June 30, 2010

Fetzer's Footwear: A Mobile Moment

Today, Lauren Fetzer, CEO of Fetzer's Footwear, asked me to attend her Executive Meeting to share stats on a mobile/iPad app hear team launched in May. As I approach her office, I notice that Lauren is listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren Fetzer: "I'm Not In Love, by Will to Power. A nicely updated version of the 10cc classic, don't you think?"

Kevin: "Alright".

Lauren Fetzer: "So that you know, we're having a bit of a kerfuffle over our iPad/Mobile app. Your data suggests that existing online buyers are switching to the app, causing website visits to decrease and causing e-commerce sales to decline, correct?"

Kevin: "Correct."

Lauren Fetzer: "And your data suggests that total sales, when you add e-commerce to app sales, are essentially flat, correct?"

Kevin: "Correct."

Lauren Fetzer: "So Connie Simpson, our CFO, is going to wonder why we waste time on shiny new toys that do not deliver incremental revenue. Penny Parker, our marketing leader, will advocate pursuit of new marketing channels. Bart Cox, our Store Executive, will probably be highly disengaged."

Kevin: "Alright".

Lauren Fetzer: "Let's go, then!"

We enter the Executive Meeting Room, where a lively discussion is taking place about why South African soccer/football fans are compelled to make noise with the vuvuzela.

Lauren Fetzer: "Good morning, everybody. I've asked Kevin to attend today and share his analysis of our iPad/Mobile app, but first, Penny, let's go over sales results from yesterday."

Penny Parker (VP, Marketing): "The website was down 6% to last year, our mobile app went bonkers again, so the online channel in total was up 8% to last year. Retail was +1% yesterday, led by our Redmond store at +11%. Alderwood brought up the rear, at -16% to last year."

Lauren Fetzer: "Bart, what the heck is going on at Alderwood, their results get worse every single day?"

Bart Cox (VP, Stores): "Don't ask, I've got it under control. And I could use some marketing help to drive traffic into the store."

Lauren Fetzer: "Kevin, can you explain what is happening between the website and the app?"

Kevin: "Sure, you've now had your iPad, Android and Blackberry apps active for a full month. During that time, apps are now up to eight percent of total online sales. What is interesting is the composition of customers who use the app. Buyers using the app are 88% existing buyers, in fact, they are among the best customers you have. In addition, overall customer retention rates have not changed in the past month, and purchases per buyer have not changed in the past month. Clearly, a portion of the file shifted their allegiance from the website to the app."

Bart Cox: "My store managers tell me that customers are using the apps to identify merchandise that does not appear in our stores, the customer is literally using the app to buy online product while standing in a store. Our store managers don't like that, because it takes a sale away from them."

Connie Simpson: "If our apps didn't increase total sales, then why are we even bothering with them? Lauren, you've always preached that we need to focus on merchandise, not on channels. Well, an app is just a micro-channel, and if it isn't adding incremental customers or isn't creating incremental sales, let's just prune the channel and save expense. We can't keep focusing efforts on all of these shiny online channels that seem to add complexity but never seem to add sales."

Penny Parker: "This isn't a channel issue, this is a customer service issue. If a customer wants to shop via a mobile app, let her shop that way, who are we to tell her how to shop?"

Ashley Zimmerman (VP, Merchandising): "But the app is a terrible shopping experience. You get this boring little screen with a handful of choices. I want the customer to see my full assortment when she visits the website, I don't want for her to be given micro-choices, her shopping experience should be like an all-you-can-eat buffet!"

Bill Bledsoe (VP, Logistics): "And this takes work, folks. My team has to divert resources to our apps, we're diverting resources away from the website. The website still drives more than 90% of our online sales, but we're spending 25% of our resources right now on our mobile apps ... we tweak them, we optimize them, we respond to customer preferences. It takes a lot of work, and we're not gaining incremental sales."

Bart Cox: "Store managers hate 'em ... they take sales away from the store. Maybe that's the problem at Alderwood, Lauren, the app is killing the store, huh?"

Lauren Fetzer: "So Connie, how would you advise us on making investments in new channels? I mean, if we follow your logic, we could conceivably never launch a new channel, just because the new channel would cannibalize sales from the existing channel, right?'

Connie Simpson: "I don't think it is that simple. Take paid search. We found that paid search cannibalized half of our organic search results. But we ran a profit and loss statement, and we learned that the paid search investment made up for itself in eight months, so on an annual basis, we were making money. That's a decision that makes fiscal sense. If our apps are simply cannibalizing existing sales and we're spending developer resources on something that isn't driving incremental sales, then I'm not confident we're making the right decision."

Penny Parker: "But Woodside Research says that by 2015 we'll see 42% of all online sales happening in the mobile channel. If we're not there, we're not learning."

Ashley Zimmerman: "Did Woodside Research predict the economic collapse? What do they know, they're always wrong, and we pay them. Geez."

Bart Cox: "Store managers hate apps."

Ashley Zimmerman: "I'm just saying that if apps takes away from the merchandising experience, then I'm not in favor of our apps. We need to present the entire merchandise assortment to the customer."

Penny Parker: "But what about the customers who don't care about the entire merchandise assortment, what about the customers who only care about the deal of the day? All they need is the app, the hop on at 11:00am and see the deal of the day and they buy that specific item. Those customers don't need a full website experience, do they? Doesn't anybody care about the customer experience?"

Lauren Fetzer: "Here's where I come out on this, folks. We've always been willing to cannibalize our own sales. We did it with paid search, which sounds crazy, right? I mean, we pay for sales that we could get for free, but we did the math, and the long-term math supported the investment. We did it with e-mail, right? We found that when we don't send e-mail campaigns, we still get 55% of the sales. But we did the math, and the math supported the investment. We even do it in retail, right Bart? We opened our Redmond store knowing full well that it would cannibalize Bellevue. So we're going to make an investment in Mobile, folks."

Ashley Zimmerman: "But the merchandise experience isn't great."

Lauren Fetzer: "Ashley, don't focus on what the experience is today, focus on what the experience should be, and then put pressure on Bill's team to make the experience be one that a merchant can be proud of."

Connie Simpson: "Do we care that app users aren't visiting the website? I mean, they're missing out on the entire brand experience, right?"

Lauren Fetzer: "I don't care. We need to learn how customers interact with this form of media, and then we need to adapt to it. Make something happen, folks. Go out there and invent the future, don't act out of fear."

Bill Bledsoe: "But my development team is being stretched thin. With 25% of the development team focusing on apps, the remaining folks are forced to deal with an ever-increasing number of website issues."

Lauren Fetzer: "We are not backing off of our pursuit to invent the future. It is obvious that our customers love the app, or our best customers wouldn't all be switching to our apps, right?"

Penny Parker: "Absolutely!"

Lauren Fetzer: "So we move forward, we learn, and we adapt."

June 29, 2010

16 Multichannel Marketing Myths

It's likely that you are already reading The Ad Contrarian. One of the most interesting things mentioned on this blog is the concept of probabilities ... that there is nothing that is certain in advertising/marketing, nothing works for everybody all of the time. In other words, when you follow a best practice, there is an "x" percent chance that it will work for you, not 100%, but "x" percent.

Nowhere is this more appropriate than in the world of marketing that we exist in. Our world is full of myths, myths based on activities that worked for one company, but cannot work for all companies.

