Sometimes, when you are a consultant, you enter into unusual situations. Such was the case when Anna Carter's VP of Marketing, Sarah Wheldon, the former VP of Marketing at Gliebers Dresses, called me in to "have lunch".
Sarah: "Kevin, it is so nice to see you. Now, from what I heard, Roger lost a sock in the dryer and basically voted you off the island, right?"
Kevin: "Well, that is confidential, I cannot talk about any of the circumstances surrounding their business."
Sarah: "Sure. I heard that their business was down something like ten percent to plan, and that the only way they boosted sales was via crazy levels of discounting. Is that right?"
Kevin: "Again, that information is confidential. Though you don't have to be a rocket scientist to know that many folks are discounting at levels previously unheard of."
Sarah: "But what do you hear from the folks at Gliebers Dresses? I mean, from what people tell me, it's literally a state of chaos. I heard that Lois is running the business into the ground with her stupid loyalty program, and I heard that Roger's office is piled a mile high with research white papers on how to be excellent."
Kevin: "Now Anna Carter hasn't done any discounting this Holiday season. How the heck did you pull that off?"
Sarah: "Inventory management and accurate forecasting. As long as you know how much you are likely to sell at the start of the year, you don't need to clear everything at a discount."
Kevin: "But you discontinued your catalog in October, right? You were going to discontinue mailing it in early 2010, but it looks like you started early. How the heck did you accomplish this transition without putting a huge amount of inventory at risk?"
Sarah: "We did a test in February and March and early April. We did not mail one single catalog between February 1 and April 15, not one. We measured how customers behaved during this "paper vacation". And we learned a ton."
Kevin: "Like what?"
Sarah: "We learned that e-mail marketing metrics all improved, immediately. Instead of getting a paltry $0.20 per campaign, we got $0.35 per campaign in February, and $0.45 per campaign in March. It turns out that catalog mailings cannibalize the living daylights out of e-mail marketing. Well, that, and the fact that so many e-mail orders were being inaccurately matched back to catalogs by ResponseShop's 'ChannelMAX' algorithm".
Kevin: "Yes, lots of catalogers see that when they execute catalog holdout groups. It is something that you never know happens unless you do testing, or in your case, shut a channel down for a bit."
Sarah: "We also noticed that, by mid-March, customer behavior changed. Customers in urban and suburban zip codes began visiting the website much more often, and began ordering 'on their own', if you will. Now what they bought was different than what was purchased when catalogs were mailed. The customers purchased fashion products more often, basics less often. But still, we could accurately forecast based off of what we saw happening.
Kevin: "What happened to other online marketing channels?"
Sarah: "Funny you should ask. Our portal advertising productivity improved by about 70%. Our search marketing productivity improved by 100%. This allowed us to project that we could spend a fortune in each of those advertising channels, generating incremental demand and customers that we wouldn't normally acquire."
Kevin: "I imagine that customer acquisition really suffered, right?"
Sarah: "It sure did. Now, that being said, we projected what size business we would have without catalog advertising. We calculated that our business would shrink, over five years, by about 35%. But, our EBIT, earnings before interest and taxes, was projected to double. Kevin, you know that you don't take empty calories to the bank, you take profit dollars to the bank. We will be able to invest the increase in profit in online marketing, in website development, in a user review platform, in website personalization, in cross-sell algorithms, in social media activities, and in other forms of offline advertising. We will be able to offer $4 shipping, all day, every day, we won't be like Glieber Dresses, offering free shipping promotions followed by $16 shipping."
Kevin: "If EBIT doubles, then that means that a ton of orders were being incorrectly allocated back to catalog activities via ChannelMAX, correct?"
Sarah: "Exactly! Listen, we've been blasted by our contemporaries. Every vendor in the industry called to tell me what a moron I was. Our paper rep said I'd be out of business in two years. Our co-op rep told me that she'd join me in the unemployment line if more companies did what we did. We were mocked at the annual Direct Marketing Alliance conference by a dozen different speakers. Everybody is an expert, Kevin. It's a shame that everybody isn't held accountable for their foolish predictions. That level of accountability would cause Twitter to shut down for a month!"
Kevin: "Did you anger any of your loyal customers?"
Sarah: "Yes, tons of them. You should read the hate mail. All of it on stationary, written with ball point pens, with the script appearing to be just a little bit unstable. That tells you that the customers we angered are generally sixty years old, or older. We received a few e-mail complaints. We barely got any complaints via Facebook or Twitter. It's pretty easy to infer who the audience was that purchased from catalogs."
Kevin: "So you are willing to let those customers go?"
Sarah: "Yes, we're willing to let those customers go. They can buy from Gliebers Dresses if they want. We aren't about market share. We are about profit. And honestly, we're not telling those customers they cannot buy from us. They can come to our website and purchase."
Kevin: "You were such a huge catalog advocate. What happened?"
Sarah: "I got to see a different way to run a business. I got to see what happens when leadership is passionate about merchandise. At Gliebers Dresses, outside of Meredith Thompson, they only care about catalogs, discounts, and promotions. This company loves the connection between merchandise and customers. For all of the marketing expertise out there, it is amazing how few marketing leaders talk about the connection between merchandise and customers."
Kevin: "Ok, Sarah, I think our time is up, I need to catch a plane. It was nice seeing you."
Sarah: "It was nice seeing you, Kevin. If you don't mind me asking, would you have any interest in meeting with the management team for a few days? We'd like to pick your brain about some of the 2010 strategies we're employing. I doubt you signed a non-compete with Gliebers Dresses."
Kevin: "I didn't sign a non-compete, so maybe we can chat about what a mini-project would look like."
Sarah: "Good, I'll have my folks get in touch!"