Old-School Cataloging: Optimization Of Pages And Circulation Depth

Old school catalogers spend considerable time optimizing circulation depth and pages per catalog (please click on the image for more information).

There is a formula that you can use to make high-level estimates of sales performance at different circulation depths and page counts. We've talked about this previously, but it is worth mentioning again.

Demand Prediction = ((Proposed Pages / Last Year Pages)^0.5) * ((Proposed Circulation Depth / Last Year Circulation Depth)^0.5) * (Last Year Demand).

Many catalogers play with the (0.5) factor, testing different combinations and then fitting the appropriate factor.

Using this formula (and the factors that are right for your business --- a free software tool called CurveExpert can help you find the right factor to use), you can create a table like the one at the start of this post. The table clearly shows that the "optimal" circulation depth and page count for this catalog is at any one of the following combinations:

• 80 pages to 500,000 customers.
• 96 pages to 500,000 customers.
• 112 pages to 400,000 customers.
• 128 pages to 300,000 customers.

When you look at the four optimal combinations, what do you observe?

Yup, smaller page counts allow one to contact many, many more customers. This is why you see so many companies with small prospecting catalogs.

The equations were created at Eddie Bauer, way back in 1998. We used the equations to optimize page counts for each merchandise division, then rolled-up the pages, and optimized circulation depth. It was like sweeping up money, tremendous fun for a math geek, lots of profit for the company.

By the way, e-mail folks ... you can run a similar exercise. But the metrics change.

• Circulation Depth still matters. If you have an e-mail list of 100,000 customers, you'll generate less demand mailing only the top 20,000 customers.

• Pages are replaced by contacts. Instead of 64/80/96 pages, you have 1/2/3 contacts per week.

• Using this framework, you can quantify demand by circulation depth and number of contacts.
  

The Business Model

Here's the kind of question a catalog CEO is likely to ask me via e-mail in 2009:

• "Hi Kevin, I'm the CEO of 'BRAND-X' and am a big fan of the blog, keep up the good work! I have a few questions for you. We've always believed that our catalog is our business. We generate 75% of our online business because a catalog was mailed to a customer in the three weeks prior to an online order. We believe that we've maxed-out our paid search opportunity. We don't believe that display ads are the answer. In fact, we're not convinced online marketing is the answer, the genre doesn't scale, and the customers we acquire online are worth just half of what offline customers are worth. We e-mail our customer file six times a month, and yield a paltry $0.14 per e-mail --- great ROI, but no opportunity to drive real sales growth ... and if we do a highly targeted and trigger-based program we get, what, $0.22 per e-mail? It doesn't scale. We think social media is nothing more than hype --- we have a Twitter presence and Facebook presence and MySpace presence and we have a Blog, all of which generate maybe $2,000 of sales a year ... lots of buzz and word of mouth and employees spending time Twittering when they could be generating business for me ... it simply isn't scalable today. We have a mobile website that is lucky to garner 1,500 visitors a month at a 3% conversion rate. Kevin, we see the writing on the wall ... the productivity of our catalog customer acquisition activities via list rental and co-op participation are down 40% from where they were back in 2004. So if none of the other stuff "works", if you will, and we cannot drive new customer acquisition with catalogs, how do you propose we map out a route to the future? Even more important, how do we create demand if the primary vehicle for creating demand is being marginalized? I mean, you say you killed a catalog program at Nordstrom and grew sales, but Nordstrom can get away with that because they have a retail presence ... we don't, so their strategy just won't work for us. Thanks, and I look forward to reviewing your comments."

Notice that this is a leading question, logical, but leading. The individual asking the question is leading the reader to a pre-destined conclusion --- that nothing new is going to work so therefore the answer lies in improving how traditional catalog marketing is executed --- we just have to work harder, right? Now give me the five easy steps for making that happen!

If you continue to have a discussion with this individual, you'll spend time talking about how to maximize page counts, how to rearrange in-home dates, how to get Abacus to produce a better model for free, how to front-load the catalog with "winners", how to get the circulation director to target only the best customers, how to co-mail catalogs with indirect competitors, a discussion about whether to have $12.95 shipping or $14.95 shipping, how to get better printing efficiencies that result in cost savings, how to spend less with merge/purge vendors, how to continue to achieve improvements in paper cost, a discussion about dots on the cover of the catalog calling out new products ... in other words, you'll have a discussion about tactics, not a strategic discussion about the business model.

The real question is about "the business model". What is the business model that replaces the business model I've managed for the past twenty or thirty years?

Business leaders are disappointed when I tell them that the answer to their question is " ... there is no business model that replaces the business model you've worked in for the past twenty or thirty years." If you disagree with that answer, give Clay Shirky's essay about the newspaper industry a read.

Seriously, if a replacement business model existed, wouldn't everybody be doing it right now? Wouldn't it be so obvious that the transition to the future would be easy and self-evident?

Now to be fair, there are companies that use a direct-to-consumer business model that is very different than cataloging, and they are growing sales. You're already familiar with the stars ... Amazon and Zappos, for instance. The fact that Zappos will sell more shoes online in five years than Nordstrom sells across all channels should make any business leader sit up and take notice.

