Gliebers Dresses: Engagement

Gliebers Dresses is a fictional account of an e-commerce/catalog business dealing with a changing marketing environment.  Today, I've been asked to sit in on their Executive meeting via Skype.


Roger Morgan (Chief Operating Officer):  Good morning, everybody, nice to have you all here today.  I've asked Kevin to sit in via Skype, because we have a few topics that are based on prior research he did for us.  Kevin, could you briefly share information about our Annual Retention Rate?


Kevin:  Sure.  Last year, I analyzed your Annual Retention Rate.  In the past year, the percentage of customers who purchased last year and purchased again this year declined just a bit.  Your retention rate was 53% last summer, it is 49% this fall.


Roger Morgan:  "OMG, as the kids say."


Kevin:  "Remember, you are sending fewer catalogs to customers, so that contributes to some of the decline.  You took catalogs away from best customers, and you re-invested some of the money in new customer acquisition.  In total, your customer file is actually growing, and based on a comp segment analysis I performed, customer productivity is essentially flat to last year."


Pepper Morgan (Chief Marketing Officer):  "So our smaller catalog strategy, coupled with a re-allocation of catalogs from housefile buyers to customer acquisition resulted in improved business performance, huh?"


Roger Morgan:  "I'll tell you what I worry about.  I worry about engagement."


Meredith Thompson (Chief Merchandising Officer): "You worry about what?"


Roger Morgan:  "Engagement.  It's all the rage these days.  I recently read a Woodside Research report that suggested that engaged customers are 4.7 times more valuable than the average customer."


Lois Gladstone (Chief Financial Officer):  "That's amazing!  We should be striving for as many engaged customers as possible, right?"


Roger Morgan:  "Absolutely!  Here's what I am worried about.  Now that we've cut back on the number of pages in our catalogs, we are, in all likelihood, reducing customer engagement."


Meredith Thompson:  "Define engagement for us, Roger."


Roger Morgan:  "Oh, I'm not sure it's a cut-and-dried definition, it's probably different for everybody.  But it sure is something we need to manage, pay attention to, and strive to improve."


Pepper Morgan:  "A lot of marketers measure engagement within e-commerce as increases in website visits, or the act of becoming a Facebook Fan, you know, that kind of thing.  They have big, complex mathematical formulas that yield a KPI with a value like 62.  Then you benchmark your score of 62 against past scores.  Roger is suggesting we're at 62, and he's suggesting that we used to be at 67."

Roger Morgan:  "Or 88."


Meredith Thompson:  "So engagement has nothing to do with selling stuff or has nothing to do with being profitable?"


Roger Morgan:  "Woodside Research says there is a link between engaged customers and loyal customers.  And we all know that the most loyal customers are the most profitable customers, so I'd say that's some pretty convincing research."


Meredith Thompson:  "So we can't even come up with a solid definition for engagement, and if we could, we couldn't prove that engagement leads to increased sales or increased profit?"


Roger Morgan:  "It's just simple common sense, Meredith.  We want our customers to engage with us.  And when they engage with us, the like us better.  And when they like us better, they tell their friends about us ... we can't quantify the viral impact of that.  Look, last week I read this paper from a Web Analytics guru, and he said you don't even bother trying to link engagement to sales and profit.  She said you just focus on engagement, you keep your eye on the prize!"

Lois Gladstone:  "Kevin said earlier that we have more new customers than last year, I'll bet that is because our customers are so engaged with us that they are telling their friends about us and then we end up with more new customers.  That's fantastic!"


Pepper Morgan:  "Our response analysis shows that the entire increase in new customers is coming from having smaller catalogs that we can circulate to more prospects."


Roger Morgan:  "Sure, I'll bet that has something to do with it.  But this engagement thing goes beyond traditional metrics, I mean, digital marketers intuitively know this, they don't need some set of rigid metrics to prove something.  The last thing we need is some complex geeky equation that factors in visits and page views and shopping carts and merchandise views for crying out loud.  Folks who have strong faith don't need proof of God, they just know that God exists."


Pepper Morgan:  "We do have the Bible."


