Summer Schedule

Each year, we go through the same process, don't we?


We start the year with a topic, a theme, something that carries us through the Spring.  Some of you find the topic interesting, and hire me.  Others find the topic interesting, and implement the ideas. Still others find the topic of interest, and continue to subscribe.  Finally, there are those who don't like the topic, and unsubscribe, citing "too many updates"!


Then we get to Memorial Day.


From late May to early September, attention is diverted.  Some might think content is to blame, but I beg to differ.  No, I think our attention span dwindles, in part, because of the weather.


For the seventh consecutive year, you'll be part of a time-honored tradition, called "a decrease in content frequency". 


Starting next week, posts will be published for public consumption on Monday morning, Tuesday morning, and Thursday morning.  As always, when topics dictate, supplemental posts will be published.

Moses

No, not Him.

I mean Moses, the little miracle kitten (click here).

Did you see how the world found out about Moses?  Read through the historical posts.  This video "went viral", as they say.  Next thing you know, Moses is on The Today Show, and even earns honored status on I Can Has Cheezeburger.

But this isn't about something going viral.

The chain of events leading to this video going viral cannot be captured in a bottle.  You have a random blog, you have YouTube, you have popular websites appealing to Jasmine, you have websites appealing to Jennifer, you have the Today Show (Judy).

Marketing experts will tell you that you have to "do everything", that you have to be "multi-channel".  And yet, if you tried to astroturf this thing, you'd fail ... if you set up a blog and YouTube and your PR people tried to astroturf it on popular blogs or on television, you'd fail.  Be honest!

Everybody wants to know what the "Best Practices" are ... somebody just please give away some trade secrets for free, and we'll all be successful, right?

But these days, "Best Practices" make no sense.  Sure, the fundamentals still make sense ... you minimize returns and forecast inventory properly and you'll be wildly more profitable than your mediocre competition.  Marketing "Best Practices", however, have a low probability of success.

There are probably a thousand stories like Moses out there.  If marketed properly, you have a 1 in 500 chance of being noticed.  If not marketed properly, you have a 1 in 1,000 chance of being noticed.  This results in a share of not-so-good-practices succeeding ... and in almost all spectacularly-planned-via-best-practices strategies failing.

It's a good thing that little Moses is adorable, because that makes the story possible ... the content (or in our world, the merchandise) still matters.

New Customers, For Free

If you like to keep up on marketing/analytics, you probably read Andrew Chen, right?  And you've probably read this post, right? (click here).

If not, there's two sentences that you might pay attention to.

• The important thing about virality is it is free. So it's an important skill for startups.

It's an important skill for anybody!

I get calls and emails ... "what's the next big idea, Kevin?"  Now, I don't have the slightest idea what the next big idea is, but a business like One Kings' Lane that goes from $0 to a couple hundred million dollars in a few years is worth paying attention to, right?  Mostly grown by virality, it's certainly something we should pay attention to.

That's when I get the response ... "I need something that scales. You can't bank on virality, it's unpredictable. You can bank on Abacus giving you a million names that will generate $1.5 million in sales, +/- 5%.  That's what I'm talking about.  What's the next big idea like that?"

In other words, you want someone to assume all of the risk for you, and you will gladly pay them for the right to remove all risk, correct?

Big ideas are headed in the opposite direction, and have been for some time.  Judy's generation paid for offline access to information (Abacus).  Jennifer's generation paid for online access to information (Google).

Jasmine's generation just won't pay.  New customers can be found, for free.

Now this is hard, risky work, isn't it?  With Abacus, the odds of breakthrough success are nearly zero, but the odds of treading water are great.  With word-of-mouth, the odds of breakthrough success are, what, one in ten, or one in a hundred?  With word-of-mouth, there is no treading water ... you either succeed wildly, or you're finished ... you'll know, either way, really soon.

