Multichannel Forensics And Online Marketing

During the dog days of summer, we're going to explore some of the unique challenges that online marketers face when measuring business performance.

One of the biggest challenges online marketers face is conflicting metrics. For instance, this article suggests that Starbucks and Dell greatly benefit from their social media efforts. That sounds good, of course, until you realize that Starbucks is struggling mightily, suffering from a 75% drop in profit in the first half of the most recent fiscal year. In the case of Dell, they are about to be passed for second place in computer market share by Acer.

So did Social Media help these companies stem what would have been even bigger declines? Or do the metrics in the article fail to measure reality? It's hard to know the truth, we cannot easily separate out the positives and negatives.

In online marketing, we constantly face these challenges. We work really hard to improve conversion rates, we'll make ten or fifteen improvements, only to learn that we have metrics to prove that the improvements made a difference --- but actual annual sales and profit did not increase.

For the remainder of the summer, we're going to couple our Gliebers Dresses story with a series on Multichannel Forensics and Online Marketing. In some ways, we'll explore how the concepts in the book Moneyball apply to online marketing --- we'll talk about how our metrics and KPIs and dashboards give us information that isn't always aligned with the business results we're seeing. We'll talk about how we might use tools like Multichannel Forensics to give us insight into what is actually happening.

Part 4: What If Catalog Prospecting Stopped Because Of Do Not Mail Legislation?

For a recap of this series, please read part one, part two, and part three. For a view of the simulation tool used to create the scenarios in this series, click on the Multichannel Forensics Two Channel Simulation Link.

This exercise was created to give everybody, catalogers, vendors, customers, blog participants and third parties, an opportunity to understand how actual customers behave based on a simulation of actual customer behavior. The simulation ends speculation and opinions. The simulation simply illustrates how customers behave, and the business consequences that management may eventually have to deal with.

There is no getting around the fact that phone and mail volume are crippled when catalogs are not mailed. Many jobs would be lost if catalog mailings were limited only to loyal customers. Good, hard working call center staff, distribution center staff, and folks who make a living working in the catalog ecosystem (printers, co-ops, list brokers and managers, paper reps, USPS, merge/purge vendors, contact management software vendors), will have their lives interrupted if things ever get to this point. In many ways, this four part series should encourage the cataloger to partner with third party opt-out services in an effort to stem an outcome that is this bleak.

Remember, there is light at the end of the tunnel. Notice that at the end of the simulation, in years four and five, sales rebound, and profit increases. There is hope! Catalog management can follow a prescription to make sure that if things ever get bleak, the business is insulated from the dire situation illustrated in this series.


Catalog Management Prescription To Avoid A Dire Outcome

It is better to partner with third party opt-out services now than to deal with the dire consequences of this simulation later.

Test significant increases in online marketing NOW! See how far you can push the envelope in e-mail marketing, affiliate marketing, shopping comparison sites, portal advertising, banner/ppc advertising, paid search.

Do everything possible to make your site natural/organic search friendly. Contact our friend Alan now, and have his organization help you with natural/paid search strategies that insulate you from tough choices associated with the long-term prognosis of catalog marketing. His catalog marketing experience is very beneficial for making the transition from catalog to online marketing.

Test not mailing catalogs for a quarter to various segments of your customer file. At the end of the quarter, run matchback analytics on the mailed group, and the holdout group. Truly learn what will happen to your business if you were not allowed to mail catalogs.

Run Multichannel Forensics simulations (there are free links on the homepage of the blog), so that you know the long-term trajectory of your business. You may find that your phone/mail customers are very willing to shop online if not mailed catalogs, which would be highly beneficial to you!

Cultivate organic business. This is easier said than done, but is means EVERYTHING to your business. Organic business happens when customers purchase from your brand because they love you, not because you advertise to the customer. Organic e-commerce sales protect you from any catalog or online advertising issues. Organic e-commerce sales are highly profitable. In this simulation, had the catalog brand had significant and growing organic e-commerce sales, the outcome wouldn't have been as dire.

Be proactive! Test everything now! There is hope!

How Online Advertising Channels Fit Together

Please click on the image to enlarge it.

E-commerce provides us with the richest array of information ever available to direct marketers. Let's use the Multichannel Forensics framework to explore the interaction between advertising and customer purchases on your website.

Here's what you do.

Step 1: Create a "spreadsheet", if you will, with each row representing a customer who purchased in 2005. Each column in your spreadsheet is populated with a series of "1s" or "0s". Each column represents a form of advertising. A one is populated if the customer purchased in 2005 using that form of advertising. A zero is populated if the customer did not purchase in 2005 via that form of advertising.

A list of potential "advertising" channels include:

• Brand Buyers: Customers who purchased, and we cannot identify any advertising campaign that caused the customer to purchase. This is the most important "channel" ... we want our customers to purchase from us because they "love" us, not because we advertise to them.
  
• Catalog: Customers who use a catalog source code, or are identified as having purchased via catalog from a matchback analysis.
• E-Mail: Customers who clicked through an e-mail and purchased merchandise.
• Social Media: Customers who purchased and had a referring URL from a blog or social media site like MySpace or Facebook. Some companies comprise a list of the top 5,000 referring URLs, then visit each URL, and identify if the URL is a blog/social-media site. In addition, these companies look for URLs with phrases like "Blogspot" or "Typepad" in the URL, to identify that the referring URL is a blog.
  
• Portals: Customers who purchased and had a referring URL from an advertisement on a portal like MSN or Yahoo!.
• Paid Search: Customers who purchased and had a referring URL from a paid search ad.
• Natural Search: Customers who purchased and had a referring URL from a search engine, a URL that isn't from a paid search campaign.
• Affiliates: Customers who purchased via an established affiliate.
• Shopping Comparison: Customers who purchased via a shopping comparison site like MySimon.

Step 2: Repeat Step 1, but this time, create the file for calendar year 2006.

Step 3: Match the files together for Step 1 and Step 2.

Step 4: Conduct a Multichannel Forensics analysis.

