October 31, 2007

Catalogers And Co-Ops: A Question

A question for my catalog readers.

Would you like for your co-op vendor (i.e. Abacus or Z24 or others) to do a multichannel forensics analysis, one that tells you the companies your customers are in transfer mode with (i.e. the companies your customers are leaving you to shop at), one that tells you which companies transfer customers to you?

And if you knew that information, would it be actionable?

Many of you already pay companies for panel data that provide you with similar information. Your co-op has a much better sample of information than organizations that use panel data.

Your thoughts?

October 30, 2007

Database Marketing Consultant

Many of you contact yours truly (Kevin Hillstrom), your humble database marketing consultant, asking for a cheat-sheet that outlines the most popular projects clients ask me to work on. Here is a list of the four projects I am most commonly asked to complete for clients.


Most Popular = Multichannel Forensics Project
  • Explain how customers interact with advertising, products, brands or channels.
  • Illustrate the long-term impact of a catalog marketing program on online and retail sales.
  • Describe how product classifications interact with each other in an e-commerce environment.
  • Outline the ways that online advertising channels interact with each other to grow customer value.
  • Develop a segmentation strategy or mathematical algorithm that forecasts customer segments unlikely to respond to print advertising.
  • A typical project takes thirty days, and often includes a one day on-site to present results and discuss additional analytical requirements.

Second-Most Popular = Catalog Marketing Strategy Evaluation
  • Evaluate contact strategy.
  • Illustrate interaction between catalog marketing and sales in other channels.
  • Develop a contact strategy that maximizes ROI, while growing the customer file.
  • Suggest what might happen if a catalog strategy is discontinued.

Third-Most Popular = Hillstrom's Zip Code Forensics
  • Incorporate your data into the overall algorithm.
  • Provide descriptions of direct marketing responsiveness by zip code.
  • Provide you with a zip code model personalized to your data.

Fourth-Most Popular = Database Marketing Audit
  • A two-day on-site project.
  • A full audit of catalog marketing and e-mail marketing strategies.
  • Grades (A,B,C,D,F ... C = Average) are given for the following combinations:
    • Customer Retention, Customer Acquisition, Data Mining/Analytics and E-Mail/Online Strategy.
    • People, Techniques, Tools.
  • An outline is created for improvement in the areas outlined above, coupled with the expected financial impact of recommended strategies.

Fifth-Most Popular = E-Mail Targeting Algorithm
  • Use past customer purchase behavior, past clickstream behavior, and past user preference information.
  • Develop a scoring algorithm to assign customers to multiple versions of an e-mail campaign.
  • Anticipate a 20% to 25% increase in sales/e-mail for customers eligible for multiple versions of an e-mail campaign.

How Online Advertising Channels Fit Together

Please click on the image to enlarge it.

E-commerce provides us with the richest array of information ever available to direct marketers. Let's use the Multichannel Forensics framework to explore the interaction between advertising and customer purchases on your website.

Here's what you do.

Step 1: Create a "spreadsheet", if you will, with each row representing a customer who purchased in 2005. Each column in your spreadsheet is populated with a series of "1s" or "0s". Each column represents a form of advertising. A one is populated if the customer purchased in 2005 using that form of advertising. A zero is populated if the customer did not purchase in 2005 via that form of advertising.

A list of potential "advertising" channels include:
  • Brand Buyers: Customers who purchased, and we cannot identify any advertising campaign that caused the customer to purchase. This is the most important "channel" ... we want our customers to purchase from us because they "love" us, not because we advertise to them.
  • Catalog: Customers who use a catalog source code, or are identified as having purchased via catalog from a matchback analysis.
  • E-Mail: Customers who clicked through an e-mail and purchased merchandise.
  • Social Media: Customers who purchased and had a referring URL from a blog or social media site like MySpace or Facebook. Some companies comprise a list of the top 5,000 referring URLs, then visit each URL, and identify if the URL is a blog/social-media site. In addition, these companies look for URLs with phrases like "Blogspot" or "Typepad" in the URL, to identify that the referring URL is a blog.
  • Portals: Customers who purchased and had a referring URL from an advertisement on a portal like MSN or Yahoo!.
  • Paid Search: Customers who purchased and had a referring URL from a paid search ad.
  • Natural Search: Customers who purchased and had a referring URL from a search engine, a URL that isn't from a paid search campaign.
  • Affiliates: Customers who purchased via an established affiliate.
  • Shopping Comparison: Customers who purchased via a shopping comparison site like MySimon.
Step 2: Repeat Step 1, but this time, create the file for calendar year 2006.

Step 3: Match the files together for Step 1 and Step 2.

Step 4: Conduct a Multichannel Forensics analysis.

Step 5: Create the map at the start of this post. Any channels that are in "Equilibrium" or "Transfer" are linked together on the map.

The analysis illustrates how your advertising channels work together.

In this example, there are numerous findings.
  • New online customers are recruited through paid search, catalog marketing, and "brand buyers", customers who purchase without having used advertising.
  • Shopping Comparison and Affiliate customers appear to be largely "cut off" from the ecosystem. In other words, these customers do not eventually become customers who purchase "on their own", or via other advertising channels. One would evaluate the LTV of these customers, to understand if these marketing activities are worthwhile.
  • Social Media sites and Portals are leveraged by "brand buyers". In other words, best customers utilize these sites to make purchases.
  • Paid Search and Natural Search become "links" that ultimately facilitate the transition from new customer to a loyal customer. The data in this example suggest that these customers can eventually become "brand buyers", customers who don't need advertising to purchase.
  • Catalog Marketing is an important way to acquire new customers. The data also suggest that catalog customers use search to complement future purchase activities.
  • E-Mail is a "dependent channel" in this example. E-Mail marketing might be effective, but it appears it depends upon other marketing activities (search, catalog) to "acquire" the e-mail address that will be used for e-mail marketing purposes. In this example, the link between "brand buyers" and e-mail is one way. Brand buyers offer an e-mail address, and then respond to e-mail. E-Mail customers are less likely to become "brand buyers", in this example.
Now that the advertising ecosystem has been fully mapped, you sit down with your marketing folks, and consider appropriate linkages between marketing programs.

It is also important to understand which advertising channels drive a customer toward loyalty. Notice that catalog, search and e-mail marketing are all interconnected, whereas affiliate and shopping comparison marketing activities deliver a fundamentally "different" customer to the brand (in this example ... your mileage may vary).

October 29, 2007

E-Mail, Paid Search, Portal Advertising, Channels

How do you evaluate and segment customers who respond to e-mail marketing, paid search, natural search, portal advertising, shopping comparison sites, affiliates, and any other advertising channel?

Are these customers fundamentally "different" than other customers?

Do you treat these customers differently across various marketing strategies?

Most important, how do you evaluate the interactions that occur when customers respond to different advertising channels? For instance, should your e-mail marketing strategy be different for customers who respond to both search and e-mail, vs. customers who only respond to e-mail?

