REI And Multichannel Marketing

Give this article a read --- Catalog Success interviews Mike Bowcut of REI --- a simple use of mail/holdout groups instead of matchback analytics improves marketing success.

Twenty-Seven Questions For A Multichannel Marketing Candidate

In 2009, some multichannel marketers are going to have to find new jobs. Others will have to filter a veritable plethora of candidates.

If you are an interviewer, or you are looking for a job, you might want to be prepared to ask/answer these questions.


Question #1: Do you think "CRM" if a four letter word?

Question #2: You send a weekly e-mail campaign to your opt-in audience. Your inventory executive wants to add a monthly "outlet" campaign to clear merchandise, one not integrated with those executed by the marketing department. Explain the reasons why you would or would not allow this new monthly campaign to exist.

Question #3: The merchandising team is upset because each merchandising leader does not get to feature merchandise equally on the homepage. Some of the merchants are being pressured into improving sales productivity by the CEO. Should their under-performing merchandise get more access to the best real estate in the company, the home page?

Question #4: Describe the marketing strategy you would employ with a customer who lives in Butte, Montana, far away from retail stores.

Question #5: Describe the marketing strategy you would employ with a customer who lives in a condo off of Michigan Avenue in downtown Chicago.

Question #6: What is the role of a catalog marketing program in a modern multichannel brand?

Question #7: Your CEO wants to decide where additional money should be spent, either retaining existing customers, or finding new customers. What metrics and facts do you need to determine where to spend marketing dollars?

Question #8: Thirty percent of demand flows-through to profit. Your marketing program generated $100,000 in sales, and costs $40,000 to execute. Was the marketing program profitable?

Question #9: Under what circumstances are you willing to lose money on a marketing program?

Question #10: Should all channels look and feel the same, offering the same prices and promotions and merchandise? Explain your answer.

Question #11: Describe one company that is what you would call an "excellent" multichannel marketer. What is it that is "excellent" about the marketing this company does?

Question #12: Describe one company that is what you would call an "excellent" single-channel marketer. What is it that is "excellent" about the marketing this company does?

Question #13: Is it important for a company to employ industry-standard "best practices"?

Question #14: Describe what innovation means to you in multichannel marketing?

Question #15: Your retail channel generates $10,000,000 in net sales a year, and $200,000 profit. Your online channel generates $2,000,000 in net sales a year, and $200,000 profit. Should your marketing efforts focus on improving retail productivity, on growing a profitable online channel, or growing the overall brand? Describe your thought process.

Question #16: Your CEO wants for you to execute an e-mail campaign where you sell your opt-in e-mail list merchandise from a non-competing company that wants to pay your company $300,000 for access to your list. Your company is losing money. Will you execute the wishes of your CEO, or are you willing to lose your job to not violate e-mail marketing best practices?

Question #17: You work for a company that has a catalog advertising channel, an online channel, and a retail channel. Your web analytics guru tells you that paid search campaigns generated a 4.386% online conversion rate in the month of September. Assuming all online data is tabulated in your web analytics package, was your company-wide conversion rate 4.386%?

Question #18: If you know that multichannel customers are the best customers, are you willing to shut down what appears to be an unprofitable channel, knowing that the decision is likely to disappoint your best customers? Why?

Question #19: Describe the skills that a Chief Marketing Officer needs to have to be an effective multichannel marketer.

Question #20: Describe what metrics are needed to illustrate that your company is doing a great job of multichannel marketing.

Question #21: Would you accept advertising from non-competing brands on your homepage? Why or why not?

Question #22: Is the purpose of a website to drive traffic to a retail store, or to convert visitors into e-commerce buyers? Can a website do both? How?

Question #23: If e-mail marketing drives $0.20 per e-mail delivered, while paid search generates $2.00 per click, is e-mail marketing effective? What is the role of e-mail marketing in a multichannel brand?

Question #24: How would you lead employees who have two decades of experience in old-school marketing techniques like cataloging, compared with employees who have a few years of experience, but the experience is in online marketing or social media? What role do each set of skills play in your organization?

Question #25: Should social media efforts drive a positive return on investment? If you answer no, describe your thoughts.

Question #26: Describe the role of radio advertising, newspaper advertising, and television advertising in a modern multichannel brand.

Question #27: Describe the role of mobile marketing in a modern multichannel brand.

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.

Best Buy and B&H Multichannel Marketing

At ACCM, I heard a half dozen speakers drill the multichannel marketing script into the permeable heads of honorable conference attendees.

So today I am looking to purchase a camcorder. B&H sends me a catalog, a nice multichannel piece. So nice that it drives me to Best Buy to physically look at the camcorder. There, I find another camcorder I like. I notice that the price of this item appears expensive.

I go home, look at the Best Buy website, and see that the price is consistent between stores and online. Multichannel advocates rejoice! But the camcorder is still expensive. A price comparison reveals that the item is 20% cheaper at B&H, and 25% cheaper at Amazon.com.

The item will be purchased at Amazon.com.

Industry leadership continues to harp on the fact that multichannel marketing works. And today, it did work. A catalog from one brand led to a store visit at another brand, which led to an online search for the cheapest price, leading me to buy the camcorder from an online pureplay. Demand siphons out of the multichannel value chain, into an online pureplay. The multichannel marketers pay the freight for retail square footage and paper-based marketing, but lose the sale to a low-cost online pureplay that does not execute traditional advertising strategies.