Those businesses, however, had the luxury of building a path to the future from scratch. Your catalog business is different --- for you, it is like a NASCAR team executing a pit stop for four tires and fuel and a spring adjustment while still racing around the track at 190mph.

The danger for a NASCAR team is that if a pit stop happens under green flag conditions, the team will likely lose a lap to the competition, and will not be able to gain the lap back.

The danger for the catalog brand is that if a serious effort at re-inventing the business happens, the business may see a 50% sales decline, and may not be able to gain the business back once the new business model is in place (should Multichannel Forensics work suggest this is the outcome).

The real question, then, is the sustainability of the business model. At what point does catalog customer acquisition become so bad that we are forced to experiment, forced to try two-hundred micro-channels hoping that seven will lead us to the future? At what point do we decide to find three online customers with a lifetime value of $10 each instead of one catalog customer with a lifetime value of $30? At what point is it worth investing the time and money to figure out how to create demand online?

2003 - 2007 was the time, because we had the luxury to test back then, given the comparatively healthy nature of the economy.

2009 - 2010 is a good time, too, simply because of the economics of our current environment.

I wouldn't wait much longer.

Your thoughts? Do you empathize with the CEO mentioned eariler? What do you think is the path to the future? Or is catalog marketing simply in a slump that will go away when the economy improves and customers again trust catalogs in mailboxes from companies they've never purchased from?

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

Free Tip: Customer Habits

It probably won't surprise you to learn that you interact with posts that have the word "free" in the title at least three times as much as you interact with ordinary posts, ordinary posts that also offer free information.

We are conditioned to respond to certain words, perceiving that some words are more valuable than others.

Our customers are conditioned to certain behaviors as well. Once the customer gets in a habit, the customer tends to maintain the habit.

Let's look at two examples of customer habits.


Catalog vs. Internet Buyers

I am most often asked by catalog marketers how they can minimize catalog expense while maintaining sales. One way is to simply look at customer habits.

Step 1: Retrieve the channel of the last four purchases placed by your customers. Categorize each purchase by channel.

Step 2: Measure the percentage of customers who purchased via the internet or catalog channel in their most recent purchase as a function of the channel used in the past three purchases. You are likely to see several patterns:

• Customers who placed their last three purchases via the phone/mail channel probably have a 90% chance of placing their next order via the phone/mail channel. Guess what? These customers need catalogs. This works for both you and your customer. You love mailing catalogs, it is a habit of yours. Your customers love buying from catalogs, it is their habit.
  

• Customers who placed their last three purchases via the online channel probably have a 90% chance of placing their next order via the online channel. Guess what? These customers probably don't need as many catalogs (if any). Free Tip: Aggressively test contact frequency within this audience. Save yourself considerable expense and increase profit. Sound good?!
  

• All other customers are in a state of transition. Pay attention to the customers who placed their past two orders within the same channel. These customers are about to form a habit.

E-Mail Responders vs. Internet Visitors

If we believe that e-mail marketing is relevant, then we should participate in the identification of customers who visit our websites because of e-mail marketing.

Take the concepts outlined for catalog and online buyers, and apply them to those who visit your website. If the past three visits happened because of e-mail marketing, you have an engaged customers who is in the habit of using e-mail marketing to interact with your website. Imagine the potential that exists in this relationship.

If your e-mail marketing falls upon deaf ears, then you have a customer that gave you an e-mail address for unspecified reasons, but is not in the habit of visiting your website due to e-mail marketing.

When this happens, what is our response? We try to FORCE A HABIT upon this customer, don't we? We demand that the customer respond to our own marketing habits, we go to great lengths to change the habits of the customer. Will you change your habits in exchange for free shipping on orders over $175? No? Ok, will you change your habits in exchange for free shipping on all orders? No? Ok, will you change your habits in exchange for free shipping on items that have been discounted by twenty percent? And on and on we go.

And then we get frustrated with the fact that our customer base will only respond to discounts and promotions in the subject line of an e-mail.


The Secret Sauce, Your Free Tip:

We marketers experience success when we work within the naturally occurring habits our customers already exhibit. All too often, we seek to change habits, and impose behavior upon customers. Segment your customer base by customers who exhibit consistent habits, and market to the strengths of your customer base.

My Keynote Address At The Catalog Conference

If I were invited to give the keynote address at the Catalog Conference, now called the ACCM, you would hear a presentation that sounded something like this:

Good morning, everybody! Thank you for inviting me to share my views on the multichannel marketing industry with you.

Let's start the discussion with a show of hands. How many of you enjoyed receiving the old Sears catalog, or J.C. Penney catalog, back in the 1970s and 1980s?

Me too. My Mom shared the J.C. Penney catalog with my siblings. I'd thumb through the catalog, looking for a computerized chess game. Somewhere around page 594, I'd find the game. I'd ask my parents to give this game to me as a Christmas gift.

Even though we had a J.C. Penney store in my home town, the catalog represented "the store" to me. I felt lucky to receive a catalog, as if I were part of a secret club of people that got access to unique merchandise, delivered to my home within four to six weeks. I mean, where else was I going to find a computerized chess game in 1980?

