Draft and Develop

In 2005, the Green Bay Packers had a quarterback named Brett Favre.  You might remember him.  Three MVP awards, two NFC Championships, one Super Bowl Title.  Future Hall of Famer.  He would play for six more seasons (2005 - 2010).

And yet, Ted Thompson drafted a Quarterback named Aaron Rodgers.  At the time, the decision was kind of a head scratcher.  In retrospect, it was a wise, wise decision.  Via a "draft and develop" philosophy, Mr. Rodgers was groomed to become the starting quarterback.

What does this have to do with talent in e-commerce / retail / cataloging?

You keep telling me you cannot find talent.  Especially at the Manager / Director level.

Well, I've prepared a brief quiz for you.  If the answer to each question is "no", it is time for you to consider a "draft and develop" program for your marketing team.


Question #1:  Are the salaries paid by your company consistently in the top 35% of your industry?

Question #2:  Is your company considered a leader in mobile or social?

Question #3:  If you made an offer to a prospective employee, and Google/Facebook made the same offer to a prospective employee, would the employee choose your brand?

Question #4:  Is your company headquartered in a major metropolitan area that is considered a trendy place to live/work?

Question #5:  When you have a job opening, is the position filled within 2-3 weeks, due to an ample quantity of highly qualified candidates?


If you answered "no" to each question, it is time for a "draft and develop" program.


Key Elements of a "Draft and Develop" Program.

1. Hire talent right out of college.  Unemployment rates among Jasmine's generation are terribly high, and yet, these graduates have unprecedented tech / mobile / social skills.
2. Pay 20% or more above industry average, and use this as part of your advertising/recruiting strategy.
3. Clearly communicate to the prospective employee that they are being trained and developed, and will possess highly marketable skills in twenty-four to thirty-six months.
4. Develop a "plug and play" process ... new employees go through a rapid training process ... make it so that your "program" can be quickly learned and mastered.
5. Hire each candidate on a 90 day conditional basis ... promise to pay six month's of salary/benefits, but give yourself the ability to separate from the employee if skills aren't a good match.
6. Give a significant salary increase at six months, to reward those who make good progress.
7. After eighteen months, create a "Sr. Analyst" tier, and ask those in the "Sr. Tier" train new employees.
8. Identify the rare, gifted employee.  Fast track this individual into Management.

I know, this is the opposite of what you are used to doing.  But everything you've been doing for thirty years is leading you astray!

First, organizations have "flattened out" ... you no longer see 1 VP and 3 Directors and 6 Managers and 14 Analysts ... with a clear and achievable career path.  These days, you get 1 VP and 2 Directors and 4 Analysts ... with remaining skills outsourced to vendors.

Why not evolve to 1 VP and 11 Analysts, with the occasional Director/Manager position reserved for the rare, gifted employee?  You'll spend the same amount on salary/benefits, but you'll keep knowledge in-house (as opposed to outsourcing all of the knowledge of your business to vendors).  You'll be able to identify talent and reward it over time.  You'll be able to remove poorly performing employees quickly.  And you'll tap into a big market of tech / social / mobile savvy employees who can help you evolve into future marketing strategies.

Draft and Develop.

If what you're currently doing is not getting the job done, why not consider Draft and Develop?

Discuss.

40% Off

This is pretty much the limit, as far as pushing the peanut on percentage off promotions.

I suppose you could go to 49% off plus free shipping.

Once you get to 50% off, you're in the realm of clearance, and that sets off a whole different customer mindset.

There are at least four theories, surrounding discounts and markup.

The first theory is that you are able to charge a high markup as a premium for offering highly desired merchandise.  The most successful companies I work with tend to earn gross margin rates that are in the low 60% range.  In other words, the $49.99 item that we purchase costs the business $20.  This business model works really well in fashion, and for proprietary merchandise (i.e. items that others cannot easily replicate/duplicate).

The second theory is that you charge a high markup, so that you can stimulate demand by marking down the item.  The $49.99 item that costs the business $20 is manipulated ... take 40% off ... so that the customer perceives that a $29.99 item that costs the business $20 is a great deal.  This is the JCP model.  Once you go down this path, you cannot reverse-engineer it.  You can't.  You've built a customer file that loves playing the game ... take the game away, and you take the customer away.  For this model to work, you need (in my example) three times as many customers to purchase the item to generate the same amount of profit.  This model can work well when merchandise is a commodity.  This model almost becomes the default when competition is stiff.

