October 07, 2008

My Keynote Address At The DMA08 Conference & Exhibition

If I were invited to give the keynote address at the DMA Conference in Las Vegas (I realize I cannot compete with the multichannel marketing knowledge of Playboy CEO Christie Hefner or the direct marketing brand known as Extreme Makeover Home Edition Host Ty Pennington, both delivering keynote addresses), it would go something like this:

Good morning attendees, and welcome to the final day of DMA08! For those of you who dipped your toe in some of the fine gaming opportunities available in the greater Las Vegas metropolitan area, you probably enjoyed a better return on investment than you recently observed in your 401k account ... or in your recent direct marketing campaigns.

I had a conversation with the CEO of a very traditional direct marketing brand last night. This individual painted a bleak outlook of her brand. She's done all of the things she is "supposed" to do. In spite of a thirty percent increase in postage in 2007 and a twenty-five percent decrease in customer acquisition performance in 2008, she continues to mail catalogs to her customers and prospects, because it is considered a multichannel marketing "best practice". She boosted the amount of recycled paper in her catalogs in an effort to "go green", even though tests suggest that recycled paper reduces response to the catalog by two percent. In her head, she knows the days of catalog marketing are waning. In her heart, she badly wants to see if she can do something to delay the inevitable, because catalog marketing is part of her soul.

She continues to maximize her paid search campaigns, though the cost of each click is twenty percent more than it was three years ago, and she doesn't understand the algorithmic bidding process for keywords.

She doubled the frequency of her e-mail marketing campaigns to two per week, allowing her customers to choose which version of a campaign they receive. In the past three years, the performance of her e-mail marketing campaigns declined by twenty percent. E-Mail marketing vendors preach to her that e-mail marketing has the best ROI, but she knows that the medium drives very little volume, and works less well with each passing year.

She dove head-first into social media. Her CEO blog is one of the most read in the industry, and her pages on Facebook and MySpace invite conversation. She listened to customers who complained about her products via Twitter and Plurk, investing money in a new quality assurance department, a department that reduced defective merchandise by ninety percent. And she tried to measure the performance of her social media entourage. Social media loyalists have only one-fourth the conversion rate of her loyal e-commerce purchasers, causing the finance folks to fume about her disproportionate focus on emerging marketing technologies.

Her marketing team tried numerous word of mouth campaigns, without any success. She's hired the best digital marketing agencies to create the campaigns, only to be told by agency leaders (after the campaigns failed) that she must offer merchandise that is buzz-worthy. If it were only that easy.

Her brand was one of the first to embrace mobile commerce, though her Executive team feels the time required to experiment in this space is not worth the six hundred customers who are experimenting with this channel.

In fact, if the suffix "2.0" is behind any term, her social media team gave it a try. She's been lauded for being an innovator. One of the leading social media bloggers praised her for being "a bright light in the dark tunnel of permission marketing".

In terms of the topics discussed at this conference, her brand is one to be admired. She and her team have done all of the things the experts speaking at this conference told her to do.

And yet, it isn't working. If all of these speakers are right, then why are her results so wrong?

In 2007, her sales were down 3% compared with 2006, due to softness that began in November 2007.

In 2008, year-to-date, her sales are down 12% compared with 2007. Telephone sales are down 20%, and e-commerce sales are down 4% compared with 2007. Her e-commerce team is facing the first sales decline they've ever experienced.

The majority of the e-commerce marketing team honed their skills during the updraft of the e-commerce channel, and have no experience driving sales in an environment where the customer no longer wants to or needs to or can afford to buy non-essential items. The e-commerce team responded to sluggish sales by offering the only incentives they've ever tried --- free shipping and 20% off offers. Sales increased slightly, but the impact on the bottom line was unfavorable. The finance team lacks confidence in the ability of the e-commerce team to "move the sales needle". The finance team realized, for the first time, that it is really, really hard to create demand via e-commerce. How the heck do you get your award-winning website in front of a customer who has never heard of you, and has no interest in buying from you ... today?

The inventory management team is also frustrated with the e-commerce team. Over the past decade when there were big inventory issues, the catalog marketing team churned out clearance catalogs that moved excess merchandise. The clearance catalogs were targeted to sale buyers, folks who loved sale merchandise. The e-commerce team, however, lacks the marketing tools necessary to advertise overstocked items to a mass audience --- they can only advertise to folks in a "state of need". The inventory management team are afraid they are not going to get bonuses this year.

The inventory management team isn't as worried as the catalog marketing team is. This team believes that layoffs are coming in 2009. They don't know where they are going to find a job in a world where catalog marketing continues to contract. They know more about how to drive a profitable direct marketing program than anybody else in the company, and feel like they would fit well in the e-mail marketing department. The e-mail marketing team is already well-staffed with experienced e-mail marketers, however. Not surprisingly, the catalog marketing team is busy building relationships on "LinkedIn". You can tell how strong the economy is by simply counting the number of LinkedIn requests you receive each week. LinkedIn has the potential to be very popular during 2009.

Most marketing folks are resentful of the social media marketing team. This team has been unable to prove that their efforts drive sustained sales or profit, but they seem to have a lot of fun with their campaigns. They receive a ton of public praise from bloggers and followers on Twitter, are asked to speak at all the major social media conferences. They are very proud of a three point increase in "share of voice" over the same period of time when sales decreased. In reality, the other departments are jealous of the social media folks, just like folks were jealous of the e-commerce folks eight years ago. It's much more fun to be on the cutting edge than to be left holding the bag for the majority of the business.

The merchants are under pressure, too. They spent two years building a state-of-the-art multichannel merchandise analysis system, and spent the past year learning how to analyze multichannel merchandise trends. Many of the staffers feel frustrated, because the "art" of merchandising is being replaced by the science suggested by the new system.