My love for computerized games continued into the 1990s. I purchased a computerized backgammon game from J&R Music World in 1993. Of course, the world changed over the twelve years that passed. The J&R Music World catalog was a lot smaller, with a "targeted" merchandise assortment. This targeted catalog merchandise strategy drove the "big book" strategy of Sears and Montgomery Wards into history.

What would you do today if you wanted to purchase a computerized chess game? Google? The world is changing, isn't it?

1993 might have represented the final "Golden Age" of catalog marketing. Computers allowed professionals to practice database marketing, a craft where customers were matched-up with targeted merchandise offerings, greatly increasing the productivity of each page circulated. Catalog marketers enjoyed a near monopoly over the customer mailbox.

We decided how many catalogs the customer would receive. We rented names from other catalog brands, we exchanged names with our closest competitors. Would Zappos give away their most precious asset, their customer file, to competing online shoe brands in exchange for access to the names and addresses of customers shopping from the competition?

We practiced this strategy, in fact, we built our industry on the basis of this strategy. This whole thing called "the catalog conference" was a convenient excuse for all of us to get together to talk about our practices in renting and exchanging outside lists. We'd have sixteen of us representing two companies and four vendors in a cramped hotel room, sitting on beds and folding chairs, talking about exchange balances. And at the end of the day, Direct Tech hosted a killer party. All of that on the shoulders of the profit generated by the customers we shared with each other.

We controlled everything, the customer had almost no control. If we wanted to get a Lands' End catalog in the hands of a customer, we figured out how to do that. And as long as one or two percent of the customers cared enough to purchase from this intrusion, we could continue practicing our craft.

We didn't realize it, but we enjoyed a unique moment in time. Collectively, we identified a universe of maybe 20,000,000 households who were willing to shop via distance. The big companies did the hard work, the smaller catalog startups leveraged all that hard work to grow themselves while adding incremental names to the pool. Ultimately, we all shared the same 20,000,000 households. We thought we were independent brands competing against each other. Instead, we were a loose federation of collaborators, working together for the benefit of all of us.

Today, Google manages the households that matter.

While many prior generations made catalog marketing possible, it was the Baby Boomer generation who injected steroids into the concept. Baby Boomers managed the businesses, Baby Boomers got the catalogs into our mailboxes, and Baby Boomers purchased from these businesses.

Life was good.

And then this thing called the "internet" appeared.

At first, the internet was this funky thing we played with on a 9,600 baud rate modem. We could send and receive e-mail, we could visit static web pages.

I worked at Eddie Bauer in 1996. Our website, http://www.ebauer.com, was in the embryonic stages of development. My Vice President would stop by the office of our online marketing analyst, and rib him about whether we hit our forecast of seven orders for the day.

Nobody mocked the online marketing analyst in 1999, when fifteen percent of direct-to-consumer orders at Eddie Bauer came through the internet. Still, catalogers felt that online marketers were "cannibalizing" the catalog business. "If the catalog didn't exist, you wouldn't have a business" was a statement you frequently heard. The internet staff benefited by having an existing order-entry system, an existing call center, an existing distribution center, catalogs that drove website orders, and existing in-house systems to manage the business.

For the next eight years, a battle ensued over who truly generated sales and profit. The battle appeared to be meaningful. In reality, we made a mistake. We took our eyes off of the customer for a decade, spending our time arguing whether old-school marketing methods still worked or not.

Instead of learning how customer behavior was changing, we focused on attributing orders back to the paper that theoretically drove the order. Our industry invented a term, called "multichannel", to define the relationship between advertising, customers, and channels. We focused on the attribution side of the term "multichannel", instead of the ramifications of multichannel customer behavior.

During the decade of multichannel attribution illustrated via matchback algorithms, we lost our customer. The Baby Boomer responsible for the rampant growth of the catalog industry in the 1980s and 1990s aged. This customer is slowly being replaced with Gen-X individuals, customers who have different needs and different shopping patterns. This generation uses technology in a different way than do Baby Boomers. Even more profound are the differences in customer behavior among Gen-Y, the children of Baby Boomers. If Gen-X embraced e-commerce, then Gen-Y embraces social networking.

Both generations view the catalog in a different light than do the Baby Boomer generation. A Baby Boomer might read a catalog at night, ordering online after thumbing through the wares of a leading catalog brand. A Gen-Xer might use the catalog for inspiration, or might throw the catalog away, opting for the assistance of Google, searching for whatever pleases the customer. A Gen-Y consumer might purchase merchandise on the basis of a good review from a peer on Facebook. Of course, these are gross over-generalizations, meant to inspire thought.

The cataloger ultimately markets to the Baby Boomer generation, noticing that customer acquisition becomes more challenging as the Baby Boomer moves out of her prime shopping years.

Two other issues are shaping customer behavior. In the past decade, customers took control of the telephone via the "do-not-call" list. Customers are taking control of the e-mail in-box via spam filters and e-mail opt-in practices. In the next five years, customers will take control of the mailbox. Catalog Choice simply represents the embryonic stage of this movement. Eventually, our customer will tell us how often we get to market to her via catalogs, if at all. We are not prepared for this fundamental shift in customer behavior. All throughout history, we determined when the customer received something from us. In the future, the customer will determine when she receives something from us, if at all.

