Dear Catalog CEOs: Matchbacks

Dear Catalog CEOs,

During the past decade, matchback analytics have become an indispensable part of catalog marketing. Without matchback analytics, it is possible you would not have a catalog channel.

The age of the "matchback" changed our perception of marketing.

Do you remember the good 'ole days, like way back in 1994, before we had an e-commerce website, back in the stone age of catalog marketing?

Back in 1994, we cared a lot about the concept of "cannibalization". We executed a lot of exotic multi-variate tests to detect cannibalization. For instance, say we mailed two catalogs, one on September 1, one on October 1.

• September 1 Catalog = $5.00 per catalog.
• October 1 Catalog = $5.00 per catalog.
• Total Demand = $10.00 per customer.

And then, we got excited! If we could generate $5.00 per catalog, maybe we should add a third catalog. So in 1995, we added a third catalog, on September 15.

• September 1 Catalog = $4.00 per catalog.
• September 15 Catalog = $4.00 per catalog.
• October 1 Catalog = $4.00 per catalog.
• Total Demand = $12.00 per customer.

Remember what we thought? We were happy with the new catalog, but we were concerned with the performance of the two existing catalogs. It was almost like they weren't working well anymore! And in fact, if we ran a profit and loss statement, we found that $12.00 of customer demand across three catalogs was less profitable than $10.00 of customer demand across two catalogs.

We thought about cannibalization, a lot. We were genuinely concerned about how one marketing activity cannibalized another activity.

Then matchback analytics came along. The data enabled the catalog vendor community to change our minds about how we thought about marketing activities.

We stopped thinking about "cannibalization". Heck, these catalogs didn't cannibalize business. Nope, these catalogs "added" business, they "drove" business to other channels.

The industry script (supporting an additive model vs. cannibalization) benefits the catalog ecosystem. The co-ops and database vendors created reporting that illustrated how catalogs drove sales across all channels. Their reporting supported the notion that we should rent more names from the co-ops. In other words, matchback reporting fuels the financial success of the co-op and list industry. The paper industry supports the concept of matchbacks. Printers support the concept of the matchback. The USPS supports the concept of the matchback. Your favorite Catalog Consultancy that helps you with mailing plans benefits from the matchback. Even third-party opt-out services benefit from matchbacks ... without matchbacks, they serve fewer customers who are getting unwanted catalogs.

The industry script benefits the entire catalog ecosystem.

Now let's focus on you, the Catalog CEO. Do you benefit from matchback algorithms?

As we head into the Holiday season, I'd like to ask you to do our industry a favor:

• Randomly sample 5,000 or 10,000 customers from the universe you would mail your best-performing Holiday catalog to.
• DO NOT mail these customers your best Holiday catalog.
• Code these customers as a unique segment, and enter these customers into your matchback routine with your favorite matchback vendor. Remember, these customers were not mailed a catalog, so your matchback vendor should show that no orders are matched back to the catalog that you did not mail.

If your matchback vendor matches online orders back to a catalog that was not mailed, then you have an estimate for how much your matchback vendor is over-stating the results of your catalog mailings.

Catalog CEOs, this is a very important topic. If your matchback vendor is over-stating your catalog performance because your vendor fails to take cannibalization into account, then you are over-mailing your customer base, and in all likelihood, you are wasting marketing dollars, squandering profit.

Increasingly, I am hearing of big discrepancies between matchback results and real-world results obtained via holdout tests. One company told me that every phone order was paired with one online order matched-back in their matchback algorithm. And yet, when they executed a holdout group, they only saw a 5% drop in total demand --- almost no phone demand or online demand was lost when the catalog was not mailed.

In other words, cannibalization was so significant that the catalog was basically adding no incremental demand. This is an important concept --- cannibalization testing shows no additional demand, while matchback algorithms show that catalogs drive online business, forcing you to mail more catalogs.

Do you understand the distinction?

Catalog CEO's, please ask your marketing folks to give this test a try. The entire catalog industry ecosystem benefits from matchback algorithms, and they aren't supporting matchback to be evil ... it's the best available reporting folks have. I'm asking you to question your results, to execute a test and validate that the matchback algorithms are giving you honest results. I don't benefit from doing this test, I have no financial interest in positive or negative results. Only you will benefit if you find that orders are being mistakenly attributed to catalog mailings.

