March 31, 2014

Omnichannel: WWE

Give this article about the WWE Network a read (click here) - I know, I know, you don't watch wrestling (neither do I), but the article is important to your future.

Here's where we are headed, folks.

Slowly but surely, we're all being transformed into entertainment networks. We all produce content, always have. But we're heading toward a future where we do more than specialize in just one form of content, and we do more than specialize in one channel of content distribution.

The current day version of "omnichannel" is the first step in a thousand step journey. Unfortunately, we're being told that the one step "is" the journey.

The future isn't to buy on a mobile phone and pickup in a store.

The future is entertainment.

Be honest - it isn't entertaining to buy a soldering kit at Radio Shack.

Be honest - it isn't entertaining to find out that the Lucca Couture Floral Embroidered Tank Dress isn't available in your size at your local Urban Outfitters store, but can be shipped to your home in two days from another store that is too far away for you to drive to. Do you walk out of the store and do a dance after a transaction like that?

It can be entertaining to enter an Apple Store.

It used to be entertaining to enter a Barnes and Noble.

It used to be entertaining to receive a 500 page catalog from JCP.

The future of omnichannel is becoming very, very clear - it's entertainment. It's the "L.L. Bean" Network (LLBN). Or more likely, the Urban Outfitters Network (UON).

But let's use the L.L. Bean Network as a starting point. Instead of videos on the website, you have programs on demand. Instead of buy online, pickup in store, the store becomes an entertainment centers. What does that look like? How the heck should I know? Go walk into a Cabellas sometime and start thinking about what it might look like.

I know, I know, you're saying "but how could L.L. Bean afford that?" You're saying "they aren't staffed to do something like that". You're saying "even if they did what you're suggesting, the odds of it working are only 5%". Yup, I get it.

How much does L.L. Bean spend mailing catalogs a year? Gotta be north of $100,000,000, right?

In other words, the old business model was to spend $100,000,000 with the USPS, Printers, and Paper People in order to facilitate a recurring revenue stream of $250 per customer per year. The new "omnichannel" business model will be to spend $100,000,000 creating and distributing content in order to facilitate a recurring revenue stream of $250 per customer per year.

This isn't any different than what the WWE is doing. In the old days, the WWE hosted events at arenas, those events represented content shown on cable television, and those events fueled the big pay-per-view events that brought the real profit in the door. Now, the WWE is changing the rules, creating their own network - heck, you can watch a match from 1985 on the network. This network is available on your Xbox or Desktop Computer or Tablet or Phone, 24/7/365, for $10 a month. You're pre-paying for the content.

Sound familiar?

How many customers pre-pay for your content?

What? Customers pay for merchandise, they don't pre-pay in retail?

Amazon gets you to pre-pay for content, too (Amazon Prime). And now that you're hooked, the cost of Amazon Prime is going up. Amazon charges you $99 for shipping (and video ... hmmm ... the Amazon Network) ... while we offer free shipping.

Interesting.

You can see the change happening. Startups work on curated subscription services - the goal of course being a recurring revenue stream. On the other side of the spectrum, old-school continuity programs are thriving among customers age 60+, they get a recurring revenue stream from monthly shipments.

We're headed into a world where it is our job to entertain. Maybe it was always our job to entertain. In the 1980s, a 500 page catalog was sufficient to create entertainment. In 1995, the simple act of entering a J. Crew store coupled with a stop at an Orange Julius store was entertaining. In 2005, a functional website was sufficient to create entertainment. In 2015, most of what we'll be doing is boring, listless, dull (requiring discounts/promotions) in comparison to everything else available to the customer. Omnichannel cannot be a sterile, digital customer service solution. It's going to have to be an entertainment network, with each "channel" providing enough entertainment to remain relevant. 

Why do you read this blog? It has to either entertain you or teach you something, because 99% of you don't hire me for projects.

I know, I know. You think I'm nuts. So go ahead and offer your vision of the future in the comments section.

March 30, 2014

Monday Mailbag

Every Monday, I answer your questions ... email me (kevinh@minethatdata.com) your questions.

Today's question comes to us from Brad:

  • "Kevin, you don't address the concept of relevancy very much. Don't you think relevancy is the most important way to engage a customer in a crowded marketplace?"
Look at the image at the start of this post. I was watching a YouTube video about the Wisconsin Badgers and their run to the Final Four in the NCAA Mens Division I College Basketball Tournament. You can make a pretty strong case that, at this moment in time, I am not interested in Marketo's Segmentation and Personalization solution, and I sure don't care about Perfect Audience's sixty dollar credit for Effortless Retargeting.

So yes, relevancy seems to be an important concept.

Take a look at this one ... this is from The Weather Channel.

Help me understand something. I'm visiting "The Weather Channel". Allegedly, these are the "Most Popular" stories on "The Weather Channel".
  • Dog's Heartbreaking Reaction After Rescue.
  • Creepy Abandoned Island.
  • Happiest Cities in the United States are Revealed.
  • Terrifying Close Calls Caught on Camera.
This leads us to a whole set of unique concepts to ponder.

If the most popular articles on "The Weather Channel" are not weather-related articles, then is weather "relevant" to those who visit "The Weather Channel"? And if the answer to that question is "no", then what should Management do with that fact? What do you do when the core proposition of your business (weather) becomes an engagement tool that drives the user to stories about terrifying close calls caught on camera?

Here's another question worth considering ... what do you do when the long-term success of your brand (weather) runs smack-dab into the short-term reasons somebody visits your website (terrifying close calls caught on camera)?

Seriously - what do you do when your "engagement metrics" show that the "most valuable visitors" view articles about Creepy Abandoned Islands? Do you give the customer more of what the customer seemingly wants, in the short-term, or do you give the customer the content that caused the long-term success of your brand (weather), causing your engagement metrics to suffer?