The final issue that is transforming cataloging is storytelling. Catalogs have always been about telling stories. Think about the fanciful tales told in the old J. Peterman catalog. When a cataloger has control over the customer relationship, the cataloger is able to tell the story that the cataloger wants to communicate.

A combination of e-commerce, e-mail, and search marketing ruined the ability of the cataloger to tell a cohesive story. When a customer goes to your website, you have no control over what the customer does. She can arrive via the home page, she can arrive via a landing page. She can use the search function of your site to shop. She can simultaneously use Google to compare prices on a similar item across multiple brands. The cataloger is no longer the primary factor in a purchase relationship with a customer. The cataloger is a spoke on a giant ecosystem-based tire.

This hurts the cataloger in many ways. Stories are like a moat that protects a catalog brand, causing the customer to cross-shop other items. When the customer makes up her own story, a "mashup" of other brands found via search, marketing, and word-of-mouth, she realizes that the cataloger may not offer the lowest cost, the fastest or most inexpensive shipping, or the best quality.

The same forces damage the merchandising strategy of the cataloger. Any brand can see what the cataloger offers, copy/improve it, source it in China for a lower cost-per-unit, offer free shipping, and outperform the cataloger in paid or natural search, stealing business from the cataloger. The online ecosystem ultimately drives our merchandising strategy. If one item achieves good standing in natural search, while another item fails to make an impact, then technology is driving the performance of items offered. Regardless, our catalogs and the cohesive stories told in our catalogs are not as relevant in the future unless the internet/Google decides that we are relevant. We will be forced out of business by low-cost competition, or we will achieve success by offering high-gross-margin niche product that Google determines is highly relevant in the niche it participates in.

What is also interesting is the fact that by avoiding these challenges, the cataloger indirectly moves the customer base older and older. Numerous CEOs confided in me that the average age of the customer purchasing from catalogs is advancing at twice the rate of time. In other words, an average customer of 50 years old in 2003 is now an average customer of 60 years old in 2008. This is an odd side-effect of technology. By avoiding the dynamics that are shaping the internet, the cataloger partners with co-ops to find customers most likely to respond to catalog marketing. The audience that remains loyal to catalog marketing is the audience least likely to embrace technology. Co-op technology helps in the short-term, but has the potential to move the catalog brand toward a customer base that is unsustainable.

By now, what should be clear to you is that the catalog business model we managed in 1993 no longer exists. The competitive advantages we enjoyed fifteen years ago are gone. This doesn't mean we can't be successful. We can be very successful. However, we will have to apply modern technology, a thorough understanding of customer behavior, and an absolute attention to detail across all online marketing strategies.

The cataloger of the future will gracefully manage catalog mailings, providing twenty contacts a year for the customer who wants twenty contacts a year, a universe that will continue to decrease in quantity. Over time, the majority of customers will demand that they determine how many catalogs they want to receive, if any. This will end the practice of using lists and co-ops to manage customer acquisition. New customer acquisition will happen online. This concept is a terrifying one for catalogers, one that cannot be avoided.

The cataloger of the future will reduce catalog advertising expense, but won't pocket the savings. Instead, the money will be reinvested in faster delivery options at a lower cost. Customers will demand that all direct-to-consumer brands follow the lead of Zappos.

The cataloger of the future will be required to become very, very savvy at online marketing. I'm not talking about executing paid search campaigns. I'm talking about every aspect of online marketing, paid search, natural search, affiliates, shopping comparison marketing, portal advertising and pay-per-click, social networking, and techniques we cannot envision today. Countless brands never mail a single catalog, yet run profitable direct-to-consumer businesses using these techniques. Do a search for any product and see what I mean.

The cataloger of the future will manage a heterogeneous customer base, one resistant to mass-mailings of catalogs or e-mail blasts. This will require an attention to detail in online marketing expertise that does not exist today.

Vendors who rely upon the catalog ecosystem will need to adapt as well.

The biggest potential winner is the traditional list organization, somebody like Millard or ALC. The future of cataloging won't be in renting or exchanging lists. The future could be in identifying groups of individuals with common interests. We might work with Millard to build/find a group on Facebook that likes mens tools or rugs or scrapbooking, whatever is relevant to our business model. The traditional list organization competes against algorithm-based organizations like Abacus by
adding the "human" element --- linking people who have interests together for the betterment of people, not brands. Catalog brands succeed as a side-benefit. For those brands who want catalog-focused customers, co-ops will be there to serve them.

If I were to poll the folks in this room about the biggest issues in cataloging in 2008, three themes would emerge.

1. The crippling effects of the 2007 USPS postage increase.
2. The recession of 2008.
3. The approach Catalog Choice uses to encourage catalogers to accept unverified opt-out consumers.

Catalogers that survive the first two issues will face interesting long-term issues, as outlined in this discussion. We survived the transition from big-book to targeted catalogs. We survived the transition from targeted catalogs to multichannel mailings that drive e-commerce sales. Our industry will survive the transition to a self-service customer who calls upon us when s/he has a need, a transition that is opposite of our established practice of calling upon a customer when we have a need. Market forces require that we make this transition.

