Multichannel Forensics And Your Online Ecosystem

Please click on the image to enlarge it.

Web Analytics are wonderful! You can analyze the living daylights out of the myriad of ways customers use a website.

Web Analytics are not designed to understand customer behavior over time. In other words, Web Analytics were designed to understand what happened to a customer during a day/session/visit.

Multichannel Forensics are designed to illustrate how customers evolve over time.

Take the online game company in this example. The diagram at the start of this post illustrate how customers interact with product categories on this website.

Most of the new customers like to purchase poker equipment and dart equipment. This is important for search marketers to know ... this is where customer acquisition activities are likely to work best.

A secondary group of new customers purchase arcade games and billiards.

New customers tend to not purchase furniture, air hockey and foosball. These product classifications must require a bit more trust among the customer than poker equipment, dart equipment, arcade games, or billiards.

Once customers purchase from the website for the first time, they begin to migrate to other product classifications.

Poker equipment buyers purchase furniture or billiards.

Dart equipment buyers migrate to many products, including air hockey, foosball, and billards.

Those who buy arcade games migrate to furniture or air hockey.

Billiards buyers are very likely to buy other products, including poker equipment, dart equipment, furniture, and foosball.

Furniture, foosball, and air hockey product classifications are highly dependent upon customers who buy from other product classifications. This is important from an e-mail marketing standpoint --- you don't market foosball products to arcade game buyers --- these buyers are unlikely to migrate to this product classification.

Multichannel Forensics illustrate how customers migrate across a website, over time. The methodology gives tactical leaders in search marketing and e-mail marketing the strategies needed to be successful.

Business leaders benefit as well. If I were the General Manager of foosball products, I would make sure I were best friends with the GMs of air hockey, furniture, darts and billiards.

Incentives can be aligned properly. The GM of darts should be held to a different standard than the GM of air hockey. The GM of darts must acquire many new customers. If the GM of darts fails, the air hockey GM is less likely to succeed (because dart buyers evolve, eventually buying air hockey products).

There will be a lot of examples of this methodology in the new book, along with explanations for the calculations that create these images. Multichannel Forensics are highly complementary to today's Web Analytics packages.

Multichannel Retailing: A Complex Marketing Ecosystem

Last month, I had an e-mail exchange with Jim Fulton, author of two of the most popular posts in MineThatData history. We were discussing whether the online channel was more similar to the catalog channel, or the retail channel. Earlier today, I had an e-mail exchange with fellow Green Bay Packers fan Jeffrey Hassemer about the ecosystem our catalog, online and retail channels currently reside in.

A similar theme from each conversation arose, the idea that our multichannel retailing environment has become a gigantic ecosystem, full of inter-dependencies that executives did not have to deal with a decade ago.

In 1994, a catalog executive had the illusion of control. She decided that she would have 17 in-home dates. She decided how many pages she would have in each catalog, she decided the merchandising assortment, she determined the creative treatment. Her decisions about when catalogs were mailed, circulation depth and list, page counts, and merchandise assortment yielded a predictable amount of demand, so predictable that a call center and distribution center could be reliably staffed on the forecast of volume generated from the catalogs. If the executive wanted her business to be a $100,000,000 business, only cash, the availability of quality lists, and the ability to forecast and acquire inventory stood in her way.

Let's assume that in 2006, the catalog executive is still in charge of what is now a business that is at least 50% catalog and 50% online, if not skewed more online than catalog.

A giant marketing ecosystem now controls her business. Our executive manages a catalog housefile, an online housefile, and an e-mail subscriber list. Twelve years ago, the catalog executive mailed one catalog that drove $5,000,000 in net sales. Today, she mails two catalogs, eight e-mail campaigns, one-hundred affiliate programs, two portal deals and various search programs to drive $5,000,000 in net sales. Couple that with another $3,000,000 in net sales that are organically generated via the website, and it is obvious that our former catalog executive is living in an out-of-control marketing ecosystem.

Maybe the most challenging transition that direct marketing executives have had to make is the trasition from being "in-control", to allowing the marketing ecosystem to be in-control. Twelve years ago, the catalog executive made decisions, and saw the cause-and-effect of her decisions within a few days of the catalog in-home date. Today, that same executive makes twenty times as many decisions across a veritable plethora of marketing vehicles, and achieves far less control over the outcome.

In the Pacific Northwest, we closely monitor the health of our Orca Whale population. These whales live in a complex and dynamic ecosystem. Their health is impacted by pollution, the quantity of salmon, weather, proximity of tour boats, the number of times our military hurt their hearing system with sonar, the number of transient Orcas passing by. By managing these factors, we can influence the health of the Orcas.

In a similar manner, we direct marketers now "influence" the health of our business. The marketing ecosystem is made up of numerous factors that interact with each other, causing unusual and unpredictable outcomes. No longer is a decomposition of each strategy reasonable. The combination of strategies cause interactions that impact our business. Executives who think in a linear, cause-and-effect manner might struggle in this multidimensional ecosystem.

Over the next several months, I plan on exploring the interaction of products, brands, channels and marketing strategies. Let's have a lively discussion about how direct marketing has changed, and what can be done to better understand our direct marketing ecosystem.

Coldwater Creek: The Little Engine That Could

Coldwater Creek provides a great example of how management transitioned a catalog company into a retail company with an online channel, and a catalog advertising arm.

After reading comments from Coldwater Creek's third quarter "conference call", it is obvious management continues to transition this business model into one dominated by the retail channel. During the third quarter, retail sales grew by 48%, and now represents 65% of the total business. Online sales grew by 29% from last year, and now represent 67% of the sales within the direct channel. Catalog now represents just over 10% of the total business. Wow.

Over the past six years, management shifted their corporate strategy. As the company began to invest in stores, management began to tear apart the tradtional catalog marketing strategy. During the call, management stated that the catalog now primarily drives traffic to the stores, not to the catalog channel, not to the online channel. More important is the comment that the internet is independent, and has other ways of using marketing to drive sales to the online channel.

Once again, we learn that the multichannel environment is a big ecosystem, one with inter-dependencies, and interactions that pundits do not understand very well.

In the case of Coldwater Creek, a brand was built via the catalog channel. As management shifted the focus of the business from a catalog company to a multichannel company, several things occured. Customers transferred out of the catalog channel to the online and retail channels. Catalog advertising drove business to the retail channel more than the online channel. The online channel has marketing channels that it can leverage to drive its own business, independent of catalog marketing. Magazine advertising, coupled with discounts and promotions, drive business to Coldwater Creek stores. The catalog/telephone-channel has been reduced to about 10% of the total business.

Executives at multichannel retailers would be well-served to study the evolution of the Coldwater Creek business model. I'm not suggesting your business will evolve exactly like the business evolved at Coldwater Creek. But it will probably evolve in a way that is different than the pundits tell us it will evolve.