OMS: Constant Decay And Reactivation

If you want a copy of the OMS (Online Marketing Spreadsheet) to follow along with, please e-mail me, and I will send you a copy.

Ok, let's look at another issue with your online business, the issue of "decay".

For the past fifteen years, we've lived in an environment of unfettered e-commerce growth. Everything was easy. Lick you finger, point it to the sky, and guess that next year's growth will be 35%. And then it would come in at 45%. You'd look like a genius. Those were good times!

Well, growth was happening because new customers were trying e-commerce. Most customers have tried e-commerce now. Growth is harder to come by.

It is important to understand how a segment of customers experiences "constant decay". Here's what I want for you to do:

• Zero out cells C6 - G6.
• Zero out cells B101 - B340.

Now, enter the number "1,000" into cell B117. We're going to see how 1,000 really good customers (in my model, they are graded as "A") will evolve over time.

Take a look at the results.

• Grade = "A": Year 1 = 596, Year 2 = 380, Year 3 = 254, Year 4 = 177, Year 5 = 128.
• Grade = "B": Year 1 = 217, Year 2 = 220, Year 3 = 198, Year 4 = 172, Year 5 = 148.
• Grade = "C": Year 1 = 186, Year 2 = 293, Year 3 = 289, Year 4 = 255, Year 5 = 217.
• Grade = "D": Year 1 = 0, Year 2 = 106, Year 3 = 209, Year 4 = 251, Year 5 = 251.
• Grade = "F": Year 1 = 0, Year 2 = 0, Year 3 = 50, Year 4 = 145, Year 5 = 257.

Sales keep declining, too, from $400,000 in Year 1 to $89,000 in Year 5.

E-commerce is in a state of "constant decay". Without a steady diet of new customers, the whole ecosystem simply essentially falls apart. This is happening to your business, every single day ... you just mask it by finding new customers. Strip out the new customers, and you're on your way to being laid off.

You'll hear catalog marketers obsess about "customer reactivation". This is why. They know, from a hundred years of catalog marketing experience, that their customer file is in a state of constant decay, so they obsess about every possible strategy to get customers who haven't purchased in a long time to come back and buy again.

Reactivation is hard work, and the rewards aren't dramatic. Go ahead and plug "1,000" customers into cell B261. These customers have a grade of "D". Notice that very few of these customers ever move up into "A" or "B" status (see cells C21 - G25).

Now do something unique. Change the value of "1.00" in cell C5 to a value of "1.20". In other words, for one year, we're going to do something, whatever that is, that improves the ability to reactivate these customers by twenty percent. What do you see?

Well, you see very, VERY modest improvements in the number of customers achieving "A" and "B" status over time. Clearly, it is very hard to reactivate customers. But if you can do it, on a grand scale, year after year after year, it will pay dividends.

Now update C5 - G5 from a value of 1.00 to a value of 1.20. All of a sudden, we have 122 "A" customers after five years, vs. just 91 if we improve reactivation for one year, and vs. just 89 if we do nothing but let customers migrate organically.

In other words, customer reactivation is a 24/7/365 activity that must be managed with discipline. Constant improvement and strategy is required, every day, every year, to move the needle. If the attention isn't given, then the e-commerce business is in a state of constant decay.

If you're an Executive or Analyst looking to understand what the future trajectory of your business looks like, give me a holler about working on an OMS project!

This Week In Business: The Direct Marketing Association

During the past week, a battle formed on the bridge that connects the past with the future ... click here for a few tweets about an ongoing discussion between the Direct Marketing Association and an individual named Gerry Pike.

You've forwarded e-mails to me, e-mail messages you received from both sides of the argument ... questioning the authenticity of each point of view.

As a community of marketers, it might be instructive to step outside of the discussion, and focus a few minutes of thought on what has become of us.

Let's think about the things that we focus efforts on. As you read through this list, assign a percentage to the importance of each element in the list ... make sure the percentages add up to 100%.

• Merchandise (it's hard to run a business without merchandise, right?).
• Inventory Management.
• Creative Presentation of Merchandise.
• Pricing Strategy and Shipping/Handling Strategy.
• Online Marketing, Awareness, Acquisition, Loyalty Strategy.
• Offline Marketing, Awareness, Acquisition, Loyalty Strategy.
• Social Media, User Generated Content, Video Marketing Strategy.
• Mobile Marketing.
• Customer Insight, Analytics, And Business Intelligence Strategy.
• Marketing Promotions (% off, Loyalty Programs, GWP, etc.).
• Website Navigation And Presentation.
• Customer Service And Merchandise Fulfillment Strategy --- Leveraging Humans.
• Expense Management Strategy And Financial Discipline.
• Information Technology Strategy.
• Human Resource And Employee Compensation Strategy.
• Other --- You Name The Topic.

Now that you have assigned percentages to each line item in the list, ask yourself this question. For any organization (not just the DMA, but any organization), what percentage of your list can any organization assist you with?

I think this is the real question we're all dancing around. You focus on one thing, and you end up focusing on 5% or 10% of the business, tops. There's no critical mass anymore. Fifteen years ago, a 35% postage increase would have caused complete and unfettered anarchy. Today, it truly doesn't matter --- if it truly mattered, every cataloger would have joined the ACMA, fighting back with tenacity and voracity. That didn't happen. The ACMA soldiers on, representing more than 10,000 companies on the financial contributions of a hundred companies that care, plus or minus. Why would we expect any other organization to meet our needs when we ourselves are so full of apathy?

Maybe we're full of apathy because classic direct marketing no longer exists. Retailers ship products to your home. Direct marketers ship products to stores. Do you think of Orvis as a cataloger, or do you think of Orvis as "Orvis"?

Quality and differentiated merchandise at a fair price with great customer service is what matters to the customer --- and here's the thing, folks --- almost nobody talks about this. Seriously. Go read your favorite blogger, trade journal, research organization, vendor publication, or trade organization white paper, and you'll read a ton of articles that offer what I call "4% solutions" ... social media, user generated content, web analytics, print isn't dead, five steps to easy paid search success, bricks 'n clicks, e-mail marketing has the best ROI, mobile marketing is the future, blah blah blah blah blah. They all sound good, and in fact, the solutions are generally quite good at optimizing 4% of your business. But you make significant improvements on eight of these things, and your business doesn't improve by 32%, does it? Everything is interconnected, dependent upon each other --- and when you try to align everything, you don't get the sales increases promised. Nothing addresses a critical mass needed to fundamentally move your business in a positive direction.

The holistic organization of the future will help a brand offer quality and differentiated merchandise at a fair price with great customer service. This matters! I don't think it matters who the organization is, or what their primary focus is. The organization of the future will find a way to address a critical mass needed to fundamentally move our business in a positive direction.

OMS: MVP = Most Valuable Path

When you take a few moments to read articles about online marketing, you quickly learn that the goal is to get a conversion ... NOW!

What happens if the customers you acquire aren't very good long-term prospects?

Time to pull out the OMS and see if that happens! If you want to follow along, send me an e-mail message, and I'll send you the free spreadsheet with 80% of the content I use when working with my clients.

Here's what I want for you to do:

• Zero out cells D6 - G6, we only want to acquire customers in the first year.
• Zero out cells B101 - B340, the cells that have the number of customers by segment to start the simulation with.
• Now, zero out cells B341 - B580. These are the cells that tell us how many people we're going to acquire. I have 240 segments, I add "300" to the segment label on each of these ... so segment 412 is really segment 112.

Ok, now let's try something. Plug the value "1,000" into cell B452. We're going to track what happens when we acquire 1,000 customers into what is Segment 112, a cell graded as a "C". What do you observe:

• Almost all of these customers purchased from online marketing channel number two (see cell J6).
• Almost all of these customers purchased merchandise from department number 11 (see cell J15).
• After the first year, almost none of these customers purchased again, generating about $35,000 over the next four years.
• When acquired, these customers typically bought 1.8 items at $17.49 per item.

Now let's try something different. Zero out cell B452, and instead, plug the value "1,000" into cell B477. Look at these customers.

