August 31, 2011

Disconnect: Loyal Customers vs. Organic Percentage

Here's a big disconnect that keeps coming up in projects.
  1. The more loyal a customer becomes, the more we as marketers want to contact that customer.
  2. The more loyal a customer becomes, the more the customer is willing to shop without the need for advertising, reducing the need to continue to contact the customer.
In other words, customers frequently act in a manner that is opposite of how we, as marketers, want to treat them.  As a customer becomes more loyal, the organic percentage increases, meaning that the customer may need less advertising than at a disloyal stage.  At the same time, the marketer observes spending increases that filter into a CRM system, causing the customer to become saturated with additional advertising that is justified by matchback/attribution systems that incorrectly allocate demand against the advertising, causing even more advertising to flow to the customer.

Yes, this is a problem that you, too, face with your best customers.

Hint:  There is a TON of profit to be had figuring out this riddle.

Nordstrom Free Shipping

Some of you forwarded me news that Nordstrom now offers free shipping, no hurdle.

This is usually followed by a few comments.
  1. How can they afford to do this?
  2. Is this a fad, or is everybody going to go this route?
  3. If everybody goes this route, I'm in big trouble, because I need a 40% lift in demand to cover the cost of free shipping, and that will never happen when everybody is doing free shipping.
As you already know, I think this is what will happen to you, the cataloger:
  1. You will be forced into some form of free shipping.
  2. You will not get a big enough bump in response/conversion to pay for free shipping.
  3. You will have to reduce catalog circulation to pay for free shipping.
  4. You will choose to cut catalog customer acquisition.
  5. You should choose to cut housefile circulation.
Lots of folks are inquiring about 2012 projects, projects where circulation cuts will be used to fund other marketing activities (like free shipping).  It might be a good time to schedule your project for Nov/Dec, so that you can act in 2012 ... contact me now for details.

August 29, 2011

Shop.org, Boston, September. Meet With Me!

You're going to be at the 2011 Annual Summit in Boston anyway, so why not join me as I chat with industry leaders about marketing attribution ... click here for details!

I still have a handful of project slots left for the remainder of 2011, so this would be a great time to meet with me about your project.  I will be around all day on 9/13 ... if you're interested in meeting with me, click here to set up an appointment.


August 28, 2011

Dear Catalog CEOs: Puppies

Dear Catalog CEOs:

Have you ever owned a puppy?

If you have, you probably felt like it was the dumbest decision you ever made, especially if you previously owned the same dog for ten or more years.

The older dog knew all of the rules ... she knew when meals were scheduled, she knew when she was supposed to go to the bathroom, she knew who to cuddle with and when.  One might say you had a reliable, consistent, predictable, comfortable return on investment.

Eventually, the older dog departs, and you get a puppy.  Somebody failed to mention to you the level of chaos involved in raising a puppy.  This little thing is cute, and it's a good thing he's cute, because he has absolutely nothing else going for him.  Your TV room seems to become an auxiliary toilet for the little guy in-between the every-three-hour bathroom breaks in the back yard.  He chews on your dirty socks.  He vomits.  He barks at cows on the television.  He randomly runs wind sprints back and forth, back and forth, for no good reason whatsoever.

You had an emotional relationship with the prior dog ... you have no relationship with this dog.

If you measured the return on investment of the puppy, in the short-term, you'd deem your ROI to be negative, wouldn't you?

Eventually, the puppy grows up, he becomes a member of the family, and you develop a new routine.


Remember when the internet was like a new puppy?


We kept the old dog, and we added a new puppy to the family.  We demanded that the new puppy act like the old dog.  Today, we have a really old dog, and a puppy that matured.


Long-term, we're going to have to find puppies.  Yes, it's going to be uncomfortable, chaotic, we're going to perceive we don't have an acceptable ROI.  We're going to lean back to the older dogs, because were comfortable with them.


We don't have to get rid of our older dogs, we didn't do that when the puppy known as the internet burst onto the scene.  But dogs age, so we're going to need a few new puppies, aren't we?

August 24, 2011

New Rules of Catalog Marketing

Every one of these rules are made to be broken, these are not best practices, these are trends that some of the best companies follow, while others blatantly disregard on the way to unfettered profits.  Think about each one.  Please think.

Make A Demographic Decision:  A decade of co-op infused customer acquisition nets most of us a customer file that is heavily skewed to a 55+ rural audience.  This was not the intended outcome of the "multi-channel" era, it's one of the unintended consequences of doing what everybody else is doing.  It's time to make a decision ... do we follow this demographic into retirement, do we sell, or do we chart a path to the future?

Frequency vs Pages:  Twenty sixty-four page catalogs are generally better than ten one-hundred-and-twenty-eight page catalogs.  The vendor community often skews us away from this solution, as do our creative teams.  Do what is right for the customer, not what is right for our vendors or our creative team.  By the way, your mileage will vary ... smaller catalogs must be merchandised differently than larger catalogs.

