December 29, 2013

Monday Mailbag

In 2014, I'm beginning a new feature, offering answers to real and imagined questions. Email me (kevinh@minethatdata.com) your questions, and I'll feature them in this weekly series.

We'll get things started this week with questions from Twitter.

Our first question is from Jason: "Why do you have contempt for social media, and in particular, engagement? What could possibly be wrong with creating interest for the brand, for free?"
  • I have contempt for wasting company resources. Think of it this way. You pay $4,000,000 dollars a year on paid search. For that, you get 8,000,000 clicks (that's a lot of clicks), and a whopping 12,000 orders, at $100 each, netting $12,000,000 in sales, and at a 40% profit factor, $800,000 profit. Tell me what you get for "x" points of engagement? You create great content, and 22,000 fans spread the word. Ok, that's good. And those 22,000 mentions get re-tweeted 10,000 times, so that counts for even more engagement. Fine. Now tell me what I get? The paid search employee is being paid $70,000 a year to generate $800,000 profit. The social media engagement expert is being paid $70,000 a year to generate 1,243,083 engagement points. That's what is wrong, folks!
  • Let's pretend you work for a major retailer ... a billion in annual sales. Let's say your attribution expert can only find 0.2% of sales that are attributed back to social media. That's puny, sure, but it's relevant. Why? Because $1,000,000,000 * 0.002 = $2,000,000 annual sales, and at a 40% profit factor ... it's $800,000 profit. Oh oh! The social media engagement expert actually contributed, and in a major way - the amount of profit is identical to that generated by the paid search expert. Now that's ok, isn't it?
  • So, yes, I get terribly frustrated with lazy work. I have respect for hard work. And when you do the math, for a major retailer, social media pays off. Just do the hard work, folks.
Our second question comes from Kyle: "Kevin, what is the best promotion to offer a customer, free shipping or a percentage off your order?"
  • Obviously, you test the tactic that generates the most profit for your business.
  • Here's a more important question - why must you offer a promotion to get customers to purchase your merchandise? Why don't customers love what you sell? Why won't a customer pay full price? Customers pay full price for iPads, don't they?
Our third question comes from Tyler: "Kevin, why are you so pessimistic about the future of cataloging? So what if the USPS raises rates? The catalog industry has survived an endless litany of postage increases over the decades. Why so pessimistic when our core customer loves catalogs?"
  • The key phrase in the question is "core customer".
  • Our problem is less a USPS problem than a problem of demographics. The core customer is aging so fast that it is terribly frustrating to me. Terribly frustrating. Those of you who read this blog send emails to me, telling me that Abacus says your core customer is 61 years old. Oh my goodness. It wasn't always like that. All the data I look at tells me that the customer spends 2% to 5% less per year as the customer gets older ... so if the USPS increases postage down the road by, say, 10%, then the actual cost of a mailed catalog goes up by 4% (+/-). So you have a 4% productivity hit, and a 4% cost increase, requiring you to find an 8% merchandise productivity increase to offset demographics and cost increases. And you'll need these merchandise productivity increases, in perpetuity. 
  • That's impossible.
  • We can face this problem head-on, or those of us in our mid fifties or older can try to survive until retirement. My fear is that the latter is happening, with younger staffers leaving in droves, going to work in Jennifer/Jasmine-centric businesses. Where does that leave a classic catalog business?
  • That's why I am pessimistic.
Our final question comes from Heather: "What do you think of iBeacon or other in-store tracking devices?"
  • This is what I think: