Whole Foods Merchandise Integration

Here's an interesting article on Whole Foods and social media.

Of course, I'm more interested in multichannel marketing, and there's a tidbit at the end of this article that is worth consideration. From Marla Erwin of Whole Foods:

• "One thing many people don't understand is that Whole Foods is incredibly decentralized --- each store sets its own policies, decides its own product selection, even uses its own recipes in the deli".

Here's what we need to think about.

Silo-busters and multichannel pundits tell us that we have to integrate our websites with our stores, and that we have to integrate our advertising with our websites and stores. You tell us that we have to offer the same merchandise in all stores/channels at the same price, or we will lose customers and create a terrible customer experience for the few customers who continue shopping with us. You demand that we centralize our merchandising strategy.

And then we have Whole Foods, who does the exact opposite of what our industry leaders tell us to do. Whole Foods is, by most accounts, wildly successful. In fact, Whole Foods is not alone. Many retailers customize stores for the markets they serve, offering unique products and services in Dallas, while offering different ones in Portland (Nordstrom did this, for example).

Each store is a micro-channel, representing a unique opportunity to be different, to serve a niche. Our websites and marketing strategy can still support each store without having to adhere to multichannel best practices.

Wow. Nordstrom. Wow.

My heart goes out to the poor souls and former co-workers responsible for trying to dig out of a big hole at Nordstrom.

A little color about a -15.6% comp store sales decline (as outlined on the Nordstrom investor relations page), helping you understand what that really means.

• Nordstrom Rack, the lower-price retail channel at Nordstrom, actually experienced a 0.7% increase.

• Full-Line Stores, the ones we all think of when we consider Nordstrom, experienced a whopping 20.4% comp store sales decrease.

• Over the past few years, Nordstrom Direct, the online arm of the Nordstrom brand, had their sales included in Full-Line Store comps. This is an important distinction, because it is entirely possible that online sales grew vs. last year, meaning that Full-Line Store sales decreased more than 20.4% ... maybe in the -22% or -23% range.

• In October, total net sales were $97,000,000 behind last year, and I'm confident we'll learn next week that gross margins were cut vs. last year to move inventory. This will probably result in $30,000,000 to $35,000,000 of profit just dropping off the table ... in October. Imagine if this continues into November and December?
  

Remember, there's almost no "flex" in a retail business model, you don't just make up the volume or profit. One can see the retail "discount bloodbath" on the horizon, as prices deflate for the holiday season in a desperate lunge for any remaining dollars that customers are willing to spend.

The lack of "flex" in the business model results in a bunch of people running around like their hair is on fire.

This kind of implosion requires a confluence of events to pile on top of each other. You can blame the economy, of course, but if you're going to do that, you have to wonder why The Buckle, Children's Place, and Hot Topic are posting increases --- and you can't make up excuses like "well, their customers are immune to macro-economic conditions", because nobody is immune to this economic crisis. Those brands must be out-merchandising, out-marketing, and/or out-pricing the competition.

In my last year at Nordstrom (ending March 2007), you could literally see the implosion coming by simply analyzing the customer file. Customer acquisition was poor. Retention rates were suffering, especially among marginal customers. In other words, the bottom of the customer file was dropping out --- a sure sign of the coming apocalypse. Even though comps were still marginally positive, the data foretold of a coming storm. I used to maintain a running tally of comp store sales increases on my office greaseboard. Comps always lagged behind changes in the customer file --- the customer file foretold what was going to happen. One could easily see that a four year run of positive comps were about to end.

The middle-aged, highly-affluent customer, considered the "target customer" at Nordstrom, must be in complete free-fall.

Retailing is a habit, especially high-end retailing like the kind practiced by the folks at Neiman Marcus, Nordstrom, and Saks. You retain customers at a very high rate, and you pray that they will buy every other month. When the customer elects to break the habit, it is hard to reverse the momentum. Really hard.

Nordstrom will once again experience good performance. It is likely, however, that the customer has fundamentally (and maybe permanently) changed her habits. These kind of pendulum swings require all of us to change as well, something I'm confident we'll do.

Retailers and catalogers have been through this cycle before.

But I'm so much more interested in seeing how online marketers will cope with a downturn in business, given that online marketers have no experience driving sales to the online channel when the customer is doing everything possible to protect what few dollars are left in her wallet. Long-term, the brands that out-merchandise the competition win. It will be fascinating to see how online merchants elect to attack innovation.

As you can see in the image above, Nordstrom's online marketing team basically removed product from the homepage, selling only the fact you can get a great deal this weekend.

Hang in there, dear readers. We will innovate our way out of this mess.

Nordstrom And Best Buy: Average Comp Store Sales Since 1992

Given that we'll hear about comp store sales on Thursday, it might be instructive to take a look back.

In this case, I averaged annual comp store sales for Nordstrom and Best Buy, from 1992 - 2008 (estimated). Two very different business models, averaged together, yield illustrative trends.

The chart doesn't do a good job of illustrating lousy business back in 1991 - 1992, as Best Buy comps were smokin' during those years.

I recall the sluggish sales that plagued business in 1997 - 1998, starting in the second half of 1997. I was at Eddie Bauer in 1998, my first year as a Circulation Director. I pulled a lot of money out of that circulation plan, week after week after week. That led to major circulation cuts in 1999.

It's easy to see the internet bubble of 1999 - 2000, and the struggles of 2001 - 2002 (our last recession).

The bubble of 2004 - 2006 becomes apparent in the chart. Starting in Q4-2007, business began to suffer, and we'll observe really bad October comps when announced on Thursday.

Since 1991, Best Buy averaged a 7.9% comp store sales increase. That's some major productivity, folks!

Since 1992, Nordstrom averaged a 1.9% comp store sales increase. That's a rate that is below inflation. Take out the bubble years of 2004 - 2006, and the average CAGR is 0.75%.

