Dear Catalog CEOs: Decoupling of Demand

Dear Catalog CEOs:

It's happening ... and it's happening largely opposite of what you were told.

I remember being at Eddie Bauer, way back in 1998.  Our e-commerce business went from a million in 1996 to something like five million in 1997 to about fifteen million in 1998.  We observed a funny thing about that fifteen million in demand in 1998.

• It was heavily skewed to male-gender merchandise.

In other words, the demand generated online reflected the audience that was using the internet in 1998.  And when demand launched toward sixty million in 1999, well, those thoughts went out the window.  Demand was more reflective of total direct channel demand, and the concept of "multi-channel integration" was born.

That's what folks focused on.  Integrate the business.  Make everything the same, same merchandise, same offers, same creative ... same same same.

This made sense (to some) as the baton was handed from old-school cataloging to modern e-commerce.

But once the baton was formally passed, a funny thing happened.

The trends that we observed at Eddie Bauer, way back in 1998, have reappeared ... in reverse.

E-commerce now dominates the share of demand generated by the vast majority of catalogers.  But go take a look at the items that customers shopping your call center purchase.

You remember your call center, right?  It's the building with old-school corded phones that took in 90% of orders in 1996 ... that same building that now captures 2% to 22% of orders today (unless your customer is June, of course).

Rank-order all items that sell at your contact center ... first to number one hundred.  Then compare those items against the top-selling items from your pay-per-click program, or the top-selling items from your email marketing program.

Yup, they're different.

In other words, we're in the process of decoupling demand.  All of the integration activity of the past ten or fifteen years is becoming much less important, as small tribes of like-minded customers pick and choose the channel that they prefer.

This is our future ... it's opposite of what we were told.  Small tribes of customers, with unique preferences, shopping the way they want to shop, buying the merchandise they want to purchase.  Our job, of course, is to respond to this trend in the most profitable way possible.  

Sameness seldom results in the most profit.

It's time to get busy serving unique cohorts of customers.

Dear Catalog CEOs: The Distraction Advantage

Dear Catalog CEOs:

Your competitors are being seriously distracted.  This gives you a major advantage, the first time you've had a significant advantage over the competition since the late 1990s.

Retail:  Retail executives are being told that they must digitize the physical store experience.  Oh boy.  Do you honestly think there is one clear, easy path to accomplishing that?  Vendors/Management Consultants will say "yes, it's called omnichannel!!!"  You could spend a decade trying to do this, with a low probability of success.  Retailers will spend a decade trying to do this.  Channels will trump merchandise for the near future, based on what we are reading.

E-Commerce:  E-commerce executives are being told that mobile will revolutionize their business.  Well, that's partially true.  If your core customer is 45, no, mobile will not revolutionize the business in the short term.  Long-term, mobile will create the same problem for e-commerce that e-commerce caused for catalogers.  It's the way the world works.  Either way, some Vendor/Management Consultant will tell you they have the solution, and e-commerce folks will be distracted/frightened.  eBay mentioned mobile 127 times in the Annual Report (click here), they mentioned omnichannel 0 times.  Mobile is going to obliterate e-commerce (among customers age 18-40) in the way that e-commerce obliterated catalog marketing.  It's going to be interesting to watch, no doubt about it.  It's going to be a distraction.

Any time your competitors are distracted, you have a major advantage.

Catalogers, you have a major advantage today.

You already know that you have to make a choice.

1. Double-down on the Baby Boomer customer, and ride the gravy train into retirement.
2. Make strategic changes to migrate the business model, over the next five years, from Judy (age 60) to Jennifer (age 44).

You get to spend the next five years implementing either choice.

Your competitors get to think about how to "digitize" the omnichannel experience.

Take advantage of this opportunity.

Dear Catalog CEOs: Online Education

Dear Catalog CEOs:

I recently viewed a roundtable discussion about the future of education, six people, all over the age of 50, predicting the future.  The core of the discussion was this:

• Online education is the future.
• Online education, and simulations, are fun!
• We're embracing the future of education.
• Nothing replaces the experience of a campus-based experience.
• Nothing replaces in-person discussions with a professor.
• In a blended model, with online and on-campus, the results (high grades) are potentially much higher.
• You need a teacher to generate the motivation factor for students.
• Great teachers are necessary, they must inspire the student.
• The future is the integration of online education with the teacher, and the campus experience.

What does this sound like?

OMNICHANNEL!!!

Catalogers, of course, went through this evolution ... ten years ago ... then called multichannel.  Just integrate the online experience with the offline experience, and the customer will reward you with riches.

Did it work?  The winner was Amazon.  No catalog.

If you are the incumbent, you seemingly have no choice but to sell a vision of the future that tethers old-school tactics to new technology.

There are many great things about being a cataloger in 2013.  I'd much rather be a cataloger in 2013 than in 2003.  A decade ago, there were no rules, so every expert under the sun was telling you what the "new rules" were.  Today, there aren't many people telling you what you have to do.  You have a ton of latitude to be creative.  What a blessing!

In the roundtable discussion, Tom Friedman said that the panel was selling "Altavista" in the late 1990s.  In other words, the panel was discussing a solution, while the real solution (Google) would eventually arrive, and be different.

This is what is great about cataloging today.  In e-commerce/retail, omnichannel is Altavista.  E-commerce/retail is being distracted, strategically. 

In cataloging, you've been through this transition ... so you get to focus on merchandise and demographics, the stuff that is important.  The payoff of this strategic focus is coming.  Get ready!

