July 31, 2011

Dear Catalog CEOs: Politics

Dear Catalog CEOs:

No, I'm not talking about Republicans and Democrats.  That's pointless.

Instead, I'm talking about the politics that happen at your company.

I'm reminded of my time at Eddie Bauer, back in the late 1990s.  After pocketing a couple hundred million dollars of profit in 1996 and 1997, we took a financial drubbing in 1998.  It became obvious just a few months into 1998 that we weren't going to make fiscal magic.


And when it becomes obvious that you're not going to make fiscal magic, people take sides, politics become the name of the game.
  • Marketing says that the merchandise stinks.
  • Creative says that marketing isn't targeting the business to the right demographic.
  • Merchandising strongly believes that the Creative Director is destroying the brand, creating long-term harm.
When strong office politics exist, you can avoid all semblance of accountability.  Everybody is right!!!  I mean, how do you ever prove/disprove that the Creative Director is causing irreparable harm to the brand?  How do you ever prove/disprove that Marketing is targeting the wrong demographic?  How do you prove/disprove that a Merchandising team that pocketed a couple hundred million dollars of profitable sales suddenly lost their ability to sell apparel when they're selling the same stuff they've sold for the past eight years?


My job was to "parse" accountability.  In other words, when I was creating the sales plan for the Direct channel for Fall 1998, I had to plan a sales increase, and I had to parse the sales increase according to the amount that Merchandising would deliver, the amount that Creative would deliver, and the amount that Marketing would deliver.  I'd estimate that we'd generate a 4.9% sales increase in 1999, with 2.2% coming from Merchandising, 1.8% coming from Marketing, and 0.9% coming from Creative.  

You didn't want to be the low woman on this ranking scale!  All of a sudden, Creative was signing up for a 2.9% increase instead of a 0.9% increase, without any plan to account for where the 2.0% increase would come from ... Creative simply wasn't going to be accountable for not "pulling their weight".


Then Marketing would turn up the heat, adding 20% off plus free shipping to customers who last ordered 24+ months ago, causing Marketing to sign up for a 2.8% increase instead of a 1.8% increase.


Then Inventory would buy to the newly projected 2.2% + 2.9% + 2.8% = 7.9% sales increase.

Six months later, the Liquidations team would froth at the opportunity to clear merchandise when we'd achieve a 0.0% sales increase, causing us to miss plan by about eight percent.  This drove down profitability, which meant that Merchandising, Marketing, and Creative had to sign up for bigger increases in 2000 to generate the profit necessary to drive the business.  The weight of missing plan by 8% (mind you, business was roughly similar to the prior year, but we planned a big sales increase and then bought to the sales increase) held you down, day after day, every day ... you felt like a failure.


The cycle repeated itself.  In 1999, I learned that if you teamed with the Inventory Director, and didn't purchase the sales increase that you were projecting, you didn't have to liquidate merchandise and you could achieve record profit on flat sales.  Oh boy!!


Office politics allowed all departments to point the blame at each other.  Office politics supported an environment that allowed teams to sign up for sales increases without the tactics necessary to actually fuel the sales increases.  Office politics created an environment where the math behind the increases was more important than the strategy required to create sales increases.  I had an entire team of number crunchers who massaged spreadsheets to make sure that all departments had their sales increases flow through to the bottom line in an accurate manner, tying into Inventory and Financial systems.  Almost never did we actually create a strategy ... the goal was to deal with office politics in a manner that appeased as many people as possible.


Undoubtedly, you have situations where office politics trump logic and/or strategy.


When that happens, you can revel in the drama.  Or, you can refocus the team to try to work together to generate sales increases, without the need to blame each other.  Focus on the customer!

July 27, 2011

Understanding What Drives Search

A lot of industry knowledge around search marketing involves understanding investment and response to various keywords.


There's more to learn!


Have your e-mail marketing team conduct a holdout test, for thirty days, among 5% of your e-mail list.  At the end of thirty days, measure search demand per customer in the mail group, and measure search demand per customer in the holdout group.  The difference (mail minus holdout) is the demand that e-mail drives to search.  This allows you to see how much of your search program is caused by e-mail marketing.


If you are a catalog marketer, conduct the same test, over a three month period of time.  The difference (mail minus holdout) is the demand that catalog drives to search.


A lot of folks learn that between 20% and 50% of their search program is caused by other marketing activities ... in other words, other marketing activities cause customers to research product (or to type a keyword into Google to get to your website).  When this happens, search becomes an important complement to other marketing activities ... without search, conversions in email and catalog marketing may disappear.


So do this simple analysis, and learn how search complements traditional marketing channels!

July 26, 2011

Letter To The Editor

This letter is pretty common these days:

Dear Kevin,

Hi, my name is Dirk Middleton, I am the CEO of Widgets.  I think something is amiss with my business

Ten years ago, we were a $20,000,000 catalog brand.  In the following five years, we built out our multi-channel strategy, capitalizing on our strong online brand, our search capabilities, e-mail marketing, and other online activities.  By 2007, we were at $24,000,000, with 35% of our business online.  

When the economy crashed, we made tough decisions.  We moved all of our catalog customer acquisition to just one popular co-op.  At the same time, we temporarily cut back on prospecting and customer reactivation.  Even though the economy marginally recovered, our business did not recover.  Today, we are a $21,000,000 business, and our expense structure continues to increase at an inflationary rate, or greater, putting tremendous pressure on our profit and loss statement.

We learned something unsettling when analyzing our customer base.  Since 2006, the average age of our customer increased, from 55 years old to 59 years old.  Worse, we cannot grow our online market share, with only 45% of our sales captured online.  We tried social media, it did not work, our Twitter presence only has 939 followers, and they only buy when we offer merchandise at 40% off or more.  We have a mobile app, but only a few hundred customers have ever purchased using it, and again, we have to offer 40% off to get those customers to order.  We even printed QR codes in magazine ads, but to-date, we've only had 880 website visits and 31 orders, all coming with free shipping.

Can you tell us why our business is floundering?  How do we use the catalog to grow?

Thanks,
Dirk Middleton
CEO, Widgets


We spent the past decade pursuing a "multi-channel" agenda.  Unfortunately, the hypothesis that being "multi-channel" would lead to unfettered profits never materialized.


The "multi-channel" agenda pushed us in a different direction.  

We decided that the catalog was the cause for online orders.  We decided that we preferred co-ops over list organizations.  Co-ops "optimized" customer lists via algorithms.  It turned out that the customers in those optimized lists were largely 55+, rural shoppers.  One can argue for hours about the "chicken and egg" proposition surrounding 55+, rural shoppers (did the co-ops cause the problem, or are catalogs so old-school that only 55+, rural shoppers buy from them?).


