February Is MY MONTH!!!!

Some of you have known me since February 1989, when I boldly proclaimed that February is "MY MONTH"!

Now each of you have the opportunity to select a month to call your own. For instance, August is currently available. Anybody on Planet Earth is allowed to choose August as their month. Once selected, it is yours forever.

Because I was first to select February as "MY MONTH", I enjoy exclusive privileges not shared with anybody. I am the only person allowed to have February.

Why February, you ask? Good question! Let's evaluate the reasons, and there are many.

• February is the only month with fewer than thirty days. Each day truly means something in February.

• For those of you who are paid twice a month, you earn more money per day in February than in any other month. In fact, one can make the argument that the man is really sticking it to you in January, March, May, July, August, October, and December.

• February is the only month that has an additional day every four years. Although September has eagerly lobbied for an additional day since 1937, no action has been taken, giving February exclusive rights to this benefit.

• February is the only month where we pull a groundhog out of the soil in Pennsylvania at sunrise, hold his sleepy body skyward, and check to see if he is producing a shadow or not. For years, folks in Chilton, Wisconsin, have pulled a Badger out of the ground on November 2, in an effort to predict the length of winter. Their efforts have not been picked up by the mainstream media, nor have they been picked up by the blogosphere.

• February is so wonderful that the NFL moved the Super Bowl out of January, in an effort to participate in the glow of the month.

• February is the only month where the sun routinely sets between 5:00pm and 6:00pm, a quirk of daylight savings time dates.

• February proudly hosts Valentine's Day, a holiday filled with romance and obligation.

• February ends what I call the "90 Days Of Darkness". November, December and January are simply depressing at the 48th parallel, with sunsets earlier than 5:00pm. But in February, hope springs eternal. The sun sets around 5:10pm early in the month, and at around 5:55pm by the end of the month. What begins as a dark drive home at the start of the month is a light-filled joyride by February 28.

• February begins an ascent in the normal high temperature that does not end until August. Days are finally getting warmer. Finally!!

• February marks the return of the television show "Lost", not seen since the pre-Halloween days of October. Do you even remember the cast anymore?

• February is the only month where many workers enjoy a day off, mid-month, to celebrate past Presidents!

• February celebrates the return of NASCAR after a brief hiatus. Oh wait, I'm the only one who enjoys that.

What other reasons are there that you enjoy February, better known as "MY MONTH"???

I would like to reiterate that there are still eleven months available for you to select from. I've heard that Ann Handley of Marketing Profs fame is seriously lobbying for May.

The Top Four Articles From January

Here's what you enjoyed reading the most in January.

Number Four was a brief post about "It's Not Personal, It's Business". Folks seemed to enjoy contemplating the simple questions raised in the article.

Number Three was "Measuring Loyal Customer Behavior Using Multichannel Forensics". As a whole, the Multichannel Forensics series has been well read, with a veritable plethora of downloads for the white paper.

Number Two was an article that Mr. Rubel at MicroPersuation linked to, called "Four In 150 Retailers Truly Leverage RSS Feeds". As you can see from the title, not many big online retailers are utilizing RSS feeds ... yet.

And the most-read article in January was The 1/3, 1/3, 1/3 Rule. This article was posted on Reddit by one of our loyal readers, and was ultimately viewed 12,700 times. When you average between 100 and 175 visitors a day, never more than 250 visits in a single day, your eyes pop out of your head when you see a visitor coming to your blog every three seconds.

Industry Transformation

Most of you know that I spent my formative years working at Lands' End and Eddie Bauer during the heyday of the catalog industry. Since the late 1990s, I've watched the art of cataloging implode, as customers migrated from old-school catalog marketing to the magic of online retailing.

Of course, my industry isn't the first to be transformed by technology. Numerous industries are being obliterated by the internet as we speak.

So much of what you read, either in the press, or in the blogosphere, is being written by folks enjoying the updraft of their industry. Folks writing about social media or search engine marketing or podcasting enjoy the myriad benefits of expansion.

It helps to follow bloggers in industries being obliterated by technology. There are many tips, techniques, and life-lessons to be learned from these folks.

Lefsetz Letter: A blog written by music industry veteran Bob Lefsetz. This is an R-rated blog, be wary of language. That being said, Bob "opens the books". His writing style helps you feel what he feels, as he describes his angst with the downward spiral of the music industry. There will be a day when social media bloggers feel the way Bob feels. When that happens, we will really have something compelling to digest in the blogosphere.

Joe Wikert's Publishing 2020 Blog: Joe's blog approaches the transformation of his industry with optimism. Joe looks to the future of publishing, offering suggestions and ways to ride the wave of transformation.

Library Crunch: I dare you to find an institution being transformed more by technology than libraries. Michael Casey describes what he calls "A Library 2.0 Perspective".

The Daily Nightly: This is NBC's companion blog to their Nightly News program. Brian Williams and his staff author two or three posts a day that complement what will be aired that evening. More important, they share their personal feelings and emotions, stuff they simply cannot share on television.

We all like to read about what is new and interesting, we like to absorb the "next big thing". Increasingly, I learn more from folks who are being run out of business or are being seriously changed by "the next big thing".

Multichannel Forensics White Paper

My articles about 'Multichannel Forensics' have created a lot of interest on this blog. In response to your interest, I created a document that outlines the concept of Multichannel Forensics, and its application to products, brands and channels.

Here is a link to the document: MineThatData's Multichannel Forensics

The document provides a reasonably short overview of concepts from my first book, and from a book I just finished writing, to be released this summer. This is a working document, so please provide your feedback. You are free to share the document with anybody you think would benefit from the information.

For those of you who are trying to understand how customers migrate across products (Books, CDs, DVDs), brands (Banana Republic, Gap, Old Navy), and/or channels (Catalog, Online, Retail), give this document a thorough read.

