July 12, 2011

The Nordstrom Catalog Experiment of 2004 - 2006: Flaws In The Catalog Argument

Earlier this week, I talked about the thirty months surrounding the closing of the catalog division at Nordstrom.

I'm always amazed at the chutzpah of the catalog industry in refuting a story that they did not experience.  It's as if my experience couldn't possibly have happened.  I'm repeatedly told all of the reasons why what I experienced can't happen anywhere else, in spite of the fact that anybody who does mail/holdout testing already knows that orders happen without catalog marketing!



Let's review the flaws in the catalog argument, as told to me by the catalog industry .  Each argument offered by reputable members of the catalog industry, folks you know and trust, are highlighted in bold print below.

Flaw = You Can't Grow Without New Customers Sourced From Catalogs:  This one is frequently perpetrated by a fraction of the folks who work for co-ops.  Obviously, this argument is flawed, because the argument assumes that there is only one way for a company to acquire new customers, and that one way is via one or more of the co-ops.  Even back in 2006, there was this thing called the internet, and it turns out that there are ways to acquire customers online ... just ask Zappos if you'd like to learn more about the topic.  Many catalogers have many sources for new customers ... print ads, online marketing, search, television, radio, magazines, you name it.

Flaw = Catalogs Drive Sales To Retail, You'll Hurt Retail Comp Store Sales Without Catalogs:  The flaw in this argument surrounds the interpretation of "driving sales".  Matchbacks suggested we were driving upwards of a billion dollars of sales to stores at Nordstrom.  My goodness, the matchbacks were really wrong!  If you execute mail/holdout tests, you'll quickly learn the real impact of catalogs on retail sales.  Execute the tests, and learn for yourself if your catalogs are as mission-critical as you believe them to be.

Flaw = Multichannel Customers Are The Best Customers:  My phone was flooded with calls from folks suggesting that without catalogs, we will "cause" high value customers to become average-value customers.  One year after eliminating the catalogs, best customer performance did not change, in spite of having one less advertising channel to buy from.  The flaw in the argument is just because multichannel customers are the best customers does not mean that if you take a channel away, you lose customer value.  Again, execute a few mail/holdout tests, and you'll know the real answer.

Flaw = Catalogs Inspire Purchases And Create Demand That Would Not Otherwise Exist:  This argument sounds sooo seductive.  Yes, catalogs create demand that would not otherwise exist.  E-mail marketing does this, too, as does mobile and social and search.  Now, among a 55+ rural audience, few things are as good as a catalog at creating demand.  For other customers, the jury is out ... there are many ways to generate demand.  I recall my Chief Marketing Officer staring me in the face, saying "find another way to create demand, Kevin, this isn't the first time we stopped doing something in our 100 year history".  You'd be amazed how many ideas you come up with if somebody takes your primary way for creating demand away.  I became an instant advocate for doubling the search budget, which turned out to be a great decision, because without catalogs in the matchback/allocation routine, search performance improved, significantly.

Flaw = Online Customers Have Low Lifetime Value:  This may be true, but the logic is flawed.  Here's the deal, folks.  I could acquire one catalog customer at $20 profit, or I could acquire 1.5 online customers at $14 profit.  The latter is more profitable than the former.  Our online business exhibited strong increases in the customer file, coupled with lower demand-per-buyer metrics, the net of which was more profitable without $36,000,000 of catalog marketing bogging down the profit and loss statement.

Flaw = Customers Won't Find Your Products If You Don't Advertise Them In A Catalog:  This is another seductive argument that is without merit.  Some of you out there tell me about year-long holdout tests you conduct (i.e. mail no catalogs for a year) where the rank-ordering of product sales in the no-mail group is identical to the rank-ordering in the mail group, and you still generated 65% of the sales in the holdout group.  Think about that one for a moment.  How did the customer find items when they weren't advertised?  We executed a similar analysis at Nordstrom.  My inventory executive simply refused to believe test results, test results which were validated once catalogs disappeared.  The truth is that if customers are trained to visit and use your website, then customers will find products.  Get customers to your website, and make it easy for customers to search/navigate.

Flaw = The Catalog Is Needed, Because It Is The Best Representation Of The Brand:  This is an opinion, not a fact.  Go ask 10,000 customers what they think!  I hear this argument every week, seriously.  Tell me why the catalog is a better representation of your brand than your website, or your Facebook presence?  Be honest.

Flaw = The Catalog Is Needed, Because It Is Used To Tell A Story:  Seductive, but making this argument requires two major assumptions, both flawed ... you assume that the customer wants/needs to be told a story ... and you assume that the story you tell via catalog marketing is better than any other story told through any other channel.  These assumptions are flawed, you have a diverse array of customers visiting your website with varying interests.


Flaw = Customers Can Take Catalogs With Them, They Can't Take Their Laptop Everywhere With Them:  This was an argument used by catalog experts to take the online marketing wizards down a peg.  This argument also makes a flawed assumption, the assumption that customers are carrying catalogs everywhere, shopping 24/7/365.  Mobile advocates are about to make the same, incorrect assumption.

Flaw = If You Kill The Catalog, You'll Experience Brain Drain As Catalog Execs Leave The Company:  I heard this one a lot.  This argument requires one to believe that catalog expertise trumps all other expertise.  Even I was arrogant enough to believe this one, and I was really, really wrong.  Relevant experience, and merchandising experience, are worth more than catalog experience.

Flaw = Once You Hurt The Customer File, The Customer File Will Never Recover:  This argument worked in 1995, when you didn't really have a vibrant online channel.  Since about 2003, customers have options ... the customer can shop 24/7/365, without a catalog, right?  At Nordstrom, the customer file wasn't hurt, it simply evolved to reflect the marketing channels that still existed at that time.  Instead of focusing on "the catalog", focus on acquiring customers and retaining customers.

Flaw = You'll Lose The Customer Who Depends Upon Catalogs:  This is true, but half of the statement is missing ... "You'll lose the customer who depends upon catalogs, but you may acquire customers you wouldn't have otherwise acquired."  So few people in the catalog industry acknowledge the possibility of the second half of the argument.

Ok, those are some of the flaws in the argument.  

Tomorrow, we'll cover some of the things we missed by not having catalogs in the mix.

2 comments:

  1. I am really surprised how many flaws there are. It just makes me wonder how many have been following these flaws.

    ReplyDelete
  2. That sure is a lot of flaws. It's a mystery to me how companies have managed to stay afloat while believing in them.

    ReplyDelete