An entire industry is missing the point of multichannel marketing. Pretty catalogs, integrated e-mail campaigns, and cross-channel inventory alignment is nice.

But multichannel marketing is pure pap, feckless when confronted by convenience, fast shipping, and cheap prices.

And worst of all, the multichannel industry fuels this trend by advertising the items that ultimately are purchased at pureplays that don't employ traditional advertising.

Woo-hoo!


Aside: A Best Buy employee told a customer that he wanted to take her television outside to her car because it was too hot inside the building. She asked the employee why they couldn't turn on air conditioning. He said they couldn't because climate control was manned from Minneapolis. If that story is true, then Best Buy management is really knocking down some silos, huh folks?!!

ACCM 2008: Multichannel Marketing

I continue to sense a disconnect between the perception of multichannel marketing between conference attendees, and vendors.

An attendee told me that he likes testing different concepts in different advertising channels and different physical channels. Each channel offered unique opportunities for the customer.

A vendor told me that we must offer the same merchandise at the same price in all channels. Another vendor mentioned that all customers are multichannel customers.

A speaker told the audience that products should be available in all channels, then mentioned that various items are not advertised in catalog because you cannot afford to market all products.

A vendor told me that the vendor community must lead the attendees on this issue, because attendees struggle with the multi-dimensionality of this topic.

So many attendees shared unique quirks in their business model that require multichannel marketing strategies that are fundamentally different --- different by business, different across channels, different across price points.

I become more convinced that the attendees are actually ahead of the vendors on the topic of multichannel marketing. While vendors make theoretically accurate arguments about "silos", attendees deal with the realities of a world that doesn't easily accommodate sameness everywhere. Vendors may be accurate in wishing that brand better measure multichannel activities. Attendees appear much farther ahead in testing strategies without the constraint of "sameness".

Multichannel Skills

Today I am hosting a rummage sale.

A family stopped by, looked at various items, discussed the items in their native language, then spoke to me in English.

From a negotiating standpoint, they had an inherent advantage.

Which brings us to the art known as multichannel marketing.

Why do so many of us elect to focus on one aspect of multichannel marketing, without being well-versed in other areas? Web Analytics, E-Mail Marketing, Business Intelligence, Data Mining, Catalog Marketing, Paid Search, Affiliate Marketing, Portal Marketing, Newspaper Advertising, Radio Advertising, Television Advertising, Social Media --- we pick our niche, and try our hardest to become an expert in that niche.

Granted, there is nothing wrong with doing a deep dive in one particular area of marketing. For the generalist, knowing 50% about each of a dozen different crafts is worth more than knowing 100% of one niche.

Unified Multichannel Metric

A pet project over the next few months is the development of a Unified Multichannel Metric.

Why?

If you executed a multichannel marketing campaign, how would you know if it worked or not?

• If customers responded to the campaign at significantly increased rates, but the number of multichannel customers did not increase, was the campaign successful?

• If the series of campaigns, across channels, generated a loss, but increased the number of multichannel customers, was the campaign successful?

• If a retailer went from having 100 stores to 200 stores, thereby doubling the number of multichannel customers, was the brand successful at generating multichannel customers?

• If a cataloger reduced circulation by fifty percent, dramatically increasing profit, but reducing the number of multichannel customers, was the marketing plan a success?

• If a online pureplay used multiple online advertising vehicles, lowering response and profitability across all campaigns, but increased the number of customers buying, was the multichannel advertising campaign successful?

It's probably time for a Unified Multichannel Metric.

Centralized Marketing Department, Integrated Multichannel Marketing Strategy: Does It Work?

One of the basic tenants of Multichannel Marketing is to avoid silo-based marketing departments, opting instead for a centralized marketing org structure.

The theory is that by integrating marketing across all channels, a centralized team provides customers with a seamless experience, regardless where the customer chooses to shop.

So here's a question for the vendor community that reads this blog. Have you observed a company where, after centralizing the marketing department, the company observed an increase in existing customer retention rates, and/or spend per retained customer, measured on an annual basis?

If the theory of a centralized marketing department and integrated marketing communications is valid, we should see metrics that look something like this:

Customer Performance By Marketing Strategy
	HHs	Rebuy	$/Rebuy	Net Sales
This Year: Centralized/Integrated	100,000	55.0%	$275.00	$151.25
Last Year: Silo Based Strategy	95,000	50.0%	$255.00	$127.50

Vendors --- use the comments section of this post to share examples where there is genuine improvement, as measured by increases in annual repurchase rate, and spend per repurchaser.

The Writers Strike And Multichannel Marketing

I like to follow Ken Levine's blog, especially during the writer's strike. It's one thing to read a blog, it's quite another to read the blog of a writer.

TV writers want to be compensated when their work airs in the digital realm. When viewers watch "The Office" on television, writers receive some level of compensation. When viewers watch "The Office" on NBC.com, writers do not receive compensation.

How similar is this to the challenges folks in multichannel cataloging face?

When you boil it down, writers want credit for their work ... credit being compensation.

In multichannel cataloging, we see the same thing.

E-Mail marketers truly believe (and rightly so) that they drive significant volume. But they are sometimes hounded by catalog marketers who believe that e-mail marketers couldn't even do their job if the catalog didn't generate an order, causing an e-mail address to be collected.

