A Multichannel Forensics Case Study From MarketingSherpa And Paul Fredrick

This brief Marketing Sherpa case study describes the outcome of a Multichannel Forensics project at Paul Fredrick from last year.

Hint: You can mail fewer catalogs and be more profitable!

Marketing Sherpa Article: Fewer Catalogs, Same Results: 6 Lessons for Saving Big on Mailing Costs.

Click here to contact me for help with your Multichannel Forensics project!

OMS vs. Multichannel Forensics

One of our loyal readers says ... "I don't understand how OMS represents the logical evolution of Multichannel Forensics."

We've been talking about Multichannel Forensics for almost four years. The metrics (MPT) and the modes (Retention Mode, Hybrid Mode, Acquisition Mode, Isolation Mode, Equilibrium Mode, Transfer Mode, Oscillation Mode) are unique to Multichannel Forensics. We use the metrics and modes to describe how customers migrate through our channels, we learn the role that each of our channels play in our total business.

It has been my experience that Analysts/Managers are very interested in this aspect of Multichannel Forensics.

It has been my experience that CEOs/CFOs/CMOs are very interested in having me predict what sales will look like, by marketing channel (catalog, e-mail, pay-per-click, affiliates, natural search, organic demand), for each of the next five years. They want to understand how e-mail marketing will be impacted by paid search, how affiliates influence future off-price purchase activity. They want to know if they should invest more/less in e-commerce. They want to know what impact their website has on retail sales. They want to know why certain merchandise divisions aren't growing online anymore. They want to be able to understand if shopping cart abandonment truly impacts long-term customer behavior, or if it is a psuedo-metric that isn't truly correlated with long-term customer value, sales, and profit.

In other words, the needs of business leaders changed in the past two years. The focus dramatically shifted ... reduce offline marketing expense, find ways to understand online customers beyond segmentation and conversion rates and optimization.

CEOs/CFOs/CMOs were increasingly asking me to fold online activity into the Multichannel Forecasts I was running. This really picked up after the economy crumbled last fall. E-commerce no longer represented an unfettered growth channel. Boards and Owners are now challenging CEOs to present an accurate picture of long-term e-commerce growth, in order to make long-term investment decisions.

After receiving several similar requests from Management teams across a diverse set of companies, requests that shifted focus from high-level channels (retail, online, catalog) to online channels (e-mail, pay-per-click, affiliates) and their impact on the total business, it became obvious that we needed to evolve the forecasting component of Multichannel Forensics projects.

This is why you now see the intense focus on the Online Marketing Simulation on this blog. This is what business leaders are now asking me to do for them.

And this is why I am imploring you, the Web Analytics expert, to read this content carefully, and to adopt this information in your daily activities. Your business leaders are looking for you to do this type of work for them.

Forecast E-Commerce 2010 Sales: Here's How!!

Recently, a respected industry conference issued a call for papers. This mini-presentation on producing a forecast for online sales for 2010 was not accepted.

However, there's no reason why you can't benefit from this simple application of Multichannel Forensics!

Please download this brief and easy-to-follow online sales forecasting pdf, suitable for CEOs, Marketing Executives, and especially for Web Analytics experts looking to broaden their skills in a way that is useful to the Executive Team.

Download Here, NOW!!

Multichannel Forensics And Online Marketing

During the dog days of summer, we're going to explore some of the unique challenges that online marketers face when measuring business performance.

One of the biggest challenges online marketers face is conflicting metrics. For instance, this article suggests that Starbucks and Dell greatly benefit from their social media efforts. That sounds good, of course, until you realize that Starbucks is struggling mightily, suffering from a 75% drop in profit in the first half of the most recent fiscal year. In the case of Dell, they are about to be passed for second place in computer market share by Acer.

So did Social Media help these companies stem what would have been even bigger declines? Or do the metrics in the article fail to measure reality? It's hard to know the truth, we cannot easily separate out the positives and negatives.

In online marketing, we constantly face these challenges. We work really hard to improve conversion rates, we'll make ten or fifteen improvements, only to learn that we have metrics to prove that the improvements made a difference --- but actual annual sales and profit did not increase.

For the remainder of the summer, we're going to couple our Gliebers Dresses story with a series on Multichannel Forensics and Online Marketing. In some ways, we'll explore how the concepts in the book Moneyball apply to online marketing --- we'll talk about how our metrics and KPIs and dashboards give us information that isn't always aligned with the business results we're seeing. We'll talk about how we might use tools like Multichannel Forensics to give us insight into what is actually happening.

Gliebers Dresses: Management Changes

As usual, it is time to Skype-in to the Gliebers Dresses Executive meeting.

Glenn Glieber (Owner): "... and she basically became unwilling to change anything. She was unwilling to pay for the loyalty program with savings in catalog pages or circulation reductions, she was unwilling to reduce the paid search budget, she managed an e-mail program that we all think is uncompetitive, and she was publicly badmouthing all of us at every opportunity --- many employees heard the snide comments that she made at the fashion show. So last night, I informed Sarah Wheldon that she is no longer with the company. I'm still waiting for Ms. Wheldon to sign her severance agreement and one year non-compete clause, I'll let you know when that process has been completed."

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

Kevin: "Yup, it is me."

Glenn Glieber: "Kevin, we decided to let Sarah Wheldon go last night, and I'd like to announce a few additional changes."

Kevin: "Ok."

Glenn Glieber: "We will immediately begin a global search for the next Chief Marketing Officer of Gleibers Dresses. This is a key position, one that is essential to the success of our brand. We're going to look for an individual that has a balanced perspective between traditional catalog marketing and modern e-commerce and social media. We all know that Sarah lacked some of the modern skills we desperately need, though she was fantastic at marketing a traditional catalog. Until we find the right individual, I would like to announce two job changes. First, Pepper Morgan has been named Interim Chief Marketing Officer. Pepper will retain her creative responsibilities, and will oversee our marketing activities until we assign a new Chief Marketing Officer."

Pepper Morgan (Creative & Marketing): "Thank you everybody, and thank you Glenn for having the confidence in me to do this job. I look forward to working with all of you, and I look forward to implementing some short-term changes that will have a positive impact on the business."

Glenn Glieber: "The other announcement I'd like to make today is the appointment of Candi Layton to our Executive team. Candi has been our Director of Human Resources for the past three years. She will retain this title, and will also take on the role of 'Chief Customer Officer'. In this important new position, Candi will partner with our Executive team on doing the right thing for the customer. We strongly believe that Candy will implement programs that significantly improve customer loyalty."

Candi Layton (Chief Customer Officer), speaking rapidly: "Thank you so much, everybody, thank you, THANK YOU! I am so looking forward to jumping in with both feet and making a difference."

Roger Morgan (Operations): "Congrats, Candi".

Candi Layton (Chief Customer Officer and Human Resources Director), speaking rapidly again: "Everybody, before we wrap-up our meeting, I want to share with you the press release we just sent out regarding the departure of Sarah Wheldon. All employees received this message in the past ten minutes. Here is the press release."



FOR IMMEDIATE RELEASE: GLIEBERS DRESSES ANNOUNCES MANAGEMENT CHANGES

July 13, 2009: Gliebers Dresses, the leading purveyor of fashion dresses in all of New England, is excited to announce a series of management changes designed to launch Gliebers Dresses into the next decade, a decade full of e-commerce and social media promise built on a proven catalog marketing platform.

Pepper Morgan has been named Interim Chief Marketing Officer and Chief Creative Officer. Ms. Morgan will be responsible for implementing the new customer loyalty program, catalog marketing, online marketing, and social media. Ms. Morgan was previously the Chief Creative Officer at Gliebers Dresses, and was the Creative Director at Anna Carter prior to arriving at Gliebers Dresses. Earlier today, Ms. Morgan stated that she is "... thankful for this unprecedented opportunity, and is looking forward to improving customer loyalty at Gliebers Dresses." Gliebers Dresses will immediately begin a global search for the next Chief Marketing Officer.

Candi Layton has been named Director of Human Resources, and Chief Customer Officer. Ms. Layton will be responsible for taking care of the individuals who make Gliebers Dresses the most successful dress purveyor in all of New England --- employees and customers. Ms. Layton said the following: "I've always been an advocate of our biggest asset, our employees. This new position gives me an opportunity to be an advocate for our customers as well. It's a logical fit. I am eagerly looking forward to jumping in with both feet and meeting this important challenge."

At this time, we would like to celebrate the tenure of Sarah Wheldon, our Chief Marketing Officer since 2003. Sarah has chosen to leave Gliebers Dresses in order to pursue other opportunities and to spend more time with her family. We warmly wish Ms. Wheldon her the best of luck.