Ignore all that gloom and doom. This is where we innovate, where our hard work bears fruit in 2010 and 2011. There is absolutely nothing you're going to be able to do to crack open wallets enough to make a substantial difference during the remainder of 2008. Focus on innovation that drives business over the next few years.

Marketing Tactics Cannot Save Nordstrom Comps

Many marketing pundits talk about branding and social media and word of mouth and multichannel marketing and online marketing and catalog marketing as if they were a magical elixir.

Now take a peek at Nordstrom's comp store sales results from September.

• Nordstrom Rack (lower-price channel) = +2.6%.
• Nordstrom Full-Line Store Sales (full-price channel) = -14%.

That's a price-sensitive customer responding to the end of easy money.

Nordstrom does all the things the pundits tell them they should ... they've worked hard to align merch and creative across channels. They have a credit program with a loyalty component. They offer high price channels and lower priced channels. They mail advertising-based catalogs. They have an e-commerce website with reasonable integration with stores. They have a presence on Facebook and MySpace. They offer better customer service than almost anybody. They offer free shipping promotions from time to time, and offer a reasonable $5 flat fee for shipping. They drive hundreds of thousands of visitors from blogs due to buzz-worthy merchandise. They have in-store events that drive traffic. They minimize sales events so that the three sales events they do have drive traffic and profit. They do outbound telemarketing, not CRM/computerized junk, but actual calls from actual store employees. They have an integrated database with data from all channels. They hired a plethora of highly qualified MBAs to drive marketing strategy fused with customer research and database insights. They have an experienced management team that tries to drive volume with honesty and integrity. They have more word-of-mouth marketing than almost anybody could ever hope for. They execute a solid paid-search program. They do portal advertising. They have an affiliate marketing program. They execute versioned e-mail marketing campaigns where customers can choose the e-mail marketing versions they receive. They do magazine advertising. They do radio and newspaper advertising during sales.

But all of those things mean almost nothing, when the customer is faced with challenges. The marketing tactics sure didn't enhance shareholder value, did they? The price of a share of JWN stock dropped by at least sixty percent in the past nineteen months --- wouldn't want to count on that for retirement --- my investment in Nordstrom, encouraged by management during my tenure, is now underwater.

Marketing pundits, here's your opportunity to fight back. Would Nordstrom comp store sales have dropped by 20% or 30% without all the tactics you've told retailers they must execute? Or are the strategies utterly feckless in the face of changing consumer sentiment?

And if the strategies are this impotent when faced with changing consumer sentiment, did they ever have any real worth in the first place?

Discuss!

Neiman Marcus To Reduce Catalog Mailings

Courtesy of the folks at Internet Retailer Magazine, read the article here.

You are seeing a parting of the sea when it comes to multichannel marketing.

Retailers like Saks, Bloomingdales, Nordstrom, and Neiman Marcus de-emphasized or eliminated catalog marketing --- and can do so because the interaction between retail and online channels allows them to generate a high organic percentage.

The traditional cataloger, without the benefit of retail, struggles, because as catalog dies a slow death, there isn't a channel that has achieved critical mass, ready to supplant catalog advertising. We may never find one or two channels to replace catalog marketing. We will need to find one hundred tiny micro-channels that, collectively, replace a dying advertising channel.

Those Wonderful Nordstrom Multichannel Customers

The pundits love to talk-up the merits of a healthy, happy base of multichannel shoppers.

So why don't we dissect some information from today's Nordstrom 2nd Quarter Conference Call.

Think about these metrics for a moment:

• Comp Store sales decreased 6% vs. last year.
• Profit at the low range of expectations and sub-par vs. last year.
  
• Nordstrom Direct had a 15% increase in sales vs. last year.
• Multichannel Customers, those precious customers the pundits tell us we have to have, increased by 7% vs. last year, and now account for 32% of the total sales volume, vs. 28% of the total sales volume last year.

Ok folks, what does this tell you? Multichannel customers up, direct sales up, retail sales down, total sales down, total profit down, stock price down. Hmmmmm.

Nordstrom, by all accounts, achieved the lofty objective that the pundits demand of us. And yet, SALES AND PROFIT DECREASED!!!!

In other words, sales from infrequent and single-channel customers might be in the negative double-digit range, if there were significant increases in the number of and percentage of volume from multichannel customers.

I'm not saying it is wrong to be "mutlichannel". It is right. But I want for you to think about something.

What happens if you dive head-first into this goofy multichannel thing, doing everything possible to make the experience great for multichannel customers, or for your best customers --- but in the process, you alienate a bunch of single channel, infrequent shoppers, driving down comp store sales in the process? And don't give me that pap about the economy being lousy, if it is so lousy, Zappos should be in the tank, right? Or Amazon? Or Costco? Or Wal-Mart? Or Aeropostale? Or Abercrombie & Fitch? Or Urban Outfitters, up 30% this year? I mean, didn't the government throw freshly printed silly money at customers in the 2nd quarter? How could that hurt comp store sales?

We need to talk about serving ALL customers, not best customers, not multichannel customers. This is a great lesson --- treating best customers the best, while the rest fail to pay the freight, resulting in poor results.

Think about your own family. Say you have four children. One child earns grades of "A" in school, while the others earn "C"s. Would you focus all of your energy around the child earning an "A", hoping the C students would aspire to be like the A student, or would you do everything possible to make sure that all four children had the opportunity to succeed, based on the unique gifts each child possess?

This multichannel thing, if not executed properly, has the potential to send us down a rathole. We have an opportunity to please all of our customers. Sure, it is good to focus on customers we believe are best. We also need to focus on every customer. No sale is unimportant!

This isn't a criticism of Nordstrom. This is a direct criticism of all of us --- those of us who listened to the message, and those of us who published research reports or sold software, hardware or consulting services. We all drank the kool-aid without thinking whether it might rot our teeth.