So see for yourself! Run a holdout test, code the customers as a segment, run them through your matchback algorithm, and see if there is a bias that is causing you to over-state your results.

Thank you for your consideration,

Kevin Hillstrom, President, MineThatData

Catalog And E-Mail Drive Retail Sales Via Matchback Analytics In Some Instances

Jim Wheaton brings us an article that those of us who've analyzed the data firmly believe in --- that after controlling for prior customer frequency, multichannel customers are not fundamentally better than single-channel customers. The article explores how analysis of customer behavior can trump established marketing beliefs.

I am reminded of a meeting in 2003 at Nordstrom. Our sales rep from Abacus visited, suggesting that matchback analytics would prove that our catalog marketing efforts drove a billion dollars or more of retail volume (our retail business was maybe $5 - $6 billion at that time). Abacus clients were using matchbacks, learning that retail customers who received catalogs were likely to buy in stores in the days after receiving a catalog. Our Abacus rep took a leap of faith --- the mailing of catalogs caused a billion dollars in retail sales --- the catalog caused the sales to happen.

And Abacus was right, based on the analytics available to them. You run a matchback analysis, and you see that retail customers buy in the days following the mailing of a catalog.

Multichannel Forensics, however, suggest a subtle distinction that we must keep in mind.

• Matchback algorithms are reasonably accurate when the retail channel is in Acquisition Mode.

• Matchback algorithms are somewhat accurate when the retail channel is in Hybrid Mode.

• Matchback algorithms are highly inaccurate when the retail channel is in Retention Mode.

If you don't have the bandwidth to run a Multichannel Forensics analysis, at least run mail/holdout groups through your matchback algorithm, subtracting the difference in matches.

There is a faction of the marketing community that sees matchbacks as a religion, and this is ok, because it is sometimes better to do matchbacks than to do nothing. That being said, subtle performance differences and profit increases happen when we combine Multichannel Forensics, Test/Holdout Groups, and Matchback Algorithms --- for catalog mailings and especially e-mail campaigns.

Back to Nordstrom. We did the testing, we did the Multichannel Forensics analysis, and we did Matchback Analytics. Our findings ran contrary to the best practices suggested by the marketing establishment.

We killed our catalog program in June 2005. From July 2005 - June 2006, comp store sales were positive. In other words, without $36,000,000 of catalog advertising that matchback algorithms suggested were driving maybe a billion dollars of retail sales, we were able to increase retail sales. Multichannel Forensics and Test/Holdout groups told us that a retail brand in Retention Mode yielded highly misleading Matchback results.

So this is the deal. The vast majority of the marketing establishment believes that catalog and e-mail marketing drive sales to other channels, as evidenced by matchback analytics. And these folks may be correct, especially if channels operate in Acquisition Mode. When channels operate in Hybrid Mode or Retention Mode, the rules change --- the organic percentage overrides matchback analytics.

Catalog And Retailer Differences In Matchback Strategy And Contact Strategy Optimization

There's this huge shift in multichannel marketing strategy in recent years, with catalog matchback algorithms playing a significant role in the shift.

Fashion retailers (Neiman Marcus, Saks, Bloomingdales, Nordstrom) either eliminated traditional catalog marketing programs, or are in the process of significantly reducing circulation. Folks at Williams Sonoma are significantly trimming circulation.

When I talk to some of you, you tell me that these folks can cut circulation because they are retailers --- the retail channel somehow generates brand awareness that fuels a brand in a way that minimizes the need for advertising. You might be right, we simply cannot test your hypothesis.

Mechanically, retail brands are better at developing a testing discipline.

Here's an example. We randomly sample twenty customers, ten receive a catalog, ten do not, and measure performance across channels during the three weeks that a catalog is active. Here's what we observe:

Mailed			Holdout
Cust 1	Buy Store		Cust 11
Cust 2			Cust 12
Cust 3			Cust 13	Buy Online
Cust 4			Cust 14
Cust 5	Buy Phone		Cust 15
Cust 6	Buy Online		Cust 16
Cust 7			Cust 17
Cust 8			Cust 18
Cust 9	Buy Online		Cust 19
Cust 10			Cust 20	Buy Online

Here's the fundamental difference between the retailer and the catalog brand.