Most of us work for businesses with annual repurchase rates under 40%.  When you fall into this category, there's a whole bunch of problems that happen when catalog customer acquisition is outsourced exclusively to the co-ops.  Over the course of just three years, 75% of your twelve-month file will be populated by customers acquired for you by the co-ops.  And those customers are largely 55+, rural customers.  Ultimately, the co-ops "are" your business, they determine your customer base for you.  That can be good, that can be not-so-good.


So, our "multi-channel" agenda really morphed into a co-op infused customer acquisition strategy, one that pushed us toward algorithmically optimized names that are in the top-half of the Baby Boomer generation.  Without any intention of doing so, we chopped off the bottom half of the customer file, where a fertile generation of 25-44 year olds reside.


Do this for a half-decade or more, and you have the problem outlined in the e-mail message from Dirk Middleton.


That's what we've done to ourselves.


Now we have to chart a course to the future.

This is like playing poker.  We have outs.


We can decide that we're going to own the Baby Boomer generation, riding it from recession to retirement.  Somebody should decide that this is their strategy.  I don't hear many folks talking about this as being a viable strategy.  I think it is a viable strategy, if you put your chips all-in.


Or we can decide that we're going to "get younger".  This is easier said than done, because the 25-44 audience doesn't respond well to catalogs (there are exceptions) ... if it did respond well to catalogs, your co-op would be feeding you a veritable plethora of 25-44 year old prospects.  If you're going to go this route, you have at least two choices.
  1. You transform your brand to appeal to a younger audience (hard to do).
  2. You create a new brand that appeals to a younger audience, and you funnel the profits from a declining catalog business to the start up (risky, low probability of success).
Here's what is obvious ... we can't keep doing what we've been doing, because that's not working too well.

In poker, when you are short-stacked, pressure is constantly applied by the blinds ... eventually, you have no chips left.  In catalog marketing, pressure is constantly applied by inevitable postage increases (think +5% to +10% each of the next 2-3 years coupled with 3-5 day delivery), inflationary cost increases, and an aging customer base.  Either we go all-in, and attempt to dominate an aging Baby Boomer audience, or we fold our hand and begin anew with a new brand targeted to a new audience.


When you want to begin the process of charting a path to the future, contact me (click here), and I'll profitably save you a boatload of ad dollars that you can pocket, or you can invest in the future.  

Honestly, it's time we all decided how we will deal with the future of catalog marketing.

July 25, 2011

In Defense of E-Mail Marketing

If you look at a marketing department, you'll frequently find an understaffed e-mail marketing team.  That's too bad, because e-mail marketing is one of the few disciplines where customers clearly ask you to push messages to them!


Sometimes, our view of opens/clicks/conversions blinds us to the actual value the program generates.


For instance, consider this business ... one with an e-mail marketing list of 500,000 customers, sending one campaign per week to all customers who subscribe.
  • Open Rate = 20%.
  • Click-Through Rate (of those who open) = 30%.
  • Conversion Rate (of those who click-through) = 5%.
  • Average Order Value = $100.
  • Total Program Sales = 10% of Company Sales.
When measured this way, it's hard to see the impact the program has on the total business.


Let's look at the results, on an annual basis:
  • Annual Sales = 500,000 * 0.20 * 0.30 * 0.05 * 100 = $7,800,000.
  • Annual Variable Profit = $7,800,000 * 0.40 (profit factor) - $500,000 (program cost) = $2,620,000.
  • Total Company Sales = $78,000,000.
  • Total Company Variable Profit (before fixed costs) = $11,500,000.
When viewed this way, e-mail marketing is responsible for 10% of company sales, and 22.8% of company variable profit.  That's a good deal!


Then you look at the resources committed to e-mail marketing in your marketing department, and you probably observe that fewer than 1 in 5 of marketing person-hours are spent on e-mail marketing, right?!


In other words, this is probably a marketing channel that warrants increased investment.

July 24, 2011

Dear Catalog CEOs: Order Starters

Dear Catalog CEOs:

We've talked about this before, but it bears repeating.  The first twenty pages of your catalog are pretty important, especially among the 55+ rural audience that spends a lot of money when catalogs are mailed.


If your customer database is calibrated in a way that allows you to conduct the analysis in this manner, be sure to do this:
  1. If an item appears in the first row of an order, it is the "order starter", it is the item the customer wanted most in the order (yes, this is an assumption).
  2. Rank-order each item based on the ability of the item to "start orders".
  3. Look at the items featured in the first twenty pages of your catalog, this year vs. last year.  If your catalog is not performing terribly well, is there a change in "order starters"?
Frequently, catalogs (and e-mail campaigns) perform well when the catalog is front-loaded with order starters.  E-mail campaigns can work well when the items featured are those that are known to start orders.


So have your analytics team give this analysis a try ... see what has changed in your business!

July 21, 2011

More Arguments Against MineThatData

Earlier this week, I discussed The Arguments Against MineThatData.

Apparently, there are plenty more, gotta love a minority of individuals in the vendor community!  So, we "pick up the conversation" from Tuesday with a new list, some of which were forwarded by the esteemed @amyafrica, so thanks to her, and some of which were forwarded by others of you kind enough to add your $0.02.

