Gliebers Dresses: The Return

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Roger Morgan: "I guess so."

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

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

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

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

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

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

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

... silence ...

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

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

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

Gliebers Dresses: Anna Carter, The Interview

I have been invited to meet with Anna Carter, President of Anna Carter, the main competitor of Gliebers Dresses.

As you may know, Anna Carter elected to discontinue their catalog in Fall 2009. Ms. Carter's office building is almost space age, in comparison with the office space leased by Gliebers Dresses. Ms. Carter's office is lined with LCD televisions on the walls. One LCD monitor posts a dashboard with call center and live chat information. Another lists daily website metrics, including conversion rates and bounce rates, new/existing visitor information, that kind of stuff. Another LCD monitor scrolls live customer feedback on Twitter. Yet another LCD monitor scrolls through updates from various fashion blogs.

These monitors are posted in every Executive's office, and hang from the walls of every major congregation point in the building. In fact, all aspects of the office building are positively 2010 in nature. On-site daycare, company paid iPhones for all employees, Twitter accounts for all employees that require, as a condition of employment, one tweet per day. There is an amazing cafeteria that is subsidized at a rate of $10 per employee per day, enough money for employees to enjoy breakfast and lunch. A workout room is fully furnished with clean towels and the latest equipment, and is staffed with a Wellness Director. This individual prescribes workout routines and dietary opportunities that can be supplemented in the cafeteria. Employees can pay an annual fee of $2,500, and in kind, receive free health care for the year ... in fact, an on-site nurse practitioner deals with daily issues, referring employees to medical attention as appropriate. Employees who drive Hybrid vehicles, who take public transportation to work, walk to work, or ride their bike to work receive free health care ... their $2,500 annual health care fee is waived.

In other words, Anna Carter has gone to great lengths to create an environment where an employee feels valued. Let's chat with the person behind this company.


Kevin: "Thanks for inviting me to be here today, Ms. Carter."

Anna Carter: "Please, call me Anna."

Kevin: "Let's get right to the question most people would want to know about. Why did you end your catalog marketing program?"

Anna Carter: "Oh, this is a complex issue. Let me start by asking you a series of questions, Kevin. When is the last time you subscribed to a newspaper?"

Kevin: "At least ten years ago."

Anna Carter: "Why do you keep a landline-based phone?"

Kevin: "I need it for my DSL service, and use my cell phone for almost everything else."

Anna Carter: "What is the ratio of CDs you've purchased in the past year to MP3s?"

Kevin: "I think I purchased 124 songs on iTunes, and purchased one CD."

Anna Carter: "When is the last time you purchased a DVD, and when is the last time you got a movie via Netflix?"

Kevin: "I only purchased one DVD last year ... I get three movies a month from Netflix."

Anna Carter: "What is the ratio of time you spend watching network television, vs. watching cable networks?"

Kevin: "I probably only watch 4-5 shows that are on network television. Most of what I watch is on a cable network."

Anna Carter: "When is the last time you purchased something from Amazon.com, and when is the last time you ventured into a department store?"

Kevin: "I bought from Amazon last month, I probably haven't purchased something from a department store in six months."

Anna Carter: "We could do this forever, Kevin. Times change. In 1999, I went to Tower Records, and I browsed a hundred CDs before walking out of the store with a half-dozen CDs. Today, I let iTunes and Genius recommend to me what I would like to listen to, and then wirelessly add the song to my iPod touch. It's magic. How the heck would Tower Records compete with that?"

Kevin: "They couldn't. And now Best Buy and Wal-Mart are shrinking their physical music offerings, too."

Anna Carter: "At some point, you ask yourself a simple question. Are you in business because of the technology that delivers product to a customer, or are you in business because of the merchandise that customers want to buy from you? The catalog is simply a technology. My brand is about connecting customers with fashion. I don't need a catalog to facilitate that connection, do I?"

Kevin: "But what if the technology is still viable? Why kill the catalog altogether? Why not target it to the customers who want catalogs, and let everybody else shop online or via the micro-channels they prefer?"

Anna Carter: "That's an oversimplification of an issue, Kevin. That's a theoretical question raised by folks who have a vested interest in CRM, or in selling paper or printing services, or in hosting a co-op database that pays them whenever somebody rents a name."

Kevin: "Well, no, if it is more profitable to target only those customers who want a catalog, then why not make the more profitable decision?"

Anna Carter: "Profit is a flexible concept, Kevin."

Kevin: "How so? Isn't profit a simple mathematical calculation?"

Anna Carter: "Let me give you an example. Our catalogs averaged 124 pages, and we mailed them about seventeen times a year ... no remails. This means that we had to create 2,108 unique pages each year. You don't do that with a small number of individuals, Kevin. It takes a boatload of talent to put 2,108 pages in the mail. It costs us $1,500 just to produce each page. And we paid $0.67 to put each 124 page catalog in the mail."

Kevin: "And then you received $3.00 per catalog, yielding you $0.25 of profit."

Anna Carter: "The issue, Kevin, is what COULD you do with the $0.67 of catalog marketing expense. Could you do something that generated a better return on investment?"

Kevin: "But why not spend the money on catalog marketing and spend additional dollars on the other activities that generate a better return on investment ... then you win on both fronts, right?"

Anna Carter: "That's not the way marketing works, Kevin, and you know that, you talk about that issue all of the time on your blog. We tested not mailing catalogs in Q1-2009. After two months, the performance of our e-mail marketing campaigns doubled. You mention that marketing is a big game of whack-a-mole on your blog. Well, that's exactly what it is. In our test, we learned that customers age 55 and above are nearly 100% dependent upon catalog marketing. Customers age 40-54 began to migrate to e-mail marketing, paid search, portal advertising, that kind of stuff. Customers age 30-39 were into e-mail marketing and social media. Customers age 20-29 are a whole different ballgame, we haven't learned how to market effectively to them. But in all cases among customers age 20-54, catalogs did not yield the sales that our matchback reporting suggested."

Kevin: "Explain that concept to me, because the co-ops keep telling catalogers that if you don't mail a catalog, you don't get sales in other channels."

Anna Carter: "Of course they tell you that, because if you cut back on catalog mailings, they lose revenue. They don't technically lie to you. They tell you that customers who received the catalog spend $2.20 online in the sixty days after receiving a catalog. Well, technically, that statement is 100% accurate. Of course, it doesn't mean that BECAUSE the customer received a catalog the customer spent money online. Our tests showed us that 50% of the demand matched back to a catalog would happen anyway if a catalog was not mailed.

Kevin: "So in your case, the matchback algorithm grossly overstated how effective the catalogs were?"

