Multichannel Retailing Week: Merchandising And Creative

I chose to align merchandise and creative together in this post, for good reason.

Say you want to purchase a dress. There are a veritable plethora of multichannel 'brands' that will sell you a dress, similarly styled, similarly priced. A quick Google search for "women's dresses" yielded dozens of paid search results including Become.com, AmericanApparel.net, Avenue.com, BostonProper.com, AnnTaylor.com, OneStopPlus.com, JessicaLondon.com, ArdenB.com, and Bloomingdales.com in the top ten. Natural search results included Macys.com, JCPenney.com, Chadwicks.com, Amazon.com, and SierraTradingPost.com. Toss in two or three dozen retailers not making the front page of Google, and it becomes obvious that dresses are a commodity item.

Given all of this competition, the multichannel merchant has a challenge. The merchant must know nine to twelve months ahead of time what is 'going to sell' in the future. Some businesses partner with great brands to acquire great dress styles. Other businesses design their own merchandise. Either way, the merchant has to have a keen instinct to know that a dress is going to be 'cute'.

Merchants who take bold risks that pay off are considered geniuses. Merchants who take bold risks that fail are fired. Very few employees in multichannel retail have the kind of pressure that a merchant faces.

When many businesses sell very similar or identical items, there are very few things that set the multichannel merchant apart from others. Companies try to differentiate themselves in unique ways. Nordstrom, for instance, focuses on trendy brands sold with great customer service.

Creative presentation can be an important differentiator. Lands' End combines great quality with great copy and virtual model technology. Coldwater Creek presents merchandise online and in catalogs without models. Eddie Bauer aids your purchase process by illustrating which of three possible fits --- shaped, classic or easy --- a dress falls into. J. Crew uses copy to differentiate themselves, saying "every dress has a story", shirtdress, halter, strapless, tank or knit. Click on any of those links, and a story is told to the customer. Chadwicks and Jessica London use a fashion glossary to explain key terms. Ann Taylor allows the shopper to e-mail an item to a friend from the item page, or locate the item in a store. Monterey Bay Clothing Company leverages a clean presentation and a large item image.

One of the bigger frustrations I've heard from merchants is the creative presentation of merchandise in the online environment. It is comparatively easy to present merchandise in retail. It is a time-honored art form to creatively present merchandise in a catalog environment --- merchants can instantly look at a spread, and determine with some confidence if the spread and copy will work or not.

But in a template-based online environment, the vast majority of creative presentation is compromised, creating a similar and somewhat generic feel across different online brands. The differences I outlined above may mean very little to a customer.

Cataloging and retailing give the human being creatively presenting the merchandise all of the power. Online retailing results in a "cookie cutter" approach --- most items have to be presented in a similar manner, so that the website can operate efficiently. In other words, in the online environment, the information technology expert plays as big a role in the selling process as do the creative team.

Take Costco, for instance. In a retail environment, Costco's visual merchandisers create the feeling that you are walking through a huge warehouse. In a catalog environment, Costco uses imagery and stories, page after page, to attempt to replicate that feeling. Online, what tools does Costco have to create the huge warehouse feeling?

This is a source of frustration for both merchants and creative staff.

Over the next decade, the multichannel merchants who give online creative presentation power to the creative staff and merchants through innovative technology will have a competitive edge over those merchants who rely heavily upon the information technology staff for creative presentation. Combine an empowering creative environment with great merchants who design or source excellent merchandise, and you end up with a thriving multichannel merchandising experience.

Multichannel Retailing Week: Inventory Management

One of the most under-appreciated jobs in Multichannel Retail is the title of Inventory Manager.

The inventory manager supports the merchant. By looking at sales history, the circulation plan, the e-mail marketing plan, the online marketing plan, and traditional advertising, the inventory manager determines how many units of an item to purchase.

Multichannel retailing made inventory management very challenging. Five issues really challenge the inventory manager.