In the old days, you'd have a customer acquisition analyst, horse-trading names with competitors. And some geeky mathematician wrote SAS code on a mainframe computer, hoping to avoid a dreaded SB37 error ... analyzing test results when there were enough cycles available to process information.  Combined, the individuals earned your business new customers.

Read the blog post above, or the post on Growth Hackers, and you see a world that parallels what was done twenty years ago ... but is fundamentally different.  Gone is the teamwork required twenty years ago, replaced by technology, coding skills, rapid A/B testing, and the promise of free, new customers.

There is a gulf between the world that Judy thrives in, and the world that Jasmine thrives in.  We probably need a better balance between the two, don't we?

Swim Lanes

In merchandising, some companies introduce the concept of "swim lanes".  This is a valuable concept.  Merchandise is forced to stay within a swim lane, to eliminate the myriad problems associated with redundant skus.  Merchants are assigned a category, and are asked to not interfere with the work of another merchant. Each merchandise category is allowed to grow and thrive, without interference from the efforts of an employee responsible for another merchandise category.  In theory, this helps simplify the purchase process for customers as well.

Now let's look at the failed concept known as "multi-channel marketing".  Everybody is an expert!!  The Chief Merchandising Office knows what email campaigns need to look like.  The Chief Operating Officer possesses distaste for affiliate marketers.  The Chief Financial Officer wants to trim catalog circulation by 30% (and would trim it by 97% if she could, because you just mail the customers who are going to purchase, right?).  The Chief Creative Officer thinks you need to "engage" the customer more via social media, and will work behind your back on developing a content-based strategy on Twitter, if necessary.  The Chief Inventory Officer wants to abandon paid search because it cannibalizes organic search results.  

The Chief Marketing Officer actively mines her network on LinkedIn, anticipating her next job.

Have you ever been in one of these meetings?  A half-dozen Executives all jumping out of their swim lanes to improve marketing performance?

I remember being at Lands' End in the early 1990s ... a profitable quarter was blown up, in part because somebody in Finance made some sort of mistake on currency exchange rates.  I remember the gnashing of teeth, because that mistake cost every employee a percentage of his/her annual bonus.  Nobody likes it when a bean counter is responsible for taking beans away from you!

I don't remember employees telling Finance how to manage money, however.  Money, even if mis-managed, was part of the Finance swim lane.

And you don't often see marketing leaders demanding a right to determine which robotics system to use in a warehouse, do you?

When it comes to marketing, swim lanes break down.  Everybody is an expert, right?!

A strong Marketing leader has facts to back up his/her claims.  A strong Marketing leader listens to Executives, then helps Executives move back into their swim lanes when appropriate.  A strong Marketing leader reminds every employee of the importance of Merchandise ... in other words, when business is down by 10%, the Marketer quantifies that Merchandise weakness is casing 9 points of the 10 point drop ... then the Marketer offers solutions to help the Merchant regain a few points.

A strong Marketing leader teaches Executives to respect each other.  A strong Marketing leader teaches Executives the limited potential of tools/techniques.  A strong Marketing leader teaches Executives the unlimited potential of creativity/working-together.

Finally, a strong Marketing leader reminds Executives about swim lanes ... reminding Executives about the importance of focusing on what one knows best.

Dear Catalog CEOs: Visiting A Non-Competitive Brand

Dear Catalog CEOs:


Here's one thing I don't understand.  Why won't we ever go spend a day with a non-competitive colleague?


We're on LinkedIn, so we have this network of 1,148 professionals.  And LinkedIn tells us that this network is really valuable, right?


So why don't we use it?


Get on the phone this week, and call a CEO at a non-competitive brand.  Arrange a visit.  Then get on an airplane and visit your colleague.


It's even better if the colleague leads a non-catalog brand.


Set up a six hour meeting.