Dear Catalog CEOs: Urgent Call To Action

Dear Catalog CEOs:

It's a lazy Friday, and then, all of a sudden, the emails pour in from the vendor community.

• Subject Line = "URGENT CALL TO ACTION: ACT NOW TO SAVE YOUR BUSINESS".
• Comments:  "POSTAL, TAX CRISES GO FROM BAD TO WORSE, CATALOGERS MUST BE HEARD FROM TODAY".

The original email message comes from the ACMA, an organization trying to protect your future via lobbying efforts.

Unfortunately for the ACMA, almost no catalogers pay the nominal fee to support the ACMA.

Let's tackle two problems.

Sales tax.

It's unimportant.

I worked at Eddie Bauer and Nordstrom - it was my job to analyze the impact of sales tax collection on e-commerce / catalog transactions when we opened a new store in a state where we previously did not have a store.  Yup, you open a store in Omaha, and you have to collect sales tax on e-commerce transactions in Ogallala.  Not Council Bluffs, just a mile away, mind you, unless you have a store in the Quad Cities, five or more hours to the east.  Fun stuff!

After about 90 days, sales rebounded to normal levels, and did not change.

I've analyzed this issue under the MineThatData umbrella - no impact.

If retailers can collect sales tax and not experience a sales decline, so can you.  It's not the end of the world to manage a table of 45,000 zip codes with unique sales tax rates.

In other words, don't listen to the hype and dire predictions.  It's nonsense, validated by data ... Amazon doesn't struggle in Washington State, and your sales won't struggle, either.  If you have data to counter this, please present a white paper to me (email me by clicking here), and if the math is credible (i.e. not a survey of 994 likely customers conducted by a research firm), I'll publish it for 3,000 blog subscribers and 4,600 twitter followers to evaluate.

Issue #2 - postage increases.  Here's the thing - welcome them!  When the increases come, you cut back on circulation among Jennifer/Jasmine, you barely lose any sales, you increase profit, and you reinvest the profit in the online future of your business.  How is that a bad thing?  Your vendors raise prices on you, and you deal with that without lobbying Congress.  If the USPS jacks up rates, stick it to them - mail less - mail much less.  Reinvest the money on Jennifer/Jasmine, and build the online future of your business.

Instead of acting out of fear, why not act out of a position of power?

You have power, not the folks the ACMA is lobbying to.

You decide where to invest your marketing dollars.

Invest in the future of your business.

And if you believe in catalogs as your preferred marketing channel, then why the heck aren't you investing in the ACMA?

Dear Catalog CEOs: Newspaper Paywalls

Dear Catalog CEOs:

Sometimes you need to focus on a different industry, in order to gain insight into your own industry.

Give this article about newspaper paywalls a quick read (click here).  Pay attention to a couple of interesting metrics.

• More than two-thirds of regular newspaper readers are over the age of 45.
• The average age of a newspaper reader is 57 years old.
• The average age of the online newspaper audience grows one year older as each year passes.
• "Unless those demographics turn around, it's only a matter of time before the audience dwindles to a size that is no longer economically sustainable."

As a catalog business leader, would you come to a different conclusion, when reviewing a different industry (newspapers)?  Probably not.

Fast forward to the catalog industry, where the trends, on average, are terribly similar (though nobody seems to want to talk about it, for obvious reasons).

This fact gives us two, equally valid options:

1. Ride this trend out to a logical conclusion, extracting profit until our customer audience is no longer economically viable.
2. Use the profit generated by the existing, 55+ customer audience to slowly build a new customer file based on a younger demographic, testing new ideas along the way.

We need to have an honest discussion about (1) and (2).  We're currently treading water.  We need to pick which side we belong to.

Sit down with your co-op rep this week, and have this discussion, as the co-ops are the primary customer acquisition vehicle pushing our industry into a demographic corner.  Better yet, sit down with your Executive team, and discuss this issue with them.

Dear Catalog CEOs: Team Chemistry

Dear Catalog CEOs:

Think back, over the course of your career.  How many times would you say that you worked in an environment that possessed great team chemistry?

It was easier to generate team chemistry in 1993 than it is in 2013.  Especially in marketing.  It's hard to have great chemistry when so many functions have been outsourced.

• You used to have a customer acquisition department.  Now you ask Abacus to give you a bushel basket full of 61 year old prospects.
• You worked with your IT team to maintain an in-house customer database.  Now, you outsource your database to Merkle, your web analytics to Google.
• You used to hire a statistical programmer, who knew your customer and your merchandise assortment inside and out.  Now, you outsource statistical modeling to Clario.
• You used to have an entire team that performed catalog circulation housefile planning.  Now, you have one person.  Tough to have team chemistry with one person involved.

In marketing, we know that when you double marketing spend, you fail to double sales, correct?

When you have team chemistry, 1+1 = 3.  You know this if you've worked on a team that has great team chemistry.

It has become really difficult to produce a great outcome in catalog marketing.  Who is accountable?  Remember the old days when the Chief Merchant would light up the entire marketing department for perceived incompetence?  How is s/he going to do that today?  Is s/he going to get on a plane and yell at a vendor?  Conversely, how is the statistical analyst at Experian going to hold the Chief Merchant accountable for perceived poor performance?

One of the reasons we catalog brands are in an demographic-fueled spiral (customer base aging rapidly) is because we don't have teams anymore.  How could a group of individuals learn, understand, synthesize, and act upon a complex demographic transition when the team is spread across numerous companies with varying levels of accountability?