Relevancy is one of those nonsense pseudo-strategic topics that leads us to post stories about Creepy Abandoned Islands on weather websites. Modern marketing is not tolerant of leaving money on the table. When you must accept every dollar that comes in the door, you accept the customers, and the content, that customers who follow the dollars prefer. You're offering short-term relevant content, content that facilitates your descent into irrelevancy. Or maybe not irrelevancy - but facilitating your change into a new stream of content. Who knows?

March 27, 2014

Brookstone

Click here - Brookstone / Bankruptcy.

A couple of things.

First, we have to stop blaming the economy. Can we all agree that what happened in 2008 was awful? Can we all agree that the economy never came back? Good. Now that we agree, is it not our job, as business leaders, to find a way to persevere, to grow?

I mean, how is it that Amazon exploded during a time when the economy was awful? How do companies like Nordstrom survive and thrive at at time when what you buy at Nordstrom could be bought anywhere, especially online? Why isn't anybody at Nordstrom complaining about the economy?

It's also time to stop blaming crippling debt levels. Have you ever looked at Nordstrom's debt levels? If they took a hit in merchandise productivity, their debt levels would be considered "crippling". Debt cripples when sales crumble. Debt is a symptom of poor management. Can't afford a new store? Tack on some debt. Sell to private equity? You're going to tack on some debt. When you stop being a merchandiser, and start being an asset, you're going to tack on some debt - debt allows somebody to get paid. When you stop being a merchandiser, sales will crumble. When sales crumble, debt cripples.

Give this ditty from ROI (Retail Online Integration) a read (click here) ... it details the keynote that Brookstone gave at the recent NEMOA Spring Conference. There's a quote in the article from Brookstone's CEO that I find interesting
  • "The goal of every marketing effort is to create hyper relevancy."
There are a lot of companies that are not declaring bankruptcy - at many of those companies, the goal of every marketing effort is to create awareness that generates profit.

Maybe the quote says something about the state of modern marketing, and the relationship between modern marketing and company profit.

I attended the Brookstone session at NEMOA. The session started with the CEO projected on a robotic LCD monitor that waltzed down an aisle toward the speaker podium, just like the Big Bang Theory episode that featured a virtual Sheldon Cooper. It was a neat stunt, and it featured an innovative product. But Microsoft has innovative products, too - their tablet devices are arguably better than any other tablet out there. Innovative products do not guarantee profit.

It's easy to blame the economy and crippling debt. It's hard to align innovation with customer needs. That's the job of a brilliant merchandiser. It's time for all of us to prioritize brilliant merchandising over attribution models, omnichannel, social media, and catalogs. It's time to stop cheerleading "hyper relevancy" when what we need, quite honestly, is "hyper profitability".

Is this about Brookstone? No. This is about you. I'm using Brookstone as a metaphor for where we are all headed if we don't focus on what is important. Our industry has been teased ... teased into believing that we can use magic to generate business, that merchandise is not important. Merchandise means everything.

March 26, 2014

Happy Socks

Have you been to Happy Socks (click here)?

This is what was featured on the home page as of 8:20pm PDT tonight (3/26).

What does the heading say?

NEW ARRIVALS!!

One of the most common outcomes of a Merchandise Forensics project is the need for a business to give as much real estate to new items as possible. How else can new items become best selling items?

That's where I hear every possible reason why you can't feature new, risky items on the home page.

And yet, folks feature new items ... on the home page.

Discuss.

An Omnichannel Retail White Paper

Here's an interesting way to spend ten minutes this morning ... click here to download a paper called "Customer Desires vs. Retailer Capabilties: Minding The Omnichannel Commerce Gap".

As it says on the cover page ... this is a "Forrester Consulting Thought Leadership Paper Commissioned by Accenture and hybris, an SAP Company".

In the comments section, please leave your thoughts about the paper. What do you like about it, where do you have a difference of opinion? From a retail standpoint, is this the direction that you think retail needs to take, and if not, what direction do you recommend?

Discuss.

March 25, 2014

The Robin Report

Give this little ditty about retail a read (click here) about retail "demassification".

Yes, you'll see the phrase "omnichannel" mentioned a couple of times, but it is mentioned as an operational capability and not as a strategy - in other words, it's proper place in the landscape has been identified by somebody other than me.

Just read the article.

Notice the comments about Jasmine (40% of retail $ coming from Jasmine by 2020). Notice the comments about providing a great entertainment experience. Notice the comments about the retail center (not the individual store within the mall) recognizing best customers via technology.

The author was also on CBS Sunday Morning (click here) - predicting that half of all malls will close in the next ten years - "why go to a mall when the mall is in your pocket?"

Don Libey called malls "those cities of the dead" back in 2006.

When you think about this stuff, you can see what trade journalists and consultants would dive in, head first, swimming about in the omnichannel pool. You want to believe that what you love doing will survive, who wouldn't want to believe that?

Now, will the author of these essays be proven right? Who knows? I recall being at Nordstrom in 2001, reading the experts in the trade journals, listening to these pundits suggest that Nordstrom couldn't survive in a modern world with 144,000 square foot stores, telling everybody that department stores were dead. Since then, Nordstrom generated ten billion dollars in profit. Experts are always wrong.

Regardless, this is quite an interesting inflection point in retail, isn't it?

Most interesting, right now, is the trend where new customer acquisition in stores is being chopped off by e-commerce and mobile. The same thing happened to catalogers ten years ago. History has a way of repeating itself, don't you think?

Watch the video from CBS Sunday Morning ... it only takes six minutes of your time. Think entertainment. Retail is not omnichannel - retail is entertainment.