First, inventory managers have to deal with different measurement techniques in different channels. The catalog/telephone channel captures "lost sales". In other words, when a customer calls to place an order, and the item isn't available, the fact that the customer "wanted" to purchase this item is recorded. This is a huge benefit that catalogers have over retailers. If 1,000 units were forecast, and customers "wanted" to purchase 1,850 units, the inventory manager has access to this data. Next year, the inventory manager will order the appropriate number of units. In retail, once the 1,000 units "sell through", there are no more units to purchase. In retail, there is an art to forecasting what would have sold. The online channel strikes a balance between cataloging and retailing, in that "lost sales" can be captured by the multichannel retailer, if management is willing to capture the information.

The second challenge facing multichannel inventory managers is the information systems they get to use. Catalog/Online systems are frequently different than Retail inventory management systems. The systems don't always talk to each other, and the systems occasionally utilize different metrics. This means that folks working in catalog/online channels view the business differently than folks working in the retail channel. Different skill-sets evolve. In some ways, it is like the catalog/online inventory manager speaks Spanish, while the retail inventory manager speaks Portuguese. The multichannel CFO plays a key role in this relationship. If the CFO understands the importance of linking disparate systems, staff can evolve to speak a common language. Linked systems, however, need to accommodate the unique measurement differences between channels. This does not always happen in multichannel retailing. If retail wins out, it is possible that demand will not be captured in the catalog channel, sub-optimizing catalog marketing activities.

The third challenge multichannel inventory managers deal with is the information captured in inventory management systems. In most cases, changes in marketing strategy cause significant changes in unit sales. For instance, a drop in circulation depth of twenty percent frequently yields a ten percent decrease in sales. Featuring an item in an e-mail campaign may drive a fifty percent increase in sales of that item. Paid search can influence item sales. In most cases, the inventory manager does not have an organized information system that allows the inventory manager to analyze the simultaneous influence of all of these factors. Really talented inventory managers tabulate their own information system in spreadsheets, and build good relationships with circulation, e-mail marketing and online marketing individuals.

Fourth, not all items sell at the same rate in all channels. Items that are prominently featured in catalogs sell well over the telephone, sell at an average rate online, and may not sell well in retail stores. Items featured in e-mails cause online sales to surge, but may not drive any retail or telephone sales. The audience purchasing via telephone, online, and stores is frequently different. The telephone audience is often older, and lives in rural areas. The online customer may be younger, living in the suburbs. The retail customer lives near a store. Differences in demography and lifestyle cause each item to sell differently, by channel. The inventory manager does not usually have this type of information available in a systematized way. The inventory manager has to make a lot of guesses, in order to be accurate.

Fifth, the inventory manage has to be really accurate, but is not given the tools necessary to create accurate forecasts. If too much merchandise is purchased, then overstock occur, costing the company a ton of profit. If too little merchandise is purchased, sold-outs and lost-sales occur, costing the company a ton of profit. The inventory manager is constantly hounded by merchandising and financial staff members to be accurate. The reward for being accurate is harvested by all employees. The risk for not being accurate falls upon the inventory manager.

Over the next ten years, we will see an inventory manager from a multichannel retailer create an inventory management system that integrates the issues listed above. Many vendors try their hardest to do this today. I believe somebody will figure out how to leverage all of the spreadsheets clogging network drives at multichannel retailers, allowing the multichannel inventory manager to be more effective. This information will be combined with clickstream data --- sales information, marketing information, and the items customers viewed on the website will be combined in a way that allows inventory managers to do a better job.

With luck, CFOs will agree that these systems are needed, and will spend the money to implement them.

Until that happens, the complexity of a multichannel business will continue to challenge inventory managers. These folks are frequently compensated at or below the company average for professional staff, but bear more risk than the average employee.

Your turn. What is your view of multichannel inventory management?

When Capture Rate Bites You In The Belly

A market researcher will conduct four focus groups of nine individuals each, recommending brand-changing strategies on the basis of thirty-six customers.

Your market intelligence analyst will measure market share by DMA, knowing full-well that the error rate on the estimates is plus or minus seventy percent. Your executive team oooohs and aaaahs at her findings.

Then you report on actual customer purchase behavior, and remind folks that your information technology team is only able to match sixty-five percent of your retail purchase transactions to a name and address (this is called "capture rate"). Your executive team badgers you about "the other thirty-five percent", wondering if those customers behave "differently". Of course they do, they paid using cash or check or an un-trackable credit card! You share that information with your executive team. They boot you from the "C-Level" table, while the market research analyst offers a smug smile, secure in the knowledge provided by thirty-six customers.