In a quest to minimize expenses and pursue best practices, we've neutralized the one area where 1+1 = 3 ... team chemistry.

When did we decide to devalue the importance of people?  Maybe it was 2001.  We decided that people had to be slaves to "multichannel".  Today, people must be slaves to "omnichannel".  We're told that people must work together, in order to link channels together, even though nobody can prove that profitability increases when we accomplish this herculean task.  We teach employees that they should squelch creativity in an effort to appease channels.  What's wrong with us?

Why don't we demand that people work together to benefit people?

Discuss.

Dear Catalog CEOs: Cannibalization

Dear Catalog CEOs:

One of the most interesting aspects of marketing, unique largely to catalog and email marketing, is the concept of cannibalization.

Simply put, when you fail to market during one timeframe, you lose sales, but sales also shift into other timeframes.

Take a look at this:

The second test group did not receive a catalog in the second month.  When this happened, demand moved out of the second month, and moved into the third month.

Similarly, when catalogs are not mailed at all, customers still spend 50% of the demand they would have spent otherwise (this is known as the "organic percentage").

Look at the last row ... send 0 catalogs, get $0 of catalog-attributed demand.  Send 2 catalogs, and you don't get $12 (as one might expect), instead, you get $14.  This is a classic case of catalogs cannibalizing each other.

Twenty or more years ago, when I worked at Lands' End, we measured the living daylights out of cannibalization.  Twenty years later, you're hard-pressed to find a cataloger who understands cannibalization.

Execute a test and measure it for yourself.  You'll be fascinated by what you learn.

Want to implement cannibalization findings into your business?  Contact me (click here) for your Catalog/Email PhD Project.

Dear Catalog CEOs: Answers To Your Questions

Dear Catalog CEOs:

Last week, I asked you to submit questions that you wanted me to answer via a blog post.  You responded!  Let's address your questions.

Question:  How will Big Data impact my catalog business?

• There are several answers to this question.  First, you've been using Big Data for twenty years.  Co-ops are Big Data, always have been, always will be.  This means that the behavior of your competition dictates how your business evolves.  When your competitors do well, especially within certain product categories, your business is influenced as well.  Big Data, a generic information technology term, suggests that what we've observed in catalogs will now take over mobile and social, but much faster.  In other words, when catalogers / co-ops interact, the impact is almost glacial.  When data providers harvest social/mobile activities in real-time, your business will evolve faster.  By the way, 90% of what you hear/read about Big Data is going to be completely meaningless.  Look for depth of meaning in what you read.  Finally, look for actionable information ... just because your customer is within 1.0 miles of your retail store doesn't mean the customer wants a 10% off notification to visit your store.

Question:  Do I have to worry about Amazon?

• The answer, quite honestly, is that we had to worry about Amazon from 2000 - 2005.  We largely ignored Amazon during this timeframe.  Now, it's almost too late to "worry". I want you to think about something for a moment.  You ask me how you should calibrate free shipping offers (hurdle, no hurdle, channel-specific, with or without a percentage off).  Amazon gets customers to pay $79 (or whatever the number is) for shipping a year in advance of any possible purchase.  You are trying to figure out how to give shipping away.  Amazon has figured out how to charge the customer for shipping before purchases have ever been placed.  It's time to pick another fight.  I know, this isn't the easy, tidy answer you were looking for, but there are many ways to attack giants.

Question:  Can I sell merchandise that isn't featured in my catalog?

• You bet!  Go analyze your mail/holdout tests.  You execute mail/holdout tests, right?  Right?!  Analyze items featured in catalogs, comparing mail/holdout performance.  Then analyze items that only appeared online during that timeframe, comparing mail/holdout performance.  Many of my clients find that between 10% and 40% of incremental demand comes from items that did not appear in catalogs.  The job of the catalog, in 2013, is to stimulate purchasing, and to tell a story.  Your job is to find items that stimulate purchasing, and to find items that tell a story.

Question:  What benefits do you get when you re-purpose offline marketing on tablets?

• This is a multi-step process, and the process benefits the employee and the company.  From an employee standpoint, do you remember 1996 - 2000?  This was a time when e-commerce accounted for almost nothing.  And yet, those working in e-commerce put in 10,000 hours.  This became an insurmountable experience difference between 2001 - 2005, when the e-commerce folks took all the good jobs at catalog companies.  Employees need to test channels like tablet commerce.  If the channel ever takes off, the employee is the subject matter expert.  In our modern economy, you MUST be the subject matter expert at something.  From a company standpoint, the current iteration of tablet commerce is not going to last, regardless what your printer or vendor tells you.  Somebody is going to figure out HOW to sell on a tablet at scale (i.e 10% or more of annual sales).  The form (current website, tablet website, mobile website, app aggregators like CoffeeTable and Catalog Spree) will be decided by the customer.  You can wait until the battles have been decided, or you can jump in with low risk and use analytics to learn as much as you can about how customers interact with a hybrid of your catalogs and technology.  Go learn something!  Go learn something that might be applicable to other channels.

Question:  What is the appropriate email contact frequency?