• Almost all of these customers purchase from online marketing channel number one (see cell J5).
• Almost all of these customers purchased merchandise from either department numbers 15 and 19 (see cells J19 and J23).
• After the first year, some of these customers purchased again, generating about $121,000 over the next four years.
• When acquired, these customers typically bought 1.4 items at $30.28 per item.

There's a fundamental difference in the subsequent behavior of these customers, right? Which customer would you want to acquire?

This is part of the art of online marketing that is missing these days. We look at conversion metrics, and determine if we did well or not. By folding in the merchandise a customer purchased (and the price point the merchandise is offered at), and simulating what is likely to happen in the future, we see a different story --- we can identify the marketing channels (offline, e-mail, search, affiliates, etc.) that yield high-value customers, and we can identify the merchandise that we should advertise, merchandise that yields high-value customers.

This is part of something I call the "MVP", or "Most Valuable Path". What we want to do is understand how customers progress through our ecosystem, identify that path (micro-channel + merchandise + geography + price point) that yields a high value customer, and then acquire customers who take the Most Valuable Path.

Make sense?

Homework assignment: Describe the dynamics that happen when you acquire 1,000 customers from segments 349, 350, 355, 357, and 364. Which segment yields customers with the most future value? What do you see happening that is driving this?

Dear Catalog CEOs: Six Catalog Trends

Hello there, my catalog friends!

These are interesting times, aren't they?

We are truly caught between two eras. The past 100 years were very good to catalog brands. And in five or ten years, there will be a road map for the catalog brand looking to enter the future.

Between the past and the future, that's where we are stuck. We're stuck in a period where, as one business leader recently told me, "nothing works".

We know that's not true. Plenty of things work. But nothing works at a scale necessary to cause optimism.

So let's discuss six important catalog trends that help the catalog brand bridge the past and the future.

Trend #1 = Micro-Targeting: This has been talked about for decades, but we're getting closer to seeing it happen. There simply isn't a need to send a 96 page catalog that has a lot of the merchandise you love to sell when there is this thing out there called the "internet" that also has a lot of the merchandise you love to sell. We're likely to see a 96 page catalog become three or four different 56 page catalogs, with the customer receiving just one of the 56 page offerings. People are using this strategy to generate 95% of the demand on about 60% of the pages --- mathematically, folks, it works! And instead of sending remails, you can send a different 56 page version to a customer a few weeks later. I cannot predict where micro-targeting is going to take us. I can predict that catalogs will get smaller and smaller and smaller, since the website is the store and we don't need to advertise everything anymore. E-mail will continue to progress down the micro-targeting path, with more an more versions that are sent on a triggered basis. Long-term, we'll see the slow death of the "campaign" ... sure, campaigns will be here twenty years from now, but we're headed down a path that cannot be reversed anymore.

Trend #2 = Filtering: We will see a dramatic change in how a catalog brand views customers. In many of my Multichannel Forensics projects, customers fall into four buckets.

1. Catalog shoppers who order via the telephone.
2. Catalog shoppers who order via the internet.
3. Online shoppers who order because of online marketing.
4. Brand buyers who like the merchandise.

It will take every ounce of energy possible to not mail catalogs to online shoppers and brand buyers. But this will be essential for the catalog brand to survive the transition that is coming/happening. Honestly, if I had to communicate one thing for a cataloger to do right now, it would be to start filtering, immediately. I've been able to generate a half-million to a million dollars of profit achieved for businesses between $30,000,000 and $100,000,000 in size just by doing a reasonable job of filtering. Quite honestly, filtering may be the difference between profit and loss for many catalogers. And psychologically, it isn't easy for a cataloger to transition the mindset from a customer buying because a catalog was sent to her and a customer buying because she loves the product. This transition has to happen, and filtering is a great place to start --- especially from a profit and loss standpoint.

Trend #3 = Dynamic Landing Pages: Folks are doing this as well (just hit refresh when you visit Amazon.com). Merchants will submit the items they want to feature, while the rules-based system that feeds e-mail campaigns to customers will fill in the holes with customer preferences. Catalogers will not pursue the algorithmic approaches of their online brethren, and that could be acceptable as long as there is a warm story being told to the customer. Again, this isn't a new idea, but it is one that catalogers will embrace, because catalogers will understand that the merchandising of landing pages is very similar to the merchandising of spreads. In fact, any online strategy that can be made to look, from a process standpoint like, old-time cataloging will be embraced by catalogers.

Trend #4 = Co-Op Evolution: We're going to see between one and three companies emerge (could be existing catalog co-ops, could be online co-ops, could be the big data providers, could be one of the web analytics companies), companies that focus on evaluating real-time customer behavior. This is a very different strategy than what we see today. Today's catalog co-ops are very good at massaging past purchase history across brands. Tomorrow's co-op leaders will combine web analytics data with offline data and web surfing behavior. You won't pay $0.06 for one-time access to a name. Instead, you'll pay $0.03, and you'll get to pick the contact you wish to employ --- catalog, e-mail, personalized online landing page, etc., or you'll pay $0.15 to employ a multiple micro-channel campaign (catalog + e-mail + online display ads + search optimization + ads on social media platforms). Of course, catalogers will pay about anything for the multiple micro-channel campaign. This will be transformative, especially among catalog brands targeting lapsed buyers.

Trend #5 = Frenemies And Pods: As catalog productivity continues to decline (not yours, but industry-wide), you'll see new and unusual partnerships. Expect to see contact center and distribution center consolidation --- a company in one industry (automotive parts) and a company in another industry (gifts) will share contact center and distribution center resources, human resources, information technology departments, database marketing teams, circulation teams, all in an effort to conserve back-of-the-office expenses. Customer lists and resources will be freely shared across what I call "pods", a half-dozen or dozen frenemies who leverage what each other are good at. Catalogers already share all of their customer data with each other, and private equity firms already consolidate lists and back-of-the-office operations. It's only a matter of time before frenemies form pods.

Trend #6 = Organizational Transformation: A generation of catalog marketers, age 50 - 65, are getting ready to retire. Quite simply, this generation will not be replaced by individuals who have the same passion for catalog marketing that the generation of catalogers raised in the 1970 - 1995 timeframe had. During the next ten years, we will see a considerable number of business failures, because a generation of individuals used to communicating with customers age 50+ will be replaced by a generation of leaders ready to market to customers in their 30s and 40s. The disconnect (strategies for young customers, marketed to older customers) will drive down productivity, and result in organizational transformation. Leading catalog companies will recognize this well ahead of time, and will cope by developing new brands that are targeted to a younger audience, led by a younger generation of leaders. Think of a business like, say, Cuddledown of Maine, building a new online brand for a younger demographic, training younger employees to manage this business, so that when a generation of leaders and customers move on to retirement there is an infrastructure ready to replace the core business.

Are you a Catalog CEO who has a question for me? E-Mail me your question, and I'll post my answer up in an upcoming article.

Updated Schedule

I like to follow readership metrics. Summer metrics are odd, a different audience follows through the summer months than during the rest of the year.

And sure enough, once September arrived, readership changed, folks began looking for hard-core content that helps them improve business performance. Take a look:

The trends are completely opposite of summer months --- now business articles and OMS articles dominate the list, Gliebers Dresses articles are well down the list.

This is what renders so much of the social media and optimization advice useless. If you decide to optimize your business based on comments, e-mail messages, viral spread of articles, that kind of thing, you'd only write Gliebers Dresses stories.

If you optimize based on what is most read, you'd only write business articles, giving free advice.

And if you optimize based on writing articles that cause people to hire you, you're going to write about OMS and Multichannel Forensics.

So that's the landscape we have to navigate. With that in mind, here's the schedule for this fall:

• Monday = Catalog CEO Topics, Focus on the Future.
• Tuesday = OMS.
• Wednesday = Business Analysis.
• Thursday = OMS.
• Friday = Gliebers Dresses on a hit or miss basis.

