality is just fancy printing technology. It is easy to use the best paper quality. It is easy to offer 20% off or free shipping. It is easy to send a shopping cart abandonment e-mail. It is easy to change the size of buttons on your homepage.

It is hard to add humans to the customer relationship process. The more digital our world becomes, the more cold and sterile the buying experience becomes. Why not leverage your customer service team, transforming it into a customer loyalty team that uses Social Media and your call center and live chat and your sales staff, creating a humanized shopping experience?

Dear Catalog CEOs: Aging Customers

Dear Catalog CEOs:

Here's a topic worth consideration.


What kind of customer do you want to acquire?


On the surface, this is an easy question to answer. You want customers who fit your target demographic, customers who are profitable in the acquisition transaction, customers who will generate long-term profit.


Theoretically, however, this is a challenging question to answer.


Most of us do not append demographic data to our customer files. We should append, at minimum, age information.


Why?


Because our existing best practices (i.e. ask the co-op for a million names) yield an outcome that we may not desire.

Let's assume that most of us don't append demographic data to our files. Can we then agree that a customer who mails her order to us via the postal service is probably not a twenty-six year old? Can we agree that, most of the time, a customer who phones the call center to place a $100 order (not the $775 order that requires assistance) is older than the customer who orders online?

If we can agree that those assumptions are valid, then we have some interesting metrics to consider.

Take your co-op results, and look at percentage of transactions by mail, by phone, and online. Are these percentages skewed more to mail and phone than are other outside lists? Are these percentages skewed more to mail and phone than they are for your housefile?

If the answer is "yes", then your co-ops are essentially optimizing your results for an audience that is generally older than your core customer.

This becomes a big deal, because your online marketing efforts often result in acquisition of a customer that is a bit younger than your catalog customer.

Now, granted, you may only care about surviving 2010. But if you plan on shepherding your business into the future, you probably care about the kind of customer you are acquiring via the co-ops (or online, for that matter).

When you acquire older customers, your measurement systems allow you to track them more directly --- mail and phone demand easily tie into your merchandising systems, allowing you to measure demand per thousand pages circulated easily. This results in a merchandise assortment that skews toward older customers, so you plan for 2011 merchandise that will be preferred by older customers, thereby allowing your co-op lists to appear to perform even better because the older customers they pick for you like the merchandise you offer ... can you see where this is heading?

Strategically, it is important to compare the merchandise that is purchased via mail orders, phone orders, and online orders. If you have demographic data, compare merchandise productivity by age bands (18-24, 25-34, 35-44, 45-54, 55-64, 65+).

Once you have this data, it is time to make a strategic decision.

• Market to the same customer cohort as that cohort ages.
• Market to a demographic (i.e 55-64 year olds), as customers age through that age band.
• Market to a younger customer that may be less productive today (i.e. risky), but may help guarantee the long-term success of your business.

So analyze your data, understand what is happening, and make the appropriate strategic decisions!!

Dear Catalog CEOs: A Failure To "Be Online"

Dear Catalog CEOs:

Here's a question that I'd like for you to answer with honesty.

"Do you truly have an online channel?"

More on the answer to the question in a moment.

See if you believe the early results from Internet Retailer:

• Online Pure-Plays (Excluding Amazon) experienced +18% e-commerce growth last year.
• The overall average growth rate for an online business was +14%.
• Catalog brands averaged -3% growth in the online channel.

We failed to capitalize on our huge e-commerce head start.

A decade ago, we had the infrastructure in place to fill orders efficiently, and we were ahead of the curve in the adoption of e-commerce and e-mail marketing.

A half-decade ago, we were behind the curve in the adoption of search marketing. In many cases, we made up some ground via paid search ... of course, we had to "pay" to catch up.

Today, we're waaaaaaayyyyy behind the curve when it comes to online marketing.

See, we spent our time believing the multi-channel script provided by a vendor community with a vested interest in publishing a multi-channel script. We were told that all customers shopped because they received catalogs and then placed orders online.

Today, we've lost a ton of market share. We focus solely on the customers who shop because they received catalogs. We failed to pay any attention to the 18-45 crowd, folks who shop very different than the baby boomer generation that took cataloging to a whole new level. We simply shut out the portion of the consumer audience that will generate business in the future. I get concerned anytime I hear a quote like "80% of our online audience matches back to a catalog" ... that is a symptom of failing to focus on the 18-45 crowd.

Today, we view co-op marketing as a best practice. We give our most valuable asset, name & address, away to a co-op for free. We then pay the co-op money for access to other names. We then put expensive paper in the mail to an ever-shrinking audience of baby boomer customers who like to shop that way.

Conversely, our online competition realizes that those same customers are available ... for free, online.

Why didn't we pursue the "free" option?

Modern e-commerce is rapidly moving in three different directions.

Direction #1, From Retailers: Retailers have finally realized that if you're going to have a retail channel that is saddled with crippling debt, you may as well use that channel to facilitate a multi-channel experience. Through 2009, retailers used e-commerce and direct marketing as a way to drive store traffic. In the next five years, you will see retailers do the opposite --- they will use their stores to fuel e-commerce growth. You'll see mobile apps that a customer uses when she doesn't find the item she's looking for in the store --- she'll use her smartphone to simply place an e-commerce order with free shipping and two-day delivery. Ding! And the sale will be attributed back to the store via geo-targeting on the mobile app, helping Management leverage the crippling weight of debt acquired during the first decade of the century when the pundits said you have to leverage yourself to the limit in order to capitalize on bricks-'n-clicks. For retailers, direct marketing is moving away from the website and direct mail and e-mail ... it is moving to a combination of social media, social networks, and to mobile marketing via the smartphone.