Anna Carter: "Exactly. We ran a profit and loss statement on the incremental demand generated by catalogs. We were generating 3% EBIT on our catalog business. I could spend $10,000,000 of marketing expense mailing catalogs to generate $750,000 profit, or I could put $10,000,000 in a CD at 3% interest and earn $300,000 profit, without doing any work whatsoever."

Kevin: "You still make more money doing the catalog marketing, right?"

Anna Carter: "This brings us back to the question of what we could do with $10,000,000 of catalog marketing expense. We used the results of our test to forecast what we could spend in online marketing if a catalog didn't exist. For instance, we learned that we could quadruple our paid search investment if we didn't have a catalog."

Kevin: "How is that possible?"

Anna Carter: "Part of the increase happens because paid search orders were no longer being matched back to catalogs, causing paid search performance to look much better. But here's the really interesting part of the equation. We took our creative staff, folks who used to work on catalog spreads, and gave them a new challenge. We assigned each creative staffer a set of keywords, and told them to design landing pages customized to the keywords assigned to them. Our landing pages were good for crap when we focused all of our efforts on catalog spreads. Our landing pages absolutely blossomed when a creative person designed a page tailored to a family of keywords. Conversion rates for tailored landing pages increased by 125% when catalog creative folks designed the pages. This fact alone allowed us to triple our paid search spend."

Kevin: "But those customers have significantly lower long-term value, compared with a catalog customer, correct?"

Anna Carter: "Yes, that's correct. But so what? If I can acquire 10 customers at break-even with $20 of long-term value, I am better off than acquiring 3 customers at break-even with $40 of long-term value. You simply change your mindset. You ask your people to focus on something different."

Kevin: "Ok, but how do you acquire customers now that you don't have a catalog?"

Anna Carter: "That one is harder to solve, Kevin. Starting in February 2010, we will offer $3 shipping on all orders, and free returns on all orders. We can do this because we know that our conversion rate will increase by 20% with this strategy, offsetting some of the lost shipping and handling revenue. And then we acquire new customers, because first time visitors to the site bail on us when they get to shipping and handling expense. We will use catalog marketing dollars to subsidize $3 shipping and free returns."

Kevin: "That still doesn't solve your new customer acquisition problem."

Anna Carter: "Nope, it doesn't. And honestly, I don't care. Traditional customer acquisition through list rental was wiped out by the co-ops. And now the co-ops are being wiped out by Google. In five years, the co-op business model will not work anymore for catalogers. I'd rather get a five year head start experimenting with new strategies than wait for co-op customer acquisition to completely implode."

Kevin: "This has to have a brutal impact on top-line sales, right?"

Anna Carter: "Sarah Wheldon thinks sales will drop by 35%. I am forecasting a 40% drop in sales in 2010. But we will be more profitable in 2010 without a catalog than we were in 2009 with a catalog."

Kevin: "So you had to fire a bunch of staffers, right?"

Anna Carter: "Yes, in the call center and distribution center, it wasn't pretty. But we kept about ten of our best sellers in the call center, and gave them a new title --- Social Media Store Manager."

Kevin: "Describe that job title to me."

Anna Carter: "Their job is to use blogs and Twitter to solve customer service problems, to build an audience, and to sell to customers. It's a $400,000 investment that we'll try for one year."

Kevin: "How does one sell on Twitter?"

Anna Carter: "Here's the thing, Kevin. We gave every employee, not just merchants or Social Media Store Managers, but every employee a new level of accountability. We told them that SPREADS = LANDING PAGES. In other words, everybody used to work hard to merchandise a spread in a catalog. Now, our merchants and creative staff focus entirely on creating landing pages. They get to see the performance of their landing pages, in real time, via our web analytics tool. Employees who design the best performing landing pages earn a weekly bonus. Employees who refer customers to the best performing landing pages via their blogs and Twitter accounts receive a weekly bonus. We froze salaries for 2010, and told employees that they can earn that money back via bonuses. The average employee would have received a $1,500 salary increase. As long as the employee has a social media presence and updates their social media presence at least twice a week, they get $500. Then, the best performing employees all earn bigger bonuses based on what they sell via their social media presence --- I mean honestly, we pay affiliates a percentage of every order they generate, so why not do the same for every employee? I mean, who has more passion for selling, an affiliate, or one of our employees?"

Kevin: "That's interesting."

Anna Carter: "It sure is. There is an insane amount of competition to create highly performing landing pages. Landing pages that don't work are killed, quickly. You have merchants doing de-centralized marketing on their own Twitter pages, driving customers to the their own landing pages. You have creative staff doing de-centralized marketing on their own Twitter pages, driving customers to their own landing pages. You have employees competing against each other, trying their hardest to outperform each other, creating a Darwinistic style of landing page evolution that we could never have learned on our own when we have a catalog. In fact, conversion rates on our landing pages have improved by 80% since we terminated the catalog and developed this style of competition."

Kevin: "Have you had any problems on Twitter, using this strategy?"

Anna Carter: "We have three rules. Don't lie. Always reflect the brand favorably. And you're not allowed to offer discounts or promotions. Everything else is fair game. If you want to see innovation on Twitter, you'll see it using this strategy. We have employees offering merchandise deals of the day. We have employees who offer social media links to anybody who promotes our merchandise on their blogs. In fact, we now see that 17% of our website traffic comes from social media. The important thing is to allow each employee to be their own "store manager". They get to pick and choose the landing pages that they like best, and then they are rewarded when customers buy from their landing pages or via their social media presence. I've seen merchants who earn bonuses by selling the merchandise offered by a co-worker ... if that merchandise is working better than what the merchant is selling, you'll see merchants promote other merchandise over their own. You won't see that happen in a traditional catalog business."

Kevin: "All of this happens because employees aren't focusing on catalog spreads anymore?"

Anna Carter: "And it happens in real-time, Kevin. If a landing page isn't working, it gets pulled down, and fast. If a catalog spread doesn't work, it sits there in homes for sixty days, and we don't fix the problem for maybe six months. We optimize our business on the fly. Do you have any idea what we've learned about customer behavior since disbanding the catalog, stuff that we never had the resources to learn previously?"

Kevin: "Sounds like you need web analytics and information technology alignment to pull this off."

Anna Carter: "You have no idea. It's nice to have an information technology executive who is incented to provide a framework for dynamic landing pages that can be modified by any creative staff member. And you should see the merchandising, creative, and information technology integration that happens ... they all realize that they need each other to make the business work. And you should see how merchants all of a sudden are spending time in the contact center, encouraging employees to use live chat or Twitter to promote their landing pages. All of a sudden, employees are working together in ways we never imagined."

Kevin: "So this is how you make more profit than by running a traditional catalog business?"

