Modern Catalog Marketing: 2014

Have you had a chance to review any of the presentations from the recent NEMOA conference? OMG, as the kids and social media experts say, what a refreshing array of content! Great job Janie Downey!

• Bill LaPierre of Millard, with a must-read on cataloging, absolutely awesome!
• Monica Smith on the mind of the multichannel customer. I've only met Monica once, she's a very bright individual.
• Mike Bowcut of REI shares a fantastic presentation of stuff he's learned at REI, a reasonable and professional and well-argumented discussion of the role a catalog plays in marketing.
  

Give all of the presentations a chance.

These discussions lead us into the future. Think about cataloging in just five years, say in 2014.

It is likely that the circulation plan for a catalog marketer in 2014 will look very different than the circulation plan looks today.

For instance, in April 2009, this is what a typical plan might look like:

• Catalog (128 pages) in-home on 4/1, mailed to 300,000 housefile names and 500,000 prospects.
• Catalog remail of the 4/1 catalog (128 pages) on 4/15, mailed to 200,000 housefile names and 150,000 prospects.

In April 2014, this is what a typical plan might look like:

• Catalog (96 pages) in-home on 4/1, mailed to 100,000 housefile names and no prospects.
• Catalog (32 pages) in-home on 4/15, mailed to 150,000 housefile names and 100,000 prospects.

If this is the direction we're heading in (and many of you tell me this is the direction you're considering), you have the following homework assignment:

1. How will we acquire enough new customers to offset the 550,000 reduction in customer acquisition circulation?
2. How will we offset the sales lost by a reduction in housefile circulation of 450,000?

The answers have been discussed this week. It's time for us to get busy testing! And worst/best of all, there aren't any easy answers. You are telling me that you want solutions, things that work today, now! Unfortnuately, it isn't going to work that way. The online companies ask me to find ways that you can acquire customers offline. Catalogers ask me to find ways to acquire customers online. The only common theme is that it is becoming very hard to acquire new customers. Going forward, acquiring new customers is the primary responsibility of a direct brand.

The cataloger of 2014 becomes a media company. There's no reason to view Crutchfield any different than Martha Stewart. The multichannel view of the world is replaced by the micro-channel view of the world. The lines between merchant, media brand, and community developer blur. A catalog is just one of hundreds of micro-channels that in sum make up the "Crutchfield" brand.

That's a future that is actually exciting, a future where a catalog brand isn't dependent upon catalogs for growth.

Modern Catalog Marketing: Business Intelligence

Sometimes Business Intelligence is considered to be a four letter word.

In Business Intelligence, people like me decide to create software that makes it possible for someone like you to query a database and obtain answers. There's just one problem. People like me are seldom able to define software tools that are desired and easily used by non-techies (with the notable exception of Google).

Conversely, there's an emerging faction in Business Intelligence, a group of non-techies trying to create KPIs and dashboards and reports for the non-technical person. This may be a better approach, though most sophisticated questions cannot be answered using this approach, requiring folks to revert back to the "techie" issue.

So as a result, many folks are exasperated by Business Intelligence.

The modern catalog marketer doesn't care about tools or schemas. The modern catalog marketer simply wants to get questions answered, using any tool or database design that facilitates actionable findings.

The modern catalog marketer is in the process of re-inventing the customer database.

The modern catalog marketer does not outsource the customer database. Rather, the modern catalog marketer imports data from external sources, and spends the money necessary to maintain all important facts about the customer relationship.

The modern catalog marketer extracts summarized data from the web analytics platform, and integrates that data with all other customer data.

The modern catalog marketer obsesses about linking the following pieces of information:

• Name and Mailing Address.
• E-Mail Addresses, Many-To-Many Relationship (many e-mail addresses linked to many name/mailing addresses).
• Telephone Numbers.
• Credit Card Numbers.

The modern catalog marketer categorizes the top 2,500 referring URLs into micro-channels, and actively measures the evolution of referring URLs, mining actionable trends.

The modern catalog marketer measures lifetime value, by micro-channel, updating the data on a weekly basis (at minimum), or in real-time (when appropriate).