Search marketers can't measure the business they drive to stores ... and if they could accurately measure it, their budgets would at least double in size.

Catalog vendors are desperate for respect. A printer has to prove that printed material causes online and retail sales to happen. The USPS must prop up mail volume. Co-ops depend upon occasionally biased matchback algorithms that suggest paper is the primary cause for online and retail orders. List brokers and list managers watch dollars flow out of their industry, into paid search ... or worse, they recommended that their clients use the co-ops, only to see the co-ops steal their business, causing consolidation.

The internet changed everything.

Writers want compensation when their work is consumed online.

Catalog, e-mail and paid search marketers and vendors want credit/compensation when consumers use their work to purchase merchandise online or in stores.

The only fair way to replicate a writers strike is to not execute your marketing tactics for a period of time.

In marketing, that isn't called "going on strike". It is called "a test".

If you want to prove that your catalog is so critical to your brand, take five percent of your customer file, and withhold catalog mailings for one year ... see what happens.

If you want to prove that your e-mail marketing is an integral part of your sales promotional strategy, take five percent of your e-mail file, and withhold e-mail campaigns for one year ... see what happens.

If you want to prove that search marketing is responsible for driving sales in stores, try taking five percent of key merchandising keywords, and withhold search marketing campaigns for these keywords for one year ... see what happens.

One year is an important time frame for marketing tests. See, customers don't notice when one of thirty-eight catalogs, or one of sixty-seven e-mail campaigns is missing.

Customers do notice when catalogs stop coming. Customers do notice when e-mails no longer show up. Customers then change their behavior.

This is what you want to measure ... you want to measure what happens when customers have no choice but to use other alternatives to shop. This proves the true value of your marketing channel.

I've executed these tests many times over the past twenty years. The results are never what you'd expect, never similar to what you see when you execute simple A/B splits in short-term marketing strategies. Customers are fascinating --- they do all sorts of unpredictable things when you take marketing away from them for a long period of time.

Multichannel Experience And Pricing

Multichannel experts suggest that the look and feel of our marketing strategies should be the same across channels. We're told to offer the same prices across channels, same promotions across channels, same merchandise across channels. We're told that our customers demand this experience.

If you travel often, stop in a McDonalds restaurant in Boston, and then stop by a McDonalds restaurant in Topeka.

You're likely to find different pricing for similar items.

You're likely to find differences in the menu ... maybe a McRib sandwich is offered in Topeka but not in Boston.

Retailers have a long history of charging different prices in different regions. Retailers offer different merchandise in different regions. We accept this as a fact of life, in reality, it is necessary for the retailer to do this in order to run a profitable business.

If we accept that retail can/should be "different", why can't multichannel marketers offer different promotions, different offers, different merchandise, different contact strategies, different creative treatments by channel?

Hologram Marketing and Multichannel Marketing in 2015

A loyal reader sent us this article about Target using Hologram Marketing.

Fast forward to 2015, when we'll read an article that goes something like this:


NEW RESEARCH INDICATES THAT E-COMMERCE AND HOLOGRAM MARKETING WORK TOGETHER TO FACILITATE THE OPTIMAL CUSTOMER MULTICHANNEL EXPERIENCE

October 29, 2015: A new study, commissioned by Google, Yahoo!, Shop.org, Marketing Sherpa, Forrester Research, E-Tailer and Internet Retailer indicates that "multichannel customers", customers who shop via e-mail marketing, paid search marketing, website research, social media, e-commerce and hologram marketing, are five times more valuable than customers shopping via just the hologram marketing channel.

"These results validate what we've been preaching to clients since the early days of hologram marketing ... you simply cannot dive headfirst into hologram marketing without realizing that the customer demands a multichannel experience." stated Leonard Thigginsworth, President of Shop.org, the venerable e-commerce advocacy firm. "Firms that fail to tightly integrate the world of e-commerce with the benefits of hologram marketing are unlikely to thrive in this hyper competitive marketplace. Furthermore, the suggestion that today's experienced online marketers will soon be standing in soup lines is simply premature. Online marketing skills are essential in this highly complicated age of hologram marketing." concluded Thigginsworth.

The study indicated that 61% of customers were "very likely", "likely", or "somewhat likely" to use old fashioned tools like Google and Yahoo! to search for products and services. These customers indicated that they spent 5.3 times as much money on hologram marketing as did customers who abandoned e-commerce in favor of hologram marketing technology from "Holo", the San Jose based brand that utterly disrupted e-commerce in 2013 with innovative "personal holograms" that manage everyday consumer tasks via simple voice commands.

39% of survey respondents said that they were "very likely", "likely", or "somewhat likely" to use promotional e-mail campaigns to facilitate searches on Google or Yahoo!, searches that resulted in customers researching products and services on old-fashioned e-commerce websites, before ultimately giving purchase instructions to their personal hologram.

Darren Manning, President of Internet Retailer, believes these results validate the need for a holistic multichannel customer shopping experience. "We all know that late at night, shoppers wearing pajamas, sitting in front of the fireplace, love to hold their notebook computers on their lap, reading promotional e-mail campaigns and researching products and services in the friendly, safe and encrypted blanket known as e-commerce. This behavior simply isn't going to change because a startup company creates a personal hologram who does menial tasks and chores for you." stated Mr. Manning.

