Steve & Barry Retail Stores

No catalogs, no website, growing in an era of retail contraction. Steve & Barry, with just one channel, defies multichannel logic.

Multichannel advocates, do you think this brand is "missing an opportunity", or does having just one channel give it a unique competitive advantage, give it a reason for being, give it a focus that a multichannel brand simply cannot have?

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

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

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

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

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

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

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

Does A Website Drive Sales In Retail Stores?

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One of the more flummoxing issues facing multichannel retailers is quantification of the sales that a website drives to a retail store.

There aren't a lot of "best practices" for quantifying this issue.

Some folks want to give the website credit for any purchase initiated online. For instance, if a customer ordered online, and picked-up the item in-store, some folks want to give the website "credit" for that order. Some feel that any retail purchase that was researched online deserves to be credited, at least in-part, to the online channel.

Retail folks will claim that without stores, the website never would have existed, and therefore, the stores should get credit for all orders, even orders that happen online. Many retailers include online sales in their comp store sales calculation --- artificially propping up tepid retail comps with +25% online growth. Read the 10-K statements issued by retailers, you'll see that this is a common practice.

Multichannel Forensics can be used to simulate what might happen if a website no longer existed, was no longer there to support store sales.

Using this free spreadsheet, the analyst can plug in retail/online metrics, view the forecast, then zero-out the online portion of the business.

In the attached example, retail sales were growing at about four percent per year. Once the website is shut down, the simulation suggests that retail sales stop growing. Of course, all web sales disappear as well.

Theoretically, some assumptions can be made for perceived cannibalization between retail and online sales. In lieu of the actual, quantifiable metrics, this example shows that the website probably has a real, long-term impact on retail sales.

Plug the dynamics of your business into the spreadsheet. You can get an introductory view into the impact your website might have on retail growth.

Measuring Multichannel Results

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At some multichannel merchants, the E-Mail Marketers, Catalog / Direct Mail Marketers, Web Analytics Team, and Business Intelligence / SAS Programming team work together on projects.

These folks don't have to all reside in the same department.

But it's good for business when they all work together.

In this instance, the CMO wanted to send an e-mail marketing campaign on a Thursday afternoon, much to the consternation of the e-mail marketing team. See, the e-mail marketing team felt that campaigns should be sent on Monday or Tuesday, in order to maximize conversion rate. The Web Analytics team concurred.

The CMO is the CMO, however. She demanded a campaign be sent on Thursday. She wanted to drive sales in her retail stores, as well as online.

The e-mail team wanted to "test" the incremental value of this strategy. They set up a control group, a group that would not receive the e-mail campaign.

The e-mail marketing team was used to generating $0.25 of incremental sales online when sending a Tuesday e-mail campaign. The campaigns were seldom designed to drive retail traffic.

When the campaign was completed, the e-mail marketing team partnered with the web analytics team. The results weren't encouraging.

Open Rate = 20%.
Click-Through Rate = 30%.
Conversion Rate = 2%.
Average Order Size = $167.
Sales Per E-Mail = $0.20.

The e-mail marketing team shared the results with the business intelligence / SAS programming team. This group had access to retail sales and catalog/telephone transactions. They wrote a program to analyze sales by day. The results are outlined in the image at the top of this post.

• When measured via e-mail marketing tools and the web analytics platform, it appeared that the e-mail campaign generated $0.20 sales per e-mail.

• When results are measured by channel, by day, a different story reveals itself (of course, a good marketer will test for statistical significance, a step omitted here for brevity).
  

• The e-mail campaign drove online sales on Thursday and Friday alone. Sales were not incrementally increased on Saturday, Sunday or Monday.

• The e-mail campaign drove retail sales on Saturday and Sunday, high-traffic retail days. In total, an incremental $0.14 were generated at retail by the e-mail campaign.

• The e-mail campaign appears to have cannibalized catalog/telephone sales.