The retailer will compare the mailed group and the holdout group. In the mailed group, four out of ten customers responded --- in the holdout group, two out of ten customer responded. The retailer calculates response as (4 - 2) / 10 = 20%.

The cataloger does not execute the test. Instead, the cataloger takes the mailed group, identifies the four responses, matches the responses back to the mail file, and calculates response as 4 / 10 = 40%.

Again, notice the significant difference in response, using the two methodologies.

• Retailer = 20% Response Rate.
• Cataloger = 40% Response Rate.

In this comparison, the organic percentage is 20% / 40% = 50%. Half of the demand would happen without any advertising.

This fundamental difference in approach causes a shift in strategy.

• Retailer = Cut Circulation, Re-Allcoate Marketing Dollars Elsewhere, Learn!!
  
• Cataloger = Maintain Circulation, Ask For Additional Funding For Online Marketing, And Significantly Over-Spend In The Catalog Marketing Channel, Driving Down Profit.
  

This problem is systemic across the catalog industry. Matchback vendors aren't trying to rip you off, they simply aren't. But there isn't an incentice to create a "best practice" that accounts for the differences that retailers observe when executing contact strategy testing and what catalogers measure via matchback analytics.

A simple solution for catalogers is to execute a test similar to the one designed above. Do not tell the matchback vendor about the holdout group. Have the matchback vendor run the control group through the matchback algorithm, and see how many orders are allocated to the holdout group. Subtract the results of the holdout group from the results of the mailed group, and you have true incremental demand as illustrated in the retail example at the beginning of this post.


Hillstrom's Contact Strategy Optimization: A New E-Book.

Hillstrom's Contact Strategy Optimization On A Budget

Hillstrom's Contact Strategy Optimization On A Budget is a new e-book and spreadsheet available from the MineThatData Store at Lulu.com.

Contact Strategy Optimization is not a new concept. During my time at Lands' End in the early 1990s, we worked with a team of IBM researchers on an optimization solution that formed the embryonic version of the solutions offered by Decision Intelligence.

During the past two weeks, many of you told me that you don't want to spend tens or hundreds of thousands of dollars on black box algorithmic solutions that optimize the number of catalog contacts to various customer segments. That being said, you told me you want a solution ... one that can be implemented by Business Leaders, Analysts, and Managers ... one that can be implemented on a budget.

So I wrote this e-book, outlining a reasonably simple approach to identifying the most profitable combination of catalog mailings and e-mail marketing messages to different customer segments.

What Do You Get, What Will You Learn?

• You'll learn that matchback algorithms over-state the importance of catalog marketing, causing us to mail too many catalogs to our customers.

• You'll learn that the "organic percentage" is the most important metric to understand when considering an appropriate contact strategy.

• You'll learn that contact strategy testing is critical to understanding multichannel customer behavior.
  

• You'll learn how cannibalization between catalog mailings and e-mail marketing messages directly influence a profitable contact strategy.

• You'll apply versions of the "square root rule", identifying profitable strategies.

• You'll receive access to a URL where you can download a spreadsheet that allows you to play "what if" games using your own assumptions and your own customer segment performance.
  

This is not meant to be an elegant or mathematically perfect solution. This e-book and spreadsheet are written for you, the Executive or Analyst who has to come up with solutions on a limited budget.

Do you not have a quarter of a million dollars to spend on an optimization solution, but have access to $79? If so, purchase "Hillstrom's Contact Strategy Optimization On A Budget"! For those of you who criticize me for giving away too much information, you'll be happy, because the contents of this e-book will not be made available on this blog.

$79 is a fair price, considering you'll be given tools that could result in hundreds of thousands of dollars of annual profit, don't you think?

So visit the MineThatData Store on Lulu.com, and download this e-book for the nominal fee of $79.

How Nordstrom Profitably Ended A Catalog Marketing Program, By Kevin Hillstrom

Something is going on in catalog marketing when I receive repeated inquiries asking how Nordstrom ended a traditional catalog marketing program and increased direct-to-consumer sales. An increasing number of catalog marketers are starting to re-think marketing strategy.