Direction #2, From Pure Plays: The online pure play will resemble a fusion of interactive television, social networking, and e-commerce. The concept of static websites and landing pages is long over. It is being replaced by the concept of an "entertainment network" ... think of your online brand as a media conglomerate that produces video programming, radio/podcast programming, written content, reality and lifestyle "shows", all deeply integrated with social networking, search, mobile, and e-commerce. It's a big festival of branding excellence! You'll interact with somebody on Facebook after watching your favorite "television show" produced by the pure play, ultimately purchasing merchandise on your smartphone via a social network that doesn't exist today but will have 100,000,000 users in 2013, purchasing merchandise that is delivered in two days with free shipping and free returns. The pure play can invest in this future, because it doesn't have 25% of net sales locked up in catalog marketing, and because it doesn't have the crippling debt of the bricks-'n-clicks retailer. Hint --- financial freedom will greatly benefit the online pure play.

Direction #3, From Catalogers: Here's your chance to shape the future. This can go one of three different directions, really. We can be like Miles Kimball, who publicly stated that they are well-positioned for growth as the baby boomer generation ages into the Miles Kimball target demographic. That is a strategy that "could" work for another ten or fifteen years. Or we can decide to keep sending catalogs via the traditional catalog marketing model of the 1990s until there are a few hundred thousand people left who prefer that method of commerce. Or maybe, just maybe, there is something that can be learned from retailers and online pure plays, based on where they are heading, something that can be adjusted to fit the catalog model.

Fortunately, we get to pick our future. One thing is certain, however. If we want folks under the age of 45 to purchase from us, we are going to have to "be online". This is different proposition than "having a website".

As always, you may contact me with your questions and concerns.

Thanks,
Kevin

Dear Catalog CEOs: New Customers

Dear Catalog CEOs:

Sometimes, folks view the work I do as being "theoretical" or "professorial" ... there isn't a direct connection between what I'm talking about and helping your business grow in an actionable way.

So let's take a step back, and review simple concepts that can immediately grow your business, starting tomorrow.

For the past three years, I've analyzed close to fifty different direct marketing businesses. You send me your customer data, sometimes going back ten to fifteen years, and I then analyze how your customers are migrating across channels. I analyze how "loyal" your customers are, measured by a metric called "Annual Retention Rate".

When I average all of the businesses I've analyzed in the past three years, I observe the following:

• 39% of the customers who purchased in 2009 will purchase again in 2010 --- this is called the "Annual Retention Rate", and is the most important loyalty-based metric you can calculate.
• 18% of the customers who last purchased 13-24 months ago will purchase next year.
• 9% of the customers who last purchased 25-36 months ago will purchase next year.

What does this mean? Well, it means that, on average, we don't retain our customers. Our customers are not loyal to us.

Here's an example. Assume you have 10,000 customers who last purchased in 2009, 6,100 customers who last purchased in 2008, and 5,000 customers who last purchased in 2007. How many customers will purchase in 2010?

• 2010 Buyers = 10,000 * (0.39) + 6,100 * (0.18) + 5,000 * (0.09) = 5,448 Buyers.

Now, in order to maintain the quantity of 10,000 buyers that you had last year, you need 4,552 new customers.

At this point, the blogosphere and the Twitterati, people who in most cases haven't had the benefit of running a business, will tell you that it costs eight times more to acquire a new customer than to keep an existing customer. They'll ask you to do things that improve customer loyalty. Much of the advice, of course, is based on personal preference and opinion. If there were easy ways to increase customer loyalty, everybody would be doing it and loyalty would dramatically improve and the economy wouldn't be a mess, right?

But let's assume that you magically find a way to increase customer loyalty by 15%, across the board. Now how many buyers do you need to acquire in 2010?

• 2010 Buyers = 10,000 * (0.39 * 1.15) + 6,100 * (0.18 * 1.15) + 5,000 * (0.09 * 1.15) = 6,265 Buyers.

So that's a good thing ... assuming, of course, that you know of some magical set of tactics that nobody else discovered yet, tactics that allow you to immediately improve customer loyalty by 15%.

If you have that magical formula, then you only need 3,135 new customers to keep your customer file flat.

And if you have the magical formula for customer loyalty, then you won't be content with keeping your customer file flat to last year, will you? Of course not! You'll want to grow by 10% or 20% or 30%. And in order to do that, what do you need?

More new customers! So you'll continue to try to acquire at least 4,600 new buyers, won't you?

If there is one actionable thing I can tell you to focus on, it is this:

Focus a disproportionate amount of time and energy on finding new customers.

It's that simple, it is completely actionable, and it is largely within your control. Every one of your marketing staff members should be tracking new customer counts. Don't pay an annual bonus to your marketing team unless your marketing team increases the number of new customers within lifetime value constraints.

For many, customer acquisition opportunities have been maximized in offline channel. Your co-op isn't going to develop a model that increases customer acquisition counts by 30%. And there isn't a magically productive list out there just waiting to be rented.