Such is the life of the database marketer.

Market researchers and market intelligence analysts get free passes from the "C-Level" table that so many of you crave to present to. You will get a free pass back to the cubicle farm. Why?

In a word ... "consistency".

In other words, market researchers and market intelligence analysts frequently analyze metrics that behave in a "consistent" manner. The numbers don't change significantly from year to year. Therefore, your beloved "C-Level" team "trust" the numbers, even if highly inaccurate.

Your numbers are "inconsistent". They don't know what to trust. Take a look at the following table:

Actual Performance, Measured Via The Customer Database
					Overall
	12 Month	Repurchase	Spend/	Average	Retail Cap-
	Buyers	Rate	Buyer	Value	ture Rate
2007 Results	10,000	20.60%	$235.00	$48.41	65.00%
2006 Results	8,000	24.30%	$230.00	$55.89	75.00%

When you analyze these results, you really cannot tell whether customers repurchased at lower rates, or if the ability of the "information technology" folks to assign name/address to transactions got worse.

More often than not, when capture rate changes, the number of customers who purchase change. Most often, retail customers are using the same credit card, or are using two credit cards. As a result, one might consider adjusting the repurchase rate for the fact that the capture rate is lower. The analyst might adjust the 20.60% repurchase rate by a factor of (75.00% / 65.00%), resulting in a 23.77% repurchase rate.

Performance now looks like this:

Actual Performance, Measured Via The Customer Database
					Overall
	12 Month	Repurchase	Spend/	Average	Retail Cap-
	Buyers	Rate (Adj).	Buyer	Value	ture Rate
2007 Results	10,000	23.77%	$235.00	$55.86	65.00%
2006 Results	8,000	24.30%	$230.00	$55.89	75.00%

In this table, customer performance is essentially equal, year over year.

Another step to validate this assumption is to compare the results to comp store sales performance. For instance, if comps are flat, the table above may be reasonably accurate. If comps are up ten percent, you may need to further adjust the repurchase rate.

Once you've made this adjustment, you're best off footnoting it. Your "C-Level" buddies are not big fans of "cooking the books". And yet, if you don't adjust your findings, they will not be big fans of "inconsistent data".

For Database Marketers who have to report customer behavior across time periods, capture rate is probably the biggest challenge to database marketing credibility. Make sound adjustments, speak with confidence, and your credibility will improve.

Ten Ways We Will Save Multichannel Marketing

I once had a CEO tell me, "Don't tell me what is wrong, anybody can do that. Tell me how to fix what is wrong". With that in mind ...

Number 10 = Storytelling: One thing that was crystal-clear to me while attending my first NEMOA conference in March is that New England catalogers are better than anybody else at telling stories. This is a HUGE competitive advantage that catalogers possess over online pureplays, and for the most part, over retailers. When is the last time you felt romanced visiting Amazon.com? The further we progress down a technological path, the "colder" our world gets. Catalogers have always been best at being "warm", best at romancing a customer. Read the creative description of this product from Cuddledown of Maine. Use your eighty-four pages of catalog marketing to tell a story. Have what is on page nineteen relate to what is on page thirty-seven. Make the customer want to turn the page to see what is next. If the customer wants to go online and buy the product featured in a catalog, so be it. Online marketing is all about intercepting the customer at a time of need. As customers, we don't want to buy merchandise that way --- we buy the story as much as we buy the merchandise. Catalogers are great at "creating demand". We should exploit this gift we possess.

Number 9 = Band Together: Cataloging and Retailing have always relied upon healthy competition in order to grow. If you are Gap, you want to be in a mall where your competitors are, because a critical mass of popular apparel retailers fuels traffic. Catalogers have always partnered with each other, renting/exchanging each other's lists in order to facilitate growth. A sustainable version of this doesn't exist online --- we rely upon Google to parse traffic. If I were a charter member of the ACMA, I would build a shopping portal that features all member brands. I would construct the site to be search-engine friendly, so that customers searching for a dress shirt would arrive at this portal, and would be encouraged to shop Paul Frederick MenStyle. Use the collective interests of all members to raise the presence of the organization among search engines. Catalogers can band together, and leverage each other's strengths to grow their business.

