November 03, 2010

Gliebers Dresses: Engagement

Gliebers Dresses is a fictional account of an e-commerce/catalog business dealing with a changing marketing environment.  Today, I've been asked to sit in on their Executive meeting via Skype.


Roger Morgan (Chief Operating Officer):  Good morning, everybody, nice to have you all here today.  I've asked Kevin to sit in via Skype, because we have a few topics that are based on prior research he did for us.  Kevin, could you briefly share information about our Annual Retention Rate?


Kevin:  Sure.  Last year, I analyzed your Annual Retention Rate.  In the past year, the percentage of customers who purchased last year and purchased again this year declined just a bit.  Your retention rate was 53% last summer, it is 49% this fall.


Roger Morgan:  "OMG, as the kids say."


Kevin:  "Remember, you are sending fewer catalogs to customers, so that contributes to some of the decline.  You took catalogs away from best customers, and you re-invested some of the money in new customer acquisition.  In total, your customer file is actually growing, and based on a comp segment analysis I performed, customer productivity is essentially flat to last year."


Pepper Morgan (Chief Marketing Officer):  "So our smaller catalog strategy, coupled with a re-allocation of catalogs from housefile buyers to customer acquisition resulted in improved business performance, huh?"


Roger Morgan:  "I'll tell you what I worry about.  I worry about engagement."


Meredith Thompson (Chief Merchandising Officer): "You worry about what?"


Roger Morgan:  "Engagement.  It's all the rage these days.  I recently read a Woodside Research report that suggested that engaged customers are 4.7 times more valuable than the average customer."


Lois Gladstone (Chief Financial Officer):  "That's amazing!  We should be striving for as many engaged customers as possible, right?"


Roger Morgan:  "Absolutely!  Here's what I am worried about.  Now that we've cut back on the number of pages in our catalogs, we are, in all likelihood, reducing customer engagement."


Meredith Thompson:  "Define engagement for us, Roger."


Roger Morgan:  "Oh, I'm not sure it's a cut-and-dried definition, it's probably different for everybody.  But it sure is something we need to manage, pay attention to, and strive to improve."


Pepper Morgan:  "A lot of marketers measure engagement within e-commerce as increases in website visits, or the act of becoming a Facebook Fan, you know, that kind of thing.  They have big, complex mathematical formulas that yield a KPI with a value like 62.  Then you benchmark your score of 62 against past scores.  Roger is suggesting we're at 62, and he's suggesting that we used to be at 67."

Roger Morgan:  "Or 88."


Meredith Thompson:  "So engagement has nothing to do with selling stuff or has nothing to do with being profitable?"


Roger Morgan:  "Woodside Research says there is a link between engaged customers and loyal customers.  And we all know that the most loyal customers are the most profitable customers, so I'd say that's some pretty convincing research."


Meredith Thompson:  "So we can't even come up with a solid definition for engagement, and if we could, we couldn't prove that engagement leads to increased sales or increased profit?"


Roger Morgan:  "It's just simple common sense, Meredith.  We want our customers to engage with us.  And when they engage with us, the like us better.  And when they like us better, they tell their friends about us ... we can't quantify the viral impact of that.  Look, last week I read this paper from a Web Analytics guru, and he said you don't even bother trying to link engagement to sales and profit.  She said you just focus on engagement, you keep your eye on the prize!"

Lois Gladstone:  "Kevin said earlier that we have more new customers than last year, I'll bet that is because our customers are so engaged with us that they are telling their friends about us and then we end up with more new customers.  That's fantastic!"


Pepper Morgan:  "Our response analysis shows that the entire increase in new customers is coming from having smaller catalogs that we can circulate to more prospects."


Roger Morgan:  "Sure, I'll bet that has something to do with it.  But this engagement thing goes beyond traditional metrics, I mean, digital marketers intuitively know this, they don't need some set of rigid metrics to prove something.  The last thing we need is some complex geeky equation that factors in visits and page views and shopping carts and merchandise views for crying out loud.  Folks who have strong faith don't need proof of God, they just know that God exists."


Pepper Morgan:  "We do have the Bible."


Roger Morgan:  "Nevertheless, we have a bunch of metrics that we can link together, coupled with common sense and business experience, and the combination of factors tells me that engagement is really important.  Besides, Woodside Research says that ..."


Meredith Thompson:  "I want to be evaluated on engagement!  I want to be evaluated on engagement!  Let's not measure me by how many dresses I sell, let's measure me by my ability to improve engagement.  We need to get away from old-school metrics like sales, like profit.  Leave that boring stuff to the CFO.  Just give me raises for increasing engagement."