Roger Morgan:  "Nevertheless, we have a bunch of metrics that we can link together, coupled with common sense and business experience, and the combination of factors tells me that engagement is really important.  Besides, Woodside Research says that ..."


Meredith Thompson:  "I want to be evaluated on engagement!  I want to be evaluated on engagement!  Let's not measure me by how many dresses I sell, let's measure me by my ability to improve engagement.  We need to get away from old-school metrics like sales, like profit.  Leave that boring stuff to the CFO.  Just give me raises for increasing engagement."


Lois Gladstone:  "That's foolish, Meredith.  How would we ever know if you are doing your job or not?  We know you are doing your job when you create great merchandise that customers love."


Meredith Thompson:  "But Roger wants the marketing department to be evaluated on a metric that is hard to define and may or may not be correlated with profit.  Shouldn't marketing be responsible for sales increases and profit improvement?"


Roger Morgan:  "In these challenging economic times, savvy marketers are finding that new digital marketing strategies like engagement resonate with cash-strapped consumers.  If the customer cannot buy something, the least you can do is keep her engaged.  Then, three years later, when she can finally afford to buy something, we're top of mind.  Get it?"


Pepper Morgan:  "We have 2,250 Facebook Fans, and we have 1,025 Twitter Followers.  Last year at this time, we had 500 Facebook Fans and 375 Twitter Followers."


Roger Morgan:  "That's a lot of engagement!  I mean, you're looking at a 3x to 4x increase in Fans and Followers.  That's exactly what I am talking about!  You are adding value to the brand via your hard work.  You should be rewarded for that."


Meredith Thompson:  "How much is a Facebook Fan worth?"


Roger Morgan:  "According to a recent Woodside Research report, each Facebook Fan is worth $225."


Pepper Morgan:  "I read an E-Com 2010 Research Report that said each Facebook Fan is worth $3."


Lois Gladstone:  "I read an article in CFO Leadership Magazine that said that each Facebook Fan is worth $17."


Meredith Thompson:  "I read an article in Dress Merchant Daily that said that each Facebook Fan is worth $57.  And I'll bet if we poll the trade journals that each employee reads, we'll end up with another set of fifty-seven results, all with different outcomes."


Roger Morgan:  "That means that a lot of people are really trying to nail this thing down, that's great.  I love the digital marketing community, they're a plucky bunch!  And I'm not going to criticize these people, they're on the leading edge of research, they're busy creating things, they aren't out there complaining like some of the naysayers in this room, they're busy working on solutions."


Meredith Thompson:  "So, to conclude this discussion, this is what we know.  We know our retention rates are down because we are mailing less.  We know our new customer counts are up, because we are prospecting more.  We know our overall spend-per-customer is flat with last year.  We are being told that engagement is important.  We think that by having fewer pages in the mail, we have lower engagement.  We think that by having more Facebook and Twitter folks loving us, we have higher engagement.  We think we might have a lot of word-of-mouth fueling new customer growth, but our traditional metrics suggest that the catalogs are responsible for new customers, not word of mouth.  We can't come up with a consistent and understandable metric for defining engagement, though we're confident we could come up with valid metrics that would prove our hypothesis that engagement matters.  We can all quote metrics from different sources, all of which tell us that Facebook Fans are worth anywhere between $3 and $225, not $213 to $225, but $3 to $225.  We cannot prove that engagement leads to increased sales or increased profit, but we logically think that engagement is tied to loyalty and loyalty is tied to great customers and great customers visit our website, and when people visit our website they buy stuff, and when people buy stuff we generate profit, and when we generate profit we get to keep our jobs, so as a result engagement is important and we might be losing engagement because catalogs used to be 124 pages and now they're 116 pages."


Pepper Morgan:  "This is what we know!"


Lois Gladstone:  "Bad attitudes aside, this engagement stuff doesn't really cost anything, you basically employee a bunch of free marketing techniques and 'boom goes the dynamite'!!!"


Roger Morgan:  "You know what Glenn Glieber would have said ... he would have said 'I love free marketing'!"  This engagement initiative is really aligned with the spirit of Glenn Glieber."

Kevin:  "You know, folks ..."

Roger Morgan:  "Oh boy, he's talking again."

