April 19, 2007

The Marketing Digital Divide And The Catalog Industry

In the first quarter of 2007, sales of music compact disks declined by twenty percent verses last year, as consumers continue to abandon album-based compact disks in favor of ala-carte purchases/sharing of digital music files.

The music industry strongly believes that free file sharing is responsible for the decline in CD sales. The labels are flexing their muscles where they can, to maintain their system of monetizing music even if it means heavily penalizing a new channel where music fans are enjoying music.

The crash of television and radio, the ascension of the internet, and the convenience of the iPod changed the music industry forever. Multichannel Forensics suggest that consumers "transfered" their behavior from CDs to MP3s during the late 1990s through the past few years.

Once consumers landed in a new world of music, they stayed there. In Multichannel Forensics, we call this "isolation". No matter how hard the music industry tries to bring consumers back to the old method of monetized music, the effort is futile. Consumers have moved on.

As consumers, we have a unique, God-given ability to identify trends in the marketplace. We can literally see the future, and react accordingly.

As business leaders, we have a unique, God-given ability to identify trends in the marketplace. We can literally see the future. However, we don't react accordingly. Instead, we dig in our heels, and demand that consumers and business partners come back to our way of thinking.

My beloved catalog industry falls into this category. Our customers can see the future, and are anywhere between 20% and 80% of the way toward evolving their behavior. At this time, customers are generally in "equilibrium" --- the state where they go back and forth between channels. They use catalogs and purchase over the telephone. They use catalogs and purchase on our websites. They ignore our marketing activities, use Google, and purchase on our sites. The combine our marketing activities with Google, and purchase on our sites.

Google recognizes this, and gobbles up properties that allow them to have an end-to-end marketing relationship with our future customers. Their version of an end-to-end marketing relationship does not include paper.

Over the next five years, our catalog customers will leave "equilibrium" mode, shifting to "transfer" mode. They will define a new way of interacting with brands, a new way of shopping. When that happens, what will become of what has been known for more than a hundred years as "the catalog industry"?

We can dig our heels in, and continue lauding the importance of sending paper to our customers as a way of generating sales. In this process, we must fight postal reform.

We can also give up. We can sell our businesses, getting out before big changes happen.

Or we can build a five-year plan for the future of our industry. We can be like a pilot, who takes an airplane down from 30,000 feet to a gentle landing. We can work with our customers as we reduce our dependence upon catalogs, building an infrastructure that allows customers to pull information from us.

We must thoroughly evaluate how Zappos, Endless, Piperlime, Blue Nile, and Amazon drive sales without paper. We need to emulate what they do well. We need to use our experience to capitalize on what they don't do well. We must chart a path to the future.

Folks in the music industry are actively talking about a path to the future. It's our turn to do the same. It will require a leap of faith, right over that pesky Marketing Digital Divide.

3 comments:

  1. Anonymous8:14 PM

    The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself.
    Therefore all progress depends on the unreasonable man. George Bernard Shaw

    Hi Kevin,
    Not sure how quote fits your article but it came right to mind while reading your posts in recent weeks, where you lament the premature passing of the catalog in the face of dominance of the web.
    Years ago(mid 90s) I was assistant supervisor at USPS and they ran an incentive program for best ideas. Given comments on losing revenue to new technology, my two proposals were 1. for the postal service to go into the email world and create universal "authorized" email servers that would for small "box" fee, guarantee secure delivery and cut out spam; and 2. tap into Ebay as most people needed to deliver the package to the bidders--maybe as a strategic partner with Ebay and Amazon. Boy was I laughed at as most of the people I worked with barely knew how to work email at the time, and they couldn't see or refused to see that email would have that much of an impact on the postal service, while the second idea ignored as they thought partnership with FedEx was enough nor did they fully understand the new ecommerce world.

    Lessons I learned were 1. there are ways around any challenge, but 2. people aren't motivated to change until they are actually going hungry; 3.don't waste breath on the ones who have no imagination.

    I think there are ways for a catalog company/division to be viable in the world of the web...and yes it involves true multichannel which seems to be the undercurrent of all your posts.

    Good posts...keep up the great work.

    K

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  2. I'm generally fine with the web taking over, and catalog drifting into a slow, peaceful slumber. These things have happened over and over and over again throughout the course of history.

    I'm not ok with the emerging difference in philosophy between marketers. A generation of marketers, not necessarily younger folks, are learning an entirely different set of skills. And not surprisingly, these online marketing skills work.

    Eventually, the cost of traditional catalog marketing will be prohibitive. At that time, a generation of highly skilled and experienced individuals are going to really struggle to catch up.

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  3. In our industry, wholesale diamond jewelry, there has been a tremendous and ongoing shift to internet sales. The wholesale industry depended heavily on two-inch thick catalogs to sell everything from diamond engagement rings, to one of a kind art deco and antique rings, to bracelets and earrings. Each item had to be photographed and needless to say this was a very time consuming process, and a few months later you had rooms stacked to the roof with catalogs that had to be mailed out.

    The benefit of the internet is that you can now take a picture and have your items uploaded to your website the same day! Not only is this a benefit to the wholesaler, but to the customer as well; they get to see the new items almost immediately and the wholesaler saves money which can bring the costs down.

    We have realized that there is going to be tremendous opposition to change, and unfortunately many retailers are not going to come on board -- what will happen is that the wholesaler will begin to bypass the retailer and sell directly to the end customer.

    We will continue to see an exponential growth in online sales, especially in Jewelry and luxury markets because these areas have yet to realize the cost reductions associated with efficiencies afforded by the internet.

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