The Failure Of The Catalog/Multichannel Marketing Model

"The internet is the wild west. I keep advertising, only to send my customers out into the wild west. And they never return." Catalog Merchandising Executive, 2007.

When we conduct the post mortem on the failed experiment known as multichannel marketing, we'll look at this quote as being a key piece of the puzzle.

Back in 2001, it was a good idea to be "multichannel". We sent catalogs to customers, like we always have. Our analytics suggested that customers used our catalogs to shop on our e-commerce enabled websites. Woo-hoo!

And then Google took command of e-commerce. Ever since then, we've been leaking customers and prospects.

This manifests itself in the phrase I hear nearly every day ... "catalog customer acquisition performance continues to get worse".

Many smart people correctly point out that catalog marketing "creates demand". In other words, many customers do not intend to buy anything, but will buy something if advertised to. The catalog creates demand for an item. Paid search, in general, does not create demand --- it simply intercepts demand that is looking for a home.

Our industry mistakenly went down the multichannel path, believing that this form of demand creation was good. And in a pre-Google world, it was really good!

Today, demand creation is usurped by demand interception.

Go to Quantcast, and view the profile for Orvis. Notice that customers who interact with Orvis also interact with companies like RiverBum. To my knowledge, RiverBum does not have a catalog or stores.

So here you have the good folks at Orvis, doing the multichannel thing, sending paper out into the catalog ecosystem. They do a good job of creating demand for dry attractors.

But the customer isn't 100% sold on buying dry attractors on the Orvis website. He goes to Google and conducts the following search: Dry Attractors. Lo and behold, look who comes up #1 ... RiverBum!

Orvis creates demand for dry attractors. Google intercepts the demand, and funnels it to RiverBum. The customer places the order at RiverBum. The circulation manager at Orvis looks at the metrics, noticing that response continues to decrease.

Catalog marketing still works ... especially for the folks at RiverBum, folks who are not executing multichannel marketing the way the pundits told Orvis to execute it.

Sure, you can criticize Orvis for failing to capitalize on an obvious search opportunity (they don't appear in the top ten for the term dry attractors and did not appear in paid results either). But that criticism misses the point entirely.

The point is that traditional multichannel marketing, executed via catalogs and stores and websites, is a leaky bucket that can never be fixed in a world dominated by Google. No matter how effective you are at catalog marketing, no matter how hard you work to optimize page counts and stimulate demand via enticing copy and manage trim size and use recycled paper and send remails and remails of remails, you will constantly send customers to Google. And Google will send customers to your competition.

E-mail marketers ... you're in the same boat.

This is the grand failure of the catalog/multichannel marketing model, a failure nobody in our industry wants to talk about. When we get away from over-thinking catalog productivity, when we focus on executing the nuts and bolts of online marketing, we begin to view the world differently. And maybe, we can stabilize the leaky bucket problem we face.

Selling Homes Via Catalogs, In 1908 And 2007

Bass Pro Shops joins Orvis in the sale of log cabins via catalogs, according to DMNews. This is an interesting way to differentiate yourself from all of the other businesses targeting middle and upper-income Americans. The gross margins can't be bad either.

Many of you may not be aware that selling homes via mail order is a concept that is a hundred years old. Sears, which amazingly placed catalogs in one out of every four homes back in 1908, sold homes via catalogs.

The article is worth reading, proving yet again that Multichannel Marketing has been around for a century, proving this is not some new, mysterious concept.

Orvis Rewards --- Is It Rewarding For Orvis?

DMNews reported that Orvis began a new Rewards Visa program for Orvis cardholders. The program offers free standard shipping, as well as a $25 reward for every $500 spent at Orvis (or $2,500 spent on the card at other retailers).

Rewards programs are tricky to manage. From the standpoint of a business, program managers need to give away just enough merchandise to increase customer spend --- yielding more profit than expense. From the standpoint of the customer, the business needs to provide a genuine incentive that sets it apart from the competition.

The numbers at the end of this article are not specific to Orvis. But they clearly illustrate a challenge with Rewards programs. Using simulated sales, margin and expense metrics, the simulated example indicates customers need to spend at least forty percent more in order to cover the costs of a rewards program. Again, the numbers are not specific to Orvis, they are for illustrative purposes only.

Another interesting quandary with rewards programs --- the better the business manages line items in the profit and loss statement, the easier it is to generate profit, and therefore, it is easier to pay for a rewards program. Businesses that mis-manage the profit and loss statement require a greater increase in customer loyalty to pay for the rewards program.

		Current	Rewards
Orders		3.0	4.4
Average Order Size		$167.00	$167.00
Demand		$501.00	$734.80
Net Sales	80.0%	$400.80	$587.84
Gross Margin	50.0%	$200.40	$293.92
Less Marketing Cost		$0.00	$12.50
Less Pick/Pack/Ship	20.7%	$82.94	$121.65
Add Shipping/Handling	$12.95	$38.85	$0.00
Variable Operating Profit		$156.31	$159.77