Hologram Marketing and Multichannel Marketing in 2015

A loyal reader sent us this article about Target using Hologram Marketing.

Fast forward to 2015, when we'll read an article that goes something like this:


NEW RESEARCH INDICATES THAT E-COMMERCE AND HOLOGRAM MARKETING WORK TOGETHER TO FACILITATE THE OPTIMAL CUSTOMER MULTICHANNEL EXPERIENCE

October 29, 2015: A new study, commissioned by Google, Yahoo!, Shop.org, Marketing Sherpa, Forrester Research, E-Tailer and Internet Retailer indicates that "multichannel customers", customers who shop via e-mail marketing, paid search marketing, website research, social media, e-commerce and hologram marketing, are five times more valuable than customers shopping via just the hologram marketing channel.

"These results validate what we've been preaching to clients since the early days of hologram marketing ... you simply cannot dive headfirst into hologram marketing without realizing that the customer demands a multichannel experience." stated Leonard Thigginsworth, President of Shop.org, the venerable e-commerce advocacy firm. "Firms that fail to tightly integrate the world of e-commerce with the benefits of hologram marketing are unlikely to thrive in this hyper competitive marketplace. Furthermore, the suggestion that today's experienced online marketers will soon be standing in soup lines is simply premature. Online marketing skills are essential in this highly complicated age of hologram marketing." concluded Thigginsworth.

The study indicated that 61% of customers were "very likely", "likely", or "somewhat likely" to use old fashioned tools like Google and Yahoo! to search for products and services. These customers indicated that they spent 5.3 times as much money on hologram marketing as did customers who abandoned e-commerce in favor of hologram marketing technology from "Holo", the San Jose based brand that utterly disrupted e-commerce in 2013 with innovative "personal holograms" that manage everyday consumer tasks via simple voice commands.

39% of survey respondents said that they were "very likely", "likely", or "somewhat likely" to use promotional e-mail campaigns to facilitate searches on Google or Yahoo!, searches that resulted in customers researching products and services on old-fashioned e-commerce websites, before ultimately giving purchase instructions to their personal hologram.

Darren Manning, President of Internet Retailer, believes these results validate the need for a holistic multichannel customer shopping experience. "We all know that late at night, shoppers wearing pajamas, sitting in front of the fireplace, love to hold their notebook computers on their lap, reading promotional e-mail campaigns and researching products and services in the friendly, safe and encrypted blanket known as e-commerce. This behavior simply isn't going to change because a startup company creates a personal hologram who does menial tasks and chores for you." stated Mr. Manning.

"In addition, do you trust handing over your credit card number or thumbprint to a hologram? I don't! I trust the encrypted environment offered by e-commerce." added Mr. Manning.

The study is good news for Google, a beleaguered old-school brand who lost a third of their search market share to Holo during the past thirty six months, resulting in an 80% drop in share price.

The study is also good news for online advocacy organization Shop.org, which is struggling to stay in business in this ultra-competitive marketplace. "We strongly believe that multichannel marketing is best experienced when customers use a combination of e-mail marketing, paid search, and e-commerce websites to research products and services. Traditional e-commerce-based research drives purchases via tools such as Holo. Research indicates that up to 80% of purchases via Holo are driven by e-mail marketing, paid search marketing, and e-commerce websites. Multichannel marketing, e-mail marketing, and paid search are here to stay. Take away e-commerce, and you take away the e-commerce potential of Holo" stated Ben Morrison, President of Shop.org.

Still, there are fundamental changes in customer behavior being exhibited by "Generation Z", 13-25 year olds who are children of the non-descript "Generation X" cohort of consumers. A recent study commissioned by Holo indicated that only 7% of these consumers subscribe to e-mail marketing programs, or use paid search.

"We believe that when Generation Z become full-fledged members of the "participation economy", (a phrase jointly coined by President Jeb Bush and Speaker of the House Michael Moore), they will appreciate and fully utilize the myriad of benefits offered by a multichannel marketing experience that tightly integrates e-mail marketing, paid search, social media, e-commerce and hologram marketing." stated recently appointed Marketing Sherpa President Sarah Rogers.

October 28, 2007

Free Three Channel Multichannel Forensics Spreadsheet

The good folks in the UK asked for a free three-channel Multichannel Forensics spreadsheet (i.e. Stores, Website, Catalog).

You may download a copy here.

We start using decent amounts of lighter fluid with this spreadsheet. There is a tab that offers instructions on how to use the simulation. You'll want to partner closely with somebody on your database marketing or information technology staff to obtain the right programming code to get proper results.

Best Practices

I rarely link to other blog articles anymore. Today, I'll link to this one, for a couple of reasons.
  • Comment: "Blogs have lost their humanity".
  • Comment: "We're bored".
Last week, I sat in on a session about online marketing and e-mail marketing. The presenter, in no uncertain terms, bullied the audience into a version of "how" things must be done. The e-mail marketer MUST have fewer than "x" links. The website MUST feature at least "y" key elements.

The audience diligently wrote notes. And I have no idea why they kept writing notes, because the presenter kept telling them how awful they were. At some point, I'd have told the presenter to leave the room!

We frequently call the concepts shared at conferences "best practices".

In my opinion, "best practices" are sucking the life out of everything we do.

Our websites and e-mail campaigns look similar --- we wonder why only one in five hundred customers buy something from an e-mail campaign --- we wonder why three in a hundred customers buy from a website --- we wonder why retailing in America is contained in a handful of "big boxes", all looking the same?

The article causes one to think about how the craft of blogging is being ruined. It, like so many other things, is being smothered by best practices.

I've quit trying to blog via best practices. I stopped doing so this summer. No more link building. No more leaving comments on other blogs. No more participating in other "communities". No more reciprocal linking. Almost no more linking to other articles. Here are the results:
  • My Technorati authority decreased by 30%.
  • My Technorati rank decreased from the 30,000th best blog to 55,000th best blog.
  • My Alexa traffic rank fell from 250,000th most visited site in the world to the 400,000th most visited site in the world.
So, am I a big failure because I stopped blogging via best practices? You tell me:
  • RSS and E-Mail subscribers, since I stopped doing "best practices", increased by 120%.
  • 0% of my consulting business came from blogging while doing best practices.
  • 60% of my consulting business comes from blogging, after shelving "best practices".
In other words, all the metrics associated with best practices declined after I stopped doing all the work associated with best practices.

Except for the most important metrics.


Enough with best practices!!

Householding

Over the past decade, householding logic changed from a set of geeky algorithms to a core competency that multichannel catalogers need to have.

Today, I received a direct mail offer that I shouldn't have received. I have two accounts with this company, one at one address, one at another. The two addresses have the same billing address, and use the same credit card number.

In other words, the direct marketer should have known that I already subscribe to the product they were offering.