Myth: E-Mail marketing has the best ROI (return on investment).
  • This statement, of course, borders on being ridiculous. Even if you manage e-mail better than anybody in our industry, you might pull down $0.25 per recipient, generating $0.10 profit. Your old-school catalog will generate $3.00 per recipient, generating $0.60 profit. If you could only mail one piece, would you choose the e-mail campaign, or would you choose the catalog? The e-mail marketing community will take the $0.10 profit, divide it by the $0.002 it costs to send the e-mail, and claim that the 50 to 1 ROI ratio is far better than the 1 to 1 ROI ratio found in catalog marketing. This isn't even a myth, this is just plain silly! Go with the activities that deliver the most profit dollars, period.
Myth: Multichannel customers are the best customers.
  • No statement has been more damaging to the craft of catalog marketing than this statement. This statement is used by the establishment to maintain existing best practices. Instead of experimenting with the future, the statement is used to keep marketers entrenched in the past by demonstrating that customers love both old-school marketing and new marketing techniques ... strongly suggesting that without old-school marketing, the new techniques won't work. It turns out that the best customers do everything in "multiples" ... they buy from multiple merchandise divisions, multiple stores, they buy multiple items per order, they buy during multiple seasons, they buy from multiple sub-brands. Catalog marketers missed a decade of innovation by chasing a myth that you could somehow generate more multichannel buyers by sending more catalogs. Be honest, did that strategy work for you??
Myth: E-Mail and Social Media are the Dynamic Duo
  • Ugh. We continually see situations where the incumbent technology creates a myth, a myth designed to tie it to the technology that is destroying the incumbent. Hint: All channels have strengths, and all channels have weaknesses. Leverage e-mail based on what it is best at, leverage social media based on what it is best at, there's no need to link channels together to demonstrate the benefits of the incumbent channel.
Myth: Brands utilizing Social CRM are reaping rewards.
  • Exactly what rewards are they reaping? (and why do we constantly see the phrase "reaping the rewards" these days ...how exactly are we now defining 'rewards'?). CRM is in a fight for survival ... we've been hearing about one-to-one marketing and CRM for decades and in most cases we've been blessed with endless phone trees (push nine to speak to a live person). One-to-one marketing is being obliterated by social media, customers get to choose what they want, not brands. Be wary of anything that combines the phrase "Social" with the phrase "CRM" ... it's a marketing and technology pitch not supported by the desire of a customer to be managed by a computer.
Myth: Bricks 'n Clicks are the future of marketing.
  • Embarrassing. Who convinced direct marketers that you must have stores, and who convinced direct marketers that customers love stores? It might be the banking industry, who loves it when a direct marketer takes dollars that would have been spent generating sales tomorrow (catalogs and e-mail and search) and then funnels those dollars to interest payments to banks to cover new store loans. Bricks 'n clicks is marketing pap. If you are an operator (i.e. a person who actually tries to grow brands, not a consultant), you know that the majority of e-commerce customers will buy from a store, but the majority of store customers won't buy from e-commerce. This means that the store becomes the black hole of your business, it is a place where the rules of gravity change! Your customers eventually change behavior, become less likely to buy online, and have their entire experience dictated by the store experience. Banks who lend money to brands with stores benefit, I'm not sure that the direct marketer benefits.
Myth: Customer Centricity is the key to increased profit.
  • Notice that customer centricity is seldom mentioned by businesses that provide great customer service. Customer centricity is often met with other buzzwords (one-to-one marketing, CRM). If you are fighting to make your business more 'customer centric', you are a noble and bold individual fighting a culture that doesn't care about treating customers as nicely as you believe customers should be treated. In those situations, no CRM solution makes up for the inaction of your co-workers.
Myth: Bricks 'n Clicks are the future of marketing.
  • This topic deserves to be addressed twice! Explain this to me, folks ... explain how Amazon and Zappos and eBay and Netflix do so well without stores, while Borders and Blockbuster struggle to survive with integrated multi-channel strategies? There are always successes (i.e. Apple stores), and there are always failures (The Sharper Image, with integrated multi-channel campaigns). Everything is a probability, not a certainty. Have product that customers crave and outstanding customer service and you'll be successful no matter how you choose to market to customers.
Myth: Customers love interacting with brands on social media.
  • Ask yourself a question ... how many brands do you like to interact with via social media? Do you love to tweet that creepy Burger King character and say "Hey, Creepy Burger King Dude, nice commercial yesterday?" Be honest with yourself, this is a confection of a marketing audience that wants the global explosion of friend-to-friend communications to extend to brand-to-customer interactions. Sure, some stuff works (like when a customer needs help and you provide great customer service via social media or when a customer wants 10% off plus free shipping) ... but for most social media marketing tactics, it is one of those cases where probabilities come into play, you have one brand that does something and succeeds, but there is only a 10% chance of everybody else doing it and having it work for them, even if they execute perfectly. Social Media for business is largely a roulette table, you put your money on the number "14", somebody spins the wheel, and then you hope that you win.
Myth: Customer Engagement is the key to unlocking profit in a one-to-one world.
  • I once invited a group of co-workers to a party I was hosting at my home. One of my co-workers came with his entire family, walked in the kitchen, and grazed from the assortment of food platters, then left. One might posit that this family was engaged, they spent about ninety minutes at the party, they didn't "bounce from the home page" like other folks who came to the party and left ten minutes later. For some reason, we have this fascination with metrics that do not correlate with metrics that matter. The metric that matters, of course, is "profit" ... and when we can't find any innovative ways to increase profit, we move to other metrics we believe are loosely correlated with profit, namely, "engagement". If you can prove that there is a direct cause-and-effect relationship (i.e. customer visits, then customer buys, then customer becomes engaged, then customer becomes highly loyal only because of the engagement), then I'll buy the customer engagement argument. Otherwise, customer engagement is fool's gold, fun to measure, fun to theorize about, but uncorrelated with profit.

Myth: E-Commerce is the future.
  • If e-commerce is so amazingly wonderful, then why does retail still account for 9 in 10 of all purchases, and has accounted for 9 in 10 of all purchases for decades? E-commerce is the logical extension of the catalog marketing model ... and we're likely to see mobile become the logical extension of the e-commerce business model.
Myth: You'll be out of business in five years if you don't jump on the social media bandwagon.
  • Compare Comcast/Dell with Apple. The former brands are social media darlings, the latter is not. Which of the three brands is known for innovative products that customers crave? Hint: Great products create social media buzz ... social media buzz cannot sell average products.
Myth: Integrated campaigns are the secret to success.
  • The literature is filled with marketing pap about how integrated campaigns increase response. Here's a question for all of you ... if everybody is focusing on integrated campaigns and working so hard on improving response to individual or integrated campaigns, then why has the annual customer retention rate (the % of last year's customers who purchase again this year) remained flat or decreased for the past decade? All we're doing with integrated campaigns is shifting demand from non-campaign periods to integrated campaigns. We don't measure the right things ... we measure campaign response when we should be measuring annual customer behavior. Annual customer behavior seldom changes much.
Myth: Businesses fail because decisions are made by the highest paid person's opinion (HiPPO).
  • Spend five minutes with the Web Analytics crowd, and you'll be inundated with stories about how facts are continually ignored by business leadership. Horsefeathers!! Often, the story told by the analyst is incomplete or incoherent. Stories must have actionable outcomes. Stories have a better chance of success if data from non-web-analytics platforms is incorporated into the story. Hint: Executives respond to data stories when the Executive is likely to benefit from a strategy outlined in the story.
Myth: If you had the right metrics posted on a dashboard, Executives would make better decisions, and the business would be more successful.
  • For some reason, we now believe that if we just display the right information to business leaders, then business leaders will make better decisions. We can have all of the dashboards in the world showing the number animals being killed in the Gulf of Mexico by the big 'ole oil leak, but that doesn't mean that the problem will be fixed any faster or cleaned up any quicker.
Myth: If you continually test and optimize your website , your business will significantly outperform the competition.
  • We keep reading about tests that yield a 42% increase over the control. If this is true, and we then implement all of the positive test results, then why aren't businesses doubling or tripling in size all the time? Testing and optimization works when you are testing strategies that have a long "half-life". Testing whether to use a large green button or a small yellow button might yield a 31% increase in one strategy, but that strategy has no half-life, meaning that customers don't truly care about the strategy on a long-term basis, it was simply something that was interesting for a day or two.
Myth: Make cultivating your social media presence a ten minute task.
  • This was the headline in a trade journal daily e-mail I received this week. Hint: I have written over 1,500 blog posts and have tweeted more than 3,000 times in the past four years. Nothing is easy, folks. Why are we so infatuated with easy solutions to wretchedly hard problems? Be willing to do hard work. Be willing to do innovative work. Be willing to fail.
Time for your thoughts ... what are some of the marketing and analytics myths out there that are routinely being debunked?