• In total, the e-mail campaign actually drove $0.29 sales across channels. The campaign was 45% more effective than e-mail analytics and web analytics tools suggested.

This example, similar to an actual campaign I recently analyzed, demonstrates the importance of having cross-functional teams work together in a collaborative manner.

Simple open rate, click-through rate and conversion rate metrics do not tell the entire story. Simple mail/control testing, analyzed off of an integrated database, can illustrate customer behavior that may not have been anticipated.

For direct mail and e-mail marketers, the findings highlight an important trend in multichannel marketing.

• E-Mail and Direct Mail campaigns sent between Monday and Wednesday often benefit the phone and online channels.

• E-Mail and Direct Mail campaigns sent on Thursday or Friday often benefit the retail channel.

Your job is to work together as a collaborative unit, illustrating the in-home date that is best for the customer, and is best for the profitability of your company. Your CMO can develop a more effective multichannel strategy if you give her the tools to do so!

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?

Capture Rate

You work for a retailer. You are able match fifty percent of all customer transactions to a name and address, storing the combination in your customer warehouse, all tied to website and catalog behavior.

Good job!

Now, how do you adjust your research for the fact that you are only able to link half of your sales to a name and address?

How does this influence your findings? What kind of adjustments do you make? Do you bother to share your insights with others? Do you have to defend yourself every time somebody takes umbrage with your lack of data quality?

I spent eleven years dealing with these challenges. While I'm traveling, I'm hoping you can start a conversation about how you deal with "capture rate".

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.

Do Online Conversion Rates Differ By Business Model?

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Each year, Internet Retailer publishes their Top 500 websites, in terms of annual net sales.

If one is willing to take the time to have information transcribed into digital format, there are interesting tidbits to consider, including information about conversion rates and business models.

In this case, I took the top three hundred sites, and analyzed various performance metrics by the type of business model employed by the brand.

In other words, Crutchfield would be viewed as a cataloger, due to their catalog heritage, whereas Talbots would be viewed as a Retail Chain, due to their retail heritage. Blue Nile would be a web-only business. Sony would be a Consumer Brand Manufacturer. Internet Retailer made these determinations.

Of the three hundred sites, I adjusted the top ten and bottom ten outliers for each metric. For instance, if the top ten conversion rates were 20%, 18%, 17%, 16%, 15%, 15%, 15%, 14%, 14% and 14%, then I adjusted all ten outliers to 14%.

Now for today's tidbit. An analysis of conversion rates by business model indicates that Catalogers have the highest website conversion rate at 4.89%, followed by Web-Only businesses at 3.92%, Retail Chains at 3.05% and Consumer Brand Manufacturers at 2.99%.

Catalogers have natural advantages. They bring in traffic via catalog marketing and online marketing. Retail Chains have disadvantages online, in that websites are used for research that results in an online purchase. Consumer Brand Manufacturers have distinct disadvantages, in that conversion may actually happen at a Cataloger, Web-Only Business or Retail Chain.

For catalogers, the news is encouraging. With postage and paper costs impeding the catalog marketing channel, this provides hope. Undoubtedly, catalog marketing will evolve as the cost structure makes traditional catalog marketing difficult. Catalogers will evolve their online experience further away from "order taking", moving closer to the experience provided by Web-Only businesses. The economics of catalog marketing will dictate this.

For retailers, the news is encouraging. The data may indicate that the retail channel gobbles up between thirty and sixty percent of possible orders. Online marketers within retail businesses have an opportunity to analyze "incremental" profit and loss statements, those that account for the sales that are truly driven by the website. Ultimately, appropriate cross-channel analysis should result in a bigger marketing budget for online marketers in retail organizations.

The Role Of A Website In A Multichannel Retail Business

Ultimately, our customers will decide the role of a website in a multichannel retail business.

Catalogers are experiencing a very different set of dynamics when strategically considering the role of a website. There is an odd interplay between catalog advertising and online purchasing that causes catalogers consternation.

