July 31, 2007

A Multichannel Manifesto

Yesterday I asked you, the loyal reader, to share with the MineThatData community the leaders you believe are great multichannel marketers.

The response was underwhelming (i.e. no response), and underscores a challenge we're going to have to overcome over the next five years.

Are there any leaders who can put together all aspects of multichannel marketing, and speak to this craft in a credible way that drives increased customer satisfaction, sales, and profitability?

I'm aware of a business that has a "multichannel manifesto", a multi-page statement that tells all employees key facts about how customers behave in a multichannel world. I've paraphrased, revamped and added to the statement. The statement is outlined below. Could/should your organization produce a version of a "multichannel manifesto"? What would you add to this manifesto?


"At Acme, we leverage multichannel marketing to improve the shopping experience of our customers, and to improve the long-term profitability of our brand.

We don't necessarily believe that multichannel customers behave differently than other customers. We can simply measure more aspects of the multichannel customer relationship, and desire to use the information to grow long-term sales and profits.

Here is what we know about multichannel customer behavior.

First, the role of the catalog has changed. It is no longer the primary driver of sales at Acme. Still, we believe catalog plays a critical role in 'creating demand'. We know we have to dazzle the customer in the first twenty pages of the catalog, or the customer loses interest and purchases less merchandise from us. We know we have to mail a customer a catalog every three weeks. Mail less often, we lose demand. Mail more often, we cannibalize sales and become less profitable.

Customers take eight weeks to respond to a catalog over the telephone. Customers take four weeks to respond to a catalog over the internet. Customers take ten days to respond to a catalog in our stores.

Our catalog customers are suburban and rural, and have different needs than online or retail customers. Therefore, we are willing to merchandise catalogs in a way that maximize sales among the target audience. We are willing to create a 'look and feel' that is appropriate for our catalog target. We are willing to feature different merchandise in catalogs than online or in stores, because we've learned that when we advertise the best product in any one channel, we cause customers to purchase non-featured merchandise in other channels.

We are fully aware that our catalog and online channels are profitable when there is a steady flow of new customers into these channels. While loyalty efforts are considered important, the best route to long-term growth in our catalog and online channels is to constantly add new customers in a cost-effective manner. We know that new catalog and new online customers eventually become good retail customers, and calibrate our marketing activities around this central truth.

Our online channel is most representative of our overall brand. We know that for every dollar driven to the telephone channel by catalog mailings, we drive $0.40 to our online channel. We no longer obsess with conversion rates and abandoned shopping carts, because we've learned that our customers use the website as a research tool to facilitate purchases in any channel. We know that it takes four visits to the website before a customer will purchase merchandise online for the first time. Our best customers visit our website six times before placing an order. And when that order occurs, twenty percent occur over the telephone, fifty percent occur online, and thirty percent occur in stores. Traditional conversion rate and shopping cart metrics fail to measure the true relationship our customers have with our brand, but are appropriate for improving the effectiveness of the online channel.

We realize that our customers have relationships with other brands. We know this because sixty-five percent of all search-driven purchases occur among customers who last purchased within the past twelve months. Online marketing plays a key strategic role in our organization. Without portal advertising, affiliate marketing and paid/natural search, we are convinced we would give up market share to our competitors.

We know that online marketing strategies are different than traditional marketing strategies. Our online customers are highly responsive to discounts, promotions and incentives, based on the testing we've executed. We are willing to offer specific online incentives that benefit the customer, and further the long-term profitability of our brand.

Online customers are frequently suburban customers.

Nearly half of our active customer base subscribe to our weekly e-mail marketing campaigns. We know that if we assign customers to any one of four different creative presentations / merchandise offers, based on prior purchase history and stated customer preferences, we improve e-mail campaign performance by fifteen percent.

The average e-mail campaign has a life of forty-eight hours. E-mail campaigns delivered early in the week benefit our online channel. E-mail campaigns delivered late in the week benefit our retail channel. For every dollar driven online by an e-mail marketing campaign, we drive sixty-five cents of net sales into our stores.

We've learned that our retail customers are often different than our catalog/online customers. While nearly half of our catalog/online customers will purchase in a store, only fourteen percent of our store customers will purchase via catalog or in our online channel.

Our retail channel significantly benefits from catalog/e-mail/online marketing activities. As a result, we encourage retail purchases via our direct marketing activities, knowing customers are driven into stores. We've learned that retail customers are largely suburban or urban residents. This somewhat limits the effectiveness of catalog advertising, which is most effective to a rural audience.

Our retail customers are significantly more loyal than our catalog/online customers are. As a result, our loyalty efforts are largely directed at our best retail customers.

We realize that all of our marketing activities 'work together'. One out of every four online purchases were placed by a customer who received at least one catalog in past month, at least one e-mail in the past month, and arrived at our site via paid search in the past month.

Given these facts, we are taking steps to integrate our customer service, inventory and merchandising systems across the enterprise. That being said, we realize we must continue to educate all employees as to how multichannel and single channel customers behave, so that we can maximize customer satisfaction, sales and profit across all channels.

July 30, 2007

Bill Walsh, The Coaching Tree, And Multichannel Marketing

Former San Francisco 49er football coach Bill Walsh passed away today.

I've always been fascinated by his "coaching tree'. He had a group of assistant coaches in San Francisco who went on to become head coaches elsewhere. Many had tremendous success, like Mike Holmgren (being part-owner of the Green Bay Packers, I have a soft spot for Coach Holmgren). Holmgren's tree includes Mike Sherman, Andy Reid, Steve Mariucci, Marty Mornhinweg and Brad Childress.

In multichannel marketing (catalog + online, online + retail, catalog + online + retail), who are the leaders, and who are the disciples who carry multichannel marketing to new levels? Who are the folks who are doing genuinely innovative work, the folks who build upon what innovators have done, and create something new, interesting, successful, profitable?

Tell us about the folks you've worked with who have had an impact on multichannel marketing in the comments section.

I can honestly say that I've borrowed from the strengths of many different folks who I've worked with or followed over the years (and the company I worked with these individuals at):
  • Ron Mowers, Garst Seed Company: Patience.
  • Lori Liddle, Lands' End: Unparalleled passion for creating a 'perfect' circulation plan.
  • Dave Johnson, Lands' End: People skills. I haven't worked with another individual who valued people as much as he did.
  • Jim Fulton, Lands' End: His consulting practice is thriving because he figured out how to generate useful information from computer programs, information that shows how the future of a business is likely to evolve. This spurred my interest in what I now call "Multichannel Forensics".
  • Bill End, Lands' End: It was great to work with a President/CEO that would take time to teach an arrogant, garden-variety analyst like myself how the world worked.
  • Harry Egler, Eddie Bauer: Harry lets you do your job without micromanaging the details.
  • Rick Fersch, Eddie Bauer: The President/CEO had one phrase that told you what you needed to do ... "Drive Sales Profitably". In other words, increase sales AND increase profit. The other phrase that proved prophetic was "Grow or Die".
  • Brian McAndrews, aQuantive: I only spoke the President/CEO of aQuantive twice. The second time was when I resigned to become VP of Database Marketing at Nordstrom. He only had two questions for me. One was "... but do you still believe in our business model?". He stuck with the company from $78 a share to $1 a share to selling to Microsoft at $65 a share. How many other online leaders "sold out" when the going got tough?
  • Blake Nordstrom, Nordstrom: He stayed away from gaudy, confusing, high-flung strategies. Most interesting --- in February 2005, I wanted to apply for the President of Nordstrom Direct position. Blake told me in plain, simple language that I did not have the skills he believed were needed for the position. He wasn't mean. He was simply matter-of-fact about it. The conversation fundamentally changed the direction of my career --- I knew it the moment I the conversation ended. Who knows what might have happened had he danced around the subject, or worse, been dishonest?
  • Jim Bromley, Nordstrom: He was the President of Nordstrom Direct, and like Dave Johnson, accomplished a heck of a lot by believing in people over marketing gimmicks or high-flung strategies.
  • Frank Buettner, Nordstrom: He cared about the $11/hour call center and distribution center individual. 'Nuff said.
  • Brooke White, Nordstrom: The PR Executive who did things opposite of every other PR person I've met. Never heard her name before? There's a reason for that. She would do anything to protect the Nordstrom family, or the Nordstrom culture.
  • Linda Finn, Nordstrom: The EVP of Marketing rescued me from a lousy situation. She also valued people over marketing gimmicks or technology.
  • Don Libey, Guru: How many people would publish two books from an absolute nobody? These books kick-started my new endeavor. Who knows how many other kinds words he's spread about me that have helped me get this thing going?

E-Mail Marketing Investment

An executive recently spoke the paraphrased sentence below, when talking about his e-mail marketing program.

"We measure the living daylights out of e-mail. But at the end of the day, it really doesn't move the needle a whole lot. All of our e-mail subscribers were prior catalog buyers, so incrementally, there's very little value to e-mail."

On the surface, it is easy to see how an executive can come to this conclusion.

Results from an e-mail campaign might look like this:
  • Open Rate = 22%.
  • Click-Through Rate = 31%.
  • Online Conversion Rate = 3.4%.
  • Average Order Size = $110.
  • Sales Per E-Mail = 0.22 * 0.31 * 0.034 * 110 = $0.255.
There are two numbers in this series of metrics that cause an executive to believe that e-mail doesn't "move the needle". One is hidden, one is obvious.
  • Hidden Number = Actual percentage of customers who purchase because the e-mail was sent to them.
    • Open Rate * Click-Through Rate * Conversion Rate
    • 0.22 * 0.31 * 0.034 = 0.002319.
    • 1 in 431 customers who received the e-mail purchased something.
  • Obvious Number = $0.255 per e-mail.
The hidden number is the most disappointing aspect of e-mail marketing. To think that, in this case, only one out of every 431 customers thought the e-mail was compelling enough to purchase something is a genuine failure of direct marketing.

Of course, e-mail marketing has different dynamics than other forms of marketing. Good marketers actively build a large list of e-mail addresses to market to.

If you are like some major multichannel retailers, and you have 3,000,000 e-mail addresses, you aren't disappointed in a $0.255 sales rate per e-mail. Why? Because $0.255 * 3,000,000 * 52 e-mail campaigns per year = $40,000,000 of annual sales volume.

Better yet, there is very little incremental cost associated with sending one additional e-mail. One might have to spend $8,000,000 mailing catalogs to generate $40,000,000 sales volume. One might only spend $400,000 to generate $40,000,000 volume via e-mail.

There is another important way to look at the value e-mail campaigns bring to an organization.

Let's assume that 1 in 431 customers respond to an e-mail, and let's assume that a brand sends 52 e-mail campaigns per year ... one per week. What percentage of e-mail subscribers will repurchase, annually, because of e-mail?
  • 1 - (1 - (1/431))^52 = 11%.
In other words, over the course of the year, 11% of the customers in a segment where only 1 in 431 respond to an average e-mail will purchase "because they received e-mail campaigns".

This becomes important, because the average online retailer has an annual repurchase rate that varies between 25% and 65%, usually leaning toward the lower half of that range.

If your testing shows that e-mail does not cannibalize organic orders or catalog orders or paid/natural search orders or store-driven orders, then the 11% figure is big.

(Added 7/30/2007 ... 12:53pm: It is also very likely that, of the 11% of the list purchasing via e-mail, that the vast majority of the responses are coming from a small subset of the 11% --- it is important to analyze these folks separately, as they are your e-mail evangelists).

Direct marketing is no longer the quaint world that Sears and Montgomery Ward and J.C. Penney and Spiegel and others crafted through the 1970s, that Lands' End and L.L. Bean were lauded for in the 1980s and early 1990s.

These days, direct marketing success is the sum of thousands of small efforts. Some efforts have bigger rewards (catalog). Some efforts have small individual rewards (e-mail) that add up to a reasonable amount of volume.

While we all realize we have to invest in e-mail, how we invest in e-mail is likely to change over the next decade.

Transaction-based e-mails based on a common template, offering the customer a percent off or free shipping, with tabs across the top outlining various merchandise departments are the norm in 2007. All of our efforts at implementing "best practices" yielded a glut of e-mail campaigns that look similar, with similar offers. Long-term, this will cause response rates to further erode.

Long-term, the e-mail campaign will have to offer the customer more than discounted merchandise already available via catalog marketing or online marketing or store marketing.

Long-term, the investment in e-mail marketing has to be in creativity. We have to be able to communicate why our brand matters. We have to tell stories. The customer doesn't need to learn that fall merchandise is available at a discount --- everybody has fall merchandise available at a discount. The customer wants to know why she should have a relationship with the brand sending the e-mail campaign.

Think about it ... when is the last time Microsoft Outlook "dinged", signaling that an e-mail arrived, and you looked to see who sent it, and said to yourself "Oh yeah, it is an e-mail from Ann Taylor, I can't wait to read it!"

The investment in e-mail has to change over the next decade ... from an investment in targeting and messaging and # of contacts to one of creativity and storytelling and engagement.

How Much Investment Is Too Much Investment?

Click on the image to enlarge it.

There are a series of fundamental truths about direct marketing that, while generally understood, are not actively practiced.

We all know that if you don't market to a customer, generating significant sales and profit become unlikely.

We also know that if you market too much to a customer, customers rebel, or the marketing is highly unprofitable.

The best direct marketers measure marketing effectiveness over time. In other words, the best direct marketers segment customers at the start of the year (calendar or fiscal). Next, customers are placed into different test groups. Some customers receive almost no direct marketing. Some customers receive too much direct marketing. At the end of the year, the direct marketer measures the repurchase rate, spend per repurchaser, average spend, and average profit, based on the contact strategy test the customer participated in.

Click on the attached image. This is what test results typically look like. In this case, customers received anywhere between six and sixty-six catalogs during a twelve month period of time.

At just six catalogs (one every other month), the customer segment had an average response rate of ten percent. The annual repurchase rate was 46.9%. The average customer generated $15.00 of profit.

At twelve catalogs (one per month), the customer segment had an average response rate of 7.1%. This is a very common situation --- by adding catalogs, we artificially cause each catalog to perform slightly worse. However, the annual repurchase rate increases from 46.9% to 58.5%. Better yet, annual profit increases from $15.00 per customer to $17.70 per customer.

Clearly, it is better to mail twelve catalogs than it is to mail six catalogs.

The table shows that profit is "maximized" at eighteen catalogs.

Now take a look at the scenario where twenty-four catalogs are mailed. Response rates continue to deteriorate. Annual repurchase rates continue to increase. Annual profit begins to decrease.

It is at this point that things become very interesting in your average catalog-based business. As you go from twenty-four to thirty catalogs (in this example), profit begins to erode, faster and faster as catalogs are added to the contact strategy.

There is an unusual dynamic that occurs in catalog companies that reach this stage. The CFO quickly points out that the "ad-to-sales" ratio is increasing at an unacceptable rate. The CFO might even want to cut back on catalog mailings.

Your merchants might view things differently. Merchants are charged with increasing sales --- one of the ways to do this is to increase pages, or increase the number of mailings. A merchant might recommend a new catalog title, focusing on a slightly different assortment of merchandise, targeted to a slightly different customer. The merchant might recommend six additional mailings, asking for a two year trial to see if sales can be grown, to see if a new target audience can be harvested.

Often, two or three merchants recommend this strategy. Suddenly, there are thirty-six or forty-two mailings in the catalog plan.

The merchants are under pressure to "grow sales". The way to do this is not to spend a ton of time prospecting for new customers. The way to do this is to mail "best customers".

This strategy artificially lowers catalog response rates, increases annual repurchase rates, and lowers profit per customer.

Eventually, something gives. If the business fails to meet plans by maybe ten or fifteen percent, the CFO gets enough power to enact change.

If the CFO isn't as strong a leader as the merchants are, circulation changes come in the form of cuts in circulation depth --- instead of mailing 1,000,000 customers per mail date, circulation depth drops to 850,000 customers per mail date. This is a short-term fix ... profit is slightly improved. The long-term problem of having too many catalog in the mail plan causes us to invest too much in our "best customers".

If the CFO is a strong leader, an excellent communicator, then real change can happen. Various catalog titles are dropped, various in-home dates are dropped.