"In addition, do you trust handing over your credit card number or thumbprint to a hologram? I don't! I trust the encrypted environment offered by e-commerce." added Mr. Manning.

The study is good news for Google, a beleaguered old-school brand who lost a third of their search market share to Holo during the past thirty six months, resulting in an 80% drop in share price.

The study is also good news for online advocacy organization Shop.org, which is struggling to stay in business in this ultra-competitive marketplace. "We strongly believe that multichannel marketing is best experienced when customers use a combination of e-mail marketing, paid search, and e-commerce websites to research products and services. Traditional e-commerce-based research drives purchases via tools such as Holo. Research indicates that up to 80% of purchases via Holo are driven by e-mail marketing, paid search marketing, and e-commerce websites. Multichannel marketing, e-mail marketing, and paid search are here to stay. Take away e-commerce, and you take away the e-commerce potential of Holo" stated Ben Morrison, President of Shop.org.

Still, there are fundamental changes in customer behavior being exhibited by "Generation Z", 13-25 year olds who are children of the non-descript "Generation X" cohort of consumers. A recent study commissioned by Holo indicated that only 7% of these consumers subscribe to e-mail marketing programs, or use paid search.

"We believe that when Generation Z become full-fledged members of the "participation economy", (a phrase jointly coined by President Jeb Bush and Speaker of the House Michael Moore), they will appreciate and fully utilize the myriad of benefits offered by a multichannel marketing experience that tightly integrates e-mail marketing, paid search, social media, e-commerce and hologram marketing." stated recently appointed Marketing Sherpa President Sarah Rogers.

In Honor Of The Title Of 'Director'

I am proclaiming Monday, July 9 as "Director" day. If your job title is "Director" of anything, this day is for you!

In a post Sarbanes-Oxley world (thanks Enron), the title of Director has to be the most challenging one for a professional employee to hold.

From my earliest days at Lands' End, I wanted to be a Circulation Director. I saw that position as one that played a significant role in the direction of the business.

Eventually, I became a Circulation Director. Elements of the job were intoxicating. It was great fun to put together a circulation plan that showed increased sales and increased profit on a merchandise productivity decrease of ten percent!

Post Sarbanes-Oxley, being a Director wasn't as much fun. In big organizations, the Director reports to a Divisional Vice President. The Divisional Vice President reports to a Vice President. The Vice President reports to a Senior Vice President. The Senior Vice President reports to an Executive Vice President. The Executive Vice President reports to a Chief "X" Officer. The Chief "X" Officer (fill in any role for the 'x') reports to the Chief Executive Officer. The Chief Executive Officer manages day-to-day responsibilities as assigned by the Board of Directors. The Board of Directors ultimately manage the business on behalf of Shareholders. Shareholders frequently demand a short-term return on investment, requiring a lot of strategic direction from the "C-Level" suite.

The Chief Executive Officer and the Chief Financial Officer have to sign-off on SEC-mandated reporting. This magnitude of accountability requires hands-on control of the business that didn't exist five or ten or fifteen years ago.

This stretches the role of a Director. In the past, the Director managed budgets, and set strategy for his/her area of responsibility. Over the past five years, these responsibilities migrated up the pyramid, closer to the Chief "X" Officers.

Conversely, the Director had to provide a satisfying work environment for his/her direct reports. The Director had to grow talent among Manager and Analyst level staff members. As a result, the job description of your average Director was redefined in a way that was not complementary to the career needs of the Director.

Over the past five years, the Director was pinned-down in a no-win career growth situation. If one of the VP-level individuals left the company to pursue other interests, it was trendy to hire a Vice President from a competing organization. These leaders brought new ideas, leadership, and vision to your organization.

That's the way things had been over the past five years.

Today, Director-level professionals have great opportunities to shape multichannel organizations. Many executive-level individuals lack the online experience necessary to drive multichannel sales and profit. A Director with circulation and online marketing experience may be the most valuable individual in any multichannel marketing organization --- able to combine the tools of the past with new marketing techniques to increase the success of your business.

If your job title is Director, then today, July 9, 2007 is a day dedicated to YOU!

If you are a Marketing Director at a multichannel retailer, this might be one of the best times in the history of direct marketing to make a significant contribution to your business. I think the stars have aligned in a positive way.

It's a good time to demonstrate leadership. And if your company won't recognize you for your efforts, there are hundreds of multichannel organizations that will. The future is bright for Director-level individuals who possess multichannel skills.

What I Value

Many (i.e. more than just a handful) of my loyal readers recently shared their thoughts with me about my attitude toward cataloging and multichannel retailing. The most popular word used to describe the message I'm conveying is 'doom'.

If you've worked with me in person, on a day-to-day basis, you know I'm not about doom. I am all about pointing the ship toward a viable future. During my career, the companies I've worked for generated $50 billion in net sales and $4 billion in earnings before taxes. The leaders I've worked with know something about pointing the ship toward a viable future.

So let's list a few things that I value in our multichannel world. These are sustainable things that frequently lead to increased sales and profit, or at minimum support an enjoyable work environment. These concepts and ideas are not about 'doom'. You're invited to contribute your ideas at the end of the article.


I value vendors who speak honestly, and don't market their products and services using fear and arrogance as a tactic.

I value bloggers who do not tear down multichannel retailer customer service for the sole purpose of increasing the readership of their blog. Someday, multichannel retailers will figure out how to fight back against bloggers. Woe to all bloggers when the brands decide to fight back.