March 24, 2014

Why Models Don't Work Any Better Today Than In 1994

Most modelers over-emphasizes "variables". I sat in a meeting last year where the vendor told my client that their strategy was "best" because they entered a thousand variables ... a thousand ... into their model. Statisticians, of course, are taught the concept of parsimony - a small number of variables that explain most of the variance is preferable to a large number of variables explaining a comparable amount of variance. 

If you have a model with 10 variables, and a model with 100 variables, you essentially end up with the same ranking of customers, best to worst. Oh, there are differences, subtle differences. Let's say you had 10 variables, and a customer ranked #700,000 out of 1,000,000. Going from 10 variables to 100 variables might change the ranking of this one customer from #700,000 to #662,000, or to #738,000.

So what? What difference does that make?

It makes no difference.

I know, I know, there's a couple hundred statisticians or statistically trained individuals at leading vendors who are reading this right now, and are cursing my name.

Well, if these folks were right, and you've been using their models for twenty years (+/-), then why doesn't your business grown by leaps and bounds when you implement a new model? Did you ever notice that almost nothing changes when you implement a new model (from a demand standpoint)? Yup, almost nothing changes.

The secret to mailing smarter isn't having a thousand variables in a model.

The secret to mailing smarter is accounting for three key factors.
  1. An accurate ranking of customers from best to worst, without over-fitting a model with 100 or 1,000 variables.
  2. Capturing cannibalization between catalogs - when you mail a catalog in March, you cut off the tail of a catalog mailed in February - if you do not mail a catalog in March, you increase demand from the February catalog. Give Clario props ... they account for this, don't they?
  3. Identifying demand that would happen anyway if catalogs are not mailed - what I call the "organic percentage". This is where I make all of my clients a ton of profit!
1/2/3 above are really important. Because those concepts are ignored, the models you use make minimal difference.

Contact me (kevinh@minethatdata.com) to get started on your own contact strategy project. Or click here to buy the booklet on Amazon, and do the work yourself. Either way, you'll be ahead of where you are now.

March 23, 2014

Monday Mailbag

Email me (kevinh@minethatdata.com) your questions for next week's Monday Mailbag.

This week's question comes to us from a person attending NEMOA who wished to remain nameless.
  • Isn't it obvious that customers who use multiple channels are worth much, much more?
Remember this beauty from McKinsey Consulting, circa 2001?





This chart was labeled "The Multichannel Bonanza".



I've talked about this before, but it is a difficult concept for people to get their heads around. Best customers do everything. Everything. 

Think about it this way. When you acquire a customer for the first time, that customer has one purchase. That customer cannot possibly be in any of the intersections in the venn diagram. When the customer buys for a second time, the customer, by definition, can be in one of the intersections. The intersections, of course, are pre-defined - they can only include customers who are more valuable.

The intersection of all three audiences can only happen if the customer has chosen to purchase at least three times. By definition alone, those customers are already more valuable because they have a minimum of three historical purchases - of course they're valuable!!!

Do not let people mislead you with sexy-sounding metrics.

March 20, 2014

Catalogs - The Danger Zone

Look at this graph, dear readers.

In my Contact Strategy projects (click here for the booklet - email me for your own, customized project - kevinh@minethatdata.com), this relationship repeats, over and over and over again.

It's the relationship that Clario and other vendors in our industry don't share with you.

Most catalogers zoom well past what I call the "Danger Zone". The Danger Zone is the place where no matter what you do, profit does not fundamentally change.

Whether it is Clario or me, we both find the optimal profit level (in the graph above, it's at about 18 million catalogs).

What most catalogers who do not use Clario or my services find out is this - it is easy to go past the Danger Zone - and then you go too far past the Danger Zone.

In the graph, we generate about the same amount of profit at 10 million housefile catalogs as we do at 25 million housefile catalogs.

Here's how the math works.

Let's pretend that the average housefile customer receives 18 catalogs a year. We want to simply mail the customer a 19th catalog.

  • 18 Catalogs = $2.22 demand per book, $0.39 profit per book.
  • 19 Catalogs = $2.16 demand per book, $0.37 profit per book.
What we're talking about here is a 3% demand hit - that's basically undetectable with the tools most circulation experts use. Some of your segments will generate a 5% gain, some will generate an 11% loss, with an overall 3% demand hit. Again, you'll never detect it in your RFM-centric reporting.

But your CFO notices that profit isn't ideal. So you decide to add a catalog. Here's what happens:

  • 19 Catalogs = $2.16 demand per book, $0.37 profit per book.
  • 20 Catalogs = $2.11 demand per book, $0.34 profit per book.
Once again, you can barely tell this is happening, when viewing things on an annual basis. But you sense that profit isn't where it needs to be. Let's add a catalog!!
  • 20 Catalogs = $2.11 demand per book, $0.34 profit per book.
  • 21 Catalogs = $2.06 demand per book, $0.32 profit per book.
Again, you're looking at all this stuff on a segment level, so you don't notice a 2.5% demand hit, and who the heck cares about profit anyway, that's what that bean-counting CFO cares about. So let's add another catalog!
  • 21 Catalogs = $2.06 demand per book, $0.32 profit per book.
  • 22 Catalogs = $2.01 demand per book, $0.30 profit per book.
Again, just a 2.5% demand hit.

Here's what needs to happen. We need to compare the difference between 18 catalogs per customer per year and 22 catalogs per customer per year.
  • 18 Catalogs = $2.22 demand per book, $0.39 profit per book.
  • 22 Catalogs = $2.01 demand per book, $0.30 profit per book.
Oh oh.

Now let's add things up, on an annual basis, per customer.
  • 18 Catalogs = $40.00 demand per customer, $7.00 profit per customer.
  • 22 Catalogs = $44.22 demand per customer, $6.69 profit per customer.
See?