Number 8 = Be Proud: If you are a cataloger ... BE A CATALOGER! You are not a "multichannel merchant". Conferences and publications invented that term for their own benefit. Retailers tell you over and over that they want to use the web to support stores. Their focus is ... guess what ... RETAIL! Be proud, you're a CATALOGER!

Number 7 = Creativity: We should be doing the exact opposite of "same look and feel across channels". We grow and evolve through experimentation. How else do we learn what works best? We don't improve by homogenizing our marketing, we improve by experimenting, by diversifying our marketing. So be creative, experiment, learn what customers want from us.

Number 6 = Let Them Do Their Job!: One channel is going to inevitably achieve greater sales than another. Multichannel organizations that have a retail arm frequently drive the majority of their sales via stores. In these cases, let the online/catalog folks do their jobs! Homogenization of business processes sub-optimizes the benefits of each channel. You don't have to adjust catalog in-home dates to match up with floorset changes in the store, unless that is what is best for your customer. You don't have to feature every store product online, you can have online-only merchandise, you can have merchandise only available in stores. Let the folks managing each channel do their jobs. Let these folks create demand. Don't stifle employees on the road to multichannel excellence.

Number 5 = Web Analytics: Have you ever sat down and spent an hour with your web analytics guru? Try it sometime. This person knows more about how customers are responding to your business at this moment in time than almost anybody in your company. Soak in everything this person says, don't let terminology issues taint the knowledge this person possesses. Once you've soaked in the knowledge this person has, apply the knowledge to your catalog and store marketing efforts. This person knows what is happening real-time. Don't put this person in a dark room, shine a light on what this person knows.

Number 4 = Web Analytics: Nobody wants to hear that 3.07% of visitors converted to a purchase. That makes us sound like we're failing. Merchants want to hear that loyal customers visited the website eight times last month, with a quarter of them purchasing at least once. That's a story that indicates we have a compelling website. Ironically, the metrics yield almost the exact same outcome!!! Our focus on converting a customer NOW fails to convey the rich experience customers actually have with the businesses we manage. Customers visit our site (and our competitors) multiple times before deciding what they want to do. Create metrics that actually mirror customer behavior, metrics that adequately explain our successes, not ones that beat us over the head with perceived failures.

Number 3 = Invest In Your Employees: Maybe this is old-fashioned thinking. We can save multichannel marketing if we simply invest in our employees. If you sell gardening supplies via catalogs, why not send your catalog and online marketing employees on a field trip to an online pureplay, to see how they think about their business? If you sell apparel, why not send your catalog and online marketing employees to a non-competitive retailer, to see how those folks merchandise a store? Invite a non-competitive cataloger to visit your campus, and create a workshop where they get to design a marketing campaign for you --- how do they approach your craft, what can you learn from them? Give your employees the tools to succeed. Even more important is the investment in line staff, the folks who are paid eleven dollars an hour to actually fuel our business. Give these employees incentives to do good. Pay a call-center employee ten dollars every time he solves a customer problem by using multiple channels. Pay a store employee ten dollars every time she solves a customer problem by using the website. Invest marketing dollars in your own employees, and see what happens.

Number 2 = Technology: There's a reason the term is called "Multichannel Marketing" or "Multichannel Merchandising". It's because marketing and merchandising create demand. Technology doesn't create demand, technology facilitates the interaction between customers and marketers/merchandisers. We need to let marketers determine the vision for our websites, we need to let the technology folks do what they do best.

Number 1 = Gut Instinct: Gut instinct plus timing equals innovation, innovation fuels future profits. Too much of online marketing is formula-based, Darwinian-style evolution, a reaction to "what is selling real-time". Catalogers have always been great at using gut instinct (the vision of the merchandiser or marketer) to fuel customer demand. Catalogers and Retailers create demand. Online Marketers adapt to response. Ultimately, creation and adaptation employed in harmony yields great outcomes. Too often, we focus on the cold science of measuring response. We need to save multichannel marketing by focusing more on the application of gut instinct to merchandising and marketing. We need to create. We need to lead. We need to innovate. We need to be "warm", not "cold".

Your turn, how would you save multichannel marketing? What are your ideas?