T-Commerce vs E-Commerce:  Simplicity and organization made cataloging great.  E-commerce is largely an algorithmic, IT-based drill-down shopping experience that lacks warmth.  Tablets could change this.  Apps like Catalog Spree represent the embryonic stages of a warmer shopping experience.  The cataloger has a distinct advantage over the e-commerce brand in tablet commerce, in that it knows how to stimulate a warm shopping experience.  The cataloger has a distinct disadvantage in that the demographic it is used to speaking to is much older than a tablet-embracing audience.  Regardless, there is long-term profit to be had creating a shopping experience on tablets.  And, unfortunately, the catalog shopping audience has yet to embrace tablets at the rate that younger audiences have, so there's an audience disconnect at play here.

Social = A Feature:  I think we can put the concept of social media as a sales engine to bed.  Catalogers will use social media as a feature, and won't bother to measure "ROI".  You'll have a product, coupled with creative presentation and audience and social and whatever else ... the blend of those tactics yields profit, or it doesn't.  Separating the return on each component will be a useless, feckless exercise, going forward.

Scorching The Earth:  I can't tell you how often I meet with people, and we talk about different strategies, and I hear the following phrase ... "our vendor will charge us $5 per thousand to do that, so we aren't going to go down that path".  Oh boy!  The last decade was all about Scorching The Earth for profit ... both catalogers and vendors alike.  One might fancy a day where both sides are more collaborative.  Again and again, I see how vendors stop catalogers from moving forward and making progress by charging for anything innovative.  Do the opposite!  Vendors, leave a little profit on the table and try to move a client into their future, not into your prescribed future.

Fragmentation:  We have at least three audiences.  We have an old-school 55+ rural customer that must be mailed catalogs.  We have a 40-54 audience that is in a state of transition.  We have an 18-39 audience that shops in unique ways.  Most of us spent the past decade asking all customers to shop like 55+ rural customers.  If we want a diverse portfolio of customers in the future, we're going to have to fragment our marketing efforts in many different directions.

Pennies Count:  I cannot believe how many people I meet who are perfectly happy letting $0.03 profit per customer evaporate.  If you have 500,000 twelve-month buyers, and you're willing to let $0.03 profit per customer evaporate each month, well, then you're willing to let $180,000 disappear.  Heck, that's salary for one or two employees plus benefits plus 401k plus a little profit to boot.  Instead of lamenting the fact that we can't hire people, why not stop over-circulating, then re-invest the pennies in employees?

Optimize Annually:  We spent the past decade doing everything possible to "maximize conversion rates" or to "boost response".  How did that work for us?  Most companies have the same annual customer metrics, regardless of channels or strategy ... the same 32% of customers repurchase in 2011 that repurchased in 2001, in spite of discounts and promotions and website redesigns and email campaigns and search and social and mobile and gamification and tablets and personalization and CRM and co-op optimized inactive names.  I continually notice that the most successful companies I work with optimize over a quarterly, seasonal, or annual timeframe.  These companies have a disproportionate focus on new customer acquisition.

Loyalty Is A Myth:  Unless you are Apple or Amazon or Google or Wal-Mart or McDonalds or Starbucks or a handful of mega-brands, loyalty is a myth.  I measure loyalty as the state where a customer has at least a 60% chance of purchasing from your brand in the next twelve months.  Continually, I notice that 5% of a twelve-month file possesses this level of loyalty.  Think of all of the loyalty initiatives you've employed over the past decade ... how many of them fundamentally changed customer behavior?  Be honest!  The modern cataloger attempts to find customers in a state of need, then meets that need at an acceptable cost ... if downstream purchases happen, all the better, but the modern cataloger doesn't demand loyalty from the customer, the modern cataloger simply demands profitability.

Cashing Out:  I increasingly hear of folks setting up their business to "cash out".  There is a big difference between crafting strategies that optimize profit, and crafting strategies to sell a business.  Expect many catalogers to skew strategies toward the cash-out option, manufacturing short-term health in exchange for an opportunity for a pay day.

The Missing Middle:  Fifteen years ago, it was common to have a twelve-month file with highly responsive customers, responsive customers, and infrequent buyers.  Today, the middle is gone ... we're increasingly left with highly responsive customers and infrequent buyers.  The middle became infrequent, because now the infrequents shop low-cost, free-ship online brands.  Modern catalogers greatly over-spend trying to rebuild the middle, a largely fruitless endeavor.  We need to shift behavior here, allowing infrequents to do what they're going to do, harvesting profit where possible, generating the remainder of our profit from low-cost acquisition and highly-responsive buyers.


Low-Cost Acquisition:  This is the biggest trend I see out there.  Think about my case.  I could take out ads in trade journals, and I could pay to host a big, fancy booth at an industry conference.  Or, I could invest time writing this stuff.  Which strategy seems to be working better?  In the past decade, cataloging became all about paying for low-cost names from co-ops.  In the next decade, the trend is to find much cheaper names outside of the co-op world.  Do you want to rent names for one-time use at $0.06 each, or do you want to do the hard work required to have customers consider your business when they have a purchase need without the requirement of a mailed catalog?