"Hand On A Mouse" Syndrome

Seems like the past week has been 'reunion week' --- numerous phone calls from colleagues from all over the country. I wish there was a little more cheer in our industry. Maybe the end of the fiscal year has people edgy. For many retailers, this Saturday evening is the end of the fiscal year. Be careful out there this Saturday evening, folks. Way too many fiscal year end celebrations get out of control.

One of the more interesting discussions was with a former colleague. This person talked about bring branded as a "database" person. In particular, this person said "Once folks knew I could get data, they didn't care about what I thought about anything, they just used me to get at more data."

All too often, our analytical folks are treated poorly by folks who have no idea they are mistreating anybody. I call this "Hand On A Mouse" syndrome, named after a computer user holding a mouse.

The syndrome occurs when a talented analyst gets so efficient at doing his/her job that management sees the analyst as the best way to get at information to promote various management strategies. Management uses the analyst as their own personal mouse, as a tool to access a corporate database.

If you are in management's shoes, this is a logical strategy. Management cannot keep up with the myriad of questions they are peppered with each day. An analyst who can quickly access the customer database becomes an ally, an asset.

Management appreciates the new found access to data. The analyst wants to showcase business analysis skills, not query skills.

Eventually, the questions asked of the analyst become more and more rudimentary, and easier for the analyst to get at. This allows management to answer more and more questions, allowing management to look good among their peers. Finally, feeling under-unappreciated, the analyst looks for and identifies career opportunities elsewhere.

Management wonders what went wrong? Management cannot possibly understand the fundamental problems, the frustration felt by the analysts.

How are your analytical folks perceived, where you work? Does "Hand On A Mouse" syndrome infect your analytical team members, and if it does, what do you do to vanquish it?

A Brief History Of The Internet, And Leadership Development

In 1995, I accepted a job at Eddie Bauer as Manager of Analytical Services. One of my 'demands', was to have a personal computer with internet access, and an e-mail account. One could sense that the internet channel was about to change the way we worked.

Within a year, we had individuals focusing on internet marketing. If I remember correctly, we called the channel 'I-Media'.

Our Vice President of Marketing would kid our 'I-Media' person. "How many orders did we get yesterday, six or seven?" he would joke. The 'I-Media' person would just plug along, doing work that none of us really understood.

Six or seven orders a day became an annual total of $65,000,000 three years later. Vice Presidents paid attention to that number. These sales appeared to be largely 'free'. We didn't have to spend $10,000,000 marketing to the customer to get these sales ... at least on the surface, it didn't appear that way.

In 1999, I was Director of Circulation for a $500,000,000 catalog business that was stumbling along. Sales were no longer increasing, in fact, catalog demand was decreasing year-over-year, on a comp basis. But we had $65,000,000 of 'I-Media' demand. What's not to love about that? The P&L looked great. We earned nice bonuses.

By late 1999, the 'I-Media' channel was garnering attention at Eddie Bauer. The E-Mail and 'I-Media' folks were moved to another building, to focus on growing sales in the online channel. The rest of us were sequestered in our building, trying to figure out why we couldn't grow sales in the catalog channel anymore, in spite of the fact that 'customers buying from multiple channels are the best customers'. If those customers are the best customers, why do they keep spending less and less in catalog? Today, we know why. Back then, it was a bit of a mystery.

I don't know if these trends happened at other companies. What I do know is that, in many cases, the internet marketers and e-mail marketers developed their analytical tools, marketing strategies, and a network of co-workers/friends outside of the regular processes within our businesses.

While the rest of us tried to maintain a robust profit and loss statement by cutting costs, circulation and pages --- by shifting management of customer acquisition to businesses like Abacus, the online marketing folks were frequently off in their own world, building relationships with CheetahMail, Google, AOL, Yahoo! and MSN. They literally built their own businesses, independent of the core business.

Over the past five years, there has been an enormous focus on integrating the internet channel into the rest of the business, across all of our multichannel businesses. Our failure to integrate the business sooner caused us to spend too much time developing skills in our specific niche. We didn't build enough skills across functions or channels. Couple this fact with an ever-decreasing number of 30-40 year olds in our businesses, and we're now heading for talent trouble.

The only folks who tried, in some way, to integrate business units were merchandisers. Customers liked buying merchandise online, in catalogs, or in stores. The merchandising folks, keenly aware of the importance of growing sales, probably did the best job of understanding how merchandise sold across channels. They didn't understand how the channels worked together, but they did get to see how merchandise sold across channels.

The rest of us were busy tackling unique issues that caused us to not have the skills necessary to lead a business in the year 2007.

Catalog folks focused their energies on a dying business model, trying every technique possible to improve efficiency and profitability, becoming more and more like a fossil in the process.

Retail folks feared that the online channel would cannibalize their sales, and viewed the internet as an enemy, never understanding that so many of their customers were researching merchandise online before coming into the store.

Online marketing folks, never knowing the pain of having the distraction of managing a downturn in business, integrated their businesses with Google, to a point where they depend on the search channel for between ten and forty percent of their sales. More on that in a future post.

Like everything else in the first decade of the 21st century, we fragmented ourselves into targeted niches. Not enough of us built General Management skills to manage a fragmented, multichannel business, in the year 2007.

The result is an utter lack of General Management talent in the multichannel retailing industry. There simply aren't enough people who know the entire business. There are plenty of people who know one specific aspect of the business.

A decade of focusing on keywords yielded thousands of talented individuals who know exactly how to work with Google. These folks have not been given the experiences to manage anything outside of a relationship with Google.

A decade of writing copy that is search friendly yielded thousands of talented individuals who know exactly how to write copy that is appealing to Google. These folks were never given an opportunity to write copy that romanced a customer.

A decade of writing catalog copy that romances the customer yielded thousands of talented individuals who know nothing about writing copy that is appealing to Google. These folks were cut off from the future of the business, and failed to acquire necessary skills for the future, through no fault of their own.

A decade of reducing catalog expenses yielded thousands of talented individuals who know how to communicate to Abacus what type of model they want built for catalog customer acquisition. These folks don't have the tools necessary to understand what type of customer they are acquiring with their catalog mailings. They are giving up management skills, in exchange for the skillset of working with Abacus.