Issue:  Don't buy his books.  One of his books has 70 pages of computer code, who wants that?
  • The folks who want that book are the folks who like to compare code, so that they can implement that type of work in their own environment.  There was also a link to the code, so that it could be copied into your environment.
  • I thought I was being nice to include the computer code that I spent close to a year writing, all for the low cost of $7.95 via Kindle.  You get a year of work for $7.95.
Issue:  Kevin doesn't favor a channel, and that's not good for catalogers.
  • I always favor the customer, and I favor profitability.
  • I favor the survival of your company.
  • I favor an honest assessment of your business.
Issue:  Kevin hates search, e-mail, and all forms of modern marketing like mobile/social, have you ever read his comments about social?  He's biased in favor of catalog marketing.
  • This comes up a lot.
  • This is exactly opposite of the issue just mentioned.
  • I always favor the customer, and I favor profitability.
  • I will say this, I hate open/click/convert as the measurement technique for e-mail, as it is almost always wrong, when compared with the more accurate method of using mail/holdout tests to measure e-mail.
  • I have no idea where people get the idea that I don't like search marketing.
Issue:  Don't work with Kevin, he makes fun of catalogers with that stupid Gliebers Dresses series, and he doesn't even know how to use an apostrophe for crying out loud.  Oh, and he thinks everybody owns a Kindle, which is just stupid.
  • If you've read the Bible, for instance, you already know that parables are used to explain issues without specifically taking issue with an individual.  
  • Gliebers Dresses is a parable.  It is a series meant to teach in an entertaining manner.
  • The apostrophe is missing, in deference to Lands' End, where the apostrophe was incorrectly printed incorrectly in the early days of the brand, causing the owner to use the mistake strategically.
Issue:  Kevin doesn't like discounting, he either doesn't understand the business model or he blasts discounters while praising his former company when it discounts merchandise.
  • Allow me to make my stance very clear.
  • I don't have a problem with discounts/promotions being the core "strategy" of a brand.
  • I don't have any problem with events, activities where you create a reason for the customer to purchase.  If you have three sale events per year, every year, well, again, that's a strategy, isn't it?
  • Having sale events 30 out of 52 weeks is not a strategy, it is not an event.  I am against this.
  • I have a huge problem with measuring promotions only during the promotion period, because that seriously overstates promotion performance, causing folks to offer more promotions.  Ask yourself why you offer promotions all the time now, and you didn't back in 2000, and your annual retention rate is still the same, and orders per buyer are still the same, and you're struggling to acquire new customers??
  • Offering 20% off plus free shipping randomly because business is bad is not a strategy, and I am against that, unless you have no other way to clear inventory.
  • Offering free shipping 24/7/365 is a strategy, and I support that.
  • I am against Cyber Monday, a concept developed by a trade organization.  Add your total sales two weeks prior, and two weeks after, for the past ten years, does the holiday boost actual sales?
  • In other words, I support a strategic approach to discounts and promotions.
  • And, yes, you can sell merchandise at full price.  Marketers feel like they don't have a job if they don't add frosting (discounts/promos) to the cake, take your ego out of the equation and get busy selling merchandise, not selling your fancy promotions!
Issue:  Don't work with Kevin.  He pimps his books to the #measure community on Twitter, that's not ethical, #measure is "all about the community".
  • The very people who are angry with me are people who either work for companies that promote themselves in that community, or they actually promote themselves within that community.
    Issue:  Don't work with Kevin, his activities are outside the best practices established in our industry.  Work with people like me instead, people who execute proven and classic direct marketing tactics.
    • A competing consultant, a classic direct marketer, left this comment on my blog.  Geez.
    • Again, my methodology delivers an average of $1,000,000 profit per year for a $100,000,000 catalog brand.  
    • And yes, my methodology is not an industry-standard best practice.
    Issue:  Kevin's ideas only work with companies that have unique product and add 30% new product each year.  His ideas do not work with companies that sell the same crap as everybody else.
    • How could you, the person who said this to an individual, possibly know this?  Be honest, how could you know this?
    • I've worked with companies that sell the same stuff as everybody else.  The issue isn't the merchandise, the issue is how your customers respond to advertising.
    Issue:  Kevin doesn't know B2B marketing, don't work with him.  B2B marketing is a special discipline requiring special people.
    • I'll be the first to say that I know more about B2C than B2B.
    • That being said, B2B isn't rocket science.  You mail catalogs, you send e-mail messages, customers respond.
    • Furthermore, in the projects I've worked on in B2B, the organic percentage is usually higher than it is in B2C, allowing the B2B brand to cut even more catalogs.  Yes, that's accurate.  Often, the organic percentage is 85% or greater, and your vendors are greatly over-stating the value of catalog marketing to your business ... when vendors do this, it benefits the vendor, not you.
    Issue:  Kevin doesn't know the gift industry, don't work with him.  He only knows apparel marketing.
    • This one comes up a lot.
    • The only fundamental difference for a gift business is the seasonality of purchasing, coupled with "ship-to" activity ... very easy to account for.
    • I can promise you that I've delivered above-average results for gift marketers.
    Issue:  You need a consultant who has too much work to do.  Kevin spends all day writing books or tweeting, so he probably doesn't have any clients.
    • I've worked with 63 brands in the past 53 months.
    • I limit my clients to 2 per month, maximum, to give each client maximum attention.  In other words, there are times when I am turning business away or deflecting it to later months.
    • Allow me to teach you something about how I do my job.  I write computer code ... about 6,000 lines (+/-) of code per consulting project, about 84,000 lines of computer code per year.  
    • In other words, I type a lot faster than the average person types.
    • The computer code is used to re-shape and analyze customer transactions.
    • In an average project, I'm analyzing about 10,000,000 customer transactions.
    • When I run a program, it takes anywhere between thirty seconds and thirty minutes for the program to run.
    • While a program is running on my laptop (yes, I do all of this on a laptop), I'll write a blog post, or I'll tweet something to the 3,000+ folks following on Twitter.  In other words, activity is happening concurrently ... the computer is running a 10 minute program while I write several pages in an upcoming book, for example.
    • I work about 13 hours a day, six days a week.  My wife is ok with this, my dog resents my utilization of time.
    • All of this leads to an average of $1,000,000 annual profit for the $100,000,000 brand that hires me.
    Issue:  Kevin spent too many years working for big brands.  He doesn't understand how hard it is to make things work at a $50,000,000 catalog brand.  Kevin only knows fancy, big-company solutions that don't work at small companies.
    • My median client has annual sales of $50,000,000.  About 20% of my client base is above a billion dollars a year.  About 20% of my client base is under $20,000,000 a year.
    • I have many clients in many different life-stages. 
    Issue:  Kevin knows nothing about social media.  Look at Victoria's Secret, they've got a million fans on Facebook.  Simply put, it works.
    • FYI, from 2007 - 2010, 70% of my projects were sourced from my blog (that's social media, right)?
    • In 2011, 45% of my projects are sourced from my blog.
    • Social media works for individuals and small businesses.
    • For large brands, go find a single 10-Q or 10-K statement where the Management team attributes even 3% of total annual net sales to social media.  Go ahead, I'll wait right here.
    Issue:  Kevin doesn't know anything about mobile.  Work with a web analyst, those folks know mobile.
    • 95% of analysts struggle to measure the way channels interact with each other.
    • My specialty is measuring the way that channels interact with each other.  I will tell you how mobile customers interact with the rest of your business.
      Issue:  Kevin focuses on comp-segment performance as a key customer metric, while best practices suggest that campaign performance is the best indicator of marketing effectiveness.  Don't listen to him when he starts talking about geeky comp-segment measures.
      • If campaign performance was a leading indicator of solid business performance, then why have we increased campaigns across all channels by about 1,000% since 2000, and yet, our annual customer retention rate remains constant?
      • When your annual retention rate is bound by a 10% range, over the course of a decade, then comp-segment performance is a very solid indicator of actual customer behavior.
      Issue:  Kevin only knows how to deal with loyal customer behavior.  We'd all like to have customers like Nordstrom has, customers who repurchase at a 75% rate and buy seven times a year.  Kevin knows nothing about companies with 30% annual repurchase rates, and that's why he's always saying those business need to acquire new customers.
      • 50% of my client base has an annual repurchase rate of 38% or lower.  I know a little bit about managing these situations.
      Ok, that's the latest list.  Go ahead and forward the complaints and arguments offered to you by the vendor community and by consultants who compete with me, I'll continue to address them for you.