The modern catalog marketer utilizes rapid segmentation to classify customers on the basis of traditional marketing, digital marketing, or social marketing, and acts upon these classifications in a way that increases long-term profit.

The modern catalog marketer knows, at a household level, the future percentage of demand that will be generated without the need for advertising of any kind.

The modern catalog marketer will bring in temporary help to analyze key business issues, and will make every effort to institutionalize the business intelligence offered by the consultant.

The modern catalog marketer will build a database of "prospects", and will happily maintain a relationship with folks who have not previously purchased.

• Acquiring name/address where possible.
• Acquiring e-mail address where possible.
• Acquiring phone number where possible.
• Storing "cookie-level" identifiers where possible.

The modern catalog marketer has a dashboard of 100 mega-metrics that every employee is required to review at least once per week.

The modern catalog marketer is led by a CEO that actively teaches employees which mega-metrics to track, and shares why they are important.

The modern catalog marketer is led by a CEO that offers bonuses (not retention bonuses), on an annual basis, when various mega-metrics (i.e. annual customer retention rate) are substantially improved.

The modern catalog marketer captures the "advertising combinations" that led to a customer placing an order, storing each combination in the database.

The modern catalog marketer knows that there are too many advertising combinations and merchandise combinations to make sense of the business. So, the modern catalog marketer utilizes tools like Factor Analysis / Principal Components Analysis to reduce multidimensional issues down to two simple dimensions.

The modern catalog marketer knows the "ROI" of every advertising channel, by campaign/month/quarter/season/year, and can produce a report or summary within ten minutes if asked.

The modern catalog marketer converts every customer service issue into actionable information that is stored in the customer database. The modern catalog marketer considers this information before making any circulation decision.

The modern catalog marketer demands that anybody who presents customer information do so without using technical terms or acronyms.

The modern catalog marketer integrates the Web Analytics team with all other analytical folks in the company, and requires all analysts to know all facets of business analysis.

The modern catalog marketer can produce an RFM segmentation for any merchandise division or advertising micro-channel within fifteen minutes.

The modern catalog marketer can produce a profit and loss statement for any merchandise division or advertising micro-channel or ad-hoc customer segment within fifteen minutes. This is done by actively storing all contact and cost information in the customer data warehouse.

The modern catalog marketer can tell you what happens to the five-year sales trajectory of the business if any customer acquisition marketing activities are maximized or are discontinued.

The modern catalog marketer has staff who use computers that utilize quad core processors.

The modern catalog marketer doesn't have to work through the "IT" department to get more file storage space on a network server.

The modern catalog marketer doesn't have to work through the "IT" department to purchase statistical or business intelligence software.

Modern Catalog Marketing: E-Mail Marketing

Many catalogers spend way too little time thinking about e-mail marketing.

The modern catalog marketer views the world in a different way.

The modern catalog marketer actively tests varying combinations of catalog mailings and e-mail campaigns to comparable audiences. These folks (those who execute the tests) frequently learn a secret --- e-mail marketing is a much stronger marketing channel when catalogs don't exist.

In the rapid segmentation process, the modern catalog marketer wants to quickly assign customers into the "digital marketing" path. These customers see a reduced diet of catalogs, with the cataloger attempting to make up some of the volume with inexpensive e-mail marketing campaigns. It doesn't always work out this way, but you have to run the tests, don't you?

The modern catalog marketer uses tools like e-mail to introduce new items without having to spend money on expensive paper to subsidize awareness.

The modern catalog marketer realizes that a lack of an e-mail address results in a more likely assignment into the "traditional marketing" segment.

The modern catalog marketer has between five and twenty different versions of an e-mail campaign, assigning different customers to different versions.

The modern catalog marketer uses clickstream data (i.e. what the customer looked at), merchandise purchased, recency/frequency/monetary, and customer preferences to determine which version of an e-mail campaign the customer receives.

The modern catalog marketer does not measure e-mail campaign success by open rates, click through rates, or conversion rates. The modern catalog marketer evaluates e-mail performance based on the change in annual retention rate, and change in annual customer profitability, caused by e-mail marketing.

The modern catalog marketer is very willing to deliver a month's worth of e-mail campaigns that do not sell a single item.