There are many elements of householding that need to happen in a multichannel catalog business.
  • Multiple computer cookies linked to one identifier. Customers use multiple computers --- where possible, the cookies should be linked to one unique identifier. Your web analytics team should analyze data by individual cookie, and by a unique web usage identifier.
  • Multiple e-mail addresses linked to an individual customer. The data should allow "many-to-many" relationships --- so that kevinh@minethatdata.com can be linked to myself, and be linked to my wife. In addition, Kevin Hillstrom should be linked to kevinh@minethatdata.com and kevinh@zzzzzz.com.
  • E-mail addresses and web usage identifier linked to customer (i.e. Kevin Hillstrom).
  • Customers linked to households (Kevin Hillstrom and Wife linked to our home address).
  • Households linked by credit card numbers, mail-to/bill-to/ship-to addresses, and phone numbers.
From a marketing standpoint, you're free to execute campaigns using any degree of granular data you measure as being effective.

From a "running the business" standpoint, having data linked together properly is an essential competency. I'd rather have my data householded properly than have a glowing multichannel marketing strategy.

October 25, 2007

Nine Ways Catalogs Interact With Websites

Please click on the image to enlarge it.

Spending two days at a multichannel marketing conference helps crystallize one's image of where our industry is heading.

My biggest revelation from 12,000 miles of travel and two days of multichannel discussions is that we have not given business leaders the tools necessary to identify the roles channels/advertising play in what used to be the Catalog industry.

So here are nine ways that catalogs interact with websites. For each classification, think about how different the marketing strategies need to be to yield satisfactory business results. Which of these nine situations is your business classified in?


Dissimilar Customer Audience: When catalog is in isolation, and the online channel is in isolation, you have two completely different customer audiences purchasing from each channel. You have a multichannel business, one that your customers don't use in an integrated manner.

Tries Online, Prefers Catalog: Infrequently, catalog is in isolation while the online channel is in equilibrium. This used to happen in the late 1990s, when catalog customers tried to purchase online, only to find the purchase experience preferable via the telephone. Today, businesses with a target customer between the ages of 65-85 might be in this situation.

Online Channel Is Not Appealing: When customers shop online, then transfer their sales back to catalog (catalog = isolation, online = transfer), you know that the customer does not find the online experience appealing. This usually represents a good time for a site redesign.

Classic Channel Shift: The most common catalog scenario occurs when catalog is in equilibrium and online is in isolation. This means the catalog is driving sales online, and when the catalog succeeds at doing this, the customer tends to stop using the telephone to place future orders. Long-term, this spells trouble for the catalog as a purchase channel, and is a harbinger of significant change for the catalog as an advertising vehicle.

Outside of the catalog industry, think about other business models that are going through this transition (old channel = equilibrium, new channel = isolation):
  • CDs to MP3s
  • Newspapers to Online News
  • Gasoline-fueled Cars to Hybrid/Electric Cars.
  • CRT Computer Screens to LCD Computer Screens.
  • Desktop Computers to Laptop Computers.
Classic Multichannel Business: Multichannel pundits suggest that many catalogers exist in this situation (catalog = equilibrium, online = equilibrium). In other words, in this situation, customers freely pick and choose the channel they wish to purchase in. Products and solutions from the vendor community are frequently created to solve the challenges faced by companies in this situation. Unfortunately, few catalogers are in this situation.

Over-Marketing: Catalogers that offer a myriad of promotions to get customers to purchase online occasionally find themselves in this situation (catalog = equilibrium, online = transfer). The customer shops online only when prices are cheap or promotions make the online channel temporarily irresistible!

Catalog = Brand Advertising: When catalog is in transfer mode, and the online channel is in isolation mode, the catalog marketer is gearing up for a big change. Telephone shoppers are leaving in a mass exodus for the online channel. Once online, the customer won't shop via telephone again. Long-term, the catalog strategy is likely to change for a company in this situation. The catalog will likely evolve into a potentially useful brand advertising vehicle that communicates the broad assortment of merchandise available online.

Catalog = Sales Driver: When catalog is in transfer mode, and the online channel is in equilibrium mode, it is likely that the catalog is a very effective selling vehicle. The customer does not perceive differences between the channels, willing shopping via telephone or website. Better yet, the catalog is causing online orders. Long-term, this business model has a good chance of having a viable catalog advertising vehicle.

Ideal Multichannel Business: I have yet to see a catalog business operate in this mode (catalog = transfer, online = transfer, yielding true oscillation between channels). This would truly represent multichannel nirvana!

Mailbag

This is a popular question here at The MineThatData Blog, one that I've been asked several times over the past two days: "Can I, as a marketer, make customers do what I want them to do?".

My first response is to turn the question around. Name a marketer that is able to make you do things you wouldn't ordinarily do?

If you cannot name two or three marketers off the top of your head who make you do things you wouldn't ordinarily do, the answer for you is "no".

One of the great challenges of this "age of data" is that one can correlate nearly any activity with any metric. This gives the marketer the illusion of control.

Earlier today, I attended a session hosted by the folks at Abacus. One presenter shared the reasons why catalogs are a necessary marketing tool. The other presenter essentially shared the reasons why catalogs are at best a marginal, complimentary marketing tool.

The pro-catalog presenter put up a slide with a half-dozen metrics ... things like "61% of online purchasers like to thumb through a catalog before placing an online order".

Metrics like this one give the illusion that there is cause and effect. Metrics like this one suggest that the marketer is in control.

A cataloger would never increase sales without placing catalogs in the mailbox of prospects who have never purchased from a catalog. Online brands would never grow without placing ads in prominent places on Google.

In essence, marketers influence customer behavior. In my opinion, the ones that "influence" have a better chance of succeeding ... the ones that "control" have less chance of succeeding.

October 24, 2007

Blogging From ECMOD London

It's amazing how things change in a short period of time. When I left the States eleven days ago, people played football in the stadium in San Diego. Now I watch the news here in London, and see a catastrophe happening in Southern California.

Back at ECMOD, I want to thank the folks who made it through my 3+ hour session on Multichannel Forensics this morning. Great questions, great audience interaction. When I return home, I will forward attendees the presentation, and simulation spreadsheets.

It is really neat when an attendee asks if 9 brands by 3 channels make for a good Multichannel Forensics application. One tingles with excitement at the thought!

You know the catalog world is changing when you see a vendor booth titled "Social Commerce Solutions".

I've fielded nearly as many questions about the United States exit strategy from and reasons for being in Iraq as I've fielded about Multichannel Forensics.

My wife and I saw a movie on Monday night ... ten pounds per person (with more than two dollars equaling just one pound) literally defines the concept of "sticker shock"!

October 23, 2007

Hawking Shopping Cart Abandonment

Yesterday, I witnessed an interaction between a relative newbie to the direct marketing industry, and a vendor.

The discussion was about "Shopping Cart Abandonment". The newbie wanted to know if 'x' percent was a good abandonment rate.

The vendor did a reasonably good job of being unbiased, then offered solutions like promotional e-mails offering a discount or free shipping for merchandise abandoned in the cart within the past seven days.

At the end of the discussion, business cards were exchanged, and if the vendor is lucky, a relationship will be proffered.