• 10:00am - 11:00am:  Business results over the past five years ... a review of the profit and loss statement, customer file counts, orders per buyer, items per order, retention rates, that kind of thing.
• 11:00am - 12:00pm:  Marketing strategy ... a review of the way that each brand acquires customers, retains customers.  Discussion of the strategies, effectiveness, return on investment, vendors used, etc.
• 12:00am - 12:30pm:  Lunch.
• 12:30pm - 1:30pm:  Merchandising strategy ... how are products sourced, how is the mix of new and winning products arrived at, how is product productivity measured?
• 1:30pm - 2:30pm:  Employee strategy ... where do you find talent, how do you retain talent, how do you balance outsourcing talent to vendors vs. hiring the best people.
• 2:30pm - 3:30pm:  The Future ... a discussion of what "the next big thing" is, and how each business plans on growing over the next five years.  What are the strategies and tactics that lead to a viable business in 2017 and beyond?  What are the threats faced by each business?
• 3:30pm - 4:00pm:  Takeaways ... what was learned by each business that will be implemented.  How will the takeaway be measured?  How will each business communicate with each other?

The goal is to find complimentary ways for each business to help the other grow.

What would stop you from getting on a plane and having a session like this?

Planning Merchandise

How we plan merchandise dictates the audience that buys our merchandise.

Think of the classic catalog marketer.  You're planning a December catalog, right now.  You guess how many housefile customers you'll have.  You project how many new customers you'll need.  You ask Abacus for 1,500,000 names, you fork over $100,000 to have access to names that you know will perform at $1.05 per catalog.  Then you allocate space in the catalog for each item.  You know what many of the items will be, you source new items as well.  By December, you know how that catalog will perform, +/- 10%.  Your strategy for planning merchandise yields a predictable result.  It also yields a predictable customer file, rural 55+ customers sourced from Abacus.

Two years ago, I met with the founder of a business in Europe.  This person communicated a planning process that was completely opposite of what catalogers execute.

• 8:00am:  Read blogs, Facebook, Twitter, and understand what is "hot" this morning (yes, this morning).
• 9:00am:  Have a staff meeting with merchants and social media experts.  Discuss the products that folks are talking about.
• 10:00am - 6:00pm:  New products are designed.
• Next Two Weeks:  Products are created, in China.
• Two Weeks Later:  Proprietary products are available for sale on the website.

Not surprisingly, this process yields a very different customer, with very different merchandise preferences.

Both approaches "work".  One attracts a 55+ rural audience, one attracts a younger, fashion-oriented audience.

We need to understand that we play a huge role in determining who buys merchandise.  When we have a nine month merchandise planning process that is built around the assembly of a catalog, well, we end up with a customer who prefers the outcome of this strategy.  When we have a two week planning process, well, we end up with a customer who prefers the hottest and most relevant merchandise.

Multiple Digital Channels: Oh Boy

A few weeks back, the folks on Twitter took umbrage with my stance on the concept of "multi-channel".

• "77% of customers research online before buying in a store ... this is the very definition of multi-channel."
• "63% of e-commerce buyers touch at least four channels before buying merchandise."

So what?

• "But this is proof that customers prefer a multi-channel experience.  You cannot deny it."

Of course I can deny it!

Customers don't prefer a multi-channel experience.

Customers are forced into a multi-channel experience.

You know why customers are forced into a multi-channel experience?  

Because customers don't trust us.

Customers don't trust that we offer the lowest price, every single day.

Customers don't trust that we offer the lowest shipping/handling cost, every single day.

Remember Jennifer?  She's the persona you are least enamored with.

You don't like Jennifer because Jennifer doesn't trust you!

Jennifer knows that you have multiple versions of email campaigns.  She knows that her neighbor was offered 20% off scarves while Jennifer was offered 10% off of socks.  So Jennifer clicks through your email campaign (see, multiple channels work), because Jennifer still needs a scarf, regardless of your promotional strategy.

Jennifer documents the price of a scarf on your website, placing a scarf in her shopping cart, but she doesn't trust you.