Anna Carter: "Yes, this is how you do it. But you cannot do it if you are passionate about catalog marketing. You can only do it if your are passionate about selling merchandise. This is the mistake that old-school marketers make. They are passionate about the form of distribution. The music industry wanted to sell you music via a CD, they didn't want to sell you music. The newspaper industry wanted to sell you news via paper, they didn't want to sell you news. I want to connect a woman with a dress, and I'll go door-to-door to do that if I have to. I do not care one bit about the way I connect a woman with a dress. I care deeply about having passionate employees who want to sell!"

Kevin: "Based on the benefits employees have, it looks like you re-invested catalog dollars in a lot of employee programs."

Anna Carter: We sure did. We built the workout center, the cafeteria, we hired a Wellness Director, we added the daycare center, we did all of that with the money we used to spend on catalog marketing. Our employees, in kind, spend more time here, they are healthier, happier, and work harder at merchandising and marketing our website."

Kevin: "Thanks for taking the time to chat with me today, Ms. Carter."

Anna Carter: "And thank you for spending time working with Sarah Wheldon on a five year forecast for where our business will be in 2015 without catalog marketing. I appreciate the Online Marketing Simulation work you did for us. If Gliebers Dresses invites you back, be sure to pass along my best wishes to Glenn. I'm sure that our decision to kill the catalog is absolutely knawing at him."

Gliebers Dresses: What Are You Hearing?

Today, I'm working out of the home office. The phone rings, from time to time.


Phone Rings:

Kevin: "Hello."

Luke Carson: "Hi Kevin, Luke Carson, CEO of Borsons, how are you doing?"

Kevin: "I'm doing fine, Mr. Carson. How can I help you?"

Luke Carson: "Say, what are you hearing out there? How was the Holiday season for folks?"

Kevin: "I'm hearing it was mixed. Business was up from 2008, but seems to have been fueled by deep discounting. How about your business, Mr. Carson?"

Luke Carson: "We beat plan, Kevin, and we're cautiously optimistic about 2010. Say, you've been working with Gliebers Dresses, right? How is their business?"

Kevin: "I can't share any specifics, Mr. Carson, you know that."

Luke Carson: "I know. I've heard that their business missed plan, and that their loyalty program is costing them a fortune. Anyway, thanks for the info, Kev. Let's do lunch next time you're in town, ok? Bye."


Phone Rings:

Kevin: "Hello?"

Nancy Walsh: "Hi Kevin, this is Nancy Walsh, CEO at Penningtons, how are you doing?"

Kevin: "I'm well, Ms. Walsh, how are you?"

Nancy Walsh: "Oh, it was a great Holiday, Kev, a chance to see family and friends. Say, what are you hearing out there? How was everybody's Holiday season?"

Kevin: "I'm hearing mixed results. Many people are meeting or exceeding plans, though those plans were conservative, not even coming close to where business was in 2006-2007. How about you?"

Nancy Walsh: "Yeah, we beat plan, but it was a really conservative plan, and we had to do a lot of discounting to meet plan. The p&l probably won't be great, but we will be clean on inventory. Hey, I heard you are working with Gliebers Dresses. How was their Holiday season?"

Kevin: "You know I can't share anything about that, Ms. Walsh."

Nancy Walsh: "I heard that their loyalty program is a disaster. Buy four dresses, get free shipping for the year, and then they give everybody free shipping during the Holiday season. How do you build loyalty when you give every customer the same deal you give loyal customers?"

Kevin: "Loyalty programs are tough to execute, aren't they?"

Nancy Walsh: "Anyway Kev, thanks for the chat, I appreciate it. Bye."


Phone Rings

Kevin: "Hello?"

Craig Nilmendorf: "Kevin, hi, Craig Nilmendorf here, CEO of Nilmendorfs, how are you?"

Kevin: "Hi Mr. Nilmendorf, I'm well, how are you?"

Craig Nilmendorf: "We're ok. Say, Kev, what are you hearing out there? How was business for folks this past month?"

Kevin: "Oh, you know, folks are saying they beat plan, but had to give it all away in margin in order to get the orders."

Craig Nilmendorf: "Yup, same story here. How the heck are we ever going to wean our customers off of discounts and promotions, Kev?"

Kevin: "Why they heck did we ever introduce all of these discounts and promotions, Mr. Nilmendorf? Aren't we the problem?"

Craig Nilmendorf: "Well, there's a competitive issue at play, Kev, you've got to play the game. You can't be out there at full price suckin' air while everybody else is out there at 20% off with free shipping. Say, let me ask you a question, Kev, you are workin' with Gliebers Dresses, right? How the heck did they do? That loyalty program, that thing really had to help them. I mean, you buy four dresses, and you get free shipping for a year. I'll be that thing was worth ten or fifteen points of improvement. How is it doing, Kev?"

Kevin: "You know I can't share the details behind that program, Mr. Nilmendorf."

Craig Nilmendorf: "Yea, I know. Anyway, it was nice chatting with you Kev. You know, we've got a few nickels in the budget for somebody like you in 2010. Maybe we can have you set up a loyalty program for us like you set up at Gliebers Dresses, huh?"

Gliebers Dresses: Anna Carter's Sarah Wheldon

Sometimes, when you are a consultant, you enter into unusual situations. Such was the case when Anna Carter's VP of Marketing, Sarah Wheldon, the former VP of Marketing at Gliebers Dresses, called me in to "have lunch".

Sarah: "Kevin, it is so nice to see you. Now, from what I heard, Roger lost a sock in the dryer and basically voted you off the island, right?"

Kevin: "Well, that is confidential, I cannot talk about any of the circumstances surrounding their business."

Sarah: "Sure. I heard that their business was down something like ten percent to plan, and that the only way they boosted sales was via crazy levels of discounting. Is that right?"

Kevin: "Again, that information is confidential. Though you don't have to be a rocket scientist to know that many folks are discounting at levels previously unheard of."

Sarah: "But what do you hear from the folks at Gliebers Dresses? I mean, from what people tell me, it's literally a state of chaos. I heard that Lois is running the business into the ground with her stupid loyalty program, and I heard that Roger's office is piled a mile high with research white papers on how to be excellent."

Kevin: "Now Anna Carter hasn't done any discounting this Holiday season. How the heck did you pull that off?"

Sarah: "Inventory management and accurate forecasting. As long as you know how much you are likely to sell at the start of the year, you don't need to clear everything at a discount."

Kevin: "But you discontinued your catalog in October, right? You were going to discontinue mailing it in early 2010, but it looks like you started early. How the heck did you accomplish this transition without putting a huge amount of inventory at risk?"

Sarah: "We did a test in February and March and early April. We did not mail one single catalog between February 1 and April 15, not one. We measured how customers behaved during this "paper vacation". And we learned a ton."

Kevin: "Like what?"