When Is The Best Time To Send A Catalog To Support A Retail Event And Drive Multichannel Sales?

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I'm often asked what the best timing is for sending a catalog that supports a retail event. Here are a few guidelines for you to consider.

Let's assume you want to mail a catalog to support a retail event.

First, identify (via test and holdout groups, not via matchback analytics) the channel that benefits most from the mailing of a catalog. If the channel is the telephone channel, you'll probably have to mail the catalog at least three weeks ahead of the event, with a Monday/Wednesday in-home date. If the channel that benefits the most is the retail channel, you'll probably have to mail the catalog 1-2 weeks ahead of the event, with a Wednesday/Friday in-home date.

Similarly, you ask yourself who the majority of customers receiving this mailing are. Catalog/Online customers prefer Monday/Wednesday in-home dates, while Retail customers prefer Wednesday/Friday in-home dates.

The combination of these questions yields a matrix that tells you when to send the catalog, and tells you the expected performance of the catalog on a grading scale of "A" (excellent) to "F" (poor).

In many cases, the management of the dominant channel in your brand will require you to execute your mailing to give their channel the best chance of success. The grid helps explain the impact of compromise --- one of the things that multichannel pundits don't talk about much --- the fact that compromises to accommodate channels reduce the overall ROI of a catalog campaign.

E-Commerce And Catalog Management Case Study: Managing Details

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Yesterday, we demonstrated how the little details make a big difference in the profitability of an e-commerce or catalog brand.

Unfortunately, few of us get to be a CEO, few of us get to learn this valuable lesson.

In our example, there are four metrics that require significant attention. Let's review each metric.


Merchandise Fulfillment Rate

This rate represents the percentage of merchandise a customer asked for that the merchant was able to deliver to a customer. Take a customer who orders over the telephone. She asks for three items, but only two are available, one item is sold out. The merchandise fulfillment rate is 2/3 = 67%.

The CEO uses this metric to understand how effective the inventory management team is at satisfying customer demand. If an item sells out, and the inventory manager is somehow able to procure additional merchandise, then everybody benefits.

There are problems with this metric. When business is bad, merchandise is always available. When business is great, merchandise is never available! So to some extent, the metric has an inverse relationship with brand success.

Online brands often fail to understand the importance of this metric. Customer advocates preach that online brands should "pull down" items that are sold out, so that the customer is not disappointed. It's great that a customer should not be disappointed, but it is terrible for next year's customer, because the inventory manager doesn't learn how much s/he "could have" sold.


Return Rate

Return rate measures how much merchandise is returned to the brand by the customer. This metric plays a disproportionate level of influence in the profitability of an e-commerce or catalog brand. A new CEO will look into different ways that return rates can be lowered. Are there indirect reasons why the rate increased, like merchandise preference skewing from low-returns items to high-returns items? Or are there direct reasons why the rate increased, like quality being lowered in order to improve gross margin?

Each brand has a return rate that is typical for the business model the brand manages. Within this range, brands can succeed or fail. The new CEO will try to eliminate the failures in returns, since every item that is not returned drives increased profit.


Gross Margin

Gross margin represents the difference between what a customer paid for an item, and the cost the brand paid for the item. Take a $100 item that the brand paid $40 to acquire. The gross margin is (100 - 40) / (100) = 60.0%. Now, take a $100 item that is on sale for $60. The gross margin is (60 - 40) / 60 = 33.0%.

Gross margin has a disproportionate influence on the profit and loss statement. When a business is failing, the CEO is required to liquidate or discount merchandise, in order to get rid of it. Consequently, gross margin will be low. When a business is succeeding, it can charge a premium for merchandise, driving up the gross margin.

Gross margin is also a reflection of the ability of the inventory management team to accurately forecast sales trends. When the inventory management team buys too much merchandise, regardless of business trends, merchandise must be liquidated, lowering the gross margin rate.


Pick / Pack / Ship Expense

This metric does not receive enough attention, yet is also important to the profitability of a brand.

This metric is defined as the cost to pick, pack and ship merchandise to a customer as a percentage of net sales. For instance, if a brand spends $10,000,000 delivering merchandise to your home, and generates $80,000,000 net sales, the rate is (10,000,000 / 80,000,000) = 12.5%.

Outstanding catalog and e-commerce brands drive this rate down relentlessly, via automation and efficiency. Other brands look for low-cost solutions, or look for shipping and handling revenue to offset delivery costs. Ultimately, automation and efficiency result in lower rates, and increased profit.


The new CEO will focus on these four metrics, seeking to drive all of these metrics toward historical best performance. The best leaders realize that as much as half the reason a catalog or e-commerce brand fails is due to mismanagement of these four simple metrics.

E-Commerce And Catalog Management Case Study: Does Operational Management Matter?

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The purpose of this series is to view a broken e-commerce/catalog business from the viewpoint of a new CEO.

Recall that this business has largely been mediocre or unprofitable during the past five years, resulting in the overhaul of the management team.

A new CEO needs to quickly assess several factors, many of which we'll discuss in this series. An easy first step is to look at the metrics associated with operational management of the brand.

In the attached profit and loss statement, we notice that the operational management of the business hasn't been optimal.