Jennifer heads to Google, to see if comparable scarves at your competition are comparably priced (see, multiple channels work, don't they ... Jennifer just used email + search, multi-channel Heaven).

Let's assume that Google proves to Jennifer that your scarves are comparably priced.

What is Jennifer going to do next?

Well, she sure isn't going to pay for shipping and handling.  Your website says you offer $8 shipping every day, but Jennifer remembers that two months ago you were running free shipping campaigns (hurry, act now, free shipping ends in just 36 hours).  

Jennifer has a hunch that you're offering somebody free shipping, just not her.

Jennifer doesn't trust you.

Jennifer heads back out to Google.  She searches for a free shipping code.  Google redirects Jennifer to an affiliate website (see, multiple channels work).  There, Jennifer finds a free shipping code.  Oh, Jennifer also finds a 20% off scarf promo code.  Jennifer has to pick one of the two promotions.  

Jennifer doesn't want to pick only one of two promo codes.  Jennifer doesn't trust you.

Jennifer picks free shipping, as free shipping saves her more money than 20% off of the scarf she wants to purchase.

If Jennifer had time, she'd dial your call center and demand 20% off plus free shipping ... and you'd add another channel to the purchase process and suggest that multi-channel works, right?

By the way, Jennifer did all of this on her iPad at work, using wi-fi from the Starbucks downstairs ... Jennifer doesn't want her company to know that she is using the company computer to shop for a scarf.  But we observe this behavior as "mobile multi-channel" ... we think Jennifer is the valuable mobile buyer that we've been hearing about!!!  

Jennifer, however, is not using mobile because of mobile, she's using it to shop while at work.  Mobile isn't a channel to Jennifer, it's a way to get around the rules.

Jennifer buys the scarf, using a free shipping promo code.  

Jennifer feels burned that she couldn't apply a percentage off code.

If Jennifer had time (she needs the scarf for date night with her husband on Saturday), she'd leave the scarf in her shopping cart for a week, knowing that you'd send her a trigger-based email message with an offer to save an additional 10%.  And when she purchased, you'd credit her with another touch point in the process.  See, multi-channel works, doesn't it?!

Do you get it?

Jennifer touched a veritable plethora of channels, not because she's a multi-channel customer, but because she doesn't trust us.

Jennifer doesn't trust that we will always offer her the best price.  This lack of trust manifests itself in the use of multiple channels.

There is an inverse relationship between trust and use of multiple channels.  

Yes, great customers buy online and in stores.  But many customers don't trust us, and use multiple digital channels to evaluate just how much they can trust us.

Think of a brand that you trust.  Once trust is built, you don't do a lot of comparison shopping, do you?  You simply trust.  You cut down all friction, simply purchasing in the channel that is most convenient to you.

That's what my evaluation of the data suggests.  What does your evaluation of the data suggest?

Employee Value

In sports, we look at statistics.  Statistics help us understand the value a player brings to the table.  For instance, last year, Price Fielder posted the following statistics for the Milwaukee Brewers:

• 162 Games Played.
• .299 Batting Average.
• 38 Home Runs.
• 120 Runs Batted In.
• .981 OPS (on base percentage plus slugging percentage, the metric is highly correlated with runs and wins, average is a bit over .700).

We observe statistics like that, and we say, "wow".

As a result, Prince Fielder signed a free agent contract with the Detroit Tigers, for more than $20,000,000 a year.

The numbers directly correlate to the market value of an individual.

Now, let's assume you are the CEO of a company.  You have an email manager.  This person gets things done.  The person who used to have her job posted the following metrics:

• Annual Emails Delivered = 100,000,000
• Open Rate = 20%.
• Click Through Rate (as a percentage of Opens) = 30%.
• Conversion Rate (as a percentage of Clicks) = 5%.
• Average Order Value = $100.
• Total Demand = 100,000,000 * 0.20 * 0.30 * 0.05 * $100 = $30,000,000.
• Profit Flow-Through Rate = 40%.
• Email Program Cost = $1,000,000.
• Total Profit = $30,000,000 * 0.40 - $1,000,000 = $11,000,000.