      July 20, 2011

      But I'm Only Losing $0.03 Per Catalog Mailed!

      There are days when you realize that we're failing at math.

      Here's the argument, as presented to me.
      1. Company has 1,000,000 lapsed buyers (last purchase 13+ months ago).
      2. On average, 1% of these customers respond to a catalog, if mailed, after matchback.
      3. On average, if the company mails these customers, the company loses $0.03 on every catalog mailed.
      4. Company only mails these customers ten times out of twenty annual mailings (whew).
      5. We're only losing $0.03 per catalog mailed, that's not so bad, and they are our existing customers, so why not boost our customer file???!!!
      6. The long-term value of a reactivated buyer is $20.00 profit, so we only lose $0.03 to gain $20.00 profit.
      Here's the argument, as presented by me:
      1. You are mailing 1,000,000 * 10 = 10,000,000 catalogs.
      2. Only 1% respond, after matchback (and we've debunked that one a million times on this blog, right), meaning that 10,000 customers purchase.
      3. You actually lose $0.03 * 1,000,000 * 10 = $300,000 profit, per year.  $300,000 profit.
      4. You actually lose $300,000 / 10,000 = $30.00 profit per reactivated buyer.
      5. You actually lose $20.00 long-term gain - $30.00 reactivation profit = $10.00 per reactivated buyer.
      6. Strategy = DON'T DO THIS!!
      Pennies are seductive.  It's so easy to make the decision to lose a few pennies, who's going to notice?

      Well, pennies are the difference between being a highly profitable company, and being just plain average, or below average.

      Yes, pennies.

      What would Kevin do (WWKD)?
      1. Realize that half of the customers you are mailing would have reactivated anyway, due to your organic percentage being around 50%.
      2. This means that you are actually reactivating half of the customers you think you are reactivating, meaning that you are actually losing $60.00 profit to reactivate a name, a rate of profit you'll never make up with $20.00 of future profit.
      3. I would pocket half of the profit now, and re-invest half of the profit in new customer acquisition, growing your customer file more profitably in the process.  I mean, be honest, you're not losing $60.00 of profit acquiring new names from Abacus, right?  So spend a bit more with Abacus, be willing to lose $12.00 to acquire a customer that generates $20.00 of future profit, and you come out way ahead.
      The difference between industry-leading profit and average profit is pennies ... pennies per catalog mailed.  When you say you're willing to lose a few pennies here and there, you're deciding to be average.

      July 19, 2011

      But If I Cut, I Could Lose Market Share, Right?

      There are many arguments against working with me.  Cutting circulation is one of them.

      The argument goes something like this.
      1. Kevin recommends we cut circulation by 25%.
      2. Kevin says this will result in a 6% drop in demand.
      3. Kevin says this will result in an increase in profit of $1,000,000.
      4. Kevin recommends reinvesting half of the money in new customer acquisition.
      5. Company (or trusted vendor) suggests that this is bad, because instead of generating $50,000,000 in annual net sales, the company will now generate $47,000,000 in annual sales, even though company profit increases from $2,000,000 per year to $3,000,000 per year.
      6. Company says that it is a terrible thing if infrequent buyers are not mailed, because this means that the customer file will be weaker in the future.
      Ok, a couple of points for all of you to consider.
      1. How does Zappos, without a catalog, get infrequent customers to purchase?  And don't tell me that "they are different, so they don't count"!!!
      2. How does a retail store brand without a catalog marketing division (say Napa Auto Parts) get an infrequent customer to purchase again?
      One of the least understood concepts in modern catalog marketing is the concept of the "organic percentage".  This is the percentage of customers who purchase again, without the aid of catalog marketing (or, if you are Zappos, without the aid of any marketing).


      Back in 1995, when you stopped mailing a customer, you stopped generating demand from that customer.  This caused your future housefile to weaken, as you did not have enough customers to fuel future growth.


      In 2011, when you stop mailing a customer, you face a different challenge.  Assume that the organic percentage for an online-centric audience is 58%.
      1. In the next six months, you lose maybe 35% of the demand the customer would generate.
      2. In months 7-12, you lose maybe 40% of the demand the customer would generate.
      3. In months 13-24, you lose maybe 45% of the demand the customer would generate.
      The secret, then, is to mail this customer infrequently enough to save a ton of money, generate a lot of profit, but remind the customer that you're still around.  The customer continues to generate 58% of the demand generated on a full diet of catalogs.

      In 2011, this is what happens if you frequently mail 100 infrequent customers:
      • 2011 = 100 customers with a last purchase of 13-24 months ago.
      • 2012 = 90 customers with a last purchase of 25-36 months ago, 10 customers with a last purchase of 0-12 months ago.
      In 2011, this is what happens if you infrequently mail 100 infrequent customers:
      • 2011 = 100 customers with a last purchase of 13-24 months ago.
      • 2012 = 94 customers with a last purchase of 25-36 months ago, 6 customers with a last purchase of 0-12 months ago.
      In 2011, if you re-invest some of your profit in new customer acquisition, even at a loss, this is what happens:
      • 2011 = 100 customers with a last purchase of 13-24 months ago.
      • 2012 = 94 customers with a last purchase of 25-36 months ago, 6 customers with a last purchase of 0-12 months ago, 4 new customers with a last purchase of 0-12 months ago for a total of 10 customers with a last purchase of 0-12 months ago.
      Re-investment can protect market share, if done appropriately.  Think about it.

      July 18, 2011

      The Arguments Against MineThatData

      Many of you tell me about the arguments folks use to encourage you to not hire me.  Let's address a few of these issues.