Step 5: Create the map at the start of this post. Any channels that are in "Equilibrium" or "Transfer" are linked together on the map.

The analysis illustrates how your advertising channels work together.

In this example, there are numerous findings.

• New online customers are recruited through paid search, catalog marketing, and "brand buyers", customers who purchase without having used advertising.

• Shopping Comparison and Affiliate customers appear to be largely "cut off" from the ecosystem. In other words, these customers do not eventually become customers who purchase "on their own", or via other advertising channels. One would evaluate the LTV of these customers, to understand if these marketing activities are worthwhile.

• Social Media sites and Portals are leveraged by "brand buyers". In other words, best customers utilize these sites to make purchases.

• Paid Search and Natural Search become "links" that ultimately facilitate the transition from new customer to a loyal customer. The data in this example suggest that these customers can eventually become "brand buyers", customers who don't need advertising to purchase.

• Catalog Marketing is an important way to acquire new customers. The data also suggest that catalog customers use search to complement future purchase activities.

• E-Mail is a "dependent channel" in this example. E-Mail marketing might be effective, but it appears it depends upon other marketing activities (search, catalog) to "acquire" the e-mail address that will be used for e-mail marketing purposes. In this example, the link between "brand buyers" and e-mail is one way. Brand buyers offer an e-mail address, and then respond to e-mail. E-Mail customers are less likely to become "brand buyers", in this example.

Now that the advertising ecosystem has been fully mapped, you sit down with your marketing folks, and consider appropriate linkages between marketing programs.

It is also important to understand which advertising channels drive a customer toward loyalty. Notice that catalog, search and e-mail marketing are all interconnected, whereas affiliate and shopping comparison marketing activities deliver a fundamentally "different" customer to the brand (in this example ... your mileage may vary).

Mailbag: Kill The Catalog

"You frequently talk about what will happen when catalogs go away. Maybe you don't understand cataloging. When we don't mail a catalog, nothing happens online."


I get this feedback a lot. Multichannel Forensics will clearly tell you what the relationship is between catalogs and a website.


Catalog = Isolation, Website = Transfer: This situation suggests that you mail a catalog, customers buy the product online, then the customer uses the telephone for future purchases. In this situation, your catalog means everything to you. Don't kill it!!

Catalog = Equilibrium, Website = Equilibrium: This scenario is what multichannel pundits talk about. Catalog drive e-commerce sales, e-commerce activities drive catalog sales. Everybody wins. Don't kill the catalog!!

Catalog = Equilibrium/Transfer, Website = Isolation: This is when you start to think about killing a catalog. The catalog sends customers to the online channel. Once the customer goes online, they stay there, and don't order over the phone anymore. Ordering over the phone is a proxy for catalog effectiveness. When customers shift their behavior online, and stay online, start seriously thinking about the future of cataloging. Could you match your catalog sales by shifting spend from catalog advertising to online and search marketing?

Catalog = Isolation, Website = Isolation: When this happens, then you have two separate customers, one that likes catalog, one that likes the internet. The customers don't cross-shop channels. In this instance, you can do whatever you feel is appropriate for your catalog and online channels. If your catalog is unprofitable, you probably won't hurt your online channel ... but you probably won't recoup the sales you lose by not having a catalog.


The key is to run the Multichannel Forensics analysis, and let your customers tell you what your strategy should be! Don't listen to me, don't listen to the gobbelty-gook that vendors and pundits toss at you. Simply do the Multichannel Forensics analysis, and let the data guide your thought process.

In the first two examples, you'd never kill a catalog. The catalog "is" your brand.

Online Marketers And Predicting The Future

These days, I make a living by using Multichannel Forensics to predict the future.

In essence, I present five or six versions of "the future" to a business leader. The business leader picks the version that meets or exceeds the expectations of her board of directors, or her ownership team. With luck, the leadership team executes to that scenario, and will experience success over the next three to five years.

The feedback I receive from business leaders is usually positive. Increasingly, leaders tell me they like the strategic debate about "the future" a lot more than rehashing "what worked and what didn't work" in recent marketing campaigns.

So when Jim brings up a parallel topic about "prediction" in online marketing, I stop and think ... What is it about predicting the future that holds back our new generation of bright, talented online marketing experts?

There are fundamental truths about predicting the future.

• We are guaranteed to be wrong all of the time.
• Our prediction is likely to be more accurate if we incorporate historical results into our prediction.
• Our prediction is likely to be more accurate if we use better tools, better math, to make the prediction.
• Our prediction is likely to be more accurate if we have enough business experience to have "seen everything" before, allowing us to blend numbers/facts with gut instinct, vision, and competitive intelligence.
  
• Our prediction is likely to be perceived as being more likely to be accurate if we state it with confidence.
• Our prediction is likely to be perceived as being more likely to be accurate if we've been reasonably accurate in the past.
  

When I visit companies or talk with business leaders on the phone, I note that the catalog marketing, retail marketing or finance folks are more likely than the online marketing folks to build "budgets". "Budgets" are essentially the prediction for what will happen next year.

Maybe this makes sense. Catalog, retail or finance individuals tend to have more experience, tend to have more history to fall back upon, tend to have "seen everything" already.

Online marketers tend to have better tools, in my opinion.

Read any blog or trade journal about web analytics, e-mail marketing, or search engine marketing, and you won't see a lot of talk about "prediction". You'll see a lot of talk about "optimization". You'll see a lot of talk about "targeting". You'll see a lot of talk about "operations". You'll see a lot of talk about metrics, "KPIs" as they are popularly called these days.

This is my opinion, so I invite you to disagree with me in the comments section of this post. I perceive that the online marketing folks have spent a decade building an infrastructure for this new marketing thing called "the internet". Spend all your time focusing on executing campaigns and developing measurement techniques for said campaigns, and you get really good at those things!

As leaders, it is our job to mentor today's brilliant online marketing managers and directors, because these folks will be the CEOs and EVPs of the direct marketing ecosystem in the not-so-distant future.