Back To Email:  There will be tremendous optimization strategies around reducing catalogs among email responsive names in 2012 and 2013 ... we'll have to do this to manage expenses.  We've been hearing about this for a decade ... in the past two years, I'm finally seeing the hypothesis bear fruit, and in the next two years, we'll see catalogers finally yield to this unstoppable economic outcome.


First Twenty Pages:  If you're going to go to the effort to send something, you'll at least make the first twenty pages compelling.  This isn't a new rule, as much as it is a new emphasis of an old rule.  The best catalogs have a compelling twenty-page introduction.


End of Remail Catalogs:  Your customer can gain real-time intelligence on any device, at any time.  And yet, we send one main release and two remails of that release once a quarter. Maybe the 55+ rural audience doesn't notice.  Regardless, we'll have to stimulate customer behavior by not being repetitive.  Today, many of you mock me when I bring up this point, you tell me that you don't have the creative resources to manage new creative.  Oh boy!  Honestly, you can't afford to not have the creative resources to re-merchandise your catalogs and website and email campaigns, you are being out-competed!


Fruitless Hype:  We give too much credence to things that don't matter.  Just because your printer thinks that a QR code will be adored by a 62 year old customer doesn't mean that your 62 year old customer will adore QR codes.  Should you try things? Yes!  But ignore the hype.  A cereal company can get 40,000 people to go from a QR code to their website, you can't ... you're 1/1,000 as big as the cereal company, meaning you'll get 40 people to go from a QR code to your website.


65% Gross Margins:  Ok, this is the recycling of a very old rule, but it is even more relevant in the next decade.  The way to be successful is to sell stuff that generates profit, right?  The internet is all about the opposite ... getting funding that allows you to delay profitability, allowing you to create "scale" that drives prices and margins down, wounding the competition, causing scale to increase, causing prices and margins to surge down even further.  Be honest, you can't win that game.  Amazon can win that game.  Wal-Mart can win that game.  But you cannot win that game.  You can win a game with proprietary product and great service and hefty gross margins that customers willingly pay.


Insourcing:  So many of you have outsourced just about everything.  You have an email vendor, a search vendor, a database vendor, a merge-purge vendor, a couple of co-ops, a list vendor, a paper rep, a print vendor.  And as a result, all you have are fragments of insight and knowledge.  If you spent the past decade pushing everything out to low-cost vendors, you'll need to spend the next decade pulling your intellectual property back into your organization ... a process I call "insourcing".  Outsourcing is great for the short-term profit and loss statement.  Insourcing is great for the long-term profit and loss statement.


What Is Advertised Is Not What Is Sold:  I continue to see email and catalog holdout tests where items sell at the same rates, regardless whether they were advertised or not.  The best catalog marketers are going to crack this nut, figuring out what you have to advertise so that you can sell everything else.


Retail Is A Debt Dungeon:  The bricks 'n clicks dream of the management consulting world is dead.  Retail consumes the financial resources of a direct-channel business, and is largely a one-way street (online customers shop retail stores, retail buyers do not necessarily shop online).  Furthermore, the concept that catalogs drive retail sales has largely been debunked.  Sure, catalogs drive traffic to stores ... but not like they drive traffic to a website.  I'm not saying you shouldn't have a retail store.  I am saying that when you have a retail store, you are not a traditional direct marketer ... the financials and marketing strategies fundamentally change ... your customers fundamentally change ... and you fundamentally change.


Catalog Circ Reductions Fund Free Shipping:  This is a huge trend, based on your inquiries.  Free shipping or low-cost shipping are the future, and somebody is going to have to pay for this ... that somebody is the co-ops, who currently enjoy $0.06 per rented name, and marginal online housefile buyers, who will see a greatly reduced contact strategy in the future.  Co-ops, however, have a huge opportunity here!!  They have a database with nearly every household in the United States.  They will have the opportunity to segment customers based on promotional preferences.  Would you pay $0.15 per customer for access to customers that adore full price merchandise?  If you're running a free shipping promotion, would you pay $0.20 per name for customers who crave free shipping and continue to purchase after the initial transaction?  Co-ops have a huge opportunity here.  So do you.  Regardless, the trend will be toward circ reductions that fund other activities.


Brain Drain:  Do you know how hard it is to hire talent?  You'd think with a nine percent unemployment rate and a 22% under-employment rate that it would be easy to find talent.  Not so.  Talent is headed out of the catalog marketplace, into all that is hot and trendy (mobile, social).  We combated this trend by outsourcing all of our key functions to the vendor community.  Do not be surprised to see non-competitive catalog brands sharing resources in the future ... a circulation team can be shared among non-competing brands, for instance.  Heck, brands already share their most valuable asset ... customers ... with each other, so why not back-of-the-office functions?