For retailers, the relationship is much easier to understand.

Multichannel Forensics suggest that when two channels are involved, one channel frequently benefits from the efforts of the other. In the case of the online channel and the retail channel, retail is ultimately the "order taker". The online channel frequently acts as the "information channel".

As an example, I purchased a television at Circuit City last week. I did all of my research online, comparing Circuit City to Best Buy and other retailers. I chose Circuit City because they had a better price on the television I wanted, and installation was one hundred dollars cheaper than it was at Best Buy.

In this case, the internet provided the forum for my shopping experience. Circuit City's website did a reasonable job of presenting information to me. I even put my television in the shopping cart, so I could see the price. But the website did not "convert me", from a traditional web analytics standpoint. Some pundit will clobber Circuit City for having a paltry online conversion rate, for failing to convert my shopping cart.

The website did exactly what is was supposed to do --- and receives no credit for the work it did.

The retail channel took my order. An installer (another channel???) will hook me up next week.

If this relationship exists, you'll easily see it in your Multichannel Forensics analysis. The online channel will be in "Acquisition/Transfer" mode. This means that, for online purchasers, fewer than forty percent of them will purchase again online next year. Furthermore, those customers are likely to switch their allegiance to the retail channel. The retail channel operates in "Retention/Isolation" mode. This means that at least sixty percent of last year's retail channel customers will purchase in retail again next year --- and these customers are unlikely to purchase online next year.

In this example, the website plays maybe the most important role in connecting the customer to the retailer.

Internet Research -----> Website Visit -----> Retail Or E-Commerce Purchase -----> Installer Visit
The internet is a gigantic ecosystem where customers research merchandise opportunities. The website is the retailer's best chance to provide a customer the information necessary to chose the retailer's brand over another retailer. The website is a much smaller, more controlled ecosystem, playing a critical role in the purchase process.

E-commerce should be viewed separately from the role of the website. E-commerce is only about taking an order that is to be delivered to a customer.

When we separate E-commerce from the website experience, we immediately open ourselves to an endless array of multichannel opportunities.

Retail, because of its three-dimensional, human, warm, hopefully inviting nature, will garner the vast majority of purchases.

The website, not E-commerce, becomes the critical link between customer and brand in multichannel retail. A Multichannel Forensics analysis should illustrate this fact --- one should see that E-commerce customers transfer back to retail, while retail customers generally maintain their channel loyalty in stores.

Multichannel Forensics And Information Value

Friend of MineThatData Alan Rimm-Kaufman shares that Google will retain about eighteen months of clickstream data, going forward.

Multichannel Retail faces similar challenges, when looking at the value of customer information within the context of multichannel forensics.

Customer information ages differently in multichannel retail. While the relationships are different for each business, the following example helps illustrate the point.

• Catalog: A purchase twelve months ago is worth about 1/2 of what a purchase that occurred today is worth.
  
• E-Commerce: A purchase twelve months ago is worth about 1/4th of what a purchase that occurred today is worth.
• Retail: A purchase twelve months ago is worth about 1/8th of what a purchase that occurred today is worth.
• Clickstream: A visit twelve months ago is worth about 1/32nd of what a visit that occurred today is worth.

This topic becomes important when evaluating actual customer behavior. Most multichannel retailers would consider a customer who purchased via catalog twenty-four months ago, and purchased online today, to be a "multichannel" customer.

The reality is that this customer is heavily skewed toward the online channel.

Multichannel marketers have an opportunity to run a regression-style analysis, to determine the appropriate weight to use with older purchase information. The weights determine how customers are segmented, and consequently, determine how the multichannel retailer markets to the customer.

Multichannel CEOs and CMOs: On Friday morning, talk to your analytics staff about segmenting customers on the basis of the value of older purchase information. Have your staff apply a new technique that ultimately mimics the time-honored system of "RFM --- Recency, Frequency and Monetary".