Conversely, if you're a catalog expert looking for a niche in a world increasingly dominated by online marketing, spend your time becoming great at predicting the future of direct marketing --- be it the future of tools, techniques, or best of all, the future sales of the brands we support. Today's CEOs are looking for this type of leadership, and are not getting enough of it from the current generation of marketing experts.

Career Advice: Joyce, The Online Marketer

This is another composite, reflecting a situation I see repeated in our multichannel organizations. At the end of the story, please offer Joyce career advice.

Joyce is a 31 year old Director of Online Marketing at a multichannel retailer. She is responsible for Paid and Natural Search, Affiliate Marketing, Portal Marketing, E-Mail Marketing, and Shopping Comparison Marketing.

Joyce quickly rose through the ranks at her company. Hired right out of college, Joyce chose the E-Mail vendor, Web Analytics vendor, and Search Marketing vendor at a time when her company barely understood the online channel. The infrastructure she put in place is industry-leading.

However, almost nobody in her company understand her true contribution to the organization. She is routinely battered by store managers who want to run their own e-mail marketing campaigns. In fact, many store employees are running their own e-mail campaigns via gmail and hotmail accounts, campaigns that are not CAN-SPAM compliant. Some store managers and employees run their own personal blogs and websites, selling directly to customers.

Her catalog marketing partners are highly critical of her team, suggesting her team lacks the experience and analytical rigor necessary to manage the ad budget given to Joyce. The catalog marketing director routinely picks on Joyce, mocking $0.29 sales per e-mail results that are just one-fifteenth that of a catalog mailing.

Joyce reports to the Chief Marketing Officer. The CMO is a traditional marketer. He understands television, newspapers, radio, and magazine ads. He has a consumer package goods background, and knows how to "launch brands". He doesn't understand why Joyce has to manage six thousand keywords, doesn't understand why she has to bid more for some words than others. He doesn't understand why Joyce wants to launch a blog, he doesn't understand why a blog might help natural search results ... "our PR department speaks to the community, not you" was his response to a recent request for blogging tools and resources.

Joyce depends upon the Information Technology team for website improvements. Joyce has cost-justified various site improvements, improvements that could improve the profitability of her division by twenty percent. The Information Technology team appears to "pick and choose" the projects they want to provide support for, and because IT doesn't report to Joyce, she cannot directly influence what they should work on.

The CMO recently asked Joyce if she would be interested in a "Vice President of Direct Marketing" position, one that would combine all catalog marketing, direct marketing and online marketing responsibilities. Joyce knows that she would be responsible for managing a catalog marketing program she doesn't understand. Joyce knows that it is likely that catalog marketing leadership will leave the company in protest over this promotion.

Still, Joyce knows that she needs to expand her knowledge of marketing, if she wishes to influence her organization.

What should Joyce do? Should she accept the promotion? Should she decline the promotion and focus on online marketing? Should she quit the company, and work for an organization more appreciative of the value online marketing brings to the organization?

Praise To Infrequent Customers!!

We've been taught to love "best customers". We worship "customer loyalty" in print and in practice.

Loyal customers are always going to purchase in stores. When infrequent customers decide to make unplanned purchases, retail profit sizzles.

In catalog, the opposite situation is true. Customers could not purchase unless the marketer sent the customer a catalog. The cataloger determined who purchased, and how often the customer purchased.

The internet is a hybrid of retailing and cataloging. Traditional marketing, catalog marketing, paid search, natural search, e-mail, affiliate marketing, shopping comparison marketing, portal marketing and word of mouth all blend into a slurry of online purchase bliss.

Therefore, principals of retail "passers-by" pertain to the online channel.

This profit and loss statement demonstrates what happens if you didn't accept purchases from the 40% of your online purchase file that buys infrequently.

Profit And Loss Statement			40% Loss Of
			Infrequent
		Actual	Purchasers
Net Sales		$65,000,000	$52,000,000
Gross Margin	53.0%	$34,450,000	$27,560,000
Less Marketing Expense		$16,250,000	$14,625,000
Less Pick/Pack/Ship	11.0%	$7,150,000	$5,720,000
Variable Operating Profit		$11,050,000	$7,215,000
Less Fixed Costs		$7,800,000	$7,800,000
Earnings Before Taxes		$3,250,000	($585,000)
EBT % Of Net Sales		5.0%	-1.1%

This hypothetical example illustrates the power that infrequent customers, customers that don't require a ton of marketing, have on the profitability of the online channel.

All too often, we marketers and business leaders spend our time worshiping our best customers. There's no doubt these customers should be rewarded for their contribution to the profit and loss statement.

But in online retailing and in stores, the infrequent customer plays a key role in determining business success. We don't read anything about catering to the needs of the infrequent customer. Why?

Career Advice: Jane

This character, "Jane", is a composite of numerous individuals I've met during the past three years. At the end of this brief career description, you are encouraged to offer "Jane" career advice.

Jane is the Director of Circulation for a multichannel cataloger. She worked her way up the corporate ladder, from an entry-level merge/purge analyst in 1992, to a housefile circulation analyst in 1995, to a housefile planning analyst in 1997, to a circulation manager in 1998, to her current position, which she was named to in 2002.

During the past five years, Jane has helped her organization go through a significant transition. In 2002, just twenty percent of transactions occurred online. Today, sixty-five percent of purchases occur online, and half of the online transactions are driven by Jane's catalog mailings.

Earlier this year, Jane's boss, the Vice President of Marketing, left the company to pursue other interests. The CEO decided to name the Online Marketing Director as the new Vice President. This angered Jane. The new VP of Marketing had just six years of total experience, though all of it was in e-mail marketing, paid search, affiliate marketing, portal marketing, and shopping comparison site management.

Since the promotion, the new VP of Marketing and Jane are not getting along. The focus of marketing has clearly shifted toward the online channel. With catalog marketing appearing to be less effective, the new VP asked that Jane give up catalog advertising dollars, so that the dollars could be allocated to online marketing activities, regardless whether the catalog marketing activities drive online sales or not.