Ecosystems:  The 1990s were characterized by ecosystems of catalogers exchanging lists with each other ... the health of all brands were interconnected.  The 2000s were characterized by an algorithmic ecosystem, be it the co-ops feeding you 55+ rural names or Google feeding you those searching for products right at this moment.  Social ecosystems are not designed for commerce, and mobile is simply an extension of e-commerce into new devices and locations outside the home (though a third of mobile activity happens in the home).  The ecosystems of the 2010s will be defined by social collaboration across catalogers, forced by private equity, or fostered by industry leaders with the forethought to share resources with non-competitive catalog brands.  I want to end on this point, because you need to seriously think about this topic ... the power of two $50,000,000 non-competitive catalogers openly sharing ideas/resources to benefit the growth potential of each business.  Why wouldn't PC Connection and Cuddledown of Main share resources, they aren't competing with each other?  How could either business possibly lose by knowing how each business approaches problems?  Could the circulation team at one brand do the work for the other, under dire financial situations?


Ok, time for your thoughts, go ahead and use the comments section to give your $0.02.

August 23, 2011

A Great Predictive Metric: "Power"

You've probably heard about all of the geeky metrics that folks compute ... and you're probably saying "PRODUCE SOMETHING LESS NERDY, NOW!"

If you want something less geeky, something that tells you where your business is headed in the next year, calculate a metric called "Power".

Simply put, "Power" is the sales expected from your twelve-month buyer file in the next year.  Here's how you calculate it.
  • Step 1:  Segment your 12-month buyer file however you wish.  We do this as of a year ago, say 2010.08.23.  Let's pretend that you have five segments ... A / B / C / D / F.  Let's pretend that you have 100,000 customers per segment.
  • Step 2:  For each segment, calculate the average amount a customer in that segment spent from 2010.08.24 to 2011.08.23.  Let's pretend that As spent $100, Bs spent $50, Cs spent $30, Ds spent $20, and Fs spent $10.
  • Step 3:  Count the number of customers in each segment as of today.  Let's pretend that today you have 80,000 As, 100,000 Bs, 120,000 Cs, 120,000 Ds, and 120,000 Fs.
  • Step 4:  Multiply last year's value by this year's file counts, yielding file "Power"!
At this time last year, you had 500,000 customers who generated 100,000*100 + 100,000*50 + 100,000*30 + 100,000*20 + 100,000*10 = $21,000,000.  At this time last year, your twelve-month buyer file was capable of $2,100,000 of "Power".

As of today, you have 540,000 customers who are expected to generate 80,000*100 + 100,000*50 + 120,000* 30 + 120,000*20 + 120,000*10 = $20,200,000.  You have more customers, however, your customers aren't capable of generating as much "Power" as customers were capable of generating last year.

This is a particularly important concept for online / e-commerce folks, because your web analytics tools make it really hard for you to see how powerful your customer file is.

Best of all, this metric is predictive in nature, it doesn't tell you what happened in the past, it tells you what is likely to happen in the future.

Retailers tend to run this metric on a monthly basis (some weekly), so that they can understand key inflection points.

Power --- a metric you need to calculate!!

August 22, 2011

Value Grids and Lifetime Value

You probably already have something like this posted to your office/cubicle, right?

The "Value Grid" is a table that illustrates how much twelve-month profit you will generate from a customer with various Recency/Frequency attributes.

Freeze your file as of August 22, 2010.  Segment customers into Recency/Frequency combinations.  Then measure customer profitability across these segments, from August 23, 2010 to August 22, 2011.

Your benchmark is the Recency = 1 / Frequency = 1 segment.  This is how much profit you generate in the next year by acquiring a new customer.  If you lose $22.00 profit acquiring a customer, then you've got problems, because in this table, the customer pays back $6.52 in the next year.  Oh boy!

Similarly, you explore the cost to reactivate a customer against future payback.  If you have a 36 month 3x buyer with $2.43 future value, you might be willing to spend a few extra dollars to convert the customer to a 4x buyer.

Then look at the customers who pay the bills!  In this case, customers who purchased recently and purchased five or more times generate a boatload of profit, don't they? 

Create a Value Grid.  Post it on the wall of your office/cubicle.

August 21, 2011

Dear Catalog CEOs: Do You Hear The Limb Cracking?

Dear Catalog CEOs:

Remember when you were young?  You'd climb a tree.  Halfway up, you'd move out onto a limb, in order to get a good view.

Things are good.


Then you hear this subtle, quiet cracking sound?  What the heck is that?


Maybe everything will be ok.  Yeah, everything will be ok.


Craaaaaaack.  Oh boy, that one was louder.  Is that the branch I am sitting on that is cracking?  Maybe I'll hold on tighter.


Or maybe I'll get off this limb!

Prior to 1975, cataloging was like a poplar tree.  There was one direction, straight up, and if you ever bothered to step out in a different direction, the limb wouldn't hold you, you'll fall back to the ground and start all over again.


Specialty catalogs, small page counts targeted monthly instead of seasonally, took us in a different direction.  Now you had a choice.  Turns out the customer preferred one branch over the other.  Remember the "big books" from Spiegel, Sears, JCP, and others?  That branch withered, weakened, cracked, and eventually broke off.  Sure, B2B folks still use the big book, but ask those marketers what impact the big book has in mail/holdout tests, and you hear that the limb may be cracking there, too.