Sarah: "We learned that e-mail marketing metrics all improved, immediately. Instead of getting a paltry $0.20 per campaign, we got $0.35 per campaign in February, and $0.45 per campaign in March. It turns out that catalog mailings cannibalize the living daylights out of e-mail marketing. Well, that, and the fact that so many e-mail orders were being inaccurately matched back to catalogs by ResponseShop's 'ChannelMAX' algorithm".

Kevin: "Yes, lots of catalogers see that when they execute catalog holdout groups. It is something that you never know happens unless you do testing, or in your case, shut a channel down for a bit."

Sarah: "We also noticed that, by mid-March, customer behavior changed. Customers in urban and suburban zip codes began visiting the website much more often, and began ordering 'on their own', if you will. Now what they bought was different than what was purchased when catalogs were mailed. The customers purchased fashion products more often, basics less often. But still, we could accurately forecast based off of what we saw happening.

Kevin: "What happened to other online marketing channels?"

Sarah: "Funny you should ask. Our portal advertising productivity improved by about 70%. Our search marketing productivity improved by 100%. This allowed us to project that we could spend a fortune in each of those advertising channels, generating incremental demand and customers that we wouldn't normally acquire."

Kevin: "I imagine that customer acquisition really suffered, right?"

Sarah: "It sure did. Now, that being said, we projected what size business we would have without catalog advertising. We calculated that our business would shrink, over five years, by about 35%. But, our EBIT, earnings before interest and taxes, was projected to double. Kevin, you know that you don't take empty calories to the bank, you take profit dollars to the bank. We will be able to invest the increase in profit in online marketing, in website development, in a user review platform, in website personalization, in cross-sell algorithms, in social media activities, and in other forms of offline advertising. We will be able to offer $4 shipping, all day, every day, we won't be like Glieber Dresses, offering free shipping promotions followed by $16 shipping."

Kevin: "If EBIT doubles, then that means that a ton of orders were being incorrectly allocated back to catalog activities via ChannelMAX, correct?"

Sarah: "Exactly! Listen, we've been blasted by our contemporaries. Every vendor in the industry called to tell me what a moron I was. Our paper rep said I'd be out of business in two years. Our co-op rep told me that she'd join me in the unemployment line if more companies did what we did. We were mocked at the annual Direct Marketing Alliance conference by a dozen different speakers. Everybody is an expert, Kevin. It's a shame that everybody isn't held accountable for their foolish predictions. That level of accountability would cause Twitter to shut down for a month!"

Kevin: "Did you anger any of your loyal customers?"

Sarah: "Yes, tons of them. You should read the hate mail. All of it on stationary, written with ball point pens, with the script appearing to be just a little bit unstable. That tells you that the customers we angered are generally sixty years old, or older. We received a few e-mail complaints. We barely got any complaints via Facebook or Twitter. It's pretty easy to infer who the audience was that purchased from catalogs."

Kevin: "So you are willing to let those customers go?"

Sarah: "Yes, we're willing to let those customers go. They can buy from Gliebers Dresses if they want. We aren't about market share. We are about profit. And honestly, we're not telling those customers they cannot buy from us. They can come to our website and purchase."

Kevin: "You were such a huge catalog advocate. What happened?"

Sarah: "I got to see a different way to run a business. I got to see what happens when leadership is passionate about merchandise. At Gliebers Dresses, outside of Meredith Thompson, they only care about catalogs, discounts, and promotions. This company loves the connection between merchandise and customers. For all of the marketing expertise out there, it is amazing how few marketing leaders talk about the connection between merchandise and customers."

Kevin: "Ok, Sarah, I think our time is up, I need to catch a plane. It was nice seeing you."

Sarah: "It was nice seeing you, Kevin. If you don't mind me asking, would you have any interest in meeting with the management team for a few days? We'd like to pick your brain about some of the 2010 strategies we're employing. I doubt you signed a non-compete with Gliebers Dresses."

Kevin: "I didn't sign a non-compete, so maybe we can chat about what a mini-project would look like."

Sarah: "Good, I'll have my folks get in touch!"

Gliebers Dresses: ResponseShop

Today, I am visiting the offices of ResponseShop, the co-op that Gliebers Dresses does most of their customer acquisition work with, meeting with account VP Rob Clarke.

Rob: "Kevin, thanks for coming, though I don't understand why you are here today?"

Kevin: "Glenn Glieber asked me to visit all key Gliebers Dresses marketing vendors, to understand how each vendor is helping Gliebers Dresses become more successful."

Rob: "You did something to get voted off the island, didn't you? This happens to all Gleibers Dresses consultants. Eventually, they say something that ticks off Roger Morgan, and they're banned from the building until they are willing to play ball again. Why do you think Chip Cayman only shows up there three or four times a year?"

Kevin: "I don't know about that. My job is to support Mr. Glieber."

Rob: "Sure it is. Anyway, what did you come all the way here to ask me about?"

Kevin: "Let's talk about the names you provide Gliebers Dresses."

Rob: "The absolute best names available anywhere. We have this thing called a 'harmony model', and it selects the absolute best names available anywhere."

Kevin: "And who are those 'best names available anywhere'? Can you describe for me the demographic composition of the names?"

Rob: "Well, we don't look at the world that way. See, these are names that are in 'harmony' with your business. They have similar buying habits and merchandise preferences across other companies."

Kevin: "So you don't really know who these customers are?"

Rob: "Yes, we do. They are customers who are in 'harmony' with Gliebers Dresses customers. A complex set of equations dictate who scores high in a harmony model. Our statisticians are among the best in the industry, doctorate degree holders and entry-level statisticians who really focus on complex math."

Kevin: "We carefully analyze ResponseShop sourced buyers. There are some very interesting trends. Did you know that the names you give Gliebers Dresses disproportionately prefer telephone transactions over online transactions?"

Rob: "Well, we don't really look at the world that way. We really care about simply finding customers who buy something from Gliebers Dresses."

Kevin: "Across all sources of acquisition, ResponseShop has the highest proportion of customers who order over the telephone. This is important, because those names are the easiest to track, meaning that ResponseShop gets more credit for these names, making ResponseShop performance look best, causing Gleibers Dresses to allocate more of their customer acquisition budget to ResponseShop."

Rob: "That's silly. We have our new matchback tool, called 'ChannelMAX'. It clearly points out who buys online or in any other channel. We'll find those online buyers, and allocate them back to the catalog mailing that drove the order. In fact, any order within sixty days of a mailing is matched back to the original catalog."

Kevin: "That's a problem, Rob. We did a test at Gliebers Dresses. We purposely chose not to put 50,000 harmony model names in the mail. Then we looked at the results via ChannelMAX. It turns out that 60% of the housefile orders and 15% of the customer acquisition orders would have happened if no catalog was mailed. This means that ChannelMAX is over-stating results, which means that your clients unprofitably over-mail customers, causing your profit and loss statement to look really good."