Jane mentioned that her "file forecast" indicates that if this strategy is employed, the online channel is likely to lose sales, not gain sales. The VP of Marketing chided Jane for her comments, pointing out that online conversion rates are at a two-year high of 3.294%, thirty percent of all site visitors come from paid search, and that online sales are up thirteen percent over last year. Conversely, "telephone" sales are down seventeen percent vs. last year.

Jane also inquired about taking over the Online Marketing Director position. The new VP of Marketing informed Jane that catalog marketing skills are not relevant to the needs of the Online Marketing Director position.

If you were in Jane's shoes, what should the next step be in her career?

Multichannel Investment Options

In most multichannel businesses, there is one person responsible for combining all advertising investment opportunities.

At traditional catalogers, this person was the Director of Circulation. These days, the person could be the Director of Circulation, it could be the Director of Online Marketing. This person plays a critical role, one of the most important in any multichannel business.

Each organization has an annual budgeting process. This process is usually initiated by the finance division. The finance folks determine key dates when information is to be shared within the organization, with the executive team, and with ownership/board-level individuals.

In most companies, this investment process drives a series of discussions that can be exhilarating for some and frustrating for others. For most, the discussions are "circular" in nature.

The Circulation/Online Marketing Directors go through a process where they use internal analysis tools to forecast what they think sales will look like next year, for the marketing strategies they are accountable for.

In catalog circulation, changes in online/catalog customer files are measured, catalogs to be offered are determined, circulation cutoffs based on short-term and long-term profitability are established, resulting in a set of "rules" that are followed. A series of spreadsheets are crunched, resulting in a sales total across all channels, and profit estimates based on the investment totals.

A similar process occurs within the online marketing advertising channel. Traffic forecasts, conversion rate estimates, average order size guesses, keyword bidding projections, online marketing costs and affiliate strategies result in an estimated number of purchasers, yielding a sales total across all channels, and profit estimates based on the investment totals.

Catalog and online figures are combined, and presented to the executive team.

This is where things go haywire!

In most situations, the estimates yield sales and profit totals that are not acceptable to the executive team.

The executive team will immediately question the accuracy of the work done by the circulation/online marketing experts.

Assuming that the work was done accurately, a new series of questions arise. "What happens if we spend more money in e-mail marketing? What happens if we spend more money on paid search? What happens if we decrease portal advertising? What happens if we increase affiliates from 1,000 to 1,500? Are the catalogs driving more or less business to our online channel? What happens if your circulate to a -10% profit cutoff level verses break-even? What happens if you shift catalog acquisition out of Abacus names, into list rental and exchange names? What happens if we have six targeted versions of an e-mail instead of three? What happens if we no longer offer free shipping?

These questions set off a round of chaos that is very frustrating to the foot soldiers who do the actual work. Typically, the questions are answered in a sequential fashion.

In other words, the executive team learns what happens if free shipping is dropped. Then, they learn what happens if six targeted versions of an e-mail are offered instead of three. Then they learn what happens if all remail catalogs are dropped from the plan. All choices are explained in isolation.

As a result, there is a ton of busy work done by the foot soldiers, and a ton of anxiety felt by executives. The teams work together on an iterative process that ultimately results in one sales plan for the next year. Often, this sales plan is the result of a time deadline ... in other words, the plan must be completed by, say, November 25th. All work done by November 25th is put into the plan, scenarios not completed by November 25th are excluded.

One way to start getting out of this rut is to provide your executive team "options".

In other words, if you are the online marketing director, you can present five different options, based on different investment scenarios. This gives the executive team something to think about. The executive team can center their questions around one or two options that seem to yield the best outcome.

Similarly, the catalog marketing director can offer five different investment options. There can be scenarios with deep cutoff levels, scenarios with shallow cutoff levels, scenarios with a lot of customer acquisition, scenarios milking the top of the customer file with remails.

These scenarios are advantageous for many reasons. Maybe most important is the fact that the foot soldiers get to see which scenarios the executive team like best. Next year, the budgeting process will be smoother, because the foot soldiers know what the executive team want to see.

Multichannel investment options are an area you seldom hear about in trade journals or vendor-based publications. Yet, when you talk to executives, directors and analysts, you continually hear this as being an area of frustration.

Over the next five years, you will see a continued focus on improving the annual budgeting process. Online marketing leaders who invest time honing skills in this area will have a great opportunity to move into C-level management positions.

Investment In Online Marketing

Online marketing is an enigma.

Considered by many to be direct marketing, online marketing more closely aligns with retail marketing than with direct marketing.

And this is a problem, if you are a traditional direct marketer.

Take paid search, as an example. In traditional direct marketing, you get to pick who receives your marketing message. In paid search, you get to pick how much you want to spend on a keyword. The search engine orders bidders on the basis of how much each bidder is willing to pay. The customer picks the bidder s/he wants to research.

The most popular and most effective online marketing craft is not really direct marketing.

Long-term, this means that the online marketer doesn't control her business.

The catalog marketer always controlled her business. She spent "x" percent of her budget mailing catalogs to best customers, "y" percent to marginal customers, and "z" percent to prospects.

The catalog marketer dictated the relationship with the customer.

The retail marketer did not control her business. She controlled location, product, presentation, and the channel she wished to advertise within.

In online marketing, the customer dictates the relationship with the marketer.

In catalog marketing, if your board of directors require you to double the size of your business and gives you infinite resources to accomplish the task, you can double the size of your business.

Can you accomplish this task via paid search?

Some Multichannel brands have learned that more than half of the customers who respond to paid search are existing customers, occasionally best customers.

If your board of directors wanted for you to spend $5,000,000 acquiring new customers via catalogs, you'd talk to Abacus, and open up the floodgates. You'd acquire a lot of new customers.

If your board of directors wanted for you to spend $5,000,000 acquiring new customers via online marketing, how would you accomplish this task?

Vice President of Business Intelligence And New Business Development, American Girl

A fundamental shift in the job requirements of analytical individuals is occurring across Corporate America. The shift is not positive for E-Mail Marketers, Catalog Circulation Marketers, Online Marketers, Business Intelligence Analysts, and Web Analytics staff.

