November 24, 2007

Organic Demand

One of the least understood concepts in cataloging is the concept of "organic demand".

A long time ago (aka 1994), catalogers controlled every aspect of their business. Sales were not generated unless a catalog was mailed.

Conversely, retailers thrived almost entirely on the concept of "organic demand". In other words, because there was an Ann Taylor store at the Galleria, sales were going to be generated. Ann Taylor could do absolutely no advertising whatsoever, and yet, the store would have loyal customers shopping every few months.

Back in 1994, you analyzed all customers who purchased in 1993. For catalogers, the relationship looked like this:
  • Normal Mail Stream = $150 spent in 1994.
  • Do Not Mail Catalogs = $0 spent in 1994.
Back in 1994, the relationship looked like this for retailers:
  • Normal Advertising Campaign = $150 spent in 1994.
  • No Advertising At All = $130 spent in 1994.
For catalogers, advertising meant everything. For retailers, advertising marginally increased sales.

Starting in 1995, e-commerce ruined each discipline.

See, e-commerce is a true hybrid of cataloging and retailing. Today, a cataloger might have the following relationship:
  • Normal Advertising Strategy = $150 spent in 2007.
  • No Advertising At All = $70 spent in 2007.
In 2007, cataloging incorporates the concept of "organic demand". Customers will purchase from Cuddledown, regardless whether catalogs are mailed, e-mails are delivered, or paid search campaigns are executed. Without advertising, customers will simply visit http://cuddledown.com and buy merchandise.

And this is where we, as direct marketers, fail miserably. We want to "attribute" every single order to one of our marketing strategies. We are systematically frustrated by the customer who simply types http://cuddledown.com and buys something.

So we do a matchback analysis, and claim that a catalog mailed eight weeks ago must have been responsible for this order.

If you work for a cataloger, and struggle with the concept of "organic demand", demand that occurs without any advertising, set up an appointment to meet with a non-competitive retailer. If you work at Cuddledown of Maine (an example, not a critique of this wonderful brand), why not call the folks at a non-competitor like Best Buy, and arrange for a two day field trip? Learn how retailers cope with the concept of organic demand by spending time with folks who deal with this concept, a concept that requires a fundamentally different style of measurement.

9 comments:

  1. Anonymous10:09 PM

    Kevin,
    I find the term "no advertising" a misnomer. A brick and mortar store is advertisement in of itself. People drive by and see signs or the building itself.
    With online stores, people come to www.cuddletown.com from advertising of some sort--they may have been referred to site by friends or blog reference, but the initial reference came from advertising of some sort. Perhaps you can't track back to a specific campaign, but advertising does grow sales even if not apparent at first.
    K

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  2. I suppose there are many different ways folks can define advertising.

    I could have been more specific, and listed catalogs, e-mail, paid search, affiliates, shopping comparison sites and portal/banner advertising as being in my definition of "advertising".

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  3. Anonymous11:18 PM

    Kevin,
    I actually wasn't trying to quibble over the definition of advertising.
    My concern reading your post is that I know execs that would read that data and conclude they can cut advertising budget because..."no advertising" produced almost similar results as advertising did.
    Paid advertising, while not always apparent and not always able to be tracked successfully, is necessary to grow sales.
    Of course, all the advertising in the world doesn't do much if the quality of the product/service is not there. You pointed this out in a post not too long ago when you pointed out a session where you criticized the merchandiser in a board meeting.
    In that way, the quality becomes a method of advertising. Not trying to quibble, but it is an issue when many companies are sacrificing quality for JIT inventory and low margin based solely on Chinese imports.
    Of course that is another discussion...
    Thanks for the posts, Kevin.
    K

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  4. Anonymous8:17 PM

    But let's go ahead and quibble, though... Just for the newbies' sake (myself included). I have recently used the term "organic demand" in directing management to discount some of the apparent benefit of a given marketing campaign. I think it is important to be able to quantify and acknowledge market share that is gained independently of timed efforts that we carefully track. Perhaps there is a better alternative than to bin un-earmarked sales as "organic"?

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  5. I frequently use test/control or mail/holdout tests to make my argument about organic demand. What might your alternative be?

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  6. Anonymous6:14 AM

    Would "ambient" be perhaps a somewhat better term than organic?

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  7. Anonymous9:32 AM

    Well, Kevin did begin his post by saying that this is one of the least understood concepts in cataloging... I think that this probably holds true for other marketing channels as well. My question about an alternative classification for growth that cannot reasonably be tied to the metrics of a particular marketing effort was actually a genuine one. I hate to be one of those people who just points out problems without contributing solutions, but I honestly don't have an alternative. I just wonder if I'm misleading the decision-makers of my organization by describing the source of these sales as organic (or ambient, if you'd like). I think that this implies that we would bring in a certain baseline revenue without the current level of marketing investment. I haven't been in this line of work for long, but I have noticed that I have to be very careful about how I communicate anaytical results; even though I may speak quite strictly, others seem to hear loosely.

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  8. I find that if you're not a retailer with physical stores, it is very hard to understand the concept of organic/ambient demand.

    I've only found success when we execute mail/no-mail groups, and then review all the online demand that happens without catalog marketing.

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  9. Jaime @ Fitzgerald Analytics11:59 PM

    Thanks for an excellent post on a topic that is frequently misunderstood. I enjoyed your post, as well as the related post by Jim Novo, so much, that I posted a comment here
    Thanks again,
    Jaime Fitzgerald

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