The third theory is that you charge a small markup, so that you can stimulate demand by offering everyday low prices.  The $24.99 item that costs the business $20 yields $4.99 profit ... you need to sell six times as many items to generate the profit you generate at $49.99 ... however, you change the marketplace by offering low prices, and this change drives out the businesses that offer comparable items at $49.99.  This is congruent with Wal-Mart, or Amazon.  This model results in what the pundits like to call "scale", and offers significant competitive advantages.  Of course, it's terribly hard to "scale", isn't it?

The fourth theory is desperation.  Business is not meeting expectations, so you simply start discounting.  10% off.  Sales increase.  Wow!  Next year, 10% off doesn't get you anything.  15% off.  Sales increase.  Wow!  Then sales flatten again.  Then it is 20% off.  25% off.  30% off.  35% off plus free shipping.  40% off plus free shipping.  You can pretty much take this model to 49% off plus free shipping before customer perceptions change.

The first three theories are viable business strategies.

The fourth theory aligns with what most of us do, and there are unintended consequences that offset the short-term sales increase you get from discounting.  Just analyze your customer file, and you'll see the unintended consequences, when viewed over time.

Decoupling: The iPad

Here's what I want you to try:

• Select every customer from your database who purchased via an iPad in the past year.
• Measure the percentage that purchase via an iPad on the very next purchase.

If the percentage is greater than 50%, your mobile business is in the process of decoupling from the e-commerce experience.  You've got excitement, and you've got challenges.  Both will make coming to work worthwhile.

If the percentage is less than 20%, your mobile business is not being embraced by your customers ... on a subsequent purchase, the customer migrates away from the iPad.

Or lump the iPad and iPhone and all Android devices and Blackberry devices and Windows Mobile together ... and run the same metrics above.

Increasingly, I am analyzing businesses where the customer is in the process of decoupling from e-commerce.  If this is your business, then you need to stay on top of it.  You need to be all over it!!

Decoupling is interesting - it works opposite of what the experts tell us.  The customer makes a decision, and changes behavior.  When this happens, we sub-optimize the customer experience by forcing the customer to tether herself to old-school channels.

Decoupling: Email Marketing

Leave your desk right now, and have your analytics guru run a query for you:

• From May 14, 2012 to May 13, 2013, calculate the average price point purchased by marketing channel.
• Compare email marketing to every channel.

What do you see?

There's a high probability that the average price point purchased via email marketing is lower, significantly lower, than all other channels.

This happens when you hyper-optimize a marketing channel.

Email marketers hyper-optimized their channel.  20% off.  Free shipping.  Gotta get open rates up, who cares about the profit and loss statement, right?

Over time, the email customer file was built, and it became fundamentally different than the rest of the business.  It's not uncommon to observe an email customer file that purchases items 20% cheaper than those purchased by the rest of the business.  It's not uncommon to observe an email customer file that buys 75% of items via discounts/promotions, whereas 20% of the remainder of the customer file purchases via discounts/promotions.

Once this happens, the email customer file has been decoupled from the rest of the business.  Integration with the rest of the business becomes sub-optimal, and for good reason ... you're dealing with a fundamentally different customer.  It's a lot like JCP abandoning discounts/promos and being thumped over the head with a bag of oranges, to the tune of a -25% to -30% comp store sales performance.

When you decouple the email customer file from the rest of the business, you actually have freedom to make changes, to reverse the process of multichannel/omnichannel integration.  Use email marketing to play to the strengths of customers who buy from email marketing ... those customers receive versions tailored to their interests.

Dear Catalog CEOs: Decoupling of Demand

Dear Catalog CEOs:

It's happening ... and it's happening largely opposite of what you were told.

I remember being at Eddie Bauer, way back in 1998.  Our e-commerce business went from a million in 1996 to something like five million in 1997 to about fifteen million in 1998.  We observed a funny thing about that fifteen million in demand in 1998.

• It was heavily skewed to male-gender merchandise.