      Issue:  His experience came from Nordstrom, Eddie Bauer, and Lands' End.  They are retailers.  He doesn't know anything about a pure catalog business, and furthermore, anything he learned about killing a catalog division at Nordstrom isn't relevant because they're a retailer with a proud brand heritage, what he learned there won't work for you.  Simply put, his experiences don't translate to your business.
      • The most common argument used against me!
      • Always remember that Lands' End was a pure cataloger during my tenure there.
      • I've never said that the Nordstrom experience was relevant.  I've always said that we measured what would happen with mail/holdout tests, and those tests told us what was possible.  I'm asking you to think, to execute mail/holdout tests.  
      • Since 80% of you don't execute mail/holdout tests, I've developed a routine to estimate what would happen if you did execute mail/holdout tests ... a routine that helps you increase profit, on average, by $1,000,000 per year for a $100,000,000 business.
      • Ask a classic direct marketer if they have a methodology for understanding what happens if you stop marketing within a channel?
      Issue:  He's going to tell you that your annual retention rate is 38% and therefore, you need to acquire new customers.  Everybody knows that it is seven times more expensive to acquire a customer than to retain a customer.  Work with us, we know of breakthrough multichannel campaigns that jump-start businesses so that you don't have to acquire new customers.  Have you heard about QR codes, for instance?  There's a fascinating link between print, mobile, and e-commerce!
      • Yes, I'm going to tell you that your annual retention rate is 38%.  I'm going to tell you that because, in all likelihood, your annual retention rate dictates your growth strategy.  I'm just being honest with you.  The most successful clients I work with accomplish 50% of their success by having low-cost customer acquisition programs.  I'm going to be able to tell you what you need to do, in order to grow, and nine times out of ten, it's going to require you to revamp your customer acquisition marketing strategy.
      • Ask yourself an important question.  If all of the multichannel campaigns that you've been working on for more than a decade were so important, then wouldn't your annual customer retention rate have grown from 38% in 2000 to 48% in 2011?
      Issue:  Kevin gives content on his blog away, for free.  First of all that's anti-competitive, intellectual property is worth something.  Second of all, if he's giving all of this stuff away for free, how valuable can it really be?  Work with us, we have distinct intellectual property that is valuable and needs to be protected.
      • Yes, I'm going to give away a lot of freebies on this blog, in fact, I have always given away all of the frameworks I use for methodologies, for free.  
      • That's not anti-competitive, that's being nice, it's what we should all be doing, we should all be helping each other.
      • If a vendor tells you that what I'm doing is wrong, then ask your co-op why they so willingly help you give away your customers to your competitors for free?
      • An average client generating $100,000,000 in annual sales yields a $1,000,000 annual profit on one of my projects.  So what I'm sharing with you must have some value, right?
      Issue:  Don't work with Kevin, he steals business from us.  We treat him nice, then he undercuts our project costs.  Simply don't work with him.
      • This one is a 100% fabrication.
      • I have no idea what it costs for a competitor to execute a project.  When a potential client asks me to bid on a project, I do so in a vacuum, without knowledge of who I am competing against, without knowledge of what competing vendors charge for comparable projects.
      • Based on feedback I get, I suspect my costs are cheaper than what competing vendors charge, or I wouldn't hear complaints.
      • I have never, ever, attempted to steal a client from a vendor.  Never.  
      • This is a fabrication, one coming from industry veterans that you know and respect.
      Issue:  Kevin has no idea what will truly happen if you reduce catalog mailings.  Don't fall for his charming mathematical voodoo.  We have housefile optimization models that find the very best customers for your mailings, allowing your business to grow, not shrink.
      • I have a pretty good idea what happens if you reduce catalog mailings.  I've analyzed somewhere between 500 and 1,000 catalog and e-mail mail/holdout tests in my career.  I know a little something about what happens when you don't mail catalogs to a customer.  
      • Hint --- what happens is very different than what the vendor community tells you will happen.
      Issue:  Kevin doesn't care about market share, so don't work with him.  You want to grow, and we'll help you grow.
      • If you define market share as total net sales, then yes, I don't care about market share.
      • If you define market share as profit dollars generated, on an annual basis, then I care deeply about market share.
      • I'd rather your business be $30,000,000 in annual sales with $3,000,000 profit than to see you be at $50,000,000 in annual sales with $2,000,000 in annual profit. 
      Issue:  Kevin isn't accurate enough. If he tells you that the organic percentage is 52%, and it really is 47%, then you've made catastrophic mailing mistakes that will cost you a fortune.
      • This one comes up a lot from analytical folks and consultants who compete with me.
      • It is an argument that comes from a lack of understanding of the dynamics of actual customer behavior, it comes from having expertise at analyzing campaigns and/or analyzing customers without regard to advertising channels.
      • I can be off by 10 points (i.e. 42% instead of 52% organic percentage), and it does not fundamentally change the accuracy of the ranking model, or the amount of profit.  Remember, matchbacks are so grossly overstating demand (i.e. are so terribly wrong) that my percentages do a great job of optimizing profitability.
      • I'm seldom off by 10 points, FYI.  And when I am off, the organic percentage is usually greater than what I estimate ... I purposely estimate the organic percentage a bit low, to minimize any problems.
      Issue:  Kevin knows nothing about modern digital marketing, he's old-school.  Modern digital marketing experts have advanced KPIs that help you understand how to manage your business.
      • I care about customers, customer profitability, and the profitability of your business.
      • Can your digital marketing expert calculate profit?
      • Can your digital marketing expert tell you your annual retention rate?
      • Can your digital marketing expert link data across channels?
      • Can your digital marketing expert analyze mail/holdout tests across channels in e-mail marketing?
      • Can your digital marketing expert predict the size of your customer file, in any channel, five years from now?
      • Can your digital marketing expert predict the size of your customer file five years from now if you decide to double your e-mail marketing frequency today?
      • Can your digital marketing expert predict what happens if your catalog is increased from 96 to 124 pages?
      • Can your digital marketing expert predict what happens to customer value if a customer adds/eliminates channels?
        Issue:  Kevin is completely wrong about the organic percentage.  Listen to him, and you'll be out of business in six months.  You have to advertise to customers, or they won't buy from you.  Period.
        • This is one that can easily be answered by a mail/holdout test.  Simply execute the test.  If 98% of customer demand is generated by catalog mailings, then your organic percentage is 2%, and the critics are right.  If your organic percentage is between 35% and 65%, like it is for most of the people I work with, well, then there's something to what I'm preaching/teaching.
        • Is it possible that there are other ways to advertise to customers?
        • Have you heard of this thing called "the internet", where you can make your products and services available to customers?
        • Is it possible that customers love your brand so much that they buy from you, even when you don't advertise?
        Ok, your turn.  What are the arguments the vendor community uses to suggest that you work with different solutions providers, arguments you'd like for me to refute?

        Borders, RIP

        Yup, Borders is finished ... see Gawker for details by clicking here.

        The pundits told us we had to do "bricks 'n clicks".  Had to.  They told us what the future would hold, and it held this multichannel nirvana where customers were researching online and buying in stores, so having "bricks 'n clicks" would result in a competitive advantage of unparalleled proportions.
        I'm not saying that customers don't research online and buy in stores ... they absolutely do, more than ever.

        It's the "your sales will grow" proclamations of consultants, trade journals, vendors, and other folks who've never worked in retail that represents the problem, here.  For the most part, across most businesses ... multichannel customers are the best customers ... but being "multichannel" has not resulted in the sales increases promised by consultants, trade journals, and vendors with a vested interest in selling solutions that benefit them.  If the sales increases existed, you'd have observed huge increases in your annual retention rate and purchase frequency over the past decade, right?

        Retail is for big boys, or for small, local folks, there's no in-between.  And if you're going to be a big boy, you're going to be told by another set of pundits that you need to finance a fleet of stores with debt ... lots and lots of crippling debt.

        I recall a Retail CFO telling me about how Wall St. would "beat down the stock price" if he paid down debt.

        Debt > Strategy.