18 Catalogs represented "the Danger Zone" - it was the place where you can keep adding catalogs and think you're doing good, but honestly, you're harming the business.

Have Clario outline, for your business, where "the Danger Zone" is. Have Clario show you what happens when you go 20% past it, or 40% past it. If they won't share this analysis with you, send you data to me, and I'll tell you what is happening with your business.




March 19, 2014

Knowing The Answer

You know, sometimes we just "know the answer".

And yet, we want proof. 

Take the whole omnichannel movement, for instance. Everywhere you look, we're told that you have to be omnichannel, or you're "dead".

Ooooooooh ... "dead".

Apple completely ignores social, and they steamroll the competition.

Amazon didn't choose the catalog marketing path, and destroyed catalogers in the process. How is that possible when catalogers had a "multi-channel edge" over Amazon?

Best Buy has a major competitive advantage with stores, and yet, customers willingly choose to buy elsewhere - from businesses that do not have stores (Amazon). Why would a customer ever buy from Amazon when the same merchandise is available in a Best Buy store and on the Best Buy website at the same price - wouldn't the power of omnichannel trump Amazon?

When you question omnichannel strategies, you get that stale, blank stare that confirms you are an idiot!

Except, almost no businesses that are lauded as omnichannel pioneers experience breakthrough sales. I know, I know, there's John Lewis in the UK, they're all about omnichannel ... except, of course, that while everybody cheers them on, they grow at a compound annual rate of 6% (click here). In other words, the best level of omnichannel performance cited by the experts is double the rate of inflation. #Omnichannel! And Macy's, "America's Omnichannel Store" as they call themselves, is growing at just over 2% over the past seven years, +/- the rate of inflation. That's what you get for being omnichannel?

Meanwhile, Amazon, without the bricks 'n clicks advantage, without catalogs to boost sales, quadrupled sales in the past six years.

Oh.

How do you explain that?

We have decided, for no good reason whatsoever, that omnichannel is the secret sauce that fuels our ecosystem. There isn't evidence (sales) that omnichannel trumps a sound merchandising strategy. Why don't we simply provide a great shopping experience complete with outstanding merchandise that customers must have, merchandise that cannot be found elsewhere?

Oh, that's hard to do? Alright.

Sometimes, we already know the answer. We just want to believe that we're doing something important - "it's not our fault".

Read the comic above. The store isn't working, nobody is shopping in it, and yet, the owner wants to perform an analysis. Sometimes somebody just needs to stand up, to "step up", and state the obvious.

Sometimes, we know the answer.

March 18, 2014

Retail

That's a Lego store.

Notice that they aren't advertising a whole lot of discounts, are they? No 70% off here, not when one of the most popular movies of the year is a 100 minute infomercial about the potential of your brand.

The infomercial, by the way, has already grossed more than $225 million in United States, and $361 million worldwide. On an estimated budget of between $60 million and $120 million, we can safely say that Lego generated a rather hefty amount of profit, right?

Does that mean we should all get excited for a Radio Shack movie about a lonely employee with no customers and nothing to do, hoping against hope to sell a soldering kit?

Of course not.

There are four forces working against retail.
  1. A dramatic demographic shift, as Baby Boomers close in on retirement, coupled with a massive quantity of Millenials who have different retail preferences.
  2. An overwhelming glut of square footage - comparable to a cataloger sending one catalog a week to customers - something has to give, and something is going to give in the next five to ten years.
  3. Amazon skimming 1% to 2% of the sales off the top of companies it competes against, companies like Best Buy, for instance.
  4. E-commerce skimming 3% off the top. Take a billion dollar retailer with a hundred million in annual e-commerce sales and nine hundred million in retail sales. For many retailers, e-commerce is growing by 30%, now that retailers have finally caught up to direct marketers, when it comes to operational capabilities. This means that e-commerce grows by $30,000,000 a year - that comes from somewhere, most of it from the very retail stores e-commerce was supposed to support, costing retail a 3% comp store sales hit. It didn't used to be like this. In the old days (i.e. 2010 - 2011) e-commerce drove customers into stores. That trend is changing. Now, retail customers increasingly skip the trip to the mall and buy stuff online.
It would seem like we in the retail industry better have something to talk about, and we better create urgency via limited square footage. Compare Apple and Microsoft stores, the next time you go in the mall. There are many times that there are comparable numbers of customers in each store - but the Microsoft store is just plain bigger, so it "feels" emptier than the Apple Store.

Vibe means everything these days. We have to give customers something to talk about, a reason to shop from us.

When we hear about Radio Shack as it contracts itself into the future (click here), we think to ourselves, "when was the last time I felt a vibe, a buzz, in a Radio Shack?"

When was the last time you walked into a Sears store, and felt electricity in the air?

Retail is going to survive - but those who survive will provide a compelling experience. Watch Radio Shack, Staples, Penney, Best Buy, Sears, and others who are contracting (click here). They have no choice. Right now, there isn't much buzz in any of those stores, is there?

Jasmine is going to demand that retail entertain her, demand that there is a vibe in the store, a reason to be there. That reason won't be discounts or promotions. It must be an experience.

March 17, 2014

Your NEMOA Update

I did something I seldom do ... I paid my own airfare, parking, hotel, and conference fee, and attended NEMOA last week. I traded four months of grocery bills for an opportunity to learn about "The Omnichannel Circus".

What did I learn? 


Brookstone - their CEO supported a year-long mail/holdout catalog test. How many of you have the courage to do that? He proved that his catalogs, when measured conservatively across channels, delivered between $2 a book and $3 a book - not good performance by any means, but good enough to generate profit, and that's all that matters, right? It was interesting to hear the whispers in the audience ... "see, catalogs work" ... but nobody was paying attention to the fact that $/book was about half of what it might have been ten years ago. Also - no mention of the financial challenges plaguing the company.