In other words, the demand generated online reflected the audience that was using the internet in 1998.  And when demand launched toward sixty million in 1999, well, those thoughts went out the window.  Demand was more reflective of total direct channel demand, and the concept of "multi-channel integration" was born.

That's what folks focused on.  Integrate the business.  Make everything the same, same merchandise, same offers, same creative ... same same same.

This made sense (to some) as the baton was handed from old-school cataloging to modern e-commerce.

But once the baton was formally passed, a funny thing happened.

The trends that we observed at Eddie Bauer, way back in 1998, have reappeared ... in reverse.

E-commerce now dominates the share of demand generated by the vast majority of catalogers.  But go take a look at the items that customers shopping your call center purchase.

You remember your call center, right?  It's the building with old-school corded phones that took in 90% of orders in 1996 ... that same building that now captures 2% to 22% of orders today (unless your customer is June, of course).

Rank-order all items that sell at your contact center ... first to number one hundred.  Then compare those items against the top-selling items from your pay-per-click program, or the top-selling items from your email marketing program.

Yup, they're different.

In other words, we're in the process of decoupling demand.  All of the integration activity of the past ten or fifteen years is becoming much less important, as small tribes of like-minded customers pick and choose the channel that they prefer.

This is our future ... it's opposite of what we were told.  Small tribes of customers, with unique preferences, shopping the way they want to shop, buying the merchandise they want to purchase.  Our job, of course, is to respond to this trend in the most profitable way possible.  

Sameness seldom results in the most profit.

It's time to get busy serving unique cohorts of customers.

Customer Acquisition - Via Gilt

There are many ways to acquire customers.

Many, many ways.

Catalogers are generally locked-in to co-ops.

Online marketers, for the better part of a decade, were generally locked-in to Google.

And, of course, you can use your own customers to do the work for you, like in this example from Gilt.

In this example, you do the work via social media ... and when your friends use you link, you get $25.

I'm not saying this will "scale" like renting 5,000,000 names from your favorite co-op at $0.06 each scales, but it's at least something worth thinking about.  And that's what I'm encouraging here!

Are Customers Moving Into Your Target Demographic?

The topic comes up nearly every week.

• "We're excited, because our core customer is 60 years old, and the last half of the Baby Boomer generation is moving into our target demographic!!"

You know what?  You might be 100% right!

How do you know if you are right?  Follow these three steps:

1. Find out the average age of your 12-month buyer, back in 2008.
2. Find out the average age of your 12-month buyer, today, in 2013.
3. Calculate (2) - (1) = Age Change.

What value do you get for "Age Change"?

An example.

Five years ago, your customer was 57 years old.  Today, your customer is 60 years old.  Age Change, therefore, is calculated as 60 - 57 = 3.  In the past five years, your core customer file aged three years.

When "Age Change" = 0, you are 100% right, demographics are working in your favor.  You serve a need at a point in a customer's life.  On average, this is a good situation to be in.

When "Age Change" = 3, you have a different situation to resolve.  You are not serving the needs of a customer at a point in life.  Instead, you are following a demographic cohort into retirement.  This isn't good or bad, it's just different.

Most catalogers today live in the "Age Change = 3" situation, for two reasons.

1. A strict adherence to a multi-channel philosophy, where the online experience must be driven by the catalog, not grown organically via online marketing tactics.
2. An unquenchable thirst for new names, sourced via catalogs, obtained from the co-ops.

When you tether website traffic to a combination of catalogs mailed to housefile buyers, and catalogs mailed to co-op prospects, you accelerate the age of your average customer.  

I observe this problem every single day.  It's getting tiring!

Don't believe me?  Ask Experian or Epsilon to perform the average age analysis listed above.

I have several clients who manage a business with an "Age Change = 0".  In these cases, the client has a very strong online marketing team, and/or possesses a merchant/creative team that finds (and presents) new products that appeal to customers 1-3 years younger than today's core audience.  The majority of catalogers I've worked with, in comparison to retail/e-commerce brands, have weaker online marketing teams, given the obsession with driving e-commerce through catalogs.

The key, folks, is to focus on acquiring customers 1-3 years younger than today's core audience.  Keep that metric in mind.  Not 25 years younger.  1-3 years younger.  You can build a bridge to the future doing this.  Look at the merchandise slightly younger customers purchase, and factor that information into your product development strategy.