People are recommending ideas for moving forward. One loyal reader recommended writing a series of mini-books that deal with case studies at a myriad of companies with many different fictional characters. Another idea from a loyal reader was to have a separate blog for Gliebers Dresses. Your thoughts make a difference, so e-mail me, message me on Twitter, or leave a comment below.

OMS: A KPI For You, Customer Asset Value

Let's do something nuts with our spreadsheet (e-mail me here to obtain your free copy of the OMS 240 Segment Simulation Spreadsheet).

Go to cells C6 - G6, and type in the number 0.00 in each cell.

This means that there will be no customer acquisition in each of the next five years.

Now look at the sales numbers in C13 - G13:

• Year 1 = $62.6 million.
• Year 2 = $50.5 million.
• Year 3 = $40.9 million.
• Year 4 = $33.7 million.
• Year 5 = $28.4 million.

Looks like customer acquisition is pretty important, huh? How many times have you been told that if you just fix your loyalty program, everything will be fine?

But maybe more important is this interesting metric.

• This business generated $80.0 million last year.
• Over the next five years, this business will generate $216.1 million from the existing customer base.

Your customer base is an asset, in this case, one worth $216.1 million in the next five years.

Some companies calculate this metric (five year sales value of current customer base, what I call the "Customer Asset Value", or "CAV") on a weekly/daily basis, allowing them to see how marketers and merchants positively/negatively impact a business --- in ways that go way beyond conversion rates.

This is a KPI every company can calculate. Ask your Web Analyst to calculate this metric for you. Ask your Business Intelligence Manager to calculate this metric for you. Ask me to calculate this metrics for you!

Special Edition: Shop.org and Macy's

In case you didn't hear, Macy's announced at Shop.org that every dollar spent online influences $5.77 in stores.

Multichannel advocates from near and far raised their glasses in celebration. Or at least that's what appeared to happen. You tweeted me, asking for my thoughts, in some cases, asking me to refute the knowledge offered by Macy's. I'll oblige.

I was at Nordstrom in 2003 when we first estimated the dollar amount that our website drove to our full-line stores. It was in 2005 when we further validated this point, doubling our online marketing budget and killing our catalog business and growing online sales and growing comp store sales all at the same time, a feat that I thought would be nearly impossible, a career-changing outcome. It was in 2006 when we used Multichannel Forensics to demonstrate to the Executive team that when you acquire an online customer, the customer becomes a store customer and then becomes a loyal store customer, helping the multichannel leaders in the company use the information to fuel their multichannel integration initiatives.

So do not be surprised when you hear a statistic like this. This kind of stuff has been documented by companies for some time.

But do pay CLOSE ATTENTION to the language used.

One dollar online "influences" $5.77 in stores.

Unless the Shop.org blog is mis-stating something, the choice of the word "influence" is critically important.

There is a fundamental difference between "influence" and "proven to drive incremental profit". When I worked at Nordstrom, we knew how much incremental store volume would disappear if we shut down the website, and we knew how much store volume was simply tied to a customer visiting the website and browsing in the days prior to a retail purchase.

Both components are valuable.

Both metrics demonstrate the need to have a modern e-commerce website and quality online marketing efforts and retail marketing activities and store merchandising strategies and a social media experience.

But do not, for one minute, confuse what the word "influence" means. "Influence" does not result in profit.

Have you ever read a statement like "Our new mannequins influenced a hundred million dollars in sales?"

Have you ever read a statement like "Our new wooden hangers influenced two hundred million dollars in sales?"

Have you ever read a statement like "The copy on the price tag influenced three hundred million dollars in sales?"

Of course you haven't heard those statements. But without a doubt, the mannequins and wooden hangers and price tags influence sales, don't they? They don't cause sales, they do influence sales.

And then there's the story of debt.

Retail is a voracious beast that is fueled by debt. The e-commerce channel has no choice but to fuel retail, from the strategic viewpoint of a retail executive team.

Macy's is blessed with an almost hopeless $8,600,000,000 of long-term debt. Have you ever had to manage the crippling weight of $8.6 billion in long-term debt? Last year alone, interest expense was $588,000,000. That's $588 million dollars ... of interest expense.

During the past three years (including the two years prior to the collapse of the economy), Macy's lost $2,800,000,000 profit, and paid $1,600,000,000 in interest payments.

Think about that. How much damage could $1,600,000,000 of incremental online infrastructure investment and/or online marketing have done, both online and in stores? All of that money, instead, was sent to a bank.

So let's temper enthusiasm about the role of a website within a retail brand with a simple metric, a simple "KPI" to use the parlance of the day: During the past three and a half years, the success generated by a website that influences $5.77 of retail sales for every $1 online resulted in a total loss of nearly $2,900,000,000, and significant comp store sales decreases. If the website were truly driving such stellar incremental volume to the stores, wouldn't there be some positive motion in comp store sales results during this timeframe?

Without a doubt, e-commerce, and websites in general, significantly, dramatically influence sales. We have no choice but to offer the customer an outstanding experience. And Macy's deserves to crow about this metric, it's a wonderful finding, a validation of something that people instinctively knew but couldn't prove.

But do not, for one minute, assume that "influence" translates to profit. Or even comp store sales increases. You can invest a ton of money in a perfect online experience, please customers, and not see one penny in incremental sales increases in your retail stores.

Keep this information in mind when your favorite vendor calls you, asking you to invest in e-commerce solutions, using Macy's as a poster child for multichannel integration.

OMS: Customer Acquisition

If you haven't received your copy of a sample Online Marketing Simulation worksheet and wish to follow along on these examples, go ahead and send me an e-mail message and I'll forward you a copy.

In our example, we estimated that this business needs a 17% increase in customer retention, in order for the business to improve.

What about customer acquisition?

In the spreadsheet, change cells C6 - G6 from a value of 1.00 to a value of 1.70.

Notice that the business stabilizes when customer acquisition activities drive a 70% increase in new customers.

This doesn't even seem feasible, does it? I mean, how the heck would you improve customer acquisition activities by 70%?

In upcoming posts, we'll explore how to investigate which customer acquisition segments can contribute high-value customers. We'll introduce the concept of the "MVP", the "Most Valuable Path" that a customer follows from new customer to great customer. We'll better understand what drives this business, and what holds back this business. You'll be able to take the concepts and apply them to your business.

7 Questions While You Attend Shop.org

Questions for you to consider as you mingle with the digerati and attend sessions at the Shop.org event in Las Vegas. We'll go with seven questions, a lucky number if you're shooting dice at the casino.

Question #1: If the Chicago Cubs can fail to deliver what fans want (championships) and still raise ticket prices by 200% since 1999 without a negative impact on attendance, why is everybody in e-commerce obsessed with discounts, promotions, free shipping, and various "free" business models? What do the Chicago Cubs know about marketing crappy products to disheartened customers that you could use to improve the business performance of your brand? And while we are at it, how do the Chicago Cubs convince you to spend more money each year to attend games in a run-down, antiquated stadium, while all of their competitors "convert" customers in state-of-the-art stadiums that follow baseball marketing best practices?

Question #2: You are an online marketer. What percentage of your day do you spend analyzing merchandise productivity across customer segments, and what percentage of your day do you spend analyzing marketing campaigns? Remember, the job of a marketer is to market merchandise!

1. 70% on Merchandise Analysis, 30% on Marketing Campaigns.
2. 50% on Merchandise Analysis, 50% on Marketing Campaigns.
3. 30% on Merchandise Analysis, 70% on Marketing Campaigns.
4. 10% on Merchandise Analysis, 90% on Marketing Campaigns.
5. 0% on Merchandise Analysis, 100% on Marketing Campaigns.

Question #3: You are an online pureplay with a 20% annual customer retention rate. You refuse to use print or offline marketing. What is your strategy for increasing your annual customer retention rate?

Question #4: Name five companies that use Social Media to generate at least ten percent of their annual sales? Now name five individuals who have experienced whopping success because of their Social Media presence. What causes brands to fail while individuals succeed?