Rob: "It's simple matchback business rules, Kevin. We just hope you use the tool as designed."

Kevin: "But all you have to do is encourage your clients to do holdout tests, like Gliebers Dresses did, then put the holdout tests into ChannelMAX. Your clients will learn that they are over-mailing customers, often significantly. Your clients will become much more profitable. Don't you want your clients to be more profitable?"

Rob: "Again, we encourage catalogers to apply simple matchback business rules. We fully believe in our matchback strategy. We're using leading-edge technology to match harmony model purchasers back to the catalog that drove the order. The same thing happens online, but I don't hear anybody complaining about Google cannibalizing orders."

Kevin: "Here's another question. You charge Gliebers Dresses six cents per name, but you charge other clients five cents per name, or even less in some instances, correct?"

Rob: "We negotiate specific deals with every one of our clients. We strongly believe that each client receives maximum value for their investment with ResponseShop."

Kevin: "And Gliebers Dresses is paying for gross names, correct?"

Rob: "Correct, they pay six cents for each of the 100,000 names they select via the harmony model."

Kevin: "And then Gliebers Dresses executes a merge/purge, and finds out that 67,000 names are already on their database. Gliebers Dresses can only mail 33,000 names. So, ultimately, Gliebers Dresses is paying eighteen cents per name, correct?"

Rob: "We're not holding a gun to their head, Kevin. They can do what they want with the information. Some companies use multi buyers in very creative ways, or they populate their internal customer database with the information that comes from the merge/purge process. You cannot put a dollar value on that type of information."

Kevin: "Well, no, they are already mailing the names, because the names are already on their housefile. Wouldn't it make sense to develop a relationship that is more equitable for Gliebers Dresses, so that they can mail more of your names? Eighteen cents per name is insane, given that they pay Google maybe fifty cents per click, and that potential customer has raised her hand, demonstrating interest in a specific item. Couldn't there be some sort of sliding payment scale, based on how deep the client mails, coupled with the names that net out of the merge?"

Rob: "We've actually done the math on this one, and the pricing model we currently employ is close to optimal for both parties, and is highly competitive with other co-ops in our industry."

Kevin: "We looked at the merchandise that harmony model customers purchase. The merchandise is skewed toward 'basics', skewed away from 'fashion'. It turns out that, as ResponseShop becomes a larger and larger contributor of names to Gliebers Dresses, that the business skews more and more toward customers who like 'basics'. And basics have a lower profit margin, making it increasingly harder for Gliebers Dresses to sell high-margin fashion items in the future. Can your harmony model account for this, and instead focus on finding buyers that buy high-margin fashion items?"

Rob: "Well, we don't really care what merchandise the customer buys, that's between the customer and Gliebers Dresses. We just want the names to perform the best."

Kevin: "I've got everything I need from this visit, Rob, thanks for taking the time to chat with me."

Rob: "Seems like a long way to come for so little information, Kevin. Hopefully you'll get out of the Roger Morgan doghouse soon. We've been with Gliebers Dresses since 1994, I think we know how to take care of Roger. We feed him a lot of white papers and research articles. When we give him 'food for thought', he tends to stay out of our way."

Gliebers Dresses: Cyber Monday

Welcome to this week's Executive Meeting.

Glenn Glieber (Owner): "And honestly, this past week was the best sales week we've had in several years. Oh, it feels so good to actually celebrate for once."

Meredith Thompson (Chief Marketing Officer): "Kevin, is that you?"

Kevin: "Yup, it is me."

Lois Gladstone (Chief Financial Officer): "We're just celebrating our big Cyber Monday promotion, which helped contribute to one of the biggest sales weeks we've had in a half-decade."

Kevin: "Great! How did you do it?"

Roger Morgan (Chief Operations Officer): "Actually, it was my idea! We needed to do something to really stand out. So we implemented a radical promotion across all channels ... Free Shipping Plus 20% Off From Thanksgiving Through December 3, and Free Shipping Plus 35% Off On Cyber Monday."

Lois Gladstone: "And you should have seen how customers responded. The promotion went viral on Twitter. Sales were 40% better than last year on Cyber Monday. Now we're moving some inventory, folks!"

Kevin: "So Pepper, which customers took advantage of the promotion?"

Roger Morgan: "Who cares who took advantage of the promotion?"

Lois Gladstone: "Yeah, who cares?"

Pepper Morgan (Chief Marketing Officer): "Boris Feldman tells me that half of the customers were first time buyers ..."

Roger Morgan: "Yes!!! We introduced a large number of new customers to the brand!"

Pepper Morgan: "... and of the half that were existing customers, half were previously full-price customers who we converted to promotional buyers, half were previous promotional buyers."

Kevin: "Pepper, do promotional buyers purchase full-price merchandise in the future?"

Pepper Morgan: "Boris looked at this. Last year's Cyber Monday promotional buyers had a 19% repurchase rate, while all other customers had a 55% repurchase rate."

Kevin: "Did Gliebers Dresses make money on last year's Cyber Monday promotional buyers?"

Pepper Morgan: "Actually, no, we lost money, because those customers didn't respond to our marketing efforts. We spent catalog dollars and did not get a sufficient return on investment."

Lois Gladstone: "But this is a customer management issue, right? Let's just not market to Cyber Monday buyers. That way, we reap the benefits of our Cyber Monday promotion, we generate profit, and then who cares if the customer ever comes back, right? We don't ever have to mail catalogs to those discount-hungry shoppers. Let's just collect our $4 of profit and head home."

Roger Morgan: "Yes, who cares if the customer ever comes back?"

Meredith Thompson: "Well, I kinda care. The only reason we are in business is to profitably sell dresses, right?"

Lois Gladstone: "And you did that, Meredith. The average order value for a Cyber Monday promotional buyer was $120. Our gross margin is about 50%. So we generate $60 of margin, then we subtract $42 for the promotion, we subtract $14 to pick/pack/ship the item, and we're left with $4 of glorious profit. You moved merchandise, and you made $4 of profit per order, assuming items aren't returned."

Kevin: "What did Anna Carter do on Cyber Monday?"

Pepper Morgan: "They did not run a single promotion. Everything was at full price. This means that on a $120 order, they generated $60 of gross margin, offset by $14 of pick/pack/ship expense, and then they got shipping and handling revenue. They probably made $55 of profit per order."

Kevin: "This means that Gliebers Dresses has to generate fourteen orders for every one order that Anna Carter generated, in order to be more profitable than Anna Carter. Do you think that your business was fourteen times better than Anna Carter on Monday?"

Lois Gladstone: "We probably did three times as well as Anna Carter on Monday. That's huge!"