I value online marketers who credit retail and catalog marketing for a portion of their success. I believe these folks make up the next generation of great direct marketing leaders.

I value multichannel retailers who use the online channel for customer acquisition. Maybe the biggest advantage a multichannel retailer has is an active online and catalog customer acquisition program that fuels future retail growth.

I value industry experts who are willing to admit that catalog response is declining, and that e-mail response is declining. Both facts are frequently (though not always) true, and there's nothing wrong with admitting it.

I value search marketers who teach their clients the art of search marketing while managing search tactics in an ethical manner.

I value executive teams who listen to the ideas of their analysts, managers and directors first, considering the ideas of vendors and research firms as a secondary source for growth.

I value online marketers who allow search marketers to do their jobs, but remain highly engaged in this form of art.

I value multichannel retailers who increase sales and profit by capitalizing on people. Technology cannot succeed without people. People frequently succeed without technology.

I value executive teams that get along, work collaboratively, and genuinely care about the people they support.

I value e-mail marketers who do their job in an ethical manner. It has been my experience that e-mail marketers are among the least appreciated of all marketers, and drive far more sales in a multichannel retail environment than they get credit for.

I value catalog circulation staff, folks who do hard, tedious, endless cycles of work without sufficient appreciation from online marketers, e-mail marketers, or multichannel executives. Almost all of the tactics used by e-mail marketers were invented by previous generations of catalog marketers.

I value multichannel websites that are warm and inviting, while practicing the art of "selling" merchandise.

I value individuals who have the title of "Director". These folks are among the least appreciated employees in any company, working without the strategic or decision-making authority of an executive while dealing with many of the same headaches that any executive has.

I value multichannel businesses that chart their own course, developing their own take on how to sell merchandise to customers instead of following the advice of the latest research report.

I value research organizations that don't try to increase top-line sales and stock price by beating up the very multichannel retailers who purchase their research reports.

I value multichannel leaders who focus on strategy more than day-to-day tactics, who focus on vision more than ten hours of back-to-back meetings, who let their Directors manage all of the day-to-day tactics, who do not micro-manage every aspect of multichannel marketing.

I value catalogers who use the paper they send to customers to tell a compelling story about their products and services, who add warmth and humanity to their marketing.

I value multichannel CFOs who have artfully managed advertising and capital spend between cataloging, online marketing, e-mail marketing, multichannel inventory systems, and physical stores.

I value database marketers who have accurately measured the incremental contribution of catalogs, online marketing, e-mail marketing, multichannel inventory systems, and physical stores by using test/control methodology.

I value creative staff who artfully manage the balance between taking creative risks, who visually present merchandise using time-honored techniques, who communicate a warm and humble marketing voice to the customer.

I value database marketers who understand that must-have merchandise, presented in an attractive manner, sold at a fair price, and coupled with excellent customer service is what drives the success of a company --- and as a result, stay out of the way by not complicating the business with theoretical concepts like "return on customer" or "lifetime value".

I value merchandising staff, the folks who truly 'get' multichannel marketing, the folks who pay all of our bills. No vendor, no research organization, no executive, no director, manager or analyst makes any money without brilliant merchandisers who intuitively understand what the customer wants to purchase six to twelve months before the merchandise will ever be available.

I value brand marketers who focus on small details like sponsoring a cancer run over big concepts like television advertising.

I value compensation, human resource and executive teams that give analyst and manager staff much more than meager three percent cost-of-living salary increases when multichannel businesses are successful.

I value compensation, human resource and executive teams who reward star performers in creative ways, and are not limited by a mythical budget or performance review cycles.

I value multichannel vendors that keep scorecards of their successes and failures, and openly share these scorecards with their clients and prospects.

I value compiled list vendors that are trying to develop viable matchback algorithms for the catalog industry.

I value staff who work at list vendors, folks who grew countless multichannel businesses in the pre-search era, folks who are now being 'consolidated' or 'downsized' in spite of continued excellent and selfless work.

I value anybody who has the courage to stand up to Google and suggest that they are siphoning profit off of all of our profit and loss statements for transactions that would have occurred anyway.

I value online marketers who understand that Google is siphoning profit off of all of our profit and loss statements for transactions that would have occurred anyway, and react to this by better balancing natural and paid search activities.

Realize, of course, that we are to blame for this by participating in paid search, but kudos to those who balance natural and paid search.

I value database marketers who have accurately measured the amount of profit that Google has siphoned off of our profit and loss statements.

I value web analytics folks who measure customer behavior across multiple visits, instead of solely focusing on individual visit metrics.

I value information technology experts who serve internal customers (i.e. those of us who request work of IT folks) in a humble and helpful manner.

I value multichannel leaders who allocate enough investment in information technology so that IT folks can serve us in a humble and helpful manner.

I value multichannel HR departments that focus on cross-pollination of skills between online, catalog and retail channels, and reward employees for their total contribution, not just their channel contribution.

I value multichannel leaders who have the courage not to outsource catalog circulation.

I value multichannel leaders who support an 8-5 workday filled with meaningful and rewarding work over a 7-7 workday filled with meetings.

I value multichannel leaders who allow employees to work from home, and have the courage to hire employees who may not live in the same geography as the corporate office, allowing those employees to contribute from their existing home sans relocation.