The obvious answer, then, is to find ways to acquire new customers in your online channel. This doesn't always mean that you have to pay/advertise to acquire new customers. A simple 5% improvement in conversion rate could do the trick, assuming that you have projects on your book of work that would solve your conversion rate problems. Think of all of the traffic that you drive with offline/catalog marketing, traffic that doesn't convert. Is that the fault of your catalog marketing activities, or is that the fault of your website?

And if it is the fault of your website, then why is 75% of the time often spent improving catalog marketing performance?

Acquiring new customers is the single most important thing a marketing department can do to improve business performance. If you want something actionable to take back to your marketing team, make the majority of their annual bonus payment dependent on acquiring significantly more new customers within lifetime value constraints, and force them to improve customer acquisition performance via the online channel. Then give them the resources to accomplish the mission. I'm confident you'll see an uptick in business performance!

Dear Catalog CEOs: Mobile Marketing

Dear Catalog CEOs:

Do you remember when you made the decision to sell via the internet? You waited a few years, watching companies like Amazon stumble and bumble and then grow at an epic rate. At some point, you realized that this "internet thing" wasn't going to go away, and maybe you could even garner a few incremental dollars of sales by having a website.

Do you remember when a few folks told you they were using this goofy service called "Google"? They would search for something, and this tool actually returned relevant results. They found that they didn't have to remember anything anymore, that "Google" remembered everything for them. And they found all of these little online brands that seemed to own the first ten results on "Google", little online brands that offered free shipping and cheaper prices for the same merchandise you sold. You decided that it was time to start a paid search program. In the case of search, catalog brands were probably a bit behind the times.

Do you remember when folks told you that you had to participate in Social Media? All of these Social Media experts sprung up out of nowhere, some of them with audiences of a hundred thousand or more. They told you that if you set up a blog, or got on Facebook or Twitter, you'd have real conversations with real customers, and you'd make a fortune. Remember that? You heard all about Zappos and their army of bloggers and watched them consume footwear. So you tried Social Media, mostly because it didn't cost much, but the effort was tepid. Eighteen months later, your blog has ten page views a month and you have 294 people that will only follow you on Twitter if you offer 25% off and free shipping.

Sometimes, the strategies that the futurist pundits tell you that you must do work (internet). Sometimes the strategies work, but they do not scale all that well (search). Sometimes, the futurist pundits miss their mark by a bit (social media).

This brings us to mobile marketing, aka "The Next Big Thing".

At Webtrends Engage, we learned that 11% of all page views at The Huffington Post are on mobile devices.

Mobile, however, can go in any direction. It can become a tool used to facilitate social relationships. It can become an extension of search. It can become the future of computing. And it can go in directions we cannot imagine today (most likely).

This is one of those inflection points in direct marketing history. We were ahead of the curve when it came to the internet. We were way behind the curve as the internet morphed into a social monster. This time, we can create the future.

Why not test now, while the costs are relatively cheap and the risks are exceptionally low?

Thoughts?

Dear Catalog CEOs: Monday Notes

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!

Dear Catalog CEOs: The Super Bowl

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?

Dear Catalog CEOs: Rebuilding

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.

Dear Catalog CEOs: Improved Conversion

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.

Dear Catalog CEOs: Over-Contacting Customers

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

Dear Catalog CEOs: How Can Kevin Help In 2010?

Dear Catalog CEOs:

Many of you have a fresh marketing budget for 2010, and you're saying to yourself "I've read a lot of Kevin's content, but what can he actually do to help a cataloger like us?"

Below, I outline what the most commonly requested Catalog CEO project looks like. Contact me if you are interested in a project that looks like this (most projects have both components ... budgeting and filtering --- project costs are based on twelve month customers, cheaper for small businesses, more expensive for Wal-Mart).

• Budget Analysis: You send me at least three years of customer transactions and annual marketing spend by marketing channel. I show you how customers who respond to e-mail marketing evolve over time ... or paid search, or affiliate marketing, or the different catalog titles you mail. I provide you with a spreadsheet that you can use to see how to allocate advertising investment across marketing channels (as well as retention/acquisition mix) over the next five years, in order to have the most profitable catalog business over the long-run.

• Filtering Analysis: In this analysis, I identify how "catalog loyal" every single customer is in your database. I will identify customers who no longer require a steady diet of catalog marketing. You send those customers fewer catalogs, and you become far more profitable as a result. Or, in some cases, I identify customers who need to receive more catalogs. I don't care what the result is (more/less), I only care that you are more profitable. You can implement the results of the filtering analysis in-house, via your database vendor, or you can have me update the results for you on a periodic basis. The outcome of many filtering projects results in cost savings that can be pocketed, or can be applied to experimentation across various online marketing strategies.

Dear Catalog CEOs: A Decade of Free Candy

Dear Catalog CEOs:

In January 2000, I prepared a presentation for the marketing management teams at Eddie Bauer and Spiegel (our parent company). Our annual online demand totals for the prior three years were as follows:

• 1997 = $15,000,000.
• 1998 = $60,000,000.
• 1999 = $100,000,000.

In my presentation, I described a future where, by 2003, the online channel would represent the primary way that customers shop from a direct-to-consumer brand.

My presentation stopped at the slide where I illustrated that online sales would overwhelm telephone sales in 2003. It stopped, because the marketing leaders in the room were busy laughing. They found the notion of online sales outpacing traditional telephone sales in just a few years to be pure folly.