Read this job description, found on the Marketing Sherpa Job Board, for a VP of Business Intelligence and New Business Development at American Girl.

This position proactively leads the identification and development of actionable consumer insights, market and competitive understanding. This person will translate information gained through the Analytics Services and Consumer Insights areas into actionable implications and assist in the application of these insights into the American Girl strategic plan. Requirements: *Bachelor's degree, Master's degree (MBA) preferred *Minimum of 10 years of experience working in Consumer Products Industry to include Consumer Research and Analytical Services or significant experience in consulting with a major consulting firm. *Direct Marketing Analytics experience at a multi-channel company preferred *Experience contributing to the strategic planning process preferred *Familiarity with multiple channels of distribution, with special emphasis on direct mail and branded retail preferred *Significant P&L experience preferred *Consulting for a major consulting firm preferred.

Notice how this position focuses on using the insights of the Analytical Services and Consumer Insights areas. Notice that this person will come from the Consumer Products Industry, or will have Consulting experience from a major consulting firm (preferred).

In the past five years, our zeal to be "multichannel marketers" caused us to scatter in a dozen different directions --- all honing our skills in different specialties, becoming experts at a tiny fraction of what matters to our customers. We failed to develop a global view of our business. Our leaders don't have confidence in having a web analytics expert do anything else than study web analytics. Our leaders don't believe the e-mail marketer can also drive a social media plan, or can manage television advertising campaigns.

To thank us for diving headfirst into a niche, becoming a subject matter expert, our companies are looking to hire leaders who know how to position eight varieties of Cheerios among potential customers, or know how to articulate opportunities to what is know as individuals in the "C-Level Suite".

If you're an individual working at a catalog, online, retail or multichannel organization, and you have less than ten years of corporate experience, this is a really good time to change course.

Instead of being the expert at working with CheetahMail to get e-mails delivered through AOL, or being the expert at getting CoreMetrics to help you accurately measure the effectiveness of various landing pages, or being the catalog circulation expert who measures the LTV of Abacus-sourced new names --- become the person who is the expert at knowing how EVERYTHING FITS TOGETHER, telling a story that helps executives know what they need to do to be successful.

Right now, your business leaders don't believe in you. They believe in a person who knows how to build a business plan for Cool Ranch Doritos, who knows how to speak to executives. This is the third job description of this nature I've run across over the past four months.

One person, working a division that is now being led by one of these "newly qualified leaders", told me that the new leader (with qualifications similar to this job description) communicated that the circulation folks "knew nothing of actual customer behavior".

Ouch.

It's time to stop talking about RFM, HTML vs. Text, Black-Lists, SEO, PPC, CGM, DMPC, Conversion Rate or Landing Pages.

It's time to stop talking about subject line testing as a "strategy".

It's time to stop talking about paid search as a "strategy".

It's time to stop talking about getting e-mails through GMail as a "strategy".

It's time to stop talking about working with Abacus or Millard/Mokrynski as a "strategy".

It's time to actually create actionable business strategies that merchants and executives understand, and can act upon. More important, it's time for us to be able to articulate our strategies in a way that executives and merchants understand.

If we fail to do this, the folks who manage the "Twinkies" brand will do this for us. I've been impacted by this evolution in job description. I don't want for you to be impacted.

Your thoughts?

Multichannel Retailing Week: Online Marketing

Here's a secret: Online Marketing works in a multichannel retailing environment.

Maybe that's not a secret to you, because you work in the online marketing profession.

But it is an unknown fact to almost every other employee in your multichannel organization.

As an online marketing professional, it is your job to evangelize your craft.

I recently sat in a room full of retail executives, retail directors, and retail marketing managers. I asked them the question, "If you were going to purchase a computer, and had no idea where to shop, what is the first thing you would do?"

The answer I was looking for was "I'd do a internet search".

Not one of the sixteen individuals volunteered this answer.

We all know that customers initiate searches, primarily on Google, to research and learn about potential product purchases. But this roomful of retail leaders, entrenched in their mall-based shopping ecosystem, did not think of shopping in this manner.

We also know that between twenty-five and thirty percent of website visitors at multichannel websites arrive via search.

In many cases, a targeted e-mail campaign sent right before a catalog mailing causes an increase in online or store response.

In many cases, catalog marketing and search marketing combine to increase the likelihood of a customer purchasing an item online or in stores.

In many cases, online advertising and search marketing combine to increase the likelihood of a customer purchasing an item online or in stores.

Your average retail staffer does not see the world through this lens.

During the next five to ten years, the online marketing executive will need to bridge this communication gap. If the online marketing executive wants to become the Chief Marketing Executive, the transition from metrics-based facts to retail storytelling will be essential.

To do this, the online marketing executive will partner less with the web analytics team (as they generally have access to online transactions). The online marketing executive will increasingly partner with the database marketing team or the business intelligence team, SAS-based programmers who link online, catalog and retail transactions with clickstream data. This gives the online marketer a holistic view of the effectiveness of online marketing.

Maybe the biggest thing the online marketer will learn is that at least half of their marketing activities are speaking to existing, often loyal customers. Historically, online marketing has been viewed as a customer acquisition tool. In the future, online marketing will be viewed as a customer retention tool. Couple that perspective with the education of your retail marketing team, and you've greatly enhanced the power of online marketing.

The Day E-Commerce As We Knew It Died

Of course, e-commerce didn't die today.

But symbolically, e-commerce changed today, with the ousting of Yahoo! CEO Terry Semel and a New York Times piece about the end of rampant e-commerce sales growth.

Both stories point to the maturation of the online channel.

To me, the New York Times article is particularly delicious, drawing the ire of Shop.org and various e-commerce bloggers (here, here and here), all quick to defend their channel at the first hint of criticism or sales slowdown. To be fair, the criticisms are valid and even enlightening --- but it was fascinating to see how defensive some of the responses have been.