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

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

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

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


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

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

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

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

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

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

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

By all accounts, this was a successful division.

And then management asked a simple question.

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

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

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

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

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


What were some of the questions leadership wanted answered?

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

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


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

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


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

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


Question: Are Nordstrom customers truly "multichannel"?

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


Question: Do customers purchase from all merchandise divisions?

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


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

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


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

Here are some of the tactics that were employed.

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

The Results:

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

Impact On The Database Marketing Department

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

Describe Some Of The Pitfalls:

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

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

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

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

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

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

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

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

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

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

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

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

Nordstrom (JWN) Stock Price

On January 8, 2001, I began my employment stint at Nordstrom as Vice President of Direct Marketing. The stock price was $8.33.

On March 9, 2007, I completed my employment tenure at Nordstrom. The stock price was $50.63.

On July 11, 2007, the stock price is $27.38.

How much of the stock price is due to my brilliant shepherding of the Database Marketing function at Nordstrom?

$0.

This is one of the challenges we face when evaluating talent.

Leaders are caught in updrafts and downturns. How the leader deals with updrafts and downturns manifest itself in the profit and loss statement. And during a time when Nordstrom stock declined by thirty percent (fiscal year ending 2/2008) Nordstrom actually posted a year of record profits.

Nordstrom: Buy Online, Pickup In Stores

Multichannel advocates across the globe raise a glass of champagne, in honor of Nordstrom and their new strategy.

I am waiting for my local dentist to offer a "Buy A Root Canal Online, Pickup In Stores" option. Maybe universal health care will bring dentistry into the multichannel fold.

Retailers Using Social Technology, Community, And RSS

In addition to the Saks Video Catalog, many retailers are using social technology, community, and RSS feeds in interesting ways. Many in our catalog audience are looking for new ways to have a relationship with customers. Let's review a small sample of brands using social technology in one way or another.

Urban Outfitters has an interesting site that features articles, videos, an RSS feed and a MySpace page.

Neiman Marcus communicates fashion via their InSite Blog.

Ice.com's Just Ask Leslie Blog combines customer questions and short features.

eBags uses bookmarks to tag items you are interested in.

Mac Cosmetics, a $274 million division of Estee Lauder, has customers who are literally inventing products for the brand, sharing the ideas on YouTube. Their product development folks should take a peek at this! My wife found the video when searching for ideas on how to store Mac products. Take a peek at YouTube to see how other folks are doing marketing and product demonstrations for you ... heck, this young lady has almost 14,000 views.

Nordstrom has a MySpace page for their BP division.

Paperspine, an online book rental brand, hosts a blog about books.

Zappos is using Twitter to allow folks to communicate about the venerable online shoe brand.

Patagonia hosts The Cleanest Line, a blog for employees, friends, and customers.

Overstock.com offers a diverse array of community-based options.

Crutchfield has a community section on their website.

Burpee Seeds features their RSS feed on the homepage.

Hallmark has an interesting blog for their Shoebox division.

Here's the Shutterfly community.

Use the comments section to share other ways that retailers are using social technology, community and RSS feeds to partner with consumers.

Your Company's Multichannel DNA

Here's what I did. I scanned the 2007 10-K statements of five publicly traded companies:

• Nordstrom (JWN).
• J.C. Penney (JCP).
• Williams Sonoma (WSM).
• J. Crew (JCG).
• Coldwater Creek (CWTR).

Within each document, I scanned terms, like STORES, RETAIL, MULTI-CHANNEL, CATALOG, ONLINE, INTERNET, WEB, MAIL ORDER, CUSTOMER, CONSUMER, E-COMMERCE, E-MAIL, and DATABASE.

After tabulating the results, I was able to rank each of the five brands on the basis of how often these terms were used. The terms reflect how the management team of each company views the world. Let's take a peek at the findings.


Stores / Retail: The results aren't surprising, with Nordstrom and J.C. Penney skewing heaviest to these terms. Clearly, these brands view themselves as retailers, not so much as direct marketers.

• Nordstrom = 68.1%
• J.C. Penney = 67.3%
• J. Crew = 56.4%
• Coldwater Creek = 53.3%
• Williams Sonoma = 51.5%

Catalog: Guess which companies used this term most often? Sure, the ones with a catalog heritage (though JCP shows how they changed over time).

• Williams Sonoma = 14.9%
• Coldwater Creek = 12.5%
• J. Crew = 10.6%
• J.C. Penney = 5.6%.
• Nordstrom = 4.7%.

Internet: This one is a bit murkier to interpret. I'll leave it up to you!

• Williams Sonoma = 11.6%
• J. Crew = 11.5%
• Nordstrom = 9.7%
• J.C. Penney = 8.1%
• Coldwater Creek = 7.8%

E-Mail: Do these companies care about e-mail marketing enough to say something about it? Nope. E-Mail marketers appear to have work to do to prove the viability of this channel to Sr. Management.

• Coldwater Creek = 3.0%.
• J. Crew = 0.9%
• Nordstrom = 0.0%
• J.C. Penney = 0.0%
• Williams Sonoma = 0.0%

Multichannel: We hear the buzzword over and over and over from the vendor community. Do the management of these brands talk about it publicly? Not really.

• Nordstrom = 2.9%
• Coldwater Creek = 1.8%
• Williams Sonoma = 0.4%
• J.C. Penney = 0.3%
• J. Crew = 0.3%

Customer: Often mentioned in context with the direct channel, this illustrates how often these brands talk about serving customers, vs. managing stores. Notice the inverse relationship with retail focus.

• Williams Sonoma = 21.4%
• Coldwater Creek = 20.3%
• J. Crew = 19.8%
• J.C. Penney = 18.8%
• Nordstrom = 14.7%

Database: Does anybody mention metrics from the customer or e-mail database? Nope! A tip of the hat to Coldwater Creek for at least having a bit of database information available.