In October 2009, I presented similar concepts to a Catalog Marketing Executive. Nearly ten years had passed since my Spiegel presentation. This Executive heard my presentation, and like so many in the catalog industry in the past ten years, rejected the thesis that catalog marketing needed to evolve in response to a world increasingly dominated by online marketing. This Executive suggested that improved targeting strategies would result in a robust catalog business, not an acceptance of online marketing strategies.

The decade started with the concept that the online channel was nothing more than "free candy", as the woman said in the Seinfeld episode where George attempted a Twix candy lineup.

This concept of "free candy" permeated the decade, and in so many ways, caused us to not fully capitalize on the potential of the online channel. The decade featured a series of pundits promising free candy if folks just did search engine optimization, e-mail marketing, employee blogging, mobile marketing via iPhone apps, a Twitter presence, or went deep into debt to open stores so that customers could buy merchandise online and pickup it up in a store in a flurry of bricks-'n-clicks excellence.

Overwhelmingly, on a tactic-by-tactic basis, the pundits were wrong. Horribly wrong. Unaccountably wrong.

And this level of error caused so many catalog marketers to feel burned. The catalog executive knew that a catalog delivered $3.50 per catalog mailed, even in a declining environment. What does the employee blog deliver, if anything? Tactic after tactic failed to be as effective as the old catalog. New tactics failed to scale, causing catalog executives to further dig their heels in.

The strongest companies I work with are like a well-designed mutual fund. They execute a ton of micro-channel strategies, none of which dominate total net sales. The strongest companies that I work with actively test all new micro-channels, but never expect any new micro-channel to contribute net sales in a meaningful way for a long time. These companies can prove the raw inaccuracy of matchback analytics via well-designed mail and holdout tests across catalogs and e-mail marketing. These companies love the art of selling merchandise more than they love the craft of cataloging.

Then there are catalog companies that are struggling. They cling to the hope of catalog marketing being the primary sales generator. They can prove that 80% of total sales are driven by a catalog, based on their matchback analytics. They deride paid search, e-mail marketing, social media, mobile marketing, seo, pay-per-click, affiliate marketing, and any other online endeavor as being a waste of time that results in a pittance of the sales driven by a traditional catalog --- and heck, the catalog caused sales to happen in those micro-channels, so why not just focus on the catalog? These companies love the craft of cataloging more than they love the art of selling merchandise.

"Free Candy" damaged the potential of online marketing among catalog executives.

And in the new decade, "Free Candy" will become an even bigger problem. A ton of experts will tell you that your HTC Droid phone is the secret to billions in profit, or that Hologram Marketing is the next big wave in customer preference. They will tell you to abandon profitable old-school strategies. They want for you to take risks. They won't be accountable for your failures, they'll suggest you failed to execute their vision correctly.

In the next decade, our job is to "sample free candy". We don't overeat, like the pundits suggest. And we don't starve ourselves, returning to our roots --- we won't be in business in 2019 if we do that.

As always, I am here to help you work through this transition.

Thanks,
Kevin

Dear Catalog CEOs: The First 20 Pages

Dear Catalog CEOs:

Walk down to your Business Intelligence department this morning, and ask them to demonstrate to you how the first twenty pages of your most important Holiday catalog performed, compared with the rest of the catalog.

You are probably familiar with the concept of "order starters", the items that are most often listed first in the order a customer places, right? Well, catalogs that perform well are frequently populated with a lot of "order starters" in the first twenty pages.

So this week, please take a walk down to your Business Intelligence team, and ask them to demonstrate how each item in your catalog performed as an "order starter". Please consider paginating your catalog based on the items most likely to "start" an order, using the first twenty pages of the catalog to your advantage!

Or give me a holler, and I'll help you complete this analysis.

Thanks,
Kevin

Dear Catalog CEOs: Financial Weapons of Mass Destruction

Dear Catalog CEOs:

Last week, I was asked the following question by an experienced catalog advocate:

"Have you looked at this L.L. Bean catalog cover? Are they selling product or promotions?"

The same thought came to mind when viewing the other half of the promotional arms race from Lands' End. Last week, I received the following e-mail marketing messages (wording isn't exact, promotions are).

• Message #1 = Final day of 25% off of everything plus free shipping.
• Message #2 = 25% off everything plus free shipping extended one day.
• Messages #3-4 = Up to 50% off all outerwear plus free shipping, two days only.
• Message #5: 25% off everything plus free shipping.

Interesting!

L.L. Bean and Lands' End, of course, are not catalog brands, and they certainly are not alone in their pursuit of market share via compelling discounts and promotions, are they?

They do, however, represent the fabled multi-channel brand, combining stores and e-commerce and catalog advertising and e-mail marketing and search marketing and affiliate marketing and portal advertising and social media and mobile marketing and television advertising and radio advertising and billboard advertising and newspaper advertising and magazine advertising and telemarketing and co-branded credit marketing and postcard marketing and package insert marketing and discounts and promotions into something that the pundits believe is nothing short of customer nirvana.

If all of that stuff worked as the pundits suggest it should work, would any multichannel brand have to give you free shipping and 50% off outerwear in order to encourage a purchase during the busiest shopping period of the entire year, a period of time when the customer is most likely to buy outerwear?