Those articles and comments look an awful lot like the musings of catalog executives between 1999-2003. Catalog folks were defensive, quick to defend the catalog channel when e-commerce pundits predicted doom for anything not associated with the online experience.

In reality, the data used in the study has been readily available from Forrester Research for years, and publicly traded companies have repeatedly talked about this slowdown over the past year, so this news isn't news.

Over the next three years, our profession will see a separation in talent. As e-commerce growth becomes harder and harder to achieve, management is going to need e-commerce folks who are skilled, maybe "gifted" at driving sales.

For the past decade-plus, multichannel e-commerce executives benefited from the efforts of their catalog and retail leaders. The catalog executive mailed catalogs, the customer shopped on the internet. The online executive received hefty bonuses, the catalog executive was fired.

The retail executive spent decades building a brand, the online executive received credit for sales cultivated through years of positive retail experiences. With e-commerce maturing, it will be up to the e-commerce executive to stand alone, to drive incremental sales increases without the benefit of seasoned leaders in other channels pushing free, incremental sales to the online channel.

There are hundreds of really good, really talented online executives at multichannel companies. These folks honed their craft, while learning how to get things done politically, while learning offline marketing skills that transfer to the online world.

These online executives will have a tremendous advantage. These are the folks who will continue to drive true incremental sales increases over the next three years, while other online businesses flatten-out, or flounder.

June 18, 2007. The day e-commerce as we knew it died.

Improve The Product

Yesterday, I asked for suggestions to grow a hypothetical business by ten percent.

The options I provided were channel-based tactics, things you can do in the short-term, to grow top-line sales.

One should ask the obvious question, "why don't you just improve the product, why don't you create something remarkable that the customer craves?"

I take you to a board room I was in, many, many years ago. Customers did not want to buy our merchandise, they were voting "no" with their wallet ... for at least a year.

Most of the merchandise we sold was private label. This means we created, designed and sourced our own merchandise. If we wanted to improve the product, we had a nine to twelve month process ahead of us. You don't simply go out and find new, better product. You improve product today --- but the product isn't available to the customer for almost a year. Your job is to increase sales today.

So we're meeting in this board room. It is November, and we are talking about our sales plan for the next fiscal year, which begins in February. Remember, new product takes nine to twelve months to develop and make available to the customer.

Our sales plan, based on what has happened over the past year, did not meet the expectations of our President or our CFO. I was responsible for creating the sales plan.

After taking a half-hour of heat from the executives, I became defensive. I simply turned to our Chief Merchandise Officer, and said "If we could just improve our merchandise productivity, we wouldn't be in this situation."

Once words leave your mouth, you cannot take them back. As the light-hearted smile that previously adorned the face of the merchant turned into a rage-based, crimson-colored scowl, I realized my choice of words, while honest and accurate, were not going to produce the result I desired.

Eight executives watched as the merchandise executive shared thoughts, opinions, and assorted non-positive commentary with me.

Our President and CFO turned their attention back to me, and asked "What are YOU going to do to improve sales next year?"

When faced with constraints, you go back to the tactics that you are accountable for. You try to add catalogs, add pages, remail old catalogs to your best customers. You look to add a second or third e-mail contact each week. You try to add affiliates who could refer sales to your website. You look at marketing strategies surrounding your best customers, your most productive customers, because you simply cannot afford to send crappy merchandise to customers who are unlikely to buy anything --- that's a recipe for financial disaster.

Of course, the strategy of adding remailed catalogs, adding additional catalog contacts, adding pages, adding e-mail contacts, adding affiliates, increasing online marketing spend, you name it, is a long-term recipe for financial disaster. We add these tactics to grow sales. Then the merchandising team does a good job, and these tactics become profitable. Inevitably, however, customers don't want to buy your product, or become frustrated by being spammed by your marketing activities.

In many cases, you cannot "retreat". Your shareholders won't tolerate a "rightsizing" of the marketing plan, in order to profitably drive sales. In other words, you couldn't reduce your bloated catalog or online marketing budget by forty percent, because it would come with a twenty percent reduction in sales --- a result that is not acceptable to your executive team or shareholders.

In a perfect world, you create great product that customers crave. In our world, not everybody creates great product that customers crave. Regardless, we have to find ways to grow sales without the benefit of great product. That's the job of a Database Marketer.

Growth Strategy

Your forecasting analyst suggests your telephone sales will decrease by ten percent next year, while your online sales will increase by ten percent next year, yielding flat corporate growth.

Your CFO is unhappy with this projection, and demands that the business grow by ten percent next year.

There are many ways you could grow the business. Here's a sampling of opportunities:

• Catalog Strategies
• Add catalogs to the mail plan (currently at 30 in-home dates each year).
  
• Add pages to each catalog.
• Remail catalogs to the same customers.
  
• Increase circulation in each catalog --- either customer acquisition or reactivation.
• Other ideas?
  
• E-Mail Strategies
• Increase e-mail contact frequency from one per week to two or more per week.
• Increase the number of targeted e-mails from five versions per contact to ten or more.
• Other ideas?
• Online Marketing Strategies
• Improve natural search opportunities.
• Spend more on paid search, or be smarter about paid search.
• Increase affiliate partners.
• Spend money on portal advertising.
• Start a corporate blog.
  
• Other ideas?

Prioritize the top three ways you would try to grow sales, and describe why you would use the techniques you chose to employ? Which strategies do you think drive the most incremental sales, at the lowest cost?

Online And Offline Marketing Interact To Drive E-Commerce Sales

There are several interesting tricks that multichannel retailers can use to understand the interaction between online and offline marketing.

One such trick is to create "grids" that explain how online and offline marketing drive sales. A "grid" is a simple 2x2 table that shows the impact of two factors on sales volume.

The tables at the end of this post illustrate how a multichannel retailer might use a "grid" to measure the combined influence of Google, and a Catalog mailing.

In this simplistic example, the multichannel retailer observes a positive impact on conversion rate due to catalog mailings, and a positive impact on conversion rate due to a customer referred via paid and natural search at Google.