A decade of managing open rates, click through rates, and conversion rates yielded thousands of talented individuals who know how to send an e-mail that converts a customer to a sale today. These folks were never given an opportunity to build something that lasts, something that customers save --- as evidenced by the fact that 75% of people don't even bother to open a marketing e-mail.

Because merchandisers had to sell product across all channels, we now focus our leadership opportunities on these folks. Leadership jobs in the multichannel industry are likely to go to merchandisers over the next five years.

Our businesses must do a better job of cross-training our highly talented online marketing individuals, so that they can assume leadership positions in our multichannel organizations.

If we don't do this, we simply yield more control of our business to algorithms, Darwinian-style evolution of merchandising strategy, Abacus, and Google. At some point, we must grow our talented online marketers, giving them broad cross-functional opportunities to become leaders. If we don't do this, we're subject to a world where merchandisers tell us to tell Abacus and Google what to do. We won't be left with a meaty, meaningful job.

Multichannel marketing is moving ever-closer to an algorithm-driven business that lacks warmth, humanity, and gut instinct. We need to begin adapting to this trend now, and need to begin developing marketing leaders capable of doing more than working with Google and Abacus.

Fixing Gap

The blogosphere has a veritable plethora of folks commenting on the plight that is Gap (see links below).

There probably are constraints that limit the pace at which Gap can change:
*** Shareholders demand an improvement in the average price of a share of Gap stock.
*** For the stock price to rise, sales and profit must rise.
*** Analysts, experts and pundits think Gap must target a niche, and not appeal to the masses.
*** Not appealing to the masses will likely cause short-term sales declines.

Too many stores, too much competition, merchandise that is too basic, not enough advertising with trendy entertainment stars, irrelevant to its target audience, what do you think Gap's problems are, and how would you fix the business, given the constraints listed above?


Recent Gap Discussions In The Blogosphere And The Press:
*** Lightheavyweight: Fixing The Gap Redux
*** NewMarketBuilder's Retail Blog: Gap Is In Need Of A Niche
*** Seeds Of Growth: Fixing The Gap
*** Mish's Playground: Closing The Gap
*** GlobeAndMail: The Decline Of An American Fashion Icon
*** Brand Autopsy: Would You Miss The Gap?
*** Ad Jab: The Gap Thinks Celebrities Will Help Turn Business Around
*** The Runway Scoop: Gap Gets Rid Of CEO
*** USA Today: Can Gap Be Saved?
*** The Rage Diaries: The Gap Post Y'All Knew I Was Going To Write

The MineThatData Honor Roll: January 27, 2007

As you know, the Honor Roll is reserved for links to articles of high quality.

This article comes to us from David Armano, Creative Vice President at Digitas, and host of the Logic + Emotion blog. It is a very quick read about role models. Click here for the article.

Friends of MineThatData: January 26, 2007

A few changes to this month's ratings. Here we go!

1. Occam's Razor with a 6.5 Blog Juice Score.
   
2. Luna Metrics, 3.9
3. Juice Analytics, 3.8
4. Customer's Rock, 3.7
5. Rimm-Kaufman Group, 2.5
6. Sports Marketing 2.0, 2.3
7. Business Enterprise Management, 1.5
8. Profitable Marketing, 1.5
9. Data Mining Research, 1.4
10. Digital Solid, 1.3
11. My other friends include Marketing Geek, Customer Experience Matrix, Jim Novo, Marketing ROI, Acxiom-Direct, Sandeep-Giri, Marketing Measurement Today, Rick Whittington, Chris Baggott, and A Power Point.

Kudos to Luna Metrics for moving up to number two. Customer's Rock is up to number four. Sports Marketing 2.0 is busy celebrating the Colts trip to the Super Bowl. Congrats are also in order for newbie Data Mining Research, entering the countdown at number nine. Digital Solid has a lot of competition bubbling under the top ten, including a new blog from Jim Novo.

Who Wants A Free Book? Submit Your Article By February 4

If you work for a company that sells merchandise to consumers via a catalog or a website, I have a homework assignment for you.

Between now and February 4, write a brief article about one of the topics listed below. After a review of the submissions, I will post your article on The MineThatData Blog on February 5. You get a little bit of recognition, and at least one of you will be chosen at random to receive a copy of my book, "Hillstrom's Database Marketing". Simply e-mail me your submission by February 4.

Valid topics include the following:

• Any discussion about the future of multichannel retailing.
  
• Creative ways that web analytics tools have been used to improve business performance.
• Interesting ways to leverage online advertising for sales growth.
  
• Any discussion of the pros and cons of using compiled lists (i.e. Abacus) verses rented lists for catalog prospecting purposes.
• Any discussion of the trends in catalog circulation to drive catalog + online sales.

Articles should be between 250 and 1,000 words in length.

Are you up to the challenge? E-mail me (kevinh@minethatdata.com) your submission no later than February 4.

Your Expectations For A Brand

Friend of MineThatData Chris Baggott tells of his displeasure with Best Buy and their rewards program.

At Hee-Haw Marketing, Paul has an ongoing issue with the sloppiness of a Kohl's store.

John Moore at Brand Autopsy concludes that if Gap went out of business, it would be ok with him.

What is your tolerance level for a brand, before it slips into the 'criticism zone'? When are you willing to forgive a brand, and how many mistakes are required before you throw a brand under the bus?

Driving Sales To Other Channels: Multichannel Forensics, Part Four

Last week, Casey Carey commented about the dynamic of sales declines in the catalog channel during my three-part series on Multichannel Forensics. He believed I was focusing too much attention on the channel where sales were recorded, as opposed to the vehicle (catalog) that drove the sales volume (see here for Part 1, Part 2 and Part 3).

A big part of the Multichannel Forensics includes the use of long-range planning scenarios. This link takes you to a simple two-channel planning scenario.