Here's a metric that may be more appropriate than the one that measures shopping cart abandonment:

Multichannel Volume Per Monthly Unique Visitor = (Catalog Demand + Online Demand + Retail Net Sales) / (Monthly Unique Visitors).

The numerator sums total monthly volume across channels for each unique website visitor during a thirty day period of time.

By using this metric, we avoid some of the pitfalls that cause us to mistakenly hire vendors hawking shopping cart abandonment solutions.

For instance, take the classic multichannel situation where a customer visits the website, puts two items in the shopping cart, then purchases merchandise in the store three days later.

In this situation, your business enjoys a true "conversion".

Web pundits will tell you that you have a "problem".

Give this multichannel metric a try, and compare like months, year-over-year, to see if your website is being used as an effective multichannel marketing vehicle.

Using E-Mail For Sale And Clearance

When business misses expectations, catalogers have long enjoyed printing additional "clearance" catalogs ... 48 or 72 or 96 page offerings with significantly marked-down merchandise.



For instance, if business is missing expectations by 15%, a clearance catalog will quickly make up much of the business shortfall.



So here's a question for my loyal e-mail marketers. If you don't have access to print advertising, and your business is missing expectations by 15% (across all of your product lines), how would you use e-mail to make up the kind of volume that a 72 page catalog, with 420 items, typically moves?

October 21, 2007

Harrods

After spending three amazing days in Italy (no better wine or food in the world, FYI), travel to London for the ECMOD conference took me to Harrod's off Brompton.

My recommendation to every e-commerce executive, and in particular, every information technology individual who writes code to support e-commerce --- "VISIT THIS STORE ... NOW".

This store defines the role of the merchant.

This store outlines, in painful detail, EVERYTHING that is wrong with e-commerce. The folks who manage this store know how to create a positive user experience. No attention to detail is spared, from twenty-eight unique dining opportunities to the Egyptian fixtures surrounding the escalators to the merchandising of each individual department. This store represents an outstanding example of the role of the merchant in today's retail climate. This is not the big-box store experience!

October 19, 2007

Give This A Try

Next time you have a few moments to spare, give this exercise a try.

Step 1 = Look at 2005 buyers ... segment them into two groups, one with above-median spend, one with below-median spend.

Step 2 = For each segment, measure the repurchase rate and spend per repurchaser during 2006.

Step 3 = For each segment, measure how many of the repurchasers migrate to above-median spend, and how many migrate to below-median spend, during 2006.

We focus a lot of energy on "loyal" buyers. Take a look at the repurchase rates and migration statistics of above-median and below-median spending customers. You might be surprised to learn just how valuable below-median spending customers are!

October 16, 2007

Healthy Sales, Unhealthy Business

At times, the simplest of Multichannel Forensics work identifies future challenges that are not easy for your management team to identify.

Take this business, as an example:
  • In 2004, 100,000 prior customers had a 50% repurchase rate. If they purchased, they spent $200 per customer. 60,000 new/reactivated customers spent $100 each. Total Business = $16,000,000.
  • In 2005, 110,000 prior customers had a 45% repurchase rate. If they purchased, they spent $220 per customer. 55,000 new/reactivated customers spent $110 each. Total Business = $16,940,000.
  • In 2006, 104,500 prior customers had a 43% repurchase rate. If they purchased, they spent $240 per customer. 54,000 new/reactivated customers spent $120 each. Total Business = $17,264,400.
What do you think will happen in 2007? Let's assume a 43% repurchase rate. Let's assume 53,000 new/reactivated customers, given recent trends. Let's assume spend per customer remains constant at $240 for existing customers, $120 for new customers.

When you do the math on the 98,935 customers who start 2007, you learn that sales will top out at $16,570,000.

Sometimes the seeds of failure are sowed many years earlier.

For this business, 2004 was a stable year.

In 2005, something changed. Notice that repurchase rates significantly declined. Also notice that new customer counts significantly declined. Finally, notice that spend per customer significantly increased. Apparently, price points per item increased (this can be verified), driving some customers away, but increasing sales volume among existing customers, and the new customers who chose to purchase.

Customer behavior changed in this business. Sales results were great. But future problems were predictable, if the business had forecast future sales on the basis of repurchase rates, spend per purchaser, new customers, and spend per new customer.

Few businesses are able to significantly grow sales, year-after-year, by getting customers to "spend more". As some point, loyalty activities tap themselves out. When that happens, repurchase rates and new customer counts take over as the key drivers of business growth.

If you're getting a "free bump" in sales from spend per purchaser, it is a good time to focus on new customer acquisition activities. It is important to protect the future of your business.

October 14, 2007

Weekend Notes

Odds and ends to start another work week with.

Jim Fulton tells us that the Royal Mail strike in the UK was settled yesterday. Per his recommendation, we'll spend a considerable amount of time talking about the impact of mail on a business during my Multichannel Forensics workshop at ECMOD/London next week.

Yes, you read that link correctly. It is a 3.5 hour session on Multichannel Forensics!

If you read technology blogs, then you're probably confused by the content you're reading this year. Since March, blogging died, yielding popularity to Facebook. Now Facebook stinks, and you should focus on Twitter, a glorified instant messaging platform. Maybe it is time to simply focus on what is best for your personal relationships, and in business, focus on what is best for your customer. You might be amazed to learn what happens when you actually speak with people, via a face-to-face in-person interaction!

David Raab tells us that DMNews dumped him as a paid contributor to their publication, ending a fifteen year relationship. I must be one of the most naive businessmen in America ... I freely contributed a dozen articles that they accepted and printed.

Speaking of DMNews, they are hosting an invitation-only morning session at the DMA conference this week, a session where they will introduce the "new" DMNews.

Do you like to hear real-time feedback from folks who attend conferences, or is it annoying? Do you want for me to write about ECMOD next week?

What do you look for when you hire analytics individuals? Here's a sampling of what I look for:
  1. Ability to speak in everyday, plain language to business executives.
  2. Innovation. I'd like for the candidate to have done something that others haven't done --- even if that means the person added a menu item at the restaurant they worked at.
  3. Competence. I like to give a quiz to folks I'm interviewing, to make sure the person actually knows what they are doing. I'll create exercises where the candidate has to write SAS code, or calculate profit per e-mail delivered, or actually create a catalog circulation plan.
  4. Humble. I prefer a confident, humble individual over a pundit who spews industry-speak.
What do you look for in an interview candidate?

October 13, 2007

Why Do Marketers Lie?

My Father recently asked me, "Why do marketers lie?"

Good question.

I purchased ink-jet cartridges today. On the wrapper was this proclamation ... "#1 in reliability, Based on independent testing*"

Any time you see the dreaded '*', you know something is up.

Here's what it said, in very small print, on the side of the package (I changed the name of the company who produced the inkjet cartridge to 'company x').