June 28, 2010

Summer Segmentation: Three Months

If there is one segment of customers you want to track every single day, it is the first time buyer with a purchase recency of 0-3 months.

Why 0-3 months?

Almost all of my Multichannel Forensics projects indicate that this is the most important window in the development of a loyal customer.
  • If the customer does not visit your website during this timeframe, you may be at risk for losing the customer.
  • If the customer does visit your website on a periodic basis over this three month timeframe, then pay close attention to what the customer is doing ... is the customer visiting pages on the website that suggest the customer is moving closer to a loyal relationship?
Tailor your offline marketing activities to growing the customer relationship among this customer segment.

Closely analyze the online behavior of this customer segment, and benchmark the behavior against prior years, to see if habits and behavior are changing.

0-3 month first time buyers are a critically important customer segment to track.

June 27, 2010

Dear Catalog CEOs: Loving The Craft

Dear Catalog CEOs:

If there is one theme that permeates all catalog clients I visit, it is a love for the craft of cataloging.

This love comes across in the way that the catalog mind thinks. The CEO based in San Jose thinks about an app as a way to engage a customer, and thinks about what needs to be in the app to make sure that the customer purchases something.

The catalog CEO thinks about the catalog as a way to engage a customer, and thinks about the content in the catalog as a way to make sure that the customer purchases something.

The online channel is a direct reflection of the craft that Management loves. When the merchandise is aligned with the catalog, when the catalog order form is still featured on the home page, when catalog request opportunities are actively promoted on the home page, you know that Management loves the craft of catalog marketing.

Sometimes, those who love the craft of catalog marketing poo-poo new technology. Catalog marketers have long had an adversarial relationship with Online marketers, and vice versa. Catalog marketers take swipes at Social Media, often for good reason, because the channel is nothing short of feckless at driving sales for so many brands employing the craft. Catalog marketers take swipes at Mobile, often for good reason, because the channel is in the embryonic stages of upstaging traditional e-commerce and is not yet, for most marketers, accounting for a reasonable share of net sales.

And, of course, the Online, Social, and Mobile folks constantly take swipes at Catalogers, considering the craft an artifact of a time gone by. All of this is pointless ... what matters is whether customers love the merchandise we offer, right?

It's easy to have a discussion about loving the craft of catalog marketing, online marketing, social media, or mobile marketing. All four camps have a preference for one form of marketing.

If you want to do something interesting, ask your Management team which craft they love more:
  1. The craft of producing catalogs.
  2. The craft of merchandising.
  3. The craft of customer service.
Too often, folks love the craft of producing catalogs. This is where we find our downfall.

When management loves selling merchandise, the business hums.

When management loves providing outstanding customer service, the business hums when customers love the merchandise.

When management loves a marketing channel (catalogs, website, search, re-targeting, e-mail, social, mobile, and countless other channels) ... well, that result yields mixed results.

Fifty Multichannel Forensics projects across more than thirty catalog/retail brands clearly indicate that a love for merchandise and customer service outweigh a love for marketing channels. Love the craft of selling merchandise via outstanding customer service!

June 23, 2010

Fetzer's Footwear: Competition

Today, I am meeting Lauren Fetzer, the CEO of Fetzer's Footwear, to put crab pots in the ocean. The Dungeness Crab that are just off the coast of Madrona Island in Northwest Washington are among the most delicious you'll ever find.

I walk up to Ms. Fetzer, who is listening to tunes on her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Said I Loved You, But I Lied by Michael Bolton. Don't ask about my opinion of men."

Kevin: "Alright".

Lauren: "Hop in the boat, we're dropping off crab pots this morning."

Kevin: "It's 10:00am, you're not at work."

Lauren: "I work fifteen hours a day, seven days a week. If I want to drop a few crab pots in the ocean at 10:00am, I'll do it. And my employees can do it, too. They aren't slaves. You have to have a life. This isn't that Human Resources pap about work/life balance where you get to have three weeks of paid time off in exchange for forty-nine weeks of servitude. You can go do something at 10:00 in the morning."

Lauren fires up the boat, and we're on our way, patrolling the northern coast of Madrona Island, dropping crab pots in the ocean.

Lauren: "How do you compete with Zappos?"

Kevin: "Why do you ask?"

Lauren: "Our Executive team grapples with this issue every day. Zappos has a better selection of branded shoes than we do. They deliver shoes faster than we do. They use their scale to generate four cents of profit on every dollar, whereas our scale prevents us from leveraging that business model. So, ultimately, we can't compete with them, they've already won."

Kevin: "You sound defeated."

Lauren: "Quite honestly, it is the opposite. I think your job as a leader is to acknowledge what the competition does well, and then ask yourself if you can compete with the competition. If you can't compete with them, then you work around your competition instead of blowing straight through them. You probably watched 'Enemy of the State', where the Gene Hackman character talks about the advantages of being small. He talks about not challenging a large competitor at what they do best, you harass the large competitor by doing what you do best when you are small."

Kevin: "You have proprietary product, right?"

Lauren: "And that is a starting point. Our proprietary products sell 45% better than our branded products sell. You can't buy our proprietary products on the Zappos website. This is the problem with branded product. Eventually, somebody aggregates enough branded product that they become the resource, and when they are the resource, customers gravitate toward it, and customers talk about it. That's a swirl that Fetzer's Footwear cannot compete with. So why would I ever want to compete with that? We will carefully analyze what is selling in the branded world, and then create products that our customers have to have."

Kevin: "What about your stores?"

Lauren: "Well, we're experiencing the demise of the Mom and Pop store, aren't we? Again, how does the Mom and Pop store fight with the aggregation of branded product? It can't. So the only way we can survive is by having some branded product to complement our proprietary product. And then, the secret is to tell a story about our proprietary product that is so compelling, so unique, so persuasive that customers have no choice but to share our story for us."

Kevin: "That sounds risky."

Lauren: "Well that's life, Kevin. Should I go the conservative route and just let the business bleed a slow and painful death? Because that's what will happen if you compete with the monsters. If you were a department store, you'd never try to compete with Macy's or Penney, that's a recipe for disaster. You have to do something different, right?"

Kevin: "Seems like it."

Lauren: "So when you look ahead, and you put a five year plan out there, your marketing team and your merchandising team must have a compelling story to tell, one that causes the customer to be willing to purchase merchandise at a healthy gross margin. Apple has a story to tell, well, actually, their customers tell the story for Apple. Zappos technically lets customers tell the Zappos story, with employees facilitating the discussion. Amazon doesn't have a story, they have scale and price and availability. Best Buy doesn't have a story, they have scale and price and availability. Starbucks doesn't have a story, they have scale and price and availability."

Kevin: "How do you tell the story?"

Lauren: "I like the way Crutchfield tells a story. Their people appear to be more knowledgeable than anybody else, to me that's their story."

Kevin: "So you can do that via Social Media?"

Lauren: "Oh please. What a waste. Be honest, Kevin, do you want to be friends with that goofy Burger King clown figure from the TV commercials? Do you want to be friends on Facebook with that goon? Nobody, I repeat nobody, wants to be friends with a brand. You provide great customer service via Social Media, and then other people in Social Media talk about you. That's how you do it, Kevin, you don't create a bunch of campaigns to grow friend counts. Social Media is fool's gold as promoted by Social Media experts. You don't sell stuff by 'joining the conversation'."