        And when sales drop, by as little as 5%, debt becomes a really tough burden to recover from.

        Oh, I know, some of the lemonheads are going to say that Borders didn't respond to changes in technology.  That's a pithy response, one that is easy to have in retrospect.  How many times have you made strategic mistakes in your job?  Never?  How many times have your strategic mistakes been made public, so that all marketing experts can openly criticize you?  Imagine being an employee at Borders, for just a moment, especially a non-Executive.

        You can overcome strategic problems when you're not saddled with debit.  Heck, you know this, right?  What happens to your mortgage when you suffer a 15% reduction in salary (or you lose your job)?  That mortgage payment becomes onerous, doesn't it?

        Debt > Strategy.

        Pay close attention to the future of books in a retail environment.  How do the parallels there apply to your business?

        July 17, 2011

        Dear Catalog CEOs: The Screen

        Dear Catalog CEOs:

        Times have changed.

        These days, people toss micro-channels all around you.  Your cell phone, your tablet, your television, your laptop ... plenty of screens.

        Yes, screens.

        Social media is nothing more than a way to communicate across/between screens.

        When viewed through that context, there's no such thing as e-commerce or f-commerce or m-commerce ... there's s-commerce, screen commerce.


        Catalogers are being cornered by screens.  Customers used to get information from the mailbox, once a day.  Now, customers get information via screens, 24/7/365.

        Marketing via the mailbox is very different than marketing via screens.  Early in this evolution, we were taught to use the mailbox to drive business to the screen.  Increasingly, it seems like we're going to have to figure out how to drive business to the screen, independent of the mailbox, if we want s-commerce to thrive.  And no, I'm not talking about the pundit version of mobile (gamification, Apple vs. Google, tablets vs. phones, Facebook, Twitter integration, blah blah blah blah blah blah), because that's like having a discussion in 1995 about Netscape vs. Internet Explorer vs. AOL.  And I'm not talking about putting a catalog on a tablet, that's not likely to be what the customer migrates to over time.


        No, I'm talking about having a holistic strategy for how a brand is represented on "The Screen".  We need to start thinking about our screen strategy, content, programming, commerce ... the cataloger is essentially a media company.

        All of this, of course, is a precursor to h-commerce ... hologram commerce, right?

        Or, we can continue to plan the spreads in our March 2012 catalog.

        July 13, 2011

        The Nordstrom Catalog Experiment of 2004 - 2006: When The Catalog Argument Is Right

        Yesterday, we covered flaws in the catalog argument, comments I fielded from the catalog industry when we killed the catalog division at Nordstrom.  Today, we review arguments that proved to be true.

        True = Frequency Is Important:  One of the consequences of not having a catalog is that you lose a way to communicate with the customer.  We significantly ramped-up our e-mail contact frequency, in order to make up lost sales and to continue communicating with the customer.  That being said, advertising frequency does play a role in encouraging additional purchases and increased customer retention.  Annual retention rates decreased, maybe by 20% or more, without print in the mail.

        True = The Culture Changes:  When you eliminate a catalog division, you change the internal pecking order among employees.  The catalog merchant suddenly has a set of skills that aren't as respected as they used to be, the person responsible for creating landing pages suddenly has skills that are in demand by folks who are desperate for ways to drive sales.  If you have a one hour meeting, and now there's no catalog to talk about in that meeting, well, you do find a way to fill the time with other channels, and that spurs a new style of creativity that yields unpredictable outcomes.  You go through a painful 18 month process where you are essentially re-defining how things get done.


        True = The Rats Scatter:  I had employees head for the exits, proclaiming that "Kevin's ship is sinking because he's a catalog person" on their way out the door.  Do I look like I'm doing alright today?  I'll tell you this, you quickly find out who has your back at work when your channel is eliminated.  Many employees love channels more than your company, this will become clear when you make significant changes to your strategy.


        True = Planning Changes:  So many folks plan a season by starting with the catalogs that will exist, then planning the merchandise that goes on each spread, then forecasting circulation depth and demand, then planning all other channels in an "integrated" manner.  Well, there's nothing integrated about that, is there?  That's a catalog-centric planning strategy.  Take the catalog out of the picture, and you have a whole new way of looking at your business!  Suddenly, merchandise becomes really important.  Suddenly, you need to create events/reasons for customers to purchase, reasons that are not catalog-centric.  Creativity returns to your business, folks.


        True = The Vibe Disappears:  When you mail a catalog every three weeks, there's a cadence that runs your life ... you live for the in-home week, you thirst for information, you wonder if the books are being delivered or if the merchandise stinks, you try to project the book to completion and then think of the ramifications of the book being above/below plan on the rest of the year.  You use book performance to drive liquidation strategy.  You use book performance to drive customer file reporting that drives future circulation depth and strategy.  Well, when that cadence is gone, oh boy, the vibe disappears.  Your sales spikes disappear.  Your business acts a lot more like a retail business than a catalog business.  You find something else to live for.


        True = Traffic Matters:  In the catalog world, circulation depth determines traffic.  Without the catalog, well, what causes traffic?  Good question!  Circulation and response rates are replaced by traffic and conversion rates, and the accountability shifts.  All of a sudden, the web analysts is getting important questions, and is required to provide answers, because you can't blame the catalog for traffic increases/decreases anymore.  You shift your mindset, you shift your cause-and-effect thinking.  Honestly, you become more open-minded about business when you don't have a catalog to give credit to or place blame on.


        True = The Merchandise Assortment Shifts:  The old-school catalog customer drives the assortment, because her demand is most easily measured and attributed back to the catalog.  Take the catalog away, and you change the demographics of the customer buying merchandise, and that causes the productivity of some items to change, and that fuels changes in future merchandise assortments.  In eighteen months, you've taken your merchandising assortment in a different direction.


        True = It's Harder To Forecast Inventory:  The honest truth is that an e-commerce business is very similar to a retail business, from an inventory management standpoint.  In retail, when that stack of 50 shirts is gone, it is gone, and you don't know if you could have sold 53 shirts or 83 shirts or 1,113 shirts.  So you have to have more of a gut feel, you're less metrics-oriented.  In catalog, you capture lost sales, and lost sales help you forecast inventory next year.  In other words, the retail inventory expert is more adept at handling e-commerce than is the catalog expert, once the catalog is gone.


        True = You Grow, Professionally:  My experiences in the non-catalog environment shapes the work I do for clients today.  When clients suggest that the catalog is a "must have" or "is the brand", I know how to proceed, because I've been there, I've felt that way myself, and I've seen what it is like to not have the catalog there anymore.  You most certainly grow as a professional, you are removed from your comfort zone.  If you are an e-commerce professional, your turn is coming ... mobile has the potential to transform your world in the way that e-commerce transformed catalog marketing.

        That last point is the most important one.