In the spreadsheet, Casey's point is illustrated. Fifty thousand catalog customers migrate through an ecosystem. After two years, these catalog customers are spending more money online than in catalog. Casey is right. It doesn't matter which channel records the sales. It matters how much value a customer generates over time, across all channels. Kudos to Casey!!

Google, Online Vendors, and Accountability

For all of the e-commerce and multichannel executives who follow my commentary, I am curious what you think of Google.

For those of you who spent your formative years in the catalog industry, you know the vital importance of a partnership with the USPS, with your merge/purge house, and with your printer. Without these partners, your catalogs didn't get delivered to the homes of your loyal customers. If the catalogs didn't arrive, you didn't generate sales.

Today, the e-commerce ecosystem has replaced the USPS, Experian and Quad Graphics with your ISP, a myriad of e-mail vendors, and Google.

Do you view your ISP, e-mail vendors and Google as strategic partners? Do you apply the same level of pressure on them that you applied to Quad Graphics about image quality, Experian about duplicate names, or the USPS about delivering your catalog two days late?

Can you prove that 194,381 valid customers clicked on your sponsored link on Google? How do you hold Google accountable? How could you ever hold Google accountable?

Does the Direct Marketing Association lobby as hard for your online issues as they lobbied for postal reform?

What are your thoughts? Are you letting Google and others off the hook, compared with the other vendors you work with?

Online Marketers and Career Planning

Here's a question for my pals on the online marketing side of the business. These are the folks that manage search, portal and affiliate programs (even e-mail campaigns) at B2C companies.

Has your company outlined a career plan for you that goes beyond the Vice President or Director of Online Marketing? Is your company developing your general management skills so that one day you can run your company or division --- or is your company expecting you to stay satisfied within your niche? Is your company even talking about these topics with you?

Lastly, do you see your career path happening within your company, or do you see yourself jumping to another company for better opportunities?

I bring this up because I am starting to see challenges for folks who are developing skills in the highly specialized niche of online marketing. What are you observing, and how do you plan to deal with the questions I raise?

Marshall Field And Customer Loyalty

Businesses and brands are created and destroyed every day (i.e. Cingular). Marshall Field represents another brand that was wiped out, this time by Federated, owner of Macy's.

When Federated purchased May Company, the decision was made to convert many different brands to the Macy's brand.

In Chicago, customers are frustrated with this decision. Seeing this as an intrusion upon Midwest tradition, customers continue to lobby for the nameplate to return.

Ok, my virtual Chief Executive Officers, here's the question for you. Would you keep the Marshall Field nameplate on stores, along with the traditional merchandise assortment, or would you convert the stores to the Macy's nameplate, and risk customer alienation?

For instance, assume management ran profitability numbers. Assume that a Marshall Field store would generate $60,000,000 net sales, and $4,800,000 profit a year.

Assume that converting the nameplate to Macy's results in a ten percent reduction in sales, down to $54,000,000. Normally, this would result in profit decreasing down to $2,700,000 --- but various efficiencies created by a mega-brand increase profit to $4,000,000 a year.

Back to the question. Do you take this potential hit in sales and profit, in order to build a nationwide department store brand that may have better long-term upside than a regional merchandiser like Marshall Field?

Optimal Online Marketing Budget

We've previously discussed the importance of the "square root" rule in analyzing marketing campaigns, when solid test-based data is not available to the analyst.

Assume you spent $20,000 on an online marketing campaign, yielding $60,000 net sales, and a net loss of $2,000 (assuming 30% of sales flow-through to profit). You want to know what might have happened, had you spent more or less than $20,000.

Square Root Rule --- Assume you wanted to only spend $10,000. Sales will change by the following factor: ($10,000 / $20,000) ^ 0.5 = 0.707. Net Sales of $60,000 will change by 0.707, or $60,000 * 0.707 = $42,426. Profit = $42,426 * 0.30 - $10,000 = $2,728.

Again, if you don't have good test-based data to make comparisons with, use this rule as a quick shortcut.

The table below illustrates different spend levels, associated sales, and profit.

Spending Level	Net Sales	Estimated Profit
$10,000	$42,426	$2,728
$12,500	$47,434	$1,730
$15,000	$51,962	$588
$17,500	$56,125	($663)
$20,000	$60,000	($2,000)
$22,500	$63,640	($3,408)
$25,000	$67,082	($4,875)
$27,500	$70,356	($6,393)
$30,000	$73,485	($7,955)

Being Guy Kawasaki , For Just One Day

Guy Kawasaki authors a popular blog. A very popular blog. On an average day, he might pull in 8,000 visitors (not counting RSS readers). On a good day, maybe 130,000 visitors.

I host a niche blog with a loyal but comparatively small audience. On an average day, I might attract 100 visitors (not counting RSS readers). On a good day, maybe 200 visitors. Since starting this blog, 12,500 total visitors (not counting RSS readers).

So imagine my surprise when I view my site stats today, and instead of seeing 94 visitors, I see 9,400 visitors?

A Reddit user was kind enough to post yesterday's article about the 1/3, 1/3, 1/3 Rule on Reddit. At 6:30am, I had 11 visitors. When I got home from work, 7,500 visitors. At 9:29pm, 9,400 visitors.

At it's peak, the post was in the top nine on Reddit, and in the top nine on the 'popular' page of Del.icio.us.

Ten months of hosting this blog --- over 200 posts. Today, 40% of my annual audience visited. Thank you nloadholtes for your kindness!

The 1/3, 1/3, 1/3 Rule

A few observations about being in a leadership position.

The 1/3, 1/3, 1/3 Rule: You'll find that your co-workers fall into three camps. About a third will support you through anything. About a third could take or leave you. Another third are generally against you. Your job is to do outstanding work, with integrity, so that the middle third sides with you, silencing the last third.

Save Your Pennies: For most, the ride eventually ends. So save your pennies.

Don't Listen To Them: Even if you do a good job, that silent third will tell you all the reasons why your ideas are bad. If you're doing an average job, or you are threatening the status quo, the remaining third becomes vocal --- very vocal. Don't listen to them. They will criticize anything you do.