• The individual asking this question links us to this article (click here).  Here's the thing.  Out of 100 projects, I can't think of 10 where somebody told me that they've tested email marketing frequency and know the optimal number of email messages to send to customers, on a weekly basis.  When I apply my findings, it is common to learn that a business under-mails - it sends one campaign a week when it could send three a week.  Of course, there's a law of diminishing returns here ... $0.20 for the first campaign, $0.10 for the second, $0.06 for the third ... but why not get the additional $0.16?  But make that decision after doing a few tests ... it only takes a month and you'll have the answer.  And if critics get upset, test for a year and satisfy them, why the heck not?
• Here's another way to think about this ... folks will tell you that you can't have opt-outs. Let's assume that you go from one campaign a week at $0.20 each, to three campaigns a week at $0.12 each.  You've increased demand from $0.20 a week to $0.36 a week ... or by 80%.  Eighty percent!  This means that if you lost more than half of your email file, you'd still generate more sales at 3x contacts a week.  Just do the math, folks.  Do the math!

Question:  How do I perform a square inch analysis in the age of the internet?

• You don't.  That train left the station in 2005.  Perform a quarterly profit and loss statement by item, factoring in all advertising channels and marketing spend.

Question:  How does the omnichannel movement impact catalogers?

• The omnichannel movement is going in two opposite directions.  First, retailers are going to encourage omnichannel as a way to drive customers into stores.  Long-term, retailers may have challenges (high debt + tepid sales = low profit), so they will leverage every possible channel (hint - mobile + social + big data) to push customers into stores.  That's the first half of the movement.  The second half of the movement comes from online marketers that now realize just how little customer behavior they've actually measured in the past decade.  Their omnichannel objective is to align strategy across channels (like catalogs & retailers a decade ago in the multichannel movement), and then measure every single customer breadcrumb.  They're going to learn that 95% of the breadcrumbs are stale, and useless!
• From a data standpoint, omnichannel will impact Jasmine more than anybody.
• For Judy, omnichannel is likely to have little meaning.  Judy, at age 60, isn't going to be using six digital devices before buying in-store after receiving a relevant email marketing message.
• In other words, omnichannel is the e-commerce / digital version of multichannel, and is more likely to impact Jasmine, not Judy ... and therefore, be of less importance to catalogers who already integrated operations and creative.
• That being said - ask good questions.  Did your business explode when you aligned channels?  Not many did.  Keep an eye on those who claim to be making omnichannel progress, and ask them to validate results via sales/profit data.

Dear Catalog CEOs: Input!

Dear Catalog CEOs:

A brief message today - your input is welcomed.  Send me an email message (click here please), and let me know about a blog post you'd like to see me write.  Any topic, a topic that you think would help your business and help other catalogers as well.  Pick the topic, and send me an email message.  Next week, we'll address at least one of your questions.

Thanks,
Kevin

Dear Catalog CEOs: Do Multiple Channels Yield More Orders?

Dear Catalog CEOs:

One of the popular arguments of our time is the "multichannel/omnichannel customers are more valuable" argument, trotted out with increasing frequency by vendors and trade journalists who have a vested interest in convincing us that we can seemingly grow customer frequency infinitely.

This is a graph of the average number of orders per buyer per year for a "multichannel business".  The graph starts in 2001 and goes through the end of 2012.  Think how few channels existed in 2001.  Think how many channels exist at the end of 2012.

What do you observe?  The customer places the same number of orders per year, year after year after year - regardless of the explosion of channels between 2001 and 2012.

Run the analysis for your business.

You're going to learn that your customers have a natural rhythm ... they place the same number of orders per year (within a band) ... this order rate is directly correlated with the annual repurchase rate of your twelve-month buyer file.  These numbers do not change, they are fundamentally tied to the merchandise you offer (i.e. groceries are needed weekly, gifts are needed infrequently).

When you learn that this is the way the world works, a few things become painfully obvious.

1. Unless customers buy merchandise more than 4 times a year, loyalty programs are largely futile.
2. Customers who buy more than 4 times a year touch many channels - not because of the channels you offer, but because of the purchase frequency inherent in the merchandise your offer.
3. For 70% of businesses, the main driver of future success is low-cost customer acquisition programs that are maximized.

Run the analysis for your business.

Then craft strategies that align with the natural purchase rhythm of your business - and remember, the natural purchase rhythm of your business is determined by the merchandise you offer, and the frequency with which your customer needs your merchandise.

Dear Catalog CEOs: Sixth Anniversary Of MineThatData

Dear Catalog CEOs:

I started MineThatData six years ago this week.

Wow.

Show of hands ... how many of you thought I'd make it six years?  Most of you?  Good.  Because when I told folks I was starting my own business, the feedback was interesting.