Lois Gladstone:  "That's foolish, Meredith.  How would we ever know if you are doing your job or not?  We know you are doing your job when you create great merchandise that customers love."


Meredith Thompson:  "But Roger wants the marketing department to be evaluated on a metric that is hard to define and may or may not be correlated with profit.  Shouldn't marketing be responsible for sales increases and profit improvement?"


Roger Morgan:  "In these challenging economic times, savvy marketers are finding that new digital marketing strategies like engagement resonate with cash-strapped consumers.  If the customer cannot buy something, the least you can do is keep her engaged.  Then, three years later, when she can finally afford to buy something, we're top of mind.  Get it?"


Pepper Morgan:  "We have 2,250 Facebook Fans, and we have 1,025 Twitter Followers.  Last year at this time, we had 500 Facebook Fans and 375 Twitter Followers."


Roger Morgan:  "That's a lot of engagement!  I mean, you're looking at a 3x to 4x increase in Fans and Followers.  That's exactly what I am talking about!  You are adding value to the brand via your hard work.  You should be rewarded for that."


Meredith Thompson:  "How much is a Facebook Fan worth?"


Roger Morgan:  "According to a recent Woodside Research report, each Facebook Fan is worth $225."


Pepper Morgan:  "I read an E-Com 2010 Research Report that said each Facebook Fan is worth $3."


Lois Gladstone:  "I read an article in CFO Leadership Magazine that said that each Facebook Fan is worth $17."


Meredith Thompson:  "I read an article in Dress Merchant Daily that said that each Facebook Fan is worth $57.  And I'll bet if we poll the trade journals that each employee reads, we'll end up with another set of fifty-seven results, all with different outcomes."


Roger Morgan:  "That means that a lot of people are really trying to nail this thing down, that's great.  I love the digital marketing community, they're a plucky bunch!  And I'm not going to criticize these people, they're on the leading edge of research, they're busy creating things, they aren't out there complaining like some of the naysayers in this room, they're busy working on solutions."


Meredith Thompson:  "So, to conclude this discussion, this is what we know.  We know our retention rates are down because we are mailing less.  We know our new customer counts are up, because we are prospecting more.  We know our overall spend-per-customer is flat with last year.  We are being told that engagement is important.  We think that by having fewer pages in the mail, we have lower engagement.  We think that by having more Facebook and Twitter folks loving us, we have higher engagement.  We think we might have a lot of word-of-mouth fueling new customer growth, but our traditional metrics suggest that the catalogs are responsible for new customers, not word of mouth.  We can't come up with a consistent and understandable metric for defining engagement, though we're confident we could come up with valid metrics that would prove our hypothesis that engagement matters.  We can all quote metrics from different sources, all of which tell us that Facebook Fans are worth anywhere between $3 and $225, not $213 to $225, but $3 to $225.  We cannot prove that engagement leads to increased sales or increased profit, but we logically think that engagement is tied to loyalty and loyalty is tied to great customers and great customers visit our website, and when people visit our website they buy stuff, and when people buy stuff we generate profit, and when we generate profit we get to keep our jobs, so as a result engagement is important and we might be losing engagement because catalogs used to be 124 pages and now they're 116 pages."


Pepper Morgan:  "This is what we know!"


Lois Gladstone:  "Bad attitudes aside, this engagement stuff doesn't really cost anything, you basically employee a bunch of free marketing techniques and 'boom goes the dynamite'!!!"


Roger Morgan:  "You know what Glenn Glieber would have said ... he would have said 'I love free marketing'!"  This engagement initiative is really aligned with the spirit of Glenn Glieber."

Kevin:  "You know, folks ..."

Roger Morgan:  "Oh boy, he's talking again."

Kevin:  "... there's nothing wrong with measuring engagement, as long as you clearly define it and you take actionable steps based on what the metric tells you.  My position is that every metric you look at should be directly tied to profit.  Sometimes we have a lot of hypotheses, and we're looking for metrics that validate our hypotheses.  When we cannot link profit to something, we try to link something to engagement, because we can theorize that engagement leads somehow to profit.  If you define engagement in a fair way, and you link it to profit, then measure it until the cows come home.  Otherwise, engagement is a lot like thruthiness."



Roger Morgan:  "The modern digital marketing expert knows that engagement is where it is at, so we need to start working toward a genuine improvement in engagement.  We'll demonstrate over the next few years that engagement matters, we just need time to identify the criteria that proves our hypothesis.  Just look at our Facebook and Twitter counts, that alone proves that this engagement stuff works.  Ok, everybody, great discussion, that's all for today!"