I value multichannel leaders who openly communicate with their employees, are visible to their employees, and share the issues the executive team are dealing with so that employees can do their best to help the business succeed.

I value the efforts of analysts and managers at multichannel retailers, the folks who execute all of the gaudy strategies that executives attempt to implement. Without loyal, talented and dedicated analysts and managers, executives couldn't possibly enjoy the millions of dollars they receive in salary, stock options and bonuses during their leadership reign.

I value the efforts of call center and distribution center staff, the folks who are the real engine behind multichannel marketing. You can thrive without great systems. You cannot run a business without poorly paid humans taking phone calls, managing live chat, or picking/packing/shipping merchandise. The day somebody figures out how to properly compensate these folks for their true contribution is the day some 'brand' goes bonkers.


Your turn. What do you value about multichannel marketing?

Does Online Marketing Truly Increase Net Sales For Multichannel Retailers?

Online Marketing. For some businesses, it has been a revolutionary marketing tool that drives incremental sales and profit. Many online businesses thrive, using online marketing techniques like paid and natural search, affiliates, and portal advertising. A business like Zappos grows exponentially using online marketing strategies.

Our metrics seem to indicate that online marketing works. We've spent a lot of money installing software on top of our websites, and the software indicates that we get incremental traffic, conversion, and sales as a result of our marketing efforts. We see this in real-time, so it must be true.

Multichannel businesses often have different challenges than online-only business models. Multichannel businesses use traditional advertising, catalog advertising, and physical presence (retail stores) to drive sales.

Many multichannel businesses are seeing diverging trends, trends that lead to frustrating conclusions.

• The amount of money spent on marketing is increasing, when you add catalog, traditional and online advertising together.
  

• Annual retention rates, when measured across channels, are generally flat.
  

• The rate at which new customers are added to the business is generally slower than the rate at which investment in new customers is increasing.

For multichannel businesses, this suggests that increases in advertising expenditure are not yielding an overall positive return on investment. Any one advertising activity, when measured in a silo, appears positive. But the lump sum of advertising activities, and the increase in advertising over time, are not yielding a positive return on investment.

Just for fun, do a comparison. Look at your customer file in 1994, 2002, and 2006. Back in 1994, look at your ad-to-sales ratio, in the pre-internet era. In 2002, look at your ad-to-sales ratio, pre-search era. In 2006, look at your ad-to-sales ratio post-mass-media-collapse.

Similarly, look at your annual retention rate, and your annual purchase frequency, in 1994, 2002 and 2006.

If you see that your annual retention rate is flat or decreasing, your annual purchase frequency is flat or decreasing, or your ad-to-sales ratio is increasing, it suggests several possible challenges.

First, you might have to spend more on advertising today, because our customers are being carpet-bombed by competitors at every angle.

Second, there is one thing that fundamentally changed between 1994 and 2006 --- the internet! If ad-to-sales ratios are increasing, while retention rates or purchase frequency has remained flat, it suggests that online marketing has not fundamentally moved the needle at increasing customer loyalty, or cultivating new customers.

Third, if online marketing has not fundamentally moved the needle, it may mean that traditional advertising or catalog advertising needs to be trimmed-back in order to optimize the ad-to-sales ratio, and ultimately, profitability.

One way to evaluate online marketing is to see what percentage of those who respond to online marketing are truly "new-to-file" ... in other words, does online marketing truly drive new customer acquisition? Many multichannel organizations are observing that online marketing drives "existing" customers toward a purchase more than it drives "new" customers toward a first purchase. This could be a positive trend, in that online marketing rescues a customer about to defect.

More likely, this is a negative trend --- it simply means we've trained the customer to shop a certain way, and we spend additional money to achieve the same result. We calibrate our metrics to reflect that this is a "good" decision, when in reality, it isn't.

In conclusion, take a look at your advertising metrics, and your customer file information from 1994, 2002 and 2006. Are you spending more, as a percentage of sales? Are your annual retention rates increasing, flat, or decreasing? Are your annual purchase frequency metrics increasing, flat, or decreasing? This represents the starting point toward understanding if all the money multichannel marketers are now spending on online marketing are truly generating a positive return on investment.

Multichannel Independence Day

Independence Day gives all of us a chance to reflect upon the events that led to the creation of the United States of America.

We might think that "July 4th" is all about sparklers and snakes and lighting things on fire. Or about loading the family into the eco-friendly Ford Escape Hybrid SUV for a trip to the fairgrounds to watch the annual fireworks show, only to complain that the county didn't spend enough of our property taxes on a finale that beat the simulated weapons they sent skyward in a neighboring county last Saturday night.

Deep down, we realize that the fireworks simulate events that transpired more than two hundred years ago.

In the "multichannel marketing" world, trade journals, vendors, research organizations and conferences provide our fireworks.

We look skyward, waiting for the next big article or announcement. Suddenly, a firework is launched. A research organization commissions a study that suggests ninety percent of multichannel retailers fail at everything. BOOM! We ooooh and aaaaah at the revelation that almost everybody but Best Buy is highly flawed. We willingly fork over money from our budget to obtain additional PDF files that further humiliate the organizations we work for.

Maybe the next firework will be about a study that illustrates all the failures of research organizations.