Kevin:  "... there's nothing wrong with measuring engagement, as long as you clearly define it and you take actionable steps based on what the metric tells you.  My position is that every metric you look at should be directly tied to profit.  Sometimes we have a lot of hypotheses, and we're looking for metrics that validate our hypotheses.  When we cannot link profit to something, we try to link something to engagement, because we can theorize that engagement leads somehow to profit.  If you define engagement in a fair way, and you link it to profit, then measure it until the cows come home.  Otherwise, engagement is a lot like thruthiness."



Roger Morgan:  "The modern digital marketing expert knows that engagement is where it is at, so we need to start working toward a genuine improvement in engagement.  We'll demonstrate over the next few years that engagement matters, we just need time to identify the criteria that proves our hypothesis.  Just look at our Facebook and Twitter counts, that alone proves that this engagement stuff works.  Ok, everybody, great discussion, that's all for today!"

Gliebers Dresses: The Logo Fiasco

Gliebers Dresses is a work of fiction. The purpose of Gliebers Dresses is to teach marketing concepts via the magic of parable.

Today, Roger Morgan asked me to sit in on the Executive Meeting via Skype.


Roger Morgan (Chief Operating Officer): "Ok folks, let's get down to business. I asked Kevin to sit in on this meeting via Skype, and no, we're not paying Kevin's hourly rate, we just thought it would make good business sense for him to sit in on our discussion ... next time he's out here, we'll buy him lunch or a Mt. Dew. I also wanted to invite Libby Benson to our meeting today. Libby, as you know, is our new Director of Public Relations and Social Media. Libby is responsible for the development of our new corporate logo, a logo which ignited a firestorm in the Social Media community over the past few days."

Libby Benson (Director of Public Relations and Social Media): "Hi everybody, thanks for your attention today. As you already know, our new corporate logo ignited a Social Media firestorm on Monday. We contracted with a well-known design company and invested two months of time developing a logo that we felt expressed the essence of the Gliebers Dresses brand. We released the new logo to the public on Monday, and by Monday night, we were inundated by negative customer feedback, and I mean really, really negative customer feedback."

Robert Morgan: "Give us an example of the type of negative feedback you received, Libby."

Libby Benson: "For example, @dressmonger88 said on Twitter ... 'Gliebers Dresses just tossed 40 years of brand equity out the window.'"

Robert Morgan: "Oh my God, that's terrible."

Libby Benson: "And @fashionista221 said on Twitter ... 'The iconic value of the brand instantly evaporated with this vapid attempt to manipulate me.'"

Robert Morgan: "It's like our brand is collapsing right in front of our eyes."

Libby Benson: "Exactly. And this goes on and on and on. Just shy of 600 folks on Twitter and Facebook mentioned our new logo, and 96% of the comments were an expression of negative sentiment."

Meredith Thompson (Chief Merchandising Officer): "Pepper, what happened to sales on Monday and Tuesday, vs. our plan?"

Pepper Morgan (Chief Marketing Officer): "Sales were actually 1% above forecast on Monday, and were on forecast on Tuesday."

Meredith Thompson: "So this logo fiasco that we're talking about resulted in an increase in sales, is that right?"

Roger Morgan: "Oh Meredith, no, you're looking at this all wrong. Corporate logos are part of the equity of a brand. This is the kind of thing that could do serious long-term damage. You don't measure this thing on a daily basis."

Meredith Thompson: "But you're measuring negative sentiment on Twitter and Facebook on a daily basis, you are reacting to close to 600 folks who didn't like the new logo. What is the relationship between a logo, sales, and profit?"

Roger Morgan: "I recently read a Woodside Research report that suggests that the corporate logo is the tenth most important part of the overall relationship consummated between brand and consumer."

Libby Benson: "And you can't forget about engagement. An engaged customer who feels compromised because of a new logo is likely to voice her concern via Social Media, and that's exactly what we saw over the past two days. You simply cannot put engagement at risk, I mean, where would the brand be without engaged consumers?"

Lois Gladstone (Chief Financial Officer): "Libby, what is the relationship between engagement and profit at Gliebers Dresses?"