Sarah spent her entire career at Gliebers Dresses, and was largely responsible for the unbridaled success Gliebers Dresses experienced as a fashion dress cataloger in the mid-1990s. Sarah shepherded Gliebers Dresses as the brand transitioned from a catalog business to a multi-channel retailer. Her contributions fueled the profitability that allows Gliebers Dresses to thrive in the era of e-commerce.

Glenn Glieber, owner of Gliebers Dresses, said of Wheldon's decision to leave the company to pursue other opportunities that he was "... saddened by her decision, but fully understood her desire to spend more time with her family. She represented the ideals and values that made Gliebers Dresses a great company. She will be missed. We all wish her the best of luck, and look forward to seeing how she adapts to this next chapter in her life."

Please direct all media inquiries to Candi Layton.

Gliebers Dresses: Paying For Loyalty

It's time for another Executive Meeting.

Glenn Glieber (Owner): "... and I swear, if I ever have to sit in the same room with Tanita Walker of 'Wake Up New Hampshire!' again, I'll punch her right in the mouth. She had the nerve to invite me on the third-highest ranked morning television show in all of New Hampshire to talk about weathering the economic storm, and then she rips me about fair labor practices in China. Fair labor practices. Show me a plant in Nashua that can produce a dress at the cost of goods I need to stay in business and pay a Nashua resident a living wage, and I'll move everything there."

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

Kevin: "Yup, it's me."

Glenn Glieber: "Kevin, we need a few of your Multichannel Forensics tidbits today."

Lois Gladstone (Finance): "Yes. As you know, our entire team believes that loyalty is the key to returning our business to profitability. We implemented our 'buy four dresses, get free shipping for the rest of the year' program on July 1. Soon, we'll need to pay for free shipping."

Sarah Wheldon (Marketing): "The belief is that there are wasteful marketing dollars out there that can be trimmed without hurting the business, that marketing is somehow clueless about managing a marketing budget."

Roger Morgan (Operations): "You sure can't trim our Information Technology department, our Call Center, or our Distribution Center budget, I can tell you that. And you all know the old joke, 'I know that half of my marketing dollars are wasted, I just don't know which half!'"

Lois Gladstone: "So Kevin, here's what we're thinking. We want to reduce the page count of every catalog we mail by eight pages, across the board, in 2010."

Meredith Thompson: "I hate the idea. HATE IT! If the customer doesn't see my merchandise, she can't buy my merchandise."

Roger Morgan: "You know, we could create some sort of e-mail pdf document, like we could scan all the pages of the catalog, and then send it as an e-mail to the customer. You could have 644 pages if you wanted to, because e-mail is free. Why wouldn't we do something like that? I got a flyer in the mail last week from a company that does digital catalogs, they sounded reputable, we could work with them."

Lois Gladstone: "So Kevin, what would be the impact of eliminating eight pages per catalog? We're talking about saving $600,000 in expense, but we don't want to lose any top-line sales. In fact, I'd like to see us cut expense and grow sales."

Kevin: "Here's what our Multichannel Forensics project told us about page counts:

• Telephone demand is reduced by 5% each time we cut catalog pages by 10%.

• Online demand is not impacted at all when we cut catalog pages by 10%.

• Total demand is reduced by 1.7% when we cut catalog pages by 10%.

• It would be more profitable for Gliebers Dresses to mail smaller page counts than larger page counts, because customers are driven online by the mailing of the catalog, where more than a thousand pages of merchandise technically exist.

• The more sales a customer generates online, the more pages you can cut to that specific customer.
  

• Our frequency test also indicated that we can cut contacts, and be more profitable.

• However, with telephone shoppers, cutting pages or frequency is a bit risky.
  

Sarah Wheldon: "We've always known this, Glenn. You ask me to run these scenarios all of the time, and this is what we always see. Why do we need Kevin to analyze this now, no offense, Kevin?"

Meredith Thompson: "I'm not sure I'm on board. If you take the results at face value, you could make the argument that we should do 108 pages instead of 116. And then you'll argue that we should do 96 pages instead of 108. And then you'll argue that we should do 64 pages instead of 96. Where does it end? 0 pages? Then we're not even a cataloger anymore. What are we, at that point?"

Pepper Morgan: "At that point, if we did free overnight shipping, we'd be the Endless.com of dresses. And we'd have a lot of money to fund free overnight shipping without catalogs."

Meredith Thompson: "There are days when you scare me, Pepper."

Lois Gladstone: "If I do a back-of-the-envelope profit and loss statement, we can cut pages, lose up to 2% of top-line demand, be more profitable, and then fund free shipping with the $600,000 we save by cutting pages. No downside here. Good. It is decided, then. We'll cut eight pages from all catalogs, starting in January."

Sarah Wheldon: "Doesn't marketing make these decisions?"

Meredith Thompson: "Nobody decided anything. I already have orders for Spring 2009 merchandise. We have minimums to meet. If I don't feature the merchandise in a catalog, how am I going to sell it? I need the pages so that I can move the merchandise I've already ordered."

Roger Morgan: "I read on Twitter where Dell sold $3 million in merchandise using social media. Couldn't we move merchandise on Twitter? I mean, of course, we'd have to blow out the number of Twitter followers we have, but once we did that, we could probably sell anything on Twitter. Isn't that what Chip Cayman has been saying."

Lois Gladstone: "That's exactly the kind of fresh thinking that Chip Cayman brings to the table."

Sarah Wheldon: "We've tried Twitter and blogs and all that social media stuff. It doesn't work. Social media works if you're an individual trying to build a personal brand. Some people apparently want to know that Chip Cayman has a toe cramp, they re-tweet it, and his unending pain goes viral. Unfortunately, you cannot sell dresses 140 characters at a time without context."

Meredith Thompson: "EXACTLY!"

Roger Morgan: "Toe cramps really suck."

Pepper Morgan: "We sell dresses 140 characters at a time via pay-per-click, right? And that is without context, it's just a blue link."

Sarah Wheldon: "The customer is already shopping for dresses, that's why search works."

Lois Gladstone: "And that is why we can cut eight pages from each catalog. The customer is already shopping for dresses. Eventually, we'll have a robust e-commerce platform that enables us to do natural search so well that we won't even have to do paid search. Good 'ole free natural search will be our meal ticket!"

Roger Morgan: "Huh?"

Glenn Glieber: "I like free marketing!"

Pepper Morgan: "Put it on the book of work!"

Sarah Wheldon: "Yeah, great idea, we'll trust the future of our business on some dweeby algorithm that always changes, an algorithm that nobody ever gets to know about."

Pepper Morgan: "That's what Snoozur does. They don't have a catalog. They sell dresses online, and basically use natural search and paid search to drive their business. I heard they're already up to $10,000,000 in sales."

Meredith Thompson: "Impossible. And why does every online startup have some stupid name like Snoozur?"

Pepper Morgan: "They're Snoozur: The Laid Back, Low Stress Dress Company. I think they're based out of San Jose. They do free ground shipping on all orders, they build the cost of shipping into the margin of their merchandise."

Meredith Thompson: "Customers trust real companies with real names. You trust Glenn Glieber because you know he stands behind my product, you know there's a real person behind the curtain. I'd never trust a name brand like Snoozur."

Glenn Glieber: "Well, I haven't heard anything that dissuades me from cutting pages, so we're taking the hatchet out and we're cutting pages. It feels like 1981, 1987, 1991, 1995, 1999, and 2002 all over again. Ok, on to the next topic. Somebody is parking a motorcycle in the Employee of the Month parking spot. Now granted, our performance was so bad last month that I chose not to pick an Employee of the Month, but that doesn't mean you get to park your motorcycle there just because the spot is vacant. I want that motorcycle out of there. Roger, tow that cycle by 2:00pm."

Selling Your Business? Shutting Down A Channel?

Sometimes you're looking for an exit strategy. You might want to sell a business, or you might want to shut down a brand/channel. Or maybe you just want to know what would happen if you were ever forced to make a key business decision.

I'm asked to look at these situations. The company sends me data, and then asks me to project how the business is going to evolve over the next five years. Here's an example (click on the image to see it more clearly).


This brand wants to save expense by not doing any customer acquisition in channel #2. Well, we can estimate the long-term impact of that decision. Take a look at this scenario:


This is a pretty typical outcome. I usually find that products, brands, and channels interact with each other. In other words, when you make significant changes to one part of your business, another part of the business either improves, or suffers. In this case, the primary channel begins to decay over time, as it is starved of the customers that were acquired by customer acquisition activities that have been discontinued in another channel.