Kevin: "So how do you sell stuff via Social Media?"

Lauren: "You don't. You just have to be excellent, and you have to tell a compelling story, one that people want to share via Social Media. I think you do that, you compete, by having your merchandising team craft the story. Your merchandising team must truly believe in the product, and must be absolutely compelled to share their passion with everybody on the planet. When you do that, and you do it well, and your marketing team is 100% behind the merchandising team, that's when you have success. Over the next five years, that's where we will find our way to growth. We have to have a vision for telling a merchandising story, and we have to have unique product at a healthy gross margin coupled with great customer service. That's the only way we are going to compete with Zappos online and with folks like Nordstrom in stores. You can't compete on price and assortment."

Kevin: "Ok."

Lauren: "You do this with your consulting. You don't consult on optimizing conversion rates, or in the catalog world, you don't figure out how to create a better co-op. You tell a unique story and you offer products that aren't available anywhere else and you let other people spread your story."

Kevin: "Gotcha."

Lauren: "Now let's go pick up yesterday's crab pots and have some lunch!"

June 22, 2010

The Six Stages Of Channel Death

Advertising channels go through an interesting life-cycle. The early stages of an advertising channel are full of hype. We've seen it with Social Media ... Geocities is the future, no, wait, MySpace is the future, no, wait, Blogs and Blogging are the future, no, wait, Second Life is the future, no, wait, Facebook is the future, no, wait, Twitter is the future, no, wait, Foresquare is the future ... you get the picture.

Far more interesting, however, is the opposite end of the spectrum, when channels die.

Now, obviously, channels do not die. People still place orders via fax or phone, people still purchase stuff after watching a television commercial on ABC, CBS, or NBC.

But channels are forced to morph into something else when faced with the challenges brought on by new technology ... channels that were once prominent become much, much less prominent. Let's explore the process incumbent channels go through, because the process is quite interesting!

One might call the first stage "self evidence". Sales stop growing in the incumbent channel, and it becomes self evident that something is wrong. Business leaders all know, intuitively, that the limits of the channel have been hit. Think catalog marketing in 2000, think independent music stores in 2002, think e-mail marketing in 2007, think e-commerce in 2012 or 2013 when mobile commerce truly takes off.

The second stage is "complexity". Pundits respond to inquires by business leaders by suggesting that the incumbent channel is inherently more complex than it used to be. In catalog marketing, this is represented by the "matchback", the concept that you need advanced analytics to be able to understand that the incumbent channel is still as relevant as it ever was. For e-mail marketing, the shift was to advanced segmentation and CRM techniques ... all of a sudden, you needed trigger-based e-mail campaigns based on real-time data, or you needed multiple versions of campaigns to improve productivity. In any case, one finds that sales still don't appreciably grow, even if you manage complexity appropriately ... this is a key signal, folks ... sales still don't grow after responding to complexity in an appropriate manner.

The third stage is "integration". When sales fail to grow, in spite of the addition of "complexity", the punditocracy suggest that the incumbent channel is the "peanut butter" to the "jelly" of the new channel. In catalog marketing, you are told that print is the channel that drives the customer online or in stores ... without print, you cannot make the online channel or retail channel work. In e-mail marketing, we're being told that e-mail and social media are the dynamic duo, we're being told that e-mail marketing is actually the original "social media channel", you are being informed of new terms (i.e. Social CRM) that aren't likely to resonate with actual customers. You'll begin to see a lot of case studies that "prove" that the incumbent channel is responsible for the growth of the new channel. The case studies, unfortunately, are seldom funded by the folks managing new channels, the case studies seem to come from those managing the incumbent channel. When you observe case studies coming from the incumbent channel, you know that the incumbent channel is going through "integration".

The fourth stage is "cannibalization". This is the realization that the incumbent channel is dying, that maybe the incumbent channel is truly responsible for driving sales in new channels, but eventually, the customer changes behavior and switches to the new channel ... the new channel is fully cannibalizing the incumbent channel and the pie isn't growing, meaning that sales in total are essentially growing at the rate of inflation. This is a painful stage, this is the stage that the e-mail marketers are about to enter, this is the stage that, over the next five years, the e-commerce folks will go through as mobile marketing fused with sparse elements of social media plunder traditional e-commerce. This stage is important, because it causes Management to make significant changes to advertising budgets, leading to the fifth stage.

The fifth stage is "contraction". In this stage, Management prunes budgets, actively allocating resources to new channels. This hastens the demise of the incumbent channel. Catalog marketers know all about this stage. This stage leads to many unfavorable consequences. In "contraction", business partners (like the USPS) make the unfortunate decision to increase prices in response to a contracting market, further hastening "contraction". Contraction is painful, most business leaders try to avoid contraction at any cost, diving into "complexity" and "integration" in an endless drive to avoid "cannibalization". In most cases, "contraction" is unavoidable.

The sixth stage is actually quite positive. This stage is called "acceptance". The business leader realizes that the incumbent channel is now well positioned among niche audiences, resulting in profitable opportunities across smaller but loyal customer segments. It is here that the incumbent channel finds a purpose, a reason for being. Think "AM Radio", for instance. As better technology cannibalized music, "AM Radio" morphed into a talk radio channel --- clearly a channel that didn't have the market share that other channels had, but a channel that had a purpose, a reason for being. Once the incumbent channel moves into "acceptance", the incumbent channel becomes profitable and re-emerges as relevant across a smaller but loyal audience. Management prunes the incumbent channel of unprofitable market share, allowing the incumbent channel to achieve a new (but smaller) level of prominence.

Mind you, the pundits will say that AM Radio is dead ... and the pundits are right to an extent ... except when it comes to the millions of folks who listen to Coast to Coast AM each night during the overnight hours ... to those folks, the channel that is technically "dead" is highly relevant!

The process of going from "self-evidence" to "contraction" is painful. Arrival in "acceptance" is actually quite positive. Our job is to capitalize on the profit among customers who will always love the incumbent channel, while shifting dollars to emerging channels among other customers.

The six stages are:
  • Self-Evidence
  • Complexity
  • Integration
  • Cannibalization
  • Contraction
  • Acceptance
Catalog marketing is about to enter the "acceptance" phase of channel evolution driven by e-commerce. Catalog marketing in 2015 will be significantly smaller than catalog marketing in 1995, but has the potential to be significantly more profitable and relevant among the niche that loves that form of shopping.

E-Mail marketing is stuck in "integration" and "cannibalization", with painful days ahead as Social Media and Mobile drive the implosion of traditional e-mail marketing. According to the Pew Internet Project, only 11% of teens use e-mail daily to send e-mail to friends, 68% of teens use e-mail for other purposes at least occasionally. So e-mail needs to evolve to respond to other channels that allow for real-time communication ... to date, leadership in e-mail marketing are not moving fast enough to respond to this shift in user behavior.

Classic Search is in the "integration" stage, but Social/Mobile Search are, in many ways, just beginning, making this a really interesting channel to watch. In Classic Search, we're just learning how customers behave after receiving an e-mail message or a catalog or after seeing a re-targeting ad. Social/Mobile Search will cannibalize the existing Search business, yielding a really interesting and exciting future.

E-commerce is entering the "self-evidence" stage in what is about to become an epic battle with the mobile channel. Pay close attention to the growth rates reported by e-commerce ... because the e-commerce folks will include mobile in their numbers (that's often a leading indicator of the "self-evidence" stage). In the next five years, e-commerce leaders will protect their channel by adding mobile volume to traditional e-commerce ... "self-evidence" comes into play when a "bean counter" asks the question ... "what happens to e-commerce sales if you strip out mobile sales?"

