August 13, 2012

An Open Letter To Omnichannel Advocates

Dear Omnichannel Advocates:

It's been an amazing couple of years.  In that time, you invented terms like "omnichannel" and "big data".  Both terms require each other, and therefore, require the purchase of research reports, attendance at conferences, and finally, expensive software installations that require consulting services to retrain employees who spent a lifetime dealing with "small data".  All of these purchases and services benefit the omnichannel advocate.

You frequently follow a compelling narrative.  You present a complex array of customer behavior, one that seems almost unmanageable.  You present us with a customer possessing nearly limitless sophistication.  She begins with search, visiting websites, conducting research.  Or maybe she receives a catalog or a personalized and highly relevant email campaign that drives her to a website.  Regardless, our intrepid customer, with considerable time and resources at her disposal, eventually drives to a store to physically look at merchandise.  This is a key inflection point in the purchase process.  In the old days (2010), the customer would buy something in-store.  But in modern times (2012), the customer "showrooms", she pulls out her mobile device, browsing for cheaper prices and social media reviews, dodging retargeting strategies by competing retailers via display ads.  With luck, the customer chooses an omnichannel brand utilizing big data to "be everywhere" the customer is.  At worst case, the customer buys from Amazon, an outcome more devastating than the customer buying nothing.  The narrative ends with a terrifying view of the future, one where "brands" that fail to adopt an omnichannel framework are destined for the scrap heap of history, destined to become the next Montgomery Wards, while Amazon continues an unstoppable rampage through the commerce landscape.

When you mix big data and fear in a marketing blender, you get "omnichannel".

Most important, you put the reader at a knowledge disadvantage.  The poor reader works at Ann Taylor, he certainly isn't leveraging big data, and even though his business is profitable, he is, according to the narrative, failing miserably, and is just a few years from being out of business.  He only possesses a series of legacy reports that are downloaded into Excel, reports that only tell him what sold, and when it sold.  He can't possibly see that his customer is researching alternatives on Facebook.  He has no idea that a competitor is offering a comparable product at 20% off.  His search reporting is terrible.  His direct mail efforts are feckless.  His marketing efforts are in silos across the company, not coordinated, not integrated, not effective.  He's about to lose market share to Zappos, a division of Amazon.  He'll be out of business in three years.  Everything he does has been pronounced "dead".

The reader is told that this problem can be solved by being "omnichannel".