Ten Ways We Ruined Multichannel Marketing

Multichannel Marketing used to be called "Direct Marketing". Those were heady times. Now, we've ruined our once-promising method of selling to consumers and businesses. Let's look at ten ways we ruined what we now call "Multichannel Marketing".

Number 10 = E-Mail And RSS: There was an inflection point in the late 1990s, when e-mail could have been saved, and one in 2004 where RSS could have been saved. We stood by and watched. What would have been nice is the creation of a marketable, non-geeky, non-technical solution that the customer could have pulled into her inbox. Obviously, that solution is RSS. But who trusts a three-letter acronym that has no meaning to anybody? Allegedly, we're brilliant marketers. But we couldn't market a technology that allows the customer to pull whatever she wants into a secure, trusted inbox folder, without interference from twenty-four spam-based messages. E-mail and RSS could have replaced direct mail as the best way to drive volume, had they been managed differently. We're told that E-mail has the best ROI, yet since the advent of the tool, our businesses are not one bit more profitable. We failed.

Number 9 = Short Term Focus: Ignore the pointless arguments about whether lifetime value should sit at the "C-Level" table. Once you've sat at the "C-Level" table, you'll find it isn't very glamorous. We do almost everything to drive business today. We gear most of our marketing measurement around how an e-mail campaign did at driving click-thru rates over a twelve hour period of time, or how a search term drove conversion during a session. Our management teams are given incentives to increase sales and profit today --- incentives that far exceed their actual contributions.

Number 8 = Integration: We were told that we had to align marketing and merchandising across channels, because the customer demanded it. Did your customer demand it, or did you read this in a $279 research report? If the latter is true, who benefits, the customer, or the one producing the $279 research report? We made huge mistakes aligning our marketing and merchandising. First, in order to align these areas, we realized we didn't have the systems infrastructure to align areas properly. Second, putting the systems infrastructure in place to meet this vision requires money --- so instead of investing in the customer, we invest in a systems infrastructure, benefiting vendors. Third, to align marketing, we made compromises that homogenize marketing, lowering response within any one channel.

Number 7 = Shipping: We butchered shipping and handling. We charged our customers $16.95 for a service that they can employ UPS to do for $10.95. Customers aren't dumb, they know they are being gouged. Worse, we offered customers free shipping, charging them nothing for a service they can employ UPS to do for $10.95. We trained the customer that charges for shipping are evil. We trained the customer to expect to receive merchandise for free, though it may be unprofitable at the scale of business we manage. Why didn't we train the customer to expect to receive merchandise for $5, or $7? Why didn't we build an equitable partnership with our customers?

Number 6 = Career Development: Who is training tomorrow's multichannel leaders? By default, our merchandisers are taking control of the future of multichannel marketing. Merchandisers have to sell products across all channels. They learned how to do this without having the systems infrastructure to be effective. While everybody else defended their own turf, becoming experts at managing a niche, merchants became the rulers of the roost. It will be a decade before anybody else has the multichannel knowledge and experience to rival our merchandising co-workers. Why can't I buy a $279 research report on how to manage career development in a multichannel marketing environment?

Number 5 = Channel Dominance: If you worked for a company that has a catalog channel, an online channel, and a retail channel, you know what I am talking about. Dell is about to learn all about channel dominance. Dell will learn that customers who are given a choice between buying something online or in a retail setting will inevitably migrate to the retail setting. Over time, this mitigates all of the advantages of the direct-to-consumer channel. The dominant channel, and the sales rhythm of the dominant channel, require the other channels to "support" it. Anytime one channel "supports" another, it becomes compromised. Why do you think Macy's, Neiman Marcus and Nordstrom are in an arms race to build-out their online infrastructure? Each business wants to use the online channel to "support" their store channel. Anytime the online/catalog channel "supports" stores, sales in the "support" channel suffer, degrading the potential of multichannel marketing. Eventually, the catalog becomes a "brand advertising" tool. Eventually, the online channel becomes a "dictionary" or "encyclopedia" used by the customer to purchase store product. Eventually, "direct marketing" as an art/craft is compromised, unrecognizable.