Conversely, the modern catalog marketer actively plans the sales per e-mail at a customer segment level, planning these metrics months in advance.

The modern catalog marketer is willing to accept $0.05 per e-mail delivered without a promotion, and is willing to forgo $0.15 per e-mail delivered with a free shipping or %-off offer.

The modern catalog marketer lets the customer determine contact frequency.

The modern catalog marketer gives the e-mail department a seat at the leadership table.

The modern catalog marketer knows exactly how much of paid search expense is caused by e-mail marketing, and blends that aspect of paid search expense (and conversion) into the e-mail profit and loss statement.

The modern catalog marketer runs matchback analytics with e-mail getting more priority than catalog marketing, just to understand what the results imply/suggest.

The modern catalog marketer executes a post-mortem of every single e-mail marketing campaign, analyzing every item offered in every version of the campaign. Every link in every e-mail campaign is analyzed. The merchandising, inventory, creative, web production team, online marketing team, catalog circulation team, and e-mail marketing teams are all present. The CEO participates on a quarterly basis, if not more often.

The modern catalog marketer tests every possible creative treatment, blatantly disregarding established best practices in an endless thirst to discover new and exciting ways to present merchandise.

The modern catalog marketer realizes that e-mail marketing is about merchandising and service, not about geeky metrics and tactics.

The modern catalog marketer instinctively knows how every single item will perform if offered in an e-mail campaign, and actively shares that information with every employee in the company.

The modern catalog marketer "households" e-mail addresses. In other words, the modern catalog marketer will combine kevinh@minethatdata.com and kevin.hillstrom@gmail.com, and evaluates the performance of the all e-mail marketing activities at the "household" level.

As you can see, the modern catalog marketer views e-mail very differently than the way the average catalog marketer views e-mail marketing.

Modern Catalog Marketing; Catalog Merchandising

The modern catalog marketer takes a different approach to merchandising a catalog.

During the "catalog era" (1880 - 1995), the catalog WAS the store. If you didn't put an item in the catalog, you didn't sell the item.

During the "multichannel era" (1996 - 2008), the catalog was one component of numerous channels that all had the same look and feel, the same message, the same merchandise. Blah blah blah blah blah blah. We failed to capitalize on the strengths of each marketing channel, instead watering down the presentation in every channel. Bad idea. This might not have happened, of course, had the online pioneers of the late 1990s done everything "their way", in a non-integrated, silo-based manner, giving the store away for the sake of monetized eyeballs.

The modern catalog marketer realizes that catalog marketing is now a niche channel, tailored to the 55+ exurban/rural customer who prefers to order via the telephone but will shop on the internet.

This gives the modern catalog marketer the freedom and flexibility to merchandise the catalog in any way that benefits the customer.

If the customer is truly the 55+ exurban/rural customer who prefers to order via the telephone, you merchandise the catalog in a traditional manner. You know that the first twenty pages are critical, you have to have "order starters" in the front of the catalog. You know that you don't bury your best sellers on pages 72-73. You execute the craft you love.

If your customer is the vaunted "multichannel customer", you have a whole different set of challenges. In these cases, 70% of the customers who will purchase because a catalog was mailed to the customer purchase online. This means that catalog marketing is a "two-step" process.

And this two-step process creates problems. For the merchant or inventory manager, it looks like an item must be advertised in the catalog in order for it to sell online. But when looking at the customer, as we did at Nordstrom back in the day, we saw that as much as 40% of the merchandise that sold online (because of a catalog mailing) were items not featured in the catalog. It was hard to see from a merchandising standpoint, because the 40% of demand spread out over hundreds or thousands of items. For instance, we knew that we sold just as much Mens merchandise (incrementally, measured via mail-holdout tests) whether we advertised Mens in the catalog or not. So it looked like the catalog didn't drive anything to non-catalog-featured items. But it did, when viewed at a customer level!

If your catalog is merchandised to the vaunted multichannel customer, then you know that traditional square inch analyses are largely meaningless. You merchandise the catalog not based on the best selling items, but rather, the items that drive the customer to the website.