Things get interesting when going down this path. Taking this approach cases the annual repurchase rate to decrease. This dynamic causes a reduction in the strength of the "housefile". With fewer active buyers, next year's sales potential is reduced. This will cause various leaders to want to advertise more next year, or the year after, in order to grow the housefile back to a level of perceived strength.

Of course, the way to balance this dilemma is to manage customer acquisition and customer reactivation activities in a manner that fuels total file growth.

But at an executive level, the concepts of customer retention, customer reactivation, and customer acquisition are too "geeky" to pay attention to. It is easier to think about adding catalogs, developing new products, presenting products differently, or to find new "target" audiences.

In almost every company I've visited or worked for, investment in direct marketing is overly focused on "best customers". Catalog mailings, e-mail mailings, loyalty programs, postcards, you name it --- everybody marketer wants to be successful. The best chance for success is with "best customers", right? Or is it?

July 29, 2007

Best Customers

There is an amazing difference between "new" forms of direct marketing (like paid search) and classic direct marketing.

Paid and natural search is all about intercepting a customer when the customer has a need. You don't necessarily know if this customer is your most loyal customer, or one who has never heard of your brand.

Classic direct marketing is all about "pushing" a message at a customer. And in order to get the best return on investment, it is perceived that it is best to "push" your message at "best customers".

Take your average multichannel retailer. If you believe in the old adage that "multichannel customers are your best customers", then your marketing efforts have to be focused on these individuals.
  • If you are launching a new catalog title, you'll send it to this individual.
  • If you are moving from one e-mail campaign per week to two e-mail campaigns per week, you'll want the new campaigns blasted to the best customers, giving them the best chance to succeed.
  • If postage costs are chewing up your profits, you are unlikely to pull back spend among your best customers, who spend enough to offset increased costs.
  • If you're having a store event, you'll want to notify your best customers about the event.
  • If you're opening a new store, you'll want to notify the best online/catalog customers in that trade area about the new store.
  • If you have a loyalty program, you want to reward your best customers, right?
In each situation, direct marketing activities are going to be focused on "targeting" best customers.

The majority of companies employ this type of strategy --- each marketing campaign is unique --- ignoring the targeting strategies being employed by future/concurrent/prior campaigns.

Is the "best" strategy one that focuses on "best customers"? We'll talk a bit about this topic this week. You are encouraged to offer your thoughts.

July 26, 2007

Knowing A Secret At A Big Company

Reading Mack's article, you sense the frustration of a person who "knows a secret". In this case, he knows that a certain style of corporate writing will "work", based on his experiences. The folks at the corporation he talks about, however, don't see the world the way he sees it.

I worked at three big companies. There aren't many businesses bigger than Nordstrom ($8 billion+ in annual sales in 2006). Everybody knew something that would help grow sales, something that wasn't popular with the masses.

Big Companies = Big Frustration.

Maybe you're the Director of Online Marketing at a retailer. You know your portal advertising drives sales to stores. But the folks in the stores hate your stupid "banner ads". You know a secret.

Maybe you're the Director of Circulation at a cataloger. You know that your catalogs drive 60% of all the online sales. Yet, the Online Marketing Director was promoted to Vice President, while you remain trapped in the same job for the past seven years. You know a secret.

Maybe you're the Web Analytics guru. You know that the changes made to the look and feel of the website hurt conversion rate by eight percent. Yet, your CMO received an award from an interactive marketing agency for branding strategy. You know a secret.

The painful part of a corporate secret is that there may be very little upside to sharing it.

It may not be worth the effort to convince the traditional CMO to have a viable corporate blog.

It may not be worth convincing the organization that your catalog drives the majority of web sales, now that you're considered a "multichannel" organization.

It may be worth the effort to convince the organization to improve conversion rate by eight percent, as eight percent can mean the difference between profit and loss.

Keep corporate secrets that don't move the sales and profit needle.

Keep corporate secrets that move the needle, but can be implemented without ticking off non-believers. In Database Marketing, this accounts for eighty percent of your secrets. You can implement a new statistical model for determining who receives versions of an e-mail campaign without inflaming your entire merchandising team ... so long as you increase overall sales.

Then there's all the battles that are worth fighting. These are the ones that keep life interesting, the ones you choose to change jobs over if you fail.

Every one of us knows a 'secret' that will improve the performance of our business. The bigger the company gets, the more people that need to be convinced that the secret is reality, resulting in a lower probability of implementation.

July 25, 2007

Case Study, Part Four

Click on the image to enlarge it.

We wrap up this four part case study, analyzing an online-only golf brand, by asking the question "What would it take to grow Accessories so that sales were equal to Apparel?"

The Accessories merchant won't like the answer.

The scenario in the image is one where I doubled the corporate repurchase rate for Accessories-only buyers, from 30% per year to 60% per year.

I also increased new buyers to Accessories-only by a factor of 2.5x.

By doing this, Accessories generates the volume that Apparel generates. Also notice that Golf Clubs greatly benefits from this strategy.

Realistically, it is not likely that one can increase the annual repurchase rate for any one segment of customers by more than maybe twenty percent. Therefore, the retention increase is unlikely to ever happen.

Furthermore, increasing new customers by a factor of 2.5x is probably very expensive.

This suggests that, in the next two or three years, it is highly unlikely that the new Accessories merchant can hope to grow the business in a dramatic manner, no matter how much the merchandise assortment is improved.

This is a key area where traditional web analytics fails our business leaders. A Multichannel Forensics analysis aids the CEO by realistically telling the Executive team "what is possible".

In this case, the Accessories leader should have modest bonus objectives.

The data strongly suggest that the better the Accessories leader performs, the better that Golf Clubs will perform. These two leaders should have incentives that depend upon each other, since customers switch back and forth between these two merchandise divisions.

New CEOs and Executives need to understand what kind of trouble they are getting themselves into. This case study clearly illustrates how challenging it will be for the new Accessories Executive to grow the business.

The case study also indicates how "dependent" various merchandise divisions are upon each other. Success in one division causes success in another division. The online CEO or Executive cannot understand these dynamics by studying traditional web analytics. Only a well-constructed multichannel forensics analysis points out these important "dependencies".


Case Study, Part 1.
Case Study, Part 2.
Case Study, Part 3.

Case Study, Part Three

Click on the image to enlarge it.

This week, we spent two days talking about an online-only business selling Golf Clubs, Golf Accessories and Golf Apparel (First Article, Second Article).

Recall that management wants to grow the Accessories division, hiring a new merchant to lead the charge. This merchant believes that Accessories-only customers will see increased corporate repurchase rates, from 30% to 36%, because the merchandise will be a lot more appealing than it has been.

What impact would this have on the total business?

If the corporate repurchase rate holds at 30% for Accessories-only customers, sales next year will be $9.1 million in Clubs, $5.1 million in Accessories, and $10.5 million in Apparel. Projecting these rates ahead for four additional years, sales in year five will be $11.0 million in Clubs, $6.1 million in Accessories, and $12.6 million in Apparel.

If the corporate repurchase rate increases to 36% for Accessories-only customers, sales next year will be $9.3 million in Clubs, $5.2 million in Accessories, and $10.5 million in Apparel. Projecting these rates ahead for four additional years, sales in year five will be $11.6 million in Clubs, $6.4 million in Accessories, and $12.7 million in Apparel.

Because Accessories buyers will purchase Clubs, both merchandise divisions benefit by improvements made in Accessories merchandise. Accessories buyers, in this example, are not likely to cross-over and purchase Apparel. As a result, Apparel does not grow if Accessories are improved.

This leads us to an interesting question: Which type of customer is most valuable to this online-only brand?

Three simulations were run. The first simulation looked at sales for 1,000 Customers who only purchased Golf Clubs last year. The second simulation looked at sales for 1,000 Customers who only purchased Golf Accessories last year. The third simulation looked at 1,000 Customers who only purchased Golf Apparel. Each simulation sums total demand over five years, by merchandise division.

Here are the results.