I have a few questions for you, the omnichannel advocate.
  • You promote an omnichannel strategy.  And yet, Amazon is anything but omnichannel.  Amazon is not "social" in the way that Best Buy (Twelpforce) is social. Amazon is not in retail.  Amazon does not leverage offline advertising in a scalable way.  Amazon does not leverage direct mail in an effective way.  But Amazon is systematically crushing companies that leverage various elements of the omnichannel strategies proposed by omnichannel advocates.  How do you explain the fact that Amazon essentially does the opposite of your proposed strategy, and easily defeats companies employing various iterations of your strategy?  And you can't answer "they avoid collection of sales tax", since brands that are forced to collect sales tax after being tax-free rarely see a measurable drop in sales once sales tax is collected.
  • How do you reconcile the fact that you believe customers are "omnichannel", and yet, when you actually mine customer data, the majority of customers have a single-channel preference that doesn't often change? Have you actually done the analysis, or are you reciting survey data from research organizations?  Discuss.
  • What proof do you have, today, that a "brand" that fails to adopt an omnichannel strategy will be out of business in the near future?  Please provide simulation results that demonstrate how Ann Taylor or Chicos will be driven out of business, soon.  In fact, if you provide links to the simulation results in the comments section, I will publish your simulations in a future blog post. 
  • How do you explain companies like One Kings Lane, who go from $0 to hundreds of millions of dollars in annual sales in just a few years, by employing discount-based curation strategies that are largely independent of the omnichannel strategies you demand retailers participate in?  One can make a strong argument that One Kings Lane operates independent of the omnichannel strategies folks are proposing.  Do you have a case study of a business employing an omnichannel strategy, one that yields a sales increase over two years of several hundred million dollars?
  • This year, JCP changed a pricing strategy, and saw sales drop by 15%.  In other words, we know that pricing strategies are critically important to the customer.  If pricing strategies account for a +/- 15% change in net sales, how much do your omnichannel big data simulations suggest that omnichannel strategies impact net sales? 0%?  2%?  12%?  22%?  32%?  Please show the data that illustrates or is used to simulate the sales increase you estimate.
  • You claim that "showrooming" is a huge problem.  Have you stood in a Best Buy store and physically calculated the percentage of customers who pull out a mobile device and actively showroom in the store?  Have you segmented those who actually perform this activity by age cohort?  In the comments section of this post, please publish your findings.
  • You consistently claim that "best customers do everything", and therefore suggest that best customers are omnichannel, and then make the leap of faith that if a retailer becomes "omnichannel", the retailer will cause average customers to become more likely to behave in an omnichannel manner, like best customers behave, thereby causing unfettered sales increases.  Please show the data mining results and/or simulations that demonstrate that a once-a-year buyer will become far more likely to spend more if the retailer advocates an omnichannel strategy that appeals to best customers.  Please provide a link to your research in the comments section of this blog post.
  • If you were going to start a business from scratch, today, would you start a business with a fully integrated omnichannel strategy that includes direct mail and websites and social media and mobile and retail stores and online marketing, or would you start with a merchandising concept employed within limited channels (Amazon, Zappos, One Kings Lane, eBags, Chasing Fireflies)?  If your instinct suggests the latter, why do you advocate the former?
  • Explain how Apple, with no tangible social media strategy, outperforms companies that fully leverage a social media strategy in the spirit of the ominchannel framework you advocate?  If your answer is "product" or "merchandise", then why shouldn't businesses prioritize product over channel strategy?
  • You frequently advocate an integrated marketing/merchandising/creative organization, where all decisions are made by a centralized organization, providing one coherent representation of the brand.  You frequently advocate the elimination of what you call "silos".  Prove that your style of organizational structure leads to a healthy increase in annual sales and profit, and provide links to the case studies or simulations that demonstrate that your ideas lead to a 10% or better annual sales increase.
  • Describe why retailers must integrate all marketing activities within one department via the elimination of silos, but your organization frequently operates within the context of silos (sales, marketing).  Why is your organization allowed to have silos, but the solutions you sell require the client to have full integration of marketing activities?
  • Yes, I understand, there's a lot of data, and when it is braided together across fifty channels, you have the potential for a wonderful CRM-fueled situation where a customer tweets about a problem with an iPad and seconds later a vendor provides a solution to the customer.  But that capability existed four years ago, in real time.  And that capability existed thirteen years ago in email, just not in real time.  Why do you believe the customer demands that this capability exist as part of a seamless experience, and you believe that during the multichannel era the customer also demanded a seamless experience, and yet, for more than a decade, the promise has not been realized?  The technology existed.  The customer allegedly wanted it.  Why didn't it happen, and why do you think it will be different this time?
  • We were told 5-10 years ago that retailers would be out of business if they didn't employ multichannel strategies.  Most retailers did not employ multichannel strategies as advocated by the vendor community, and survived nicely.  And companies that did employ multichannel strategies (Borders, Circuit City) are out of business.  Please reconcile these inconsistencies, and then discuss if similar inconsistencies may exist for retailers who do/do not employ omnichannel strategies.  Furthermore, if there are other reasons that cause businesses to succeed/fail, how important are those reasons in comparison to being "omnichannel"?  Should the retailer focus on other issues instead, if resources are limited and other issues provide a greater return on investment?
  • You demand that email be part of an omnichannel strategy, and advocate that "email relevancy" is a critical step in the success chain.  When was it acceptable for email marketing to not be relevant?
  • We keep hearing that social media is a huge component of big data and omnichannel.  And yet, unless you're a startup catering to an under-30 audience, social media never accounts for more than a couple of percentage points of annual sales, total.  Please explain why social is a critical component of an omnichannel strategy, when 95% of businesses with sales over $20,000,000 generate almost no sales whatsoever from social media, even those who apply all possible best practices to the craft?
  • Catalogers were told they had to become "multichannel" or they would die.  They became multichannel.  They were told that catalogs drove orders to other channels.  However, by keeping the catalog "in the mix", most catalogers maintained their traditional audience and as a consequence, did not relate to a younger audience.  Today, most catalogers have an age discrepancy that disconnects them from the average consumer, now catering to a 55+ rural audience.  Since omnichannel is just an extension of multichannel, are you advocating a circumstance that will cause companies employing an omnichannel strategy to eventually serve an older-than-average customer?  Does your strategy potentially damage the customer files of businesses that employ an omnichannel strategy, given what we already know about the evolution of the catalog multichannel customer?
  • Often, multichannel advocates use campaign results to prove that integrated omnichannel marketing campaigns work.  However, annual results (repurchase rate, orders per buyer, items per order) seldom change.  How do you reconcile the fact that your omnichannel campaigns change weekly customer behavior but do not change annual customer behavior?  And if omnichannel campaigns do not change annual customer behavior, then why employ them?
  • The promise of "big data" in an omnichannel framework is that artificial intelligence will detect customer behavior unseen by humans, thereby eliminating the "gut feel" and "instinct" that historically drove business success.  And yet, the artificial intelligence that is used in a "big data" framework is not fundamentally different from the artificial intelligence used for the past twenty years by "small data" practitioners.  Why do you believe that the same methodologies that have been largely ignored by non-geeky business-focused individuals for twenty years will suddenly be embraced by non-geeky business-focused individuals within a big data framework?
Of course, omnichannel is important.  I am asking you to separate the importance from the facts that prove it is important.  Please provide proof in the comments section.  And by proof, I don't mean a Woodside Research report projecting what the world will look like in 2016, and I don't want the results of a one-off campaign executed over a two-week period of time in late 2011.  I want actual proof, or the simulations that lead to the possibility of proof.  If you're defending omnichannnel/big-data, then you are a data person, so go get the data!!! 

I will publish credible responses on this blog on Wednesday morning.