Think about mobile for a moment. Gilt Groupe generated 3% of their total sales off of the iPad after just three days ... think about that! eBay will generate $1.5 billion in mobile sales this year after generating $900 million last year, and their sales aren't growing much, so that's all being cannibalized from traditional e-commerce. The long-term future of traditional e-commerce is in doubt, folks ... the future of selling by distance is, and always has been, promising.

Measure the six stages of channel death, and be ready to respond to changes in customer behavior!

June 21, 2010

Summer Segmentation: Seasonal Buyers

You probably already know this, but seasonal buyers are different than other buyers.

One easy way to understand this is to segment your customers by months since last purchase. Take all of your customers with at least one purchase as of May 1, and then measure repurchase activity during the month of May. Your table might look like this:


Recency = 1 Months, Repurchase Rate = 10.0%.
Recency = 2 Months, Repurchase Rate = 8.3%.
Recency = 3 Months, Repurchase Rate = 7.7%.
Recency = 4 Months, Repurchase Rate = 7.2%.
Recency = 5 Months, Repurchase Rate = 4.8%.
Recency = 6 Months, Repurchase Rate = 4.7%.
Recency = 7 Months, Repurchase Rate = 5.9%.
Recency = 8 Months, Repurchase Rate = 5.5%.
Recency = 9 Months, Repurchase Rate = 5.2%.
Recency = 10 Months, Repurchase Rate = 4.8%.
Recency = 11 Months, Repurchase Rate = 5.1%.
Recency = 12 Months, Repurchase Rate = 5.5%.
Recency = 13 Months, Repurchase Rate = 5.1%.
Recency = 14 Months, Repurchase Rate = 3.9%.
Recency = 15 Months, Repurchase Rate = 3.6%.
Recency = 16 Months, Repurchase Rate = 3.3%.


Look at the red rows, at months five and six. These are Holiday shoppers, and Holiday shoppers often do not repurchase at the same rates that do other customers. Here's a place to reduce marketing expense.

Look at the green rows, at months eleven through thirteen. These are Seasonal shoppers, they last purchased similar product about one year ago. These are customers that require increased marketing expense, because this is the time when you can "win back" the customer, as the vendor community likes to say. These customers are likely to buy comparable product one year later.

This is about as simple as segmentation gets, and yet, it's completely actionable and it makes intuitive sense.

So go use this tip to grow your business!

Hear My Presentation at the Retail Marketing Virtual Conference

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My talk is called "The Bucket List". I'll discuss thirty-five strategies for classic direct marketers and catalogers to move businesses into the future.

June 20, 2010

Dear Catalog CEOs: Crutchfield

Dear Catalog CEOs:

Many of our loyal readers forwarded this link from Harry Joiner, a noted E-Commerce Recruiter ... it is a video showing the new 3D catalog from Crutchfield. Click below to watch is video:

http://www.marketingheadhunter.com/2010/06/best-catalog-ever-video-crutchfield-mails-in-3d-you-gotta-see-this.html.

I know, I know ... you are going to tell me all of the reasons why this won't work. You'll tell me how you tried something like this back in 2002 on a CD that you sent to a customer and that didn't work.

Give Crutchfield two points for having the courage to innovate, to try something different. Couple that with the Catholic Church and their use of the iPad, and you starting to see the early seeds of the stuff that will replace e-commerce.

And rest assured, e-commerce is dying (I can hear the screams from all across America right now as I write this in the cloudy, gloomy 54 degree Pacific Northwest). Sure, customers will always shop online. But traditional e-commerce, where you depend upon Google to act as a traffic light for brands willing to drive on the information superhighway, the form of commerce where you physically visit a website and drill up and down and plunk items in shopping carts and measure clicks and conversions, that form of commerce is dying.

Why not be like Crutchfield, and at least try something different? Why not create a new channel?

June 16, 2010

Fetzer's Footwear: The HiPPO

Today, Lauren Fetzer, CEO of Fetzer's Footwear, has invited me to join her in a meeting with her Executive Team. The team is going over plans for 2011. Lauren is in her office, listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Always The Last To Know by Del Amitri. The lyrics aren't what matters, I just like listening to this before Executive meetings because so often something comes up, and I'm the last to know."

Kevin: "Alright."

Lauren: "Let's go."

We enter the conference room.

Lauren: "Ok folks, let's get going. Penny, what did sales look like yesterday?"

Penny Parker (VP, Marketing): "The website was up 17% yesterday vs. last year, traffic was up 22%, conversion rates were down significantly, continuing a theme we've seen for a long time now. Retail comps were up 5%, led by Downtown Seattle at +22%. Alderwood was -2.8%"

Bart Cox (VP, Stores): "Don't ask, Lauren."

Bill Bledsoe (VP, Logistics): "Something doesn't make sense, folks. We've worked so hard to improve the website experience for our customers. We've implemented a myriad of improvements. Yet, no matter what we do, conversion rates don't improve. Well, they seem to improve for a while, then they just fall back to our baseline."

Ashley Zimmerman (VP, Merchandising): "What's on the docket to improve conversion rates in 2011?"

Connie Simpson (VP, Finance): "And given the potential sales we could generate if we improve conversion rates, it makes perfect sense to spend money to improve conversion rates, so I'm not here to get in your way."

Penny Parker: "Let's pull up a spreadsheet (Penny clicks on her laptop keyboard, a file opens and is displayed on a large plasma monitor). In 2011, we are planning to do a series of website improvements, based on testing we've done during the past year. You can clearly see the laundry list of improvements on the monitor. We have at least two dozen e-mail campaigns that will support our improvements and drive traffic to the website. We strongly believe, based on our tests, that we need to focus more on the product on the home page, and utilize less lifestyle imagery. The tests show we can improve conversion rates by 8.43% if we do this on an ongoing basis."

Ashley Zimmerman: "We've gone over this over and over and over again. We need to communicate the lifestyle aspect of our brand, or we don't have a brand, we're just Zappos without the social media tie-in."

Penny Parker: "And our testing shows that presenting the lifestyle aspects of our brand is counter-productive to driving sales and profit. We have the data to prove it."

Bill Bledsoe: "Are the result statistically significant?"

Penny Parker: "Absolutely. Our tests showed that there is only a 2 in 100 chance that the results are wrong."

Bill Bledsoe: "Wow, that's amazing. How often in business can you count on something ninety-eight times out of a hundred?"

Penny Parker: "I agree! That's why we need to stay the course. We need to focus on what has always worked. I think we just need to make our campaigns work harder. Everybody needs to step up to the plate and be accountable for delivering results."

Ashley Zimmerman: "That works to a point. If you follow that strategy to the extreme, we'd still be selling Colorado boots from the 1980s. At some point, you have to take risks."

Penny Parker: "My team measures risk. We test products against each other, we test creative treatments, we test home page offers, we test it all. When we follow the outcome of our test, we succeed."

Connie Simpson: "So why is it that we do all of this testing and optimization and analysis and nothing ever gets better, Penny? What was our annual retention rate last year, 55%? It's been 55% for a decade. You keep improving everything, and the needle doesn't move a bit."

Penny Parker: "I disagree. Had we not tested and optimized, maybe our retention rate would be 47%?"

Connie Simpson: "If you go back to 1999, how many online marketing campaigns were we executing each year?"

Penny Parker: "Maybe a dozen, a monthly e-mail campaign at most."

Connie Simpson: "And today, how many online marketing campaigns are we executing on an annual basis?"

Penny Parker: "Oh, heavens, thousands, maybe tens of thousands, coupled with hundreds of thousands in search."

Connie Simpson: "And yet, our annual retention rate is the same as it was ten years ago. So what is the point of all of these campaigns? Do any of them generate incremental sales, or is all of the work done by your team just cannibalizing work done by other members of your team?"

Bill Bledsoe: "This is a multi-channel world, Connie. Multi-channel customers are the best customers. We have to be in all of these channels, or we lose market share among the most valuable customers."