Question #5: Name five companies that use integrated multichannel marketing campaigns (offline, e-mail, search, mobile, social media) to increase annual retention rates by at least ten percent? In other words, you might be able to prove that individual campaigns work. Can you prove that annual retention rates improve because of individual campaign performance?

Question #6: If you are a retailer, and you had to borrow $2,000,000 to open a new store, and the new store generates awareness that helps improve online conversion rates, do you allocate the interest payments required to keep the new store open as an advertising cost required to generate online marketing conversions? What would your online profit and loss statement look like if you allocated interest expense to the 'multichannel' and 'cross-channel' customers using your website?

Question #7: Which strategy do you think will generate bigger sales increases for your brand?

1. Merchandise Innovation.
2. A Thorough Understanding of Online Marketing and Social Media Tactics.

Gliebers Dresses: Hyper-Targeting Via Print

Welcome to another Executive Meeting.

Glenn Glieber (Owner): "So I just got off the phone with Chip Cayman, and he extends his sincere and heartfelt apologies to all of us. I don't think he expected us to send anybody to Shop.org, and he sure didn't expect Pepper to record his presentation on her phone, and he really didn't expect Pepper to post it up on YouTube. It will be fun to chat with Pepper when she returns next week."

Meredith Thompson: "Kevin, is that you?"

Kevin: "Yup, it's me."

Roger Morgan (Chief Operations Officer): "Kevin, we have a question for you today. Pepper re-calibrated the catalog marketing strategy for 2010 several months ago. I've read an awful lot of white papers from the printing industry on the concept of variable printing and micro-targeting. We'd like to understand your thoughts."

Lois Gladstone (Chief Financial Officer): "I'm on Roger's side on this one. We need to re-think the concept of catalog marketing, don't we?"

Kevin: "Well, describe your vision?"

Roger Morgan: "These white papers tell us that printers can basically plug and play whatever pages they want to into a catalog. So why wouldn't we do that? Why wouldn't we have two hundred versions of a catalog, each with different page combinations, personalized to customers with personalized landing pages for each customer?"

Meredith Thompson: "Is there a reason you're having this discussion while Pepper is away on a business trip?"

Roger Morgan: "These white papers seem to suggest that there is significant sales and profit upside to executing an industry-leading strategy like this."

Meredith Thompson: "Show me a company that executes a strategy like this and experiences a significant sales and profit upside?"

Roger Morgan: "I'm just saying, this is what industry leaders are talking about."

Meredith Thompson: "How would I forecast inventory at a sku level if I don't know how many customers are getting each page in a catalog? I'll end up with huge soldouts and huge overstock issues, and I won't be able to achieve minimums on certain items, costing us a fortune in gross margin."

Roger Morgan: "I think you're missing the point. We're exploiting the long-tail of inventory management by sending only the pages that the customer wants to see. That has to be more profitable, right? Look at all of the inefficient paper that we'd take out of the mail."

Meredith Thompson: "Can't the customer see only what she wants to see online? Why not make the online experience the personalized experience, and use print to create the desire necessary to create online demand? And again, show me how I'm going to forecast inventory without putting our profitability at risk?"

Roger Morgan: "Think how neat this idea is. You unleash Bow-Tie Guy on this problem, have him develop algorithms that decide which of maybe 300 pages a customer can receive in an 84 page catalog, and then you improve the productivity of the catalog because you are only sending pages that the customer wants to receive."

Meredith Thompson: "How do you know what the pages are that the customer wants to receive? We send new product to the customer all the time, product that didn't previously exist, product that the customer has to be told to like. Do you think you know, in advance, what the customer likes, and can make those decisions? And how do you tell a compelling story across a catalog when customers are all getting different pages? You ruin the ability to tell a good story."

Lois Gladstone (Chief Financial Officer): "Is this technology expensive?"

Roger Morgan: "White papers really don't address cost considerations. And your ability to tell a compelling story online is seriously compromised by customers looking at whatever pages she wants to look at. Anyway, we could easily incorporate clickstream data, we'll just figure it out. I think we have to move to a modern version of CRM. The promise of CRM was to enable personalized, one-to-one conversations, right? Well, we can use technology to do that."

Meredith Thompson: "Why not use e-mail to do that? Or why not have a conversation via social media, where it is an actual, two-way, human conversation? You are confusing the concept of a one-to-one conversation. Does the customer want to have personalized print message pushed to her, or does she want to be so inspired that she goes online and makes her own decisions?"

Kevin: "Clearly, both of you are passionate about this topic. And it is probably best to have this discussion when the Chief Marketing Officer is in the room. That being said, right now, this team is very focused on tactics. Can social media drive sales increases? How do we construct a catalog to generate the most sales? It is easier to think that if somebody simply corrects a poorly executed tactic, then the business will be much more profitable. There's a deeper question at play, here, however. Who is the target audience that Gliebers Dresses is trying to have a relationship with? Is it the 50+ year old female shopper? If so, Roger's strategy might make perfect sense. Is it the 30 - 49 year old female shopper? If so, there's no amount of catalog configuration tricks that can make a difference, because this customer is not inspired by traditional catalog marketing activities. Is it the 15 - 29 year old female shopper? If so, don't even bother sending any catalogs, the conversations are completely misplaced. I think Gliebers Dresses is better served by considering the answers to these questions than to think about how to manufacture demand by using variable print technology."

Glenn Glieber: "Great discussion, folks, it truly is food for thought. And we cannot answer the question by the end of this meeting, so we'll table it for now. Ok, on to other issues that have to be resolved right now. We need to decide which employee will appear on the cover of the January catalog. We'll meet at 4:00pm today to go over the photos and see which employee will grace the cover of the January catalog."

OMS: Retention Via The Sample Worksheet

Thanks to the many of you who asked for a sample copy of a watered-down Online Marketing Simulation worksheet!

Over the next few weeks, we'll be going over numerous examples, based on the contents of the spreadsheet. If you would like a copy so that you can follow along, send me an e-mail message, and I will send you a copy.

Remember, I've removed some of the really important elements of the spreadsheet, those that factor in what happens when marketing is increased or decreased, the good stuff that CEOs ask me to estimate for them.

Take a look at the spreadsheet. This example illustrates how a business is likely to evolve over the next five years. Notice that this business, if things continue "as-is", will be in steady decline, dropping from $76 million next year to $63 million after five years.

When this happens, you've got problems!

So let's try something, as a way of easing into the simulation. Look at cells C5 - G5. Here you can make changes to the annual retention rate. Let's assume that the economy magically bounces back, so annual retention rates improve, by, say, 17%. Plug the scalar 1.17 into cells C5 - G5. Now look at what happens to annual sales.

The business is now at $86 million, each year.

This gives you an idea of how the business will change, over time, if the economy improves. And we know that there is basically no chance of the economy improving by 17% anytime soon.

So this business has a problem.

In upcoming weeks, we will use this Online Marketing Simulation spreadsheet to better understand how a business might decompose what is happening, and then find a path to a brighter future. This is a logical extension of the Web Analytics tools we've been trained to use.

You Pick The Catalog Strategy!

Strategy #1: Mail a 148 page catalog with your entire merchandise assortment to your housefile.

Strategy #2: Mail four 48 page catalogs, with a unique portion of the merchandise assortment in each catalog. Based on prior purchase history, you choose which customer receives each version of the catalog. Customer can only receive one of the four 48 page catalogs.

Your thoughts? Which strategy has the best potential to generate short-term and long-term sales and profit, and why?

Online Marketers vs. Catalog Marketers

There's nothing like an online marketing conference (IMC Vancouver, a good conference, folks!) to help one understand the fundamental difference between pure online marketers, and traditional catalog marketers.

The keynote presentation was from Google's Avinash Kaushik (blog, twitter, book). If you are a catalog marketer, then think of Avinash as being the online version of Don Libey. His unique presentation style and personality allow him to critique website marketing in a laughable way --- the audience laughs while simultaneously being critiqued!

The conference really illustrated the stark differences between online marketers and catalog marketers.