        E-commerce leaders are going to be put through their paces in the next five years, should mobile become a commerce force.  Catalogs are to e-commerce as e-commerce is to mobile.  E-commerce wonks will deal with a new generation of leaders, leaders that bring a new generation of tools and analytics and workflow processing tailored to the mobile channel.  History repeats itself.

        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.

        July 11, 2011

        The Nordstrom Catalog Experiment of 2004 - 2006: An FAQ

        Many of you ask me about the experience I had at Nordstrom, from 2004 - 2006, when we shut down a traditional catalog channel.  I thought I'd aggregate many of your questions here as part of an FAQ.

        Question:  Who wanted catalogs killed, and who championed catalogs?  From what I remember, it wasn't so much an issue of killing catalogs as it was an issue of aligning merchandise across channels.  If you truly let a catalog evolve based on merchandise productivity, the catalog will become populated by items that rural women age 55+ love.  Eventually, you run into a bit of a bind ... do you maximize catalog productivity, or do you sacrifice productivity to truly reflect all aspects of the brand?  Ultimately, the retail and marketing teams supported killing the catalog, while the catalog team (not surprisingly) championed catalog marketing.

        Question:  What side were you on?  A tough question.  Strategically, I was on the side of marketing and merchandising.  Personally, I was on the side of the catalog team, because my entire career had been aligned with catalogs.  Heck, what job would I do, or would I even have a job, if the catalog didn't exist?  Honestly, I probably aligned with the catalog folks too much, in an effort to preserve my job as I knew it.

        Question:  How do you shut down a catalog division?  It's a complex issue.  You need plenty of lead time in order to burn through 6-9 months of inventory you've already committed to.  You have jobs that have catalog/online alignment, jobs that are generally protected.  You clearly have jobs that are aligned with the catalog, those jobs are absorbed, or they simply go away.  You tell your key vendors months in advance that you are making significant changes.  And if you run an analytics team (like I did) you prepare a TON of project work in advance, so that you can measure the impact the decision had as fast as possible.


        Question:  What happened to your division, Kevin?  My team included twenty-four analysts, managers, and directors.  Within fourteen months of the decision, my team was down to sixteen analysts, managers, and directors.  Anytime a member of my team quit, I simply didn't keep the position, I shuffled responsibilities accordingly.  A couple of individuals were not carried forward into the new organization.  Of maybe five individuals with the strongest catalog experience, only one remained ... two left for online marketing positions, two left the company after seeing how everything would shake out.  The loss of talent was stunning.  The impact of this talent loss on the department and business results was negligible.  Ultimately, catalog talent was reallocated to e-mail marketing where possible, given the obvious synergies between the two marketing channels.


        Question:  How did you forecast what impact this decision would have on the business?  We executed countless mail/holdout tests.  These tests told us that our vendor-based matchback analytics routine was overstating the importance of the catalog by an order of magnitude that would scare you!  We "knew" the impact would not be as severe as, say, our Inventory Executive believed the impact would be.  I would sit in meetings with the inventory team as they beat me over the head with real-time KPIs that predicted the implosion of the website when catalogs no longer existed.  Amazingly, our prediction for annual demand in the online channel, without the aid of catalog marketing, was off by just 5%, dumb luck more than anything else, but dumb luck that was strongly informed by accurate mail/holdout results.  You create your own luck!


        Question:  What happened to the Management team that led the catalog division?  This team imploded.  The President left, the online marketing exec left, the inventory executive left, the operations executive was sent packing, and many others headed for the exits as well.  Many folks stayed, those folks worked with a new Management team that, without any of the experience of the old Management team, produced stunning business results.


        Question:  What happened to the Online channel once the catalog was gone?  The online channel thrived!  Every pundit on the planet told us we were morons, citing research reports sourced from surveys of 824 likely shoppers that suggested that all channels work together to create a succulent multichannel cioppino.  Every pundit was wrong.  The online channel grew at an unprecedented rate, growing so fast that every penny lost by the absence of a catalog was made up for, and then some, by the website.  Online marketing metrics suddenly looked better, not hobbled by matchback programs that mistakenly gave credit for online orders to catalogs, causing a dramatic increase in the search marketing budget.  $36,000,000 of catalog marketing were pulled out of the ecosystem, and phone+online sales increased?


        Question:  What happened to Retail sales once the catalog was gone?  Comp store sales grew at a faster rate than the prior year, in spite of $36,000,000 of catalog marketing being pulled from the the ecosystem, proving that the mail/holdout results were right ... catalogs were not driving sales in the way that the pundits suggested they were.


        Question:  What happened to customers who used to shop the catalogs?  Well, the majority of them stopped shopping altogether, truly, they did.  We got angry postcards (and yes, MySpace and Blogs existed then), strongly telling us that the customers who were angry were older Americans.  Those customers did not come back.  But a funny thing did happen.  The website, fueled by search, attracted a different set of customers, a suburban/urban customer, one that was more likely to cross-over and shop in retail stores.  And when the customer switched to the store channel, the customer became much more valuable.  The end result was that we lost valuable catalog customers, but we gained marginal online customers that became valuable retail buyers.  In other words, the composition of the customer file fundamentally changed without catalogs to fuel the ecosystem.


        Question:  Don't you think this type of result is only possible in a retail brand with the kind of brand recognition that Nordstrom possesses?  No.  I detest this question.  This question suggests that the results are not repeatable.  If you have executed mail/holdout tests, then you know the answer to your question ... if the mail/holdout tests show a high organic percentage, then you don't need catalog marketing to fuel your ecosystem.  I've worked with catalogers that have a 60% organic percentage ... these businesses are self-sufficient, not needing catalogs to fuel growth.  Your mail/holdout tests tell you what is possible.  No, this is not a retail/Nordstrom issue.


        Question:  How did you acquire new customers without new names from the co-ops?  Search, portal advertising, and a stronger website experience coupled with a merchandise assortment that was more appealing to the core Nordstrom customer than the female, 55+ rural customer merchandise assortment that the catalog evolved to.  We also moved from expensive shipping/handling to $5 shipping/handling, in large part to better compete with Zappos, that sure didn't hurt.


        Question:  What happened to your job, Kevin?  My job eventually changed, becoming more research oriented.  Clearly, I'm not a qualitative researcher, my job is to analyze actual customer behavior via an integrated database featuring transactions across all channels.  The retail channel requires much more qualitative research than is required by the catalog channel.  So, eventually, my job evolved into something that was not the same as the job I signed up for in 2001 when the catalog/website division generated $350,000,000 in annual sales and an annual loss of $34,000,000.  I voluntarily left in March, 2007, starting MineThatData.