Wait, here goes another firework! At the zenith of the firework, we see one white light, then a tenth of a second later, one loud BOOM! That's sort of like an article that hypes a product or service ... we get so excited, only to hear a big loud BOOM five-hundred words later. Without the recommended product or service offered by the vendor, our customers will defect in an instant. We'll be destined for the scrapheap occupied by previously wondrous brands like Montgomery Wards.

Oh oh, here comes the finale. The PA system plays "Stars and Stripes Forever", as thirty-six of the finest fireworks explode skyward, all within one-tenth of a second of each other. This is like attending an industry conference. A star-studded lineup of speakers, the exhibit hall dazzling one and all with the latest and greatest advances in multichannel technology, networking dinners, you name it --- it's a fun-filled assault on the senses.

At the end of the fireworks show, we head home in our eco-friendly Ford Escape Hybrid SUV. The real world awaits us. Similarly, when the conference is over, we head home in a middle seat on a three hour flight, hoping that somebody will listen to what we learned at the conference.

As we approach Independence Day, give a little thought to ways in which your department, or your brand, can achieve "multichannel independence" --- how can you be innovative, different, creative, dare I say "revolutionary"? What unique ideas do you have?

Expanding Upon Multichannel Business Models

We really lit up the readership meter yesterday when we discussed Multichannel Business Models. Monday was one of the top five traffic days in the history of the blog, that post was the most read post of the day by a wide margin.

I'll take that as affirmation that multichannel business models are of interest to you, the loyal MineThatData reader. Let's expand upon yesterday's discussion.

A common question I hear is "How do I, with the data I have available to me, determine which business model my brand is classified in?" Good question! Let's explore each business model, and some of the things you're likely to see. We'll explore each business model by looking at results from mail/holdout tests, comparing dollar per customer metrics.


Model #1 = Simple Online Presence

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$3.00	$7.00	$0.25	$0.00	$10.25
Holdout Segment	$0.00	$8.10	$0.05	$0.00	$8.15
Increment	$3.00	($1.10)	$0.20	$0.00	$2.10
Incremental Results:		$2.10 / $3.00 =		70.0%
Matchback Analysis:		$3.00 + $0.25 =		$3.25

Notice that almost no online demand is generated by the mailing of the catalog. Also, if the catalog is not mailed, virtually no online sales occur. This clearly tells you that the website is just "there", customers are not really using it to order merchandise.


Model #2 = Online Order Form: Check out the differences in this table:

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$2.00	$7.00	$2.00	$0.00	$11.00
Holdout Segment	$0.00	$8.10	$0.10	$0.00	$8.20
Increment	$2.00	($1.10)	$1.90	$0.00	$2.80
Incremental Results:		$2.80 / $2.00 =		140.0%
Matchback Analysis:		$2.00 + $2.00 =		$4.00

Notice how different this table looks. In this business model, demand is driven to the online channel when the catalog is mailed. Notice that almost no online demand occurs in this scenario. So, the catalog drives orders online, but the online channel is not yet capable of generating its own incremental volume. The online channel is a glorified order form.


Model #3 = True Catalog Multichannel Model

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$3.00	$7.00	$3.00	$0.00	$13.00
Holdout Segment	$0.00	$8.10	$1.50	$0.00	$9.60
Increment	$3.00	($1.10)	$1.50	$0.00	$3.40
Incremental Results:		$3.40 / $3.00 =		113.3%
Matchback Analysis:		$3.00 + $3.00 =		$6.00

Notice the significant differences in this business model. If the catalog is not mailed, half of the online demand occurs anyway. This is a view that many catalogers are missing these days, due to an over-dependence upon matchback analyses. In this case, $3.40 of demand per customer were generated. However, the matchback analysis indicates that $6.00 of demand per customer were harvested. If the cataloger goes with the latter, the executive team will significantly over-circulate catalogs, causing profit to be sub-optimized. This is probably the most significant analytical error happening in our industry these days --- our list processing, compiled list vendors, industry experts and and paper representatives have unknowingly pushed us down this path, and we let it happen. Nobody is to blame, it's simply our responsibility to do a better job of analyzing the business models we manage.


Model #4 = Retail Business, Catalog Heritage

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$3.00	$6.00	$3.00	$3.00	$15.00
Holdout Segment	$0.00	$7.00	$2.00	$2.00	$11.00
Increment	$3.00	($1.00)	$1.00	$1.00	$4.00
Incremental Results:		$4.00 / $3.00 =		133.3%
Matchback Analysis:		$3.00+$3.00+$3.00		$9.00

These results are interesting. In a true multichannel version of a catalog business model, volume is spread across other catalogs, the website, and retail stores. Typically, the catalog will drive modest amounts of volume online, and to stores. Notice that online and store channels still get a ton of volume, even if the catalog is not mailed. In these cases, matchback analyses are flat-out wrong --- much care needs to be taken to accurately read matchback analyses in a retail environment of this nature.


Model #5 = Online Business, Retail Heritage

Incremental Value Of Catalog Marketing
		Other
	Catalog	Catalog	Online	Retail	Total
	Demand	Demand	Demand	Volume	Volume
Mailed Segment	$1.00	$4.00	$5.00	$20.00	$30.00
Holdout Segment	$0.00	$5.00	$4.00	$19.00	$28.00
Increment	$1.00	($1.00)	$1.00	$1.00	$2.00
Incremental Results:		$2.00 / $1.00 =		200.0%
Matchback Analysis:		$1.00+$5.00+$20.00		$26.00

These business models are also fascinating. Notice that catalog advertising plays a very small role in influencing business results. Online demand and retail volume are barely moved by the mailing of a catalog. Yet, in total, the catalog is twice as effective as source code reporting would indicate.