Number 4 = Marketing's Digital Divide: What a waste. Catalogers honed their craft over more than a hundred years. Then online marketers invented a craft over a decade. Brands use both tools to grow sales. But the skillsets used in each craft are different, and we haven't cross-pollinated folks how to work with both crafts. Go to a NEMOA or Catalog conference, and you'll bask in the knowledge of a generation of catalog experts who are in their 40s, 50s and 60s. Go to any online-based conference out west, and you'll bask in the energy of a generation of online marketing experts who are in their 20s, 30s and 40s. Different channels, different tools, different generations, different mindsets, same objective. It could have been different, had the dot-com explosion of a decade ago not divided all of us so much.

Number 3 = Profit: The all-mighty quest to achieve 6.9% pre-tax profit instead of 6.2% pre-tax profit, to drive "shareholder value", causes us to make decisions that look good in the short-term. We send remails of catalogs, wrapping a new cover and back page around the same creative, hoping our customers won't notice. Private equity buys numerous companies, integrates backend and management operations to reduce expense, and then cross-pollinates the housefiles of each company to save on rental/exchange/co-op expenses (I lived through a version of this at Eddie Bauer). Circulation teams outsource the most vital part of their business, customer management, to a random statistician at a compiled list vendor. We ship merchandise overseas to be assembled, then ship it back here, all to lower cost of goods by a dollar a unit. Then we grumble when the worker in Indiana who used to have a job can no longer afford our product because her job was "outsourced" by our very-own company. We farm out call-center activities overseas. How does the customer benefit from all of these activities, long-term?

Number 2 = Google: Multichannel Marketing is doomed to fail in a Google-dominated world. The very thing Google gives us as customers, the very thing we love (relevant choice), is what will destroy the businesses we manage. Today, we love it that Google drives 20% of our website traffic. Once online growth stops, and Google makes changes for no good reason that reduce our traffic from 20% to 14%, what is our recourse? That's the kind of change that gets an Executive fired. That's the kind of change that turns a 6.2% pre-tax profit business into a break-even pre-tax profit business. That's the kind of change that causes you to lay-off your online marketing analyst. That's the kind of power that Google holds over you --- you just don't see it today, because your online volume is growing year-over-year at acceptable rates.

Number 1 = The Punditocracy: There's a reason that some conferences lock vendors out of sessions. Everywhere you turn, some pundit is telling you what you must do to succeed, is telling you why you are a failure, or is beating the living daylights out of the failure of some "brand". All too often, what they tell you to do requires you to purchase their services. All too often, this strategy creates financial and emotional benefit for the punditocracy, not for your business, not for your customer. The punditocracy hijack relevant trends, turning them into "solutions" for perceived failures within you brand. If all of these "solutions" are so fantastic "in today's multichannel world", how come businesses aren't rolling in profit? The punditocracy pushes us toward their vision of the future, not toward a vision of what our customer wants from us. Our failure to shut out the punditocracy, our desire to trust organizations not truly doing things in our best interest, to trust somebody with a perceived "solution" over our own gut instinct, is causing us to lose control over our businesses, to lose control over the expense structure of our business, and to provide a homogenized "solution" to our customers. Worst of all, we did this to ourselves. We're ultimately responsible. If we don't buy into what the punditocracy tells us, they don't stay in business.

Ok, you're turn. In what other ways did we ruin multichannel marketing? Or, maybe you want to defend multichannel marketing --- go ahead, express your point of view.

Who Wants A Free Book? Submit Your Article By February 4

If you work for a company that sells merchandise to consumers via a catalog or a website, I have a homework assignment for you.

Between now and February 4, write a brief article about one of the topics listed below. After a review of the submissions, I will post your article on The MineThatData Blog on February 5. You get a little bit of recognition, and at least one of you will be chosen at random to receive a copy of my book, "Hillstrom's Database Marketing". Simply e-mail me your submission by February 4.

Valid topics include the following:

• Any discussion about the future of multichannel retailing.
  
• Creative ways that web analytics tools have been used to improve business performance.
• Interesting ways to leverage online advertising for sales growth.
  
• Any discussion of the pros and cons of using compiled lists (i.e. Abacus) verses rented lists for catalog prospecting purposes.
• Any discussion of the trends in catalog circulation to drive catalog + online sales.

Articles should be between 250 and 1,000 words in length.