Margot Murphy Moore - A sheer delight to hear her mention that best practices like renting names for prospecting and measuring catalog performance via keycodes failed at her organization. You could hear audible gasps in the room ("she can't be right"). Her session should have been given a full hour - catalogers need to hear that you can have success without following long-standing best practices. Think, catalogers ... how did she acquire new customers without participating in the renting/exchanging of lists?

Steve Spangler - the audience enjoyed the balloons (above), but they should have heard the message that a catalog-centric science brand used other forms of media (Ellen, TV, YouTube) to grow his business. I think this concept may have gone right over the heads of the attendees. I am surmising that NEMOA hoped the audience might at least think about the concept of marketing through other channels. 

Google - I heard audible groans when the folks at Google, a full half-generation to generation younger than the core audience at NEMOA, suggested that digital marketing was effective. Here, the generational gap might be too big to bridge - Judy is not a big "retargeting / remarketing" fan - Jasmine, however, responds differently.

Entertainment - Like most modern conferences, NEMOA is striving to entertain, and every time you host an entertainment-centric session, you lose a session that could teach clients and/or suppliers something valuable. It's a tough balance - I heard a person sitting near me say "this is the best conference session ever" during an entertainment-centric presentation. What is a conference supposed to do?

Attendance - NEMOA organizers told me that attendance should exceed Spring 2013 and that Spring 2013 exceeded Spring 2012. Good for NEMOA!

Attendees - Way too skewed toward vendors/suppliers. I don't have official numbers, but the mix felt 2-to-1 in favor of vendor/supplier attendees. One supplier told me that their business would cut back to one day of attendance next year, because there were not enough "prospects" in attendance to sell to. Let that one sink in for a moment.

Vendors/Supplier/Sponsors - This is a list of folks who keep NEMOA afloat. Not surprisingly, these folks tend to work together - they really don't compete against each other as much as they are frenemies.



In the past, NEMOA gave speaking slots to top sponsors in exchange for sponsor generosity - I don't know if that is the case today or not. That being said, "pay-to-play" is common in the conference world - I was asked to volunteer my time to speak to the Digital Analytics Association last year, then was kicked out because, as the conference organizer told me, "the sponsors demand speaking slots, so we must rescind our agreement so that we can take care of our sponsors and make sure that our sponsors receive a sufficient return on investment". What about conference attendees?


Catalogers, generally in the minority in the audience, have to be careful, balancing what they're being taught and balancing the rhetoric of not-so-kind sponsors with what reality might suggest. I know, at NEMOA, sponsors are not allowed to sell, so that's a good thing. But sponsors do other things. One sponsor asked me (at NEMOA, quite publicly) to stop writing my blog and join their organization so that the industry could provide a "unified voice" to the audience. Let that one sink in for a moment. One of the speakers recently told me in a phone conversation that the speaker was going to "put me out of business". Do I deserve this? Maybe. I try my hardest to speak the truth. I tell you what the data is telling me. Often, what the data is telling me is that the co-ops are funneling you old customers, rapidly accelerating the age of the customer in your database. Would sponsors want me to be quiet, or to be put out of business, so that they can stay in business in the short-term while they find their own path to the future? Maybe. 

Most people who work for NEMOA sponsors, however, are wonderful people, and were more than helpful to my clients at NEMOA. Keep that in mind.

What could conferences do to balance sponsor interests with content that can help a cataloger? Here's a couple of thoughts, assuming "pay-to-play" is a necessity. 
  1. A forum for catalogers to talk openly about issues truly facing catalogers. No supplier solutions are allowed ... somebody at Orvis should be able to publicly bring up a problem that somebody at American Meadows can offer solutions to - and somebody at Vermont Teddy Bear could chime in with input. Call it the Catalog Town Hall, 3:45pm - 4:30pm on Day 2. Let suppliers sit in, but they are there to listen.
  2. A forum for catalogers to share, with suppliers, what catalogers need from suppliers. 4:30pm - 5:15pm on Day 2. We always hear from suppliers in conference sessions how catalogers could do better - why can't we approach this from a cataloger-centric viewpoint?
Now, the kind folks at NEMOA are in a no-win situation. No matter what they do (suppliers, catalogers, entertainment), somebody is going to say that the content did not meet their expectations. I'm just reflecting what I'd like to see, based on feedback I obtained at the conference. Things are simply too supplier-centric. Go read the tweets from the conference, you'll see the tweets are dominated by suppliers. The danger, if you are a cataloger, is that if the social aspects of the conference dry up just a bit, then it is not worth it for catalogers to attend. A full third of the folks in New England that I reached out to, folks who frequently attend conferences in New England, told me they chose to not attend NEMOA this year. These are people I spoke with, at NEMOA, in 2012.

We need to think about these topics, folks.

Ok, time for your thoughts. What did you learn? What would you like to learn? Did you have fun? Would you go back? Do you think I'm nuts, or are the ideas presented here of interest to you? Email me (kevinh@minethatdata.com) or leave a comment.

March 16, 2014

Monday Mailbag

As always, you can send me your questions (kevinh@minethatdata.com), I'll answer them each Monday.

Today's question comes from Ron, and it is a valid one.
  • "Kevin, you used to talk about channels and new customers, but now you talk about merchandise. Why ignore marketing? We all know that brands are built on marketing strategy. Why are you choosing to devalue those of us in the marketing profession?"
Well, it's a good question, and the answer requires a metaphor.

Let's go to the world of music. I'm listening to SiriusXM's "SiriusXM Hits 1" channel last week. This channel plays pop songs that are reasonably current - from the past few months back to a year or two ago.

A song from the duo Karmin, titled "I Want It All" comes on (click here for the video). The song is, using my definition, "merchandise". It's what Karmin sells. They get to keep making music if and only if customers buy their music.