Ashley Zimmerman: "I need the creative flexibility to run the products I want to run, and I need the creative flexibility to present the products the way I want to present them. I'm not going to have some marketing bean counter telling me what I should or should not do. Do I tell the marketing bean counter how to execute a test, do I dictate the control size, do I force the marketer to use a certain type of statistical test, do I judge the analytics wizard based on one-tail or two-tail tests? Certainly not! They are the experts, they get to do what they do best. I, too, should be able to do what I do best. I am the expert when it comes to presenting products."

Connie Simpson: "And yet, Penny's data suggest that you are not the expert, her data suggests that your customer has preferences that you can follow in order to improve business."

Ashley Zimmerman: "Connie, do I tell you how to invest money? You lost $200,000 last month by hedging against the Euro, what does that have to do with selling shoes? Maybe we should have Penny run optimization tests against your hedging strategies. And Bill, do we honestly think that your delivery tracking system is working best? Maybe we should have Penny measure how many days it actually takes to get a product to a customer, and then optimize against UPS or USPS or FedEx. How does that sound? I mean, seriously, everybody loves measurement and optimization until you are the person being measured and optimized. Then it isn't so much fun. Lauren, I need the creativity to do what I think is best."

Penny Parker: "And Lauren, I think it is sub-optimal to present merchandise the way Ashley wants to present merchandise, I think it is hurting our business."

Bill Bledsoe: "Kevin, you are sitting there smiling, why?"

Kevin: "Lauren, what do you think we should do?"

Lauren Fetzer: "I think we need to give Ashley the room to do her job as she sees fit, and when she fails, she's fired. Penny is free to measure Ashley's techniques, but by the same token, Penny is accountable for her own campaigns, and as best I can tell, her campaigns aren't working, because our annual retention rate isn't moving. So in time, Penny and Ashley will succeed, or they will fail."

Bart Cox: "That's how we do things in retail. We don't need to be hit over the head with a bunch of complex metrics. Either things work, and you keep your job, or they don't work, and you're fired."

Kevin: "That's why I was smiling. Lauren is playing the role of ..."

Penny Parker: "The HiPPO. She always plays the role of the HiPPO."

Kevin: "Yes, and that role, despite being despised in the social media and analytics world, is needed for dispute resolution."

Bart Cox: "We don't have disputes in retail. We do what I say we should do. My team marches in formation to my commands."

Penny Parker: "But that's a problem with this company. We're not a data-driven company. We have the metrics to prove points, and then Lauren's opinion trumps others."

Ashley Zimmerman: "We need to be a merchant-driven company, Penny. Without merchandise, we are out of business. Without marketing, we aren't profitable."

Lauren Fetzer: "We'll, we've beaten this horse long enough, it is time to move on to something productive."

Penny Parker (whispering to Kevin): "HiPPO".

Word Cloud: MineThatData

One of our loyal readers, named "Anonymous", forwarded this word cloud of the MineThatData Blog.

Word clouds, of course, convey the phrases that are prominent on the blog, coupled with words that are used in association with each other.

Notice that Lauren Fetzer gets a disproportionate amount of space!

To create your own Word Cloud for any website you commonly read, visit Wordle.

June 14, 2010

Summer Segmentation: Merchandise Divisions

Online marketers like to segment by first time visitors, prior visitors, prior buyers, that kind of thing.

Catalog marketers like to segment by recency / frequency / monetary values.

Give this one a try. Take all of your first time buyers who purchased two items. Split those customers into those who bought from just one merchandise division, and those who bought from multiple merchandise divisions. Then measure the long-term value of each segment of customers.

It turns out that, in most cases, customers buying a broad range of products are more valuable than customers who have a preference for just one merchandise division.

So give that a try ... and if you are a web analytics expert, take a look at conversion rates by this level of segmentation!

June 13, 2010

Dear Catalog CEOs: Postage Increase

Dear Catalog CEOs:

We're now being told that a postage increase is looming ... maybe 5%, maybe 10%, who knows?

Embrace the increase.

Honestly, I don't understand why so many of us view this as yet another crippling blow to the catalog marketing model. We rally around each other, we mobilize (to some extent, though most of us won't join the ACMA and actually put a few thousand dollars behind the effort, so do we truly care about this issue?), we get ready to fight.

Most of all, though, we complain, we fret, and we worry.

Here's the thing, folks. There is this thing called "the internet". Odds are that the internet is most of the way through the process of crippling the existing system of delivering information through the mail.

The internet gives us an out. We have other ways to sell merchandise. Instead of fighting tooth and nail to preserve the old, why not truly scare those who appear to be persecuting us with a five percent increase?

Tell the postal service and the vendor community that supports the postal service that unless they make this form of delivery viable, we will move our businesses online, and as a consequence, they will get nothing from us.

Nothing.

Instead of clinging to the past, why not demonstrate to the postal service and the vendor community that supports the postal service that we have a vision for the future? Isn't that our job, as business leaders, to have a vision? Negotiating about whether an increase should be 3% or 5% or 7% is not visionary, folks.

Show them that your business, while smaller, will still be viable without print. Show them that you will use other delivery channels, radio, cable television, e-mail, YouTube, social media, mobile, paid search, re-targeting, affiliates, word-of-mouth. Acknowledge that none of those channels, when added together, are as effective as print is today, but demonstrate that you will learn and you will grow, and the insight you will gain will allow you to eliminate your print program altogether.

And when you eliminate your print program altogether, the USPS and the vendor community that supports the USPS gets nothing. Their cost increases won't increase revenue, their cost increases will result in a situation that hastens their demise.

Challenge the USPS and the vendor community that supports the USPS to make their delivery channel relevant and competitive in an era where digital delivery of information is far more efficient than print and is virtually free. Don't operate out of a position of fear. Be confident.

Of course, I am here to help you through this transition. Contact me now for assistance.

Thanks,
Kevin

June 09, 2010

Fetzer's Footwear: You Have To Want It

Today, I am meeting Lauren Fetzer, CEO of Fetzer's Footwear, at Eagle Heights, a barren prairie on the southern end of Madrona Island. As usual, Ms. Fetzer is listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Walking on Broken Glass by the Eurythmics" That's how I feel when I'm dealing with my creative team, you have to tread lightly with them."

Kevin: "Why are we meeting here?"

Lauren: "Look around, there aren't any trees here. There were trees at one time, but they were harvested a hundred years ago. Now, they have a hard time getting started again. In November and December, the windstorms down here are brutal. So the landscape changed, it evolved."

Kevin: "What would it take for a tree to grow here again?"

Lauren: "Well, it would have to really want it."

Kevin: "What does that mean?"

Lauren: "A friend of mine has a saying. She says 'you have to want it' when it comes to success. I couldn't agree more with any other statement than that one. The tree would have everything working against it. The soil is sandy now, so if it did grow to a reasonable height, the winds in November and December would uproot it. The tree has to want it!"

Kevin: "It wouldn't be a best practice to start growing here, would it?"

Lauren: "Absolutely not. But if the tree made it, and the odds are against the tree, it would pave the way for a forest. Nobody would ever recommend that the tree take root here, would they? No, the experts would find the perfect environment, they would take soil samples and they would measure everything so that they could find the best place to plant the tree."

Kevin: "And they would be successful, wouldn't they?"

Lauren: "Define success? The tree would grow, but it would be one of, what, a million trees? Is that success? Who wants to be part of a forest?"

Kevin: "What does this have to do with Fetzer's Footwear?"

Lauren: "Have you ever taken part in strategic planning, Kevin? I assume you have."

Kevin: "Sure."

Lauren: "Strategic planning is not a spreadsheet exercise, Kevin."

Kevin: "Meaning what?"