Are you up to the challenge? E-mail me (kevinh@minethatdata.com) your submission no later than February 4.

Fully Understanding The Traffic Your Site Truly Generates

Multichannel retailers who developed their business via the catalog channel are about to face serious challenges when it comes to measuring the traffic that visit our websites.

In the next few years, we will need new ways to measure how effective our website is at promoting our brand. Our websites will have far more links on other sites than the simple affiliate program links we have today. RSS feeds and the de-centralization of content (customers viewing your site via readers like Google Reader or Bloglines instead of directly visiting your site) will limit the ability of web analytics tools to accurately measure the strength of our websites. This will be a problem all of us have to face.

Today, we can simulate the problems we will face by looking at the blogosphere. I have more than one hundred and sixty blogs that I track in Google Reader (this means I seldom visit the sites of these one hundred and sixty blogs that I am a loyal reader of --- I am loyal, yet these bloggers seldom if ever see me).

Let's look at almost fifty of my favorite marketing, analytics and topical blogs that have enough traffic to allow me to measure visits properly.. A tool called Blog Juice allows us to see three elements of loyalty to a website.

First, the tool measures how many people subscribe to your RSS feed via Bloglines. While there are numerous readers available, this gives directional evidence of loyalty via an RSS reader, loyalty that can be challenging for the website owner to measure. In reality, your most loyal followers will consume your information via RSS feeds. This also means your most loyal readers are the hardest to track.

Second, the tool uses Alexa to estimate how many folks visit your website by typing in your URL, or by clicking on a link to visit your site. Alexa is a proxy for what a tool like Coremetrics measures for the standard multichannel retailer. Indirectly, Alexa measures the effectiveness of your search engine optimization tactics, as these individuals visit your URL or a specific page on your site.

Third, the tool uses Technorati to measure how many sites link to your website. This is a version of "brand recognition" or "word of mouth", if you will. If people like your content, they link to it. The more popular or relevant your site becomes, in theory, the more links there will be to your site. Multichannel retailers do a very poor job of measuring this aspect of their marketing efforts.

In the case of The MineThatData Blog, I have 45 subscribers via Bloglines. I am the 497,000th most popular website according to Alexa. I also have 196 links according to Technorati. This gives me a Blog Juice score of 2.7, a lower-than-average score for most blogs. This is reasonable, given the niche I serve.

Interestingly, I can run these metrics for all of the sites I track. Next, I can compare each site, to understand which area (RSS Feeds, Visitors, Links) are the main strength of traffic generation for a site. Eventually, multichannel retailers must develop comparable metrics. Let's see what this looks like for almost fifty blogs that I regularly track.

I rank each metric from best to worst. Once done, I can categorize each site based on where the site has strengths.

These sites do an above-average job of getting readers to subscribe to RSS feeds: Duct Tape Marketing, Church of the Customer, Brand Autopsy, Jaffe Juice, Blogwrite For CEO's, Data Mining, Marketing Headhunter, Emergence Marketing, Joe Wikert's Media 2020 Blog, Fallon Planning Blog, Management By Baseball, Business Enterprise Management. One can argue that these sites have very loyal individual readers, because they subscribe to the RSS feeds of these sites at an above-average rate. While all blogs fail to capture the true number of real daily visitors, these blogs miss disproportionately more than the average blog.

These sites do an above-average job of getting readers to physically visit their URL: Hitwise Intelligence, Fast Company Now, Marketing Profs Daily Fix, Occam's Razor, Marketing Shift, Converstations, Bly.com, The Viral Garden, Pro Hip Hop, New School Of Network Marketing, LunaMetrics, Rimm-Kaufman Group, Digital Solid. There are several ways to interpret this statistic. These sites may do an above-average job of driving traffic to their site via natural search --- their search engine optimization tactics might be better than the average blog. These sites may have an older audience that is not comfortable with RSS feeds. Maybe these sites do not offer the full post in their RSS feeds (hint: Fast Company). These sites may have so much content that the reader is compelled to directly visit the site to get information. Most of the analytical sites I follow ended up in this category.