"Based on average results of brands tested in the 2005 Inkjet Cartridge Reliability Study by QualityLogic, Inc. and commissioned by company x. Testing performed on Cartridge Model #1, Model #2, Model #3, and Model #4. Individual results may vary".

I purchased 'Model #5' and 'Model #6'.

So, the package tells me that the product I was purchasing was ranked #1 in reliability, based on independent testing.

The truth is that my product wasn't tested. Furthermore, the company I purchased the product from paid an independent company to do the test.

Which brings me back to my original question. Why do marketers lie?

October 12, 2007

The Customer Is In Control?

These days, you can't open up Google Reader without hearing somebody tell you that "The Customer Is In Control".

Folks write that our modern internet world changes the relationship between merchant, marketer and consumer. The consumer can read blogs, write blogs, add feedback on merchant sites, interact with CEO bloggers, compare prices, you name it. The customer uses "word-of-mouth" to give a thumbs-up or thumbs-down of your brand.

Some go so far as to suggest that the customer co-design merchandise, or help create marketing campaigns.

For the catalog and online merchant, there is some element of truth in these proclamations.

However, I believe the role of the merchant is more important than ever before.

As an example, let's review elements of this blog.

Technically, we're a community of about 1,000 individuals with a shared interest in the intersection between direct marketing and database marketing.

The merchant (technically, that's me, you're buying my words, books, and services) must have a symbiotic relationship with the customer (technically, that's you).

As a merchant, I have to carefully listen to what you say, how you act. I have to pay attention to what you read, what you purchase.

But I should never "over-listen".

For instance, when I write an article about e-mail marketing, visits to the blog go sky-high. E-mail posts are easily the most popular of the topics I write about.

So if the customer is in control, I should spend a disproportionate amount of time writing about e-mail marketing, right?

Conversely, posts about Multichannel Forensics are among the least popular. If the customer is in control, I should spend less time writing about this topic, right?

And yet, 35% to 40% of my annual revenue will come from individuals who read articles about Multichannel Forensics on my blog, and then elect to have me work on a project for them.

If I let "my customers" have control, I would never have written a book on Multichannel Forensics, because my customers would never have asked me to write a book on a topic so different from mainstream database and multichannel marketing.

The role of the merchant in an e-commerce or catalog business has never been more important than it is today. The best merchants listen to their customers, even let the customers have a voice.

But at the end of the day, the merchant must make decisions about what to sell, how to price it, and how to present it. The merchant must innovate, listen, and give a steady diet of "what has always worked" ... all at the same time.

As we evolve further and further away from true merchandising, tying our future to the mechanical implementation of web-based algorithms, we need to remember to be more "artistic", more "creative". We need to listen to customers ... while we simultaneously innovate. The customer isn't truly in control. The customer does have a say, however, in a symbiotic relationship between brand and customer.

October 11, 2007

Customer Loyalty vs. Customer Acquisition

Imagine you are running a direct-to-consumer business. Your board of directors wants you to increase sales at a faster rate than sales are growing.

Your board of directors is split on how, from a marketing standpoint, to grow sales. Half the team wants to increase customer loyalty via a loyalty/rewards program. The other half of the team wants to grow the business by ramping-up customer acquisition activities.

What information would you need to help your CEO make this decision?

In lieu of good data, which strategy do you believe is more likely to be successful, and why?

October 10, 2007

Website Improvements: The MineThatData Blog

About twenty percent of you read this blog by physically visiting the homepage. For you, I've made several changes.

In addition to the way the blog now looks, I've added numerous widgets to the right sidebar. The widgets feature links to the most recent articles from leading Database Marketing trade journals, research organizations, and a small sample of bloggers from the Friends of MineThatData list.
If you're a daily visitor who is interested in Database Marketing, this feature will serve as sort of a "My Yahoo" page for keeping up to date with our industry. The most recent 2-3 posts from each author will be posted as hyperlinks for you to click on. In essence, this is your introduction to RSS feeds.

I hope you find the new features helpful.

Mailbag: Kill The Catalog

"You frequently talk about what will happen when catalogs go away. Maybe you don't understand cataloging. When we don't mail a catalog, nothing happens online."


I get this feedback a lot. Multichannel Forensics will clearly tell you what the relationship is between catalogs and a website.


Catalog = Isolation, Website = Transfer: This situation suggests that you mail a catalog, customers buy the product online, then the customer uses the telephone for future purchases. In this situation, your catalog means everything to you. Don't kill it!!

Catalog = Equilibrium, Website = Equilibrium: This scenario is what multichannel pundits talk about. Catalog drive e-commerce sales, e-commerce activities drive catalog sales. Everybody wins. Don't kill the catalog!!

Catalog = Equilibrium/Transfer, Website = Isolation: This is when you start to think about killing a catalog. The catalog sends customers to the online channel. Once the customer goes online, they stay there, and don't order over the phone anymore. Ordering over the phone is a proxy for catalog effectiveness. When customers shift their behavior online, and stay online, start seriously thinking about the future of cataloging. Could you match your catalog sales by shifting spend from catalog advertising to online and search marketing?

Catalog = Isolation, Website = Isolation: When this happens, then you have two separate customers, one that likes catalog, one that likes the internet. The customers don't cross-shop channels. In this instance, you can do whatever you feel is appropriate for your catalog and online channels. If your catalog is unprofitable, you probably won't hurt your online channel ... but you probably won't recoup the sales you lose by not having a catalog.


The key is to run the Multichannel Forensics analysis, and let your customers tell you what your strategy should be! Don't listen to me, don't listen to the gobbelty-gook that vendors and pundits toss at you. Simply do the Multichannel Forensics analysis, and let the data guide your thought process.

In the first two examples, you'd never kill a catalog. The catalog "is" your brand.

Mailbag: When Stores Close

"You talk about what happens when catalogs go away. What happens to sales when a store goes away"?

When stores close, the dynamic between catalog and online sales isn't terribly exciting. Stores frequently operate in "isolation mode", meaning customers shop the store, but are unlikely to shop online, and very unlikely to shop in catalog.

When the store closes, maybe eighty percent of the store base simply won't shop online, or in catalogs, regardless of how powerful your brand is.

The other twenty percent seem to wait awhile, then slowly transition back to the online channel, or catalog channel (so long as the brand advertises to them via catalog).

The most interesting part of store closings happen in multi-store markets. In these instances, Multichannel Forensics provide a rich portrait of the interactions between customers and stores. If you close a store that is in "transfer mode", those customers will quickly shop another store, potentially boosting sales at the other store.

If you close a store that is in "isolation mode", well, then those sales are likely to be lost. That might be fine, especially if the store being closed is unprofitable.

So, when you're thinking of closing a store, take a look at what Multichannel Forensics tell you. Stores in "isolation mode" will result in lost sales when the store is closed. Stores in "equilibrium mode" will result in some sales being reallocated to other stores. Stores in "transfer mode" may send a large portion of their sales to another store. Don't expect magical things to happen online or in catalog when the store closes.