• "Good for you, you're starting your own business, well done! ........ You said you're going to market your services with a blog?  Oh boy.  That's not going to work ........ What you do mean, you're going to give your methodologies away, for free, on your blog?  How does that work? ........ Wait a minute.  You're saying you're going to share everything you know for free, and then companies will pay you to do the very thing you just taught them to do on your blog? ........ Kevin, you know that nobody reads blogs, right?  People read MultiChannel Merchant, not you! ........ What do you mean, you'll build an audience, one subscriber at a time?  Tell me how you're going to do that, are you going to take out ads in DMNews? ........ Wait, you're not going to pay for marketing, people are just going to magically find you via word-of-mouth, or via Google?  You almost sound like one of those social media experts ........ You'll be working for the co-ops in a matter of months, they offer health insurance, your certainly not going to pay $1,500 a month for the right to enjoy a $3,000 per year co-pay, that's terribly expensive, especially when you're giving all of your knowledge away for free. ........ What services are you going to provide, anyway? ........ Multichannel Forensics?  Who needs that?  We already know customers who buy from multiple channels are worth eight times as much as single channel customers are.  Look at companies like Circuit City, they offer buy online and pickup in stores.  They have a multichannel approach that will crush Amazon. ........ Wait, did I just hear you correctly?  Did you just say you're going to tell catalogers that they can mail fewer catalogs and be much more profitable?  Oh, you're a piece of work.  You're going to tell catalogers to be more profitable by mailing less.  That's not how the world works. ........ Kevin, Nordstrom discontinued a catalog and grew sales because they are a retailer with a one-hundred year heritage, that won't work for anybody else. ........ no, Kevin, it doesn't matter what you experienced there, it is irrelevant. ........ the co-ops tell us to mail more. ........ What do you mean, co-ops have a vested interest in telling us to mail more catalogs? ........ What do you mean when you say that someday the USPS might be insolvent and it won't be cost-effective to mail catalogs anymore? ........ No, nobody would ever threaten to take Saturday mail delivery away. ....... Did I just hear you correctly?  You're recommending that catalogers focus on acquiring new customers?  Don't you know that it costs eight times as much to acquire a new customer as it costs to retain a customer? ........ You have a 5-year forecast model that proves your hypothesis?  Sure you do!  Who are you, Carnac the Magnificent?  ........ Are you saying that if we keep retaining the same customers, we'll end up with a customer base that is heading toward retirement and that's a bad thing? ....... These ideas are nuts.  You'll be lucky if anybody hires you. ........ Wait, what?  You're saying you'll charge less than vendors or industry consultants?  That's your business model?  Give away all of your intellectual property for free, then for the handful of people who do want to pay for your services, you'll charge less than everybody else charges?  I've heard enough.  You're nuts.  I'll put in a good word for you with the co-ops when you're homeless in a year. ........ No, Kevin, housing prices always rise, go look at the historical trends and make a data-driven decision. ........ Ok, good luck, you're going to need it!"

After 2,311 blog posts, 323,000 unique visitors, 14,500 tweets, 100+ brands analyzed, six years, nearly 3,000 blog subscribers, 4,530 Twitter followers, 2 books, and 9 booklets, I'm still standing, better than I ever did.

Thanks to my clients.  You believed in me.

Thanks to those of you who subscribe to my blog.  You, too, believed in me.

Thanks to those of you who follow me on Twitter.  That's where we ferret-out new ideas.  It's been a priceless experience.

Three hundred and twenty-three thousand unique visitors to the blog.  That's not a trivial number.  I thought you couldn't make a blog work that gives ideas away for free?  70% of my business is sourced from the blog.  Think about that, for a moment.

If I am going to make it six more years, I'd appreciate some feedback.  What do you need to learn about or understand?  What services should I provide for you?  What content do you want to read (for free, of course)?  After three million page views, we'll need to innovate going forward, so please use the comments section to provide feedback.

I appreciate your patronage.  I do not take your loyalty for granted, not for a moment.

Thanks,

Kevin

Dear Catalog CEOs: More Valuable

Dear Catalog CEOs:

I've yet to meet a business leader who turns down customers who are "more valuable".

On the surface, we look at all of the channels in this image, and we think "if the customer touches more of them, then the customer must be more valuable."

Maybe.

Think, for a moment, about your relationship with your favorite restaurant.

I'll bet you have a favorite dish.  At one restaurant, I have to order calamari ... can't help myself!  And I'll cycle through main dishes, with two or three favorites, and others I'll enjoy on a whim.  My relationship is with the restaurant.  Each item on the menu is similar to a channel.  Each time I visit the restaurant, the odds of me trying something different increase.

This is where we get the relationship wrong.  A customer likes our brand.  The customer manifests this gratitude via channels.  We simply measure gratitude incorrectly.

Don't view channels as the end result.  The customer likes you, and one of the symptoms of gratitude is use of multiple channels.  You don't necessarily create gratitude by forcing the customer to use more channels.

Dear Catalog CEOs: Crunchy Peanut Butter

Dear Catalog CEOs:

Recently, we had a guest in our home.  To protect the innocent, I'll adjust the story just a bit.  This person wanted to eat breakfast.  He looked in our cupboard, searching frantically for something.  Then he turned, looked at me, and said the following:

• "You don't have crunchy peanut butter?  You're telling me that you don't have any crunchy peanut butter in your home?  None?  How is that possible?  It's a staple!  Everybody has crunchy peanut butter in the cupboard.  Everybody!"

Breakfast was ruined.  It wasn't like the guest didn't get a meal, mind you.  It was just a meal without crunchy peanut butter.   

As they say on Twitter, #firstworldproblems.

We have #firstworldproblems in marketing, too.  We must have #omnichannel in our cupboard.  Omnichannel is the crunchy peanut butter of 2013, replacing big data, which owned 2012.

Back in the day, it was email marketing.  Or banners and affiliates, or even comparison shopping engines.  Then it was search. Then multichannel.  Oh, you couldn't live without multichannel, just ask Circuit City.  Then MySpace.  Then podcasts, because everybody is dying to listen to a twenty minute show about the myriad benefits of extended warranties.  Then Second Life, you had to set up a virtual store or you'd be left behind, right?  Then it was the "long tail", just reap the rewards of the long tail!!  Then Facebook.  Then Twitter.  Then QR codes.  Then retargeting.  Then mobile.  Then tablet commerce.  And here, in 2013, we realized that you can't just have all of those strategies buried in silos, you need to fuse them together ... call it omnichannel!