Ultimately, the catalog is measured on the basis of the profit it generates. But just as important, you measure the percentage of customers who receive a catalog and VISIT the website. This percentage is often a big one --- you'll often observe that 35% of customers who receive a catalog VISIT the website within three weeks of receiving the catalog. Does that make the catalog a failure? No, quite the opposite. The catalog can be a success ... the website may be the weak link, failing to convert the customer. When do we talk about that?

So if your customer is a multichannel customer, you merchandise the catalog in an entirely different way, seeking to identify items that create interest, items that drive the customer to the website.

The modern catalog marketer thoroughly understands the role of the catalog --- niche channel to a niche audience vs. website/store driver. The merchandising strategies are entirely different, based on the customer you're talking to. We're better off talking to separate customers than mass-advertising to all customers.

Modern Catalog Marketing: Rapid Segmentation

In the future, mailing catalogs is going to become prohibitively expensive. USPS costs will increase, while the productivity of many housefile customers will decrease due to a proliferation of micro-channels. The business model, as we knew it, is evolving.

Therefore, it will become important to execute what I call "rapid segmentation".

Immediately after a first purchase, the modern catalog marketer will overlay external purchase data, demographics, web analytics information (referring URLs, pages viewed, prior visits), and the prices/channels/merchandise purchased, to create a "profile" of the first time buyer.

The first time buyer will be placed in one of at least three different trajectories.

• The traditional customer --- the 55+ exurban/rural customer who likes shopping via the telephone. These will be the customers that the catalog marketer speaks to with catalogs.

• The digital customer --- a "Web 1.0" customer who likes e-mail marketing and search and all the traditional online marketing stuff. Our websites will be calibrated toward these individuals, seeking to maximize conversion among this audience. This segment will receive far fewer catalogs than the traditional customer receives.
  

• The social shopper --- a "Web 2.0" customer who shops us for very different reasons. This customer will receive few if any catalogs, and we'll be glad to accept whatever profit this customer wants to pass our way. We'll also gladly accept the good will this customer passes our way via social media. Hint --- retail customers, by and large, are social shoppers.
  

It will be critical for us to rapidly segment the new-to-file buyer. Mailing catalogs to customers who don't want them will create negative feedback in the social media world, and will represent a significant waste of marketing dollars.

Rapid segmentation will lead to merchandising changes. As the catalogs become a targeted piece to a 55+ exurban/rural telephone shopper, the merchandise assortment will shift to what that audience prefers.

Conversely, the digital customer will be "micro-targeted" to with e-mail campaigns and paid search keywords that result in specifically merchandised landing pages.

The social shopper will be one where marketing resources are conserved. In many ways, these customers represent the profitable future of the modern catalog marketer. The history of the cataloger has always been about spending large sums of money up-front. The future of the social shopper eliminates all of this waste.

Rapid segmentation will be repeated after each subsequent purchase. Customers will move back and forth between segments --- usually moving from traditional direct marketing to social shopping, but occasionally going the other way, that's what makes this fun.

Some companies will mine this information internally (hint Williams Sonoma, L.L. Bean, big companies with staff).

Some companies will overlay this information from co-ops (hint Abacus, Z24, NextAction, you know who you are).

Some companies will overlay web behavior --- using clickstream information to make this decision.

Some companies will use all of the information that is available.

All modern catalog companies will have to perform this level of segmentation.

Modern Catalog Marketing: Customer Acquisition

The most important topic in catalog marketing these days is the death of catalog customer acquisition.

For so many folks, catalog customer acquisition productivity (after matchback) declined by an average of 5% to 10% a year, every year, since 2003. Couple that with the dire increases in the cost to mail a catalog (back in 2007), and a huge drop in Fall 2008, and you have a recipe for a death spiral.

Catalog customer acquisition has held up when 55+, exurban/rural customers who like shopping via the telephone are targeted. Unfortunately, this audience is in decline, and will not be replaced by younger customers who crave catalog marketing.

Modern catalog marketers will be required to diversify.

The modern catalog customer acquisition department hosts individuals who specialize in different disciplines. These can be folks hired internally, or may represent folks that work in the vendor community.

• Traditional catalog customer acquisition managers, the folks who work with Millard or Merit Direct or Abacus.