        Question:  How have you applied the learnings of 2004-2006 with your client base?  More than anything, I try to teach that, for some/many customers, catalog are simply not needed, or far fewer catalogs are needed.  My analytics evolved significantly, and are far more sophisticated today than what I used in 2004-2006 to understand this issue at Nordstrom, in fact, they are far more sophisticated than when Don Libey released Multichannel Forensics for me in the Fall of 2007.  These days, my projects usually lead to a recommendation to mail a fraction of the customer file more often (something I never imagined I'd say in 2007), coupled with a significant reduction in mailing frequency to at least two-thirds of the customer file, leading to about $1,000,000 in annual profit for a $100,000,000 catalog brand.


        Question:  What is the number one thing you learned about closing down a catalog division?  There's probably two things I learned.  First, you can have the most talented group of people imaginable, and they can have minimal impact on business results.  Most of the folks managing the catalog team were brilliant, and were responsible for turning around a -10% pre-tax business in twenty-four months.  This same team was detonated, replaced by considerably less experienced individuals, and the business improved!!  What a humbling lesson.  Second, I learned first-hand just how wrong the pundits were/are.  I received countless phone calls from people you know and respect ... these folks predicted gloom and doom ... tossing around obtuse metrics from Forrester Research and McKinsey Research and printer case studies and antiquated stats from Lands' End in 1999 to mock our decision.  The trade journal mudheads wrote scathing stories about our stupidity, about our inability to understand the subtleties of multichannel marketing.  I recall co-op staffers predicting we'd come crawling back to catalogs within a year.  The pundits were really, really wrong.  By and large, they continue to be wrong today as well.


        Ok, your turn, what additional questions do you have?

        July 10, 2011

        Dear Catalog CEOs: Vendors and Trust

        Dear Catalog CEOs:

        You've already read about the National Catalog Forum.  Most likely, you didn't participate, did you?  The article suggests that almost nobody attended (less than 100).  The good folks at the ACMA work their rear ends off to make your life easier (or even possible), charging almost nothing in exchange for their exhaustive work.  Heck, you could cut your advertising spend by 0.1% and never miss it, reallocating the revenue to the ACMA.  Why not do that?

        Trust?


        Over and over, I run into issues of trust when interacting with the vendor community.  Too often, folks are trying to "win accounts", if you will.  In the past year, I watched as a vendor privately slamed in-house staff in an effort to increase vendor revenue and utility.  

        I, too, hear stories about me, stories about vendors that all of you work with (you know them by name), stories about the many ways they tell you not to work with me.

        I realize it's tough out there, and that our vendor community is fighting to survive.

        I also realize that trust is a currency far more valuable than money.  The more desperate our vendor community becomes to maintain revenues, the harder it becomes for all of us to trust each other.


        Why not take the first step in improving trust by tossing a few pennies toward the folks at the ACMA?  At least in their case, you know that somebody is truly looking out for your best interests.

        July 06, 2011

        Events

        My former employer (Nordstrom) seldom held promotional events.  Yes, I know, the best practice pundits will tell you all about the benefits of well-timed discounts and promotions, good for them.

        Over in the real world, Nordstrom was(is) not a promotional company ... hosting only three sale periods during the year.  One of those is called the "Anniversary Sale" ... held roughly from mid-July through the end of July.

        Fall merchandise is offered to the customer, at a discount (yes, I know, the best practice pundits will tell you that you never discount new merchandise ... just bear with me, given that Nordstrom has been in business for a century, there might be something credible to what they do).

        The event generated as much business in the last two weeks of July (a period of complete death in apparel retailing) as is generated during the Holiday season.

        Go check out your local store next weekend and see what all of the buzz is about.

        Anyway, that's not what this post is all about.  This post is about you.  You manage a reasonably-sized business, right?  So what is the event that you hold each year, an event that is so grand, so amazing, providing so much value to your customers, that your customer cannot help but open her handbag and hand you her credit card?


        You have an event like this, an event that you've turned into an annual tradition, right?

        Right? 


        We just went through the July 4th holiday weekend (or Canada Day for those of you reading this north of the border).  This event is loaded with traditions that have nothing to do with the actual meaning of July 4th ... municipalities create blindfolded dingy races and parades and hot dog eating contests, annual traditions that you feel compelled to participate in.  Events also play a significant role in our businesses ... and I'm not talking about a random 20% off plus free shipping event in early August ... I'm talking about an actual tradition that customers cannot wait for!


        Instead of focusing on f-commerce, or on selling via Twitter, or on making sure that you have large orange buttons instead of small green buttons on your website, why not simply focus on "commerce"?  Create an event, a tradition, something for your customers to look forward to.


        Use the comments section to describe events that businesses hold, traditions that you simply cannot wait for.

        July 04, 2011

        Co-Op Dollars

        I seldom talk about this, though maybe I should be talking about it more often.

        Let's go back in the time machine, way back to 2005.  Do you remember 2005?  You should.   Your home was worth 70% more than it is now.  You could get a home equity line of credit on your home at an amazingly low interest rate without documentation of income.  Gas cost about $2.70 per gallon.  MySpace dominated Social Media.  Mobile was an oil company, merged with Exxon, not an Android device you held in your hand.  A tablet was something you wrote on with a pen, not a device that allowed you to play Angry Birds in high-definition.

        I worked at Nordstrom in 2005.  It was in 2005 that we killed our catalog division, and still generated sales increases in direct-to-consumer and retail channels with a corresponding increase in profitability.

        Now, I can hear the blowhards already ... "Yabut, Nordstrom is a retail brand, so you had all of that brand equity that allowed you to kill your catalog, your strategy couldn't possibly work for us."  It's amazing how people who never worked at Nordstrom are always smarter than the folks who did work at Nordstrom, when it comes to catalog marketing (or any kind of marketing).

        Regardless, the catalog division was killed.  Instead, a "brand book strategy" was employed.  Some called this a "catalog", but honestly, it wasn't a catalog.  Vendors paid a fee to have their products advertised on each page (a practice called "co-op dollars").  The catalog featured cobbled together images from various brands, low density, high fashion, you get the picture.

        Well, the performance of this fashion catalog wasn't "all that and a bag of chips" as some say.


        But the revenue associated with this advertising concept is worth pondering.


        Let's say that you have a 96 page catalog.  If your product isn't proprietary, why not ask your supplier for a few pennies to help advertise their products (this works for e-mail, and it works for your landing pages ... and if you really want to get your suppliers to hyperventilate, ask them for a few bucks to give them added exposure on your mobile website)?


        Or you could remove eight pages of crummy-performing merchandise with ads, sort of like a magazine.  Oh, I know, you don't want to "destroy the brand" ... but that's an opinion ... you already rent your very best customers to your competitors, and somehow that doesn't destroy your brand, so maybe the situation isn't as dire as perceived.


        Anyway, I'm not asking you to do this ... I'm asking you to think.  How can you generate revenue from your advertising, revenue that allows you to mail deeper and reactivate more names or allows you to acquire more new customers?