April 11, 2010

Dear Catalog CEOs: Inventing The Future

Dear Catalog CEOs:

You continually mention three trends to me.
  1. It is becoming really hard to acquire customers via print.
  2. It is becoming really hard to reactivate any customer not considered a "best" customer.
  3. Customers acquired via online marketing have worse lifetime value than do other customers.
That's a dilly of a pickle, isn't it?

Granted, the Great Recession hurt many businesses.

But put that aside. The trends you communicate to me have been firmly in place since 2005. Our industry got a five or ten or fifteen point boost by switching from list vendors to the co-ops, and that helped mask a disturbing trend for awhile.

Now, there's no avoiding the problem. One Executive called it the "Erosion of the Bottom". In other words, the infrequent shoppers that we used to count on for one purchase a year are disappearing, and cannot be replaced using traditional catalog marketing strategies.

I like to think about the problem this way. Back in 1995, you had a checkerboard, with three stacks of four checkers in one corner. These stacks represented various prospect audiences. Each stack represented a mass audience, and it was easy to target the mass audience ... with a catalog!

In the past fifteen years, we lost four of the twelve checkers. Four of the checkers moved to their own, individual squares on the checkerboard. Some shop with online brands. Some spend their money on the iPhone and are enthralled with apps. Some grow crops on FarmVille. Some have 388 followers on Twitter. All spend a lot less time with traditional marketing channels than they used to spend. Today, four checkers moved to other parts of the board. Three years from now, it will be six checkers, not four.

Take Ning, the social networking platform. You have 40,000,000 users on Ning. Think about that number for a moment, let it sink in ... 40,000,000.

Of course, there are a million networks on Ning. This means that the average network hosts 40 users.

Pretend you wanted to reach all 40,000,000 users on Ning ... heck, pretend you wanted to reach 50,000 users who have an affinity for what you have to offer. You simply cannot rent a list and toss a catalog in their mailbox, that's old school, easy marketing, those days are gone.

What is happening is that we're seeing the slow, steady, inevitable erosion of a mass audience that could be reached via mass marketing tools like list rental and catalogs. A percentage of our prospective customers are dispersing into an infinite combination of preferences, and as a result, cannot be targeted in an efficient manner using traditional techniques.

This discussion usually leads to your next question:
  • "If I can't reach a mass audience with catalogs anymore, show me the three or four tactics I can use to replace catalog marketing with while not losing sales."
This is where the discussion ends.

Why?

Because there aren't three or four tactics that you can use to replace catalog marketing with. E-mail pundits thought that e-mail marketing would supplant catalogs. It didn't. Paid Search and Natural Search cannot supplant catalogs. Banner Ads and Affiliate Marketing cannot supplant catalogs. Being "multichannel" turned out to offer us essentially nothing, in terms of incremental growth. And you can try to copy what Zappos did, but it probably won't work for you.

We're in a unique place in history. What we've always done is slowly dying, and there is nothing new that scales so that we can replace what we've always done.

We have to invent the future. We need to reduce our catalog marketing budgets by 20% (by cutting circ from segments that no longer shop via catalog marketing), and then re-invest that money in other tactics, realizing that 19 of the 20 tactics we try will fail. Of course, if we don't do this, then we fail at 20 out of 20 tactics.

You've been here before. You had 1-800 numbers and credit cards. You had the advent of the internet. You had the advent of search marketing. You're now experiencing the advent of mobile and social and tablet devices. Each time in the past, you adapted, you changed with the times.

This time, we get to invent the future.