You, of course, are a Catalog CEO. You are not required to discount to such apocalyptic levels, because you don't have to "be competitive" with retail stores in the same way that L.L. Bean and Lands' End theoretically have to.

Discounts and promotions are our version of "financial weapons of mass destruction". They are taxes placed upon brands for being unremarkable.

You are probably already executing reporting of this nature, but in case you aren't, please ask your Business Intelligence team to run the following report for you:

Step 1: Categorize customers into one of four buckets.

1. Historical customer who only purchases merchandise at full-price, and never uses discounts/promos.
2. Historical customer who buys using a mix of full-price, sale, discounts, and promos.
3. Historical customer who only buys using a mix of sale items, discounts, and promotions, never purchasing full-price merchandise.
4. First time buyers.

Step 2: Sum demand spent within each of the four groups --- full-price items with no promotions, sale-priced items with no promotions, full-price items using discounts/promos, sale-items using discounts/promos.

Step 3: Run this report, for the month of December, for each of the past three years.

What do you observe? Are you converting all of your full-price customers to sale items? Are you converting all of your customers to ones who only buy when there is a discount or promotion? Do discount/promo/sale customers ever purchase full-price merchandise without the aid of a discount or promotion?

We all know that the best way to manage a brand is to acquire customers who willingly pay full-price, without any need for external stimulation. The minute we pollute the customer file with customers who thrive on the need for external stimulation (% off, discounts, promotions), we place the long-term, full-priced health of our business at risk ... we insert a game (% off, discounts, promotions) in-between the customer and merchandise. Eventually, the purchase of merchandise becomes "conditional" on "playing the game" ... never a good thing.

As always, I am available to help you create sale/promo reporting that illustrates if your business is being skewed toward an unsustainable mix of promotional buyers. Contact me at your convenience for assistance.

Thanks,
Kevin

Dear Catalog CEOs: The Online Transition Is Essentially Complete

Dear Catalog CEOs:

An interesting trend is emerging in catalog marketing.

Back in the day, we'd measure how fast "catalog" customers were migrating to the "online" channel.

Multichannel Forensics were invented, in large part, to determine how fast this transition was happening, helping us understand how to deal with the transition.

In the past eighteen months, I'd say that the word "transition" no longer applies to our business. It appears that the transition online is, for the most part, complete. Trending, over time, illustrates a fundamental change.

For instance, one might see the following migration probability indices, over time.

• Phone To Online Index: 2000 = 10%. 2003 = 35%. 2006 = 25%. 2009 = 20%.
• Online To Phone Index: 2000 = 50%. 2003 = 30%. 2006 = 15%. 2009 = 5%.

In other words, around the "turn of the century", phone customers were unlikely to shop online, and online customers were unlikely to stay loyal to the online channel.

By 2003, it was a "free for all", as customers were thoroughly "multichannel". Catalogs drove web sales, online customers spoke with customer service associates, everything interacted.

And this is the problem with being "multichannel". Multichannel is a transitional phase, as customers migrate from old to new. Eventually, the customer lands on a preferred channel ... until something new displaces it. When that happens, "multichannel" becomes important again.

For many companies, 2009 represents an era of channel stability. All customers who were going to move online have, for the most part, done so. Online customers become unlikely to use the phone to shop, and in doing so, begin to become unresponsive to catalog marketing.

It is important to understand how channel shift happens over time. When customers settle upon their preferred channel, you can greatly reduce marketing expense. When customers are shifting across channels, marketing expenses tend to rise.

In my projects, I look for channel stability. When I find channel stability, I quickly identify the customer audience that requires considerably less advertising, and strongly advocate a reduction in offline marketing spend to the audience that now prefers "all things digital".

"Channel Stability" should be an area of emphasis for our businesses in 2010. Have your analytics teams study this trend for you, and be sure to begin reductions in offline marketing to customers who prefer "all things digital".

As always, I am here to support you!

Thanks,
Kevin

Dear Catalog CEOs: Co-Ops

Dear Catalog CEOs:

During the past six weeks, I've been asked more questions about co-ops than any other topic in catalog marketing.

You know what co-ops are, right? These are the companies that your marketing team sends the name and address of your best customers to. The co-op compiles the information, models it based on purchase habits across companies, then resells the information, at +/- $0.04 to $0.07 per name to your competitors. In kind, you get access to the names and addresses of customers who shop your competitors, for +/- $0.04 to $0.07 per name.

Your marketing team felt like the co-op relationship was nothing short of "dreamy", back in 2004. They sent files with important purchase information about each customer to the co-ops, and then they got access to names at what seemed like an inexpensive cost. They funneled your campaign performance through tools like ChannelView. The tools suggested that paper drove business to all channels, preserving a historical business model (catalogs drive sales) that your staff felt comfortable with.

A combination of "cheap names", matchback analytics like "ChannelView", and hosted database solutions meant that catalog marketing became "easy" for your marketing team. They no longer had to worry about updating a customer database (the second most important asset you have after merchandise), they no longer had to do the hard work associated with matching orders back to catalogs, and they no longer had to do the hard work of knowing which lists worked.

In fact, they no longer had to know much of anything. Co-ops did all of the important stuff for them, even housefile modeling and merge/purge assistance. Co-op list performance was better than typical outside list performance, and housefile performance improved.