Everybody Is Fighting A Great Battle: You can see this in the eyes of your employees. Somebody had a child who spent the entire evening throwing up. Another employee's mother just passed away. Yet another employee spilled a latte on his slacks. Everybody has problems that superceed work. To them, these problems are epic, mighty battles. Recognize this, and manage to it.

At Some Point, You Have To Choose Between People And Money: This is probably the biggest decision you'll have to make. Somewhere along your journey, you will be asked to drag your staff through mud in order for the business to make more money. If you want to go to Heaven, choose your staff. If you want to be a superstar, side with Money. If you figure out how to effectively deal with this tension, please let me know how to do it!

If You Are Working More Than Fifty Hours A Week, You Are Failing: Contrary to popular belief, the burned-out executive lifestyle is not all it is cracked-up to be. If you are working longer than 7-5 or 8-6 or 9-7, you are failing. Either your staff is not ready to take on more work, or you have failed to hire the right number of people to do the work, or you have failed to effectively say "NO" to projects. Every hour over fifty is one hour you will never get back with your spouse, children and hobbies.

Bad Behavior Is Your Fault: You need to set expectations in the first few days of your new assignment. The longer you let certain behaviors fester, the harder it gets to change them.

Honesty > Politics: You can make a choice to be honest with your folks, or you can be political and choose not to share non-confidential issues with them. Side with honesty. If you aren't honest and trustworthy, your folks will paint their own canvass. That leads to gossip. Gossip kills productivity, and gossip kills relationships between employees.

If You Did A Great Job In A Forest, And Nobody Saw You Do It, Did The Great Job Really Happen? At some point, you have to figure out, within your culture, how to effectively market you and your team. In many cases, the marketing of you and your team is more important than the outcome of the work you actually do.

Support Your Boss, Or Leave The Company: Some of my biggest mistakes happened when I did not support my boss. If something unethical is happening, tell somebody, and then consider leaving. If you have a difference of opinion, make the choice to support your boss and move on, or leave. Arguing gets you nowhere.

Know The Profit And Loss Statement Inside Out: Those who know the p&l know how to cost-justify projects and initiatives. Not surprisingly , these folks get things done.

If You Want To Be Appreciated, Lead When Sales Are Increasing: Ever notice how quick folks are to hire those who have worked at successful companies? You can do outstanding work at a failing company. But if your goal is to be an upwardly mobile executive, align yourself with the updraft. A whole generation of online marketers and search experts are doing this as we speak. You don't hear a lot of "He did a spectacular job of keeping CD sales flat at Tower Records", do you?

Do Not Fall In Love Your Company: The blogosphere is filled with marketing experts promoting the myriad benefits of 'brands', with an adoration seldom paralleled in society. We focus a disproportionate amount of energy on the magical power of Apple, or Nike, or Starbucks, thinking any company or any idea can result in the success Apple, Nike or Starbucks experienced. Build the brand!!! We offer advice for every brand (improve your customer service, clean up your stores, give me a free phone, listen to your customers, do these things and we'll love you). When is the last time a 'brand' loved a person? When is the last time a company was there for a person when something awful happened to the person? Leaders can be there for people. Co-workers are usually there for people. The Human Resources department is there for people. Brands are never there for people. The purpose of a brand is to facilitate the transfer of wealth from customers to shareholders. When this transfer of money is not happening as efficiently as it should happen, your job is in jeopardy. The 'brand' will chew you up and spit you out in a heartbeat if the 'brand' thinks you are in some way impeding the re-distribution of wealth. Fall in love with your company, and your feelings will inevitably be hurt when your brand turns on you.

Celebrate The Victories: There are untold victories in everyday work life. Appreciate and recognize people for making these things happen. I can certainly improve my skills on this one.

Give Credit: Your people are responsible for everything that happens. You may think your vision is legendary, even bordering on brilliant. Your vision doesn't happen without your people --- people who put aside their dreams to make your dreams come true.

Please add to this list, offer your contributions based on what you've learned.

Where Are Your Customers Going? Part Three Of Multichannel Forensics

If you didn't fall asleep during the first and second installments of my introduction to multichannel forensics, tonight's exploration may be a bit more intriguing.

Recall that we explored how repurchase rates determine how customers flow through your business.

Repurchase rates above sixty percent put you in 'Retention Mode'. Your business will grow from getting customers to purchase more often, and to add items to their purchases.

Repurchase rates between forty and sixty percent put you in 'Hybrid Mode'. These are fun businesses to run, because you can grow via customer acquisition, by getting customers to purchase more often, and by getting customers to add items to their purchases. Of course, customers have to want to purchase more often, or add items to their orders!

Repurchase rates under forty percent land you in 'Acquisition Mode'. These businesses require leaders who have a singular focus on finding new customers.

Yesterday, we talked about an example where catalog customers were migrating online. Today, let's see how catalog, online and retail customers behave.

Migration Probability Table
	Catalog	Online	Retail
New Customers	3,442	9,350	5,937
Repurchase Rates
Corporate	57%	44%	49%
Catalog	29%	4%	3%
Online	35%	33%	5%
Retail	13%	14%	45%
Repurchase Indices
Catalog	51%	9%	6%
Online	61%	75%	10%
Retail	23%	32%	92%
Total Corporate Repurchase Rate =			46%

The repurchase indices are calculated as the repurchase rate divided by the corporate repurchase rate for that channel. Three primary modes, and one secondary mode appear. Let's look at our example.

Isolation Mode: This occurs when all of the repurchase indices are below twenty percent. This means customers are not likely to cross-shop any product, channels or brands. The retail channel is in Isolation Mode. Retail customers have a low catalog index (6%) and a low online index (10%). The retail index (92%) is not used.

Equilibrium Mode: This occurs when at least one repurchase index is above twenty percent, and no repurchase index is above fifty percent. The online channel is in this situation. The catalog index is 9%, so online customers do not cross-shop catalog. However, the retail index is 32%. This means online buyers are likely to cross-shop retail.