Multichannel CEOs and CMOs: Our multichannel marketing environment has grown more complex. Industry pundits tout the advertising vehicle they support, for obvious reasons. It is important for your staff to demonstrate to you the combined impact of online and offline marketing activities. Start your week off on the right foot, by spending a few minutes with your analytical folks. See if they can produce the following table for you:


Here's the table:

Number of Visitors
	Catalog = Yes	Catalog = No
Google = Yes	25000	75000
Google = No	125000	350000
Conversion Rate
	Catalog = Yes	Catalog = No
Google = Yes	5.3%	4.1%
Google = No	3.7%	1.4%
Average Order Size
	Catalog = Yes	Catalog = No
Google = Yes	$150	$140
Google = No	$175	$160
Net Spend Per Visit
	Catalog = Yes	Catalog = No
Google = Yes	$7.95	$5.74
Google = No	$6.48	$2.24
Total Volume
	Catalog = Yes	Catalog = No
Google = Yes	$198,750	$430,500
Google = No	$809,375	$784,000
Percent Catalog Influenced		28.3%
Percent Google Influenced		45.4%

Cost Per Click In Multichannel Retail

SpyFu is a website that helps users understand how much various businesses spend on online advertising.

Having insider information about accuracy of the data at several multichannel retailers, I can tell you that SpyFu is at best, directionally accurate.

That being said, one can summarize and classify the information. By doing so, many of the numerical inaccuracies are mitigated.

The attached image classifies apparel and shoe multichannel retailers into nine cells. Among these thirty-seven businesses, I use SpyFu data to determine if the retailer spends a lot, or very little on online advertising. Next, I use SpyFu data to determine if the average Cost per Click is inexpensive, average, or expensive.

The best place to reside in this image is in the upper right cell. In this cell, spend is huge, while Cost per Click is low. If these clickers convert at an acceptable rate, there is significant efficiency in the online marketing efforts of retailers in this cell. Interestingly, only Zappos meets this criteria.

Of course, SpyFu data does not have access to online or retail conversions. In other words, a customer might search for denim. The customer clicks on J. Crew in the paid search section of Google, views an item on the website, drives to the store, and purchases the item. Whether the item is purchased online or in a J. Crew store, SpyFu cannot see the conversion.

Many of the businesses in this table sell far more in their retail channel than in their direct channel. Some of the more sophisticated multichannel retailers already link paid search to estimated retail conversions. While it is important to look at cost per click, it is much more important to measure variable operating profit across all channels. This concept certainly isn't new, and has been documented many times in Database Marketing literature (this is frequently called a "matchback" analysis).

The table at the end of this post looks at multichannel profit, obtained by spending $100,000 on a paid search program. Notice how important it is to at least be able to estimate the retail conversions driven by online advertising.

In this example, the multichannel retailer generates $33 of profit for every conversion. Also notice that the multichannel retailer generates $1.49 profit per click, in this example. If these metrics were negative, the multichannel retailer would have to conduct a lifetime value analysis, to see if future sales offset short term losses.

Amount Spent, Paid Search	100,000
Cost per Click	0.75
Number of Clicks	133,333
Online Conversion Rate	2.5%
Estimated Retail Conversion Rate	2.0%
True Conversion Rate	4.5%
Online Average Order Size	225.00
Retail Average Order Size	175.00
Online Demand	750,000
Retail Net Sales	466,667
Online Profit to Demand Ratio	23.0%
Retail Profit to Net Sales Ratio	27.0%
Online Profit	172,500
Retail Profit	126,000
Less Online Advertising Expense	100,000
Net Profit	198,500
Return on Investment (Profit/Expense)	1.99
Profit per Conversion	33.08
Profit per Click	1.49

Online Marketers and Career Planning

Here's a question for my pals on the online marketing side of the business. These are the folks that manage search, portal and affiliate programs (even e-mail campaigns) at B2C companies.

Has your company outlined a career plan for you that goes beyond the Vice President or Director of Online Marketing? Is your company developing your general management skills so that one day you can run your company or division --- or is your company expecting you to stay satisfied within your niche? Is your company even talking about these topics with you?

Lastly, do you see your career path happening within your company, or do you see yourself jumping to another company for better opportunities?

I bring this up because I am starting to see challenges for folks who are developing skills in the highly specialized niche of online marketing. What are you observing, and how do you plan to deal with the questions I raise?

Optimal Online Marketing Budget

We've previously discussed the importance of the "square root" rule in analyzing marketing campaigns, when solid test-based data is not available to the analyst.

Assume you spent $20,000 on an online marketing campaign, yielding $60,000 net sales, and a net loss of $2,000 (assuming 30% of sales flow-through to profit). You want to know what might have happened, had you spent more or less than $20,000.

Square Root Rule --- Assume you wanted to only spend $10,000. Sales will change by the following factor: ($10,000 / $20,000) ^ 0.5 = 0.707. Net Sales of $60,000 will change by 0.707, or $60,000 * 0.707 = $42,426. Profit = $42,426 * 0.30 - $10,000 = $2,728.

Again, if you don't have good test-based data to make comparisons with, use this rule as a quick shortcut.

The table below illustrates different spend levels, associated sales, and profit.

Spending Level	Net Sales	Estimated Profit
$10,000	$42,426	$2,728
$12,500	$47,434	$1,730
$15,000	$51,962	$588
$17,500	$56,125	($663)
$20,000	$60,000	($2,000)
$22,500	$63,640	($3,408)
$25,000	$67,082	($4,875)
$27,500	$70,356	($6,393)
$30,000	$73,485	($7,955)

Thoughts About 2007: Web Analytics, Multichannel Marketing, and Route 66

Why not join in the fun, and offer your thoughts about 2007? Leave a comment at the end of this post.


Web Analytics

In my opinion, 2007 represents an inflection point, not in the software that we use for Web Analytics, but rather, for the people who analyze website behavior. God has smiled on you in ways you cannot imagine. You represent the future of multichannel retailing. It is you that should know more about how customers behave than anybody in your company. In the next five to ten years, you could have the experience necessary to run our multichannel businesses. This won't happen, however, unless you fundamentally change how you approach your job.