Fast forward to 2009. The economy is in shambles. Customers are performing much worse than they performed in the past, and customer acquisition performance is even worse than housefile performance.

Who is to blame for poor customer performance?

Your marketing team might blame the co-ops, the very organizations they blessed with the keys to the business in the past decade.

As business leaders, if we could go back to 2004 (or earlier), and re-think the concept of outsourcing customer acquisition, database analysis, merge/purge, housefile modeling, and database maintenance to other companies, would we have outsourced all of our intelligence to a third party?

Would you allow this to happen with Google today? Heck no!

In the past five years, we forfeited critical business intelligence in four key areas:

1. We forfeited the intelligence associated with knowing which "lists" worked for the ease associated with having an algorithm that we don't understand choosing random names for us.
2. We forfeited the intelligence associated with having to know how every part of our business performed when we do the hard work yourself, instead opting to have the co-op matchback tool do the work for us, even if it meant that the matchback tool grossly over-stated actual performance, causing us to seriously over-mail housefile customers.
3. We forfeited the intelligence associated with managing our own database, instead opting to have the co-op do the work for us and then feed their database (which used to be our database) into their matchback algorithm (a conflict of interest).
4. We forfeited the intelligence associated with our online customers, instead opting to have Google do the work for us, then having Google use our own information against us to help our competitors.

If your marketing team walked into your office today and said they were going to do this, you would likely ask them what your business gets in return for a business intelligence bloodletting of this manner, right? And you'd be looking for an answer that was better than "... an annual cost savings of $439,000."

The great tragedy of catalog marketing isn't rising postage costs or economic challenges or third-party opt-out services.

No, the great tragedy is that we, as business leaders, outsourced all of our customer knowledge to the co-ops. And in return, we achieved marginal cost savings and a 10% increase in new customers.

I'd rather have the consumer intelligence we used to have.

Do you realize that, for many catalogers, 40% to 80% of the 36 month customer file is now comprised of co-op names? By default, our businesses succeed or fail largely because of the choices made by analysts at co-ops over the past four years. Does everybody in your business understand that? Does your CFO understand that? Does your Chief Merchandising Officer understand that?

What do you know about the customers the co-ops selected for you? What are their preferences? Are these Baby Boomers, Gen-Xers, or youthful Gen-Y individuals? Do they prefer full-price merchandise, or are they only buying from you because they love the promotions they receive? Are they rural customers, suburban customers, or urban customers? Do they buy over the telephone because they need help with their purchase, or because they are afraid of the internet? Do they crave new merchandise from your brand, or do they continually buy the same merchandise, over and over? Are they evolving to online purchases, or will they stay loyal to purchases driven by catalog mailings? What is the right contact strategy for these customers? Can these customers support a reduction in catalog mailings, instead buying from e-mail campaigns? Do they respond to dense catalog offerings, or branding presentations? Do they see items in catalogs, then go online and buy other merchandise instead? Will they spend just as much on 48 pages as they will spend on 148 pages?

When your marketing team outsourced the business intelligence you used to own, you lost the ability to answer many of these questions. Sure, you now know that customers in the "synergy model" respond to free shipping promotions. Now tell me what you do with that information?

An Executive at a co-op recently told me that "... co-op employees aren't responsible for knowing your business, you are responsible for knowing your business, co-ops only provide you with cheap names."

If you knew that fact five years ago, would you have allowed your marketing team to outsource all of the customer intelligence they used to own?

Your marketing team will probably agree with you that it is time to truly understand customer behavior. Should your hosted database solution and matchback analytics strategy not provide you with what you are looking for, I am available to help you, right now ... contact me now for assistance.

As always, I am here to help you through this transition.

Thanks, Kevin

Dear Catalog CEOs: The Big Book

Dear Catalog CEOs:

Just like that, the inevitable happened. JC Penney discontinued their "big book".

A quick scan of the homepage of DMNews showed no link to the article, as of last Thursday. Multichannel Merchant did have a small link on their homepage, though the link was about 1/4 the size of the heading of a competing article titled "Harness The Power Of Employee Bloggers".

Let that sink in for just a moment. JCP canning the venerable big book is less news worth than is harnessing the power of employee bloggers.

Oh, sure, the multichannel pundits will spin this any of a number of ways. They'll tell you that this decision in no way impacts the vital importance of print marketing in the multichannel marketing arsenal. They'll remind you that Sears eliminated their big book in 1993, and their business struggled ever since. They'll cite metrics from research organizations that suggest something like 7 in 10 online purchases are influenced by offline marketing techniques, with print and radio leading the way.

Neil Stern is quoted in the article as saying that "Penney had the name, infrastructure and broad product reach to become an instantly formidable player in what is essentially transforming retail in this century. The big book effectively helped them build that bridge."

It took twenty years to build the bridge that allowed the big book era to end.

The next question that must be asked is "How many years will it take for the targeted catalog mailer era to end?"

Thanks to Google, direct marketing has become ruthlessly efficient. Waste kills the profit and loss statement.

Now if you are marketing to a 68 year old woman in North Dakota, by all means, enjoy the myriad fruits of your catalog labor.

But if you are marketing to customers under the age of 50, it is time to calculate that all-important metric called the "organic percentage". Take 10% of your twelve-month buyer file, and divide it into two segments. The first segment receives catalogs as they normally would, for the next six months. The second segment is not allowed to receive one single catalog. At the end of six months, compare the sales of the two groups.