The video, via YouTube, is an example of using a "channel" to enhance the user experience. The video has been viewed more than a million times, not bad, but not in the 50,000,000 range it needs to be to be considered viral and effective.

As you know, all songs require a video ... the video is a form of marketing, and for many, videos on YouTube serve as a veritable jukebox - no need to buy the songs when you can create a playlist of videos from YouTube.

But just how important is the video? I mean, you watch the Karmin video, and you can tell it took a heck of a lot of work and money to create that thing. The video is essentially a tactic within an omnichannel strategy, don't you think? But, again, how important is the video itself? I mean, you could create a hundred different versions of this video - how much more music would sell because of outstanding creative vs. lousy creative? That's the real value of the omnichannel strategy, right? If you could create a hundred videos, don't you think that the best ones should launch the song into the stratosphere?

Let's do a comparison. Here's a video from YouTube of Morris Albert's popular "Feelings" (click here). 98,000 views for a famous song from 1975. A karaoke favorite, no doubt!

Now compare the video to this one ... America's "Sister Golden Hair", another popular song from 1975 (click here to see the video). 

The video isn't even a video, for crying out loud, it's an image of an album cover! And it has 1,900,000 views - views of a stinkin' album cover!

In other words, the merchandise (the song) has to be great. If the song is great, people will play a video of a static album cover.

But if the song isn't great, or isn't of interest anymore, video isn't going to make a difference.

Back to my focus on merchandise.

In the past decade, our focus shifted, and it shifted way, way, way too far toward channels. In our music metaphor, we obsess about the video. We obsess. We create best practices for making music videos, but we don't focus enough effort on the song. The video doesn't exist if the song doesn't exist, folks. And if we had the money to test 100 different music videos, we'd likely find that only one or two of the hundred would cause an appreciable increase in sales, and a marginal one at that.

We need to shift the focus back to merchandise. Marketing exists to support selling stuff. Instead, we view marketing as a product.

If I didn't find major merchandising issues in 20 of 25 Merchandise Forensics projects, I would not constantly implore marketers to focus on analyzing merchandise performance. It's low-hanging fruit, and it's largely ignored by marketing professionals and analytics experts. Heck, I'm glad y'all ignore it ... because it allows me to make a living!! If you paid attention, I couldn't pay my bills.

But because I find these problems, over and over and over again, I have to keep talking about this, until marketers choose to listen.

Your choice. Do you want to pay attention, or do you want to focus on topics that likely have minimal or no impact on sales?

Discuss.

March 12, 2014

Oh, I Didn't Realize Things Were That Interconnected

You've got five minutes to kill, so why not give this video a quick viewing (click here).

What did you learn?

Well, when wolves were re-introduced at Yellowstone, just about everything about Yellowstone changed. Rivers changed shapes, the distribution of species changed, where species (like deer) lived changed. The height of trees changed, for crying out loud. Everything changed. By re-introducing one species.

Don't you think this happens in e-commerce as well? Or more specifically, your business?

Right now, you're being told to be #omnichannel. Yup, you're told you must "do everything" or your business will die. The vendors and consultants and trade journalists are essentially telling you to fix the rivers yourself, to fix the height of the trees yourself, to move the deer to other areas of Yellowstone, to introduce beavers and badgers and bald eagles - they're asking you, specifically, to do everything (paying them $$$ in the process, right?).

Might it be wiser to simply re-introduce the wolves?

In the video, wolves are to the ecosystem as merchandise is to your business.

I can't tell you how often marketers get frustrated with me when I talk about merchandise. Merchandise is the reason you buy something. If McDonald's served angus burgers with sawdust in them, you wouldn't use their drive-through channel to buy 'em, would you? But they reintroduce the darn McRib sandwich (chomp) and customers use the drive-through to buy 'em (and then those customers are labeled #omnichannel, and marketers will credit the drive-through for increasing customer value).

Merchandise means everything. I know, I know, you don't want to hear this message. It doesn't mean that your job as an affiliate manager or circulation manager or email targeter is any more/less important, it just reinforces the role you play in selling merchandise.

Everything in your business is interconnected. When I worked at Nordstrom, there was a reason Cosmetics and Womens Shoes were on the ground floor ... those departments were the wolves.

March 11, 2014

But My Omnichannel Strategies Should Work, Shouldn't They?

Here's what seems to be happening.

If your customer is Judy (age 54-69), and you are a catalog-centric brand, then your version of "omnichannel" is using a catalog as the center of your universe. The catalog is almost more important than the merchandise you sell! All of your marketing programs are spokes, the catalog is the hub. Your Tuesday email campaign features merchandise that was offered in last week's catalog in-home window. Paid Search campaigns are designed to coddle customers who are driven to internet via a catalog. Your relationship with the co-ops, "data brokers" as you now know them from the 60 Minutes story, leaves you with a pool of customers who both love shopping via catalogs, and love merchandise targeted to a 54-69 year old customer. Omnichannel, as long as it fits within this context (a 54-69 year old customer sourced through the co-ops who has a Baby Boomer product preference) can work in the short-term.

If the customer is Jennifer (age 38-53), then the story changes. The elephant in the room is Amazon, a company that offers merchandise specifically targeted to Jennifer's lifestyle (low price, good service, rapid delivery, free delivery with Prime, few mistakes, high convenience). Here, the omnichannel narrative flips. The cataloger, catering to the 54-69 year old, executes omnichannel strategies that, in theory, should appeal to Jennifer. However, the tactics (emails, catalogs, paid search, social, mobile, free shipping or cheap shipping, slower shipping) drive Jennifer to Amazon. Amazon is going to be cheaper than you are. Amazon is going to ship faster than you are. Amazon is going to be more convenient than you are. You spend marketing dollars, Amazon reaps the return on investment of your marketing dollars. This creates a perverse dynamic, in that some of your marketing dollars fuel Amazon's success, while the marketing dollars that cater to Judy create your success - causing the co-ops to send you more names like Judy, which causes the merchandise that Judy likes to sell better, which causes your merchants to respond to this feedback loop by offering even more merchandise that Judy likes, which causes Jennifer to like your merchandise assortment less, causing Jennifer to simply choose Amazon when she has a need.