Leaving Nordstrom

With mixed feelings, I have decided to leave my job as Vice President of Database Marketing at Nordstrom.

The positive side of this equation is that I am thrilled to be "running to something", not "running away from something". I will start my own business, appropriately called "MineThatData"!! My business will clearly explain the complex relationship between Customers, Advertising, Products, Brands and Channels to Multichannel CEOs and Executives.

My business will focus on the emerging field of Multichannel Forensics, a framework for understanding complex customer relationships coupled with a sophisticated forecasting tool used to understand the long-term sales, profit and growth potential of a multichannel business. Click here for a white paper on the topic of Multichannel Forensics.

I am so looking forward to starting this business!

This was not an easy decision to make. Nordstrom is a wonderful company to work for, consistently ranked as one of the top one-hundred companies to work for in the United States. I spent more than six years at Nordstrom, more time than at any previous company I worked at. That speaks volumes about the people I have worked with, and the environment at Nordstrom.

It will be particularly hard to leave the wonderful people who work in our Database Marketing department. My management team is among the most talented and experienced in the multichannel retailing industry.

• Few folks know more about multichannel circulation than Michael Einfalt. Not many folks manage teams that can explain the multichannel ROI of over 1,000 direct mail campaigns each year. Fewer people have linked clickstream behavior and retail purchasing to catalog response analytics. Almost nobody is a better manager of people than Michael. The latter is simply taken for granted. Few people truly see or appreciate his genius. Michael is too humble to brag about it.
  
• Few individuals are as innovative as Jennifer Thornton, our E-Mail Circulation and Online Analytics Manager. She has a rare combination of enthusiasm, energy, creativity, innovation, and an instinct to know whether something is 'right' or 'wrong', correct or incorrect. Jennifer has the potential to be a great leader in multichannel database marketing. I doubt anybody in our industry knows more about catalog circulation, e-mail campaign execution and analysis, and the use of social media in retailing. What a unique combination of skills. Jennifer is well-positioned for the future of our industry.
  
• Jay Long is our Director of Business Intelligence, the data mining, ad-hoc query and analysis arm of Nordstrom Database Marketing. No individual in the history of Nordstrom answered more questions about customer behavior (from a database) than Jay answered during the past six years. Jay completes more analyses per hour worked than any individual I have ever worked with. Couple that fact with his typical twelve hour day, and you have one of the most productive Business Intelligence individuals to ever work in multichannel retailing. Jay exhibits everything that is good about Nordstrom. Humble, honest, bursting with integrity and accountability, Jay has done more to make others look good at Nordstrom than any individual I have worked with. He sacrificed his career objectives to help others, always looking to support our Executive Team and our Decision Makers. Future leaders in Consumer Insights / Database Marketing will look great because of the foundation Jay built.

Linda Finn is our Chief Marketing Officer. She deserves huge kudos for providing an environment that allowed our team to do our job, without the micro-management and "do-it-my-way-or-the-highway" style exhibited by some leaders. She trusted our information, and trusted we were always trying to do what was best for Nordstrom. "LT", as she is known by, will go in the books as one of the better bosses I've worked for.

A few years ago, Jim Bromley was leaving his post as the leader of the online and catalog division of Nordstrom. Mr. Bromley asked me what I wanted to accomplish during the remainder of my time at Nordstrom. I told him that I "wanted to see how the story ended".

My first assignment at Nordstrom was to help Nordstrom Direct (catalog + online channel) become a profitable arm of a multichannel retailer. Several management teams later, the mission has been accomplished!

My second assignment at Nordstrom was to integrate separate teams that analyzed customer information and managed circulation for different divisions. Our employees did an exceptional job of building a team that looked at "one customer", across all Nordstrom channels.

My final assignment at Nordstrom was to use customer information to help our transition into multichannel retailing. I got to see what happens, politically, professionally, and financially, when a traditional catalog program ceases to exist. I learned what happened to the online business and the retail business when a catalog program is shut down. I observed what happened to customer acquisition when all traditional catalog acquisition activities end (list management, list brokerage, compiled lists, etc.). What a valuable learning experience!