October 09, 2007

Goin' Green

I'm aware of a few companies that are suggesting they will dump the majority of their catalog marketing efforts. By doing so, they make the play that they are 'going green', protecting the environment. They're also frightened by future postage increases.

Unless your livelihood depends upon printed catalogs, this sounds like a great idea, especially when packaged with e-mail and online marketing "gift wrap". In other words, we'll use e-mail and online marketing to "make up the difference". We protect the environment (a wonderful PR message), we market digitally. Woo-hoo!

There will be a day when, if you're a multichannel cataloger, your CFO will ask you to evaluate whether paper should be a part of your marketing mix.

Having survived the implosion of a catalog program at Nordstrom, I'm aware of what happens to total sales (and total profit, even more interesting) when paper is pulled from the mail stream.

So when that day comes, you'll want to have answers to these questions (and if you don't have answers, challenge your online and e-mail marketing partners to have the answers).


Question: One of the best aspects of catalog marketing is that you entirely control customer acquisition activities. You ask your compiled list or list rental vendor for "x" names that have never purchased from your brand before, and a one percent response rate later, you have new customers. How will you actively target customers who have never purchased from you if all you have is e-mail marketing, search marketing, portal marketing, shopping comparison marketing, and social media?

Question: Based on your test/control analyses, how much volume do you lose when you dump a $2.00 per book catalog for a $0.20 per delivered e-mail? Based on your test results, do you make up any volume when you don't mail a catalog, coupled with an increase in e-mail frequency? Will your CFO allow you to drive top-line sales into the ground without paper there to support your online channel?

Question: Can you accurately forecast sales at a style or a sku level if you don't have a catalog marketing program? If you can't accurately forecast sales at a style or sku level without a catalog marketing program, what contingency plan do you believe you'll implement to protect fulfillment rates?

Question: When you mail a catalog, do you sell the same items online, in the same proportion, as you do over the telephone? This question is related to the prior question.

Question: What do you do with your call center, and all the folks who take calls today?

Question: What do you do with a fulfillment center that is likely to experience a significant sales drop for a period of "x" months to "y" years? Do you downsize? Do you go to a smaller facility, only to have to ramp-up again later?

Question: What is the career transition plan for employees heavily focused on the catalog side of your business? Do your online marketing folks have the experience necessary to take a beating in the "C-Level Suite", to use the parlance of the day?

Question: How does the curve of diminishing returns look for online marketing? In other words, if your CFO asked you to spend all of your catalog marketing dollars online to recoup all of the sales you lose by going green, can you even spend that much money online, and will you recoup your sales?

Question: Online customers are typically less loyal than telephone shoppers. Without paper available to increase customer retention, what strategies will you implement to keep your customer base loyal?

Question: When you aren't sending catalogs to customers, how much will you have to spend on information technology, in order to make sure your website is competitive with online pureplays?

Question: Being a cataloger, you're intimately familiar with the relationship between creative presentation and selling. How is the relationship different online, and, are you ready to make the necessary changes to drive sales (hint, this question is related to the prior question).

Question: Cataloging is all about telling a compelling story. You merchandise the first twenty pages of the catalog with winners, intoxicating new products, high-volume items, order starters. You use copy to walk a customer through a narrative, page after page. How do you translate this strategy to an online environment, where the customer decides where she wants to go? Who is good at doing this today?

Question: Cataloging allows you to showcase your merchandise over the course of an eighty page story --- maybe 480 styles are presented. Using e-mail, how will you showcase 480 styles to a customer at one time?

Question: What is your plan for customers who are, say, over the age of 70, and like to mail orders to you, customers who don't even have a good broadband internet connection? Do you want to keep these individuals as loyal customers?

Question: What is your social marketing plan? In other words, without a catalog to stimulate conversation, how will you interact with your customers in environments like Facebook, MySpace, Twitter, Blogs, Second Life, and any other to-be-imagined place for people to share thoughts and ideas?

Question: In catalog, inventory managers get "bonus" information, because sold-outs cannot be "pulled out of the mail stream". This provides a significant advantage when forecasting sales next year. How will you compensate for this in an online environment?

Question: How do feel about low prices and free shipping, a couple staples of the online pureplay world? Can you compete? Should you compete?

I could go on and on and on ... I lived this for three years.

What questions would you ask, and would you have the answers necessary to make a transition of this nature?

October 08, 2007

E-Mail Success, or E-Mail Failure?

Many of you now know that I'm a fan of e-mail marketing, but I'm not a fan of e-mail performance.

Any direct marketing activity that drives the volume (per e-mail) that e-mail delivers is immensely frustrating to me.

Sometimes, however, we get down on ourselves, when in reality there is room for optimism.

Take this example. In 2005, a company had an e-mail subscriber file that averaged 1,000,000 names. One campaign was sent per week, generating $0.15 per e-mail delivered. In total, the annual sales generated by e-mail marketing was 1,000,000 * 52 * $0.15 = $7.8 million.

In 2006, the e-mail marketing team was disappointed with the following results: The average subscriber file was 1,300,000 names. There were 60 campaigns during the year. Each campaign drove an average of $0.13 per e-mail delivered. In total, the annual sales generated by e-mail marketing was 1,300,000 * 60 * $0.13 = $10.1 million.

Was e-mail marketing a failure because productivity decreased from $0.15 per e-mail to $0.13 per e-mail?

Or was e-mail marketing a success because annual sales increased from $7.8 million to $10.1 million?

All too often, we focus on "SMALL" metrics. Open rates, click-through rates and conversion rates are all "SMALL". SMALL times SMALL times SMALL = Really SMALL!

Chief Executive Officers, Chief Financial Officers and Chief Marketing Officers don't like to hear about small metrics --- especially small metrics that decrease. Who wants to learn that only one in seven hundred recipients purchased from an e-mail campaign?

Executives like to hear about BIG numbers ... like an increase in performance from $7.8 million per year to $10.1 million per year. That's an increase of 29%, an increase of $2.3 million dollars. Those are BIG numbers.

When working with your leaders, focus on BIG numbers. Work your tail off behind the scenes to improve e-mail productivity. But when working with the highly paid folks, tell a positive story using BIG numbers.

An Innovative Twist

Nearly 2,000 of you have downloaded the Multichannel Forensics white paper. Some of you pre-ordered the book.

For the most part, I considered that a success.

Then I received an e-mail from an individual who read the white paper. This person figured out all of the calculations, and did the math for this person's business ... accurately!

Better yet, this individual applied the methodology in a manner I never intended for it to be applied.

It's interesting ... folks are strongly encouraging e-mail marketers and web analytics professionals to apply uniform standards to these professions. With each passing day, we squeeze more and more innovation out of e-commerce. You see it via bland, templated e-mail campaigns generating a miserable sixteen cents per e-mail delivered. You see it via similar website designs, with similar promotions and similar shopping carts and similar search functionality and similar landing pages and similar products and similar prices.

I never considered that somebody would use the Multichannel Forensics framework differently than I intended for it to be used.

We're all better off when this happens.