Transfer Mode: Executives leading businesses in transfer mode have problems. Transfer Mode occurs when at least one index is above 50%. Look at catalog. The index for retail is 23%, moving catalog to equilibrium mode. However, catalog moves to transfer mode with a 61% index for the online channel. Catalog customers are likely to cross-shop retail. Catalog customers move their loyalty to online.

The catalog executive is sunk. Her customers migrate online at dramatic rates. Her job is to facilitate this transition. She should not expect her business to grow.

The online executive has a mixed blessing. He is fed customers from the catalog channel, this helps grow his business. Notice that his channel is the number one source for new customers. This means he has that as a growth vehicle. However, his customers cross-shop retail.

Because retail operates in isolation (retail customers typically don't cross-shop online or catalog channels in this example), retail is likely to grow and be healthy. It gets customers from catalog, it gets customers from the online channel. Retail does not send customers to other channels.

Your homework assignment: For the products, brands or channels you are interested in, run the table illustrated above, and consider the dynamics surrounding your business. Where do customers come from, where do the migrate to, which products, brands or channels have the best potential for growth?

Once you learn these relationships, how might you alter your marketing strategy to capitalize on the natural flow of customer behavior that your business exhibits?

More On Loyal Customer Behavior Using Multichannel Forensics

Ok, you worked with your friendly programmer yesterday, and identified your overall company repurchase rate.

What was it? Sixty-three percent? If that's the case, your tend to have a loyal customer audience that is in 'Retention Mode'. When this happens, your business tends to grow by getting existing customers to purchase more often, and to purchase more items per trip. Anytime the annual repurchase rate is above sixty percent, your business is in 'Retention Mode'.

If the repurchase rate was between forty percent and sixty percent, you're in 'Hybrid Mode'. These business models are a lot of fun for executives to manage. You can grow by increasing the retention rate, by acquiring a lot of new customers, by increasing purchase frequency, or by adding items per trip.

If the repurchase rate was less than forty percent, you're in 'Acquisition Mode'. Your business will grow by a relentless quest for new customers.

Now that you have this metric for the whole business, your next step is to measure the repurchase rate for each product, brand or channel.

For instance, assume you are a multichannel retailer that has a catalog, online and retail channel. Your overall repurchase rate is fifty percent. Your overall business is in 'Hybrid Mode'.

Now, take one of your channels (i.e. catalog). Measure the repurchase rate for last year's catalog buyers, at a company level, and within each of your channels.

For instance, your catalog buyers might look like this:
*** Company Repurchase Rate For Catalog Buyers = 57%.
*** Catalog Repurchase Rate For Catalog Buyers = 29%.
*** Online Repurchase Rate For Catalog Buyers = 35%.
*** Retail Repurchase Rate For Catalog Buyers = 11%.

This tells a compelling story. Catalog buyers are loyal to the total company, in 'Hybrid Mode'. However, within the catalog channel, these buyers have a twenty-nine percent repurchase rate, putting them in 'Acquisition Mode'. These buyers tend to migrate to the online channel. To grow catalog, there must be a huge infusion of new catalog buyers. Online directly benefits by having a big catalog file of customers that migrate from catalog to the online channel.

Your homework assignment for tonight: Run the above table for every product, brand or channel you have. Tomorrow, we'll talk about the meaning of the individual percentages in the table above, and how to strategically understand the importance of those percentages.

Measuring Loyal Customer Behavior Using Multichannel Forensics

How do you define whether your customer base is 'loyal' or not? If a customer purchased eight times at Wal-Mart last year, is the customer loyal? If a customer purchased eight times at H20Plus last year, is the customer loyal?

In reality, every business, even those with a poor management team, have very loyal customers. It becomes important to understand how customers behave over time.

The majority of businesses can measure customer loyalty over the course of a year. Management categorizes all customers who purchased during, say, 2005, and measures how many customers purchased again during 2006. This metric is called the 'repurchase rate', and is a very important metric for management to understand.

There are three modes that any corporation, product, brand or channel fall in to. They are:

• Retention Mode: When sixty percent or more of last year's customers purchase again this year, your business is in Retention Mode. These businesses have loyal, repeat purchasers. Management can focus on increasing the purchase frequency of customers, as well as encouraging customers to purchase more items per order.

• Hybrid Mode: When between forty percent and sixty percent of last year's customers purchase again this year, your business is in Hybrid Mode. These businesses are among the most enjoyable for executives to manage. They have a multitude of levers to pull to increase sales. It is possible for management to increase retention rates into Retention Mode. It is possible for management to increase purchase frequency, or to encourage customers to purchase more items per order.

• Acquisition Mode: When less than forty percent of last year's customers purchase again this year, your business is in Acquisition Mode. This mode is surprisingly deceptive to executives, because it flies in the face of customer feedback. Management reads letters from loyal customers who love your product. Yet, the average customer is unlikely to purchase again next year. Management running businesses in Acquisition Mode have no choice but to continually find large sources of new customers to fuel future growth. Surprisingly, many web-based businesses that don't have the sku breadth of Amazon.com fall into Acquisition Mode. These businesses may struggle when the flow of customers transitioning from catalog businesses slow down over the next five years.
  

Your homework assignment is this: Talk to your resident programmer, and ask her to identify all customers who purchased in 2005. Of those customers, measure the percentage who purchased during 2006. Once you have that metric, identify which of the three modes your customer base falls into. We'll talk more about this tomorrow.

New England Mail Order Association Spring 2007 Conference

I will be speaking at the NEMOA Spring 2007 Conference, scheduled for March 21-23 at the Royal Sonesta in Cambridge, MA. I plan on talking about using Multichannel Forensics to undestand how customers migrate across products, brands and channels, using techniques harvested during my illustrious stay at Eddie Bauer in the late 1990s. My discussion will be held Thursday morning.

Friends of MineThatData blogger Alan Rimm Kaufman is participating in a panel discussion about allocating resources for maximum ROI on Wednesday afternoon.

If you are in New England in late March, take advantage of this conference opportunity.