The tools and techniques to do this kind of work are readily available in my Multichannel Forensics book.

If you are thinking of selling your business, or you are thinking of shutting down a business unit, or you are thinking of discontinuing expensive customer acquisition activities in a channel, give me a holler. These projects are easily addressed by the Multichannel Forensics framework, and I can turn them around really fast if there isn't a lot of data exploration or segmentation work required.

Gliebers Dresses: E-Mail Marketing

It's time to Skype-in to another Gliebers Dresses Executive Meeting.

Glenn Glieber (Owner): "... and I don't understand why the ratings for the evening news are down, because quite honestly, I still watch it every night, don't you all?"

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

Kevin: "Yup, it is me!"

Glenn Glieber: "I asked Kevin to hop on today, so that we could talk a bit about e-mail marketing. Sarah, go ahead and take the lead."

Sarah Wheldon (Marketing): "Thanks, Glenn. As all of you know, we have what we believe to be one of the better e-mail marketing programs in the industry --- not as good as what Anna Carter has, but pretty darn good."

Lois Gladstone (Finance): "Let's just see a show of hands, really quick. How many of you have purchased from any e-mail marketing campaign in the past year?"

Roger Morgan (Operations): "Oh, I have, I have! I love Amazon.com. They do those 'customers who liked product-x may be interested in product-y' e-mail campaigns. Why don't we do any campaigns like that?"

Sarah Wheldon: "As I was saying, our program is pretty darn good. We have two targeted versions of each e-mail campaign. We have one version which goes to customers who purchase 'younger' merchandise, and we have one version which goes to customers who purchase 'older' merchandise."

Lois Gladstone: "How do you decide who gets each e-mail version? Do you look at the age of the customer, and then draw an arbitrary cutoff, like at age 35 or something like that?"

Sarah Wheldon: "No, we don't know the age of the customer. That information is not stored in our database."

Lois Gladstone: "Seems like you should know that."

Sarah Wheldon: "How would you like for me to find out that information for each of three hundred thousand e-mail subscribers? Should I send a quick text message to each of them? Should I visit each of their homes, criss-crossing the country in the Gliebers Dresses RV?"

Roger Morgan: "Woodside Research recently released a report that says that the customer is in control --- that the new best practice is to let the customer decide everything regarding e-mail marketing. Let the customer pick e-mail frequency, let the customer pick the version she wants to receive, let her volunteer whatever information she wants to volunteer. We will store the volunteered information in a tiny little database, and then mine it for gold, folks, we'll mine it for gold!!!"

Meredith Thompson: "That sounds great. But doesn't something like that that need to go into the book of work?"

Sarah Wheldon: "Yes, that sounds great. But we've tested e-mail frequency, remember, Kevin was here and he presented those results. When you give the customer fewer e-mails, the customer spends less."

Roger Morgan: "But the customer would be happier, right? And if the customer is happier, she'll become more loyal. Loyal customers spend the most money."

Sarah Wheldon: "That's lizard logic. We tested a reduced frequency, and the customer spent less when she received fewer contacts."

Roger Morgan: "You didn't let the customers who wanted fewer contacts dictate their own strategy. You just arbitrarily sent fewer e-mails. Get the strategy right, and everything will work out. And think about all of those customers that opt-out. We're disappointing each and every one of those customers. How much damage does that cause our brand?"

Lois Gladstone: "Yeah, let the customer decide the strategy! Who wants to be spammed?"

Sarah Wheldon: "We're not spamming anybody. When the customer buys from us online, we make it very clear that the customer is agreeing to participate in our e-mail marketing program, and that the customer can expect between 50 and 150 campaigns per year. She can opt-out at anytime she wants. We're fully CAN-SPAM compliant."

Roger Morgan: "Oh, that's not an industry best practice. The customer should be the one who decides if she opts-in to the program, she shouldn't be auto-enrolled."

Sarah Wheldon: "That's exactly how Anna Carter executes their campaigns. And if we let the customer make the decision, then we lose out on all of the sales associated among customers who we automatically opted-in to the program. We're just not in a position to lose sales, are we?"

Pepper Morgan: "Kevin, how do the e-mail campaigns perform, anyway?"

Kevin: "Here are some key metrics about your e-mail customers."

• Half of all customers who purchased in the past twelve months subscribe to e-mail campaigns.
• E-mail buyers have a 77% annual repurchase rate, among the most loyal of any channel.
• Only 25% of your e-mail file bothers to click on at least one e-mail campaign, per year. The remaining 75% are inactive.
• Only 5% of your e-mail file buy something from your e-mail campaigns, on an annual basis.
  
• E-mail is what I call a "transition channel". It is the channel that your customers migrate to as they begin to rely upon catalog marketing less. After the customer buys from an e-mail campaign, the customer is likely to buy from your website, without attribution to any other marketing campaign.
• 80% of your e-mail purchasers buy merchandise on sale, or buy when free shipping is offered. As a result, your e-mail buyer file is over-populated with discount shoppers.
• When you offer full price merchandise via e-mail, you generate $0.05 per e-mail campaign.
• When you offer sale merchandise, or you offer free shipping, you generate $0.25 per e-mail campaign.
• Over time, you optimized e-mail performance based on the metrics you had available to you ... open rates, click-through rates, conversion rates. As a result, your optimization best practices resulted in a program that sale/promo customers love. Your customers are no longer interested in e-mail marketing unless there is a marketing promotion.
  

Lois Gladstone: "Oh my goodness. That's a disaster."

Sarah Wheldon: "It's simple Darwinistic evolution, Lois. We're always been asked to maximize the productivity of our e-mail campaigns, we can never plan for a sales decrease, right! So we offer sale merchandise, we pop a promotion like free shipping on top of the merchandise, and then the campaigns work. Sure, this attracts a sale/promo customer, and the circular logic requires e-mail to be a sale/promo channel. But we all know that. And we've all accepted this. I've presented the options to you previously, and none of you like it when we generate just $0.05 per e-mail, you tell me the program is broken when that happens."

Roger Wheldon: "Isn't it a best practice of a multichannel brand to align all channels? Now we have an advertising channel that only works when you offer sale merchandise with free shipping? This means that the e-mail customer isn't aligned with our website or catalog customer. That's a bad thing."

Meredith Thompson: "Oh, we're aligned. We offer the same merchandise in e-mail campaigns that we offer online and in catalogs, and we offer it at the same price, and we honor free shipping if the online customer specifically asks for free shipping, or if a catalog customer yells at somebody in the call center."

Pepper Morgan: "But the e-mail customer, by definition, is a different customer. She likes sales and promotions. So technically, we're serving a different customer. So what is the goal of e-mail marketing, my dear teammates? Is the goal to optimize e-mail marketing performance? Because if that is the goal, you should be praising Sarah right now. Or would you rather have performance that stinks, but is reflective of the whole brand?"

Lois Gladstone: "I want it all. I want to sell a ton of full price merchandise, I want to fully integrate all channels, I want to have the customer pick and choose what she gets, when she gets it, even if that means a significantly reduced contact frequency, and I want the customer to be happier and to spend more as a result."

Pepper Morgan: "I'd like trigger-based programs, too, but we don't have the technological resources to be able to manage that."

Roger Morgan: "Pepper, we can put that on the book of work, and prioritize it. If it is the most important project, it will get top priority. Now Lois, you seem frustrated with the concept of e-mail being a discount/promo advertising channel."

Lois Gladstone: "I am."

Roger Morgan: "But you're the biggest advocate of offering our customers free shipping if they buy four or more dresses in a year. Doesn't that mean you're causing all advertising channels to migrate toward promotions?"

Lois Gladstone: "My strategy only gives perks to the most loyal customers. Sarah's e-mail strategy gives perks to any dweeb confused enough to not opt out of our automatic opt-in process."

Sarah Wheldon: "So it is ok when you decide to offer loyal customers free shipping, but it isn't acceptable for marketing to optimize the e-mail marketing program around the sale/discount customer?"

Lois Gladstone: "I'm just saying we have to be a lot more strategic about how a multichannel business like ours evolves. I'd rather give a loyal customer a reward than give a customer who has an e-mail address a reward. We need to use tools like CRM to get customers to do the right thing. The right thing isn't to give us an e-mail address. The right thing is for the customer to spend a lot of money!"

Pepper Morgan: "Kevin, what is the lifetime value of an e-mail address?"

Kevin: "If we control for all other factors, the lifetime value of an e-mail address is approximately $40 of profit. It's a reasonably high number because there's almost no variable marketing cost associated with e-mail marketing."