1,000 Golf Club Only Buyers:
  • $214,518 on Golf Clubs over five years.
  • $126,380 on Golf Accessories over five years.
  • $26,607 on Golf Apparel over five years.
  • $367,505 total brand spend.
1,000 Golf Accessories Only Buyers:
  • $265,810 on Golf Clubs over five years.
  • $129,904 on Golf Accessories over five years.
  • $40,045 on Golf Apparel over five years.
  • $435,759 total brand spend.
1,000 Golf Apparel Only Buyers:
  • $109,409 on Golf Clubs over five years.
  • $44,643 on Golf Accessories over five years.
  • $338,217 on Golf Apparel over five years.
  • $492,269 total brand spend.
These are interesting findings, when simulated over five years.

Notice how dependent Golf Clubs and Golf Accessories are upon each other. Increased sales in one merchandise division result in increased sales in the other merchandise division, over time.

Also notice that Golf Apparel buyers represent the division that has the best long-term sales value. However, these customers are not likely to buy Golf Accessories.

This phenomenon accounts for the reason why Golf Accessories have not had the sales volume that Golf Clubs and Golf Apparel enjoyed.
  • Golf Clubs get sales from Golf Accessories and Golf Apparel buyers.
  • Golf Accessories get sales from Golf Club buyers.
  • Golf Apparel does not get sales from other merchandise division buyers. However, Golf Apparel has the most customers, because it has the highest overall repurchase rate for customers only buying from one division. This drives the success of this division.
When we focus on conversion rates, landing pages, average order size, PPC, and all the other components of online merchandising, we focus on what happens during only one visit.

What we need to spend more time doing is analyzing customer behavior over time.

By analyzing customer behavior over time, using Multichannel Forensics, we notice that it will be very hard for the new Accessories executive to grow the business to similar rates seen in Golf Clubs and Golf Apparel.

In the final installment of this series, we'll investigate what it would take for Accessories to have the sales that Apparel enjoys.

July 24, 2007

MineThatData Traffic Analysis

Click on the image to enlarge it.

You're probably wondering how many folks read this blog, right?

Or, maybe the topic is only of interest to me.

Either way, you get to learn all about blog audience dynamics today.

According to my statistics, I have about 3,900 visitors per month (via Google Analytics) and an average of 450 daily subscribers (via Feedburner).

The image illustrates how we get to subscribers, and the true amount of monthly traffic generated by the blog.

During an average month, 1,873 visitors arrive via search (almost all via Google). 976 visitors arrive from other websites, about eighty percent from blogs referring folks to MineThatData (thank you all!). 200 visitors type in the URL.

Of these visits (3,049), about two percent (60) become what I call "Loyalists", folks who frequently visit the URL, or subscribe by RSS or E-Mail.

I estimate that each month, I add 60 subscribers, and lose 30 subscribers, yielding a net increase of 30 subscribers. To date, about 450 of you subscribe via RSS, E-Mail, or type in the URL frequently. You are my "Loyalists". Thank you!!!!

The 450 "Loyalists" drive the relative popularity of this site, visiting about 13,650 times a month. There are 854 actual site visits, 5,460 readings in Google Reader, 1,092 via E-Mail, and 7,098 readings in other RSS Readers.

In total, this yields 14,504 actual readings from my "Loyalists", and 3,019 visits from folks who weren't impressed with the site, or got what they needed from one visit and moved on.

In total, this yields 17,523 real "visits" each month.

There are flaws with the analysis --- there are probably many more "Loyalists" than measured by Feedburner --- BlogJuice suggests I have twice as many Bloglines subscribers as Feedburner suggests I have. So there might be as many as 1,000 actual "Loyalists", each visiting half as often as I have estimated.

Still, the number of real "visits" is a reasonably accurate reflection of what happens each month ... yielding about 210,000 annual visits.

July 23, 2007

Vice President of Business Intelligence And New Business Development, American Girl

A fundamental shift in the job requirements of analytical individuals is occurring across Corporate America. The shift is not positive for E-Mail Marketers, Catalog Circulation Marketers, Online Marketers, Business Intelligence Analysts, and Web Analytics staff.

Read this job description, found on the Marketing Sherpa Job Board, for a VP of Business Intelligence and New Business Development at American Girl.

This position proactively leads the identification and development of actionable consumer insights, market and competitive understanding. This person will translate information gained through the Analytics Services and Consumer Insights areas into actionable implications and assist in the application of these insights into the American Girl strategic plan. Requirements: *Bachelor's degree, Master's degree (MBA) preferred *Minimum of 10 years of experience working in Consumer Products Industry to include Consumer Research and Analytical Services or significant experience in consulting with a major consulting firm. *Direct Marketing Analytics experience at a multi-channel company preferred *Experience contributing to the strategic planning process preferred *Familiarity with multiple channels of distribution, with special emphasis on direct mail and branded retail preferred *Significant P&L experience preferred *Consulting for a major consulting firm preferred.


Notice how this position focuses on using the insights of the Analytical Services and Consumer Insights areas. Notice that this person will come from the Consumer Products Industry, or will have Consulting experience from a major consulting firm (preferred).

In the past five years, our zeal to be "multichannel marketers" caused us to scatter in a dozen different directions --- all honing our skills in different specialties, becoming experts at a tiny fraction of what matters to our customers. We failed to develop a global view of our business. Our leaders don't have confidence in having a web analytics expert do anything else than study web analytics. Our leaders don't believe the e-mail marketer can also drive a social media plan, or can manage television advertising campaigns.

To thank us for diving headfirst into a niche, becoming a subject matter expert, our companies are looking to hire leaders who know how to position eight varieties of Cheerios among potential customers, or know how to articulate opportunities to what is know as individuals in the "C-Level Suite".

If you're an individual working at a catalog, online, retail or multichannel organization, and you have less than ten years of corporate experience, this is a really good time to change course.

Instead of being the expert at working with CheetahMail to get e-mails delivered through AOL, or being the expert at getting CoreMetrics to help you accurately measure the effectiveness of various landing pages, or being the catalog circulation expert who measures the LTV of Abacus-sourced new names --- become the person who is the expert at knowing how EVERYTHING FITS TOGETHER, telling a story that helps executives know what they need to do to be successful.

Right now, your business leaders don't believe in you. They believe in a person who knows how to build a business plan for Cool Ranch Doritos, who knows how to speak to executives. This is the third job description of this nature I've run across over the past four months.

One person, working a division that is now being led by one of these "newly qualified leaders", told me that the new leader (with qualifications similar to this job description) communicated that the circulation folks "knew nothing of actual customer behavior".

Ouch.

It's time to stop talking about RFM, HTML vs. Text, Black-Lists, SEO, PPC, CGM, DMPC, Conversion Rate or Landing Pages.

It's time to stop talking about subject line testing as a "strategy".

It's time to stop talking about paid search as a "strategy".

It's time to stop talking about getting e-mails through GMail as a "strategy".

It's time to stop talking about working with Abacus or Millard/Mokrynski as a "strategy".

It's time to actually create actionable business strategies that merchants and executives understand, and can act upon. More important, it's time for us to be able to articulate our strategies in a way that executives and merchants understand.

If we fail to do this, the folks who manage the "Twinkies" brand will do this for us. I've been impacted by this evolution in job description. I don't want for you to be impacted.

Your thoughts?

Case Study, Part Two

Click on the image to enlarge.

Yesterday, we addressed the first part of a case study of an online golf brand that is struggling to grow sales in the Accessories division.

A big part of a Multichannel Forensics analysis is a forecast of future sales by product, brand, channel or title. In this case, focusing on an online pureplay, we look at future sales by merchandise division.

In this case, each division will grow by less than five percent per year, given the forecast for new customers and anticipated repurchase dynamics.

Upon being hired, the chief merchant of the Accessories division anticipated that her merchandise would be so liked by customers that customers who only buy Accessories will see an increase in annual corporate repurchase rate from 30% to 36% --- an increase of 20% per year.

That's a bold statement. What kind of impact would that have on the total business? Make your guess in the comments section, we'll reveal the answer tomorrow.

July 22, 2007

Coldwater Creek. Wow.

Sometimes you take a look at the financial documents provided by Coldwater Creek, and you are amazed at the transformation of what was once a humble little cataloger located in Northern Idaho.

According to management, retail is now the primary growth vehicle for this business. Already boasting 255 stores in 146 markets, the retailer expects to grow to up to 500 stores within five years.