All you have to do is integrate every single aspect of your marketing plan ... same creative ... same promotions ... same merchandise ... and then make sure that, from a marketing standpoint, you execute every single possible tactic ... everything!  Might be close to impossible, and there's absolutely no proof that sales will increase on an annual basis if you do it (contact me by clicking here if you know of a business that saw a 10% sales increase across one full year by adhering to multichannel/omnichannel strategies).

Omnichannel is like crunchy peanut butter --- you have to have it!

In the parable at the start of this post, the guest still ate breakfast.  He didn't go hungry. 

If you don't employ a thoughtful omnichannel strategy, there's no proof that you won't be as profitable.  None.  No proof that you'll miss a meal.

Instead of being "omnichannel", why not focus on merchandise that your customer needs?  Why is marketing strategy so separate from merchandise strategy?

Dear Catalog CEOs: Clario

Dear Catalog CEOs:

I wouldn't need to address this topic if it didn't keep coming up.

• "We're looking to cut back on catalog expense.  We don't know whether we should choose you, Kevin, or Clario Stream?  The Clario folks sound impressive, but the content on your blog is also impressive.  Help us make the decision."

This is a funny question (came up three times in one day last week).  Most of my clients hire me outright (they call, we talk, they choose me on the spot).  About 25% of my potential clients demand an RFP, then compare me to other vendors.  Frequently, I'm told that I beat Clario, or Clario beat me.

In other words, Clario is my #1 competitor.

How do you treat your #1 competitor?

I'll tell you how to treat my #1 competitor ... hire 'em!!

If your goal is catalog contact optimization, they will do a fantastic job for you.  Clario applies cannibalization rules (if you don't agree with the concept of cannibalization, don't work with Clario, it's the secret sauce that makes their methodology work) to your contacts, at a customer level ... they model customer response, and they turn circulation selection into a turnkey, cloud-oriented process.  They'll make you a fortune.  You'll barely have to do anything.

I've been hired a few times to evaluate Clario's performance.  In each instance, I strongly defended Clario - and remember, these companies could easily have chosen my algorithm over Clario's and probably would have had I not been kind - but if your competitor is doing a good job, you need to praise the competitor, publicly ... it's an outcome of having faith.

There are consistent criteria where companies hire me instead of Clario.  I'll document what those criteria are:

1. Client wants control over catalog circulation, doesn't want a black-box solution.
2. Client wants accurate forecasting of demand at a catalog level, and at an annual level.
3. Client wants accurate measurement of sales driven to retail, paid search, email, online, affiliates, mobile, across different catalog optimization strategies
4. Client wants simulations of marketing/merchandising interactions.
5. Client wants a five-year forecast model that illustrates where a business is headed if major catalog circulation changes are made (by the way, I've been hired to forecast the long-term impact of Clario's decisions ... those are fun projects).
6. Client wants to thoroughly understand the interaction between marketing strategies and merchandise category performance.
7. Client wants to know the % of sales that will still exist online if catalogs are discontinued.
8. Client wants to know the % of sales that will still exist in stores if catalogs are discontinued.
9. Client wants to know the proper customer acquisition investment strategy to grow the business.
10. Client wants geek-free communication ... no technical terms.
11. Client wants to know the impact of pricing strategy on marketing investment.
12. Client wants an easy and actionable "grade" to put in the database ... A/B/C/D/F ... a grade with circulation intelligence built-in.

As you look through the list, something becomes very clear.

• Pick Clario if you want the very best contact optimization algorithm.
• Pick Kevin if you want highly profitable contact optimization algorithms coupled with ad-hoc customized requests, channel knowledge, an in-depth understanding of "why" things happen across channels and merchandise categories, and a forecast of the future.

Either way, you're making a smart choice.  It's really just an issue of what you are looking to accomplish.

Thoughts?

Dear Catalog CEOs: Your Annual Physical and Prescriptions

Dear Catalog CEOs:

I had my annual physical in December.  For just $400, you get to learn about all the unique ways you're destroying your own health.  For instance, did you know that it is bad for your health to eat an entire pan of Special-K bars in one sitting?

My doctor says my cholesterol is too high.  He'd like for me to exercise more, to lose weight, to eat more vegetables.  He wants me to stay away from Cheetos, 24oz prime rib dinners, and chocolate frosted brownies.  He said if I do those things, my cholesterol will go down, naturally.

Then he wrote the script for a drug similar to Crestor.

Problem solved!

What does this have to do with your business?  Everything.

When we belly-up to the Abacus bar and order 1,500,000 prospects at $0.06 each, Abacus is writing us a script for Crestor.  When our email subject lines offer 30% off plus free shipping, we're putting on weight, we're not running a lean, trim business.  And when we offer a loyalty program instead of doing the hard work to acquire new customers the old-fashioned way, we're not exercising our marketing muscles, are we?

At some point, we have to look in the mirror, and ask ourselves if this is the way we want to live?

I know, I know.  Who wants to follow doctor's orders?  Exercise?  That's like acquiring customers via word-of-mouth because our products are so highly desired that people cannot stop talking about them!  Diet?  That's like selling merchandise at full price - it's more fun to sell merchandise at 30% off plus free shipping (nachos).  High Blood Pressure?  That's like a high ad-to-sales ratio ... it eventually causes a stroke, heart attack, or business implosion.

We'd rather comb through the trade journals, searching for Crestor.  Maybe there is an omnichannel pill we can take, one that will fix everything, right?  Let's just hope that somebody can solve all of our woes in 400 words or less, with three easy steps, preferably somebody with no client-side business experience.