1995 was the seminal moment in direct marketing.  It was the moment when the internet took off, from a direct marketing standpoint.  I know, I know, many people focus on the branch that Pets.com chose to navigate.  The "dot.com" branch tainted the whole enterprise ... existing companies reigned-in their online presence, integrating it with the rest of the business.  This was considered a "best practice".  Maybe it was, maybe it wasn't, we'll never know.  All we know is that integration, cloaked under the vendor-friendly term "multi-channel", did not deliver the unfettered sales growth that the trade journals and vendor pundits promised.


Multi-channel did, however, send us down a different branch.  And the further down a branch you go, the harder it is to get back to the trunk and then explore different branches.


We focused on one branch, the "multi-channel catalog drives your web business" branch.


Marketing, however, evolved like a weeping willow tree, there's so many marketing choices, and the choices are highly disconnected from each other, all with reasonably small sales potential.   Now there's mobile, social, gamification, email, search, affiliates, shopping comparison sites, and a million other diversions / strategies / tactics.  Go too far into any one of these areas, and you immediately hear the limb cracking.


Merchandise is the trunk of the tree.  Notice that every single branch / marketing tactic is ultimately connected to the trunk of the tree.  If you don't want to hear a limb cracking, try to focus more energy on selling merchandise than in selling the benefits of a channel.

August 17, 2011

Assumptions Matter!

We take assumptions in two different directions.
  1. We assume, without facts, that various activities are important.  We believe that Social Media has a solid return on investment.  We believe that 93% of customers will buy everything on a 2" screen in 2012.
  2. When asked to quantify the return on investment of said activity, we refuse to do so without solid facts.  We demand that organizations be "data driven", but we refuse to make decisions without perfect data.
In other words, we have faith that certain activities work, but we lack the accountability to put a stake in the ground.

Let me show you how assumptions can be used.  Take this blog as an example.

There are approximately 2,500 subscribers to this blog.  I make the assumption that 20% of the audience is VP/CEO/President/Owner.  Yes, this is an assumption.  I have various ways of assuming who reads this blog.


Therefore, there are 500 Executives and 2,000 Non-Executives that follow the blog.


Each year, assume that 10 Executives who follow this blog hire me for a project.  Let's pretend that the average value of a project is $5,000 (that is not the actual figure for project value, by the way, it's used for illustrative purposes).


Each year, assume that 200 of the Non-Executive audience purchases a book/booklet.  Let's pretend that the average value of a book, to me, is $2.00.  Also, about 1 Non-Executive hires me for a project, valued at $5,000 (that is not the actual figure for project value, by the way, it's used for illustrative purposes).


What is the value of a subscriber?
  • Value of an Executive = (10/500) * $5,000 = $100.00.
  • Value of a Non-Executive = (200/2,000) * $2.00 + (1/2,000) * $5,000 = $2.70.
  • Value of a Subscriber = 0.20*$100 + 0.80*$2.70 = $22.16.
Now, are my assumptions wrong?  Absolutely!!

Do the assumptions clearly articulate the value of each audience?  Absolutely!!

Do the assumptions help me understand what type of content I should write to have a successful business?  Absolutely!!  If I write page-view generating content that the social media or analytics community adores, I'll get subscribers that pay $2.70 per year, on average.  If I write CEO-based articles that attract an Executive audience (but do not attract re-tweets), I'll be able to pay my bills.


Did I just demonstrate the value of Social Media?  Absolutely!!


Assumptions Matter!  It's time to not be frightened.  We are able to make strategic inferences by making educated assumptions.

August 16, 2011

Mailbag

As always, these are real questions from fake individuals:

Question:  Our online business has maximized email marketing and search marketing.  Our CEO demands that we grow.  How do we do that?  Tom, Tulsa, OK.
  • I get a lot of questions similar to this one.  If I had the answer, I'd tell all of you, and all of your businesses would grow and thrive.  I will tell you this ... most businesses stop growing, not because customers suddenly lose loyalty, but instead, because customer acquisition dries up.  Run simple "State of the Housefile" reports (online wonks call these "dashboards") that show you how your customer acquisition activities stack-up against the number of new customers you have to have to cause your business to grow.
  • I repeatedly ask Marketing Executives the following question ... "What is your customer acquisition / awareness program?"  Not a lot of people have an answer to this questions, especially among businesses that are stuck right now.
Question:  If the USPS goes to three day delivery, or if they really ramp-up the costs on catalogers, it's pretty much lights-out for catalogers, right?  Tina, Flagstaff, AZ.
  • No, it is not lights out.
  • It is, however, the wake-up call that our industry conveniently ignored for at least six or seven years.
  • You have at least four high-level customer segments in your database.  You have the 55+ rural audience that shops via mail/phone.  Catalogers will struggle here as costs escalate.  You have those who respond online after receiving a catalog ... you can cut back a bit here.  You have online shoppers (email, search), that won't be impacted much.  And you have customers who love your brand, plain and simple. These customers won't be impacted at all.
  • Yes, I'm getting a lot of requests to identify customers as being in one of these four segments ... contact me here for your project.
Question:  Why are you so against Facebook marketing?  Fifteen years ago, online marketing was sweeping the world, and the pundits were against it.  Now you're against Facebook marketing.  Maybe you are too old-school now?  Cheri, Atlanta, GA.
  • I am not against Facebook.
  • I am against vapid marketing hype by those who have a self-serving agenda that requires promotion of "f-commerce".
  • Take your average retail brand ... for every $1,000 they generate in-store, they generate around $100 online, and around $1 via Facebook.  That's not breathtaking performance, is it?
  • E-commerce was shot out of a cannon ... now, sure, most of the sales were cannibalized from existing channels, but that doesn't matter, it was self-evident that e-commerce was going to change the world.
  • Facebook ... not so much.  Sales haven't taken off like they were "shot out of a cannon".
  • Should you be there?  If your customer is there and transacts there, then sure!  If you want to experiment with new marketing channels, yes, then be there!
Question:  Is mobile relevant to modern catalogers?  Skip, Louisville, KY.
  • No, and yes.
  • Say you are Cuddledown of Maine.  A 57 year old woman living in Upstate New York may not have a need for instant information for a bed bug proof pillow, so your website or mobile-optimized website may be good enough.
  • More important is the following question ... "what is your mobile marketing plan?"  In other words, you might cater to a 55+ rural audience, but is that the audience you want to cater to?  If you want to cater to a younger/mobile audience, are you willing to make the investments required to do this?  When you have an audience disconnect, it takes a long time to move the needle in a new channel.
Question:  What is the most important metric that you track, Kevin?  Bailey, Cincinnati, OH.
  • There are numerous metrics I track.  There are two that work together, ultimately dictating a large share of the success of a business ... metric #1 = Number of new buyers in past twelve months ... metric #2 = Profit per new buyer, past twelve months.  By combining metrics, you learn a ton about why your business is successful.  If there was a third metric worth tracking, it would be the twelve-month repurchase rate.
Question:  Why don't you put a lot of stock in conversion analytics?  Ralph, Rochester, NY. 
  • I don't have any problem with web analytics.
  • I have a problem with metrics that do not correlate with annual customer performance.  Conversion Rate is one of those metrics.  Think about all the work your team does to increase conversion rates.  Then think about what has happened to new customer counts, and to your annual retention rates over the past decade!  Conversion is important, but it does not measure customer relationships.  We shouldn't care if a customer visits your website six times before purchasing ... that's still a conversion ... yet we demand that the customer buys in the first visit.
  • Focus on annual retention rates and new customer counts. 

    August 15, 2011

    Two For One

    I've never understood the logic.

    When confronted with two customers, the folks I speak with routinely prefer Option 1:
    • Option 1 = Acquire a customer via a preferred advertising channel for $10 profit, customer pays back $20 in the next twelve months, net profit = $10.
    • Option 2 = Acquire two customers via online channel or offline mass-media channel for $10 profit, customer pays back $16 in the next twelve months, net profit = $6 * 2 = $12.
    I'll take the two-for-one trade any day of the week.  Most people won't.  They'll simply work harder trying to find more customers who pay back $20 in the next year, and they'll pay more to acquire that customer.

    Our future requires us to take on more "two-for-one" relationships.  We need to acquire two customers at a lower value (and no, I'm not talking about 20% off plus free shipping as an incentive), and prioritize that over acquiring one customer at high value.  

    Honestly, we determine long-term value.  Catalogers, in particular, sabotage long-term value by mailing online buyers twelve catalogs a year, then incorporate 30 day and 60 day matchback windows, meaning that every future order is tied to a catalog, when the customer could be far more profitably mailed four times a year if the business factored in the organic percentage.  This alone changes the long-term value equation in favor of an online customer.

    Again, we're going to need to focus on finding two-for-one deals, two customers with lower value that are greater than one customer with high value.

    August 14, 2011

    Dear Catalog CEOs: Spending Money Online

    Dear Catalog CEOs:

    Here's a frequent comment, uttered by many of you, to me, directly over the telephone:
    • "With our co-op, we can spend money, and I mean we can really spend some money.  If we want to circulate to 10,000,000 households, heck, we can.  Sure, we'll lose money, but we have the option to grow top-line sales as much as we want.  This opportunity doesn't exist online.  Even if we wanted to spend two million dollars in search, there simply aren't enough people searching for our products to be able to invest that kind of money.  And banner ads don't work, so while we could spend two million dollars there, we'd get three orders.  So we're stuck, we can't grow the online channel because we can't spend money there."
    Oh boy!

    I recently spoke with a business leader about her approach to growing the online channel.  Here's a different view on the same topic.
    • "We're never actively trying to grow the online channel, ever.  We're trying to grow our business.  We do a ton of offline marketing, all focused on getting a prospect to visit our website.  We try to get people to talk about us, because that is cheaper than paying people to pay attention to us.  We make it easy for the customer to act.  We offer an item in print, and we only give the customer the choice to visit our website to buy it ... one product, one offer code, one URL, that's it.  We tell the customer what we want for her to do, and we eliminate all interference.  In this situation, an offline ad and an online order are meaningless to us as channels ... we're looking at this as an awareness program that results in an order ... the fact that the order happens online is irrelevant."
    This is the main difference between a cataloger and a merchant.  The cataloger demands that the catalog is the heart of the brand, with online spend designed to grow the online channel.  