Glenn Glieber: "I love free marketing!"

Pepper Morgan: "So the real question you're asking is this: Can we move away from discounts/promotions for e-mail customers, and in the process, increase the $40 lifetime value of an e-mail address? Because if we can do that, we don't care if we generate only $0.05 per e-mail selling full-priced merchandise without free shipping, right?"

Glenn Glieber: "That's a tough question, folks! Sarah, why don't you tackle that one, and have an answer for us by later this afternoon? Thanks. Ok, time to move on to the next topic on the agenda. I'm schedule to appear on 'Wake Up New Hampshire!' tomorrow morning. I'm participating in a round table discussion on weathering challenging economic times. I need a cheat-sheet that illustrates all of the things we've done to weather challenging economic times. Please send me your list of the top five things you've done to weather challenging economic times in your department by 4:00pm today. Thanks, great meeting!"

Gliebers Dresses: The Fashion Show

I'm standing in the back of the main conference room at Gliebers Dresses, with Sarah Wheldon (Chief Marketing Officer). We're here for the quarterly Gliebers Dresses Fashion Show.

Roger Morgan (Chief Operations Officer) is the Master of Ceremonies for this event. He's wearing a tuxedo. A catwalk splits the conference room in two. On each side of the catwalk are seated the hard-working employees of Gliebers Dresses. They cheer as their co-workers prance down the catwalk, donning the dresses that Ms. Thompson believes will be best sellers in the fall.

Speakers pump the rhythmic beats of Michael Jackson's "Billy Jean", paying homage to the deceased performer. Bart Conway (facility services) was even able to light up squares on the catwalk as each model/employee walked, giving props to the famous music video.

Most in the audience clap in unison. They erupt in enthusiastic applause as Pepper Morgan (Chief Creative Officer) strides with attitude in a beautiful one-shoulder gown, price = $99. And when Lois Gladstone, the Chief Financial Officer, strolls through the audience in a turtleneck dress suitable for the workplace (price = $79), the house comes down --- a standing ovation! In a well-choreographed exchange, Sonora (Pepper's daughter) hands Ms. Gladstone a bouquet of flowers, waves to the crowd, then sprints off-stage to text message her friends who are standing on the other side of the conference room.

Roger Morgan (operations) steps up to the microphone.

"Wow, what a show! Let's give a hand to all of the models who made this show a success (audience roars its approval). And a big thanks to the exquisite Pepper Morgan for creating an environment that feels like the runways of Milan (crowd applauds). And how about little Sonora Morgan? It won't be long before we see her in a reality show! (crowd chuckles, then murmurs)"

Mr. Morgan continues.

"Well, it's been a really difficult quarter at Gliebers Dresses. The global economic crisis is impacting our customer. Sales for the quarter totalled $10,850,000, a decrease of 20% compared with last year (the room becomes very quiet). However, the decrease in sales have been well managed, and we eked out a tiny profit of $8,000 in the quarter (a smattering of applause)."

In the back of the room, Sarah Wheldon (Chief Marketing Officer) whispers her comments to me.

Sarah Wheldon (whispering to me): "All of that profit happened because Lois (CFO) managed foreign exchanges rates in a favorable manner. These days, we make money because of the discipline of the finance department, not because of our ability to sell merchandise."

Roger Morgan (to the audience): "This quarter has been a time of reflection. We've had to figure out how to trim expenses. We survived the adjustment to workforce initiative ...

Sarah Wheldon (whispering to me): "A lot of employees call an adjustment to workforce initiative 'being fired'".

Roger Morgan (to the audience): "... and with our new contract with Royal Crown Cola, we believe we can save an additional $8,000 a year in subsidized beverage expense. So we're making the changes necessary to position this company for breakthrough profits once we emerge from this economic downturn."

Sarah Wheldon (whispering to me): "Imagine the howls we're going to hear when Roger switches out Lays potato chips for Old Dutch potato chips later this fall."

Roger Morgan (to the audience): "Our management team has been experiencing a period of quiet reflection and contemplation as well. We hired an industry consultant to come in and analyze our business. We learned some amazing facts about our customers. Let me ask you a question. If 100 customers purchased from our business in 2008, how many of the 100 customers will purchase again during 2009? Anybody have any guesses?"

Woman In the Audience: "94?"

Another woman in the audience: "97".

Male in the audience: "83".

Pepper Morgan: "53".

Roger Morgan (to the audience): "Who said 53? That's the right answer! 53. 53% of last year's customers will purchase again this year. Who thinks that 53% is a good number?"

Audience: "Boooooooooooooooooo!". Some of the men in the audience lift their fists in the air, then point their thumbs down in a sign of disapproval.

Roger Morgan (to the audience): "I agree. 53% is not where we want that metric to be. Not at all! Imagine what would happen if we could increase the retention rate from 53% to maybe 80%. I'm willing to bet that our business would almost double if we could pull that off, wouldn't that be great?!!!!'

Audience quietly applauds.

Sarah Wheldon (whispering to me): "Roger fails to count new customers in his assertion that business would almost double. Misinformation, we thrive on it."

Roger Morgan (to the audience): "Well, we're on a mission to double the size of our business. And our executive team is unified in the belief that our business will double if we make it easy for our customers to become more loyal ..."

Sarah Wheldon (whispering to me): "We're unified?"

Roger Morgan (to the audience): "... this most recent report from Neptune Research says it costs eight times as much to acquire a new customer as it costs to retain an existing customer. So our strategy is to get as many loyal customers as possible. And we're going to do that with a new program, a program that I am announcing today, publicly for the first time.

Sarah Wheldon (whispering to me): "Glieber and Roger and Lois think they can fund this loyalty program with a reduction in my paid search budget or via an across-the-board page count reduction."

Roger Morgan (to the audience): "The new program is this. Beginning on July 1 of each year, we will keep track of the number of dresses each customer purchases. Once a customer purchases four or more dresses in that year, the customer will receive free shipping and handling for the rest of the year."

The audience applauds politely.

Roger Morgan (to the audience): "We will also keep track of the annual retention rate. When you enter the global headquarters of Gliebers Dresses, starting tomorrow, you will see a large digital display with key customer metrics. We will closely track annual retention rate, orders per retained buyer, average order value, reactivated buyers, and new-to-file buyers on the new digital display. You will get to see, first hand, how well our new loyalty program is performing. Ok, folks, that's a lot of information to give to you today, do you have any questions? Yes, Elsie, what's your question?"

Elsie (an employee): "If a customer buys four dresses, then buys a dress and gets free shipping and handling, and then two months later returns two dresses, is she still part of the new loyalty program?"

Roger Morgan (to the audience): "That's a great question, Elsie. We're currently evaluating loyalty program best practices to identify appropriate solutions for customers who experience dynamic changes in behavior due to customer service issues."

Spike (an employee): "Because that ain't righteous, dude. Dude, if a customer gets a defective dress, you know, and then returns the dress, you know, and then we remove her from the loyalty program because the dress was of poor quality, right? That would tick me off if it were me ... not that I ever buy dresses, but you know what I'm talkin' about, right dude?"

Sarah Wheldon (whispering to me): "Look at Meredith ... she's just seething over there! There couldn't possibly be an issue with HER merchandise."

Beth (an employee): "But what about those rascals that buy dresses, wear them for events, and then return them? That's not a loyal customer, that's a criminal. She doesn't deserve to be part of our loyalty program."

Greg (an employee): "If the loyalty program works, can we get Coke products in the vending machines once again?"

Louis (an employee): "Do we resell the dresses that customers return? Because it is really disgusting if we do that."

Betty (an employee): "I wish we had Pepsi products in the vending machines."

Henrietta (an employee): "Are employees eligible for the loyalty program? Even though we only pay $5 for shipping and get 30% off the price of each item, I'd buy more dresses if I had free shipping."

Roger Morgan (to the employees): "People, PEOPLE! Let's focus for a moment. Obviously there's a lot of excitement about this new loyalty program. I'm sure Sarah Wheldon, our Chief Marketing Officer, will distribute a 'talking points memo' for all of us to review by the end of the day, with answers to your frequently asked questions."

Sarah Wheldon (whispering to me): "Oh sure, he loses control of a company-wide meeting and I have to issue a talking points memo."

Roger Morgan (to the employees): "Ok folks, that's all the time I have. Thank you so much for your continued support of Gliebers Dresses, as we dig out of this global economic crisis, and reclaim our rightful seat atop the leaderboard of great apparel companies of all time."