For the catalog marketer, everything starts with the catalog. Not product, mind you, but the physical catalog itself. The goal of merchandise is to provide enough profit to allow everybody to have fun creating the next catalog, merchandise productivity funds the hobby. All measurement systems are designed to prove how wonderful the catalog is. Get an order via paid search? No, the catalog caused paid search to happen, love the catalog!!!!

For the online marketer, everything starts with the next big thing. Blogs are so 2005, Facebook is already on a death spiral, it's all about tweeting your way to success, and looking for what will happen next. It is truly a throwaway society. We innovate, we tout the innovation, and when the innovation reaches the masses, it is time to move on to the next big thing, throwing away the past. And this obsession with what is new creates an infinite loop of excitement --- discover the new thing, hype the new thing, figure out how to measure the new thing, create best practices around using the new thing, get bored with the new thing, create a new thing.

The catalog marketer is obsessed with the catalog business model. The catalog marketer moves from company to company, taking catalog expertise from one company to another to try to improve the catalog performance at the other company. The goal is to further the business model. And everything is hard. It's hard to improve upon a hundred years of catalog marketing expertise. Because it is "hard", the business model discourages entry by a younger generation that can never implement new ideas, because everything has been done and proven.

The online marketer loves tactics within the online business model. You have the e-mail marketing camp, the paid search marketing camp, the affiliate marketing camp, the Facebook camp, the Twitter camp. All focus on their craft, all focus on measuring their own micro-channel. Mini-wars form across micro-channels. Everything is "easy", three easy steps to Twitter success, five easy ways to make money online, you get the picture. It's easy to experiment, to learn, to improve.

The catalog marketer is, on average, a baby boomer. The catalog marketer thinks everybody else acts/thinks like the catalog marketer acts/thinks.

The online marketer, on average, is younger than a baby boomer. The online marketer thinks everybody else acts/thinks like the online marketer acts/thinks.

The catalog marketer thinks business models within catalog marketing are unique. "Our accessories business model is simply different" or "our business is different because we sell commodity items" is a common phrase you'll hear from longtime catalog executives. As a result, you'll see catalog marketers eschew information from non-competitive catalog brands.

The online marketer is willing to absorb information from all marketers. "What are those offline folks doing?" is a phrase you often hear. Online marketers love to listen, to hear about different strategies. The online marketer, however, is not always willing to adopt a strategy outside of traditional online strategies.

The catalog marketer cares about long-term value, and proves that catalog marketing generates customers who have the best long-term value (which is usually the case), preserving the business model.

The online marketer gets caught up in the multi-dimensional aspect of long-term value associated with multiple micro-channels, finds the problem too confusing, quits, and focuses a disproportionate amount of energy finding ways to encourage a customer to convert to a purchase today. This leads to improvements in conversion that do not translate to improvements in long-term value, causing the online marketer to constantly search for the next big thing.

The catalog marketer focuses on internal strategy. How many catalogs do I offer? What are the optimal in-home dates? How deep should I circulate into my housefile? How deep should I mail into my favorite co-op? Should I do remails or new creative? Are 124 pages appropriate, or are 116 pages right? What might be an appropriate presentation of merchandise? How should density vary by catalog? How do I message so that I drive sales online?

The online marketer focuses on external strategy. How will Twitter monetize itself? Will somebody make advertising work within Facebook? Is SEO dead? What is Google doing next, and can I capitalize on it before anybody else? The focus is on what other people are doing, and it offers online marketers endless opportunities for strategic discussions. The strategic discussions can create chaotic business trajectories.

The catalog marketer does everything to save the ship. Excluding retail (Nordstrom, Bloomingdales), few catalog businesses have been willing to kill catalog marketing efforts. Cataloging is like the Empire State Building, always being updated, but will never be a modern building. The goal is always to figure out a way to cut expenses and increase the productivity of the catalog. And if productivity cannot be improved, blame is assigned --- either on the economy or on the post office, it is never, ever the fault of the catalog marketing business model. Catalog marketing is like a glass bottle that is endlessly recycled.

The online marketer will throw away a failing business in a heartbeat. The online marketer tears down skyscrapers and erects new ones. There is a reason the term "serial entrepreneur" exists. Online marketing is a plastic bottle that can be recycled, but is frequently thrown in the garbage.


This year, I spent time at catalog marketing conferences, and I spent time at online marketing conferences. The difference in approach, mindset, and confidence between catalog marketers and online marketers is staggering. No amount of multichannel babble can reconcile the stark difference in approach and experience between the two camps. Neither approach, mind you, is right or wrong. The approaches are simply different, leading to inefficient businesses. Catalog marketers can learn a lot from online marketers about passion, innovation, nimble reaction times, creativity, and adaptability. Online marketers can learn a lot from catalog marketers about building brands, maximizing the long-term health of a business, business cycle experience, the perils of discounting and inventory inefficiency, and business discipline.

Gliebers Dresses: Shop.org Edition

Welcome to the weekly Executive Meeting.

Glenn Glieber (Owner): "... you'd think you could trust Chip Cayman, given that he's worked with us so extensively, but no, you can't trust him anymore. I cannot believe he publicly mocked us at the Shop.org conference."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin: "Yup, it's me."

Meredith Thompson: "Did you hear about what happened at Shop.org yesterday, Kevin?"

Kevin: "No, I'm not at Shop.org this week."

Meredith Thompson: "Pepper used her phone to videotape Chip Cayman's presentation, titled 'Lousy Websites and Lousy Online Marketers'. He spent a disproportionate amount of time ripping our website."

Roger Morgan (Chief Operations Officer): "Idiot."

Kevin: "So what was his problem with Gliebers Dresses?"

Roger Morgan: "The audience just kept laughing at us, mocking us. And Chip had that stupid giggle going through the whole presentation. We don't have a problem, we have an 8% conversion rate!"

Kevin: "So what was his problem with Gliebers Dresses?"

Lois Gladstone (Chief Financial Officer): "He said our website looked like it was created by an old version of Microsoft Frontpage. The audience just roared."

Roger Morgan: "Again, if the website is so bad, then why do we have an 8% conversion rate?"

Kevin: "If you segment out all visits from catalog customers, what is the conversion rate?"

Roger Morgan: "About 1.5%"

Kevin: "What do you think about that?"

Roger Morgan: "You have to understand, Kevin, we're a multichannel brand. We drive traffic via offline and online marketing."

Kevin: "But do you think that a 1.5% conversion rate is acceptable for non-catalog shoppers?"

Meredith Thompson: "Kevin, we're a multichannel brand. We focus our efforts on print, on using the catalog to drive qualified shoppers online. Who cares if we have a 1.5% conversion rate among non-catalog customers? Our job is to use catalog marketing to encourage a customer to shop however she wants to shop. And we do that well, really, really well, or we wouldn't have an 8% conversion rate."

Roger Morgan: "Chip said we have no shopping cart abandonment marketing tools, that we only 'spray and pray' when we send out our e-mail marketing campaigns, that our catalogs have no online call to action, that our organic search is nothing short of pathetic, that our live chat functionality is awful. And yet, we have an 8% conversion rate."

Meredith Thompson: "Why would he hire a consultant, open our books to him, share our business model with him, and then let him use our information to mock us and make him look great in front of 600 conference attendees?"

Roger Morgan: "Do you know how easy it is to mock companies? I mean, these consultants, they pick on big companies like us to make themselves look good. And the audience laughs and laughs and laughs, yeah, Gliebers Dresses, those stupid lumbering fools. The conferences encourage this, they encourage consultants to rip regular companies like ours, because it encourages people to attend, and then they make a ton of money. I'd like to see all these vendor fools and consulting idiots go try to enact real change within real companies. There's a reason they don't work at real companies, they could never be effective within a real company. Never. It is so easy to pick on other people, it's like throwing a dart at an elephant from ten feet away. It is hard to enact change within a real company."

Meredith Thompson: "Really hard."

Lois Gladstone: "But let's address the elephant in the room without throwing a dart at it. Does Chip Cayman have a point?"