• Coldwater Creek = 1.3%
• J. Crew = 0.6%
• Nordstrom = 0.0%
• J.C. Penney = 0.0%
• Williams Sonoma = 0.0%

Does Any Of This Mean Anything? Yes!

The management teams of each company speak publicly, in an official manner, once a year. When they speak, they signal to the public what they care about.

Nordstrom and J.C. Penney care about retail, though Nordstrom talks more about being multichannel than anybody else. Clearly, Nordstrom wants to use the direct channel to inspire retail growth, given that they don't talk about their catalog or online channels much.

Williams Sonoma management discussions are skewed toward catalog. Williams Sonoma speaks about the online channel more than anybody else as well. The DNA of this company is all about direct marketing. Even though this company has a veritable plethora of retail locations compared with somebody like Nordstrom, the way this company views the world is fundamentally different.

J. Crew has a direct marketing skew, though the skew is focused online. The web means something more to J. Crew management than to the companies that have a catalog focus.

Coldwater Creek has the most unusual DNA of the companies listed. Management appears to view channels from a marketing standpoint, mentioning catalog marketing, e-mail marketing, and the customer database more often than the rest.


The data qualitatively illustrate that the management teams, and in all likelihood the culture of each company, have a DNA that determines "who they are".

This view of "who they are" may determine how each company approaches the future. Companies with a catalog heritage will believe in catalog marketing as a solution. Companies that view the web as an integral tool will use it to drive future business. Companies that view stores as the core part of the business might use direct marketing to improve comps.

What is the DNA of the company you work for? How does your DNA shape how your company views the future?

Talent

Please click on the image to enlarge it.

Yesterday, we talked about individuals who have "it".

Today, we take a brief look at the subject of talent.

The vast majority of folks who have talent don't have "it". To be successful, talented folks have to navigate at least two interesting dimensions within any company.

First is the style of the folks who "truly run the company". I'm not talking about the CEO or President or that ilk, though those could be the folks who truly run the company. Rather, I'm talking about the individuals who, by experience or talent or ego or ruthless power trips gained control of the organization. You know exactly who these individuals are. Minutes after making your first decision as a leader, somebody asks you if you "ran your idea past Janet", and you say "who's Janet?" You just learned who truly runs your company.

What is important about these individuals is their style. Do they "control" the agenda, or do they delegate "control" to others? For instance, maybe you work for an online retailer that is really run by the information technology department. Regardless what the CEO says, the information technology department really determines what happens, and what doesn't happen. Does this team determine strategy? If they do, then your organization has a "Leadership Controls" style. Does this team do what the business wants them to do? If that is the case, then your organization has a "Leadership Delegates" style. Either way, this team is the unofficial leadership team in your business.

The second dimension focuses on the company culture. Does your culture support "individuals" making independent decisions, or does your culture require "teams" to make decisions?

Combined, there are four different cells that an organization can be classified into.

I previously worked at three large apparel companies. Let's see how they fit into this framework.

From 1990 - 1995, I felt that Lands' End fell into the "Delegates / Independent Actions" quadrant. The leaders generally allowed each area to make decisions that were in the best interest of each area. In fact, much of the consternation between people occurred when divisions did not get along, or needed to work well together. Independent actions were generally preferred. While there were teams, teams generally didn't make big decisions. Overall, the culture supported smart people doing what they felt was best for the portion of the business they were accountable for.

From 1995 - 2000, I felt that Eddie Bauer fell into the "Controls / Teams" quadrant. I can specifically remember our CEO entering my office, telling me that I could no longer publicly share consumer insights, and that going forward, all information would flow through him, allowing him to shape the message that employees heard. There's nothing inherently bad with that --- but it is a form of leadership "control" --- leadership isn't delegating my area of expertise to me. Furthermore, the culture loved "teams". In 1997, Eddie Bauer relieved the Catalog Executive of his duties. His role was replaced by the "Catalog Business Team", a group of individuals who jointly determined where the catalog/online business would head. This team worked ... we had the most profitable year in the direct division's history in 1999. Team cultures can also have a hard time making significant changes, when necessary.

From 2001 - 2007, I felt that the Nordstrom culture was in the "Controls / Independent Actions" quadrant. This is one quirky quadrant. At Nordstrom, there were a group of individuals who were the true leaders, the folks who truly made decisions. These folks generally complemented the strategy suggested by a half-dozen Sr. Leaders. Combined, these fifteen or twenty folks "controlled" what was done. Try something outside of the framework of these twenty individuals, and you would struggle. Conversely, the culture loved independent decision making, advocating a "use your best judgment" approach to decision making. The lowest paid employee in a store had the authority to make decisions that nobody at Eddie Bauer would ever allow somebody to make --- several cross-functional teams would need to collaborate at Eddie Bauer to allow store employees to have wide-ranging decision making authority.

Talent must either fit into the appropriate quadrant, or must be able to successfully change the organization.

At Lands' End, a talented Eddie Bauer person would be criticized for wanting to have too many meetings, for trying to build too much consensus, for never getting anything done.

At Eddie Bauer, a talented Nordstrom person would be criticized for "being a cowboy", for making too many decisions without the proper study and consideration required of a disciplined company.

And at Nordstrom, a talented Lands' End person would be chewed-up and spit-out for not "following the rules" set forth by the true leaders of the company (I watched several former Lands' End employees get bounced based just on this criteria alone). Nordstrom would genuinely appreciate the entrepreneurial spirit exhibited by these folks, but would detest how these folks were not pointed in the direction that leadership was pointed in.

There are many challenges associated with being "talented". For talented employees seeking employment opportunities, quadrant identification is very important. The prospective employee must determine if the quadrant the business falls into is congruent with his/her skills. If the quadrant is different, the employee has to determine whether s/he can fit into another quadrant, or whether the employee can "change" the quadrant.