For people like me, steeped in a traditional cataloging background, the transition out of "traditional" cataloging has been fascinating to watch. The brand will spend an amazing $32,000,000 in national magazine ads in 2007, and even tested television ads in late 2006. The catalog investment is shifting as well. Instead of investing in traditional catalogs that drive sales through a telephone channel, Coldwater Creek is instead mailing more catalogs designed to drive sales to stores --- circulating the catalogs to store markets.

Coldwater Creek also boasts an e-mail list of 3.2 million names, an amazing number for a business selling just over a billion dollars of merchandise per year.

Coldwater Creek also announced a new loyalty program, targeted to the best 250,000 households --- designed to improve retention and increase spend per household.

Pay attention to SG&A --- increasing at a faster rate than sales, due in part to national branding programs, increased store employee expenses and increased catalog circulation.

As Direct Marketers, we need to keep an eye on Coldwater Creek. They are choosing a traditional path toward growth, one not altogether different than what Sears or Montgomery Wards utilized eighty years ago, or the route that Eddie Bauer took in the late 80s and early 90s. It's a fascinating and intoxicating route to riches, as the brand determines the 'saturation point' --- the point where retail stores no longer contribute significant incremental sales. To date, saturation is not a consideration ... comp store sales have increased by more than sixteen percent during the first quarter of the past two years.

When that saturation point happens (and it will happen, ask Gap), life becomes very interesting. Increased saturation drives down comp store sales at existing stores. Furthermore, online growth stagnates, as the new stores do not contribute enough new customers to fuel online increases. A brand needs to have a magical group of business leaders to recognize this inflection point a couple of years before it actually happens.

But for now, the meteoric increase in sales at Coldwater Creek is worth praising. Sales (and stock price) reflect the fact that management saw how the world was changing (stores/online), and shifted investment toward this new reality in a timely manner.

Case Study: Online Golf Brand

Click on the image to enlarge.

Online business models are very enjoyable to manage. Executives have a veritable plethora of metrics available to measure the effectiveness of their business, in stark comparison to catalog or retail executives.

That being said, online business executives often have less experience managing business models "across time". In other words, online business growth can be forecast over multiple years, so that the online executive can understand the long-term impact of today's business decisions. This is an area where catalog/retail executives traditionally have more experience.

This week, we'll take a look at an online-only business model that sells Golf Clubs, Golf Accessories, and Golf Apparel. This business is five years old, and management is not pleased with the sales growth of the Accessories division. Last year, sales of Golf Clubs totaled $8.6 million. Sales of Golf Accessories were $4.8 million. Sales of Golf Apparel were $9.9 million.

A new Accessories merchant was hired. Management hopes to grow Accessories through an improved merchandise assortment.

Anytime a change in management occurs, it is wise to conduct a Multichannel Forensics analysis, to understand how customers are behaving. The image at the start of this article illustrates the "Migration Probability Table", a grid of numbers that help the business leader understand how customers migrate between merchandise divisions.
Notice some of the interesting findings:
  • On average, 48.6% of last year's purchasers will buy again this year. This puts the online golf brand in "Hybrid Mode", meaning that the business grows through a mix of customer retention and customer acquisition activities.
  • Golf Clubs have a 39.6% repurchase rate. Being in "Acquisition Mode", Golf Club sales grow by finding a constant supply of new Gulf Club purchasers. This means that Golf Club buyers don't buy new clubs every year. The 71.8% repurchase index for Golf Accessories means Golf Club buyers are likely to "transfer" their allegiance from Clubs to Accessories in the year after buying Clubs.
  • Golf Accessories have a 37.9% repurchase rate (Acquisition Mode), and the repurchase index metrics suggest Accessories buyers are in "Equilibrium" with Clubs and Apparel. In other words, Accessories buyers will purchase just about any merchandise in the year after buying Accessories.
  • Golf Apparel has 47.3% repurchase rate (Hybrid Mode). These buyers are unlikely to buy Golf Clubs next year, but are willing to buy Accessories.
These findings are interesting. Accessories have a low repurchase rate, so the hiring of a new merchant could make a difference. However, Club and Apparel buyers are willing to purchase Accessories. All customers have the propensity to purchase Accessories. The question will become, "How do you grow Accessories if all customers are already willing to purchase Accessories?"

We'll explore growth opportunities this week.

July 20, 2007

Multichannel Retailing Week: Wrap-Up

There are probably four key messages that I want for you to take from our exploration of multichannel retailing.


One: A re-definition of multichannel retailing. I'd like to define it as "Pleasing customers through a profitable mix of advertising, products, brands, channels, service and community".

Two: Multichannel retailing is about employees working well together and communicating well with each other. This combination trumps marketing strategy.

Three: While customers are the best asset a brand has, you do not have customers without innovative, appealing product that is presented favorably. This combination trumps marketing strategy.

Four: No strategy works "for every brand". A subset of best practices combined with innovation specific to your brand yield great results.


Viewing multichannel retailing through this lens explains much of the diversity we see in retailing. Clearly, we could all do a better job, just ask some of our leading service providers and research organizations.

Each point is important. The first two words in the first point might be most important ... "pleasing customers". Maybe your catalog is critical to pleasing customers. Maybe you don't have to offer "buy online, pick up in stores" to please customers. Whatever pleases customers and is 'profitable' is most important. Off-shoring customer service may be profitable, but it may not please customers. Only you, as owner of your brand, know the answers.

For me, it is so important that employees work well together, and communicate well together. Many of the multichannel retailing shortcomings I've observed are due to communication failures.

Product and creative presentation of merchandise are always key --- this sets Apple apart from other organizations. Why else would people stand in line for two days to purchase a $500 phone that other companies already market for about half the cost?

And finally, not everything works for everybody. Each business has different customers, and these customers have different needs and expectations. Do what is best for your customers.


Your turn. What did I miss this week that you wanted for me to talk about? What are your viewpoints on multichannel retailing?

Multichannel Retailing Week: Consumer Intelligence

What spelled doom for me at the end of my tenure at Nordstrom was the concept of "consumer intelligence".

This was a movement that, in retrospect, anybody could see coming. But when you're slogging through day-to-day issues, it can be easy to miss.

Think of "consumer intelligence" as the sum of all activities that explain overall customer behavior.
  • Customer performance in catalog marketing campaigns.
  • Customer performance in e-mail marketing campaigns.
  • Customer performance in online marketing campaigns.
  • Database Marketing, the traditional role of direct marketing campaign execution.
  • Organic customer performance ... what customers spend when not marketed to (a very important concept in retailing, not well understood in the online environment).
  • Business Intelligence, the software tools and general ad-hoc queries that help solve generic business questions about customers, merchandise performance, and store performance.
  • Social Media Experts, folks who thoroughly understand how customers are interacting with tools like Facebook, Blogs, Twitter.
  • Customer Advocates, the folks who strongly believe that companies require "Chief Customer Officers" to better understand the challenges facing customers.
  • Multichannel Ombudsmen, the folks who understand customer behavior across channels, and then try to develop strategies like "Buy Online, Pickup In Store" that can be implemented by various channel leaders.
  • Lifetime Value, the net present value of all future customer transactions.
  • Statistical Modeling, condensing customer behavior down to an equation that explains customer actions.
  • Marketing Research, including surveys and focus groups.
  • Merchandise and Market Share Analysis, source from databases like NPD, Scarborough and Simmons.
  • Competitive and Customer Research from organizations like Forrester, Jupiter, Gartner.
The goal is to take these activities, typically done by separate individuals across the organization, tie them together, identify actionable findings, and then drive strategy through the EVP/C-Level/Board-Level individuals at multichannel retailers.

To be successful, the consumer intelligence leader must recruit a talented team of "translators", folks who synthesize the technical information obtained by staff members who work in the various functions, then put the information into a context that is relevant to the EVP/C-Level/Board-Level individual.

In some ways, you can think of it as the role that Management Consultants used to play, executed in a considerably less expensive manner.

It was good to have this experience at Nordstrom, because the companies I visit these days are ultimately asking for this solution --- they just don't know this is what they are asking for. The business leaders want folks to distill geeky, complex customer information into actionable sound bites that they can work with.

As our marketing world becomes more fragmented, with terminology and techniques that are unique to each discipline, it will become more important for a "Consumer Intelligence" expert to tie together each discipline. Multichannel retailing is a logical early adopter of this emerging discipline.