Roger Morgan: "But what about market share, Kevin? We absolutely dominated on Monday. We gained market share. That means something. That means we stole orders that would have gone to our competition. We hurt our competition on Monday, we put a dagger in their heart. Isn't market share worth something? I mean, everybody is contracting. On Cyber Monday, we grew. Neptune Research says that the companies that succeed in a recession are those who gain market share."

Kevin: "Sure it is worth something. But so is profit. Your business model was responsible for 3,000 orders at $4 profit per order, for a total of $12,000 profit. Anna Carter probably generated only 1,000 orders, at $55 profit per order, for a total of $55,000 profit. So, yes, you stole market share from Anna Carter. And Anna Carter has an additional $43,000 profit to invest in order entry systems or marketing activities or employee bonuses. Now, granted, maybe you stole 1,000 orders from Anna Carter, hurting them a bit, giving you an additional $4,000 profit. But if Boris is right, only 19% of Cyber Monday buyers repurchase, so you haven't impacted long-term market share, you just bought a bunch of orders for a few dollars of short-term profit. You haven't built something that is lasting. The entire history of Gliebers Dresses has been of a business model that was built to last. Now you are trying to prop-up a psuedo Holiday, and for what?"

Roger Morgan: "But what is wrong with that, Kevin? If we're more profitable for doing this, and Anna Carter is less profitable, then we won, right? I don't get it. Am I missing something? This is a simple profit and loss and marketshare game, and we won."

Kevin: "I don't think Gliebers Dresses is asking the right question. What would have happened if you offered 20% off plus free shipping? What would have happened if you offered 10% off plus free shipping? What would have happened if you only offered free shipping? What would have happened if you didn't offer a single promotion, like what Anna Carter did? Had you executed a multivariate test with different promotional levels as test cells, you could have known specifically which level of promotional activity yielded the best outcome. You reacted to the marketplace, competing not on profit, but on who can offer the most glorious promotion. You weren't selling dresses on Cyber Monday, you were selling the best promotion available. Customers will always, always be able to find a better promotion."

Roger Morgan: "You know what, Kevin, you're a downer. You are always telling us what we should be doing, always pointing out our flaws. You're a consultant, you aren't in the trenches with us. It is so easy for consultants to point out flaws. You go on Twitter and tell everybody what they should be doing. Who cares what pundits and gurus on Twitter think, they aren't running real businesses like we are. Down here, in the trenches, we're fighting for every order we get. We have to remain competitive, heck, everybody is out there on Cyber Monday giving away the house in order to keep customers. You try to sit in this room and explain to your Owner why we didn't run a promotion on Cyber Monday and generated only 1,000 orders instead of 3,000 orders. You then try to liquidate 2,000 orders worth of merchandise at a significant discount in January, completely cannibalizing your full-price business. Things aren't all cut and dried, like marketing pundits make them seem. As far as I am concerned, you can offer us some encouragement, or you can just keep quiet over there. I'm tired of being beat up by experts, I like being encouraged by research organizations who are promoting growth strategies."

Lois Gladstone: "Yeah Roger, I'm with you. It's one thing to offer pithy advice. It's another thing to be in the trenches, actually trying to keep a business afloat. You never supported our loyalty program, Kevin, you criticized us for giving away shipping and handling dollars there, too. What is your problem? Why do you hate promotions?"

Kevin: "I don't hate promotions. I fully support discounting and promotions when you have to clear inventory --- you cannot sit there and let inventory pile up. I get that. But, I am FAR more interested in the reason WHY promotions happen. Glenn, has the Monday after Thanksgiving always been one of the busiest days of the year at Gliebers Dresses?"

Glenn Glieber: "Ever since the 1980s, Kevin."

Kevin: "And when did you start offering discounts and promotions for Cyber Monday?"

Meredith Thompson: "We started offering Cyber Monday promotions in 2003."

Kevin: "And why did you start offering Cyber Monday promotions?"

Roger Morgan: "Woodside Research told us that Cyber Monday was a huge opportunity for online marketers to gain market share by offering promotions to eager holiday shoppers. They said that by 2005, 85% of online marketers would be offering sales and promotions to customers on Cyber Monday. And guess what, they were right."

Kevin: "So ever since the 1980s, this was a huge day. But in the last ten years, trade organizations and research organizations told you that you had to run your business in a different way, they told you that you had to offer discounts and promotions to lure bargain shoppers. Businesses listened. Now we have a big event that the media created and actively promotes ... they make money off of it via advertising, but at Gliebers Dresses, you compromise $55 of profit per order so that you can be competitive, competing for orders that generate $4 of profit. Basically, a combination of research organizations and media outlets hijacked one of the busiest days of the year for their own purposes, and you are left clawing for three times more orders than you would otherwise get, in theory, orders that generate 90% less profit. If pointing out this fact to you is a bad thing, then I'll gladly not participate in your meetings if you don't want me here. I am not going to come to these meetings and tell you a quaint bedtime story that makes you feel good. My job is to encourage you to think about the profitable decisions you make. And in the case of Cyber Monday, the logic doesn't support the level of discounting you've authored."

Lois Gladstone: "But this is the problem with your advice, Kevin. It doesn't matter that you think research organizations and trade organizations created this holiday. Now, everybody participates. We have no choice but to participate, or we lose out on market share and orders, we end up with an inventory problem."

Kevin: "You don't end up with an inventory problem if you don't give the store away and you plan for appropriate inventory levels nine months in advance. Anna Carter didn't participate in Cyber Monday. And by the way, did you get an iPod Touch for half-off at the Apple Store? Their store was absolutely crowded on Black Friday, and they don't discount. Did the iTunes store discount all digital music today in order to participate in Cyber Monday? Heck no!!! Go to Zappos, they aren't giving the store away, they just jack up the price of all items by $3, and then tell you that you are getting free shipping all day every day, end of story, and the public believes they are getting free shipping when they aren't. Discounts and promotions are taxes placed upon a brand for having unremarkable product, and they are unsustainable in the long-term. Honestly, how do you beat 2009 performance in 2010? Do you offer 40% off plus free shipping? And then how do you beat 2010 performance in 2011, do you offer 50% off plus free shipping? Where does it end?"

Lois Gladstone: "Kevin, that's stupid. Everybody knows you have to make profit on every order, so you'd never offer 50% off plus free shipping. We'll do what we have to do in order to remain competitive."

Glenn Glieber: "Well, Kevin, you certainly gave us an opportunity to reflect upon our actions. But I don't think we have much of a choice, we have to remain competitive. And honestly, I think Roger brings up something interesting to think about regarding your participation in these meetings. Enough for today, we need to move on to other topics. On Monday, we begin our inter-faith Holiday exposition in the lobby. Employees of all faiths are encouraged to decorate their designated area as appropriate for their Holiday belief system."

Gliebers Dresses: Home Page Design, Part 2

Welcome to this week's Executive meeting.