Make sense?

The problem gets worse by the time we get to Jasmine (age 22-39). The co-op / Amazon / Merchandise feedback loop that involves Judy / Jennifer creates a whole set of challenges for Jasmine. First, Jasmine could care less about the catalog being the hub of a marketing plan. If something is important to Jasmine, it will find her, in the same way that none of us watch the same news programs but the important news finds us anyway. Jasmine, however, is turned off by the typical cataloger merchandise assortment ... "that stuff is for old people" is a common lament I hear from Jasmine. When I spoke in London, I mentioned "Boden", and was told by a member of Jasmine's generation that "nobody even thinks about them". And that's a popular UK cataloger! For Jasmine, the co-op / merchandise feedback loop results in a merchandise assortment that is fundamentally distasteful. Most important, Jasmine won't buy from a cataloger because the cataloger's merchandise/story is not relevant to her.

Omnichannel strategies work (in the short-term, and "work" is a relative term) for Judy, because the merchandise is aligned with Judy's interests.

Omnichannel strategies don't work well for Jennifer, because the merchandise is somewhat misaligned, and when pricing is cheaper and products are shipped more conveniently through Amazon, Jennifer chooses Amazon (or Staples.com or eBay or Overstock.com or Nordstrom.com or Kohl's.com), causing catalogers to spend marketing dollars to chase the customer away from the cataloger. That's not an efficient way to spend money!

Omnichannel strategies cannot work with Jasmine, because the merchandise is fundamentally mis-aligned with Jasmine's lifestyle. Why use 37 marketing channels to drive Jasmine to merchandise that she could care less about? We spend and spend and spend and spend, and then offer Jasmine something she has no interest in. Omnichannel!!

In my contact strategy projects, I frequently recommend mailing more catalogs to Judy. Yes, more! I'm talking increases from 20 a year to 30 a year. Happens all the time. Judy's needs are being under-served by the vast majority of marketers. Modern marketers have given up on Judy. Catalogers have a short-term opportunity here, but it comes with a price - Judy will be retiring soon.

In my contact strategy projects, I frequently recommend mailing Jennifer only 3 times a year. Yes, 3 times a year. Why invest all that money driving Jennifer to Amazon, when you already have a website (that Jennifer is choosing not to visit), and mail/holdout tests prove that Jennifer will spend 50% to 70% of her money without ever receiving a single catalog?

In my contact strategy projects, I frequently recommend mailing Jasmine only 1 time a year. The merchandise alignment issues with Jasmine are too great to overcome. Catalogers would be better served by creating separate brands for Jasmine, featuring merchandise that Jasmine likes, via marketing channels that are part of Jasmine's lifestyle.

Yes, your omnichannel strategies should work.

But your omnichannel strategies cannot work if the merchandise is aimed at Judy - you simply drive Jennifer to Amazon, and you are not relevant to Jasmine.

That's what seems to be happening. It's the dynamic that causes omnichannel strategies to fail, repeatedly. It's the dynamic that causes catalogers to shrink circulation by 40% over the past seven years. It's part of the dynamic that helps Amazon grow ever-stronger. It helps explain why so few 22-37 year-olds shop the websites of catalog brands.

It can all be fixed with a merchandise-centric view of the world. Not a channel-centric view of the world, but a merchandise-centric view of the world.

Thoughts?

Until I Retire

In my Omnichannel Circus post, I originally had a line in the post that I removed, feeling it deserved an entire post.

Here's a quote that is directionally similar to what I hear, repeatedly, from my readers (vendor based or consumer based, doesn't matter):

  • "I'm 57 years old. With luck, I can retire when I'm 62, or more likely, I'll retire when I'm 65. I'm just trying to keep the wheels on the catalog bus until I retire."
I hear the quote from readers who are at the Manager level, the Director level, the VP level, the EVP level, the C-Level, and from Owners.

Think about what the statement says about modern cataloging at the catalog businesses people shop from?

Think about what the statement says about vendors selling omnichannel solutions to the catalog businesses people shop from?

Give the sentence some thought, before you head over to NEMOA later today or tomorrow morning. How does that sentence interact with what is being called "The Omnichannel Circus"?

March 10, 2014

The Omnichannel Circus

If you're a cataloger in New England, you're about to hop in the car and head to Boston for the NEMOA spring conference (click here). You're excited to learn all about "The Omnichannel Circus", this year's theme.



What differences do you observe?

You know, I don't hear a lot of Forever 21 customers saying "I wish Forever 21 had a series of omnichannel solutions that turned stores into virtual digital warehouses that could ship product to my house within 24-48 hours, and I really wish they mailed me a 140 page catalog twenty-six times a year, because I love the integrated shopping experience that combines a catalog and a mobile device."

And I don't hear a lot of catalog experts saying "I wish Orvis had a vibrant community website that I could access on my Samsung Galaxy Note III Phone so I could vote up/down new product ideas and discuss Orvis merchandise with other Orvis fanatics".

There are three movements worth paying attention to.

The first movement is sold to us folks who depend upon Judy - and when you go to NEMOA, look around the room - half of the audience will represent vendors/suppliers who depend on catalogers to harvest profit from Judy before she retires.