Roger Morgan: "Of course you'd take his side. No, he doesn't have a point. He's mocking us so that he looks impressive in front of the 600 people he's speaking with. He makes money by destroying people and companies. All of those consultants and vendors make their hay by destroying hard working people. He probably makes twenty times my annual salary, and he does it in sleazy way. I have no respect for him."

Lois Gladstone: "Could we do better than a 1.5% conversion rate among non-catalog shoppers?"

Meredith Thompson: "Lois, you haven't been in this industry very long, so you don't understand the subtleties of a multichannel brand like ours. If we do multichannel marketing well, then we're profitable. We don't look at conversion rates of individual activities. We are the multiplicative result of multichannel marketing activities."

Lois Gladstone: "Didn't you rip Candi Layton for using the same type of lizard logic?"

Meredith Thompson: "No, Candi is talking about Social Media, an unproven marketing channel that nobody is able to use to drive more than 1% or 2% of total sales. We're talking about a proven marketing strategy that has worked for fifteen years."

Lois Gladstone: "Could we do better than a 1.5% conversion rate? Roger, could we do better?"

Roger Morgan: "Yes, if I had the money to make improvements to the website, we could potentially do better."

Kevin: "Maybe as a team, we should stay away from talking about improvements or money or conversion rates. Might we instead focus on the customer? If non-catalog shoppers have a 1.5% conversion rate, it suggests that we aren't meeting the needs of the non-catalog shopper, right? Sure, the website could be fundamentally broken, but by the same token, some of the ugliest websites in the world have the best conversion rates. So the issue isn't about the conversion rate, the issue is about meeting the needs of the non-catalog customer. Does Gliebers Dresses meet or exceed the needs of the non-catalog customer? And if Gliebers Dresses is not meeting or exceeding the needs of the non-catalog customer, then what should Gliebers Dresses do to meet the needs of the non-catalog customer? Or do you even want to meet the needs of the non-catalog customer? Many catalogers don't want to do that, they want to focus on their core catalog customer, so if that is the case, who cares if your website doesn't convert non-catalog traffic? Strategically, it is the responsibility of the management team to assign the reason why you do catalog marketing, customer acquisition, customer loyalty, paid search, e-mail marketing, organic search, affiliate marketing, website design and functionality. Every micro-channel has a reason, and your website has a reason for being. You have to decide if your website is there to take orders from catalog customers, or if it is there to do that as well as convert other shoppers. What is your business model, define it?!! The Executive team sets the strategic direction for the company."

Glenn Glieber: "Well, that was an interesting discussion. Now on to more pressing matters. Roger, I want for you to make sure that when we meet with Pulse Marketing (an online advertising agency) next week, we have those really good sandwiches from Mary's Box Lunches, ok?"

Call For Data, And Do You Want To See A Simple OMS Spreadsheet?

Two things for you, the loyal reader.

First, I have a 10mb Online Marketing Spreadsheet I'd be willing to share with you. Everything has been dummied in the spreadsheet (channels, merchandise divisions, segments, sales performance, rebuy rates). The spreadsheet is purposely messy and undocumented, and I chose not to include any of the advertising effectiveness components of the spreadsheet (i.e. increase pay-per-click budget by 20%, increase total sales by 8%). If you'd like to see the spreadsheet, send me an e-mail message. Your e-mail client will need to be able to accept a large, Microsoft Office 2007 Excel format file (.xlsl).

Second, I am looking for a volunteer dataset. For obvious reasons, I cannot share client data with you, so I'm looking for one of two potential datasets that I could share the results of with you.

I'm looking for an e-commerce brand willing to send me summarized clickstream/visit data and purchase data for a multi-year period of time, a brand wanting to demonstrate the long-term value of actions that happened yesterday (shopping cart abandonment, visit certain pages but do not put items in a shopping cart, click-through an e-mail campaign but do not purchase, that kind of thing).

I'd also consider a social media dataset, one where we could demonstrate how short-term actions change the long-term trajectory/value of a user.

I would never give away your trade secrets, share proprietary information, or in any other way harm your business. I would, however, publish how customers interact with your business via the Online Marketing Simulation, similar to the way I've shared OMS concepts over the past few months. In return, you get free OMS project work. I'm asking about data because many of you are suggesting that you want to see the Online Marketing Simulation "come to life". You want to see concrete examples. This is one way to accomplish this.

If you have an interest in this type of project, please send me an e-mail message describing your business and the data you'd be willing to share.

Gliebers Dresses: Order Attribution And Retention Attribution

Welcome to the weekly Executive Meeting at Gliebers Dresses!

Glenn Glieber (Owner): "... so there I am, sitting in the audience, waiting to see who Multichannel Merchandiser is going to name as the top fashion cataloger for 2009. There was some stiff competition, I'm telling you! And then he makes the announcement, 'Glenn Glieber wins the award for the top fashion cataloger of 2009!' Well, I just about fell out of my chair. I walked up to the stage, absolutely bursting with pride. The audience applauds. I really wanted to thank my customers for all of their support, because without them, none of this is possible. And then out of the corner of my eye, I see Sarah Wheldon coming toward me, and I'm thinking, 'I really like what she's done with her hair'. Then I'm thinking, 'why is she taking the microphone out of my hand?' And she turns to the audience and says 'I think you did a good job, Mr. Glieber, but I cannot believe that Anna Carter did not win this award, Anna Carter's catalogs might be the best fashion catalogs of all time.' She hands the microphone back to me, storms off the stage while the audience buzzes, and there I stand, absolutely at a loss for words."

Roger Morgan (Chief Operations Officer): "What did you say?"

Glenn Glieber: "I just sort of ducked-off the stage. I had to go back on in five minutes and give a talk about how to drive e-commerce sales through the use of print, because as we all know, print isn't dead. So I just had to regroup, go back out there, and perform."

Meredith Thompson (Chief Merchandising Officer): "Kevin, is that you?"

Kevin (Me): "Yup, it's me."

Lois Gladstone (Chief Financial Officer): "Did Sarah Wheldon apologize to you?"

Glenn Glieber: "Well, she did an interview over on ResponseShop's blog, and apologized for the incident. But she hasn't contacted me personally to offer an apology."

Lois Gladstone: "What has happened to civility in this country? Everybody has a megaphone, and is busy shouting at everybody else. Our parents didn't raise us to act like this, did they? I had to address adults with a Mr. or Mrs. prefix. Now people can scream out loud at the President, or steal the stage from an owner who built the best fashion dress brand in all of New England, and beyond. What happened to manners?"

Roger Morgan: "Seriously!"

Meredith Thompson: "My parents would never have allowed for us to step all over other people when they are talking. There's just a certain level of respect you should have for others."

Pepper Morgan: "Kevin, did you bring your analysis with you on how our Retention Rates break down by the marketing activities that drive them?"

Kevin: "Yes I did. Now that Pepper is in her new job, she asked me to use a new tool that I've developed, called the 'Online Marketing Simulation', to decompose how retention rates are impacted by marketing activities. You see, ..."

Roger Morgan: "Aren't you just copying what Lucid Commerce has done? I read a Neptune Research report about them, that's some cool stuff."

Kevin: "Yes, what they are doing is neat, especially in the online space. Anyway, I was saying, if you ..."

Lois Gladstone: "How the heck would you ever decompose marketing activities? We send a catalog on Monday, we send an e-mail campaign on Tuesday. Both activities cause a customer to purchase online. How would anybody ever be able to split that order accurately between catalog marketing and e-mail marketing? I'd give e-mail marketing credit, it's free, and the customer probably wouldn't buy unless we gave her a discount or a promotion in the e-mail marketing message."

Kevin: "That's a interesting point. Online marketing folks call what you are talking about 'order attribution', and in catalog marketing, it is called 'matchback'. Anyway, that's not really what I'm talking about here. Pepper asked me to do something different. You see, Pepper ..."