But this young lady, well, my goodness, look at what she was able to accomplish in one year, on the same size email list:

• Annual Emails Delivered = 100,000,000
• Open Rate = 22%.
• Click Through Rate (as a percentage of Opens) = 32%.
• Conversion Rate (as a percentage of Clicks) = 5.5%.
• Average Order Value = $95.
• Total Demand = 100,000,000 * 0.22 * 0.32 * 0.055 * $95 = $36,784,000.
• Profit Flow-Through Rate = 40%.
• Email Program Cost = $1,000,000.
• Total Profit (not including employee costs) = $36,784,000 * 0.40 - $1,000,000 = $13,713,600.

This one individual, by herself, caused a $6.8 million increase in demand, and a $2.7 million increase in profit.

You're paying this person $75,000 a year.

What is the value of this employee to your company?  What is the potential value of this employee to the future of your company?  Are you compensating this person in a fair manner, given her contribution to your profit and loss statement?

In the same department, you have a social media manager.  You're paying this guy $70,000 per year, less than the email manager.  This person is able to quantify the following contribution to the company.

• Facebook Likes increased from 11,439 to 14,903 in the past year.
• Twitter Followers increased from 9,493 to 13,771 in the past year.
• 401 F-Commerce orders and 345 Twitter click-through orders, at $100 AOV (neither program existed in the year prior).
• $74,600 annual demand.
• Profit Flow-Through Rate of 40%.
• Total Profit (not including employee costs) = $74,600 * 0.40 = $29,840.

What is the value of this employee to your company?  What is the potential value of this employee to the future of your company?

You calculate employee value, don't you?

At Nordstrom, I had a scorecard.  Every employee in my department was listed as a row on the scorecard, and an estimate of annual profit contribution was listed in a column on the scorecard, based on tests we conducted and projects each employee worked on.  When I attended a meeting and an Executive questioned the value of an employee, I had an immediate response --- "We're paying Sandy $49,000 a year, and she made improvements to her area that generated $983,000 of incremental profit last year ... she ranks 9th out of 24 employees in the department".

You're probably doing this, right?  You know the actual value each employee generated to the business last year, incremental, above-and-beyond what was done the prior year, correct?

As a boss, you have to have a tool like this in place.

If you are an employee, it is even more important to have a tool like this in place.  It is the only way that you can fight for your paltry 3% salary increase (which sure doesn't align with the profit contribution of the email manager in our example, does it?) ... it is one of the most effective ways to argue for a promotion.

Why not take a hour today, and calculate employee value?  You may be surprised by the employees who are truly contributing to your bottom line!

Little Black Bag

Twitter user Judah Phillips shares this little tidbit from Klout and Little Black Bag.

• Click here for the promotion from Klout.

Use the comments section below to share your thoughts ... do you support the concept of customers and prospects with a bevy of "Digital Friends" being offered lower prices than folks who haven't mined their social media for gold?

Dear Catalog CEOs: Relevant Talent

Dear Catalog CEOs:


Are you in the same place that so many other folks are these days?  In other words, are you struggling to find what one individual recently called "relevant talent"?


The job market places value on specific job responsibilities.  And the job market has a way of moving various job responsibilities between clients and vendors.


For a decade, we placed value on what we thought was important.

• Catalog Circulation:  Outsourced to the co-ops.
• Email Marketing:  Outsourced to a small number of vendors.
• Database:  Outsourced to a small number of vendors.
• Paid Search:  Outsourced to a small number of vendors.

We almost did this unconsciously, didn't we?  