• Digital customer acquisition managers, the "Web 1.0" staffers who focus on SEO / SEM / Affiliates / Display Ads / Shopping Comparison Sites, all the stuff we've grown to know and love.
  

• Offline customer acquisition managers. The most successful catalog businesses I've worked with have offline programs that do not include catalog marketing. These businesses acquire customers via innovative offline programs --- the customers often have marginal long-term value, but the customers do offset the declines in catalog customer acquisition.

• Social media managers. I would find your most passionate half-dozen or dozen customer service representatives --- usually found in your call center, and I would unleash them on the social media world --- blogs, Twitter, Facebook, you name it --- have them solve problems and interact with customers and prospects.

The catalog companies that have the most robust customer acquisition programs tend to execute two or maybe three of these four areas really well. Average catalogers execute catalog customer acquisition well.

I would create a report or dashboard, whatever you want to call it, that tallies the customers acquired via each of these four key areas --- drawing comparisons vs. last month, ytd vs. ly ytd, rolling twelve month periods, etc.

The important part of this whole process is diversification. We're going to have to accept a world where we willingly acquire ten customers with $5 LTV, as opposed to prior strategies of focusing on acquiring one customer with $50 LTV.

And you folks in the Web Analytics community --- we need your help. The future of customer acquisition requires measurement of a series of activities, all linked together, resulting in an outcome. We'll need to know that a prospect visited the site five times before purchasing --- a process today that is largely measured as a series of failures, but is truly a success.

Modern Catalog Marketing

Over the course of the next week, we're going to look at what I call "Modern Catalog Marketing".

Last week, I offended the social media community. This week, my loyal catalog readers might not agree with everything (or anything) I have to say. There are so many of us in the catalog industry who strongly believe that the economy will improve, and customers will revert back to a love of shopping via printed images.

There are other voices that are worth listening to, traditional voices like Jim Gilbert. And too few of us are supporting the efforts of the American Catalog Mailers Association. We work in a fascinating industry, one where we willingly step all over the rights of our most loyal customers, willingly sharing their name/address with co-ops so that competitors can offer our best customers their merchandise, but we won't share $5,000 to help this organization mitigate future USPS cost increases. We sure like it, however, when they succeed and we save money.

I am going to take a different approach than most folks. The traditional catalog folks will work hard to help you maximize your traditional catalog efforts, and that's all good and is needed. I am going to present you with one man's version of "the future", and how we'll navigate our way to this version of the future.

Here's my central thesis:

• Long-term, the USPS is going to offer us less service at a greater cost.

• Long-term, younger customers in urban/suburban areas will continue to abandon catalog marketing in favor of "shiny new technologies".

• These two trends will make it prohibitively expensive to acquire new customers via catalog marketing. In many ways, we're almost there.
  

• The death of catalog customer acquisition will not be fatal to catalogers. The death of catalog customer acquisition will be very damaging, however, to the catalog vendor community.

• Housefile direct marketing, as we know it, is evolving. The customer of the future will demand to be contacted on her terms. She will dictate catalog and e-mail marketing frequency. And we'll be fine with that, we'll evolve and change.
  

• Traditional catalog marketing, as we've always known it, is trending toward a 55+ aged exurban/rural customer that prefers romance over technology.

• Housefile direct marketers will expend tremendous energy segmenting customers after a first purchase into a "traditional" path, a "digital" path, or a "social" path. Traditional customers will be marketed to in a traditional sense. Digital customers are the classic "Web 1.0" customer (e-mail, search, display adds, affiliates, shopping comparison sites). Social customers are the emerging "Web 2.0" customer, becoming less and less responsive to marketing. This segmentation strategy will be essential to minimizing expense.

• Given these trends, every cataloger will be forced to answer a question: Are we in business because we love selling merchandise, or are we in business because we love producing catalogs? It is my belief that those who will survive love selling merchandise. It is my belief that most catalogers love producing catalogs.

• The businesses that are well-positioned for the future are those that diversify sources of new customers and simulate the long-term impact of all 1-5 year decisions.

This week, we'll explore these topics. Your thoughts are welcome, in fact, they're needed.