July 19, 2007

Multichannel Retailing Week: Catalog Circulation

This morning, an article arrived in my RSS reader, promoting the power of catalog marketing.

You can't argue with the fact that more paper is being deposited into our mailboxes than ever before. Does the incremental increase in paper drive an incremental and proportionate increase in sales in the telephone, online and retail channels? Vendors don't answer that question for you.

Your catalog circulation expert knows the answer to that question. In fact, the catalog circulation expert knows the answers to more questions than almost any other marketing individual in your company. Ask the online marketing executive if natural search results in an increase in store sales, and see if you get an answer you can trust. Ask the e-mail marketing executive if e-mail campaigns cause customers to order merchandise over the telephone, and see if you get an immediate, confident answer. Ask the web analytics individual if an abandoned shopping cart resulted in a store purchase, and see if you get an honest answer.

But ask the catalog executive how effective catalogs are at driving sales to the telephone, online and retail channels, and you'll get an earful. You may not understand a geeky word that the catalog circulation expert says, but you'll at least get the inkling that this person has measured the concept, and markets to a combined ROI across channels.

So if the catalog folks have all this "tribal knowledge", why are they largely being under-utilized at many multichannel retailers? Why would multichannel retailers make the decision to eliminate traditional circulation teams and list vendor relationships in favor of an outsourced solution from the folks at Abacus?

Today, I am seeking your feedback on this topic, your thoughts on catalog marketers and catalog marketing.

If you work at a catalog/online retailer, or a catalog/online/retail organization, please share your thoughts about what you think about catalog marketing, and about the folks who do catalog marketing in your organization.

How do you view these individuals? What value do these individuals bring to your company? Let's not cloud things with my opinion --- let's get your thoughts on the topic. Please discuss!!

Multichannel Retailing Week: Online Marketing

Here's a secret: Online Marketing works in a multichannel retailing environment.

Maybe that's not a secret to you, because you work in the online marketing profession.

But it is an unknown fact to almost every other employee in your multichannel organization.

As an online marketing professional, it is your job to evangelize your craft.

I recently sat in a room full of retail executives, retail directors, and retail marketing managers. I asked them the question, "If you were going to purchase a computer, and had no idea where to shop, what is the first thing you would do?"

The answer I was looking for was "I'd do a internet search".

Not one of the sixteen individuals volunteered this answer.

We all know that customers initiate searches, primarily on Google, to research and learn about potential product purchases. But this roomful of retail leaders, entrenched in their mall-based shopping ecosystem, did not think of shopping in this manner.

We also know that between twenty-five and thirty percent of website visitors at multichannel websites arrive via search.

In many cases, a targeted e-mail campaign sent right before a catalog mailing causes an increase in online or store response.

In many cases, catalog marketing and search marketing combine to increase the likelihood of a customer purchasing an item online or in stores.

In many cases, online advertising and search marketing combine to increase the likelihood of a customer purchasing an item online or in stores.

Your average retail staffer does not see the world through this lens.

During the next five to ten years, the online marketing executive will need to bridge this communication gap. If the online marketing executive wants to become the Chief Marketing Executive, the transition from metrics-based facts to retail storytelling will be essential.

To do this, the online marketing executive will partner less with the web analytics team (as they generally have access to online transactions). The online marketing executive will increasingly partner with the database marketing team or the business intelligence team, SAS-based programmers who link online, catalog and retail transactions with clickstream data. This gives the online marketer a holistic view of the effectiveness of online marketing.

Maybe the biggest thing the online marketer will learn is that at least half of their marketing activities are speaking to existing, often loyal customers. Historically, online marketing has been viewed as a customer acquisition tool. In the future, online marketing will be viewed as a customer retention tool. Couple that perspective with the education of your retail marketing team, and you've greatly enhanced the power of online marketing.

July 18, 2007

Multichannel Retailing Week: Call Centers And Distribution Centers

How many multichannel retail executives view their call center and distribution center as a "cost center"?

It is easy to think of operations as a cost center. After accounting for shipping/handling revenue, it costs between ten and fifteen cents of every dollar of sales to field phone calls, manage live chat, respond to e-mails, and pick/pack/ship items.

You don't view your call center or distribution center as a cost center if you spend any time in these facilities. You'll find yourself rubbing shoulders with individuals more committed to your brand than you are. These folks aren't killing time, waiting for their stock options to vest.

You'll see individuals eagerly attacking contests to improve productivity. You'll find employees who are taking calls, even though their Aunt passed away earlier that morning. You'll find employees who milked cows at 5:00am, showered, and made it in to work through a snowstorm to begin their 8:00am shift five minutes early. You'll see co-workers bringing sub sandwiches, cookies, and treats to work. Food is a motivator for folks who don't earn enough money.

These folks work eight hour shifts for just $11 an hour. After taxes, that's an eight hour day that nets the employee around $70.

We expect an awful lot out of individuals who take home $70 a day.

We expect every single order to be processed correctly.

We expect all e-mails to be responded to within four hours.

We expect orders to be taken with joy, we expect our complaints and criticisms to be met with empathy.

We want these individuals to communicate our frustration with soldout items to an inventory management team they never get to work with.

We want these individuals to absorb the abuse we toss at them because we are frustrated with cost-cutting management teams that hold us hostage in telephone-based CRM systems.

I had the privilege of working in a call center in the late 1980s. I can tell you that it was one of the harder jobs I've ever had. I had to ask customers if their AT&T repair service was done accurately and on-time. Ask a seventy-six year old angry man if he was "very satisfied", "somewhat satisfied", "satisfied", "somewhat unsatisfied", or "very unsatisfied", and I promise you, you'll receive some "feedback".


When I worked at Eddie Bauer, I frequently got to visit our parent company, Spiegel. The executive team worked in a section of the building that had leather floors.

People in call centers and distribution centers work in buildings with dirty floors.

I do think that many multichannel retailers will begin to see call centers and distribution centers as "knowledge centers" over the next decade. Nobody knows more about the "vibe of the customer" than these individuals. We've used these people to increase the "cross-sell" rates from 9% to 14%, netting us significant increases in profits. Over the next decade, we can partner with these individuals to learn more about what our customers truly want.

We can literally pull customer information from these individuals. Today, we push promotions at them, hoping they will push them at the customer.

Instead of talking about corporate blogging, we should talk about call center and distribution center blogging. We could have internal blogs that allow these employees to have a dialogue with business leaders --- passing information back and forth. If the executive won't make the trip to the call center, let technology bridge the gap. We can give these folks a voice. If we want to implement a promotion, we can float the idea through the call center blog, and let our call center employees advocate on behalf of the customer.

If we want to create a better experience for the customer, we can start by creating a better experience for the call center and distribution center employee. We could view these individuals as "knowledge centers" instead of "cost centers".

Multichannel Retailing Week: Information Technology

Three experiences illustrate the challenges facing information technology experts in multichannel retailing.

Experience #1: I attended a meeting where a multichannel business wanted to implement a marketing idea on the website. The information technology individual told the attendees (some were executives) that IT would not implement the idea, because it "wasn't a good idea".

Experience #2: Earlier this week, a representative of a vendor told me he had "143 low-cost individuals over in India, just waiting to do whatever I tell them to do."

Experience #3: Recently, an IT staffer told me I could call him at any time of the day, whether he was at work or at home, that he would go to any length to take care of me.

Multichannel retail information technology is not sexy work. Would you rather try to scale the Facebook platform, or would you rather modify COBOL code for an antiquated point of sale system?

Our challenge as multichannel business leaders is to create genuine ways to incorporate information technology experts as true business partners. We've largely failed to do this.

When a crisis occurs, we demand that IT is there to support us, 24/7/365. When IT becomes overwhelmed, they push back. When IT pushes back too much, and becomes too expensive, management sends the jobs to a lower-cost alternative.

To fulfill the multichannel reality that vendors, consultants and research organizations propose, we must integrate technology individuals into our business processes. We see the necessity to integrate technology into our processes, but we fail to integrate technology individuals into our processes.

Over the next decade, expect to see better integration between business leaders and information technology leaders. When people communicate better, our systems will begin to integrate and communicate better with each other.