Lauren: "Penny Parker, you've met her, she is our VP of Marketing, she has all of these fancy spreadsheets and metrics. Her life is a series of campaigns. She'll line up two hundred different campaigns for next year. She'll figure out how to optimize every single campaign, to squeeze an additional eight percent out of every single campaign. Then she sits back with this big smile. She adds up eight percent on top of eight percent on top of eight percent and thinks she has the answer. All we have to do to grow the business is be perfect across two hundred consecutive campaigns, and if we're perfect across each and every one of two hundred campaigns, our business will grow by something like thirteen percent. She has the metrics to prove it, she opens up this big spreadsheet and puts it up on a plasma monitor and everybody gazes as all of the metrics, and she is manipulating one cell and twelve other cells all improve. Wow. She's really optimizing the business, isn't she?'

Kevin: "Why the attitude?

Lauren: "Well, for one thing, her strategies never work. Who can be perfect two hundred times out of two hundred? If you do your best, you might improve the performance of one hundred and fifteen campaigns, and you'll inadvertently fail eighty-five times."

Kevin: "That's still improvement, right?"

Lauren: "It's fools gold. Her answer is to simply execute more campaigns, if you have more campaigns, you'll have more sales, and if you have more sales, your business will grow. Paid Search, Email Marketing, Affiliate Marketing, Organic Search, Print Ads, Banner Ads, Re-Targeting, Radio. Now we have thousands of campaigns, and our marketing team and analytics team believe they can optimize each and every one of thousands of campaigns, squeezing an additional four percent and six percent out of each one. It's funny, Kevin, nobody in marketing ever says that they expect campaigns to perform less well. Every single metric in every single spreadsheet points north, showing improvement. Fools gold."

Kevin: "Maybe you hate metrics and spreadsheets? There's lots of people who feel that if you test and optimize your business will experience unfettered growth. They are frustrated by people like you."

Lauren: "We had this consultant in a few weeks ago, maybe you know him, his name is Chip Cayman. He had this document that said if we grew to a hundred stores, our sales would essentially quadruple, his spreadsheets showed that multichannel customers are worth nine times as much as single channel customers, he showed how the website would benefit from a national store presence. Nice presentation, classic stock photos that he paid $6 each to obtain, great math, an opportunity to rack-up ten or twenty million dollars of debt that a spreadsheet suggests will be paid off with profits from the stores in ten years."

Kevin: "So what is the problem?"

Lauren: "He didn't want it."

Kevin: "He didn't?"

Lauren: "Not even close. He wanted somebody to love his spreadsheet, his math. He didn't give a rat's behind about the relationship between a customer and an employee ... it is a humbling experience to serve a customer who wants to buy shoes in a store. No spreadsheet solves for a human being wanting to help another human being."

Kevin: "Why are you telling me this?"

Lauren: "Tell me I am right."

Kevin: "So what if you are right? You are the CEO, it doesn't matter."

Lauren: "It means everything. Penny hates it when I ride her on this topic, she calls me a 'HiPPO'"

Kevin: "A hippo?"

Lauren: "Highest Paid Person's Opinion. She has all of this science, and she believes that if I just listened to her science, everything would be fine. Then I tell her that she 'has to want it'. I tell her to have a passion for our business, not a passion for spreadsheets and optimization. And she just stares at me, she says the spreadsheet tells the whole story. But listen to me, Kevin. She's been optimizing year after year after year, and somehow, our annual retention rate, the percentage of customers who bought last year and will buy again this year, that never budges, it always stays the same. Well don't you think that if she was right, if we listened to her and her glorious metrics, that the annual retention rate would improve? See, that's the problem. If all of that math and optimization were right, business would improve. It doesn't improve. She doesn't want it, she wants science."

Kevin: "So what does wanting it look like?"

Lauren: "Wanting it means being willing to take a risk. There are no risks in spreadsheets, only numbers. Wanting it means innovating. Wanting it means moving beyond campaigns. Campaigns are nothing more than glorified begging, you are trying to manipulate the customer into buying something."

Kevin: "Isn't that what a marketer does? Don't marketers manage campaigns?"

Lauren: "Marketers tell stories. See, that's what matters. A marketer that doesn't try to tell a story is a marketer that doesn't want it. Here's the neat thing. If you tell a story, and if you are consistent with that story, and then the sales naturally follow."

Kevin: "Or they don't."

Lauren: "And if they don't follow, it is self-evident that the story didn't resonate with the customer. Then you try another story. The marketer must have an instinct for getting from Point A to Point B. Look, we're all getting killed by Zappos. They tell a story. Their story is flimsy, of course, but it is a story. They ship you product fast, they have every sku imaginable, they have perceived free shipping, and their employees will chat with you via social media. That's a story. There's no optimization and spreadsheet manipulation and campaign management there, heck, where was the best practice for that business model before they invented it? Coming up with that story, a marketing story supported by merchandise, that's hard work, Kevin, it isn't easy. That's what I call 'wanting it'. We have to want to beat Zappos so bad that we come up with a better story. When people don't have a better story, they revert to campaigns and optimization and spreadsheet manipulation."

Kevin: "So the tree trying to grow on this prairie needs a different story?"

Lauren: "Exactly!"

Kevin: "Seems like it would be easier to simply transplant this tree in the forest on the other side of the island."

Lauren: "Yes, it's easier to manage by spreadsheets and metrics and campaigns and optimization. That's not what I am looking for. We need to break through, we need to tell a story that is more compelling than the story that Zappos tells. We need to want it more than them."

Kevin: "Yup, you're just another dumb HiPPO."

June 07, 2010

Summer Segmentation

This summer, we're going to talk a bit about segmenting customers.

See, it turns out that this is one of the most important times in history to actually slice and dice customers. Our customers are going in a myriad of different directions. Back in 1995, you could do a simple RFM analysis, and you'd be in good shape, because you had a one-dimensional business.

In 2010, your customer is a few years into the early stages of a great diaspora ... a once homogeneous audience is now dispersing itself across a nearly infinite number of micro-channels. What is important, here, is that while customers adopt an increasing number of micro-channels, overall response does not improve --- you know this because you look at annual retention rates, and your annual retention rates have not improved in a decade. When the number of micro-channels increase and overall response fails to increase, you have tremendous "optimization" opportunities!

So, we're going to explore segmentation this summer. Get ready!

June 06, 2010

Dear Catalog CEOs: Brand Loyalty

Dear Catalog CEOs:

Twice in thirteen days members of your elite club reached out to me to communicate interesting findings. In one case, one of you stopped mailing catalogs altogether and retained 90% of your sales one year later (pure catalog brand, no retail channel). In another case, one of your staffers executed a catalog holdout group for more than nine months, and retained 90% of your sales within the holdout group (pure catalog brand, no retail channel).

It's not a bad thing when you stop mailing catalogs and sales are generated anyway. In fact, it's the very best thing that can happen. YOUR CUSTOMERS ARE BRAND LOYAL!

Do you love sending catalogs, or do you love printing money? So often, the answer is the former, not the latter.

Any business that maintains sales when advertising stops is a blessed business. Run a mail/holdout test, and see how much brand loyalty you have!

June 04, 2010

Even Monks Are Now Abandoning Catalog Marketing

From Multichannel Merchant ... here's the quote about the closing of Abbey Press:
  • "All businesses have a lifecycle, and the monks felt that the catalog business was past its peak as a dominant business model".
And to top it off:
  • Wilson says Snail’s Pace will reflect changing marketing paradigms: “You’ll see less money spent on advertising, catalogs, direct mail and the like, and more effort put into reaching exactly the right customer prospects through social media channels, the Internet, and through media that they are currently consuming.”
Now half of you will say that "... print isn't dead, my vendor/co-op just showed me matchback results and 81% of my sales are attributed back to the catalog." And you may be right, assuming that your matchback results tie out to your mail/holdout test results. Have you done the analytics work to prove that your matchback results are accurate? Has your vendor recommended mail/holdout testing to validate matchback results?

If your matchback vendor hasn't recommended executing mail/holdout testing to validate matchback results, be afraid ... be very afraid.