It's Not Personal, It's Business

In the late 1990s movie "You've Got Mail", Tom Hanks was the owner of an enormous bookstore chain that built a store across the street from Meg Ryan's quaint little bookstore. Like many other cannibalization stories, the big chain cannibalized twenty percent of Ryan's sales. No longer able to run a profitable business, Ryan closed shop. Hanks told Ryan, "It's Not Personal, It's Business".

If you're the little guy, investing sweat equity to build something, and you get run over by the machine, is it personal, or is it business? Is it personal if the other side doesn't see it that way?

Your thoughts?

Mark Cuban has some thoughts on the topic.

Virtual CEO: Blue Nile

Blue Nile, an online retailer of jewelry, has an interesting set of challenges to face in the future.

During a recent call with analysts to discuss third quarter results, management made several interesting observations.

• Ad spend as a percentage of revenue is four percent, and has held constant in spite of increases in the cost of online marketing.
• With brands moving online to advertise, management has decided to not compete by spending more on online advertising. Management states they lowered prices instead. The reduction in prices resulted in twenty-four percent increase in year-to-date net sales. However, gross profit only increased by eleven percent, due to price reductions. Gross profit is about twenty percent of net sales.
• Management is focusing on increasing conversion on the website, believing this is a key driver of future profitability. Management states that conversion rates are improving, compared with last year.
• Repeat purchasing skews toward non-engagement merchandise (which has better gross margins than engagement merchandise).

Time for you to play Virtual CEO. If online marketing costs are going to continue to increase, what would you do to grow your business?

• Follow the updraft in online marketing costs by spending more for the same amount of traffic.
• Lower prices, and accept the risk of a less-affluent audience. In other words, are you willing to trade your target audience for one that is less affluent, as a way of combating increased online marketing expenses?
• Do you have a different strategy you would employ?

Online pureplay retailers face the potential for long-term profitability decreases as the cost of online marketing increases. How would you strategically attack this problem? What marketing tactics would you employ to drive repeat business (which yields a higher gross profit)?

The MineThatData Honor Roll: John Hagel at Edge Perspectives about The Gap

John Hagel at Edge Perspectives earns an Honor Roll nomination for his strategic discussion of the problems at Gap. I wanted to write about their business all week, John saved me from an hour of work that couldn't possibly measure up to what he wrote.

Please Help Our Industry Measure Advertising Effectiveness: 19 Days To Go

This is a reminder that there are just nineteen days left to provide your answer in The MineThatData Measuring Advertising Effectiveness Challenge. This is an exercise to help the multichannel retailing industry measure the impact of catalogs, postcards and e-mails simultaneously delivered to various customer audiences. This link has been the most visited link on this blog. I already have one solution, and am looking forward to more by the 1/31/2007 deadline.

"Either Get On The Train, Or Get Out Of The Way"

Those were the words of noted blogger Jeremiah Owyang, a very bright and intelligent individual, when talking about a journalist feeling frustration over the conflict between journalism and blogging. Jeremiah's advice is to "either get on the train, or get out of the way".

In multichannel retailing, a similar phenomenon is occurring to the one Jeremiah references. A generation of employees who developed their skills in the world of catalogs are being phased out by Google and the magic of online retailing. No longer is it necessary to send a 148 page catalog to a customer, when you can simply intercept the customer at her time of need by allowing Google to broker a fair competition between online retailers.

The catalog expert is in a similar situation to the journalist that Jeremiah describes. Over the past decade, her profession was consumed by an economic version of Darwinian evolution. Her skills, once so important, must evolve for her to remain relevant.

If you have the battle scars of an individual who went through the type of economic transition that Jeremiah describes, what did you do to make the transition occur? Did you get on the train, did you get out of the way, or did you allow the train to run you over?

Let's hope that the current generation of online marketers, social media experts, and online strategists are ready to make the same type of transition when the next version of the internet consumes the very industries they currently promote. Since everything is happening faster and faster, the lights on the next train are already approaching.

An Envigorating 310 Minute Drive Home From Work

Seattle and the adjoining metropolitan area, population 3.3 million, is not prepared for natural disasters. So when a couple of inches of snow hit King County at 4:30pm on a sleepy Wednesday afternoon, our clogged transportation system went into cardiac arrest.

Like any good solider, I left work at 5:00pm. Just ten blocks from work at 5:50pm, I dug in for the journey of a lifetime.

The twenty-eight mile ride home took just under five hours and fifteen minutes. Road closures, an inch of ice, jack-knifed semis, cars sliding into ditches, buses with school children stranded along the highway, chain reaction accidents, several hundred cars abandoned --- some right in the middle of the freeway, hardy pioneers walking home from their abandoned cars in shorts, you name it, I saw it.

We didn't get cheated at my house. There's a good nine to twelve inches of snow here. Now that I finished eating dinner at 10:57pm, it is time to go outside, and shovel some snow.

Endless: A Shoe And Handbag Business Courtesy Of Amazon.com

Amazon recently unvieled a new e-commerce business called Endless. Featuring fashionable handbags and shoes, Endless uses a new hook to compete against multichannel retailers like Macy's and online pureplays like Zappos. The hook: Free Next Day Shipping!! Order an item at 1:00pm on a Tuesday afternoon, and you'll have it on Wednesday.

In case you haven't walked into your local UPS store, attempting to ship a product cross-country via next day air, the proposition is not inexpensive. How can this business compete? The following numbers are for illustrative purposes only --- the numbers are not intended to reflect absolute reality at any of the retailers in the example. However, the numbers should be adequate for a directional argument.

Let's assume you are an aspiring woman hoping to purchase the Jessica Simpson Dawson Satchel via an online business. You narrow your choices down to Endless, Zappos and Macy's.

Assuming you live in a state that has a six percent sales tax, the total price for the same item, including tax and shipping, is $248 at Endless, $251.95 at Zappos, and a whopping $281.91 at Macy's. The item will arrive tomorrow from Endless, in three to five days from Zappos, and in five to eleven days from Macy's.