    The merchant has a product she wants to sell.  She simply wants to connect a customer to the product.

    The longer we avoid connecting customers to products, the faster we accelerate our way to a 60+ rural customer that will not be interested in purchasing merchandise via catalogs at rates that sustain us into the next decade.

    August 10, 2011

    Assumptions

    Assumptions are terribly misunderstood.

    Head out to Twitter to follow the #measure community, and you'll find a veritable plethora of criticism of Executives who make assumptions ... they're called "HIPPOs" or "Highest Paid Person's Opinion".

    There seem to be at least three types of assumptions in the marketing/analytics world.
    1. Assumptions based on myth.
    2. Assumptions based on psuedo-statistics.
    3. Assumptions based on facts.
    Assumptions based on myth are the ones that drive people crazy.
    • "Engaged customers are the most profitable customers, so we assume that our Facebook presence will significantly increase profit."
    Assumptions based on psuedo-statistics are worse, because people are more likely to act upon them.  Often, the person making the assumption falls back on a research organization ... if the assumption fails, it isn't your fault, it's the research organization that screwed up:
    • "Woodside Research predicts that mobile sales will exceed $2.9 trillion dollars in 2016, leading us to assume that mobile will be the most important revolution in the history of e-commerce."
    Assumptions based on facts are a whole 'nother deal.  These are the assumptions that most people shy away from, because assumptions in this realm require the marketer/analyst to be an expert.
    • "A year ago, only 1% of our visitors used tablets, converting at a 10% rate.  Today, 4% of our visitors used tablets, converting at an 8% rate.  Next year, we assume that 8% of our visitors will use tablets, converting at a 7% rate.  And in three years, we assume that 21% of our visitors will use tablets, converting at a 5% rate, causing us to completely rethink how we manage e-commerce, going forward."
    Do you see the fundamental difference in assumptions based on facts?

    Now, granted, the assumptions based on facts are questionable, anybody in your company can criticize you, and we all know that anybody/everybody will criticize you.  This is why we fall back on "Woodside Research", that way, we don't get blamed, they get blamed!


    But assumptions based on facts lead us toward strategy.  It's irrelevant what "Woodside Research" or some Social Media Expert think, it's very important what YOU think!  If you have data that is trending in an interesting direction (tablets as a share of our e-commerce visitors are growing almost exponentially), and you project that trend into the future, you are almost required to face a future reality.


    When the criticism starts, ask those who criticize you to come up with their own assumptions, in fact, demand that they publicly state their assumptions.  Ask ten of your critics to state their own assumptions.  Then average their assumptions with your assumption ... the result isn't likely to be all that different from what you originally assumed!  And if their assumptions are fundamentally different, see if their assumptions lead to a fundamentally different outcome.  Often, assumptions can be all across the board, with the end result being essentially the same.


    There is nothing wrong with making assumptions based on facts.  Too often, we hide behind the lie that we don't have facts required to make good assumptions.  Instead, we need to stick our necks out there a bit more, faking confidence if necessary.  It is in the assumptions that we gain a vision for what the future may hold, and this vision leads to strategy.

    August 08, 2011

    The Job Description

    You're trying to hire somebody to do analytical work at your company.

    A candidate is comparing job descriptions.

    Which of the following job descriptions might be more appealing to the prospective candidate?

    Description #1:
    • 3-5 years experience.
    • Analyze email, search, and catalog campaigns.
    • Partner with marketing and finance to make ROI-based decisions.
    • Help implement results with existing stakeholders.
    • Knowledge of SQL, SAS, Excel Macros.
    • Lean environment requiring a self-starter who manages multiple projects simultaneously.
    • Competitive salary and benefits.
    Description #2:
    • 3-5 years experience.
    • Analyze social media campaigns across mobile platforms.
    • Create a framework to measure ROI.
    • Evangelize results across the organization.
    • Determine the tools necessary to scale big data across the enterprise.
    • Bootstrapping environment provides analyst opportunities to participate in diverse projects.
    • Starting salary can be increased by up to 30% within twelve months depending upon contribution to profitability.
    Which job description is likely to be more appealing to the aspiring candidate?

    Might it be time to rethink the approach to hiring talent?

    August 07, 2011

    Dear Catalog CEOs: Knowns And Unknowns

    Dear Catalog CEOs:

    Have you looked at your contact strategy lately?
    • An email campaign every Monday and Wednesday.
    • Four new seasonal catalogs every year.
    • Twelve remails of seasonal catalogs.
    For many, this has been the contact strategy since 2001.  A full decade.

    We do this because the outcome is "known".  We simply attempt to improve upon a known.

    Unknowns are risky.  I can present the opportunity for a business to shift from sixteen known catalogs that yield $30,000,000 per year to maybe twelve unknown catalogs that should yield $40,000,000 per year, and expect a 5% chance that the business will shift from a known to an unknown, even if the unknown is expected to produce a 50% increase in profit.