Roger Morgan: "Last week I read a Woodside Research report about order attribution. They said that the debate isn't about first click or last click getting credit for an order, that these days, we need to focus our efforts on what they call 'holistic attribution', giving all channels credit. I mean, it's all about being multichannel, all of the time. Then you throw social media and mobile marketing in the mix, and my goodness, what a powerful toolkit, huh?"

Kevin: "Well, there might be some truth to that. Still, I think that ..."

Meredith Thompson: "Roger, why would we focus on clicks? The catalogs drive the majority of online sales anyway, so focusing on clicks to online ads is seriously misleading. If Pepper does a great job with creative in the catalog, causing somebody to go to Google and click on a paid search ad, then you are saying that Woodside Research wants us to focus on the click? That's foolish."

Kevin: "That's a good point, too. In the Online Marketing Simulation, we focus on ..."

Lois Gladstone: "Wait a minute, are you hawking a new product, is that what this is about? I haven't heard about this new product. If what you're doing is so innovative, wouldn't somebody at ResponseShop be selling this product to us? Or wouldn't somebody at ResponseShop have licensed the product from you, if it is so great? I'm just saying, you know?"

Kevin: "Technically, no, I'm not hawking a new product, because you aren't paying for it and because Pepper asked me to do this analysis for you. If Pepper hadn't asked me to do this, I wouldn't have brought it up. Now, let's review slide number one, a slide that shows ..."

Roger Morgan: "Let's just get to the point, here, folks! I have a conference call with Neptune Research at 10:00am to go over contact center cross-sell and up-sell best practices."

Kevin: "Basically, the analysis indicates the following. We have a 54% annual retention rate, as of last month ..."

Lois Gladstone: "It's going up because of our loyalty program, isn't it?"

Kevin: "The 54% annual retention rate is decomposed as follows: 20 points will happen no matter what. If you don't advertise, 20 of the 54 percentage points happen, because customers have developed a reasonable level of brand loyalty."

Pepper Morgan: "Not many companies know that rate, do they, Kevin? That means 37% of our business (20/54) happens without any advertising, that's our 'organic percentage', right Kevin?"

Kevin: "Yes, that's right. 20 points are organic. Another 12 points are because of catalog marketing. 8 points happen because of discounts, promotions, and free shipping. 4 points happen because of paid search marketing, 3 points happen because of e-mail marketing, 2 points happen because of natural search, 2 point happens because of affiliate marketing, 1 point from call center cross-sell and up-sell programs, 1 point from e-commerce cross-sell and up-sell programs, and 1 point from our loyalty program."

Lois Gladstone: "And you came up with this by allocating orders to the advertising channel that drove the order?"

Roger Morgan: "That is the current industry best practice".

Kevin: "No, I did this the opposite way. I used the Online Marketing Simulation to estimate what would happen in the future if you took each of these marketing activities away. If you remove an activity like affiliate marketing, then I simulate how those customers will behave in the future. Or if you remove the catalog, then I can simulate how those customers will behave in the future. Interestingly, if you take away a marketing activity, then orders that used to be credited to the old marketing activity are re-allocated to other marketing activities. It's a very interesting and new way to ..."

Roger Morgan: "If ResponseShop isn't doing this, then I'm not sure I buy into this program yet. I think it is really important to not be on the bleeding edge of something."

Pepper Morgan: "Folks, we're going to take marketing in a new direction here at Gliebers Dresses. We're going to finally understand what it is that drives our business, and incorporate it into our marketing decisions. Do all of you want for this business to be more profitable? Well if your answer is yes, and I think it is a 'yes', then we need to start acting upon marketing decisions that not only give us a return on investment today, but promise a return on investment tomorrow. We are going to begin to use a new set of tools to hold us to a new set of accountability. This is going to ..."

Glenn Glieber: "Ok folks, that's enough for today. Great meeting! Ok, on to our next topic. I'd like to ..."

Lois Gladstone: "I still cannot believe that Sarah Wheldon cut you off, Glenn, during your big moment in the sun."

Roger Morgan: "It's completely unacceptable."

Meredith Thompson: "It's like our world has lost all semblance of civility."

Gliebers Dresses: The New Chief Marketing Officer

A press release from Gliebers Dresses:

Gliebers Dresses Announces The Appointment Of Pepper Morgan To The Position Of Chief Marketing Officer

September 15, 2009: Gliebers Dresses, the premiere purveyor of dresses in all of New England, and beyond, is proud to announce that Pepper Morgan has been named Chief Marketing Officer.

Ms. Morgan brings fifteen years of marketing experience to the CMO position. Ms. Morgan began her career as a copywriter at Anna Carter, and was eventually promoted to Creative Director, before leaving Anna Carter for the tradition-rich environment at Gliebers Dresses. As Creative Director, Ms. Morgan was responsible for many of the innovations that fueled the e-commerce website's prolific growth. As of today, 75% of all sales come in via the e-commerce website.

"Pepper Morgan exemplifies all of the qualities that embody the Gliebers Dresses brand. She's a perfect fit within the Gliebers Dresses culture, and our employees have a comfortable working relationship with her. We anticipate that Pepper will combine her artistic skills, e-commerce knowledge, and a budding desire to learn catalog marketing, fueling the future profitability of our brand." stated Glenn Glieber, Owner of Gliebers Dresses.

Pepper will be supported by a trio of leaders responsible for growing the Gliebers Dresses brand. Boris Feldman has been named Manager of Analytics, Jill Jackson has been named Manager of Circulation and Online Marketing, and Candi Layton has been named to the newly created position of Director of Emerging Media and Public Relations.

Media inquiries should be directed to Candi Layton, Director of Emerging Media and Public Relations.

OMS vs. Multichannel Forensics

One of our loyal readers says ... "I don't understand how OMS represents the logical evolution of Multichannel Forensics."

We've been talking about Multichannel Forensics for almost four years. The metrics (MPT) and the modes (Retention Mode, Hybrid Mode, Acquisition Mode, Isolation Mode, Equilibrium Mode, Transfer Mode, Oscillation Mode) are unique to Multichannel Forensics. We use the metrics and modes to describe how customers migrate through our channels, we learn the role that each of our channels play in our total business.

It has been my experience that Analysts/Managers are very interested in this aspect of Multichannel Forensics.

It has been my experience that CEOs/CFOs/CMOs are very interested in having me predict what sales will look like, by marketing channel (catalog, e-mail, pay-per-click, affiliates, natural search, organic demand), for each of the next five years. They want to understand how e-mail marketing will be impacted by paid search, how affiliates influence future off-price purchase activity. They want to know if they should invest more/less in e-commerce. They want to know what impact their website has on retail sales. They want to know why certain merchandise divisions aren't growing online anymore. They want to be able to understand if shopping cart abandonment truly impacts long-term customer behavior, or if it is a psuedo-metric that isn't truly correlated with long-term customer value, sales, and profit.

In other words, the needs of business leaders changed in the past two years. The focus dramatically shifted ... reduce offline marketing expense, find ways to understand online customers beyond segmentation and conversion rates and optimization.

CEOs/CFOs/CMOs were increasingly asking me to fold online activity into the Multichannel Forecasts I was running. This really picked up after the economy crumbled last fall. E-commerce no longer represented an unfettered growth channel. Boards and Owners are now challenging CEOs to present an accurate picture of long-term e-commerce growth, in order to make long-term investment decisions.

After receiving several similar requests from Management teams across a diverse set of companies, requests that shifted focus from high-level channels (retail, online, catalog) to online channels (e-mail, pay-per-click, affiliates) and their impact on the total business, it became obvious that we needed to evolve the forecasting component of Multichannel Forensics projects.

This is why you now see the intense focus on the Online Marketing Simulation on this blog. This is what business leaders are now asking me to do for them.

And this is why I am imploring you, the Web Analytics expert, to read this content carefully, and to adopt this information in your daily activities. Your business leaders are looking for you to do this type of work for them.

Gilt Group, Rue La La, And A Different Shopping Model

Have you read this article about luxury apparel companies? If there's only time for one article this week, read this article.