1. Get out of your department, and start helping others. The fact that you should know more about customer behavior than anybody else means you have a responsibility to teach customer behavior to your organization. Start now, and in 2012, you'll be a leader who your company considers for advancement.
2. Start telling a story. Outside of maybe your finance department and a few analytically gifted individuals, nobody in your company cares that a certain URL had a 3.19% conversion rate, along with a 64.9% exit rate and 49.5% shopping cart abandonment rate. Your co-workers, and especially your leaders, want to know what you can tell them that gives them a chance to be successful, earn a bigger bonus, and get promoted. Start telling them a story they can understand and use to make their lives better. Stop dazzling everybody with your numerical prowess. Your career depends upon it.
   
3. Describe Customer Behavior Over Time. If your conversion rate decreased from 4.00% to 3.00%, and traffic increased from 100,000 visitors a month to 133,333 visitors a month, you may end up with the same amount of net sales. What if your customers now visit more often than they visited in the past, doing more shopping and less purchasing? Web Analytics individuals and the software they use must do a much better job of segmenting customers based on past behavior, and then use that information to describe customer behavior over time, not specifically within a "session". Tell your executive leaders that your best customers used to visit the website every twenty-seven days, and now visit every thirty-eight days. They can understand this. They can theorize why this might be happening. They can develop strategies to combat this problem, assuming it is a problem. They will include you in all of their meetings, and depend upon you for the analytical support of their hypotheses.
4. Anticipate The Future. Nothing is more valuable to an executive than an individual who has a vision, an individual who sees potential problems, and identifies solutions before the problem surfaces. You can't anticipate the future by looking at funnel analyses. You need to step away from the metrics, and simply observe what is happening around you. Listen to people in other departments, and try to understand their issues. The future takes shape when you step back, observe, and listen.

All of you gifted individuals who currently support web analytics departments have an unprecedented opportunity. Do not repeat the mistakes of database marketers, who threw away the golden opportunity they had in the early 1990s by being too metric-driven, failing to become strategic. Do not repeat the mistakes of CRM marketers, who so badly mucked-up their opportunity of the mid 1990s that CRM became a "four letter word". Do not repeat the mistakes of the E-Mail marketers of the late 1990s, who completely ruined catalog's replacement by not having the analytical infrastructure in place to accurately measure the incremental benefit they offered the customer. Do not repeat the mistakes of "multichannel marketers", who during the first half of this decade were so tied to the catalog strategies of the past that they completely missed the future.


Multichannel Marketing

You know who you are. You are the ten year veteran of catalog marketing at a company like Garnet Hill, Cabellas, Oriental Trading Company, Crutchfield, Talbots, Orvis, Ross-Simons, Swiss Colony or PC Connection. In the 1990s, when your company launched an e-commerce enabled website, you were the one who still met with the CEO on a weekly or monthly basis. In 1999, you were the one who couldn't believe that your employees were leaving your company to work at some startup offering stock options. In 2001, you were the one who couldn't believe that a thirty-one year old online marketing whiz was promoted to a Vice President job. In 2003, you were the one defending the concept of "multichannel", proudly helping the DMA and print industry promote print as the key driver of online and/or retail sales. In 2005, you were the one being criticized for having twenty percent decreases in catalog volume, while the online marketing VP earned a gigantic bonus for driving thirty percent increases. In 2006, your CFO asked you to reduce page counts, in-home dates, or use any other tactic to decrease expense, at a time when the online channel leveraged the infrastructure you spend the 1990s building to achieve record profits.

Multichannel marketing is rapidly shifting toward "online + retail". Catalogs and contact centers are rapidly becoming support channels, line-items in a profit and loss statement.

Catalog professionals are like the person who owned the motel on Route 66, only to see I-40 built right next to Route 66. Within a few years, new businesses sprung up all along the new freeway. Customers transferred their dollars from the quaint little businesses along the highway, to the new businesses along the freeway. New communities sprang up near the interchanges. Tom's Diner went bankrupt. Olive Garden and Chili's thrived.

Catalogers, and the vendors who support them, have tried the argue that their services fuel the online/retail business model. They were like the "Business 40" signs you see --- highway signs that tell the traveler to exit the Interstate highway, go into town, and use the products and services offered by the town. History tells us that this did not save the businesses on the old highway.

Route 66 is a great example of re-invention. After being bypassed by the Interstate highway system, it adapted, it evolved itself into something relevant.

If you work in the catalog industry, you can adapt in at least two different ways. You can get busy with the second half of your career, and find work somewhere in the future of our industry. Or, you can get busy testing new concepts, concepts that will become the future of the catalog industry. 2007 is the year where you need to get busy doing one of these two things. Simply carrying the multichannel banner around the office isn't good enough anymore.

The End of E-Commerce / Dell

Dell's announcement (see update at the bottom of this link) that they will have a virtual store in Second Life (a virtual reality environment) has far-reaching ramifications for all of us in the catalog/online space.

It was just a decade ago that various catalogers began dipping their toes in e-commerce. I recall being at Eddie Bauer, in 1996, listening to my Vice President joke with our Online Marketing Manager about generating maybe $750 of sales a day, while the catalog channel drove a million dollars a day, and our stores sold four million dollars of merchandise a day. Ten years ago, it was hard to fathom what e-commerce would become.

In much the same way, this announcement begins the shift away from e-commerce, to "v-commerce", or virtual reality commerce. The fact that somebody can configure their own PC in a virtual reality environment, and then have it shipped to one's home, changes online retailing.

This has ramifications for the online marketing folks working in companies today. You are the direct-to-consumer arm of your business now, you have taken that responsibility from catalog folks. Be certain to watch the developments of "v-commerce", and make sure your skills are sharp in this arena, so that you don't become "old school" in five to ten years. Don't repeat the mistakes that so many catalog marketers made in the past decade.