November 20, 2011

Dear Catalog CEOs: Traditionals

Dear Catalog CEOs:


Allow me to recap a brief history of how I previously viewed the world.


1990 - 1995:  This represents my time at Lands' End.  I would characterize my primary field of study as "cannibalization" ... or, more appropriately, "how advertising vehicles compete with each other for customer attention".  I had no idea how relevant this work would be nearly twenty years later, when the number of advertising channels seemingly approached infinity.


1996 - 2000:  This represents my time at Eddie Bauer.  I would characterize my primary field of study as "channel shift" ... or, more appropriately, "how customers shift behavior from traditional channels to new channels without increasing overall spend."  Of course, what I learned was opposite of the message sold via trade journals and industry pundits ... customers do not spend incrementally more as they shift channels, we're simply deceived because the customers who initially shift channels are the best customers, and we choose to evaluate customer behavior in a backward-looking manner via campaigns, a methodology certain to confuse real customer behavior.


2001 - 2007:  This represents my time at Nordstrom.  I would characterize my primary field of study as "channel death" ... or, more appropriately, "how customers respond when you remove the catalog marketing channel from the marketing mix."  Of course, what I learned was opposite of the message sold via trade journals and industry pundits ... some customers reduce their spend down to zero as predicted, some customers don't change their behavior at all, and, surprisingly, you attract a new set of customers you didn't previously consider, because you now reallocate marketing dollars to new channels.  Keep this in mind as we begin to consider topics for study in 2012.


2007 - 2011:  This represents my time building MineThatData from scratch.  I would characterize my primary field of study as "longitudinal behavior" ... or, more appropriately, "how all measurement tools that optimize campaign performance fail miserably at optimizing annual customer profitability, causing the average $100,000,000 business to lose $1,000,000 of profit, per year, every year."


You probably have a series of experiences that shaped how your career developed, right.


Well, these experiences, and similar experiences you've been part of, leave us in an interesting situation heading into 2012.


Here's what we know:
  1. We've added a seemingly infinite number of marketing channels, all promising to increase spend among "today's modern, savvy customer, a customer in charge of a highly competitive marketplace".  We've been told that each new channel "changes everything", rendering old channels "dead".
  2. Customers, however, have not increased annual spend at rates above inflationary levels, in spite of being offered a dazzling multi-channel experience filled with a seemingly infinite number of new channels.  And you can't blame this on the economy, folks, because pre-2008, the story was essentially the same ... go analyze customer behavior from 2000 - 2011, on a longitudinal basis, to validate the hypothesis ... you'll see a dip that, when viewed over eleven years, compensates for increases prior to that, yielding flat behavior in a time of explosive channel growth.
  3. There will be MORE channels invented, in the near future.  Facebook didn't exist 10 years ago.  Twitter didn't exist 10 years ago, heck, back then MySpace was about to render AOL irrelevant.  Google was about to emerge as a dominant force 10 years ago.  Apple was about to emerge from the doldrums, not by doing more of the same, but by reinventing music.  We can't even fathom what we'll be dealing with on January 1, 2017.  All we know is that it will be very, very different than what we're dealing with today.
  4. Demand increases are highly correlated with two activities ... customer acquisition improvements ... and merchandise productivity improvements.  Hint ... customer acquisition improvements often come after one makes merchandise productivity improvements.  Hint ... customer loyalty improvements come after one makes merchandise productivity improvements.  Hint ... merchandise productivity improvements mean everything, don't they?
If we know that annual customer behavior doesn't fundamentally change unless merchandise productivity improves ... and if we know that a proliferation of new channels have not fundamentally changed annual customer purchase activity (new channels changed customer behavior, but not annual purchase behavior, an important distinction) ... then we know that, in 2012 and beyond, we need to shift our focus.


We need to shift our focus, from channels (which will always grow and change and evolve and will not fundamentally increase annual customer purchases) to customers.


And this isn't the focus on customers promoted to us over the past twenty years ... that's a campaign-based targeting strategy (i.e. who do you send this email campaign to, or who do you put a banner in front of online, or who should receive this personalized landing page, or who do you print a QR code for?).  Nor is it a "customer-centric" view that the vendor community suggests we adopt so that we can purchase vendor-based products and services.


No, in 2012 and beyond, we need to elevate customer understanding to a strategic level.


For catalogers, this means a full understanding of the consequences of adoring what I call "Traditionals".


Remember, my project work for 2012 now focuses on three general segments of customers:
  1. Traditionals:  Customers who generally respond to old-school marketing activities. Think 55+, rural customers.
  2. Transitionals:  Customers who are in the process of leaving old-school marketing activities behind, in favor of classic online marketing tactics.  There isn't a demographic profile for this customer audience, you'll see 62 year olds do this, and you'll see 26 year olds do this.
  3. Transformationals:  Customers who are in the process of adopting social/mobile channels, more so from a lifestyle standpoint than a commerce standpoint.  This audience does skew young, folks.
While not talked about in the trade journals or pundit blogs, catalogers have knowingly embraced "Traditionals".  The consequence of this decision, one initiated around 2001 when matchback algorithms seemingly demonstrated that catalogs caused online behavior, is that catalogers now have a disproportionate market share among Traditionals, and have evolved a merchandise offering that is disproportionately focused on Traditionals, and count on co-op statistical models that actively seek Traditionals.


This heavy focus on Traditionals generates a feedback loop that makes marketing to Transitionals or Transformationals very, very difficult.


In 2012, we must address this lust for the Traditionals marketplace, because this lust is not sustainable, long-term.


Are we ready to take on this challenge?

2 comments:

  1. So to break this down... Companies that rely on catalogs to market their wares are marketing products for old people to old people. If they continue to use the feedback obtained from this type of marketing their products will remain stuck in the "traditional" space and no matter what kind of marketing they do their product will not attract Transitionals and Transformationals. Therefore sustainability becomes an issue. So the challenge becomes make a kick ass product and don't rely on one type of marketing.

    So you're not saying kick catalogs to the curb you're saying don't rely on them to tell you what type of product to produce.

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  2. I'm saying that my work suggests there are three types of customers ... Traditionals, Transitionals, and Transformationals. If you focus primarily on catalog marketing (especially in customer acquisition activities), you will attract a Traditional customer, making it harder to make online/mobile/social marketing work.

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