How have you used Multichannel Forensics in your business? What have you learned? Better yet, are you using the framework in a new, unique, innovative manner?

October 07, 2007

Profitability

Profit is the reason we are allowed to remain gainfully employed. Conversion rate doesn't keep us employed. Profit keeps us employed.

How often do we hear e-mail marketers talk about, or ever demonstrate the profitability of their activities? I'm not talking about "ROI", nor an 8% improvement in open rate. How often do these industry experts talk about "profit"? Same for search marketers, or other online marketers.

In some ways, a generation of marketers are being trained to look at the business in unique and different ways. That's good. However, this generation isn't always focused on the metric that matters most.

"Back in the day", Lands' End measured the profitability of every spread in a catalog. Every major catalog was analyzed by a team of merchandising, creative, inventory and circulation staffers.

If I remember correctly, each spread in the catalog was grouped into one of four categories.
  • Spreads that generated 30% or better variable profit (profit before fixed costs) were coded "GOLD".
  • Spreads that generated 20% to 30% variable profit were coded "GREEN".
  • Spreads that generated 10% to 20% variable profit were coded "BLUE".
  • Spreads that generated less than 10% variable profit were coded "RED".
Each spread was hung on the wall of a conference room, in sequential order, hung on tag-board of different colors ... the color representing the profit category the spread fell into. At the bottom of the spread, the profitability of each item in the spread was itemized --- demand, fulfillment rate, return rate, net sales, gross margin, marketing cost, and pick/pack/ship expense.

Visually, a story was told in that conference room. One could visually understand why a catalog worked, or why it didn't work. We'd have a discussion about how to present merchandise, how to merchandise the front of the catalog (an important factor that more folks could pay attention to).

Fast forward to today. How many online marketers can give you, the direct-to-consumer executive, a set of metrics that clearly and easily tell you the profitability of items online. Do you have any reporting that tells you the profitability of a landing page? How about the home page?

Every employee should intuitively understand the connection between selling merchandise, marketing merchandise, and generating profit.

Seriously ... take a spin through the e-mail marketing and search marketing literature/blogosphere/vendor-speak. Count how many times you see the word "profit" mentioned.

Let's help these bright marketers make the connection between their efforts, and the profitability of the businesses we manage. We're failing these individuals, we're not training them to be the accountable leaders we need them to be. We need to protect the future of our industry.

October 05, 2007

George

In addition to bringing Multichannel Forensics to the world, I have a volunteer job, helping individuals at a nearby nursing home.

This week I received a call about "George" (real name withheld). This individual was a hard working contributor to society, until a stroke disabled the fifty year old earlier this year.

Our system of care placed him in a nursing home thirty miles from his home town. His friends don't visit him. His family doesn't visit him. He lost his job (he worked for a health care provider, ironically). He lost his apartment. He's not getting the rehab he needs to improve. Most of the residents living in the facility are thirty years older than he is.

George simply wants rehab, so that he has the chance to get better, and work again. He didn't take a sick day in twenty-five years. He feels a sense of desperation.

Fast forward to the place where you work. How often do we fail to give our employees what they need, failing to give them a chance to do good work?

Today, I'm speaking to the "Georges" of the direct marketing and analytics world, the folks who make things happen, the folks who are not in a position of leadership.

You know what it is like to be "George". You have specific career needs, but "the system" doesn't give you what you need.

Pay close attention to the styles of leadership you see all around you. You have Managers, Directors, Divisional Vice Presidents, Vice Presidents, Sr. Vice Presidents, Executive Vice Presidents, Chief "X' Officers, Presidents, Chief Executive Officers, and Board Members, all illustrating the things we admire in leaders.

They also make honest mistakes.

Some go on ego-based missions that use people like "George" to benefit the needs of the leader (and possibly the shareholder).

Take mental note of everything you see, good and bad. You will get your chance to lead.

And when you get that chance, remember to serve people like "George". Make a difference in your little corner of the world.

October 04, 2007

Multichannel Forensics Available October 15

Some of you asked about the delivery date of the new book, given that Amazon.com is suggesting availability is 4-6 weeks away.

Folks who pre-ordered the book via Amazon.com should expect delivery after October 15.

Amazon now lists the book at $95, the same price that the book is listed at via my publisher's site.

If you haven't purchased the book, and are willing to purchase through my publisher's website, please do so. We all realize that Amazon deserves to earn a pretty penny courtesy of "The Long Tail". My publisher deserves a portion of the price of the book as well, as he did a ton of work to get the book published. Either way, I am grateful you are considering purchase of the book, or pre-ordered the new book!

My first book, Hillstrom's Database Marketing, is also available via my publisher's website.

Earning A Bonus

Should an entry-level employee earn a bonus that is based on company performance?

In my formative years at Lands' End, entry-level employees earned a bonus based on company performance. As a statistical modeler, I did have an impact on the company. If I built a model that improved sales by 1%, that resulted in $7.5 million in demand, maybe $2.5 million in EBIT. So the bonus was important to me. I eagerly watched our financial results. I learned how my work contributed to the success of the company.

Maybe more important, I felt valued at Christmas when I received half my bonus check, and again in March when I received the other half. I still felt valued when the bonus check was tiny.


I've experienced the opposite effect.

I once led a group of individuals in a division of a company that offered bonuses. This division merged with another division. The other division did not offer bonuses. As a result, the combined division would not offer bonuses.

Take an employee who earned a salary of $40,000 per year, with a bonus range of between 6% and 15% (not the actual percentages used at this company). The bonus could vary between $0, and $6,000.

In this case, the employees earned 15% bonuses each of the past two years. Their division performed well above expectations, they deserved to share in the success.

The decision makers did not have the courage to tell the employees of this decision. My directors and I had to communicate this message to my employees.

I recall being in an Executive meeting, where about ten of us were discussing the consequences of this decision with Human Resources. I was the only person who spoke up. And oh my, did I speak up. I detest when big companies step on tiny employees making entry-level salaries.


Let's go back to our employee earning $40,000 per year. Each of the past two years, this employee earned $46,000. This coming year, the employee could do a great job. The employee would earn $40,000 (though some received a very small salary adjustment, maybe 1% or 2%).

You can imagine the grim looks the employees wore on their faces when we communicated this decision to them.

The harsh feelings lasted for years. Employees quit. Some became downright bitter, less productive. Some resented me. I recall one individual, tears in her eyes, faulting me for letting her down, faulting me for not doing my job, for failing her.

There are many incentives for employees. When a business matures, and grows at a standard 5% to 10% per year, bonuses give employees a first-hand understanding of the ups and downs of a mature business, as well as an incentive to drive profit increases.

Take that incentive away from an employee, and you damage a fickle relationship between employees and employer.


Two questions for you, the loyal reader.

First, should entry-level employees receive an annual bonus based on company performance?

Second, what should have been done for the $40,000 per year employee I described in this article? If a bonus is to be taken away from this employee, what (if anything) should be done for this employee?