We've been trained to seek the pill, the easy way out.

We need to get back to doing hard work.

I'm walking most days now.  Haven't had a chocolate frosted brownie in months.  Can't say the same thing for the Cheetos, however.  But it's a start.

Isn't it time we gave our business an annual physical?  And after seeing the results, wouldn't it make sense to start doing the hard work to restore business health?

Dear Catalog CEOs: Hillstrom's Catalog Attribution

Dear Catalog CEOs:

Many of you are asking about attribution projects.  Yup, I do them, do them all of the time.  A few years ago, this was popularly known as Hillstrom's Catalog PhD.

Today, you generally call the topic "Attribution".  Good for you!

Click on the link below. You'll see how I approach attribution. I lay everything out for you, for free.  If you don't want to do the work yourself, hire me, I outline pricing in the document.  

There's no magic in the document.  All magic comes with a price.

I describe ...

• How I use mail/holdout tests to determine attribution rules.
• How two customers with identical future value have dramatically different catalog value, based on attribution rules.
• The four steps required to predict how many catalogs to send to a customer, annually.
• The contact strategy grades I develop.
• The cost of an Attribution / Catalog PhD program.
• The files I need to complete the project.

Ok, click this link here to obtain a copy of a document that outlines how I approach catalog attribution.

Click here to contact me, so that we can get started on your attribution project.

Dear Catalog CEOs: USPS Shutdown, Would You Be Out Of Business?

Dear Catalog CEOs:

By now, you've had the opportunity to enjoy this little ditty about the possibility of the USPS shutting down in 2013 (click here for the article).

I'll bet 22,000 of you relish the thought of 535 Republicans and Democrats playing games while you await the death of your business because of their action or inaction.

And I know, the online folks will chide you for not moving your businesses online - for being dependent on paper, for killing trees - they'll tell you that you deserve this.  Remind them that their day of reckoning is coming ... it's called mobile.

But I digress.

You need to know what happens if your business is destroyed by our Government.  In other words, what the heck happens if you cannot mail catalogs anymore?

Do you know the answer to this question?  What happens if you cannot mail catalogs anymore?

For just $9,950, I'll answer it for you - click here to send me an email - and we'll get started solving the problem.

Here's a catalog brand.  Take a look at the customer file.

Click on the image for more details.  Clearly, this business is stuck, but at least it isn't in terrible decline like so many businesses.

Here's the profit and loss statement for this business.

Now, the business may not be growing, but it is printing money.  The owner is forecast to continue making at least $2.8 million per year, pre-tax.  Who wouldn't love that?  Yes, fixed costs are swamping the business, so the owner better figure something out, long-term.

But that's not what the owner is worried about, in the short term.  The owner is worried about the USPS shutting down.  So she asks me to show her what her business looks like in the next five years, if she's not allowed to mail catalogs anymore.

In order to perform this analysis, I have to figure out the organic percentage for this business, and I have to figure out how many new customers are generated because of catalog marketing.  Both metrics can be easily calculated (that's what I do for a living).

Then, we simulate the five year trajectory of the business, without catalogs.  Here's what the customer file looks like:

Oh oh.

A $32 million dollar business, without a corresponding increase in online marketing activity, becomes an $11 million dollar business.  Nearly half of the loss in volume happens in year one.  Look at new customers labeled as "Judy" 1x (one order) - without a catalog, we go from 13,128 newbies to 2,626.  Now look at newbies classified as "Jasmine" 1x (one order) - without a catalog, we go from 29,687 to 23,750.  The loss of the catalog isn't cataclysmic to Jasmine.

Over five years, the lack of a catalog essentially eliminates the presence of Judy and Jennifer in the business.  This business becomes a Jasmine-focused business, one that is a third as big as today.

That's what not having a catalog does to the composition of the customer file.

What happens to the profit and loss statement?

This is depressing, but surprising.  This company is not out of business.  In fact, for a short period of time, the business is highly efficient, generating 15.7% pre-tax profit ... of course, that's only $2.3 million of profit vs. $3.3 million under current circumstances.  But it isn't the death of the business, in the short-term.

In other words, our owner "has a chance".  If the USPS disappeared, her business would die a long, slow, painful death, but not an immediate one.  There would be time to craft a new business model.

This is the kind of information you must know ... this analysis must be sitting on your desk, for your entire Management team to observe, understand, and act upon.

This is the kind of information you must forward to the American Catalog Mailers Association.  How can you ask this organization to defend your business model without providing them with the appropriate information?

This is a simple simulation.  Find your data analyst, and demand that s/he perform this work for you.

Or hire me ... it's just $9,950, I'll knock the project out in ten days ... click here to contact me right now, this is what I do for a living.

I'm sure you agree ... you have to know this information.  Right?

Dear Catalog CEOs: Stubborn

Dear Catalog CEOs:

This is one of my favorite images.

Why?

Because this image tells us more than any trade journal article on omnichannel marketing could ever communicate.

You see, we're stubborn people.  Both catalogers, and the digital marketers purporting a social/mobile/local solution founded on big data.  Both are stubborn.  Terribly stubborn.

The catalog marketer wants to take the two Jasmine-esque individuals in this image, and teach them to love catalogs.  I know this, because you ask me this question all of the time ... "how do I get Jasmine to love direct mail?"  At a recent conference, an individual told me "if I get Jasmine to love direct mail, then I get to keep doing what I love."