As a result of numerous recent queries from catalog and retail brands across the United States and Europe, I am going to write this essay explaining the decision-making process, and the high-level results. The goal is to help our industry. Please feel free to forward this article to your colleagues --- the hyperlink is embedded here.

If you have questions that I failed to answer here, please ask your question in the comments section of this post, so that all members of our industry may benefit from the answer.


How Nordstrom Profitably Ended A Catalog Marketing Program, By Kevin Hillstrom.

The year was 2004, and the world was a different place. Gas cost less than $2.00 per gallon. President Bush was re-elected for a second term as President of the United States. Finding Nemo won the Oscar for the best Animated Picture. Brett Favre pondered retirement from the Green Bay Packers. Barack Obama, an obscure Jr. Senator from Illinois, gave a stirring seventeen minute speech at the Democratic National Convention.

The catalog marketing world was buzzing over a term called "multichannel". Most brands were between five and nine years into their foray into e-commerce. During this time, telephone sales generally declined, while e-commerce sales dramatically increased. The accepted best practice was to mail catalogs to customers, causing the customer to purchase merchandise over the telephone, online, or in stores. The customer chose the channel she wanted to purchase in. The brand needed to be "multichannel", needed to be present in each channel to accommodate this savvy shopper. The catalog, based on an analytics tool called "matchback analytics", was at the core of this new marketing strategy.

The entire catalog marketing ecosystem liked this view of the world. Printers continued processing catalogs, makin' bacon in the process. Paper reps benefited from the strategy. Co-op marketers provided the analytics that proved this strategy worked, then benefited from the strategy as catalogers leased households from a half-dozen co-op databases. List rental and management organizations protected their future as well. List processing vendors enjoyed the benefits of continued merge/purge processing. E-commerce vendors enjoyed increased website traffic, causing demand for online software. Even e-mail vendors benefited, because catalog customers volunteered an e-mail address at the time of a phone or online purchase, fueling the growth of the e-mail marketing industry. Paid search vendors benefited, because the catalog customer went to Google to research products viewed in a catalog. Google benefited!

The marketing world agreed that mailing catalogs was the "right" thing to do.

In 2004, Nordstrom finally had a highly profitable direct marketing division. A division that lost 10% of net sales in 1999 and 2000 broke even in 2002, and came off of a profitable year in 2003. In 2004, sales and profit were and increasing.

The catalog strategy included marketing of a subset of merchandise, with many items not available in stores. The merchandise included items that sold well in the telephone channel, and did not include the vast majority of items that sold well in stores, did not include many items that sold well online.

By all accounts, this was a successful division.

And then management asked a simple question.

"What would happen if we integrated our channels, offering largely the same merchandise in all channels, without implementing a traditional catalog marketing program?"

Imagine if you are part of the management team of the direct-to-consumer channel, and you are asked this question. You are responsible for putting catalogs in the mail. And somebody is now questioning whether you should do this anymore.

As Vice President of Database Marketing, I built an entire team responsible for putting catalogs in the mail and measuring the effectiveness of these catalogs. What do you think I thought of this question? How would you respond to the question?

A task force of sixteen leaders was assembled. The leaders included Regional Managers, responsible for store performance in their region, Information Technology leaders, the Chief Marketing Officer, many members of the direct-to-consumer management team, and yes, even me.

If you are Vice President of Database Marketing, and you are asked to participate on this team, you are going to be asked questions by members of this team. Your direct-to-consumer team are going to ask you to demonstrate the importance of a traditional catalog marketing program. Your Chief Marketing Officer is going to ask you to present unbiased facts about customer performance.


What were some of the questions leadership wanted answered?

Question: Will catalog customers just switch their behavior, and shop online if catalogs are no longer mailed to them?

Answer: Some customers will switch. Many customers will simply stop purchasing. We tested not mailing customers catalogs in 2001, 2002, 2003, and 2004. We knew exactly what would happen. Without a reinvestment of advertising dollars, sales would decrease.


Question: If catalogs aren't mailed, won't customers just switch to e-mail marketing?