Just look at Gilt Group's home page. Is this the well merchandised home page the experts taught us to build? If you're a first time visitor without the luxury of knowing somebody who shops Gilt Group, what do you think your conversion rate will be (conversion = purchase)?

Sites like Rue La La encourage you to join a waiting list, a waiting list!!?? Weren't we taught to make it easy for a first time visitor to find what they want, followed by a discount/promo e-mail when the customer leaves the site after putting something in the shopping cart? These sites are experiencing exponential growth doing the opposite of what industry experts tell us to do.

While we're busy wondering if homepage text should be salmon-colored or periwinkle-colored, Gilt Group is busy going from $0 to $150,000,000 in two years, heading to $400,000,000 by this time next year. Please take one moment and think about what that kind of growth means.

Question: Ignore your core business for a moment, because ninety five out of one-hundred of us are unwilling to make significant changes to the core business. Would you be willing to try the type of innovation that Gilt Group / Rue La La are doing for a brand new business unit within your brand? If not, please use the comments section to explain why, and if your point of view is "... that wouldn't work in our industry", explain how you know it wouldn't work if you haven't tried it yet.

Gliebers Dresses: Q&A With Meredith Thompson

We get a lot of questions, on Twitter, via comments on the blog, or via e-mail. So today we're going to do something different. We'll let the fictional Chief Merchandising Officer at Gliebers Dresses, Meredith Thompson, address real questions from real readers about our fictional case study.

Kevin: "Meredith, are you ready for a handful of questions from our audience?"

Meredith Thompson (Chief Merchandising Officer): "Absolutely!"

Kevin: "The first question comes from a reader on Twitter --- the individual wants to know if you want to punch Candi Layton in the face for not taking accountability for driving sales and profit via social media?"

Meredith Thompson: "Oh heavens no! We can agree to disagree. My problem isn't with Candi as a person, my problem is with social media as a marketing channel. It offends me that I have be held accountable for getting customers to buy something today --- if the customer doesn't buy my merchandise, I lose my job, and many employees in many departments lose jobs. Sarah Wheldon lost her job because she failed to use marketing channels to drive sales. But these social media people, they seem to have different rules. They get to have a job because of the profit I generate, then they suggest that they shouldn't be measured on the basis of sales and profit, they suggest that the sales and profit will appear in the future if they have honest conversations with customers and fans today. I have no interest in subsidizing extroverted conversations. It is Candi's job to be an advocate of her channel. But as a member of the Executive Team, it is her job to be accountable for generating sales and profit. So I want to know what the metrics are that help all of us quantify her impact on the company. I think that is a fair question. I have no interest in funding 'play time' for other employees."

Kevin: "We received many comments about who should be the next Chief Marketing Officer. The catalog audience is fervent about Stan Klepsky. What are your thoughts?"

Meredith Thompson: "I interviewed each candidate individually, and participated in each group interview. I'm not sure the right candidate exists. We need a person who knows something about catalog marketing, because that is our heritage, we'll destroy that channel if we hire a person with no catalog marketing experience. But by the same token, we need a person with a vision for how to use online and social media channels. And finally, we need a person who fits within our culture. Nobody ever talks about corporate culture. I can assure you that fitting in a corporate culture is more important than having the right skills. So I think that Pepper is the person who should become the Chief Marketing Officer. She has experience at a major competitor, she knows something about catalog marketing, and she knows our culture."

Kevin: "We received an e-mail from an individual who was 'broken hearted' when Sarah Wheldon was fired. How did you feel about that decision?"

Meredith Thompson: "I think 'broken hearted' is a reasonable way to describe how a lot of us felt. The hardest thing to acknowledge is that there is a need for a new set of skills. We don't need an online marketing expert, and we don't need a catalog marketing expert. We need something unique, and there aren't many people with the unique set of skills we need. It isn't like Sarah did anything wrong, it was her job to maximize catalog productivity, and then, oh, by the way, she is supposed to acquire true online marketing skills without the resources necessary to get them. I think we all miss her. I hate seeing all the people I used to work with being let go, one by one. We're running out of true 'catalogers' around here."

Kevin: "One of our readers asked me to ask you if it isn't your job, as Chief Marketing Officer, to tell the story of your brand?"

Meredith Thompson: "That's not easy to do. Pepper owns how the merchandise is presented. Pepper owns who receives catalog and e-mail campaigns. Pepper owns copy writing. So technically, no, I shouldn't own the story of the brand, technically, Pepper and Glenn own that story. That being said, if I ever got the opportunity, you better believe I'd be the one telling the story!"

Kevin: "One of our readers labeled the Executive team as being 'dumb and dysfunctional'. How would you respond to that statement?"

Meredith Thompson: "I'd take offense with that comment. I doubt that any person who ever worked on an Executive Team would say that. If any person could read the minutes from any Executive meeting at any company, I think they'd be stunned by what they would read. There are interpersonal dynamics that cannot be easily understood until you've worked with other powerful leaders. Roger thinks he can do marketing, even though that's not his job, so he's going to throw out a bunch of ideas, good and bad. Pepper thinks she can do social media, so she's going to question Candi. Candi thinks her audience has merchandising ideas, so she wants their ideas implemented. Lois is the CFO, so she micro-manages all of our activities in an effort to control expenses. Heck, I think I can do all of their jobs. All of us know that none of us can be CEO, so we have a different set of motivating factors --- at other companies, people are competing to be the next CEO, so they end up being a bit more 'politically correct', if you will. And if you don't agree with our behavior, go sit in the lunch room with our entry-level employees, and listen to what they talk about, all of the gossip and speculation and pontification. Odd things happen when diverse people interact."

Kevin: "Here's a self-serving question. One of our readers wants to know why Gliebers Dresses ignores so many of my recommendations?"

Meredith Thompson: "I don't think we ignore them. You're not always right, some of your ideas don't fit with the direction we want to take, sometimes we don't fully understand what you are recommending, and we sometimes make mistakes by not listening to your recommendations."

Kevin: "One of our readers wants to know why your business is fueled by gut instinct, opinion, and emotion, when it could be fueled by metrics and key performance indicators?"

Meredith Thompson: "Maybe the quickest route to obscurity is to run your business on the basis of metrics and key performance indicators. Metrics and key performance indicators have a place, don't get me wrong. I need to know if my return rate increases from 30% to 37%. I need to know if conversion rates dropped from 8% to 7%. But the fuel that drives a business is merchandise passion. None of the key performance metrics make any difference if I don't have a passion for creating compelling merchandise. I don't need Bow-Tie Guy to tell me that we have 4% fewer great customers, therefore, the potential of our business is not being met. I can look at the merchandise that is selling, and the merchandise that is not selling, and make my own decisions. When I make good decisions, we have an increase great customers. I drive the metrics, the metrics don't drive me."

Kevin: "I think the reader was wondering why, as an Executive team, decisions are sometimes based on irrational arguments rather than facts?"

Meredith Thompson: "Like having a loyalty program based on four or more dresses purchased in the past twelve months? I think every Executive wants to think that they have all the answers. Nobody wants to make decisions because some report tells you to make decisions, that's not fun. It is a complete adrenaline rush to take a shot, to develop a loyalty program with arbitrary criteria, and then to see it work! You're the reason it worked, you're accountable, you get recognized! Any trained monkey can read a report filled with metrics, and then do what the report tells you to do. You become an Executive by taking risks that turn out to be profitable."

Kevin: "This reader left a comment and said that 'Gliebers Dresses deserves to fail'. Does Gliebers Dresses deserve to fail?"

Meredith Thompson: "The customer will decide whether we deserve to fail. It is our job to do the best we can at Merchandising, Creative, Marketing, Operations, and Finance. After that, the customer decides. The easiest thing to do is to criticize a group of individuals when you are not part of that group of individuals. The hardest thing to do is to move a group of individuals with diverse job roles, experience levels, and differing motivations in a common and profitable direction."

Kevin: "Meredith, thank you for taking the time to chat with our readers."

Meredith Thompson: "Kevin, thank you!"