October 02, 2007

Abacusification

Please click on the image to enlarge it.

I'm about to board a plane to visit a traditional cataloger.

Traditional catalogers think differently than online pureplays, think really different than retailers who execute direct marketing via websites, catalogs and e-mail campaigns.

Most of the traditional catalogers I've worked with have annual repurchase rates that are under fifty percent. When the annual repurchase rate dips below forty percent, the traditional cataloger is in what is called "Acquisition Mode".

Anytime the annual repurchase rate is under fifty percent, the focus of marketing activities is on customer acquisition.

These days, catalogers shifted their focus on new customers from the list rental industry to the compiled list industry.

There are a half-dozen B2C compiled list vendors of note. Ask most catalogers about compiled list vendors, and they will focus on one "brand" ... Abacus., now a division of Epsilon.

Most of the catalogers that communicate with me put at least half of their customer acquisition circulation in compiled lists, with Abacus often getting the lion's share of the circulation.

Abacus deserves kudos for transforming catalog customer acquisition. Few companies have been as disruptive in catalog marketing as Abacus --- that includes all the companies associated with online marketing, including Google. Abacus had to do something right, or catalogers wouldn't have generously allocated the majority of their customer acquisition circulation to the guiding hands of Abacus-based statistical modelers.

One of the interesting theoretical discussions about Abacus, and the "Abacusification" of cataloging, surrounds the long-term impact of having a statistician in a far-away outpost determining the strategic direction of your catalog brand.

Try this analysis on for size. If you are a cataloger with half of your acquisition circulation in Abacus, then segment your file into two groups. The first group represents all customers who were acquired in 2006 from Abacus. The second group represents all other new catalog customers acquired in 2006.

Next, analyze the merchandise that the Abacus group purchased. Compare the "taper report" as some call it (ranking best sellers from #1 to #whatever) for Abacus names, vs. all other names. Does the merchandise rank order the same way, or are there variances?

If the merchandise ranks in the same order, there's no need to take the analysis farther, no need to read the rest of this article.

But if the best selling items for Abacus-sourced names are different than the best selling items for all other new names, you're about to be plopped in the middle of a unique theoretical challenge.

If this is happening to your business, it means that Abacus is providing names that are interested in your brand for fundamentally different reasons than the rest of your new customers.

Long-term, this will have a profound impact on your brand. In the chart at the top of this article, I outline the trend that many catalogers are heading toward, a trend where in five years, 3/4th of the active customer file will be sourced from Abacus.

And if the merchandise that Abacus (and honestly, this works for all compiled list vendors, not just Abacus) customers purchase is truly different than the merchandise purchased by other customers, then the merchandising and creative decisions you make over the next five years will evolve.

Without even noticing, you will respond to what your customers "want". Certain items will "work well". You'll feature those items more often. You'll feature the items other customers purchase less often, less prominently.

Within five years, the merchandising of your brand will have evolved out of your control. With 3/4th of your active customer file coming from Abacus, you'll be offering product that Abacus names like, presented in a way that Abacus names like to see merchandise presented.

This might be perfectly acceptable for your catalog brand. You might generate robust profits, your business might grow beyond your wildest dreams. I'm not saying this is a bad thing.

I am saying that as a business leader, you won't own your brand.

Abacus will own your catalog/telephone customers.

Google will (and already does) own your online customers.

You will merchandise your catalog, and present merchandise the way Abacus customers want the catalog merchandised. You will ultimately respond to the wants and needs of customers who buy from your business because of the actions of a small number of statisticians who made decisions based on equations developed years ago.

The end result is something that I call "Abacusification". Again, I'm not saying this is a bad thing --- your business might thrive because of this.

It is, however, a fascinating end-game for the catalog industry, one I would never have envisioned in 1990 when I sat down for my first day of work at Lands' End.

3 comments:

  1. Hi Kevin --

    "But if the best selling items for Abacus-sourced names are different than the best selling items for all other new names, you're about to be plopped in the middle of a unique theoretical challenge."

    Just this afternoon I was on a call with a cataloger / internet retailer almost 50 years old, an expert in a narrow niche, facing this exact issue.

    "We're adding new products for Google", the president said. "It is taking our business in a new direction, away from our core."

    From his tone, I think he found the trend worrisome. To keep up his (web) sales, he had to move into more general, more commodity, and (I think) lower margin products.

    Letting the channel drive your merch mix is a dangerous trend, imho.

    But they felt they needed the revenue and thus "had no choice."

    Interesting to see your post tonight, on many of the same themes.

    Cheers --

    Alan


    http://www.rkgblog.com

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  2. (clarification: the catalog firm was almost 50 years old, not the individual)

    :)

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  3. One of the more painful experiences of my career was at Nordstrom, when we killed our catalog division, as you've heard me say over and over and over.

    Customers who responded to that channel were fundamentally different than the core Nordstrom customer. They drove a merchandise assortment that became fundamentally different. Eventually, the merch assortment was too different --- the decisions to re-align everything were very painful, costing more than a thousand people their job.

    The end result was good for Nordstrom --- but it was a fascinating experiment in allowing the customers within a channel the opportunity to drive the merchandising strategy.

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