Answer: No. This strategy had also been tested. If a customer receives a catalog, she spends maybe $X across the phone, online, and retail channels. If a customer receives an e-mail marketing campaign, she spends maybe (0.12)*$X across the phone, online, and retail channels. When we tested not mailing catalogs to an e-mail customer, e-mail performance increased slightly. Almost all of the $X would be lost, not recouped by e-mail marketing. And we all know this, we measure e-mail marketing and compare it to catalog marketing and paid search.


Question: What role does catalog marketing play in acquiring new customers?

Answer: Catalog marketing played an important role in the acquisition of new customers. Like all catalogers, Nordstrom rented customers from competing organizations, and exchanged names with competing organizations. Privacy advocates and the Chief Marketing Officer strongly believed that the renting/exchange of names was not in the best interest of Nordstrom or the Nordstrom customer, and if a traditional catalog marketing strategy didn't exist, the rental/exchange strategy would disappear.


Question: Are Nordstrom customers truly "multichannel"?

Answer: Sometimes. Customers did purchase in multiple channels, in fact, a significant minority of total sales came from customers buying from multiple channels. The reality, however, was that customers were migrating from one channel to another, eventually landing in the store channel. Kind of a "duh", when you think about it, huh? The customer acquired over the telephone via a catalog eventually purchased online without the aid of catalog marketing, then shifted spend into the store channel, using the website to research merchandise. This evolution of customer behavior, identified via Multichannel Forensics, suggested that another marketing strategy could be employed, one that would be at least as effective as the traditional catalog marketing strategy.


Question: Do customers purchase from all merchandise divisions?

Answer: No. And this is an important point. The traditional catalog marketing strategy offered a subset of merchandise. If that subset of merchandise were no longer offered, those customers were likely to simply go away, and not cross-shop the rest of the offering, placing any potential new strategy at risk.


Question: Should a multichannel strategy include integration of silos across the organization?

Answer: In this case, it was decided that with a new multichannel strategy, without a true catalog program, that functions should be integrated across the company. This would prove to be a painful process. Pundits underestimate the human challenges associated with integrating people. Time would prove that people would lose their jobs trying to make this integration happen. It is hard, financially, to integrate systems and technology. It is hard, emotionally, to integrate people ... or to let a lot of people go.


Ultimately, it was decided that the traditional catalog marketing strategy would be terminated, effective June 30, 2005.

Here are some of the tactics that were employed.

• Traditional catalog customer acquisition programs were terminated in early 2005, to prevent the acquisition of customers who would later be disappointed.
• No announcements were made of the elimination of the catalog marketing strategy to loyal catalog customers.
• A new catalog marketing strategy would be employed, one where the vendors of the merchandise paid the cost of a page of catalog marketing to advertise their product.
• The privacy policy would be changed. Nordstrom would not rent or exchange any customer information with any competing or non-competing brands.
• E-mail marketing frequency would increase from one contact a week to two contacts per week.
• The online marketing budget would be increased, in an effort to acquire customers lost via the termination of the catalog marketing strategy.
• Systems and people would be integrated, across the company.

The Results:

• Long-time, loyal catalog-only customers did not take kindly to the new strategy, by and large choosing to not purchase again. "Dual-Channel" customers (phone + website) maintained their online spend, but stopped the spend they used to place over the telephone, for obvious reasons.
  
• The investment in online customer acquisition offset the losses from the traditional catalog customer acquisition strategy.
• The increase in e-mail contact strategy helped offset some of the loss of demand from long-time catalog customers.
  
• A subset of catalog customers shifted their spend online.
• The combination of online customer acquisition and catalog customer shift resulted in a net increase in net sales in the direct-to consumer channel. Yes, I said an increase! You can read through the 10-K statements and discover that fact for yourself.
  
• Many leaders in the direct-to-consumer channel chose to leave the company.
• Many positions were eliminated, positions associated with our call center, positions associated with catalog production and circulation expertise. Integration of creative teams (direct-to-consumer and retail) was a challenge.
• The new catalog marketing strategy did not perform as well, in fact, I had not previously worked with a program as unproductive as this one. When you let your vendors determine the merchandise that is advertised to customers, you set yourself up for sales decreases.
  