Truthfully, I learned more about the impact of multichannel advertising during the past two years than I learned in my first seventeen years as a professional. That kind of experience can only happen when you essentially shut down one of your channels.

Having survived these assignments, I got to see how the story ended. I am ready to tackle my next endeavor. Thank you to everybody at Nordstrom, for making the past six years so educational, so memorable, so intellectually stimulating. I highly recommend Nordstrom as an employer, and think the world of my team at Nordstrom.

Multichannel Forensics White Paper

My articles about 'Multichannel Forensics' have created a lot of interest on this blog. In response to your interest, I created a document that outlines the concept of Multichannel Forensics, and its application to products, brands and channels.

Here is a link to the document: MineThatData's Multichannel Forensics

The document provides a reasonably short overview of concepts from my first book, and from a book I just finished writing, to be released this summer. This is a working document, so please provide your feedback. You are free to share the document with anybody you think would benefit from the information.

For those of you who are trying to understand how customers migrate across products (Books, CDs, DVDs), brands (Banana Republic, Gap, Old Navy), and/or channels (Catalog, Online, Retail), give this document a thorough read.

A Brief History Of The Internet, And Leadership Development

In 1995, I accepted a job at Eddie Bauer as Manager of Analytical Services. One of my 'demands', was to have a personal computer with internet access, and an e-mail account. One could sense that the internet channel was about to change the way we worked.

Within a year, we had individuals focusing on internet marketing. If I remember correctly, we called the channel 'I-Media'.

Our Vice President of Marketing would kid our 'I-Media' person. "How many orders did we get yesterday, six or seven?" he would joke. The 'I-Media' person would just plug along, doing work that none of us really understood.

Six or seven orders a day became an annual total of $65,000,000 three years later. Vice Presidents paid attention to that number. These sales appeared to be largely 'free'. We didn't have to spend $10,000,000 marketing to the customer to get these sales ... at least on the surface, it didn't appear that way.

In 1999, I was Director of Circulation for a $500,000,000 catalog business that was stumbling along. Sales were no longer increasing, in fact, catalog demand was decreasing year-over-year, on a comp basis. But we had $65,000,000 of 'I-Media' demand. What's not to love about that? The P&L looked great. We earned nice bonuses.

By late 1999, the 'I-Media' channel was garnering attention at Eddie Bauer. The E-Mail and 'I-Media' folks were moved to another building, to focus on growing sales in the online channel. The rest of us were sequestered in our building, trying to figure out why we couldn't grow sales in the catalog channel anymore, in spite of the fact that 'customers buying from multiple channels are the best customers'. If those customers are the best customers, why do they keep spending less and less in catalog? Today, we know why. Back then, it was a bit of a mystery.

I don't know if these trends happened at other companies. What I do know is that, in many cases, the internet marketers and e-mail marketers developed their analytical tools, marketing strategies, and a network of co-workers/friends outside of the regular processes within our businesses.

While the rest of us tried to maintain a robust profit and loss statement by cutting costs, circulation and pages --- by shifting management of customer acquisition to businesses like Abacus, the online marketing folks were frequently off in their own world, building relationships with CheetahMail, Google, AOL, Yahoo! and MSN. They literally built their own businesses, independent of the core business.

Over the past five years, there has been an enormous focus on integrating the internet channel into the rest of the business, across all of our multichannel businesses. Our failure to integrate the business sooner caused us to spend too much time developing skills in our specific niche. We didn't build enough skills across functions or channels. Couple this fact with an ever-decreasing number of 30-40 year olds in our businesses, and we're now heading for talent trouble.

The only folks who tried, in some way, to integrate business units were merchandisers. Customers liked buying merchandise online, in catalogs, or in stores. The merchandising folks, keenly aware of the importance of growing sales, probably did the best job of understanding how merchandise sold across channels. They didn't understand how the channels worked together, but they did get to see how merchandise sold across channels.