    We all do this.  We take a pass on the Angus burger at McDonalds because we know that the Quarter Pounder with Cheese is a reliable, calorie-infused delight.  We don't visit the neighborhood espresso emporium because there are four Starbucks on our block.

    However, we have to ask ourselves a question ... how is the "known" working for us?

    August 03, 2011

    Customer Metrics Are Stuck

    One of the first things I do when I obtain new customer data is what I call a "rolling 12 month buyer analysis".

    I iterate through snapshots of the twelve-month buyer file.  I sum buyers, I sum orders, I sum items, and I sum demand.  Often, I compute a twelve-month repurchase rate, and I sum all first-time buyers as well.

    This analysis allows me to see how a business evolves and changes over time.  I review a handful of metrics:
    • New Buyers.
    • Existing Buyer Repurchase Rate.
    • Orders per Buyer.
    • Items per Order.
    • Price per Item Purchased
    • Average Order Value
    • Demand per Buyer
    Are you ready for a secret?

    Most of these metrics move within a 10% band.

    In other words, it is rare to find a company that increased items per order from 3.0 to 3.5.  Very rare.  It is rare to find a company that increased orders per buyer, from 1.4 to 1.6.

    Price per Item Purchased, now that one moves up and down as companies liquidate product or shuffle through the merchandise assortment, generally increasing over time.

    Average Order Value (Price per Item Purchased * Items per Order) increases at the rate of inflation, on average.

    Annual Retention Rate seldom moves outside of a +/- 10% band.

    New Customers moves directly as businesses invest more (positive economy) or pull back (recession).

    So I can quickly diagnose what's happening to a business by running these metrics for a five year timeframe.  And since most of the metrics don't fundamentally move over time, guess which tactic is most correlated with long term sales growth?


    You, too, can quickly diagnose what's happening to a business by running these metrics for a five year timeframe.  

    A show of hands ... how many of you are doing this?

    August 01, 2011

    Measuring The Unmeasurable: Facebook, Twitter, Loyalty

    Have you ever wondered if all those hours you team spends "engaging" customers on Facebook or Twitter pay off?  Or have you ever wondered what the ROI of a loyalty program might be?

    There are methods for quantifying the impact of these activities.

    Here's one of the easier ones.

    Freeze your database as of a certain date, say August 1 of 2010.  Freeze customer attributes on that day ... historical spend, recency, membership in a loyalty program, that kind of thing.

    Let's use a loyalty program as an example.  Create a simple segmentation strategy, then measure average spend per customer from 8/1/2010 to 7/31/2011:





    Next

    Historical Loyalty
    12-Month
    Recency Spend Member
    Spend Increase






    0-3 Month Low Yes
    $63.00 6.8%


    No
    $59.00

    Medium Yes
    $106.00 7.1%


    No
    $99.00

    High Yes
    $152.00 4.1%


    No
    $146.00
    4-6 Month Low Yes
    $32.00 6.7%


    No
    $30.00

    Medium Yes
    $41.00 7.9%


    No
    $38.00

    High Yes
    $49.00 4.3%


    No
    $47.00
    7-12 Month Low Yes
    $19.00 5.6%


    No
    $18.00

    Medium Yes
    $23.00 4.5%


    No
    $22.00

    High Yes
    $27.00 -5.3%


    No
    $28.50






    0-3 Month
    Yes
    $107.00 5.6%


    No
    $101.33
    4-6 Month
    Yes
    $40.67 6.1%


    No
    $38.33
    7-12 Month
    Yes
    $23.00 0.7%


    No
    $22.83







    Low Yes
    $38.00 6.5%


    No
    $35.67

    Medium Yes
    $56.67 6.9%


    No
    $53.00

    High Yes
    $76.00 2.9%


    No
    $73.83








    Yes
    $56.89 5.0%


    No
    $54.17

    Overall, those in the loyalty program spent 5% more, $2.72 per customer, than other customers.

    Now, I realize that I oversimplified an awful lot, I had to in order to make the point.  You get to see how high-dollar customers were not impacted as much (on a percentage basis) as low-dollar customers, suggesting that the loyalty program helped low-dollar customers more.  In addition, recent customers were impacted more than non-recent customers.

    If you're a statistician, use a GLM-style model to estimate if the differences are statistically significant.

    If you're in Finance, you can run a quick profit and loss statement.  Say you have 100,000 customers in this program.  Say that 35% of demand flows-through to profit. Say that your loyalty program costs $125,000 a year to administer, between program costs and perks and discounts.
    • Profit = 100,000 * $2.72 * 0.35 - $125,000 = ($29,800).
    • You lost $29,800 on the program, or $0.30 per customer.
    Again, most analytically minded folks and CFOs will find many ways to poke holes in this methodology ... I'm stating the methodology this way for illustrative purposes.  Be creative, enhance the methodology, and come up with your own ideas.

    This methodology does a reasonable job of "measuring the unmeasurable" ... you can't execute a test where loyalty members, Facebook Fans, or Twitter Followers are not allowed to engage with you.

    Ok, time for your thoughts.  What methods have you used to measure issues like the issue outlined in this post?