All too often, the employee tries to make everybody else change to his/her style, without considering what the organization "wants" to do. Maybe the employee was hired to cause change outside of the natural quadrant the brand fits into, in which case, the employee might have to create stressful situations.

It is my opinion that truly talented leaders adapt their style to the quadrant their brand belongs to.

Your thoughts?

The Nordstrom Piano

Reverend Billy might suggest that the decision to discontinue live piano music in select Nordstrom stores is an indicator of the coming "shopocalypse".

For some, this is like McDonalds taking down the Golden Arches, or Nike removing the swoosh from their shoes. The decision erodes the story the consumer tells herself about why she chooses one retailer over another.

I detest it when bloggers indiscriminately rip big companies in the name of generating additional "subscribers" ... I mean, really, how different is that from when big companies make bad decisions in the name of shareholder value? Real people, good people, work at big companies, doing good things. I don't like to see these people harmed.

I also detest it when big companies indiscriminately humble the very consumers they depend upon for their existence, exploit low-wage workers to satisfy shareholders, or slowly deviate from the things that made them special, different.

Do we buy from a retailer because they hire a person to play piano? Do we buy from a retailer because they meet a need at an acceptable price? Do we buy from a retailer because they are nearby and convenient? Do we buy from a retailer because the employees treat you well?

Or do we buy because of the way these factors "interact" with each other?

Most likely, it is the latter. And nobody is smart enough to forecast how one factor interacts with another. We just wait and see.

New Book: Hillstrom's Multichannel Forensics

Well, the cat is out of the bag!

This morning, I received an e-mail from Amazon.

The e-mail said because I previously purchased a book from a different database marketing author, I might be interested in a book being released on September 30, called "Hillstrom's Multichannel Forensics".

I am interested in the book. I AM THE AUTHOR OF THE BOOK!!!!

I'm guessing I'm not the only person Amazon sent this e-mail to. So it is time to share with you what this new book is all about.

The text is the culmination of twelve years of research into how customers behave in a multichannel environment. Twelve years ago, e-commerce began to impact, then influence, then usurp catalog marketing. Peers at competing retailers and catalogers shared their frustration with me about understanding customer behavior in a multichannel environment.

Vendors and Research Organizations shared multichannel customer facts and figures that were impressive. They seldom told us meaningful information that helped us understand our customers. And if they had meaningful information, you can be sure the information would be highly monetized!

I felt compelled to create a methodology, a framework, for understanding and explaining multichannel customer behavior (in a b2b or a b2c environment).

I strongly believed the methodology should do two different things.

First, the methodology had to explain how customers interacted with advertising, products, brands and channels ... in a way that a CEO or Executive Vice President could understand.

Second, the methodology had to illustrate how sales within products, brands or channels will evolve over the next five years. This allows the CEO or EVP to make decisions today that limit future business challenges.

The combination of these factors became "Multichannel Forensics".

The perfect laboratory for testing this methodology came during my tenure at Nordstrom. In 2005, we eliminated our catalog marketing program. I used this framework, this methodology, to illustrate what would happen to online and retail net sales growth if catalogs were no longer there to support those channels.

The methodology worked!

Since beginning my own consulting practice in March, I've completed multichannel forensics projects for thirteen brands/titles. I'm continually pleased with the way CEOs and EVPs react to the methodology. I'm proud of the way the methodology forecasts what is likely to happen in the future. I love giving business leaders tools they can use to quell challenges from the Board of Directors, or Ownership Team.

There are three ways you can learn about multichannel forensics.

• You can read this blog. I will continue to give examples of how the methodology can be used in real-life settings.

• You can read the white paper, which goes into some level of detail on the topic.

• You can buy the book, and learn the nuts and bolts of the methodology. I want for you to be able to do these projects yourself!
  

• Of course, you can hire me to do a project for you.

I spend considerable time in the book outlining three-channel situations (i.e. catalog/online/retail or telemarketing/catalog/online, as examples). Two-channel and three-channel situations are very common, hence the focus on these topics.

I do not go into the complex simulation algorithms that I use to understand the interaction between, say, ten merchandise divisions and three channels. The concepts in the book are illustrated at a level that allows the reader to build the simulations, if desired.

How might you benefit from this book?

• CEOs and EVPs will learn the current trajectory of the business they manage, and will learn how they might mitigate negative trends.
  

• E-Mail Marketers will learn how their oft-criticized discipline builds long-term sales growth.

• Catalog Marketers will precisely learn the value of catalog marketing in a multichannel environment, in a way that matchback analyses cannot possibly explain.

• Online Marketers will finally be able to show retail leadership how online customers become retail customers, demonstrating how comp store sales growth is influenced by the online channel.

• Web Analytics practitioners and Business Intelligence analysts will be able to see how customer behavior can be analyzed longitudinally (over time), providing value that goes well beyond individual session metrics.

• Multichannel Vendors will be able to identify ways they can provide additional value to the clients they support, value that is targeted at the CEO/EVP level.

Amazon is allowing pre-orders of the book in anticipation of a September 30 release date. In the next two weeks, the book will be available on my publisher's website ... www.forbetterbooks.com. Obviously, Amazon is not part of the purchase process if you purchase the book from my publisher's website, Amazon's profit is reallocated among those who invested time, energy and money in creation of the book.

I invite you to learn more about Multichannel Forensics. Do so at no cost by downloading the white paper, or purchase the book! My thanks go to Don Libey for shepherding this book and my first book (Hillstrom's Database Marketing), for giving the little guy a chance!

Free Shipping

Every once in awhile, marketing experts point out the problems with shipping and handling costs. Granted, it might not be fair to charge $8.00 shipping on a $2.00 item. Now, let's review some facts.

Fact: It costs money to ship merchandise to a customer. Think about the last time you sent Christmas gifts to your family in Florida, or Oregon. Did you get to do that for free, or did the USPS, UPS or FedEx demand to cover their costs and earn a profit to ship your gifts to your family?