Multichannel Retailing Week: Web Analytics

A Vice President attends between one and two thousand meetings a year. Maybe a quarter of those are higher-level meetings, with multiple VPs discussing business issues.

Frequently, a VP will bring a technician or business intelligence analyst to a meeting, to help support an important point.

During the past twelve years in multichannel retail, I can count on one hand the number of meetings I've been in where a Web Analytics guru was one of the chosen technicians to demonstrate key customer insights.

This is not a harbinger of things to come, or a criticism of the folks who do web analytics. It is a failure of multichannel retailers to appreciate or understand what web analytics can do to help the business improve.

Could you imagine if an analyst walked into a meeting at Bloomingdales, and told a team of merchants this fact: 67% of store customers walked past a coat after looking at it, 33% stopped by to pick it up. Of the 33% who picked up the coat, 25% took the coat to the dressing room. Of the 25% who took the coat to the dressing room, 38% bought the item. In total, for every 100 customers who walked past the coat, three purchased the item.

Retail merchants would salivate if they knew that type of information, by item.

And yet, every multichannel retailer has individuals who do this type of measurement on a daily basis for the websites they support.

In our multichannel businesses, we still have disconnects between catalog employees and online employees. There are bigger disconnects between online employees and retail employees. The language barriers are enormous.

Web analytics practitioners suffer from two language barriers. First is the technical to practical language translation that must happen for business folks to act upon what a technician describes. Second is a direct-channel to retail-channel language translation that must happen for retail folks to act upon what has been learned in a direct-channel.

Web Analytics is a wonderful field that has enormous potential to improve multichannel retailing. This potential will be harnessed when multichannel retailers hire "translators" to convert language from technical to business-oriented, from direct-channel to retail-channel. When this happens within the right culture, eyes will open, and web analytics will become tightly integrated with all business systems and analytical teams.

July 17, 2007

Multichannel Retailing Week: Merchandising And Creative

I chose to align merchandise and creative together in this post, for good reason.

Say you want to purchase a dress. There are a veritable plethora of multichannel 'brands' that will sell you a dress, similarly styled, similarly priced. A quick Google search for "women's dresses" yielded dozens of paid search results including Become.com, AmericanApparel.net, Avenue.com, BostonProper.com, AnnTaylor.com, OneStopPlus.com, JessicaLondon.com, ArdenB.com, and Bloomingdales.com in the top ten. Natural search results included Macys.com, JCPenney.com, Chadwicks.com, Amazon.com, and SierraTradingPost.com. Toss in two or three dozen retailers not making the front page of Google, and it becomes obvious that dresses are a commodity item.

Given all of this competition, the multichannel merchant has a challenge. The merchant must know nine to twelve months ahead of time what is 'going to sell' in the future. Some businesses partner with great brands to acquire great dress styles. Other businesses design their own merchandise. Either way, the merchant has to have a keen instinct to know that a dress is going to be 'cute'.

Merchants who take bold risks that pay off are considered geniuses. Merchants who take bold risks that fail are fired. Very few employees in multichannel retail have the kind of pressure that a merchant faces.

When many businesses sell very similar or identical items, there are very few things that set the multichannel merchant apart from others. Companies try to differentiate themselves in unique ways. Nordstrom, for instance, focuses on trendy brands sold with great customer service.

Creative presentation can be an important differentiator. Lands' End combines great quality with great copy and virtual model technology. Coldwater Creek presents merchandise online and in catalogs without models. Eddie Bauer aids your purchase process by illustrating which of three possible fits --- shaped, classic or easy --- a dress falls into. J. Crew uses copy to differentiate themselves, saying "every dress has a story", shirtdress, halter, strapless, tank or knit. Click on any of those links, and a story is told to the customer. Chadwicks and Jessica London use a fashion glossary to explain key terms. Ann Taylor allows the shopper to e-mail an item to a friend from the item page, or locate the item in a store. Monterey Bay Clothing Company leverages a clean presentation and a large item image.

One of the bigger frustrations I've heard from merchants is the creative presentation of merchandise in the online environment. It is comparatively easy to present merchandise in retail. It is a time-honored art form to creatively present merchandise in a catalog environment --- merchants can instantly look at a spread, and determine with some confidence if the spread and copy will work or not.

But in a template-based online environment, the vast majority of creative presentation is compromised, creating a similar and somewhat generic feel across different online brands. The differences I outlined above may mean very little to a customer.

Cataloging and retailing give the human being creatively presenting the merchandise all of the power. Online retailing results in a "cookie cutter" approach --- most items have to be presented in a similar manner, so that the website can operate efficiently. In other words, in the online environment, the information technology expert plays as big a role in the selling process as do the creative team.

Take Costco, for instance. In a retail environment, Costco's visual merchandisers create the feeling that you are walking through a huge warehouse. In a catalog environment, Costco uses imagery and stories, page after page, to attempt to replicate that feeling. Online, what tools does Costco have to create the huge warehouse feeling?

This is a source of frustration for both merchants and creative staff.

Over the next decade, the multichannel merchants who give online creative presentation power to the creative staff and merchants through innovative technology will have a competitive edge over those merchants who rely heavily upon the information technology staff for creative presentation. Combine an empowering creative environment with great merchants who design or source excellent merchandise, and you end up with a thriving multichannel merchandising experience.

July 16, 2007

Multichannel Retailing Week: Social Media

Since starting my own business, about one in three business leaders have asked my advice about what an appropriate "social media" strategy could be for the multichannel retail brand they support.

This tells you there is something to this 'social media' stuff. Or at least there is a 'buzz' in the air, or 'was' a buzz in the air.

One thing we have learned in multichannel retailing is to not listen to the social media punditocracy. They tell you what to do --- they blast you when you try things they don't agree with, they laud executive bloggers who eventually are discovered to have been participating in potentially illegal activities (i.e. Whole Foods). It is hard to please these individuals, individuals who on occasion haven't had the privilege of accountability for driving sales and profit at multichannel organizations.

You can please your customers, however. This is where your interpretation of social media can play a role.

In my final year at Nordstrom, we assigned one of our managers the task of thoroughly understanding how Nordstrom customers interacted with social media. Our Public Relations team, in my opinion one of the best teams in all of multichannel retailing, also monitored the blogosphere for customer commentary about Nordstrom. Our talented online marketing team, PR, and a Database Marketing social media expert combined skills to understand how customers were networking with each other, communicating aspects of brand preference with each other.

Many larger multichannel retailers monitor what is being said about them. Many smaller multichannel retailers actually participate in some way, with blogging representing a tangible communication outlet.

In the old days (i.e. before 2005), we read reports that documented customer complaints at our call center. When things really got challenging, we recruited customers for a survey or focus group to learn what our loyal advocates were thinking.

Today, our customers happily leave a digital paper trail all over the internet. We can easily follow the trail of bread crumbs. Really good Database Marketers are busy organizing these bread crumbs into actionable pieces of information that are stored in the customer data warehouse.

I've observed a handful of multichannel retailers who do this. The insights are interesting. In some cases, visitors with a social media referring URL have lower than average conversion rates. If the objective of social media is to facilitate a conversation, there's no problem with this. If the objective is to monetize social media, this doesn't bode well for this emerging form of media.

In my opinion, we'll see multichannel retailers harness the power of social media over the next decade. How we do this will likely be very different than the tools and techniques the social media punditocracy recommend we implement today, and that's no fault of the social media punditocracy --- technology and consumer sociology are simply moving too fast for us to anticipate or predict. We will find authentic ways to engage our most loyal customers. Our loyal customers will spread the message that television and radio commercials spread for the past sixty years.

If I were in charge of the social media strategy at a multichannel retailer, I'd start first with an internal blog, one for employees to share ideas and communicate with each other. This will provide a fertile laboratory that will pay dividends later when a strategy is crafted for customers. In year two, I would have a blog that I invite only my most loyal customers to participate in --- the blog would allow the most loyal customers to communicate directly with management. During these two years, I'd watch how the landscape changes, and begin experimenting with marketing strategies that partner with consumers in year three.

Of course, these are just my ideas, my opinions. We'll see multichannel retailers try lots of unusual strategies over the next five to ten years. Eventually, a set of 'best practices' will emerge from this 'Wild West of Social Media', just like paid and natural search emerged from the embryonic online marketing wilderness of the late 1990s.