Given these choices, the logical choice is for the customer to purchase the item at Endless.

Can Endless make money doing this? It is possible. At the end of this post, I include a sample profit and loss statement for each company.

The punchline is this: In order for each company to generate the same level of profit from this item, Endless needs to sell 1,000 units, Zappos needs to sell 741 units, and Macy's needs to sell 491 units. If Amazon has efficiencies that make their expense structure cheaper than Zappos or Macy's, the number of units decrease.

Amazon is betting that the Endless business model will cause customers to be 30% more productive than Zappos, and 100% more productive than Macy's, using these assumptions. This gets Endless to a break-even scenario, most likely, on a fixed-cost basis, and generates the same number of dollars of variable profit as Zappos and Macy's.

What do you think? Do you think customers will flock to Endless to take advantage of free next day shipping? Who will be hurt more by this strategy, Zappos, who is directly competing on total price, or Macy's, who has a retail channel that essentially provide "free shipping same day"??


Sample Profit And Loss Statement

Jessica Simpson Dawson Satchel Price Elasticity And Profitability
	Endless.com	Zappos.com	Macys.com
Item Price	$248.00	$251.95	$248.00
Shipping/Handling	$0.00	$0.00	$17.95
Salex Tax (6%)	$0.00	$0.00	$15.96
Total Cost	$248.00	$251.95	$281.91
Delivery Time	1 Day	3 - 5 Days	5 - 11 Days
Estimated Units	1,000	741	491
Demand	$248,000	$186,695	$121,768
Net Fulfilled (90% of Demand)	$223,200	$168,025	$109,591
Less Returns (30% of Demand)	($66,960)	($50,408)	($32,877)
Net Sales	$156,240	$117,618	$76,714
Gross Margin (50% of NS)	$78,120	$58,809	$38,357
Less Marketing	($18,000)	($18,000)	($18,000)
Less Picking & Packing (20% of NS)	($31,248)	($23,524)	($15,343)
Shipping Expense/Item	$17.50	$8.00	$5.00
Less Shipping Expense	($17,500)	($5,928)	($2,455)
Plus Shipping Income	$0	$0	$8,813
Variable Operating Profit	$11,372	$11,357	$11,373
Profit as a % of Net Sales	7.3%	9.7%	14.8%
Profit per Item Sold	$11.37	$15.33	$23.16
Ad to Sales Ratio	11.5%	15.3%	23.5%

Sears Launches In Second Life

Steve Rubel at Micro Persuasion shares with us that Sears has joined other retailers in setting up shop in Second Life. This isn't an announcement about a sexy brand like Starbucks. This is Sears. Two year ago, could you have imagined this happening? Our world is changing.

Saks Fifth Avenue E-Mail Campaign

Today, I received the following e-mail from Saks Fifth Avenue, sent to their e-mail subscriber list.

There were tabs above this image that the customer could click through to visit specific merchandise divisions. However, the title of the e-mail was "Presenting A Fresh New Face Of Saks Fifth Avenue", so the purpose of the e-mail was to specifically tell customers that there is a new logo --- "Presenting our latest logo, a classic script rendered with a fresh, new face".

Saks has been around for an awfully long time, so they obviously know what they are doing. I guess I am confused how I, as a customer, benefit from this announcement. I am also confused as to how Saks sells more merchandise because of this announcement. What do you think?

Blockbuster Verses Netflix: Multichannel Forensics

Blockbuster's PR folks are doing a good job getting the word out that they are gaining ground in their battle with Netflix. A series of articles are circulating the press, including this one from Forbes. Blockbuster claims to have 2.0 million paying online subscribers, compared with the 5.7 million that subscribe to Netflix.

Financial documents from both Blockbuster and Netflix tell us the story of online and retail sales, during the third quarter of 2006 verses 2005. Some of these numbers may be a comparison of apples and oranges, especially given retail closures associated with Blockbuster. They can still be used for illustrative purposes.

Comparison of Rental Income, Online and Retail
Blockbuster Verses Netflix, in Millions
Third Quarter Results
	2006	2005	Change
Blockbuster Retail	$676.0	$726.5	-7.0%
Blockbuster Online	$64.7	$41.0	57.8%
Netflix Online	$256.0	$172.7	48.2%
Totals	$996.7	$940.2	6.0%
Blockbuster Total	$740.7	$767.5	-3.5%
Netflix Total	$256.0	$172.7	48.2%
Blockbuster To Netflix Ratio	2.893	4.444	-34.9%

Blockbuster claims that retail rental revenue decreased due to expense management associated with closing poorly performing real estate locations.

Between the two businesses, total volume increased by six percent in the third quarter, suggesting an expanding market, or suggesting that Netflix is taking market share from other competitors.

Multichannel forensics come into play for Blockbuster when evaluating the growth of the online subscriber base. If these subscribers are simply retail customers who are converting to the online channel, Blockbuster may have a series of additional future challenges.

By offering in-store dropoff and pickup of online movies, Blockbuster may stem loss of customers to Netflix. This strategy may allow Blockbuster to slow the rate at which Netflix is growing its customer base via customer acquisition. Given that Netflix likely has an annual customer retention rate of around seventy percent, Netflix must really amp-up the customer acquisition activity in order to continue the torrid growth rate Netflix has achieved.

If, however, Blockbuster is simply shifting its own retail rentals to an online subscription channel, then a very interesting set of dynamics shift into play. Can Blockbuster drive more visits to the store under this model? Management seems to think so. If this results in fewer visits to the store that result in a purchase, fixed store costs may not leverage as well, requiring Blockbuster to make a series of decisions about the true incremental value of the online initiative. It is possible that sales decrease in all stores, resulting in the eventual closure of underperforming stores. This could eventually lead to a more profitable business model, assuming Netflix doesn't clobber Blockbuster during this period of transition.

Stay tuned. Both companies appear to be moving their chess pieces around the board. Both executive teams must be feeling the stress of this multichannel verses online pureplay battle. Who do you think will win?