Glenn Glieber (Owner): "... you know, there's really nothing like getting a standing ovation from an enthusiastic crowd, even if there are only 65 people in attendance. When you are acting, you have to channel your character. I really felt like I was Myles Standish!"

Pepper Morgan (Chief Marketing Officer): "Kevin, welcome to our meeting."

Kevin: "Thanks, Pepper. Where's Meredith?"

Pepper Morgan: "She took today off."

Roger Morgan: "Well, we have test results. And they are interesting."

Pepper Morgan: "Overall, the current home page had an 8% conversion rate. Meredith's design had a 5% conversion rate."

Lois Gladstone (Chief Financial Officer): "So the old design was clearly better. My goodness, how much money did this test cost us?"

Pepper Morgan: "Well, there's a couple of interesting findings. Average Order Value for the existing home page was $125, while AOV for Meredith's strategy was $150. Therefore, dollars per visitor in the existing home page was $10.00, and was $7.50 for the new home page."

Lois Gladstone: "How many visitors saw the new creative?"

Pepper Morgan: "20,000".

Lois Gladstone: "So we lost $50,000 demand, and maybe $15,000 profit, much less the cost to execute the test, because our merchandising leader wanted to test something, and because Kevin supported doing the test. We don't need to keep losing money, folks."

Pepper Morgan: "Here's what is interesting, Lois. The customers in the loyalty program performed different than anybody else. For loyalty customers, conversion rate was 12% for the existing site, but was 18% for the new site. And AOV was $150 for the existing site, but $225 for the new site. In total, the existing home page generated $18.00 a visitor, while the new home page generated a whopping $40.50 per visitor."

Lois Gladstone: "How is that possible?"

Pepper Morgan: "Because new customers absolutely hated the new home page. They couldn't stand it. But it appears that our very best customers loved that we did something new, creative, and innovative. And I think that is what Meredith was leaning toward when she wanted to try this strategy. She felt that customers who love our merchandise are absolutely bored with what we do."

Roger Morgan: "So maybe we could recognize visitors, based on prior purchase habits, serving up different home pages based on whether the customer is in the loyalty program or not?"

Pepper Morgan: "And that solution would be far more profitable, based on these test results, than to do what we've always done. See, Meredith was right, and Roger was right. New visitors need a site that makes navigation easy. Our best customers want to be romanced. Just think about it. Is every single customer the same, or do different customers at different stages have different needs? Why do everything the same way?"

Roger Morgan: "Because we don't have the technology to do this in-house. Our database and web infrastructure don't support executing a strategy like this."

Pepper Morgan: "Kevin, what do you suggest?"

Kevin: "There are many vendors who would be happy to help Roger with serving up different pages based on customer preferences. And I can easily segment customers into those who are best, those who are new, and those who have varying merchandise interests. I can feed those customers into any of many vendor platforms, and then the proper home page or landing page can be served to the customer. Over the course of a year, you'll be far more profitable doing this."

Glenn Glieber: "Well, it's a good thing we had the courage to do this test! Ok, on to the rest of the meeting. Our next topic is about the temperature in the building. The employees think it is too cold, and they are right, because I asked Roger to turn the thermostat down to 62 degrees to save money. So I think we should raise the thermostat to 63 degrees, what do you think?"

Gliebers Dresses: Big Books

Welcome to the Gliebers Dresses Executive Meeting.

Glenn Glieber (Owner): "... it simply isn't a day that I thought I'd ever see."

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

Kevin: "Yup, it's me."

Roger Morgan (Chief Operations Officer): "I assume you've heard the news, Kevin?"

Lois Gladstone (Chief Financial Officer): "Yes, I'm sure he heard about it. BT Nickels is discontinuing their twice-yearly big book catalog mailings."

Pepper Morgan (Chief Marketing Officer): "I spoke with Janice Fosterberg at ResponseShop, our co-op and matchback vendor, and she said that they are making a HUGE mistake. She said that they ran several analyses on BT Nickels data, and it shows that those gigantic, 600 page catalogs are responsible for 10% of their retail sales and 80% of their e-commerce sales. She thinks they will absolutely regret the day they made this decision. And Ralph Throckmorten is their print rep, and he said they are going to lose a ton of paper discounts because of this decision. He said this will drive up the incremental cost of their other catalog activities, making them less profitable, causing them to trim circ. He doesn't like where this is headed."

Roger Morgan: "I'll bet that ResponseShop regrets that they made this decision. At $0.06 per pop, they're losing millions of dollars."

Pepper Morgan: "Well, they're going to continue to mail what they call 'skinny books', you know, 84 page catalogs with targeted merchandise to specific niche audiences within their catalog file. So I'm sure ResponseShop is going to continue to be lathered with $0.06 payments for some time to come."

Meredith Thompson: "But what a sad day. I mean, this really is a sad day. Back in the late 70s, I relished ordering from the BT Nickels catalog. It came in the mail, and we just fought over who got to see the catalog first. And remember, they only put 20 lines on their order form, heck, that wasn't nearly enough space to order everything you wanted, so you had to attach another piece of paper with all of the other items you wanted to buy. Then you mailed in your order, and you had to mail it around October 1, because delivery took 4-6 weeks, remember? And sure enough, just before Thanksgiving, your order arrived. The whole process was magical. That big book was magical."

Glenn Glieber: "And it is a sad day for all of those workers in British Columbia who will be denied the right to harvest a renewable resource because the big book is now gone. Where will they work now? I'm sure the folks at Catalog Select, the third-party opt-out service, are having lots of fun at the expense of catalogers, knowing all that paper has just been taken out of the mail system. Maybe they can provide jobs for all of the workers who are being slowly displaced by technology."

Roger Morgan: "I ordered a computer chess game from BT Nickels back in the mid-80s. I played that computer chess game every day. You couldn't find it in stores anywhere, the only place you could find it was in that big book catalog."

Lois Gladstone: "And now, you download a free app on your iPhone and you can play chess against a computer or against any one of a half-million iPhone chess enthusiasts worldwide."

Glenn Glieber: "What is an, uh, what did you call it, an 'app'?"

Lois Gladstone: "Yes, an app ... it is an application, a computer program that you wirelessly download onto your iPhone. In the old days, you'd buy a computer game at Best Buy for $24.95. Now you buy an app for $1.99."

Roger Morgan: "And many of the apps are free. For some retailers, those apps are like free marketing."

Glenn Glieber: "I love free marketing!"

Pepper Morgan: "And that's the punchline, isn't it? Why send 600 pages at a cost of $7.50 per catalog to a customer when the customer holds the entire world in her hands on an iPhone?"

Glenn Glieber: "Are we doing any of these app things, Pepper?"

Roger Morgan: "Oh, not yet, Glenn. Pepper put apps for the iPhone and Droid platform on the book of work, but we're buried right now with a Holiday season information technology lock-down. There's no way we can work on that stuff right now, we simply cannot interfere with computer systems that are taking Holiday orders."

