August 01, 2013

2002: Multichannel

Here's five popular songs from 2002:
  • "How You Remind Me" - Nickleback
  • "Foolish" - Ashanti
  • "Hot in Here" - Nelly
  • "Dilemma" - Nelly featuring Kelly Rowland
  • "Wherever You Go" - The Calling
Ah, multichannel.  How you remind me of a foolish dilemma wherever you go!

I saved the Venn Diagram you see up there - it's from 2002.  Our paper rep brought this one to our attention.  I asked all of our vendors to visit for a day of insight - they all had to share something about the future of catalog marketing in an online world.  The discussion was stimulating.  I distinctly recall Abacus telling us that we had to do a far better job of integrating our channels, that we (Nordstrom) were failing in the multichannel game.

In fact, every vendor in the room agreed with the Venn Diagram - titled "THE MULTICHANNEL BONANZA".  Sourced from the folks at McKinsey Consulting, the argument was that if you could just get customers to buy from three channels, then customers would spend 9x more than everybody else, and the world would be a more profitable place.

That's all.  Just figure out a way to get a customer to buy from a catalog, online, and in a retail store.  Simply do those three things, and you're set!  Just get the customer to buy more often, and you'd be more profitable.

Oh.

So the entire retail world spent a decade trying to become "multichannel", while the experts beat the living daylights out of retailers for "doing it wrong".  Fun!  The companies that were lauded - like Circuit City, went out of business.  Companies like Barnes and Noble, with every possible advantage over Amazon, are struggling, while Amazon, missing 2/3rd of the Venn Diagram above, now owns 25% of e-commerce.  And catalogers, with 2/3 of the Venn Diagram present, lost significant market share to e-commerce brands who only possessed 1/3 of the Venn Diagram.

In other words, the experts were uniformly wrong.  Terribly wrong.  Wrong to the point of hurting the businesses they were paid to support.

I remember asking the room the following question:
  • "Which customer is better ... a customer who buys in-store 3 times in a year, or a customer who buys in a store 1 time in a year, who buys in a catalog 1 time in a year, and buys via e-commerce 1 time in a year?"
You should have seen the looks on the faces of the vendors in the room!  It was like a bomb went off.

See, when you rephrase a question, you cause people to think.  The reason the Venn Diagram above is so seductive is because it hides a key piece of information ... the customers who buy most often, by default, end up buying from all channels.  Channels don't cause the customer to be good - a good customer simply shops a lot of channels.

We did research in 2002, learning that, after controlling for purchase frequency, customers who buy from catalogs / website / retail stores were, in fact better, but only 10% better than comparable customers who purchased from single channels at the same purchase frequency as the multichannel customer.

0.1x better ... not 9.0x better.

And the 3-channel customer base was a few hundred thousand out of 7,000,000 ... meaning that there was virtually no impact on the business by trying to force customers to do things they were not pre-disposed to do.  You were better off spending money finding a new customer than asking a customer 52 miles from a store to buy in a store to become "multichannel" just to please multichannel advocates, never mind that it is terribly inconvenient to drive 52 miles just to shop at a store when the assortment already exists online, in the home of the customer.

This doesn't mean you don't ask all employees to behave in a multichannel manner.  Do all the internal, in-house integration you want.  We were able to show the organization the following:
  • Catalogs pushed sales online.
  • Catalogs pushed sales into retail stores.
  • Email marketing pushed sales into retail stores.
  • New online buyers purchased in stores.
  • Therefore, everybody needs to work as one team.
The message can be that simple.

Sell the message, not the lies used to promote the message.

And today, e-commerce folks are being inundated with the same nonsense with mobile / omnichannel.  Keep the lessons learned in 2002 top-of-mind, folks.

Oh - by the way - what happened to the productivity declines of 2001?  Well, there were consequences.  The individual who hired me was fired.  The Chief Merchandising Officer was fired.  I was not fired, amazingly.

By the end of 2002, a funny thing was happening.  Merchandise productivity was on the increase, the business (online+catalog) was at break even, and it was almost as if some bubble in the economy was forming, because store sales began to surge, and would continue to surge through September 2007 - an unprecedented era of growth.  Something seemed odd, but in late 2002, you couldn't quite put your finger on it.  I recall our Accessories Executive mentioning that customer had an unquenchable thirst for two things.
  1. Expensive Handbags - the more expensive, the better.
  2. Fashion / Newness.
Both were concepts I was unfamiliar with.  It was almost as if customers were starting to borrow from their homes to fund their fashion interests - I mean, where was this money coming from?