• The new catalog marketing strategy was, from a profit standpoint, wildly profitable. When you let your vendors pay for the cost of a page of advertising, you are, by default, guaranteeing profit.
• Many online marketing metrics improved without a catalog marketing program in place. In other words, in the past, we'd mail a catalog, causing a customer to use Google to do a search. In theory, the order would be shared between catalogs and paid search. Now, paid search got full credit.
  

Impact On The Database Marketing Department

• I ultimately eliminated eight of twenty-four positions in the department.
• The most seasoned catalog marketing staff left the company, or chose to work in the online marketing division.
• Eight positions were re-trained for work in Social Media, E-Mail Marketing, Online Marketing Analysis, Web Analytics (stuff that Coremetrics couldn't do for us). We integrated Coremetrics data with retail and telephone purchase data, creating a whole new area of emphasis.
  
• Eight positions went essentially unchanged (from a job requirements standpoint), though the focus of their work was on driving multichannel sales, not channel-specific sales.
• My role as Vice President of Database Marketing was ultimately de-emphasized, resulting in me starting my own consultancy.

Describe Some Of The Pitfalls:

• I must re-emphasize how difficult it is to integrate people. Catalog Marketers, Online Marketers, and Store Marketers think about things differently. As you de-emphasize one area, you make some employees feel bad, while others feel more powerful. That's a dangerous cocktail.
  
• Have a customer acquisition plan. You cannot kill a catalog marketing program without risking the future of the business. You can successfully migrate online by having a plan that fuels customer acquisition online.
• Geography Matters! A customer in rural North Dakota or Vermont is not going to be a multichannel customer. Take away her catalog, you take away her sales potential. A customer in suburban Chicago will shop all channels. A customer in Silicon Valley will buy online. Have a strategy for each customer segment, based on geography. Your results will vary.
  
• Product Matters! Know exactly what your catalog customer loves to purchase, your online (Google) customer loves to purchase, and if you have a store customer, what your store customer loves to purchase. Product differences dictate differences in advertising strategy (e-mail, paid search, catalog marketing, traditional advertising). Your multichannel efforts will be much more successful if you know what specific customers with specific channel preferences like to buy.

The pundits had a lot to say about this strategy. The usual suspects in the co-op and list world blasted my team and I in 2005. I recall reading the quotes in trade journals ... stuff like "Lands' End tried this in 1999 and it didn't work". I recall receiving phone calls from the catalog vendor community, folks blaming me for "letting this happen".

Then the strategy worked well. REALLY WELL. Much better than I ever expected it to work.

And then the pundits criticized me again. This time, the blather was all about "the only reason this worked is because of your brick and mortar presence ... the strategy will never work for a traditional cataloger". Hey pundits, why did the strategy work in Birmingham, or Madison, or Tucson, or Des Moines, or Boise, or New Orleans, or Evansville, or Omaha, or Topeka, or Oklahoma City, cities where Nordstrom didn't have a retail presence? When I speak at conferences, the audience loves to blast me on this topic. I am continually amazed how the opinions of many carry more weight than the experiences of the few who actually went through the process and have the scars to prove it.

The reason the strategy worked had nothing to do with the fact that we had a store presence. The reason the strategy worked was because we did two things well.

1. We knew, from our Multichannel Forensics work, how customers shopped across channels. We ran five-year simulations of the new plan, and knew directionally what to expect.
2. Leadership had a plan! They didn't just kill a program and not significantly re-invest elsewhere. They invested in systems, people, online marketing, and cross-channel merchandising strategy. We increased e-mail frequency.

Remember, the change in strategy resulted in an increase in net sales in the direct-to-consumer division, and did not fundamentally impact retail comp store sales. I was surprised by the results.

This can work for you if you do your homework. Have you tested what happens if you do not mail a customer a catalog for a year? Six months? Have you ever doubled your online marketing budget for a month, testing what happens to all channels when you dramatically change your marketing strategy? Have you tested altering your merchandising assortment in print and e-mail marketing? Have you figured out how to acquire new customers without paper in the mail? Have you ever tested raising prices as an instrument to potentially increase demand? Have you studied customer behavior by geography?