Glenn Glieber: "What's a droid?"

Roger Morgan: "That is Google's cell phone platform, they are competing against the iPhone."

Glenn Glieber: "And Pepper, you were thinking of doing droid marketing too? Is that free?"

Pepper Morgan: "Our iPhone and Droid and Blackberry apps would all be free."

Glenn Glieber: "And the customer could thumb through a digital pdf or something like that on their droid? I mean, could we have a 600 page big book in pdf format for the customer to thumb through on her i-droid? And then maybe we could make it available on the Kindle too, heck, we could charge customers $0.99 for a 600 page big book in pdf format."

Pepper Morgan: "Well, we'd prefer that the customer visits a mobile version of our website."

Glenn Glieber: "But we already have a catalog, and the catalog drives customers to our website, so why does the customer need to use a free droid to go to a special version of our website? I mean, I like the cost structure of the whole thing, but that's not how people shop, is it? Haven't we been taught that customers use paper to place online orders?"

Lois Gladstone: "It's how some people shop."

Glenn Glieber: "Are you telling me that more people would shop via these free droids than would shop a big book like BT Nickels used to send?"

Meredith Thompson: "Absolutely not. I'm sure a half-million or a million customers would still buy from a big book. Apps haven't broken through for retailers yet. And that's the problem with all of this marketing hype. A million customers will order from a big book, but everybody declares it to be dead because it is too expensive. 20,000 people order from an app, but that's all you ever hear about, the 20,000 cool people who order via mobile marketing."

Roger Morgan: "But that's the thing. A big book from BT Nickels cost $7.50 to put in the mail. One of our 124 page catalogs costs $0.75 to send to a customer. An iPhone app costs us essentially nothing, outside of staffing and development costs."

Glenn Glieber: "I get the big book. It's the whole assortment, sitting on your coffee table. And I get our catalogs, because they are targeted with razor-like precision to customers who love dresses. But this i-droid app, that doesn't make any sense to me. Are you saying that a customer holds a phone in her hand and buys dresses from us?"

Lois Gladstone: "And listens to music."

Roger Morgan: "And tweets to her friends."

Lois Gladstone: "And reads news headlines."

Meredith Thompson: "And uses Google Earth to take a magical trip to the Palouse."

Lois Gladstone: "And gets urgent weather messages from the National Weather Service."

Roger Morgan: "And reads books."

Lois Gladstone: "And does online banking."

Roger Morgan: "And watches NFL Thursday night games on it."

Pepper Morgan: "I'm saying that next spring, we will launch a mobile shopping website with free apps for all lines of smartphones."

Glenn Glieber: "Smartphones! I remember when we had party lines back in the 1970s. My daughter would be speaking with her boyfriend, and then she'd freak out because old man Barnaby from three houses down the road was listening to her conversation."

Roger Morgan: "Have you noticed, folks, that the cell phone carriers have all raised their data plans to something like $129 a month for two people. I mean, what's up with that? Everything else is getting cheaper, but if I want to download a bunch of free apps I have to pay $129 a month, every month? And then you look at Sonora's text messages. Do you realize that she sent and received 2,084 text messages last month? Mercy!"

Pepper Morgan: "Roger, the average kid sends and receives 2,200 text messages a month. 2,048 is actually well below average."

Glenn Glieber: "Do we send out free text messages to our customers?"

Meredith Thompson: "I just think we keep losing something as technology takes us in a digital direction. That 600 page BT Nickels catalog sat on the table for four months. Then our 124 page catalogs sat on the table for four weeks. Then an e-mail marketing campaign sat in my in-box for four hours. And now the customer will research our mobile website for what, maybe four minutes? Honestly, we're running out of time to romance a customer, aren't we?"

Kevin: "Here's something for all of you to consider. What is your marketing strategy? Honestly, what is your strategy for communicating with and engaging customers? You're doing all of the things that the multichannel experts tell you to do, catalogs, e-mail marketing, search, affiliates, social media, banner ads, mobile marketing, you name it, you are willing to dip a toe in it. I think it is great that you are thinking of doing something with mobile marketing. But what is your strategy? Could anybody in this room offer me a one-paragraph description of your multichannel marketing vision for the next five years? Could you tell me which channels will be emphasized, which channels will be de-emphasized, which channels have mass-audience appeal, and which channels are destined for niche audiences? BT Nickels is clearly telling you what they think the future of print is. There's no reason Gliebers Dresses cannot have a vision for how each of your marketing channels are forecast to evolve, and then you market to the projected evolution of each channel."

Meredith Thompson: "I think that's easy. We're being 'multichannel' because the best customers are multichannel customers, and we want to be everywhere the customer is. So if she is walking down the street and sees an Ann Taylor Loft store and decides she wants a dress and then thinks, 'oh goodness, maybe Gliebers Dresses has something like that', she can just punch up her iPhone app, and bingo, we just took a sale away from Ann Taylor Loft. It's really that competitive, I think, at least for 20,000 tech fanatics using apps."

Kevin: "That's your imagination, and imagination is really good. But imagination is not a strategy. How many of you shop with your iPhones when you are spending a weekend in Boston? Seriously, how many of you do that? Or how many of your friends do it? Just because a tech blogger says this is the future doesn't mean it is the future ... unless, of course, you do something so innovative with the channel that you literally create the future. That seems to be what is completely missing from multichannel marketing. Everybody is doing something because you are supposed to do something, same items and same prices and same imagery and same promotions in all channels, so that the best customer gets pummeled with the same message 97 times in eight different channels. Who said that is a good customer experience? Vendors selling multichannel solutions? Having a website that store customers can buy from and vice-versa isn't a genuine strategy, it's a tactic. Why not be the first to have a strategy? Outline, for each channel, what the purpose of the channel is, who the unique customers are who are served by that channel. Clearly state how you plan on using each channel in a way that is congruent with other channels. Clearly state how you plan on using each channel in a way that is completely different from every other channel. Clearly state how you will use each channel is a way that is different from the way your competitors use channels. Clearly state how customers, not marketers and vendors, benefit from all of these channels. Clearly state what defines 'success' in a channel, and what must happen for you to decide to shut down a channel. That's what BT Nickel had to have done with their big books. Prioritize every channel, because they sure aren't all equal in stature. Communicate your strategy to every employee. I dare any cataloger to provide a document that has this level of thought in it. You can lead the pack. Do it!!"

Glenn Glieber: "That sounds like a fascinating project, Pepper, why don't you tackle that one? And be sure to be clear about where we are going with droids and stuff like that. Have something on my desk by the end of day tomorrow. Ok, great meeting! And we'll certainly miss the BT Nickels big book, won't we?"