• Notice that merchandise fulfillment rate hit a high of 94.5%, but was only 90.9% last year.

• Return rates were as low as 25.0%, but were 27.4% last year.

• Gross Margin improved some (48.8%), but has been as high as 50.0% in the past.

• Pick/Pack/Ship expense has been as low as 11.5%, finishing last year at 11.8%.

A new CEO will ask the CFO to run a version of last year's profit and loss statement with historical best operational metrics plugged into the profit and loss statement.

So take a look at the attached image. With historical bests plugged into the profit and loss statement, we turn a loss of $258,000 into a profit of $327,000.

Now obviously all of these factors are interconnected (gross margin decreases when sales decrease, due to clearance-related needs). But the exercise is important to the new CEO. In this case, the CEO realizes that if s/he can "run the operations" of this business at historical high levels, profitability significantly improves.

In reality, the CEO wants for this business to operate at a 10% EBT rate, meaning that ten percent of sales are converted to profit. The business was twelve points away from this level (-1.9% EBT). Fixing the operational management of this business makes up at least four of the twelve point shortfall.

In other words, the CEO will make operational excellence one of his/her top objectives for the upcoming year.

Your Homework Assignment: Operations play a key role in getting a brand to high levels of profitability. What is the next thing you would look at in this profit and loss statement, when diagnosing what is wrong with this business?

E-Commerce And Catalog Management Case Study: A Failing Business

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When we read about improving the performance of a catalog / e-commerce brand, we frequently read about "extremes".

On one hand, we focus extensively on the "tactics" that improve the performance of marketing campaigns. E-Mail subject lines, call-to-action, catalog page counts, branded vs. non-branded keywords, prospect mailings, there's a veritable plethora of tactics that folks can improve upon. Better yet, there's no shortage of folks who can help drive tactical solutions.

On the other hand, we focus on "brand management". Boy, do we love to focus on brand management. Everybody is an expert at what Starbucks should do to grow same-store sales. Folks have no problem telling brands that they have to become "multichannel", or that implementing a transparent, authentic blog will cause a brand to grow in a "viral" manner.

Unfortunately, neither end of the spectrum meets the needs of the newly appointed CEO of a multichannel e-commerce/catalog brand that experienced several years of sour performance. More often than not, the newly appointed CEO needs to implement a "meat and potatoes" approach to fixing the profit and loss statement.

The brand we'll study in this series (click on the image please) achieved "best" performance five years ago. Since then, the brand wobbled between mediocre and awful performance, resulting in the firing of the management team.

Let's review net sales and earnings before taxes performance.

Net Sales Performance (Year 5 = most recent year)

• Year 1 = $12,600,000.
• Year 2 = $12,400,000.
• Year 3 = $10,700,000.
• Year 4 = $11,200,000.
• Year 5 = $13,500,000.

Earnings Before Taxes Performance

• Year 1 = $661,000 (5.2% of Net Sales).
• Year 2 = ($315,000) (-2.5% of Net Sales).
• Year 3 = $63,000 (0.6% of Net Sales).
• Year 4 = $550,000 (4.9% of Net Sales).
• Year 5 = ($258,000) (-1.9% of Net Sales).

Clearly, this business is in need of fixing.

Over the course of the next several posts, we'll talk about the ways that a newly appointed CEO uses "meat and potatoes" and "multichannel forensics" to address the performance of a floundering brand.

Your homework assignment: Study the image at the top of this post. What areas of the profit and loss statement suggest mismanagement of this brand?

Survey Results: What Do You Think The Catalog Industry Will Look Like In 2015?

Thanks to all of you who responded to our survey question: "What do you think the catalog industry will look like in 2015? Here are the results of the survey:

• Catalogs will be the primary driver of web sales = 0%.
• Catalogs will be the primary driver of web sales among a targeted subset of the audience = 42%.
• Catalogs evolve in ways we cannot yet forecast = 39%.
• Ecological and cost pressures end the craft of cataloging = 19%.

The MineThatData audience has a sizable number of professionals in the catalog industry. Surprisingly, not one respondent felt that catalogs would be the primary driver of online sales in 2015.

I have a few questions for you, the loyal reader.

1. Who is the targeted audience that you believe will be catalog-responsive in 2015?
2. What are some of the ways that you believe catalog marketing will evolve over the next seven years?
3. If you believe that the craft of cataloging will end over the next seven years, what are the "end times scenarios" that bring the industry down?

Three Types Of Catalog Buyers, And Profitability

Catalogers face big challenges when evaluating the profit of catalog mailings. Given that matchback analyses have long over-stated profitability (at the benefit of the vendors providing these analyses, or the list/co-op industry, folks who depend upon inflated catalog results for improved financial success), we've trained a generation of catalog and online marketing experts to evaluate catalog profitability in a suspect manner.

Some catalogers are studying profitability by evaluating quarterly contact strategy tests. These catalogers purposely choose to not mail segments of customers for three months at a time. At the end of the test period, the difference in performance between the mailed and control group is evaluated.

There are three types of catalog buyers that are frequently evaluated.

First, let's evaluate customers who only shop via telephone. These customers are the easiest to measure, because they seldom buy online, meaning our old-school analytical techniques are still effective.