Maybe the right strategy is to have six mailings a year instead of sixteen. Maybe the right strategy is to have thirty mailings a year instead of sixteen. Maybe the right strategy is to have your vendors fund your catalog program. Maybe the right strategy is to stop mailing catalogs altogether. The answer is different for every company. There are no right or wrong answers. Your situation is unique. But your situation isn't one that should be executed on the basis of opinions, or gut feel, or guesses, or the collective opinion of an industry or vendor ecosystem.

Without a doubt, the right thing to do is to start testing different strategies.

Ok, your turn. What questions do you have that I failed to answer? Please do not e-mail your questions, please ask them (anonymously if you wish) in the comments section, so that all of our readers can benefit from the discussion.

Hillstrom's Multichannel Secrets, 59 Tips Every CEO Should Know, Now Available At Lulu.com

Paid Search And Catalogs

So many of my Multichannel Forensics projects now include both referring URL information and catalog / e-mail promotional history.

When you have this type of information, you quickly notice that customers blend advertising strategies into a slurry of confusion that results in the same purchase the customer used to place with you fifteen years ago.

This caused our industry to dive head first into matchback analytics. We try so hard to allocate every order that happened in the past.

It might be time to view the future.

In other words, we can measure past relationships, modeling them to see what a customer might do in the future.

For instance, I notice that some customers use paid search and catalogs as a combined effort, then use paid search and e-mail as a combined effort, then use paid search, then simply purchase without the benefit of any advertising.

Identify these customers, mail fewer catalogs to them, and focus ad spend on customers who require various forms of marketing to place orders.

Matchback Bias

You're probably partnering with your list organization, data warehouse vendor, or co-op on the never-ending scope of matchback analytics.

The goal, of course, is to prove that catalog marketing is a vital piece of the modern marketing puzzle. You're trying to truly understand the ROI of this activity. That's why you try so hard to attribute every online order back to one of the dozens of catalogs you mailed in the past year.

Now let me ask you this.

Do you go through the same effort to attribute every phone order back to the original online source?

You don't?

I met with a business that is doing just that. They combine their web analytics tool and their matchback analytics platform to attribute phone orders back to the online marketing activity (which is usually organic/natural search) responsible for driving the phone order.

Why is it that our industry is so bent on proving that catalog marketing drives online orders, but doesn't invest the energy to prove that online marketing drives phone (and store) orders?

Our view of the world is biased, folks. And that bias favors co-ops, printers, the USPS, the paper industry, and the list rental/exchange industry.

Your thoughts?

Attention Catalogers: Co-Ops (Abacus) And Matchbacks

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

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

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

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

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

We create our own problems, folks!

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

Retail Catalog Marketing

Retail catalog marketing is an inexact, imprecise science.

Let's assume that a major American retail brand sends you a catalog on April 1. Let's also assume that your small business purchases from this major American retail brand on the 15th of every month, regardless of marketing activity.

Did the catalog cause you to purchase merchandise?

The answer is probably "no".

The catalog may have influenced the merchandise you purchased. The catalog may have caused you to spend more than you normally would have. The catalog may have caused you to spend less than you normally would have.

But you would have purchased merchandise anyway, no matter what. You always buy something from this brand on the 15th of the month.

Now let's pretend you are the Database Marketing Executive at this major American retail brand. Your job is to measure the effectiveness of this retail catalog marketing effort. Using the tools and techniques available to the database marketers, let's see if you would decide to mail this sample customer future catalogs.


Methodology = Mail And Holdout Groups: Do Not Mail This Customer A Catalog

This is a classic direct marketing strategy, practiced for more than a century (and maybe for centuries). When measuring effectiveness by mail and holdout groups, we'd learn that this customer would purchase regardless of catalog marketing. Therefore, the segment this customer belongs to is not considered a "responder".


Methodology = Pattern Detection: Do Not Mail This Customer A Catalog

Pattern detection suggests that this customer buys on the 15th of every month. The database marketing executive learns that marketing doesn't influence this customer. Therefore, this individual customer would not be considered a responder.