I'm not saying you shouldn't be mailing catalogs ... I'm saying you should make profitable decisions. Look at what is happening all around you, and pay close attention to how customer behavior is shifting.

June 03, 2010

J. Crew and Rue La La

Want to make a good use of the next ten minutes? Give this transcript a read ... J. Crew pumped-out 18% pre-tax profit last quarter. In case you didn't know, that's not an easy accomplishment. Ten percent pre-tax profit is often considered a gold standard in apparel retailing ... in my sixteen years at Lands' End, Eddie Bauer, and Nordstrom, the companies I worked for only exceeded 10% four times (I think three of the times were at Nordstrom). Just read the merchandising passion they exude in a boring investor conference call.

And then there is Rue La La --- debuting apps: Don't tell me that "... that doesn't apply to us, we're not some low price auction brand, our customers are different, they love sitting in front of the fireplace thumbing through a catalog that has been sitting on the coffee table for twelve weeks" ... that's an excuse to not even try, folks. It is pretty obvious now that the future isn't e-commerce. If I am running an e-commerce division, I want my customer to hold my brand in her hand at all times ... anything short of that and we're just clinging to the past.

June 02, 2010

Fetzer's Footwear: The Executive Team

I enter Lauren Fetzer's office. As always, she's listening to her iPod Touch.

Kevin: "What are you listening to?"

Lauren: "Bonnie Raitt: 'I Can't Make You Love Me', it reminds me of things that happened in college."

Kevin: "I'm sorry."

Lauren: "Moving right along, today you're going to get to meet with my Executive team. We'll have you sit in on some of our meetings. Feel free to offer your opinions, I won't censor them. And don't let anything Bart Cox says offend you. Every good Executive team should have one crusty individual with a contrarian point of view. All viewpoints are welcome at Fetzer's Footwear. Let's go."

We enter the Executive Boardroom.

Lauren Fetzer: "Good morning everybody. I want to introduce Kevin Hillstrom to you. Kevin will join us from time to time to review our current strategies, analytics, and help us achieve our goal to craft a vision for the future"

Bart Cox (VP, Stores): "Who is this guy, again, no offense?"

Lauren Fetzer: "Kevin is a direct marketing industry analyst, and Bart, Kevin previously worked at Eddie Bauer and Nordstrom, so he does know something about stores."

Bart Cox: "Sure he does."

Lauren Fetzer: "Let's start our meeting. Penny, please share business results from yesterday."

Penny Parker (VP, Marketing): "Comp store sales were up 2.8% yesterday, led by Bellevue with a +8.3%. Alderwood was at -6.5%. The website was up 14.5% from last year, and was up 9.5% vs. budget. The Mountain-ariffic e-mail blast was responsible for the entire increase yesterday, that was an outstanding campaign."

Lauren Fetzer: "Bart, what happened at Alderwood yesterday? That's three consecutive weeks of negatives at Alderwood?"

Bart Cox: "We've talked about this for two consecutive weeks, the mannequins are too athletic, and as a result, we're not drawing customers into the store."

Ashley Zimmerman (VP, Merchandising): "Bart, we have the same mannequins in Bellevue and Bellevue is running positive comps."

Bart Cox: "The Bellevue customer is different, she is more likely to hike in the Cascades. The Alderwood customer is functional, she's going to wear her shoes to Red Lobster. You already know this, just look at the taper reports that show what sells by store, the best selling styles are totally different."

Bill Bledsoe (VP, Logistics): "Penny, do you see these customer differences online? In other words, do you have online taper reports that show what sells by geography?"

Penny Parker: "Now that's a great idea, we'll go back and take a look at that!"

Connie Simpson (VP, Finance): "Year-to-date, retail is trending at +3.3%, online is +11.4% to last year at +6.8% to budget. I'd say that we're having a very nice year. Your teams deserve kudos for their hard work."

Lauren Fetzer: "Let's talk a bit about our vision. Penny, what did you learn about where the experts think online retailing is headed?"

Penny Parker: "I purchased a Woodside Research report that predicts 88% of businesses will generate up to 22% of their revenue in 2015 from a combination of mobile and social."

Bart Cox: "You know, folks have been saying all of this virtual stuff will wipe out retail for at least fifteen years now. And it never does. Retail keeps plugging along. Last time I checked, retail comprised 90% of all purchases, just like it did fifteen years ago. So, yes, keep thinking visionary thoughts, folks, but remember that from a net sales standpoint, almost nothing has changed in the past fifteen years. Back then it was telemarketing and direct mail, then it was the internet, now it is mobile and social."

Ashley Zimmerman: "That doesn't change the fact that we have to change with the times, Bart. You probably didn't envision a customer walking into your Downtown Seattle store with a Fetzer's Footwear iPhone app back in 1995, did you? Today she walks into the store, and if the item she saw online isn't available in the store, she punches up her app and gets the item shipped to her home. So you have to adapt and change."

Bart Cox: "And I want credit for that sale, too, because I generated that sale. Bill, when are we going to make the reporting changes necessary to show that I drove that sale?"

Bill Bledsoe: "Who cares who drove the sale, just be thankful that somebody bought something! In that case, the website, the store, and the app all contributed to the sale. That's the future. Trying to parse out that combination and assign weights to each channel is nothing short of fool's gold."

Bart Cox: "Or a lack of analytical imagination."

Lauren Fetzer: "So the future involves more channels and more analytical complexity. That's what we need to focus on. Kevin, where do you see the customer in five years?"

Kevin: "I think she'll have moved away from static websites. I believe that the traditional e-commerce website is already a 'dead man walking' if you will. So much of what a customer does today has nothing to do with the traditional e-commerce website. She's on Facebook, Twitter, Foresquare. He's on a mobile app that basically shifts eyeballs away from a traditional website. All of the things we deal with in e-commerce, our entire knowledge base, is dying. We need to learn to be really good at being there for our customer. When she needs us, we're there. When she doesn't need us, we quietly disappear. We cannot assume that she will visit us like we are some sort of destination that she desperately needs."

Bart Cox: "That's just hokey theory."

Ashley Zimmerman: "Sure it is, but we need to think about it, because you can see it happening already. We worked so hard to get user generated comments on our website, only to realize that we get a hundred comments on Facebook and Twitter for every user generated comment on our own website. User generated content on a website is so 2008. My customers love my product, and they talk about it all of the time in their social circles, they don't come back to our site to chat with us, we have to go out there to chat with them."

Bill Bledsoe: "I don't want brands following me out into my 'solar system', if you will, to chat with me, that's just plain creepy."

Connie Simpson: "So that speaks to our future, doesn't it? How do we follow the customer out into the 'cloud' without announcing that we are right there next to her, screaming at her every five minutes to buy something?"

Bill Bledsoe: "That's why I like our our series of apps for all mobile devices. We're essentially following the customer in an invisible manner. When she needs us, she just punches us up!"

Penny Parker: "That's where my job becomes challenging. Somehow, I have to encourage the customer to carry our apps with her without sounding like a snake oil salesman."

Lauren Fetzer: "Good discussion, folks. I want for us to honor our meeting requirements. We have ten minutes left before this meeting ends, and as you all know, we end all meetings at five minutes to the top of the hour so that nobody is late for the next meeting. Thanks to Kevin for being here, he's going to join us a lot in the future as we flesh out where we think we want to take Fetzer's Footwear."

Bart Cox: "I think we want to open a bunch of stores!"

June 01, 2010

Summer Schedule

Just like last summer, we'll go on a reduced schedule for the summer. Traditionally, blog readership peaks in February and March, then begins a slow decline that culminates in minimal traffic in late July.

From June 7 - September 6, we'll go with a Monday / Tuesday / Thursday schedule, with additional posts on Wednesday as opportunities present themselves.

If you are craving additional updates, come on over to Twitter and follow me there.