Quarterly Test Results
Audience = Telephone - Only Buyers
	Phone	Online	Stores	Total
Mailed Group	$15.00	$2.00	$2.00	$19.00
Not Mailed Group	$0.00	$1.00	$1.50	$2.50
Increment	$15.00	$1.00	$0.50	$16.50
Demand			$16.50
Net Sales	80.0%		$13.20
Gross Margin	50.0%		$6.60
Less Book Cost			$3.00
Less Pick/Pack/Ship	11.0%		$1.45
Variable Profit			$2.15

This analysis is straightforward. The mailing strategy generated $16.50 demand and $2.15 profit per customer. Matchback analyses are typically accurate among this audience, due to limited spend in the online or retail channels. As long as online/retail spend is minimal, matchback analyses are accurate.


The second segment of customers provide more of a challenge. In the past twelve months, these customers shopped via telephone, and shopped via the internet. Here is what the results can look like within this audience/segment.

Quarterly Test Results
Audience = Telephone + Online Buyers
	Phone	Online	Stores	Total
Mailed Group	$7.00	$8.00	$2.00	$17.00
Not Mailed Group	$0.00	$4.00	$1.50	$5.50
Increment	$7.00	$4.00	$0.50	$11.50
Demand			$11.50
Net Sales	80.0%		$9.20
Gross Margin	50.0%		$4.60
Less Book Cost			$3.00
Less Pick/Pack/Ship	11.0%		$1.01
Variable Profit			$0.59

This is where matchback algorithms begin to fail. The matchback algorithm will take credit for all $8.00 per customer spent online, allocating that revenue to the catalogs that were mailed. Mail/holdout tests tell us the true story, however. Had catalogs not been mailed, $4.00 would have happened online anyway.

Your matchback vendor tells you that you got $7.00 over the phone, and $8.00 online, so all is good! In reality, you got $7.00 over the phone, and $4.00 online --- profit isn't nearly as good.


The third audience includes customers who only shop online. Multichannel pundits strongly believe that catalog mailings drive these customers online. Here's what one might observe, after a quarterly contact strategy test.

Quarterly Test Results
Audience = Online - Only Buyers
	Phone	Online	Stores	Total
Mailed Group	$2.00	$13.00	$2.00	$17.00
Not Mailed Group	$0.00	$9.00	$1.50	$10.50
Increment	$2.00	$4.00	$0.50	$6.50
Demand			$6.50
Net Sales	80.0%		$5.20
Gross Margin	50.0%		$2.60
Less Book Cost			$3.00
Less Pick/Pack/Ship	11.0%		$0.57
Variable Profit			($0.97)

This audience is treated incorrectly by matchback algorithms. Your matchback vendor will tell you that you got $2.00 via the phone, and $13.00 online, yielding $15.00 total. Your matchback vendor will tell you that this is good!!

However, your mail/holdout test results tell you something different. Had you not mailed catalogs, you still would have gotten $9.00 of the $13.00 online. Therefore, when you run the incremental profitability calculation, you find that catalog marketing is unprofitable in this audience.

The reality is that natural search, paid search, e-mail marketing, affiliate marketing, portal advertising, shopping comparison marketing, word-of-mouth, and brand recognition all contribute to the $9.00 of volume you achieve if you don't mail catalogs to this customer.


This type of analysis is sorely missing in modern catalog planning. Some matchback vendors understand these issues, and genuinely try to help us. Sometimes, the thought leadership simply isn't there --- and it is costing catalog marketers millions of dollars of profit.

My level of frustration on this topic continues to grow. Recently, I was told by a vendor-based industry leader to stop talking, and "get on the multichannel bandwagon".

I have no problem with multichannel marketing. I do have problems with industry leaders that mislead (maybe not purposely) catalogers in a way that harms catalogers, but helps the very vendor industry that depends upon catalogers for success.

E-Mail And Catalog Profit Visualization

"Back in the day" at Lands' End, we had a team that measured the profitability of every spread in our core catalogs.

Even though this information was stored in a database for easy retrieval, the most effective presentation of the profitability of each spread (in my opinion, or IMHO to use the parlance of the day) occurred in a conference room.

Each spread was adhered to colored tag board.

• Gold Tag Board = 30% or better variable operating profit for that spread.
• Green Tag Board = 20% to 29.9% VOP for that spread.
• Blue Tag Board = 10% to 19.9% VOP for that spread.
• Red Tag Board = Worse than 10% VOP for that spread.

When we sat down to review a catalog, each spread was posted in the conference room, in order, from page 2-3 to the back cover.

Instantly, the "profit story" became clear. Visually, a rookie database marketer like myself could see what worked, what didn't work. Visually, I could see how merchandising and creative themes interacted to generate profit. I could see how one model yielded gold/green results, while another model turned customers off.

If you are an e-mail marketer, and you wish to effectively communicate with old-school marketers at your company, give this strategy a try.

Maybe you sent 20 e-mail marketing campaigns last quarter. For each campaign, sum the performance of all of your targeted versions, and adhere the main creative treatment to a piece of colored tag board. Do this for each of the twenty campaigns, and post the performance for all to see.