• Group Mailed Catalogs = $50.00.
• Group Not Mailed Catalogs = $40.00.

The "organic percentage" is calculated as $40.00 / $50.00 = 80%. Simply put, this is the most important metric you will ever calculate. In this example, catalogs only generated $10.00 of incremental volume ... the other $40.00 happen without catalog mailings, a full 80% of the total happening organically, independent of catalog mailings. Run a profit and loss statement on the $10.00 of incremental volume, not the $50.00 that your matchback vendor is telling you catalogs generated. You may not like what you see.

This is the little secret that the catalog vendor community, and your co-op matchback vendor in particular, don't want you to know. They want you to keep renting names at $0.06 a pop, they want you to keep mailing catalogs, falsely attributing sales to print.

A few weeks ago, I mentioned this methodology (test/control and organic percentage calculation) to a Catalog CMO. The Chief Marketing Officer told me that "... if what you are suggesting is so useful, why aren't the co-ops recommending this to us, after all, they are the thought leaders in our industry?"

Good question. A really good question.

Now that "The Big Book" era has ended, it is only a matter of time before targeted catalog mailings face the music. Granted, this evolution may take another twenty years. But in the meantime, there's billions of dollars of profit sitting out there, waiting to be picked up off the ground.

I'm begging you. Execute the test mentioned earlier. Calculate your own "organic percentage". Run a profit and loss statement based on demand only attributed to catalogs. Find the audiences that no longer respond to catalog marketing, and stop mailing them. Then enjoy watching semi-truck trailers packed full of greenbacks pull up to your Finance department door.

As always, I am here, ready to help you through this transition.

Thanks,

Kevin

Dear Catalog CEOs: Selling?

Dear Catalog CEOs:

I am hearing the whispers ... "if this Holiday season isn't considerably better than last year, we're going to have to evaluate the viability of our brand."

Owners and CEOs frequently ask me to do a quick sales forecast for the next five years. A file is sent to me (CD/DVD in the mail or a file is posted on an ftp site) with various customer attributes, one row for every item a customer has ever purchased. The columns include things like household_id, order date, item number, merchandise division, quantity, price, demand, disposition (returned, item not shipped, etc.), payment tender, physical channel (phone, mail, web), advertising channel (e-mail, affiliate, search, catalog).

With this information, I look at past purchase behavior, and develop a sales forecast for the next five years. Maybe the following historical trend is representative of your business:

• 2004 = $48 million.
• 2005 = $52 million.
• 2006 = $54 million.
• 2007 = $52 million.
• 2008 = $48 million.
• 2009 = $42 million.

My job is to forecast 2010 - 2014. I'll take a run through the next five years, assuming that all marketing practices in 2010 - 2014 are the same as in 2009:

• 2010 = $39 million.
• 2011 = $37 million.
• 2012 = $36 million.
• 2013 = $35 million.
• 2014 = $34 million.

At this point, the Owner / CEO will ask me what would happen if the economy improved by 10%. I run a simulated forecast, assuming that the economy improves significantly.

• 2010 = $43 million.
• 2011 = $42 million.
• 2012 = $42 million.
• 2013 = $43 million.
• 2014 = $44 million.

We run different scenarios, based on different sets of assumptions.

• "What happens if we cut customer acquisition spend?"
• "What happens if we reduce spend on existing customers?"
• "What happens if we shift offline ad spend online?"
• "What happens if we eliminate eight pages in every catalog?"
• "What happens if we improve homepage conversion by ten percent?"

Based on the assumptions, we iterate toward what we perceive to be a fair "valuation" of the business, based on sales potential and profitability.

CEOs and Owners: You can use the Multichannel Forensics framework to understand what your catalog business might be worth. Ask your analytics team to follow the framework, generating forecasts for you.

I can easily produce the forecasts for you as well, e-mail me for details.

You'll have to admit, having this information is pretty darn important, especially if this Holiday season doesn't turn out as optimistic as one might hope.

Your Digital Marketing Plan

Give this article a read. It's not your industry, and I'm not promising any of this will work for your business, but the article gives ample opportunities to think about online marketing through a social lens. Check out the homepage design these folks put up on a whiteboard. Interesting, isn't it?

And notice how they are asking fans to e-mail ten friends, tracking results with CRM software. Are any of us, supposedly sophisticated database marketers, doing this? Notice their CRM-based tracking via Twitter as well.

How do these lessons apply to your business? What is stopping you from trying these strategies? Read this, not like a 53 year old direct marketing Director or 39 year old online marketing Executive, but like an outsider might read it.

Dear Catalog CEOs: Our Multichannel Mess

Dear Catalog CEOs:

Want to have some fun? Go back to 2002, and read this roundtable interview with numerous catalog CEOs, facilitated by Catalog Age magazine.

Remember Catalog Age? A publication dedicated to catalog marketers? Well, they changed. The rebranded themselves as Multichannel Merchant, and when the world changed again, a portion of their empire evolved into The Big Fat Marketing Blog. What comes after that? But they did change with the times.

After reading the article from 2002, I don't find thinking that is significantly different than the thinking that pervades our industry in 2009. We grumble about postage. We say it is getting harder to prospect. We say that online marketers are raising the customer service expectation bar. We say that banner advertising doesn't work.