Fact: Many companies profit from shipping and handling. Obscene profit from shipping and handling probably is wrong, we can all agree on that. Let me ask you a question ... is it wrong for Apple to markup the iPhone at levels far greater than competitors markup their phones? Brand experts seem to love the fact that Apple really hammers the customer because they have 'brand equity'. Every company picks and chooses how it prices items. Some companies make their money on gross margin, others on shipping and handling, others on volume. The customer ultimately decides 'what is right', she votes with her pocketbook.

Fact: Customer loyalty is fickle. Really, really fickle. Pundits and bloggers proudly proclaim how they will change their own behavior and no longer support these awful companies that charge for shipping and handling. Customers sometimes act differently.

• In 1999 at Eddie Bauer, we tacked on a $3.00 'handling' fee, on top of wildly expensive shipping fees. Customers never flinched. A few complained. Annual online/catalog retention rates did not change. Customers did not change their behavior.
  

• In 2005 at Nordstrom, we reduced shipping and handling from an average of $10 to $17 per order, down to a flat fee of $5.00 per order. That seems reasonable, doesn't it? Go ask somebody at Nordstrom if annual online/catalog retention rates increased, stayed the same, or decreased.
  

Fact: Zappos has free shipping, but Zappos prices items at a more expensive level than competitors. We love to tell the story that Zappos has free shipping. Yet, the items they sell cost about $3.00 more than at comparable online retailers. Buy five pair of shoes, and you're paying $15.00 more than you are at Macy's. We can probably all agree that a $3.00 fee per item is a fair cost to ship an item, but it isn't truly "free shipping", is it?

Free shipping is a shell game. A brand that truly leverages free shipping is hoping that the increased brand loyalty offsets the loss in shipping/handling revenue. As customers, we get to vote for our favorite scheme with our pocketbooks.

Incremental Online Sales: Nordstrom

Click on the image to enlarge it.

Earlier, we reviewed financial results at Williams Sonoma. The data clearly indicated how important catalog is to the growth of the direct channel.

Nordstrom is a highly profitable multichannel retailer, one that took a very different approach to catalog.

In 2005, the brand decided to eliminate $36,000,000 of ad-spend on a targeted direct-to-consumer catalog business that featured merchandise for a niche of women's apparel consumers. (FYI, data in the table above are freely available via Nordstrom 10-K annual reports).

Had this happened at a company like Williams Sonoma, where catalog items ARE the brand, a catastrophe would have occurred.

But at Nordstrom, where the catalog items were a subset of all items offered in stores and on the website, something different happened.

The catalog strategy was discontinued on June 30, 2005. Notice that catalog + internet sales in 2005 only grew by one percent. Yet, in 2006, even though half the year was comped against a prior year that had a significant catalog investment, catalog + internet sales grew dramatically. Nordstrom Direct management figured out how to leverage the marketing tools and merchandise assortment available to them to grow the business, in spite of the dramatic loss of catalog advertising.

Furthermore, we are all aware that Nordstrom retail comps were spectacular during this time period, opposite of what industry experts might suggest would happen if $36,000,000 of catalog advertising were removed from the multichannel ecosystem.

This leads me to my point. At Williams Sonoma, catalogs ARE the store, the website, the brand. Catalog marketing is critical to the success of this multi-brand organization.

At Nordstrom, however, traditional catalog marketing was discontinued. After a brief blip, business came roaring back.

This is why I advocate that catalog marketers have an "open mind". You may desperately need catalog advertising to grow your online business. Or, like Nordstrom, you may not need catalog advertising to grow your online business, you may be able to cross the digital divide, and utilize online and multichannel retail marketing to fuel your online business.

Listening to pundits leads you to the conclusion that you have no choice but to maximize your catalog advertising efforts. Instead, listen to your own business instinct, and the needs of your customer base, and chart a course of your own. Industry experts are only experts to the extent that they have seen various business models succeed. The Nordstrom example runs counter to what most industry experts are used to seeing.

Multichannel Customers

This week's news that J. Crew multichannel customers spend twice as much as single channel customers, coupled with the fact that 49% of their customers are "multichannel" (source = Associated Press via Paul Stuit's weekly newsletter) suggests that a "brand" better have a sound multichannel platform to succeed.

Here's a question for those of you who advocate multichannel strategies, products or services.

Based on your analytical studies (and if you're a multichannel retailer that is worth your salt, a reputable research organization, or a multichannel vendor, you've already studied these factors before talking about the importance of being "multichannel" in a public forum, right?), where does being a "multichannel customer" fall on the value chain, compared with the following statements?

• Customers who visit your website multiple times a month are worth "x" times more than customers who visit your website one time a month.
• Customers who purchase from multiple stores are worth "x" times more than customers who purchase from just one store.
• Customers who purchase from multiple merchandise categories are worth "x" times more than customers who purchase from just one merchandise category.
• Customers who purchase in multiple months are worth "x" times more than customers who purchase during only one month.
• Customers who have multiple items in their order are worth "x" times more than customers who have just one item in their order.
• Customers who order multiple times a year are worth "x" times more than customers who order just one time per year.
  
• Customers who ship merchandise to more than one address are worth "x" times more than customers who ship merchandise to just one address.
• Customers who use multiple payment methods are worth "x" times more than customers who use just one payment method.
• Customers who purchase from multiple store employees are worth "x" times more than customers who purchase from only one store employee.
• Customers who purchase full price and promotional items are worth "x" times more than customers who only purchase full price or promotional items.
• Customers who use multiple search engines are worth "x" times more than customers who only use one search engine.
• Customers who click on multiple links off of your homepage are worth "x" times more than customers who only view the homepage.
• Customers who respond to e-mail marketing, catalog marketing, portal marketing and search marketing are worth "x" times more than customers who only respond to one style of marketing.
• Customers who shop your outlet stores and full-price stores are worth "x" times more than customers who only shop one price channel.
  