October 03, 2007

More On Compiled Lists Like Abacus

Talking about Abacus caused this blog to have it's top-rated day ever, in terms of RSS/E-Mail subscribers reading content.

It's always good to stimulate the 25% of the audience that reads this blog because of the catalog content.

You catalog folks tend to be shy, so I'm not expecting a lot of comments on the following questions. If you'd like, please join in on the conversation.

Question #1: If you were in the list rental/brokerage business (i.e. Millard/Mokrynski among many others), how would you restructure your business to compete against the likes of Abacus?

Question #2: If you were in the compiled list business, how would you evolve your business to compete against marketing activities like paid search (the digital/online version of a compiled list)?

Question #3: If you are a catalog circulation expert, what are the reasons you choose compiled lists over traditional list rental/exchange activities?

Discuss!

October 02, 2007

Abacusification

Please click on the image to enlarge it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Abacus will own your catalog/telephone customers.

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

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

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

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

Results From The E-Mail Marketing Budget Post

Each week, I am pitched by e-mail vendors, folks asking for access to my client base, or asking me to blog about their services to you, the loyal reader.

These e-mail marketers, researchers, and vendors are hopeful that corporations will increase their e-mail marketing budgets, so that vendor products and services might be considered.

A little over three days ago, after another week of pitches, I gave the vendor community an opportunity to discuss how a hypothetical corporation might increase their marketing budget, and to quantify the sales impact of various strategies.

Here is a link to the challenge:

How many comments did I receive from the vendor community?

Zero.

One way to impress the client-side of the vendor/client relationship is to offer useful and actionable thought leadership. Given the number of pitches I receive, vendors, researchers and marketers missed an opportunity.


In this example, the e-mail marketer generated $10,400,000 demand per year by blasting a million e-mails per week, 52,000,000 per year. I asked folks to offer strategies that might increase demand, profit and ROI, quantifying the impact for my readers.

Let's talk about a few topics.


E-Mail Frequency: In this example, the corporation chose to send one campaign per week. Here is a table that illustrates the expected demand, profit and ROI based on number of contacts:

Annual E-Mail Return On Investment By Frequency (in 000s)













Demand Cost Profit ROI $/E-Mail






1 Contact Per Month $5,200 $250 $1,570 628.0% $0.43
1 Contact Per Week $10,400 $1,000 $2,640 264.0% $0.20
2 Contacts Per Week $14,708 $2,000 $3,148 157.4% $0.14
3 Contacts Per Week $18,013 $3,000 $3,305 110.2% $0.12
4 Contacts Per Week $20,800 $4,000 $3,280 82.0% $0.10
5 Contacts Per Week $23,255 $5,000 $3,139 62.8% $0.09

Companies that do thorough e-mail contact strategy testing have learned several interesting facts. Notice that it is possible to start losing money as e-mail contact frequency increases. Increased frequency dilutes demand per e-mail --- so that even at a very minimal cost per e-mail contact, profit begins to decline after three e-mail contacts per week (in this example --- your mileage may vary).


E-Mail Targeting: Targeting strategies can effectively increase demand per e-mail. Many companies in my industry have an e-mail list where between ten percent and fifty percent of the list have no customer information appended to it. In other words, all you know about these folks is their e-mail address. You're not going to improve performance via targeting with these individuals.

With the remaining individuals, you might get a 30% increase in demand by executing e-mail targeting strategies. The weighted average of these two populations results in a conservative increase in demand of, say, 20%. The following table overlays the 20% increase in performance, adding the marginal cost required to execute the targeting strategy.

Annual E-Mail Return On Investment By Frequency (in 000s)













Demand Cost Profit ROI $/E-Mail






1 Contact Per Month $6,240 $269 $1,915 712.7% $0.52
1 Contact Per Week $12,480 $1,075 $3,293 306.3% $0.24
2 Contacts Per Week $17,649 $2,150 $4,027 187.3% $0.17
3 Contacts Per Week $21,616 $3,225 $4,341 134.6% $0.14
4 Contacts Per Week $24,960 $4,300 $4,436 103.2% $0.12
5 Contacts Per Week $27,906 $5,375 $4,392 81.7% $0.11

Let's say your Chief Marketing Officer doesn't want to "spam" customers ... so the CMO allows you go to from one e-mail campaign per week to two targeted e-mail campaigns per week, each targeted campaign having five creative versions sent to customers based on past purchase history, past clickstream behavior, and past website preferences. Let's compare the expected results, current program vs. proposed program.


Current Program: 1x Per Week, Same Version To All Customers
  • Demand = $10,400,000.
  • Marketing Cost = $1,000,000.
  • Profit = $2,640,000.
  • ROI = 264.0%
  • Demand per E-Mail = $0.20.
Proposed Program: 2x Per Week, Customer Receives One Of Five Possible Contacts
  • Demand = $17,649,000.
  • Marketing Cost = $2,150,000.
  • Profit = $4,027,000.
  • ROI = 187.3%
  • Demand per E-Mail = $0.17.

Notice the difference in results between the current program and the proposed program.

Demand increases by 69%.
Marketing expense increases by 115%.
Profit increases by 52%.
ROI DECREASES.
Demand per E-Mail DECREASES.


My guess is that your CFO will be happy with you if you demonstrate that you'll double your e-mail budget, while delivering a 52% increase in profit and a 69% increase in demand.


What Did We Learn?

First, e-mail marketing is a lot like catalog marketing. There are simple ways to quantify the impact of frequency and targeting. Go ask the catalog marketer down the hall to help you, if this type of work is a challenge for your organization.

Second, once we quantify the impact of these strategies, investment in e-mail marketing is self evident. You'll quickly find the optimal contact strategy, one that yields an increase in demand and profit. The investment quickly cost-justifies itself.

Third, the outcome of the analysis points to areas where you may need help. You'll probably need help developing a targeted e-mail scoring algorithm. I've created many of these, I'm sure your e-mail vendor does a great job as well. The targeting algorithm is where the benefit occurs. I baked those costs into the example.

Fourth, you'll probably benefit by having a campaign management software tool to integrate the scoring algorithm with your selection criteria. If you're a cataloger, you are probably using Unica Affinium for catalog campaign management. Simply apply Affinium (or your campaign management tool or even use SAS/SPSS), and send the list with targeted versions by e-mail address to your e-mail vendor for blasting purposes. I baked these costs into the example.

Fifth, start demanding more of your e-mail vendors. Fluffy pitches and glowing articles mean little. In this example, ROI (as catalogers know) actually decreases! Yet, demand and profit increase. ROI doesn't pay the bills --- actual profit dollars pay the freight, keeping you employed.

Sixth, while not included in this analysis, you'll want to monitor opt-out rates as frequency increases. At one company I worked with, we noticed that if we went past "x" e-mail campaigns per week, too many people opted-out, causing us to lose all the profit we gained via the targeting strategy.

Ok, your turn. What strategies would you recommend, and what would the increase in demand and profit be after implementing these strategies?