The rest of us were busy tackling unique issues that caused us to not have the skills necessary to lead a business in the year 2007.

Catalog folks focused their energies on a dying business model, trying every technique possible to improve efficiency and profitability, becoming more and more like a fossil in the process.

Retail folks feared that the online channel would cannibalize their sales, and viewed the internet as an enemy, never understanding that so many of their customers were researching merchandise online before coming into the store.

Online marketing folks, never knowing the pain of having the distraction of managing a downturn in business, integrated their businesses with Google, to a point where they depend on the search channel for between ten and forty percent of their sales. More on that in a future post.

Like everything else in the first decade of the 21st century, we fragmented ourselves into targeted niches. Not enough of us built General Management skills to manage a fragmented, multichannel business, in the year 2007.

The result is an utter lack of General Management talent in the multichannel retailing industry. There simply aren't enough people who know the entire business. There are plenty of people who know one specific aspect of the business.

A decade of focusing on keywords yielded thousands of talented individuals who know exactly how to work with Google. These folks have not been given the experiences to manage anything outside of a relationship with Google.

A decade of writing copy that is search friendly yielded thousands of talented individuals who know exactly how to write copy that is appealing to Google. These folks were never given an opportunity to write copy that romanced a customer.

A decade of writing catalog copy that romances the customer yielded thousands of talented individuals who know nothing about writing copy that is appealing to Google. These folks were cut off from the future of the business, and failed to acquire necessary skills for the future, through no fault of their own.

A decade of reducing catalog expenses yielded thousands of talented individuals who know how to communicate to Abacus what type of model they want built for catalog customer acquisition. These folks don't have the tools necessary to understand what type of customer they are acquiring with their catalog mailings. They are giving up management skills, in exchange for the skillset of working with Abacus.

A decade of managing open rates, click through rates, and conversion rates yielded thousands of talented individuals who know how to send an e-mail that converts a customer to a sale today. These folks were never given an opportunity to build something that lasts, something that customers save --- as evidenced by the fact that 75% of people don't even bother to open a marketing e-mail.

Because merchandisers had to sell product across all channels, we now focus our leadership opportunities on these folks. Leadership jobs in the multichannel industry are likely to go to merchandisers over the next five years.

Our businesses must do a better job of cross-training our highly talented online marketing individuals, so that they can assume leadership positions in our multichannel organizations.

If we don't do this, we simply yield more control of our business to algorithms, Darwinian-style evolution of merchandising strategy, Abacus, and Google. At some point, we must grow our talented online marketers, giving them broad cross-functional opportunities to become leaders. If we don't do this, we're subject to a world where merchandisers tell us to tell Abacus and Google what to do. We won't be left with a meaty, meaningful job.

Multichannel marketing is moving ever-closer to an algorithm-driven business that lacks warmth, humanity, and gut instinct. We need to begin adapting to this trend now, and need to begin developing marketing leaders capable of doing more than working with Google and Abacus.

More On Loyal Customer Behavior Using Multichannel Forensics

Ok, you worked with your friendly programmer yesterday, and identified your overall company repurchase rate.

What was it? Sixty-three percent? If that's the case, your tend to have a loyal customer audience that is in 'Retention Mode'. When this happens, your business tends to grow by getting existing customers to purchase more often, and to purchase more items per trip. Anytime the annual repurchase rate is above sixty percent, your business is in 'Retention Mode'.

If the repurchase rate was between forty percent and sixty percent, you're in 'Hybrid Mode'. These business models are a lot of fun for executives to manage. You can grow by increasing the retention rate, by acquiring a lot of new customers, by increasing purchase frequency, or by adding items per trip.

If the repurchase rate was less than forty percent, you're in 'Acquisition Mode'. Your business will grow by a relentless quest for new customers.

Now that you have this metric for the whole business, your next step is to measure the repurchase rate for each product, brand or channel.