In other words, rank order these statements in terms of true incremental value to your business. Is being "multichannel" important, or is it the only metric you actively measure?

We studied statements like these at Nordstrom ... "multichannel" customers were not the most valuable among all the customer types listed above.

You think about your business differently, once you assign value to each aspect of customer profitability.

Your turn --- how important is being "multichannel", compared with the other statements listed in this post?

27C

Database Marketing thoughts from eight flights in eight days:

In an amazing display of "co-branding", I observed a program on the United Television Network with a feature from NBC/Universal showing Larry King of CNN interviewing Kathy Griffin of Bravo.

If you had ninety seconds to convey a concise and helpful message for new Eddie Bauer CEO Neil Filske on how to turn around the beleaguered brand, what would your message be? By the way, check out the analysis of CEO compensation at Eddie Bauer verses Nordstrom mentioned in this article.

Speaking of marketing, I'm coming around to the thought that the iPod was invented to project us from the world of marketing, blocking out the audible half of marketing.

Good things happen to good people! Avinash hits the jackpot, getting his web analytics book mentioned on Seth's Blog.

My lost luggage was deemed a "baggage irregularity".

You can't hit an FM scan button these days without running into "Jack FM", "Bob FM" or "Mike FM". I'll tune in when I hear "Avinash FM".

I actually heard a pilot come over the audio system and offer a "co-branded opportunity presented by trusted business partners USAir and Bank of America". Yes, the pilot used the phrase "co-branded opportunity".

Four flight attendants did a spectacular job of helping a woman who was having a panic attack, fearful that the plane was about to crash while in heavy turbulence.

Quick quiz: If you aren't in the Database Marketing or analytics community, tell me what the following acronyms stand for, and how they relate to your job?

• BI
• KPI
• LTV
• BPM
• CPM
• CPC
• AOV
• DMPC
  

Are Relationships Changing?

My first two jobs were at intensely competitive companies.

At the Garst Seed Company, we were fourth in market share, losing money, fighting for our existence. We were fighting against the big boys at Pioneer.

We were downright competitive at Lands' End, too. Stuck in the middle of the country, with L.L. Bean to the east and Eddie Bauer to the west, we wanted to win in the early 1990s.

Two of my favorite experiences were part of cross-functional teams. Getting Eddie Bauer Direct to go from break-even to an at-the-time record $26,000,000 EBIT was fun, and it was especially neat to see merchants, brand marketers, finance, information technology, online marketing, contact center operations, creative and circulation all work together to make it happen. We openly talked about and shared ideas. And for a brief period of time, we were a well-functioning team.

The other really enjoyable experience was in 2003-2004, when Jim Bromley unified a similar team, a team that turned Nordstrom Direct from an epic failure to a money-printing machine.

Since then, the internet and blogosphere seem to have changed things.

Our allegiance to cross-functional teams within a company is being transformed by cross-company teams within an industry.

I see this happening every day. I follow an e-mail discussion group that talks about various topics within the e-mail industry. There are blogs for just about every possible discipline. Fans of any discipline can readily exchange ideas and thoughts with each other, across industries, within industries. You'll see folks from one competitor share ideas with folks from another competitor.

The changing face of relationships was illustrated to me earlier today. In the e-mail forum I follow, an individual asked if anybody leveraged partnerships with the web analytics folks to complement the metrics used to analyze e-mail campaigns.

This question was almost unfathomable to me. Fifteen years ago, you would simply walk down the hall and ask somebody to help you.

Today, you float your idea into the ether, to see if others in your field are already implementing your suggestion.

I'm not sure whether this is good or bad. In the old days, you'd develop your ideas internally. Some companies would win, some would lose. You learned things when you left your company, and went to work somewhere else.

Today, the ideas are homogenized. How many clever e-mail, web analytics, marketing, creative or merchandising ideas can there be if they can all be readily shared in nano-seconds on a blog or message board?

Ok, your turn. Do you notice that relationships are changing? Is this good or bad for an individual person's career? Is this good or bad for the profession we work in? Is this good or bad for the companies we work for?

Being Humbled

Early in my tenure at Nordstrom, I was asked to fix the way we forecast how well a potential new store would perform.

My team spent about four months developing a new process, and sure enough, the new process was a lot more accurate than the old process.

We were happy with our performance.

But somewhere along the way, I failed to communicate to our executive team that we developed a new process that was working better. I said the words to our management team. I shared the powerpoint slides. But due to my failure to communicate, or for reasons not shared with me, management did not feel like my team and I did a good job.

What do you do when you work at a big company, and you need a problem solved? You open up the wallet, and call in the big guns at a management consulting firm.

In came an army of consultants, well meaning individuals tasked by management to solve a problem that I apparently failed to solve.

If you are an analytical professional, especially in a leadership position, there are few ways to be humbled more than being at the mercy of the folks from a management consulting firm.

First, you have to sit through a couple of days of "fact finding". The consultants are given one of your prized conference rooms for eight weeks, ensuring that you are always a few feet away from serving their needs. They ask a lot of questions. "Have you ever thought about using your online buyer data as a proxy for new store performance?", or "Can I see the exact methodology you use today, including all relevant spreadsheets, and can I have that information delivered to me with the actual raw data in fifteen minutes, thanks?!"

This makes you feel defensive. Of course you've thought of everything the consultants are talking about, in fact, you already implemented those ideas, and improved the process!! The management consultants have a job to do, however. They take detailed notes on their laptops, and move on to the next set of question.

Over the next week, the consultants begin asking your executive partners for their ideas. You're not allowed to be in those meetings, but you know they are asking your co-workers about your strengths and weaknesses as well as asking them business questions they should be asked. This will lead to trouble in eight weeks, when the project is over.