Each targeted version gets real estate on the tag board as well, with its own background color (gold, green, blue, red, or whatever scheme you wish to employ). Most certainly, you're measuring the profitability of each targeted version of an e-mail campaign, rolling the profit of each version up to a total level of profitability, right?

Invite your old-school CMO into the conference room, and review your twenty campaigns in this manner. Stop talking about open rates, click-through rates, conversion rates, landing pages, Outlook 2007, HTML vs. Text, rendering problems on mobile phones, and all the other gobbelty-gook that causes your old-school CMO to tune out. Simply focus on the colors. Explain how you're going to do more "gold and green" strategies. Explain why the CMO's recommendations resulted in "blue and red" performance.

And then, behind the scenes, build an OLAP-styled repository to store your historical results. Store open rates, click-through rates, conversion rates, dollars-per-e-mail, sales driven to the telephone, sales driven to stores, test results, profitability, and "gold/green/blue/red" status.

By the time your CMO is comfortable with your presentation style, you might even be able to surprise her with your OLAP-styled repository. Ok, maybe not!

And if you practice web analytics for a profession, would it be so hard to apply these principals to your landing pages, so that you can bridge the gap between all of your fancy data and the old-school marketers who don't understand what you're talking about? Give it a try!

Catalogers And Co-Ops: A Question

A question for my catalog readers.

Would you like for your co-op vendor (i.e. Abacus or Z24 or others) to do a multichannel forensics analysis, one that tells you the companies your customers are in transfer mode with (i.e. the companies your customers are leaving you to shop at), one that tells you which companies transfer customers to you?

And if you knew that information, would it be actionable?

Many of you already pay companies for panel data that provide you with similar information. Your co-op has a much better sample of information than organizations that use panel data.

Your thoughts?

Nine Ways Catalogs Interact With Websites

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Spending two days at a multichannel marketing conference helps crystallize one's image of where our industry is heading.

My biggest revelation from 12,000 miles of travel and two days of multichannel discussions is that we have not given business leaders the tools necessary to identify the roles channels/advertising play in what used to be the Catalog industry.

So here are nine ways that catalogs interact with websites. For each classification, think about how different the marketing strategies need to be to yield satisfactory business results. Which of these nine situations is your business classified in?


Dissimilar Customer Audience: When catalog is in isolation, and the online channel is in isolation, you have two completely different customer audiences purchasing from each channel. You have a multichannel business, one that your customers don't use in an integrated manner.

Tries Online, Prefers Catalog: Infrequently, catalog is in isolation while the online channel is in equilibrium. This used to happen in the late 1990s, when catalog customers tried to purchase online, only to find the purchase experience preferable via the telephone. Today, businesses with a target customer between the ages of 65-85 might be in this situation.

Online Channel Is Not Appealing: When customers shop online, then transfer their sales back to catalog (catalog = isolation, online = transfer), you know that the customer does not find the online experience appealing. This usually represents a good time for a site redesign.

Classic Channel Shift: The most common catalog scenario occurs when catalog is in equilibrium and online is in isolation. This means the catalog is driving sales online, and when the catalog succeeds at doing this, the customer tends to stop using the telephone to place future orders. Long-term, this spells trouble for the catalog as a purchase channel, and is a harbinger of significant change for the catalog as an advertising vehicle.

Outside of the catalog industry, think about other business models that are going through this transition (old channel = equilibrium, new channel = isolation):

• CDs to MP3s
• Newspapers to Online News
• Gasoline-fueled Cars to Hybrid/Electric Cars.
• CRT Computer Screens to LCD Computer Screens.
• Desktop Computers to Laptop Computers.
  

Classic Multichannel Business: Multichannel pundits suggest that many catalogers exist in this situation (catalog = equilibrium, online = equilibrium). In other words, in this situation, customers freely pick and choose the channel they wish to purchase in. Products and solutions from the vendor community are frequently created to solve the challenges faced by companies in this situation. Unfortunately, few catalogers are in this situation.

Over-Marketing: Catalogers that offer a myriad of promotions to get customers to purchase online occasionally find themselves in this situation (catalog = equilibrium, online = transfer). The customer shops online only when prices are cheap or promotions make the online channel temporarily irresistible!

Catalog = Brand Advertising: When catalog is in transfer mode, and the online channel is in isolation mode, the catalog marketer is gearing up for a big change. Telephone shoppers are leaving in a mass exodus for the online channel. Once online, the customer won't shop via telephone again. Long-term, the catalog strategy is likely to change for a company in this situation. The catalog will likely evolve into a potentially useful brand advertising vehicle that communicates the broad assortment of merchandise available online.

Catalog = Sales Driver: When catalog is in transfer mode, and the online channel is in equilibrium mode, it is likely that the catalog is a very effective selling vehicle. The customer does not perceive differences between the channels, willing shopping via telephone or website. Better yet, the catalog is causing online orders. Long-term, this business model has a good chance of having a viable catalog advertising vehicle.

Ideal Multichannel Business: I have yet to see a catalog business operate in this mode (catalog = transfer, online = transfer, yielding true oscillation between channels). This would truly represent multichannel nirvana!