The audience politely applauds, then a hundred folding chairs make abrasive sounds on the hardwood floor as employees quietly banter about the merits of Coke vs. Pepsi vs. Royal Crown Cola.

Gliebers Dresses: A Visit With An Industry Leading Marketing Consultant

Chip Cayman greeted me with a monster smile and a booming voice.

"Well hello Kevin, how nice to finally meet you! I've heard so much about you over the years, the pleasure is all mine. Please, please, sit down. Is there anything I can get for you, an RC Cola maybe?"

Mr. Cayman looked every bit the part of a consultant that companies routinely pay $100,000 for a simple one-month 'deep dive'. He didn't hide his graying hair. Gray hair can be used to convey experience and leadership. His suit had to cost $6,500, heck, David Letterman would be proud of Mr. Cayman's attire!

Chip Cayman spent his formative years as a Management Consultant at The Richmond Consulting Group, a popular retail, online, and catalog consulting firm that partnered with private equity teams on difficult brand re-invention programs. He capitalized on the dot.com bubble by branching out on his own, advising countless online startups looking to convert big ideas into big paydays.

In the early part of this decade, Mr. Cayman became the leading expert in multichannel marketing, more popular than even Sucharita Mulpuru. He advised the best retail and catalog brand names on channel integration strategies. During the past five years, Mr. Cayman branched out into social media. His Twitter account has more than 27,000 followers. On any given day, readers can sift through insights ranging from "@ChipCayman RT @MarketingExpert247 The best brands cherish deep relationships with customers." to "@ChipCayman It is 5:42am, and it is a beautiful morning for a run. What a great day to be alive!"

Mr. Cayman has a thirty-year relationship with Glenn Glieber. The two have worked together through numerous downturns. One might say that Mr. Cayman "has Glenn's ear".

Chip Cayman: "I have to say, Kevin, I've read through your work, and it is quite impressive. I disagree with a lot of it, but nonetheless, it is intriguing and different. And your blog certainly turns the tables on long-standing industry best practices. Multichannel Forensics is what you call your methodology, huh? It's a clever name for segmentation coupled with a nameflow model, don't you think?"

Kevin: "Oh it's a little more than that. You know, I had an interesting meeting with Meredith Thompson (merchandising) a few days ago. She shared with me some multichannel merchandise results that were bothering her."

Chip Cayman: "You know, merchandising is the cherry on top of the multichannel hot sundae, Kevin. That cherry is the 'surprise and delight' that customers demand as part of a well-executed multichannel retail experience."

Kevin: "Who are the customers who demand this?"

Chip Cayman: "I don't have it with me right now, but in my briefcase (Tumi) I have a recent report from Neptune Research. They surveyed 1,112 likely multichannel shoppers, and those folks, by a whopping 2 to 1 margin supported an integrated multichannel experience that includes merchandise availability in all channels coupled with integrated promotional offers that can be redeemed in any channel, complemented by the same brand persona across channels. You take care of the customer, Kevin, and you take care of the profit and loss statement."

Kevin: "Most of the companies I study are lucky to have between ten and twenty percent of the customer file purchasing from multiple channels in any given year. Wouldn't it make more sense to focus on the eighty to ninety percent of customers who have a specific channel preference, and give them a customer experience tailored to their specific channel interests?"

Chip Cayman: "That's the same, tired silo based thinking that got companies in such trouble in the first place."

Kevin: "Name a tired, silo based company that got in trouble because of this thinking?"

Chip Cayman: "Oh, I'm under non-disclosure agreements with my clients. I couldn't possibly share that kind of information. But I will say this. Multichannel customers are the best customers, and the best customers are the most loyal customers, and the most loyal customers tend to be retained at high levels, and it is something like eight times more costly to acquire a customer than to retain a customer. So as you can plainly see, the logic speaks for itself. A brand is well positioned for the future if it offers integrated services across channels."

Kevin: "Like Circuit City and their 'buy online, pickup in stores' program?"

Chip Cayman: "It's a shame they're out of business, because that strategy really set the tone for integrated multichannel marketing in the last half of this decade. I don't think enough time passed to understand the true merits of that program. If Circuit City had the capital to outlast the economic downturn, they may have reaped the benefits of their program."

Kevin: "Meredith felt frustrated that you suggested she feature a successful pay-per-click dinner dress in the catalog, only to have it fail in the catalog channel. Does the same merchandise have to be featured in every single channel?"

Chip Cayman: "If possible, yes. You want the customer to have access to as much of your assortment as possible. The customer demands this, Kevin. Have you ever been in a McDonalds restaurant and tried to purchase a McRib sandwich in the store, but not been able to buy the sandwich at the drive-through window? It doesn't make sense, Kevin. The items has to be in both channels."

Kevin: "But McDonalds allows for regional differences. You can get the McRib sandwich in Austin and not be able to purchase it in Boise. Doesn't that create a bad customer experience, too? Why is channel integration a must, but geographic integration can be and is encouraged to be optional?"

Chip Cayman: "Because certain items sell better in different geographies. You wouldn't sell a snow shovel in Miami in November, would you?"

Kevin: "And similarly, certain items sell better in various advertising and physical channels. So the multichannel brand should be allowed to pick and choose the channels, merchandise, targeting strategy, level of personalization, and promotional offers that best drive corporate profitability, right?"

Chip Cayman: "Interesting. Speaking of multiple channels, do you follow me on Twitter?"

Kevin: "Yes, I follow both your Twitter activity and the articles you post on your blog."

Chip Cayman: "See, that's the next big thing. We're going to see multichannel integration in social media. Your entire lifestream will be integrated by a service. You'll be able to sample my comments on Twitter or my blog articles or whatever comes next, and you'll be able to use a service that integrates all of this activity. That's multichannel power being applied to social media, Kevin. The online folks are really hyped about multichannel integration."

Kevin: "Gliebers Dresses tried everything, and they cannot gain any social media traction."

Chip Cayman: "They don't speak with an authentic and transparent voice. You cannot say '@GliebersDresses Today we're taking 15% off of sundresses, visit the website', and expect magic. It just doesn't work that way."

Kevin: "Then what should Gliebers Dresses say?"

Chip Cayman: "Give people great content, give people something of value, participate in the discussion out there, and everything will take care of itself. It's about them, Kevin, it isn't about you or Gliebers Dresses. Fill one of their needs, and they'll take care of two of your needs."

Kevin: "It seems like that's what everybody says. And yet, for 99.9% of people and brands, the strategy simply doesn't work."

Chip Cayman: "That's because 99.9% of companies and individuals are failing to practice social media the right way."

Kevin: "What is your secret?"

Chip Cayman: "I scour Twitter every night. I have a goal to follow 100 new individuals every day. 85% of those who I follow decide to follow me. That's how you build an audience."

Kevin: "What percentage of your 27,000 followers would you consider to be your 'core' audience, the folks who truly interact with you, folks who would purchase your services?"

Chip Cayman: "Probably 1%, about 300".

Kevin: "So the other 26,700 followers don't really matter --- they're not following you because of your great content, they're following you because you decided to follow them, and you're following them not because of their great content, but because it is a strategy to get people to follow you?"

Chip Cayman: "That's how you make social media work, Kevin. You participate, then others follow you."

Kevin: "You believe that Gliebers Dresses should follow 100 people a day, every day, for a year, hoping for the reciprocation of 36,500 followers. And then out of those 36,500 followers, 1%, or 365, will become core followers who truly care about Gliebers Dresses. And then, what, 10% of those will purchase something ... 37 customers ... and those 37 customers spend $150 each, yielding $5,500 of incremental annual revenue? Is that correct?"

Chip Cayman: "That's one way to make it work. Put outstanding content out there that people crave, use the 'following' strategy, and you'll have a formula for success."

Kevin: "You told your Twitter followers last week that you were enjoying a Brown Sugar Cinnamon Pop Tart for breakfast, toasted no less. What does that have to do with outstanding content?"

Chip Cayman: "I have 27,000 followers. Kevin, you have something like 700. Your content is fact based, you tell people that Anna Carter might close down their catalog division. Whoopeedee-Doo! Social media is all about being authentic. When I tell people who I am, they are more likely to connect with me."

Kevin: "Would you advise that Sarah Wheldon (marketing) tell her followers that she just ate a bowl of oatmeal, and then came out of a meeting where she talked about the dress code at Gliebers Dresses? Would that make Gliebers Dresses more authentic? And would that translate to increased sales?"

Chip Cayman: "I'm just saying that if Gliebers Dresses makes social media about others and not about Gliebers Dresses, everything else will take care of itself."

Kevin: "Gliebers Dresses is struggling to stay afloat. What other strategies are you suggesting they employ to turn the corner?"