For many in the catalog industry, the phrase "multichannel" means nothing more than a bunch of channels and tactics that are there to support the continued production of catalogs.

Our industry invented the "matchback", a methodology that allows us to over-inflate catalog importance and deflate the credit we give to all other channels. At a time when all other marketers were increasing their investment in online marketing, we were allocating our investment back to the old stalwart, the catalog.

At a time when all other marketers were figuring out how to optimize landing pages, we were figuring out how to optimize printed pages.

At a time when all other marketers were using java script to dynamically generate online content based on consumer preferences, we were drinking java while dynamically figuring out how many pages had to be sent to cause an online order to happen.

At a time when all other marketers were optimizing their search marketing activities, we were searching for the best co-op to find names to send our marketing activities to.

At a time when all other marketers were learning all of the ways that customers integrated themselves with websites and social media, we integrated our websites with our retail and catalog channels, largely because our vendor partners encouraged us to do so.

We took the road less traveled by. And that has made all of the difference.

Last week, a person commenting on a blog suggested that I don't offer solutions, I just point out the obvious.

I feel like I've offered more solutions on this blog, for free, than any person in the catalog industry. Go back over the past 3-4 years and read the content, then compare it with the content from the vendors in the catalog industry. I'm trying to communicate how we can stay in business. It seems that unless the solution includes mailing a catalog, the industry doesn't perceive the solution as being viable.

Here is a laundry list of tactics, strategies, and potential solutions. Why not give a few of these a try?

1. Immediately test reduced frequency to best customers, and measure the incremental profit you achieve when reducing contact frequency.
2. Immediately test reduced pages per contact to all customers, and measure the incremental profit you achieve when reducing pages per contact.
3. Immediately calculate the "organic percentage", the percentage of demand that you will generate if you stop all catalog marketing. Calculate the profitability of your business sans catalog marketing.
4. Do not mail any catalogs next July. Instead, take your catalog investment, and allocate it across all online marketing channels. Carefully measure how customer behavior changes next July.
5. Execute mail and holdout tests in EVERY catalog, across EVERY customer segment. DO THIS NOW! Have your matchback vendor match online orders to the control group --- this quantifies how much damage your matchback vendor has done to your business by over-stating your catalog results. I cannot stress how important this is.
6. Set up a holdout group for at least six months, if not one year, and do not mail catalogs to this holdout group during this time. Within this audience, test halving your e-mail contact strategy, and test doubling your e-mail contact strategy.
7. Invest as much time on your online landing pages as you invest in catalog landing pages. Put your online landing pages up on the hallway walls of your office, just like you do with your catalog spreads, and measure the resultant profitability of every single action a customer can take on your landing pages.
8. In every meeting you have, you must spend equal time talking about catalogs and about your website. Yes, EQUAL TIME!
9. In every catalog marketing meeting you have, invite your online marketing experts in, and have them critique your catalog marketing activities. You've spent ten years having your catalog marketing experts integrate your website into your catalog business, now try doing the opposite, and see what happens.
10. Test your catalog creative, to find the style of creative that is most effective at driving customers online.
11. Test offering only best selling products in catalogs to prospects.
12. Test offering only new products in catalogs to existing customers.
13. Immediately change strategy and diversify your marketing activities if 50% or more of your online business is sourced from catalog marketing.
14. Use Multichannel Forensics to quantify if customers are likely to continue shifting online, or have finished their channel shift.
15. Optimize your catalog business for rural, 55+ year old customers who shop via the telephone.
16. Optimize your online business for EVERYBODY else.
17. Have your team create a marketing plan for a situation where you are not allowed to rent or exchange name and address without prior customer permission. More than anything else, this exercise will prepare you for the future.
18. Have your team create a marketing plan for a situation where every single catalog cost 50% more than it costs today. This exercise will prepare you for the future.
19. Develop a five year sales plan by advertising channel, if you don't already have one in place. It is irresponsible to not be prepared for the future.
20. Visit a non-competitive online e-commerce brand, and facilitate four days of knowledge exchange. On Day 1, the e-commerce brand tells you how they acquire customers. On Day 2, you explain to them how you acquire customers. On Day 3, the e-commerce brand tells you how they optimize online conversion. On Day 4, you tell them how you optimize offline conversion. Tell me you aren't going to learn something from this exercise.
21. Stop laying off your call center staff, and instead, unleash a fraction of these individuals in the social media ecosystem, sort of like how Zappos does.
22. Stop treating online customers from online advertising sources like catalog customers. Enjoy making additional profit after employing this strategy.
23. Spend more time optimizing fulfillment rates, return rates, and distribution center expenses than you spend managing social media.
24. Ask every one of your contact center and distribution center employees why they would shop from your catalog if they can find a similar product at the same price via an online brand that offers free shipping. Carefully record their responses. Change your strategy, based on their responses.
25. Spend more time with your search vendor than you spend with your co-op vendor.
26. Spend more time with your e-mail vendor than you spend with your co-op vendor.

I could go on and on, forever.

Maybe the economy will improve in 2010. Maybe customers will re-embrace catalog marketing. And maybe the old business model will thrive once again.

If those things don't happen, isn't it time to pull ourselves out of the multichannel view of the world that was so popular in 2002? If the multichannel view of the world yielded success, would so many companies be struggling, struggling long before the economy imploded or before postage increased?

As always, I am here to help you!

Thanks,
Kevin