Methodology = Matchback Analytics: Mail This Customer A Catalog

Matchback analytics, the kind offered by major list processing corporations, co-ops, and data compilers, match purchases within a window of time to a marketing activity. Let's say that the matchback window is three weeks (oftentimes, the matchback window is something silly, like ninety days or six months). Any retail purchase within three weeks of the catalog mailing is attributed to the catalog mailing. Therefore, this individual customer would be considered a responder. Here's a little secret. Matchback analytics grossly over-state the effectiveness of most retail activities. You've been warned!!


Methodology = Brand Marketing: Mail This Customer A Catalog

All too often, retail catalog marketing falls into the brand marketing arena. In other words, a budget is set, say $1,000,000. The database marketing team is asked to mail a million customers, to use up the entire budget. The database marketing team executes the strategy. In this case, if our sample customer buys every month, the customer is a "good" customer, and will receive this catalog. This is the most common scenario in retail catalog marketing --- the CMO determines a budget, the CMO determines the marketing tactics that will be employed, and the database marketing executive picks the best customers for any given strategy. In some instances, rogue database marketers set up tests to determine if the strategy actually worked or not. I've executed this rogue strategy myself --- I wanted to understand how much money my company was losing. For the most part, however, the effectiveness of the mailing isn't even measured.


Retail catalog marketing is an inexact, imprecise science. The corporate culture, the quality of information captured in the customer database, and the measurement technique used by the database marketing team determine whether you will receive a retail catalog from your favorite American retail brand.

How does your company execute measurement of retail catalog marketing activities?

Part 4: What If Catalog Prospecting Stopped Because Of Do Not Mail Legislation?

For a recap of this series, please read part one, part two, and part three. For a view of the simulation tool used to create the scenarios in this series, click on the Multichannel Forensics Two Channel Simulation Link.

This exercise was created to give everybody, catalogers, vendors, customers, blog participants and third parties, an opportunity to understand how actual customers behave based on a simulation of actual customer behavior. The simulation ends speculation and opinions. The simulation simply illustrates how customers behave, and the business consequences that management may eventually have to deal with.

There is no getting around the fact that phone and mail volume are crippled when catalogs are not mailed. Many jobs would be lost if catalog mailings were limited only to loyal customers. Good, hard working call center staff, distribution center staff, and folks who make a living working in the catalog ecosystem (printers, co-ops, list brokers and managers, paper reps, USPS, merge/purge vendors, contact management software vendors), will have their lives interrupted if things ever get to this point. In many ways, this four part series should encourage the cataloger to partner with third party opt-out services in an effort to stem an outcome that is this bleak.

Remember, there is light at the end of the tunnel. Notice that at the end of the simulation, in years four and five, sales rebound, and profit increases. There is hope! Catalog management can follow a prescription to make sure that if things ever get bleak, the business is insulated from the dire situation illustrated in this series.


Catalog Management Prescription To Avoid A Dire Outcome

It is better to partner with third party opt-out services now than to deal with the dire consequences of this simulation later.

Test significant increases in online marketing NOW! See how far you can push the envelope in e-mail marketing, affiliate marketing, shopping comparison sites, portal advertising, banner/ppc advertising, paid search.

Do everything possible to make your site natural/organic search friendly. Contact our friend Alan now, and have his organization help you with natural/paid search strategies that insulate you from tough choices associated with the long-term prognosis of catalog marketing. His catalog marketing experience is very beneficial for making the transition from catalog to online marketing.

Test not mailing catalogs for a quarter to various segments of your customer file. At the end of the quarter, run matchback analytics on the mailed group, and the holdout group. Truly learn what will happen to your business if you were not allowed to mail catalogs.

Run Multichannel Forensics simulations (there are free links on the homepage of the blog), so that you know the long-term trajectory of your business. You may find that your phone/mail customers are very willing to shop online if not mailed catalogs, which would be highly beneficial to you!

Cultivate organic business. This is easier said than done, but is means EVERYTHING to your business. Organic business happens when customers purchase from your brand because they love you, not because you advertise to the customer. Organic e-commerce sales protect you from any catalog or online advertising issues. Organic e-commerce sales are highly profitable. In this simulation, had the catalog brand had significant and growing organic e-commerce sales, the outcome wouldn't have been as dire.

Be proactive! Test everything now! There is hope!