The digital marketer wants to take the two Baby Boomers in this image, and teach them to "embrace the future".  I know this, because on Twitter, folks ask me "how do we get a Baby Boomer to embrace Facebook commerce? I mean, they're going to be left behind."

In the real world, we're all climbing into our own little niche-based pods.  The combination of 175 people I follow on Twitter aren't replicated anywhere.  The combination of 175 books you have on your Kindle aren't replicated anywhere.  The combination of 175 paperbacks that somebody has on a bookshelf are not replicated anywhere.  Your friend watches Once Upon a Time on ABC and calls you on a land line to talk about the episode ... meanwhile, 40,000 folks are using a "second screen" to chat about the episode on Twitter ... and you're oblivious to their discussion ... even though they're doing the same thing you're doing, just in the confines of a different niche.

In the real world, we're evolving, fast ... falling into tiny niches suited to our interests.

But in marketing, we're stubborn.  We demand that somebody else embrace what we're offering, and if they won't embrace it, we'll just discount it to the point where we lose money, but you'll embrace us.  

It's pretty obvious now, based on the data, that there are many different paths to the future.

For the cataloger, there's a 5-15 year window where, if we meet the needs of a Baby Boomer (Judy), we'll be very happy.  Tell me why that's a bad thing?

For the digital marketer, there's a 5-15 year window where, if we meet the needs of Jasmine, we'll be very happy before hologram marketing swamps everybody.  Tell me why that's a bad thing?

The bad thing, of course, is "omnichannel".  Instead of wasting so much money, time, and energy doing everything so that you appeal to an 18-88 year old customer, why not do what you love, and attract those who also love it?  Especially for catalog marketers, every dollar spent chasing dreams is a dollar that isn't spent generating profit.

Why be so stubborn?

Dear Catalog CEOs: Full Price

Dear Catalog CEOs:

I just ran a query for one of your peers ... well, not a query, but a model.  I'll simplify the model for you, so that we can all understand the message behind the model.

I analyzed first-time buyers in the past twelve months, modeling the amount of future demand these customers will generate.  There were only two dependent variables.

• Dependent Variable = Demand Spent Next Year (2012).
• Independent Variable = Demand Spent Last Year (2011).
• Independent Variable = 1/0 Indicator ... Did Last Year's Purchase Include A Discount/Promotion Code ... 1 = Yes, 0 = No.

Here's the outcome of the model (again, this is over-simplified to make a point):

• Future Demand = $28 + $0.220 * (Demand Spent Last Year) + $8.00 * (Did Customer Purchase Include A Discount / Promotion Code).

This company mails about 12 catalogs a year to this audience.  This company converts 45% of demand to profit.  This company produces catalogs that cost $0.50 each.  This company spends an average of $2 per customer on online marketing.  

This company utilizes 20% off promotions. 

• 10% of future demand among customers not historically using a discount/promo code are discount focused.
• 20% of future demand among customers who historically used a discount/promo code are discount focused.

We now have enough information to determine the future impact of discounts/promotions on this audience.  Let's assume that each customer spent $150 last year.

• Full Price Customer Future Demand = $28 + 0.220*150 = $61.00.
• Discount Customer Future Demand = $28 + 0.220*150 + $8 = $69.00.

So far, the discount customer is "worth more", in terms of demand ... 13% more.

• Full Price Customer Profit = $61.00*0.45 - $61.00*0.10*0.20 - 12*$0.50 - $2.50 = $17.73.
• Discount Customer Profit = $69.00*0.45 - $69.00*0.25*0.20 - 12*$0.50 - $2.50 = $19.10.

Oh oh.

On the surface, with all of your KPI-infused dashboards, you're increasing customer value by 13%.  Google Analytics tells you how successful you appear.  Great!  Except you're not successful.  You cut future profitability by 7%.

By the way .... this is a common outcome.  In fact, the outcome often looks worse than this.

Of course, you have to do the math to know this.

And almost nobody does the math.

Maybe this is a good time to do the math?  Or to hire me to do it for you (click here).


UPDATE 2013.01.07 - 12:29pm PST:  One of our readers noticed that the discount customer is more profitable in this example.  The reader is correct.  In the example I cited, discount customers spend $8 more in the future ... when I ran the models, discount customer spent less in the future.  I didn't want to use exact results, so I tried to protect the discount shopper, and by doing so, I altered the results, and then completely invalidated my own story.  This is my mistake.

Dear Catalog CEOs: Happy New Year!

Dear Catalog CEOs:

For many of you, the fiscal year ended last Saturday, or ends next Saturday.  For some, the fiscal year ends in four weeks.

Maybe it is time to take a moment, and enjoy the year that is about to unfold.

Be honest --- most pundits have been wrong.  Half of them told you that your business model is "dead".  It isn't.  The other half told you that you had to dive into retail and all these zany omnichannel solutions that keep pundits in business ... and if you didn't do what they told you to do, you'd be dead.

Are you still in business?  Profitable?  10% pre-tax profit?

Obviously, you're doing something right, aren't you?

So take a moment, and enjoy all the good things you've done in recent years.

And get ready to enjoy 2013.  These areas are critically important.

• Great merchandise.
• New customer acquisition.
• Stop mailing catalogs to online-focused buyers (Jennifer, Jasmine).
• Mail even more catalogs to call-center focused buyers (Judy).
• Reallocate cost savings to free shipping with a hurdle.

It's time to stop operating out of fear (USPS solvency, for instance).  Instead, focus on your strengths, and be happy with all of the things you do well.  You sell merchandise.  That never changes, regardless of the mix of channels being utilized.