Chip Cayman: "It's all about loyalty, Kevin. I spend a lot of time with the new CFO, Lois Gladstone, we go way back, you know. Years ago, I showed her how loyalty drives profit. Look at Starbucks. They got customers to spend $5 a day, every day, on a cup of water augmented with beans, dairy, caffeine, and sugar. Gliebers Dresses simply needs to find the complement to this strategy in the world of fashion dresses, and everything will take care of itself."

Kevin: "But you don't buy a new dress five times a week. You're lucky to need a new dress twice a year, maybe three times a year."

Chip Cayman: "Yes! So the secret is to figure out how to get the customer to buy a dress three times a year instead of just two times a year. Then the business grows by 50%, and everything is fixed. This is a loyalty issue, Kevin."

Kevin: "Isn't this a merchandise issue? Customers aren't going to buy three times a year unless they love the merchandise?"

Chip Cayman: "If you think Starbucks brews coffee better than everybody else, you're nuts. They know the secrets to customer loyalty, and they exploit those secrets at unprecedented levels. At some level, it has absolutely nothing to do with the merchandise. If you want coffee, stay at home and drink Folgers. Loyalty = Merchandise + Mania. Most companies ignore 'mania', don't they?"

Kevin: "Gliebers Dresses is going to employ a 'buy four dresses, get free shipping for the rest of the year' program. Is this program part of the mania?"

Chip Cayman: "Absolutely! It's a low cost entry point into customer loyalty. The program will create buzz, which will cause loyal customers to spend more, and the buzz will cause more new customers to shop at Gliebers Dresses, which will fix the acquisition problems that you, Kevin, are trying to fix."

Kevin: "Your strategy, then, is this ... increase customer loyalty via free shipping for 4x+ dress buyers, which creates buzz. The buzz percolates through a social media program predicated on following others and providing outstanding content that spreads across Twitter, causing more followers and more buzz. The new followers are then greeted with a wonderful multichannel experience that causes them to want to shop more often, online or via affiliates or paid search or even via social media. The blend of strategies yields a more loyal customer, driving sales increases and profit."

Chip Cayman: "You got it!!! Now you're not going to steal that strategy and cannibalize my business, are you?"

Kevin: "No."

Chip Cayman: "Good. Because I know a lawyer that could make your life absolutely miserable. I've got a guy in Jersey that could silence Donald Trump."

Kevin: "What if your strategy doesn't work? What if Gliebers Dresses follows your strategy to the letter, but customers still won't buy the merchandise?'

Chip Cayman: "That happens, and it means the strategy wasn't truly executed in the spirit intended."

Kevin: "I see. Mr. Cayman, thanks for your time, I appreciate it."

Chip Cayman: "Kevin, thank you. Keep plugging along with that Multichannel Forensics stuff. It's interesting the way you illustrate how customers interact with our businesses. It's different, that's for sure."

Gliebers Dresses: Merchandising

Meredith Thompson, the Chief Merchandising Officer at Gliebers Dresses, showed me a catalog spread.

"Look at this dinner dress, Kevin. We tested it online, we drove the introduction of the item via paid search. Customers liked it! The item quickly became a good seller, and once it qualified for our cross-shopping algorithm, it took off! I got the item in the catalog as fast as I could. It took us five months to get enough product to feature it in one of the opening spreads of the catalog."

I wondered how the item performed in print?

"In the catalog, the item was a disaster. It missed sales projections by 40%. The customer hated it."

Ouch.

"These experts, they tell us that we have to be 'multichannel'. We have to have the same look and feel in all channels. We have to feature the same product in all channels, at the same price, with the same promotional offers They tell us this is the only way to communicate with our best customers. They tell us our best customers demand this style of merchandising. But here I am, working in the trenches, dealing with real world situations like this. The customer loved it when we advertised via paid search, but she hated it when it was in the catalog."

I asked Ms. Thompson who told her that she had to feature the same item in all channels?

"Chip Cayman. We bring him in here about once a month. Glenn and Chip go way back."

Chip Cayman is maybe the most famous marketing consultant out there. He's recognized across the industry as an expert in one-to-one marketing, multichannel marketing, and recently, social media.

"Chip Cayman told us we were not profitable because we failed to fully integrate all of our marketing channels. He told us we had to provide the best possible customer experience. It all sounded so good. But here we are. We advertised the dinner dress via paid search, and it worked. We advertised the dinner dress in a catalog, and we took a financial bath."

I asked Ms. Thompson if it is possible that the paid search customer is a 'different' customer than the catalog customer?

"That's your job, Kevin. Here's what I need to know. Who's actually running my business? Do I let Google decide? Do I let Chip Cayman decide? Or do I let the catalog customer decide? In any case, I don't have control over my business. If Google decides, then I'm at the whim of the comparison shopper at that very moment --- how would I ever predict what somebody wants? If I let the catalog shopper decide, then I'm destined to follow a 55 year old customer into retirement. If I let Chip Cayman decide, I'll always be average, because I'll never maximize trends in any one channel, and I'll always have inventory issues. And then you have e-mail. You advertise certain items in an e-mail campaign, then the customer goes online and buys whatever she wants --- she doesn't always buy what you advertise. Honestly, I don't have control over anything anymore."

It's a good thing Gliebers Dresses doesn't have a retail channel!

I explained that cataloging was a lot like Top 40 radio, everybody listened to the same songs, everybody was on the same page. Multichannel marketing is a lot like the iTunes store. Customers come from a limitless array of sources, and pick and choose what they like.

"You're not going to give me a lecture about that long tail garbage that we read about --- selling ten million dollars worth of merchandise across twenty-thousand skus?", asked Ms. Thompson. "I don't have the resources to manage twenty-thousand skus. Long tail theory breaks down in practice, unless you're maintaining a zillion skus that have no cost of goods sold. Here in the real world, we have to accurately forecast the sales of each of twenty-thousand skus."

Obviously, that's not what I'm talking about. Our businesses have relationships with a diverse set of customers. In the past, we told them what to buy. Today, the customer is telling us what she wants to buy. This creates uncertainty and inaccuracy. Uncertainty and inaccuracy are fatal to a direct channel profit and loss statement.

"I think the multichannel experts are missing this fact. They're trying to bundle the modern world in to a package that they understood back in 2001." quipped Ms. Thompson.

I don't know if that is true or not. What is true is that Ms. Thompson has to take a stand. As Chief Merchandising Officer, she has to lead the customer, whoever the customer is, into the future.

And I realized that I'm going to have to have a talk with Chip Cayman.

Gliebers Dresses; Paid Search

Our series on how advertising channels work together continues today.

Glenn Glieber (Owner): "... and after seeing the TV ad, I went to the all-you-can-eat buffet for as many scallops as you can eat for $8.99. Those scallops were so tiny, for crying out loud. Who'd think you'd get bad seafood at an all-you-can-eat buffet?."

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

Kevin: "Yup, it is me."

Lois Gladstone (Finance): "You were going to talk about multichannel marketing today, correct?"

Kevin: "Today I am going to focus on the role that paid search plays in your business."

Meredith Thompson: "You know, I really don't get paid search. Just last night I'm sitting in the living room with my husband (Chet), thumbing through the stack of catalogs we received in the mail last week. Why in the name of Robert Kestnbaum would I get out of my comfy sofa and get on the internet and search for items I want to buy? Who shops that way?"

Roger Morgan (Operations): "Woodside Research says that paid search will be an $11,000,000,000 industry by 2012, so somebody shops that way."

Meredith Thompson: "Sure, if you're looking for a memory stick or a low-cost flight to Topeka, or you want to find out if Jon & Kate Plus Eight are selling branded merchandise then maybe you shop that way. But if you're buying a fashion dress, you want a brand like ours to present the merchandise to the customer on paper, so that the customer can clearly see that we stand for value, quality, and service."

Pepper Morgan (Creative): "Haven't you ever wanted to see if anybody has a similar item at a similar price, so you Google the merchandise your looking for?"

Meredith Thompson: "Not if I am a brand loyal customer. Why would I ever use Google to shop Gliebers Dresses? I know all about Gliebers Dresses. I have the website bookmarked."

Sarah Wheldon (Marketing): "We have a lot of customers who use Google to type in the phrase 'Gliebers Dresses', they use Google to navigate to our website."

Meredith Thompson: "Some of our customers must be brain dead. And then we pay Google $0.40 to direct that kind of traffic. No wonder we're not profitable."

Kevin: "I dug into your database, and here is what I learned."