These sties do an above-average job of getting other sites to link to their content: Guy Kawasaki, Gaping Void, The Tom Peters Weblog, HorsePigCow, Coolz0r, Logic + Emotion, Diva Marketing, Experience Curve, Christine Kane, Beyond Madison Avenue, Marketing Nirvana, CK's Blog, My Name Is Kate, Customers Rock!. Some of these sites make a lot of sense --- Mr. Kawasaki is unabashed in his zeal for links to his site. Customers Rock! earned this outcome courtesy of the Z-List. Most of these sites are reasonably popular, and the link is in essence a call-out that occurs as a result of having good "word of mouth".

Finally, these sites use RSS feeds, visitors to the URL, and links equally to drive traffic: Seth's Blog, Creating Passionate Users, Scobleizer, What's Next, Make Marketing History, Blackfriars Marketing, The MineThatData Blog, Sports Marketing 2.0, Note to CMO. These sites, ranging from popular (Seth's Blog) to virtually unknown (my blog), tend to get traffic from all three sources.

BlogJuice ranks each site on a scale from 0.0 to 9.9 (most popular). While certainly not perfect, the site allows the marketer to understand if she is making progress growing her audience across three different popularity metrics.

Bloggers --- if you want for me to run a quick evaluation of your site, please leave a comment below, or send me an e-mail, and I will compare your site against the rest of these sites. Each additional site measured improves the overall ranking and comparison system.

Multichannel retailers --- this is your future. During the next two to five years, you will have to find ways to measure the effectiveness of your website activities in ways that traditional analytics tools are currently incapable of doing. You will have to measure those who consume information via RSS feeds. You will have to measure external links, in order to understand how effective your marketing activities are. You will still have to measure visitors to your site. Use the blogosphere as a test case for the tools you will need to implement in a few years.

Return on Investment Formulas In Multichannel Retailing

Let's talk about some of the equations that individuals use to measure advertising return on investment in the multichannel retailing industry.

Ad to Sales Ratio: This is one of the most frequently used equations. Assume you spent $10,000 on an online marketing campaign, and generated $50,000 net sales. The ad to sales ratio is calculated as ($10,000 / $50,000) = 20%. Obviously, the lower this percentage is, the better your advertising performed. Multichannel retailers compare advertising efforts against each other with this metric.

Sales per Ad Dollar: Some industry publications like to use this metric. In the above example, we simply calculate the inverse of the ad to sales ratio. ($50,000 / $10,000) = 5.00. In this case, you get five dollars of sales for every dollar of advertising spent. The higher the metric, the better your advertising performed. E-Mail pundits like to use this measure, since e-mail has virtually no cost, thereby insuring that it has a good "return on investment".

Cost per Order: Online marketers enjoy using this metric, one that is maybe the least effective metric of all. Assume that the $10,000 spent in our previous examples generated 400 orders. Cost per Order (sometimes labeled "CPA" for cost per acquisition) is ($10,000 / 400) = $25.00. Each advertising strategy is compared, with lower metrics preferred. This metric is highly skewed, because the metric doesn't account for how much was spent, per order.

Profit per Order: A more effective, but less-used metric, is profit per order. Let's assume that, in the example above, twenty-five percent of the sales generated are converted to profit. In this case, ($50,000 * 0.25 - $10,000) = $2,500 of profit is generated. Next, divide the $2,500 profit by 400 orders. This yields $6.25 profit per order. This is one of the better ROI measures, because all aspects of the profit equation, sales, margin, and marketing cost, are included. Better yet, this measure can be stacked-up against long-term value metrics. For instance, if a marketer loses $10.00 profit per order, but expects to get $50.00 lifetime value back, the marketer should invest in the marketing activity.

Internal Rate of Return: This metric is not frequently used, but reflects what happens if marketing dollars are continuously invested over the course of a year. In the Profit per Order equation, we netted $2,500 profit on an investment of $10,000. Let's assume that this marketing effort took place over a twenty-six week period of time. The internal rate of return is calculated as ($12,500 / $10,000) ^ (52 / 26) = (1.25 ^ 2) = 1.56. In other words, on an annual basis, this investment has a fifty-six percent interest rate. The interest rate can be compared against all other marketing activities (many of which have a different time window --- e-mail may have just seven days, for example).

Your turn! What return on investment metrics do you like to use to evaluate marketing activities at your company?