As Judy's behavior changes, vendors/catalogers try to adapt. Judy uses a tablet, I get it, she loves playing Candy Crush. That doesn't mean that Judy wants to transact via a tablet, and it sure doesn't mean that she wants to thumb through a virtual catalog on a tablet. Judy loves catalogs. She even transacts over the phone. It is not uncommon for New England centric catalogers to generate 30% or more of transactions via the telephone.

Most of what you will hear at NEMOA this week centers around how to adapt (#omnichannel) to the changing behaviors of a 61 year old customer.

There's another component to the "Judy Movement". Many catalogers strongly believe that when Jennifer get to the year 2025 or 2030, she'll exhibit behaviors similar to Judy, leaving catalogers in a strong position to become the "go-to" source for customers nearing retirement. This is a theory, of course. Do you get in the car and shop at Montgomery Wards, or Gimbels, or Mervyns, or Kresges - do you still buy from a 600 page Spiegel catalog? Each generation seems to have preferences. Think of Amazon, for instance.

Speaking of Amazon, the second movement involves Jennifer.


By and large, catalogers hate Jennifer. When I presented at NEMOA two years ago, and I introduced her persona, there was an audible, unsatisfied groan. "We don't want to market to her, all she cares about is free shipping and low prices" is what one Catalog Executive said to me about Jennifer, after my session ended.

Do you realize that Amazon will pass $100,000,000,000 (yes, billion) in annual sales, soon? I had a smart catalog Executive leave a comment on my blog, suggesting that without catalogs, it is not possible to build a large direct marketing business. To which I responded, "how do you explain Amazon"? I should have added eBay, Newegg, Overstock.com, Groupon, NoMoreRack.com, Fab.com, Nasty Gal, zulily, PetFlow.com, JackThreads.com, One Kings Lane, eBags, Vistaprint, Rakuten.com, Gilt Groupe, Blue Nile, RueLaLa, Vitacost.com and countless others! I'm not sure why we choose to ignore facts that are right in front of us, in plain sight. Jennifer chooses different brands than Judy chooses.

By ignoring Jennifer, we cut off the bottom of our demographic profile. This makes Judy look appealing to the co-ops - to the point where the co-ops only offered us customers like Judy (go take a look at a demographic report from your favorite co-op for proof). The feedback loop isn't going to turn out well.

The third movement surrounds Jasmine.


Catalogers love Jasmine. When I spoke at NEMOA two years ago, the audience lit up when her persona was introduced! Jasmine, of course, is the generation of children of Baby Boomers, so it makes perfect sense that long-time catalog veterans might embrace Jasmine.

There's a bit of a problem, however, with Jasmine, as it relates to "The Omnichannel Circus".

When you hear folks talk about Omnichannel, you're really hearing about ideas that bridge Judy and Jennifer. The ideas that bridge Jennifer and Jasmine are not omnichannel in any way we're familiar with (though maybe the ideas are a fair representation of what omnichannel might truly become, if it becomes a valid concept). I find, repeatedly, that businesses leaders who cater to Judy have a very hard time marketing to Jasmine - they love Jasmine, but they don't know how to market to Jasmine. They apply tactics to Jasmine, and the tactics usually fail without a cohesive story that speaks to Jasmine, and more importantly, the tactics fail miserably without merchandise that is relevant to Jasmine. It is terribly, terribly hard to execute an omnichannel strategy selling Judy-centric merchandise to anybody but Judy. Omnichannel fails miserably if the merchandise isn't aligned with Jasmine. Nobody seems to want to talk about this. 

It's time to talk about this.

One member of Jasmine's generation recently told me, "if something is important, it will find me". She's not talking about a catalog finding her in the mailbox. She was talking about the products she purchases, and how she finds out about them (word of mouth). Take a few moments, and look at the apps that sell on Apple's App Store. These things come from out of nowhere, with no traditional marketing (marketing that Judy or NEMOA attendees would recognize). The viral "growth hacking" structure of Jasmine-centric marketing and community building is completely foreign to most catalogers.

When you attend your favorite session at NEMOA this week, separate the tactics you hear (which will work to some extent in the short-term) from the strategy you must employ.
  1. Who is your customer?
  2. Do you offer merchandise that appeals to your customer?
  3. Given that your target customer wants to buy your merchandise, how might you sell the merchandise to your customer?
You'll find that the 1/2/3 framework above is much less complicated than omnichannel is, and much more profitable.

March 09, 2014

NEMOA - JOIN ME ON THURSDAY - AND A SPECIAL OFFER!

Fun fun fun, folks - I will be at NEMOA on Thursday!

The first eight companies to meet with me on Thursday get an autographed copy of my Hillstrom's Merchandise Forensics booklet (I know, I know, pinch yourself)!

Just as important - I will be handing out "Hillstrom's Hot Sheet" --- a one-page summary of all the important issues in modern cataloging. It's your guide to the "omnichannel circus", and the data is actually backed by findings from more than 110 client projects spanning multiple industries on a global level.

We can talk about your current project, or an upcoming project you wish to work on. Right now, the three most popular projects are, of course:
  • Hillstrom's Contact Strategy (click here) - assigning the right number of catalogs and emails at a customer level, given your existing paid search investment strategy.
  • Hillstrom's Merchandise Forensics (click here) - where 80% of the 25 projects I've worked on in the past 18 months highlight serious new product or existing product issues that are dragging the business down. Merchandise - not #omnichannel, is the primary driver of cataloging success.
  • Attribution and Clario Contact Evaluation - in the past year, I've been called upon numerous times to thoroughly explain to Clario's clients how Clario actually mails housefile buyers. I use proprietary reporting and modeling to uncover the myriad ways that Clario makes mailing decisions, and I incorporate my attribution routines to determine optimal strategies.
So contact me immediately (kevinh@minethatdata.com), and secure your autographed copy of "Hillstrom's Merchandise Forensics".  See you Thursday!