• 35% of paid search conversions come from prior customers.
• 65% of paid search conversions are from new customers.
• Among new customer conversions, half received a catalog within the past thirty days.
• All first time buyers have a 30% annual retention rate. After a first purchase happening via paid search, buyers have a 22% annual retention rate.
• Customers acquired via paid search are most likely to purchase via e-mail marketing next, followed by catalog marketing.
• Paid search customers are very unlikely to ever use the telephone to place subsequent orders.
• Paid search customers tend to buy items that are at lower price points than the average price point.
• You mail 16 catalogs a year to paid search customers, compared with 21 catalogs a year to the average twelve-month buyer.
• A new paid search customer generates $10 of profit in the next twelve months, meaning that you can lose money acquiring the customer.
• Branded search is correlated with existing customers. Non-branded keywords are correlated with new customers.
  

Meredith Thompson: "So what does all of that mean? It sounds like paid search is a bad thing."

Pepper Morgan: "I didn't interpret the information that way. It sounds to me like paid search has a place in our marketing mix. If we can acquire a customer at or just below break-even, the customer will pay us back enough money over the course of a year to allow us to have a profitable relationship with the customer. That's a good thing!"

Lois Gladstone: "I don't like the idea of losing money today based on the promise of maybe making money in the future. That doesn't sound like the right thing to do in the middle of The Great Recession."

Sarah Wheldon: "Goodness Lois, losing money on customer acquisition is an established best practice. If we don't lose money in the short term, we never grow as a brand in the long term. We learned that lesson the hard way back in the early 1990s."

Roger Morgan: "Paid search seems to have a strategic place in our marketing strategy. Based on the data, paid search seems to allow us to capture some sales that are created by catalog marketing or maybe even e-mail marketing. It allows us to capture new customers. And even though the customers are less valuable, we can still have a profitable relationship with the customer. I don't see much of a downside."

Meredith Thompson: "But paid search is sooooooo boring. It's like trying to sell something via a text message. No romance. No ability to communicate our value, quality, and customer service. No ability to distinguish ourselves via outstanding creative execution and presentation."

Lois Gladstone: "And given that these customers are worth less, wouldn't it make more sense to invest the money in different advertising channels?"

Meredith Thompson: "Yes! Like catalogs!"

Lois Gladstone: "It just seems like paid search has no ability to play a role in building a customer relationship.

Kevin: "So those are good comments. You've essentially outlined the role of paid search. For your business, paid search seems to serve two roles --- one, to acquire customers that you wouldn't normally acquire --- two, to help convert customers that are in the process of being acquired from other channels, like catalog marketing --- and three, there's enough long-term value that you can market to the customer in the future, but you scale that marketing back a bit because these customers have lower than average long-term value. And think long-term, folks. As catalog marketing becomes more and more expensive, you're going to need paid search, how else are you going to acquire new customers? Finally, paid search is probably not a relationship-building channel, it probably isn't at the top of your CRM program. Paid search is often a link in a chain of customer conversion that includes offline advertising and your website. Given your data, it is a necessary channel."

Glenn: "Good, thanks for the comments, Kevin. Let's move on to the next topic. Our creative team wants to start a new policy, called 'Tennis Shoe Friday', one day a week where any employee can wear tennis shoes to work. This goes against our dress policy, and I don't think this sets a good precedent if we approve it. I think we need to adhere to certain levels of professionalism, and tennis shoes are not part of the professionalism that I'm looking to encourage. So I want to say NO to this policy."

Roger Morgan: "My distribution center employees wear tennis shoes. Are you saying they aren't professional, because we've stated over and over again that they are the best in the industry?"

Gliebers Dresses: Multiple Channels

You're listening to the Executive Meeting.

Glenn Glieber (Owner): "... so I say to the guy next to me, 'how many times do I have to watch the same episode of 30 Rock'? I've been on a half-dozen flights in the past two months, and every flight has the same episode of 30 Rock. And have mercy on the folks who sit in Seating Area 4 --- we're all lined up twenty-deep to get onto the plane so that we can find a place for our luggage. Those poor souls in Seating Area 4 have no chance. Travel, what a mess!"

Meredith Thompson (Merchant): "Kevin, is that you?"

Kevin: "Yup, it is me."

Roger Morgan (Operations): "We're interested in your thoughts about multiple channels, Kevin."

Kevin: "Sure, what do you want to know?"

Sarah Wheldon (Marketing): "Well, we believe we are a multichannel company. We have our catalog and all of the heritage associated with that. We have a website, we do paid search, we have an affiliate marketing program, we have e-mail, we use shopping comparison sites, we have a Facebook presence, we have a company blog, we're on Twitter, and we're developing a mobile website."

Roger Morgan: "That's a lot of channels. We're mega-multi-channel!"

Sarah Wheldon: "So why isn't it working, Kevin?"

Kevin: "What isn't working?"

Meredith Thompson: "Why is it that we have all of these channels and our sales are decreasing?"

Roger Morgan: "Every research article I purchase says that if you have all of these channels, then your sales will increase and your customers will be happier. A recent Neptune Research report suggests that 74% of customers prefer brands that offer a superior multichannel experience. So we must be doing something wrong."

Sarah Wheldon: "Obviously, we offer a superior multichannel experience, don't we?"

Kevin: "Define a superior multichannel experience?"

Lois Gladstone (Finance): "I think a superior multichannel experience delivers breakthrough sales and profits".

Sarah Wheldon: "I think a superior multichannel experience allows a customer to shop however she wants wherever she wants."

Pepper Morgan (Creative): "I think a superior multichannel experience offers the same look and feel across channels, the same promotions across channels, basically, the same exact experience across all channels. If you do that, the customer will love you and not become confused. I mean, if we offer a customer 20% off her order in the catalog, then we have no choice but to offer the customer the same 20% off promotion on Twitter, right?"

Lois Gladstone: "But we cannot offer the same merchandise in each channel --- heck, we can barely do anything with Twitter, while the catalog allows for an easy way to visually display merchandise, and e-mail allows you to really focus on just one item. So if you can offer whatever merchandise you want in any channel, then you can have a different look and feel, and different promotions in every channel, right?"

Roger Morgan: "Seems like you would create separate brands if you were going to do things different in different channels. I don't see any way you could be successful if you did things different in each channel."

Kevin: "How would you measure if your multichannel efforts were successful?"

Meredith Thompson: "If our e-mail campaigns and paid search efforts and Twitter presence caused catalog response rates to increase, then multichannel efforts are successful."

Pepper Morgan: "I think you measure total responses across all activities during the course of an integrated campaign."

Roger Morgan: "Do you measure multichannel success on a campaign level, or based on sales and profit generated over time? I think if you don't achieve success over time, then campaign level success is irrelevant."

Meredith Thompson: "I don't think that stuff matters so much --- periphery channels support our main channel, the catalog. I mean, the reason we do paid search is to capture the catalog customer who is doing comparison shopping, right?"

Sarah Wheldon: "We do paid search to acquire new customers."

Roger Morgan: "I thought we rented lists to acquire new customers?"

Lois Gladstone: "Let's take e-mail as an example. Kevin, you said that for e-mail subscribers, we could mail fewer catalogs and generate more profit. But this flies in direct opposition to established industry best practices. Roger tells us that research papers indicate that multichannel customers are best customers. Your advice is to have us send fewer catalogs. That will make the customer 'less multichannel', and by definition, that will result in decreased customer value, right?"

Roger Morgan: "Oh, we don't want to do that!"

Sarah Wheldon: "Do what, become more profitable?"

Meredith Thompson: "If all of the other channels support the catalog, then the catalog will work better, and we'll be more profitable."

Kevin: "Multichannel marketing is a mystery, isn't it? It is our job to determine the role every single channel plays in our business. Meredith believes that other channels support the catalog. Roger believes that multiple channels increase customer value. Pepper believes that channels work in a synergistic manner to communicate a message. Sarah sees multiple channels as a way to acquire new customers. Lois thinks multiple channels increase profit."

Sarah Wheldon: "So who is right?"

Kevin: "Tell you what, over the next few weeks we'll use the Multichannel Forensics framework to understand how your customers interact with advertising channels. I'll come to each meeting, ready to share with you how your customers interact with advertising micro-channels. As a team, we'll figure out the role of each channel in your business."

Glenn Glieber: "Ok Kevin, sounds good, thanks for your feedback. On to the next topic. As you know, we are hosting our annual fashion show next Thursday. I need one volunteer to be the Master of Ceremonies, and I need one volunteer to manage the music selection. Who wants to take some ownership, how about it?"

Gliebers Dresses: Executive Response To The Strategy Presentation

It is time to Skype-in and hear feedback from the Gliebers Dresses Executive team.

Glenn Glieber (Owner): "... and there she was, Anna Carter herself, standing in the same Starbucks line that I was standing in. You should have seen her face when she found out that I pre-paid for her mocha!"

Meredith Thompson (Merchant): "Kevin, is that you?"

Kevin: "Yup, it is me!"

Glenn Glieber: "Good, glad you are here. We wanted to let you know what we thought of your presentation and recommendations.

Meredith Thompson: "First of all, we really liked the idea of testing smaller catalogs. Honestly, we are still amazed that half of our housefile business will happen if we stopped mailing catalogs today, we don't quite know how to wrap our heads around that. But because Sarah's team executed the test and you sign off on the results, we need to seriously think about the implications. We're not convinced that reducing contact frequency is good, but we do think smaller page counts could be beneficial."

Sarah Wheldon (Marketing): "And we think it is a good idea to reduce frequency among customers with an e-mail address. So we're going to accept your recommendation to reduce frequency from twenty-four to twelve mailings a year for customers who possess an e-mail address."

Lois Gladstone (Finance): "You also convinced us that we must not cut customer acquisition any further. We understand that we lose half of our customer base each year, so we must acquire new customers."

Roger Morgan (Operations): "But we also realize that we're being killed by having $12.95 shipping and handling, and we cannot afford to offer inexpensive shipping and handling to everybody all of the time. So we want to become as competitive as we can, given where our business currently is."

Lois Gladstone: "So we decided that we are going to implement a new program. Any customer who orders and keeps four dresses will receive free shipping and handling for the remainder of the year."

Sarah Wheldon: "We think this strategy gives us a chance to compete with online brands that take market share by offering low price dresses coupled with free shipping."

Roger Morgan: "And it gives us a chance to move volume into the first half of the year, allowing us to not have to lay off contact center and distribution center employees."

Lois Gladstone: "Your data suggested that if we can achieve a 10% increase in productivity, the program will generate a ton of profit over the next twelve months. We need a ton of profit over the next twelve months. Once the business is fixed, we'll be able to afford to go after new customer acquisition."

Kevin: "What data are you using to validate your assumption that you'll achieve a 10% increase in productivity over the next twelve months?"

Roger Morgan: "Here in my hand I have a research report I purchased yesterday morning from Woodside Research. They surveyed 1,129 consumers. 58% of consumers said that participation in a loyalty program caused them to have a more favorable relationship with the brand, and 87% of consumers loved receiving discounts and promotions as part of a loyalty marketing strategy."

Sarah Wheldon: "It could be that this strategy changes customer perception. Our shipping and handling is just too expensive, so this might be a way to re-engage customers."

Meredith Thompson: "And I want to completely eliminate all barriers to purchasing merchandise. The merchandise should stand on its own merits, it shouldn't be harmed by shipping and handling practices. This loyalty program makes it all about the merchandise. If the customer demonstrates loyalty to us, we'll eliminate shipping and handling expense for them."

Pepper Morgan (Creative): "We haven't talked about your micro-site idea, yet. We think there might be merit to that idea. I'd really like to tackle the concept of a micro-site for the 15-39 year old customer audience. I think that is a great idea, one that would be a lot of fun!"

Meredith Thompson: "I'm really concerned about that idea. Kevin, you fail to factor branding into this equation. Gliebers Dresses stands for quality, value, and service. When you create a micro-site, you create a new brand. I don't want to alienate our existing customers. Our existing customers have an expectation of the quality, value, and service that we'll deliver. Why make it hard for the customer to shop this merchandise by re-branding it as a separate micro-site? I don't get it?"

Roger Morgan: "In a recent Neptune Research report, 1,340 consumers were surveyed. 61% of consumers want brands to create an integrated multichannel shopping experience. A separate micro-site takes us in a direction opposite of an integrated multichannel shopping experience."

Sarah Wheldon: "I don't necessarily think that a micro-channel website is a bad thing, it can be a good thing if we can find new ways to market to younger customers. But I'm worried about the catalog opportunity. A separate micro-site might dictate a new catalog strategy, and we don't have the resources to produce catalogs for this customer audience."

Pepper Morgan: "But we wouldn't market to these customers with catalogs, we'd simply find new ways to market to customers."

Sarah Wheldon: "Do we think that these customers are going to magically show up at our website? We have to do something to drive the customer to the website."

Pepper Morgan: "Kevin said that bow-tie-guy's test indicates that half of our sales happen organically, without the aid of marketing. How do you explain that?"

Sarah Wheldon: "We had to advertise to those customers at one point to acquire the customer, and then to develop brand loyalty. All of that advertising created a situation where the customer might be willing to shop today, without the aid of advertising."

Kevin: "Who would own the marketing initiatives for a micro-site?"

Meredith Thompson: "Oh, that one is easy. I'd own the merchandise assortment, Pepper would own the look and feel of the website, Sarah would own all marketing initiatives, and Roger would own site maintenance and site improvements."

Kevin: "Who would own final decisions? For instance, if Pepper wanted to put videos up on YouTube, who would make that call?"

Pepper Morgan: "I'd make that call."

Sarah Wheldon: "That's my call, that's a marketing initiative."

Roger Morgan: "Well I think I own that call. That video shouldn't go up on YouTube, it should be prioritized into my book of work, and my team would publish the content on the micro-site when resources permit it to be published. I want the SEO juice that comes from the video, I don't want YouTube to get that. Since I'm accountable for making our site natural-search friendly, I should own the decision to have the video on my site."

Lois Gladstone: "I'm not certain we have the budget to put broadband-quality video on our website."

Pepper Morgan: "If I had to wait two months to put a video up, when I can publish the video on YouTube this afternoon, I'd publish the video on YouTube this afternoon. And then I get around expense issues, it doesn't cost us anything to publish the video on YouTube."

Sarah Wheldon: "And who would market that video for you? That's why this is in my area of responsibility, this is why I need to own this process. I need to make sure that catalogs and e-mails support the video via a multichannel advertising strategy."

Pepper Morgan: "Honestly, I don't need your advertising support, and I cannot wait to publish the video three months from now so that we can add a page to the catalog to market the video. As part of this launch, my entire team will develop a social media presence, and we'll advertise it ourselves. I don't think we need traditional marketing to market this video, we'll do it ourselves."

Sarah Wheldon: "Social Media doesn't work. We only have a couple hundred followers on Twitter. Two hundred views on YouTube doesn't do anything to drive sales."

Pepper Morgan: "Twitter doesn't work if all we do is offer followers 20% off promotions. Twitter will work if we speak to the 15-39 year old customer the way she wants to be spoken to.

Glenn Glieber: "Kevin, you can clearly see here how time-consuming these new initiatives are. We've just wasted an entire executive meeting flapping our gums about something that we may not ever implement. We need to focus on 2% solutions that grow the core brand."

Kevin: "Maybe we can agree to disagree. What you just demonstrated to me is that there is not a clear online marketing leader at Gliebers Dresses. I heard four individuals proclaim partial ownership of a potential online marketing program. This makes it very hard for Gliebers Dresses to move into the future. At the end of this discussion, you discounted the new program, not based on the merits of the new program, but based on how much time you spent taking about disagreements over ownership of the strategy. As a result, you focus efforts on areas like catalog marketing, areas that are slowly becoming less productive, but have clearly defined roles and responsibilities that allow you to work without friction."

Meredith Thompson: "But that's how we've always acted around here. We have vigorous discussions. We allow all voices to be heard. This makes us better. This isn't a dictatorship, Kevin, a multichannel business requires a matrixed approach to management, one where all voices are heard. Leaders have to be good at working in a matrixed relationship."

Glenn Glieber: "Well, another perfectly good hour has been shot on ideas that we may never implement. Kevin, we listened to your recommendations. We're not going to cut back on customer acquisition spending, and we are going to start a loyalty program with the $800,000 you helped save us by reducing catalog mailings to customers who have an e-mail address. I'd say you more than paid for yourself, so we'd like to keep you around for awhile and tap your knowledge as we run into future challenges. We'll chat next week!"

Team: "Thanks Kevin!"

Kevin: "Thanks everybody, have a nice day."

Glenn Glieber: "Ok, it's on to the next item on the agenda. The November catalog currently has 140 pages. I'm hoping to save a few dollars by cutting back to 136 pages. Pepper, could you come up with a creative strategy to still feature 140 pages of merchandise within 136 pages, and Sarah, could you forecast the impact on sales by offering 136 pages to the customer instead of 140 pages? Thanks, everybody!"