There's no need to talk about online pureplays, as catalog dynamics are not part of that equation.

Given what has been shared over the past two days, what are your thoughts? Does this framework make sense? What are you seeing in the business models you manage? Do you agree that matchback analyses are frequently in error, sometimes significantly in error, when measuring the incremental value of a catalog?

Multichannel Business Models

Fifteen weeks as an independent multichannel strategist provide me with a new perspective on multichannel business models. I can see that there are at least six ways that retailers/catalogers are leveraging the online channel, the channel responsible for the "multichannel" moniker. Each business model has unique advantages, and unique challenges.

Model #1 = Simple Online Presence

• These businesses generate the vast majority of their sales by customers who send orders via the mail, or by calling a sales representative in a contact center. The order was stimulated by the mailing of a catalog. The online channel is not a significant driver of sales for businesses in this situation. The customer does not utilize the online channel as a shopping vehicle. At least eighty percent of the net sales happen via the mail, or via telephone. The average customer is at least fifty-five years old.
  

Model #2 = Online Order Form

• These are catalog businesses that use cataloging as the primary marketing vehicle, but provide a robust online experience that causes customers to place their orders online. These businesses struggle with the concept of being "multichannel", because all analytical work indicates that the catalog drives eighty percent or more of online sales. In reality, these businesses are not "multichannel", they are really catalog businesses that take orders online. Still, it is not uncommon for these businesses to generate half of all orders online.

Model #3 = True Catalog Multichannel Model

• It has been my experience that this is the least understood of all business models. These are catalogers that generate at least half of their annual net sales online. However, these catalogers typically believe that the catalog is responsible for driving the online sales. In reality, the online channel developed a foothold in these business models. If catalogs were not mailed to customers, online orders would happen anyway. This is very hard for catalog executives to understand, to digest, to develop strategies against. Company reporting and matchback reporting indicate that the catalog drives online sales. Mail/Holdout testing indicate that at least half of the online sales would happen regardless whether catalogs were mailed or not. These businesses have robust e-mail, paid search, natural search, affiliate, portal and online marketing programs that generate incremental sales. It is this business model that many industry experts and consultants target when they talk about "multichannel marketing".

Model #4 = Retail Business, Catalog Heritage

• These are interesting business models. Be it Coldwater Creek, Williams Sonoma, Lands' End or now Dell, these businesses practice true multichannel marketing, but with a strong focus on ROI. The catalog heritage drives measurement of all advertising activities across all channels. If an aspiring individual wanted the best multichannel lab to build multichannel skills in, I believe these environments provide the best place to gain valuable, portable experience.

Model #5 = Online Business, Retail Heritage

• A Neiman Marcus, Saks or Macy's fit into this business model. The online channel is strictly complementary to the store experience, as the stores are responsible for the lion's share of sales and profit. Management says the right things about multichannel marketing, and do invest in the online experience. That being said, the purpose of being multichannel is to do everything possible to please a store customer. This strategy leads to sub-optimization of the direct channel. Over time, these businesses will lead the online industry in "entertainment". The online channel (and supporting catalog channel) will likely become the entertainment and informational arm of the brand. Of course, a giant retail presence will cause a ton of traffic to migrate online, driving a huge volume of online sales. But the online sales will not be driven by brilliant online marketing or catalog marketing strategies. The online sales will happen because the online channel acts as the entertainment/informational arm of the retail brand experience. There's nothing wrong with this. But it does require a very different set of marketing skills --- traditional online and catalog marketers may be frustrated by this business model. Traditional analytics individuals may not be pleased with the depth of analytical insight required to run these businesses (i.e. the business is run by "brand instinct", not by analytical findings and ROI).
  

Model #6 = Online Pureplay

• These businesses are fundamentally different than the five models described above. These businesses were born online, and utilize a marketing strategy fundamentally different than other businesses. Traffic is driven by online marketing strategies. To compensate for what I call "channel disadvantage" --- not having catalogs or stores, these businesses utilize free-shipping, free-returns, and rock-bottom pricing to gain a competitive advantage. These businesses need to grow to a size large enough to overcome margin and shipping revenue shortfalls. Zappos is probably the best example of a business in this category. The online marketing departments in these companies offer spectacular laboratories for learning online marketing strategies. If I were a college student today, this would be one of my primary industries to target for employment.
  

Strategically, it is very important to understand where your business model falls on this continuum. The way you utilize multichannel marketing and advertising strategies is highly dependent upon the customer base you have, coupled with your heritage and objectives.

Cataloging makes less sense for business models five and six. Traditional cataloging strategies are frequently not congruent with brand-based retail models and online pureplays.

Online marketing makes less sense in the short term for business models one and two. These business models are supported by customers who are not willing to shop on the web without the benefit of catalog merchandise presentation.

Matchback and analytical expertise are probably most critical in business models three and four. Catalog businesses that migrated from model one to model two to model three have the best opportunity to overcome postal increases, because the customers shopping these businesses will purchase online if catalog frequency is reduced.

Your turn, my loyal reader! What e-commerce business models are missing from this list? How might you change these categorizations to make more sense?