We were able to downsize a once-robust customer acquisition team, because it was so much easier to just call Abacus for 1,205,448 names.  As a result, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

We started with email in-house, then realized that the vendor community could blast our campaigns cheaply and quickly, coupled with opens/clicks/conversion data ... don't need in-house talent to do anything other than coordinate the campaigns now.  So, we shipped that function out, and as a result, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

We sent our database out to pasture, didn't we?  When we shipped this function out to the vendor community, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

Paid Search became the most relevant online comparable to catalog co-ops ... you either pay for clicks, or you pay for access to the mailbox.  When we shipped this function out to the vendor community, a ton of talent that would normally have developed in the catalog industry went elsewhere for employment.

From 2001 to 2010, this "worked".  We cut back on expenses, and our vendor partners worked their rear ends off to support us.  This was a magical outcome of the "multi-channel" era.

Except for one little problem.

In my time in the industry (1988 - current), talent "developed".  I want to share with you the career path of some of the individuals who became Executives during the past twenty-five years.

• Accountant -> Circulation Manager -> Circulation Director -> Merchant -> EVP Direct Channel -> Owner.
• Customer Acquisition Analyst -> Housefile Circulation Manager -> Customer Research Director -> VP Direct Channel.
• Statistician -> Inventory Manager -> Research Manager -> Research Director -> VP Direct Channel -> EVP Direct Channel.
• Customer Acquisition Analyst -> Customer Acquisition Manager -> Circulation Director -> VP Online Marketing
• Housefile Circulation Analyst -> Housefile Circulation Manager -> Merchandising Director -> General Manager -> President

What did each of these individuals possess?  Well, they obtained skills in job titles that, in the past decade, have been largely outsourced to the vendor community.

And while vendor community skills are very important, they are not the same as the skills you obtain in the hand-to-hand combat of a catalog/online/retail brand.

A decade of this activity resulted in a complete dearth of what is now called "relevant talent".

Repeatedly, folks ask me to help them find an individual with a set of skills that simply doesn't exist anymore.

• "I want an online expert who can also increase the profitability of our catalog marketing program."
• "I want somebody who can integrate email and search and social into a coherent strategy".
• "I want somebody who knows how to run a profit and loss statement."
• "I want an Executive who can chart a course to the future."

These people were plentiful fifteen years ago, because we developed the talent pipeline.

These people barely exist today, because we abandoned the talent pipeline, we outsourced it.

As a result, we have to greatly overpay for relevant talent, or we have to adjust our expectations for the reality we created for ourselves while kick-starting the talent development process.

To date, we've not willing to do either.  Our businesses are suffering as a result.

Thoughts?

Time To Sell: Optimal Investment

We made a series of improvements to the business ... we improved Net Sales, we improved Gross Margin, and we improved Merchandise Productivity.


The business is healthier, as a result.

Now, businesses usually make one of two mistakes, when it comes to customer acquisition:

1. Under Investment, in order to protect the short-term profitability of the business.
2. Over Investment, in order to protect top-line sales.

The business that we are analyzing is over-investing, in fact, it is over-investing badly.

Look at what happens when we cut back on catalog customer acquisition activities by 60%, in this case.

My goodness!

This business, from a profit standpoint, is probably at an optimal level ... generating around $12,000,000 of Earnings Before Taxes a year.  Now, there's a price to pay for this level of profitability, because we end up with fewer new customers, yielding a business that generated only $90,000,000 of annual demand.

Both business scenarios probably have similar value:

• A $106,000,000 business generating maybe $9,500,000 of annual profit.
• A $90,000,000 business generating maybe $12,000,000 of annual profit.

But here's what matters, folks.

What matters is that a business, even a failing business, can be improved.  And if the performance of the business can be improved, then the value of the business can be improved.

2012 is a good time to start thinking about an exit, especially if your business caters to Judy.  When a business owns a customer file with 50% or greater penetration among Judy's generation, then the long-term prospects of the business can be questioned.  This gives the business owner or CEO an opportunity, a five year window, to significantly improve the productivity of the business, in preparation for an exit.

If this style of analysis is of interest to you, please contact me for your own, customized project --- click here.