Most importantly, do the analysis!  It's simple, it's cheap, and it's critical to the strategic direction of your business.

Direct Gardening Association Summer Conference, Burlington, VT

What are you doing July 22 - 24?

How about attending the Direct Gardening Association Summer Conference in Burlington (click here please)?  I'll be giving a keynote on Wednesday, July 24 at 10:30am titled "How Demographics Are Impacting The Future Of Marketing".

In other words, the talk builds upon the concepts of Judy / Jennifer / Jasmine that are outlined in our Personas book from April 2012 (click here to purchase on Amazon).

Oh, I know.  The popular topics out there are mobile, multi-channel, omni-channel.  But every topic that's trendy right now is fueled by demographics ... mobile doesn't work with Judy ... catalogs don't work with Jasmine ... and Jennifer is tethered to Amazon.  Know your demographics, and you'll know the path to the most profitable future you can achieve.  There's plenty of profit to be had marketing to Judy, or Jennifer, or Jasmine.

Come join us!  What's not to like about Vermont in July?

And by the way ... since I'll be in New England that week ... why not reserve time to meet with me?  In recent years, I've made a pilgrimage to New England ... the slots fill up terribly fast, so please reserve your slot early, ok?  (click here to email me).

Email Marketers - A Different Breed Of Marketer

In the past six months, my best selling booklet is this one ... Hillstrom's Email Marketing Excellence (click here for your copy from Amazon).

The book is selling extremely well.

How many Email Forensics projects do you think I've conducted in the past three months?

Zero.

Catalog PhD and Merchandise Forensics projects are running neck-and-neck in 2013, with Merchandise Forensics projects surging, of late.

Email marketers are just different, aren't they?  Not good or bad, just different.

It's been my experience that email marketers love their own set of metrics ... opens / clicks / conversions.  By and large, email marketers ignore many aspects of the overall business, focusing instead on real-time measurement of email campaigns.

Email marketers, like most disciplines, have their own language, and their own community.  And they deliver a disproportionate amount of profit to the bottom line ... without even knowing just how effective they are!

I can't tell you how many meetings I've been in ... executives from many departments dotting the room ... the email marketers huddled in a tiny corner.  When it's time for the email team to communicate results, the buzzwords fly ... opens/clicks/conversions/heat maps/opt-outs ... speaking a different language than everybody else in the room.  The email marketer has done more to deliver company profit than just about everybody else in the room ... but nobody knows this, because few people ever put the results into a format that the CFO can embrace and evangelize.  If the CFO knew that 20% of her annual bonus happened solely because of the email marketing team, what kind of investments might the CFO be willing to make, on behalf of the email marketing team?

Since the booklet is the best selling booklet of the past six months, I know the concepts resonate with email marketers.

But the lack of project work tells me that there are cultural barriers between email marketers and other folks ... I get to see these cultural barriers in the meetings I attend.  With the significant amount of profit that email marketers deliver to the bottom line, email marketers should be held in higher esteem.

What do we have to do to help this "different breed of marketer" be held in higher esteem?  Discuss.

How Results Of The Catalog PhD Are Changing Over Time

We're nearly three years into running Catalog PhD projects (click here for your own copy of the original text from Amazon).

My, how times have changed.

When the catalog division was shut down at Nordstrom, way back in 2005, customers would distribute along a fairly even axis.

• Grade A (Mail 20+ Times A Year) = 10%.
• Grade B (Mail 10-20 Times A Year) = 15%.
• Grade C (Mail 4-9 Times A Year) = 20%.
• Grade D (Mail 1-3 Times A Year) = 25%.
• Grade F (Mail 0-1 Time A Year) = 30%.

Sure, there were more marginal customers than outstanding customers, but the distribution was somewhat even.

In late 2010, when the Catalog PhD was created, the distribution looked something like this:

• Grade A (Mail 20+ Times A Year) = 5%.
• Grade B (Mail 10-20 Times A Year) = 10%.
• Grade C (Mail 4-9 Times A Year) = 20%.
• Grade D (Mail 1-3 Times A Year) = 30%.
• Grade F (Mail 0-1 Time A Year) = 35%.