For the next two weeks, you start a new job. Your job is to give the consultants whatever they want, whatever data they need, shaped however they need it. And they have a lot of needs!! You lose grip over your day job. Your team is strung out, they want to know why they are being stepped on.

Next thing you know, you have about a month of peace.

Then the project is about to wrap up. There is a presentation. Your management team, the management consulting team, and a select few members of your humble group of underpaid analysts are gathered to hear the findings.

The findings are not significantly different than the work your team did. You are surprised that a company could spend this much money to get a product that is barely any different than what your team previously created.

When the management consultants finished their work, management told me they were thrilled with the outcome of the project, and communicated their excitement over seeing my team implement the solution created by the management consultants.

Yet the outcome was not significantly different than the work my team did. Obviously, something was wrong with my perception of the situation, or management wouldn't be happy with the work that the management consultants did.

Within days, the management consultants left. My team had to implement their solution.


One of the biggest challenges facing individuals with a skew toward numbers and analysis is communication. Communication problems magnify themselves as you ascend the corporate ladder. Analytical individuals use a style of language that is not easily understood by leadership. We often attack this problem by hoping that management will adapt to us. We talk slower, using the same language that failed to work properly in the first place.

Take time to learn the hidden language of your management team. Ask direct questions about your performance, and listen closely to the choice of words used by management. Realize that management decisions aren't always made on the basis of facts and figures. Realize that management does not see facts the same way you see them. Realize that management may be under pressure from their Board of Directors, causing them to make decisions that appear mysterious in nature.

Most important, invest a lot of time in the adaptation of your communication style. Your job may depend on your ability to adapt.

How Much Do I Spend On Online/Catalog Advertising?

Lands' End was a fun place to work in the early 1990s. There were a lot of interesting minds, tossing around interesting ideas.

One of our debates was about the optimal level of advertising spend. One camp, led by our Circulation Director, believed that you circulate to an incremental 7% pre-tax level (prior to subtracting fixed costs). The theory was that the return on investment had to be sufficient to cover fixed costs ... that if you actually subtracted fixed costs from the equation, you were circulating to about break-even.

Another camp believed that you circulated to -5% pre-tax levels, because this way, you were capturing long-term profit that you were losing in the short term. At the end of five or ten years, your business was much bigger, because you acquired/reactivated a lot more customers than in the situation where you maximized short-term profit.

At Eddie Bauer, we circulated to break-even (prior to subtracting fixed costs), then shifted our strategy to invest to below break-even, in order to maximize the long term health of the business.

At Nordstrom, we tried our hardest to convince folks to invest in online marketing activities that maximized the long term health of the total business. We probably under-invested in the online channel, though we had the data to tell us what the 'right' thing was to do. The process of assigning a marketing budget did not provide us the flexibility to maximize the online channel (and ultimately, to grow store sales). This is a good lesson --- it doesn't matter what data you have, there are internal processes and existing cultures that simply cannot be changed.

In the past, we didn't have the right tools to understand the long-term impact of short-term advertising decisions. With Multichannel Forensics readily available these days, we can simulate different strategies, and identify the best long-term strategy.

I crafted an online/catalog business simulation, and ran three scenarios.

• Scenario #1 = Maximize profit each year.
• Scenario #2 = Maximize total profit over the course of five years.
• Scenario #3 = Maximize profit five years from now --- make that year as profitable as possible.

The table below show the results of the three simulations. All numbers are listed in millions:

Maximize Short-Term Profit
	Demand	Ad Spend	Profit
Year 1	$44.6	$5.6	$2.1
Year 2	$42.0	$5.2	$1.7
Year 3	$40.9	$5.1	$1.4
Year 4	$40.4	$5.0	$1.2
Year 5	$40.1	$4.8	$1.1
Totals	$208.0	$25.8	$7.4
Maximize Long-Term Profit
	Demand	Ad Spend	Profit
Year 1	$59.2	$9.9	$1.5
Year 2	$66.6	$11.0	$2.0
Year 3	$70.6	$11.6	$2.3
Year 4	$72.8	$12.0	$2.4
Year 5	$74.0	$12.2	$2.4
Totals	$343.2	$56.7	$10.6
Maximize Only 5th Year Profit
	Demand	Ad Spend	Profit
Year 1	$66.4	$12.5	$0.6
Year 2	$80.3	$14.9	$1.6
Year 3	$88.6	$16.3	$2.2
Year 4	$93.4	$17.1	$2.5
Year 5	$96.3	$17.6	$2.6
Totals	$425.0	$78.4	$9.5

Let's review each simulation.

In the first run, profit is maximized by year. Therefore, profit in the first year is $2.1 million. However, a much smaller business exists going into year two, with too few customers to generate large volumes of profit. Still, the management team tries to maximize profit in year two, then year three, year four, and year five. As a result, this business actually contracts. If we followed the rules of Wall St. (maximize short term profit), we may not protect the long term health of our business.

In the second case, online/catalog advertising spend is more than twice as much as in the first simulation. This means the business is more profitable in the long-term, and grows at a much faster rate.

In the third case, online/catalog advertising is fifty percent more than in the second case. This yields a marginally profitable business in year one, but in year five, the business is much larger, and more profitable.

For every online/catalog business, these scenarios can be easily created. The multichannel analyst provides management with three or more scenarios (as outlined above), and lets management determine the future trajectory of the business.

This is an important point --- abstract and geeky topics like lifetime value have little or no meaning to executives. Picking from one of three possible strategies is easy to do if you're an executive, and accomplishes the exact same thing as a geeky, technical lifetime value analysis.

Multichannel CEOs and CMOs: Simulations indicate that it is important to invest in unprofitable customer activities in the short term, in order to protect the long term health of your business. It is important not to focus on "this year". Where possible, invest in the short term, to protect the long term health of your business.