For instance, assume you are a multichannel retailer that has a catalog, online and retail channel. Your overall repurchase rate is fifty percent. Your overall business is in 'Hybrid Mode'.

Now, take one of your channels (i.e. catalog). Measure the repurchase rate for last year's catalog buyers, at a company level, and within each of your channels.

For instance, your catalog buyers might look like this:
*** Company Repurchase Rate For Catalog Buyers = 57%.
*** Catalog Repurchase Rate For Catalog Buyers = 29%.
*** Online Repurchase Rate For Catalog Buyers = 35%.
*** Retail Repurchase Rate For Catalog Buyers = 11%.

This tells a compelling story. Catalog buyers are loyal to the total company, in 'Hybrid Mode'. However, within the catalog channel, these buyers have a twenty-nine percent repurchase rate, putting them in 'Acquisition Mode'. These buyers tend to migrate to the online channel. To grow catalog, there must be a huge infusion of new catalog buyers. Online directly benefits by having a big catalog file of customers that migrate from catalog to the online channel.

Your homework assignment for tonight: Run the above table for every product, brand or channel you have. Tomorrow, we'll talk about the meaning of the individual percentages in the table above, and how to strategically understand the importance of those percentages.

Virtual CEO: Green Mountain Coffee Roasters

Green Mountain Coffee Roasters is a multichannel retailer based out of Vermont. With net sales of more than $200,000,000 in the past year, this business has found a niche in the highly competitive world of specialty coffee. By giving five percent of pre-tax profits to socially responsible initiatives, the business is able to give back while increasing shareholder value.

Four percent of all pounds of coffee sold are via the catalog and online channel. This yields somewhere between five and ten million dollars of sales via the direct channel.

Of interest is a statement in their most recent 10-K statement that the business uses the catalog and website to extend the brand in geographic areas where Green Mountain Coffee Roasters does not have a retail presence.

My question for you, the Virtual CEO, is this: Do you think that online and catalog sales of coffee products represent a good proxy for determining future retail markets? Could a database marketer mine this information effectively, or, do you think these "distance" customers are fundamentally different than the customers who make up the retail segment?

Four Out Of 150 Online Retailers Truly Leverage RSS Feeds

I entered the URLs of the top one hundred and fifty online businesses in the Internet Retailer Top 500 into my Firefox browser. Of these one hundred and fifty leading online retailers, a grand total of four (4) lit up the URL line with the RSS symbol.

Of the four retailers, one really takes advantage of the technology. Apple does a spectacular job of allowing customers to pull a myriad of information about the company into their browser. One of the stories in their feed talks about podcasting. This article is actually a link to a story in the press about Apple and Microsoft's Zune product. In this article, Apple takes you to PC Magazine to read a product review. These are good examples of using RSS technology to link internal information, articles in the press, and product reviews. All of this technology is close to free --- somebody has to identify the material, and get it into the feed. The customer just sits at home or work, using Bloglines or Google Reader to read the information anytime the marketer wishes to make it available.

Three other retailers use RSS feeds to directly sell featured merchandise to the customer.

Newegg features many different products in their feeds. For instance, this article features a ViewSonic monitor. Their feed offers numerous product selections.

Zappos and their marketers continue to outpace their online and multichannel competition. Within their feed, you can see featured merchandise, like this Michael Kors Handbag for $371.

Buy.com also features an assortment of merchandise in their RSS feed. Here is a Crucial 1GB CompactFlash card for $30.

Apple, Newegg, Zappos and Buy.com --- four out of one-hundred and fifty in the Internet Retailer Top 500 who are taking the time to experiment with different ways to market merchandise via RSS feeds. Kudos to each of them for leveraging this inexpensive marketing channel.

Multichannel Retailing: A Complex Marketing Ecosystem

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

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

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

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

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

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

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

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

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

Coldwater Creek: The Little Engine That Could

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

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

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

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

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

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