In other words, customers were moving "downstream".  With e-commerce and the myriad channels associated with e-commerce driving sales (hint - Google), catalogs were less important.  By mailing fewer catalogs, profit could easily be generated.  The theme of all of my work was "mail less often".  By and large, catalogers did not like this message - so in spite of the opportunity to be far more profitable, catalogers turned to the co-ops, looking to turbocharge sales.

Now, in mid 2013, the results have evolved again, this time fueled by demographics and mobile.

• Grade A (Mail 20+ Times A Year) = 10%.
• Grade B (Mail 10-20 Times A Year) = 3%.
• Grade C (Mail 4-9 Times A Year) = 15%.
• Grade D (Mail 1-3 Times A Year) = 22%.
• Grade F (Mail 0-1 Time A Year) = 50%.

There are two significant changes.  Can you spot them?

1. The number of customers to mail 0-1 times a year is growing, rapidly.  This is fueled by three unique issues ... first, the economy never recovered, so there are far more marginal customers today than in the past ... second, mobile is changing the world, with mobile customers tied to apps and engaging content, catalogs have less importance ... and third, demographics - with Jasmine having little interest in catalogs.
2. The number of customers to mail 20+ times a year is growing, rapidly.  This is fully fueled by Judy making choices - she is moving to catalog (more than in the past five years), and is not participating in the mobile ecosystem.  Sure, she uses mobile devices, then transacts because of catalogs.

What does this mean for the profitability opportunity identified by Catalog PhD projects?

• In late 2010, more than 70% of the profit opportunity comes from mailing fewer catalogs to the bottom of the file.
• In mid 2013, more than 50% of the profit opportunity comes from mailing more catalogs to the top of the file.

In other words, your customer file is splitting apart.

The majority of the customer file (Jennifer / Jasmine ... ages 18 - 51) needs dramatically fewer catalogs.

A portion of the customer file (Judy ... age 52 - 68) actually needs MORE CATALOGS.  More.  We don't have enough catalogs in the contact strategy stream to meet her needs.

We've been told, for ages, to be multi-channel / omni-channel ... to be all things to all customers across all channels.

The data is telling us something fundamentally different.

The data is telling us that customers are moving in opposite directions ... by appealing to all of them, we potentially satisfy none of them.

The data tells me that we are going to have to become much smarter at managing unique customer segments.

Ready for your own Catalog PhD project?  I'd think so, given the dramatic changes I'm seeing due to demographics, fueled by mobile (and Google).  Click here to contact me, right now!

Dear Catalog CEOs: The Distraction Advantage

Dear Catalog CEOs:

Your competitors are being seriously distracted.  This gives you a major advantage, the first time you've had a significant advantage over the competition since the late 1990s.

Retail:  Retail executives are being told that they must digitize the physical store experience.  Oh boy.  Do you honestly think there is one clear, easy path to accomplishing that?  Vendors/Management Consultants will say "yes, it's called omnichannel!!!"  You could spend a decade trying to do this, with a low probability of success.  Retailers will spend a decade trying to do this.  Channels will trump merchandise for the near future, based on what we are reading.

E-Commerce:  E-commerce executives are being told that mobile will revolutionize their business.  Well, that's partially true.  If your core customer is 45, no, mobile will not revolutionize the business in the short term.  Long-term, mobile will create the same problem for e-commerce that e-commerce caused for catalogers.  It's the way the world works.  Either way, some Vendor/Management Consultant will tell you they have the solution, and e-commerce folks will be distracted/frightened.  eBay mentioned mobile 127 times in the Annual Report (click here), they mentioned omnichannel 0 times.  Mobile is going to obliterate e-commerce (among customers age 18-40) in the way that e-commerce obliterated catalog marketing.  It's going to be interesting to watch, no doubt about it.  It's going to be a distraction.

Any time your competitors are distracted, you have a major advantage.

Catalogers, you have a major advantage today.

You already know that you have to make a choice.

1. Double-down on the Baby Boomer customer, and ride the gravy train into retirement.
2. Make strategic changes to migrate the business model, over the next five years, from Judy (age 60) to Jennifer (age 44).

You get to spend the next five years implementing either choice.

Your competitors get to think about how to "digitize" the omnichannel experience.

Take advantage of this opportunity.