The merchandising team heaves their frustration on the information technology team. If the merchants want to present items in a new and creative manner in the catalog, they simply shoot the models and merchandise as they wish, partnering with creative services. Online, everything is templated for them. Sure, the shopping cart is in the upper right hand corner of the screen, complying with established best practices, but the merchants and information technology team are constantly grumbling about the direction of "Web Tech 2.0", the new version of the multichannel e-commerce website (the first significant upgrade since 2002).

Speaking of multichannel marketing, the CEO told me that she cannot find one example of the "1+1+1=6" principal that the multichannel marketing vendor community keeps telling her exists. Her experience is that the channels are cannibalizing each other, not adding significant incremental value. Worse, she feels like she'll have to use a hundred channels five years from now in order to get the same level of sales she obtains today with a handful of channels.

Now the CEO deals with new challenges. Her finance team pressured the organization into "turning" merchandise six times per year, because it was far more profitable to do so. Now that this discipline is part of the DNA of the company, the CEO cannot obtain the short-term financing she used to receive to fund frequent inventory turns, due to the credit crisis gripping the global economy. She's afraid that her merchandise assortment will be stale and meager in 2009, further alienating customers. She's upset that she ran her business with honesty and integrity, only to see Wall St. greed create instability in her business model. She doesn't understand why the taxes her organization paid in an honest manner are going to help folks who misbehave, while she has to consider downsizing her staff in response to their actions?

How many of you feel like the CEO of the company I spoke with last night?

Of course, conferences offer great networking opportunities, and offer the chance to learn about best practices being employed by leading brands and gifted leaders. All of this is good.

Few speakers at this conference are allowed to present the reality I just described.

The reality is that direct marketing, the craft many of us have practiced since the 1960s, is disappearing. So is e-commerce, as we know it ... a cold, discount/promo/low-price wasteland that offers few emotional benefits. Conversely, social media offers the humanity that is missing from e-commerce. If only social media drove sales and profit instead of comments and feedback.

One might consider this to be a dire message. On the contrary, I believe we are on the precipice of what I call a "direct marketing reformation". We're about to become direct merchants once again, dropping fancy marketing hype in favor of an honest relationship with the customer.

Direct marketers make progress when times are tough --- when times are easy, we simply enjoy the updraft, focusing on ideas that are easy to implement, calculating whether our annual bonus will be 27% of our salary or 33% of our salary.

But when times are tough, "the tough get going" (the music video plays in the background ... audience sings along, clapping). It's like we're "living on a prayer" (another video pops up, remember those three minute masterpieces from the 80s? That's when you had to be "multichannel", video on MTV and song on the radio --- now, videos are dead, hmmmmmm). Big applause from the audience.

We're halfway there.

It won't happen in 2009, and it probably won't happen in 2010. But sometime during 2011, somebody is going to figure out how to fuse traditional direct marketing, e-mail marketing, digital direct marketing, e-commerce, social media, Google, widget-based marketing, mobile marketing, portal advertising, and whatever comes between now and then. And when somebody fuses these elements together in a way that resonates with the consumer, LOOK OUT! A hundred micro-channels all interacting seamlessly, effortlessly, without coordination from a centralized marketing borg. A fusion of algorithms and sweat equity that actually brings humanity to the cold, lowest-price buying process. We will recapture the spirit of the "direct merchant".

Multichannel marketing is not about pummeling the best customer with messages from twenty-seven channels while at the same time having a conversation with the customer via social media. We're going to figure out something new, something relevant to the way the customer behaves in 2008. A direct merchant is not a direct marketer. We're about to go through a reformation.

I leave you with the words of Richard C. (Dick) Anderson, the second President of Lands' End. You can read the words from this link on the Lands' End website. They are copied here, word for word, unchanged from his presentation to the audience at DMA91.

"When I first became involved with Lands' End as a director in 1978, it was on the strength of my extensive experience in advertising. And both Gary Comer and I wanted to convey the uniqueness of the Lands' End experience. Somehow, reflecting on how best to do this, on a trip through the warehouse, my guide — the manager, chose to say: "I just wish we didn't have to call our business mail order." Mail order, at that time did not enjoy the most savory reputation, you may remember.

This triggered in me a vision of the original great merchants of British history, for some reason or another. The way they prowled the seven seas and brought treasures back to London from the four corners of the earth, and a phrase occurred to me which is now a part of our name and certainly a part of our philosophy. We are, as you will recognize...direct merchants.

I call this to your attention because the majority of you in attendance here — and I who represent Lands' End — may differ widely in the ways we do business. But, however distribution possibilities evolve — old ones, new ones — we share the same identity. We are all merchants. And for me, that is an honorable and vital identity — even in this day when it is fashionable to hold forth on the subject of marketing in all its forms. I don't decry that exactly, but I'm more comfortable considering myself a merchant. And here's why. In my view...

  • A marketer deals with many; a merchant deals with one.
  • A marketer moves from the mind; a merchant moves from the heart.
  • A marketer is logical; a merchant is perceptive.
  • A marketer does business across the world; a merchant does business across the counter.
  • And finally, a marketer bets his all on a System; a merchant bets his all on His Store.
Fellow merchants, I salute you on behalf of each of the 5,500 employees of Lands' End, in whose behalf it has been my privilege to address you.

They thank you for that privilege. As do I."

I recall being at Lands' End when this statement was made. I was a marketer. I would have bet my all on my system, a series of statistical equations that determined who received nearly every single Lands' End housefile catalog. Today, I side with Mr. Anderson. Our future is about betting on our store, not on a marketing system.