Your turn --- how do you see multichannel retailers interacting with social media over the next decade? What interesting trends are you observing today?

Multichannel Retailing Week: Human Resources

We're at a very important crossroads in multichannel retailing, one that is well suited for the talents of your beloved Human Resources staff member.

There are at least four important issues that I've experienced, issues requiring leadership from the Human Resources teams I've worked with.

The first issue is talent, or more specifically, a lack of talent. This doesn't mean the folks working at multichannel retailers lack talent. Instead, the demographics of America are conspiring against multichannel retailers.

Through the 1980s and 1990s talent was plentiful. Baby Boomers were generally between the ages of 35 and 55, filling the lion's share of management positions at growing multichannel retailers. This was a wonderful situation for Baby Boomers, but a frustrating situation for my generation, dubiously labeled 'Generation X'. Career opportunities have been far less plentiful for Gen-X individuals, trapped by Baby Boomers who are firmly entrenched in their career trajectory.

As a result, Gen-Xers have taken different paths to achieve career objectives, becoming the most entrepreneurial generation in history, according to a recent article in the Harvard Business Review.

The smaller number of Gen-X individuals (compared with the Baby Boomer generation), coupled with alternate career paths crafted by Gen-Xers have created a talent shortage at the Sr. Analyst, Manager and Director level. Adding to the talent challenge is the fact that Gen-Xers who are working at multichannel retailers are heavily focused on online and e-mail marketing disciplines, and are less focused on traditional jobs.

Human Resource individuals have the opportunity to re-invent the multichannel professional workplace. Via telecommuting and work-life balance, HR staffers can add to the talent pool of the multichannel retailer in non-traditional ways.

A second issue I've observed surrounds compensation. With Baby Boomers firmly entrenched in management positions, Gen-Xers and Gen-Yers are largely trapped in entry level and middle management positions. Multichannel retailers have largely put the clamps on compensation over the past decade, allowing marginal salary increases that barely keep pace with inflation. I've watched this practice cripple talented teams across many companies. Our HR team members have a huge opportunity to craft compensation packages (bonuses, stock options, additional paid time off) that reward entry level and middle management professionals for outstanding performance without significantly increasing base pay.

A third issue involves professional tension surrounding the "marketing digital divide". Take your marketing employee working in the advertising department, supporting newspaper advertising. This individual can do outstanding work. How do you prove the work drove an increase in sales? Now take a marketing employee working in the paid search department. This individual can do average work. Yet, there are a veritable plethora of metrics that prove there was an increase in sales. This individual may be viewed more favorably by management. Our Human Resource partners can help create career paths that reward outstanding employees, regardless which side of the marketing digital divide they work on. In addition, our HR teams can provide 'cross-training' opportunities, to get employees over the marketing digital divide.

The fourth issue I've observed holds back multichannel retailers. This issue combines "under-staffing" with "metrics obsession".

I spoke with a marketing director today who told me he has never worked harder in his entire twenty year career than he has worked in the past two years --- and his hard work has largely gone unrecognized by Sr. Management.

A combination of lean staffing and too many unimportant real-time metrics have created a level of 'busy work' that is unprecedented in multichannel retailing. We can measure changes in paid search conversion on a minute-by-minute basis, causing so much more tension than existed fifteen years ago when we measured marketing effectiveness once a week, or once every twelve weeks! This 'busy work' causes all staff members to focus on unimportant issues. We fail to focus on strategy, because we have to understand the reasons why the Monday e-mail campaign performed 3.8% below expectations (though we don't have the tools to measure if it drove a 3.8% increase at retail). HR staffers can partner with business leaders to address time management skills, helping employees focus on 'big picture' challenges instead of short-term metric-based crises that are not relevant to the overall momentum of the business.

As I mentioned at the start of this article, these times are well suited for the talents of the Human Resources leader.

Your turn --- what challenges are you observing in your multichannel organization that are well suited for the talents of the HR leader?

Multichannel Retailing Week: The CFO

As we complete the transition from catalog and retail to "multichannel retail", we find we don't have the technology solution or marketing strategy necessary to meet the needs of our customers.

This is where the multichannel CFO comes into play.

The multichannel CFO determines the investment strategy for the business. The CFO has a set budget, one largely determined by the growth trajectory of the business. As sales increase, investment can increase (though hopefully at a slower rate than sales, yielding more profit).

In the early days of the internet, some incremental sales were being added to the business. Coupled with competitive pressures, multichannel CFOs invested tremendous amounts of capital building and improving e-commerce enabled websites.

However, in our post-Google multichannel environment, things have changed. Direct-to-consumer sales are growing at subtle rates. This introduces risk in the investment portfolio of the multichannel CFO.

Take the traditional catalog CFO. This individual likes to look at the 'ad-to-sales' ratio on the profit and loss statement. If you sum catalog advertising and online advertising, and calculate the ad-to-sales ratio, you will likely see an increase in this ratio over the past five years. This means that the introduction of e-commerce has not grown sales at a sufficient rate to offset the increased advertising expense necessary to support multiple channels.

The traditional catalog CFO, armed with the information, is likely to challenge the CMO or Database Marketing executive to "mail smarter", and better leverage online marketing strategies, shifting dollars out of catalog and into paid/natural search, affiliates, portal advertising and e-mail.

Until ad-to-sales ratios improve, it will be difficult to convince traditional catalog CFOs to invest in multichannel solutions.

The traditional retail CFO has a different set of concerns. To please shareholders, the CFO must grow comp store sales, and must increase the number of new stores in new markets.

Ultimately, the traditional retail CFO has to decide whether it is a better to invest in multichannel technology improvement, multichannel advertising increases, new stores, remodeled stores, and all other internal investment needs necessary to run the business.

This is where we really fail the traditional retail CFO.

The traditional retail CFO has several "knowns":
  • If the CFO invests in a new 6,000 square foot store, the business will probably get $2,000,000 of net sales per year. It might cost $1.7 million dollars to build the new store.
  • If the CFO invests in remodeling a 6,000 square foot store, the business will probably get an additional $400,000 of net sales per year. Maybe it costs $0.7 million dollars to remodel a store.
  • If the CFO invests in catalog or online advertising, there is a known incremental rate of return for the increased investment.
For multichannel investments, the CFO has a great big "unknown".
  • Say the multichannel CFO invests $1.7 million in inventory systems and point-of-sale systems to facilitate "buy online, pickup in stores".
  • What are the incremental sales that will be generated by this strategy? Will the incremental sales be more than what is observed in a store remodel? Will the incremental sales be more than what is observed when a new store is built?
The CFO depends upon the multichannel advocate (the CMO or the Database Marketing executive or the catalog/online executive) to "prove" that a multichannel investment will generate a better ROI than a new store or remodeled store.

So, the multichannel advocate uses research reports, anecdotal information, 'our competitors are doing it so we have to do it', 'our customers demand it', and the time-honored "multichannel customers are 'x' times more valuable than single channel customer" metric to "sell" the multichannel strategy.

CFOs don't like flimsy comments like these. CFOs want to know, with certainty, that multichannel investment yields a competitive ROI that exceeds the internal cost of capital.

It is my opinion that this relationship, as described above, limits the pace at which multichannel organizations implement true multichannel solutions.

This would be a great place for a vendor, research organization, or consulting firm to provide actual facts that help the CFO. The CFO is going to look at Circuit City, the poster child for 'buy online and pickup in stores', and say 'Gee, that strategy hasn't helped them financially, why should I make the same mistake?' The vendor, research organization, or consulting firm is going to have to provide actual facts, positive and negative, if they want the CFO to advance shared objectives.

The Database Marketing team has to view the business differently, illustrating the long-term impact on the customer file. The potential long-term impact on the customer file is what fuels the investment in multichannel strategies.

Over the next decade, your multichannel CFO is going to become even more critical of the ad-to-sales ratio, and will demand that total net sales increase at a fast rate. If total net sales do not increase at above-average rates, it is unlikely we'll see CFOs supporting multichannel initiatives at the level we'd all like to see happen.

Your turn: Does your multichannel CFO have the right information necessary to make multichannel investment decisions? What information does your multichannel CFO need to improve multichannel systems and strategies?