Libby Benson: "Well, I'd assume that engagement means everything to a brand. We've done a lot of research, and our research shows that 10% of our most loyal Social Media followers ... we like to call them 'fans', are so highly engaged with the brand that they mention the brand on Social Media and visit our website an average of 22 times a year. You simply cannot put that level of engagement at risk if a subset of these same individuals think our new logo is inappropriate."

Lois Gladstone: "When Meredith sells an item, we know that, say, $20 of profit is generated by the sale of that item. How much profit do we generate when we increase engagement by 10%?"

Libby Benson: "Who knows? And why is the question even relevant? It just makes common sense that if an engaged fan turns on us and bashes our brand because of a new logo, then at some level, our sales must decrease in the future, and without doubt, our brand equity is likely to hemorrhage."

Lois Gladstone: "Have you created a link between those engaged via Social Media and annual spend at Gliebers Dresses? In other words, are those who are commenting about us in a negative manner customers who spend $200 a year with us or $500 a year with us or $0 a year with us?"

Libby Benson: "Who knows? How would you even do that? All I know is that folks are joining the conversation all over America, bashing our brand all because we changed our logo. We can't have that. I have to protect the brand."

Meredith Thompson: "Roger, it was your idea to create a new logo in the first place. You wanted to 'stimulate the spirit of Glenn Glieber', as you said two months ago. You spent God knows how much creating the logo. You created the Multichannel Logo Development Committee, or MLDC as you like to call it, you hosted two hour weekly meetings for eight weeks discussing this. You hired an outside agency to craft the logo. And now, after all of this effort, you roll out the logo and just under 600 individuals hate it."

Roger Morgan: "I know, it's painful. But we have to listen to our customer base, and our customer base has spoken, with more than 90% of the just under 600 individuals expressing negative sentiment. That's some seriously bad stuff."

Meredith Thompson: "Pepper, how many customers purchased from Gliebers Dresses in the past twelve months?"

Pepper Morgan: "220,000, give or take a few."

Meredith Thompson: "So let me get this straight. About 600 folks, folks that we don't even know are our customers, and if they are our customers, aren't necessarily even valuable customers, decide to toss a guano storm at us because we changed our logo, 600 out of about 220,000 customers who purchased in the past year, 0.3% of the customer file if we assume that all 600 are current customers, and we're having a meeting right now discussing how important it is that we appease 0.3% of our customer file because they don't like our logo? Is that right? We are sitting here discussing the opportunity to appease 0.3% of our customer file, because 0.3% of our customer file doesn't like our logo? I mean, does this mean that 99.7% of our customer base likes our logo or is neutral to our logo? My goodness, have we all lost our minds?"

Libby Benson: "But these folks are so highly engaged that they will poison our brand by spreading their word to their network of individuals. You have to take into account the impact of an engaged customer disengaging with us and spewing negative sentiment at their network. Heck, their comments could reach hundreds of thousands of customers and prospects. Imagine the damage, Meredith? I mean, Meredith, don't you remember the saga with Motrin Moms and how catastrophic that was to Motrin at the time?"

Meredith Thompson: "Did Motrin go out of business?"

Roger Morgan: "I'm thinking it is time for us to look at this in a different way. Maybe we can save our Social Media reputation by crowdsourcing this new logo. Why don't we ask the Social Media community to 'join the conversation', maybe we let them design the logo? We'll choose the three best logos, and we'll let the Social Media community decide what the logo should be. That would appease the Social Media community, wouldn't it?"

Lois Gladstone: "Can somebody answer a question for me? If we assume that we generate $1,500,000 of pre-tax profit on an annual basis, how much of that profit is generated by our Social Media presence, and how much of that profit is generated by our logo?"

Libby Benson: "Oh brother, now we want to start beancounting again. You financial people, you're really something, always wanting to reduce everything down to actionable metrics. You don't say that the logo is responsible for $150,000 of profit, the logo is too tightly embedded in the overall brand essence. And you don't want to destroy our brand essence, do you?"

Lois Gladstone: "I'm not counting beans, Libby, I'm asking you and Roger to know what the financial impact of your decision is. What is the financial impact of changing a logo, and what is the financial impact of allowing the Social Media community to dictate what the logo is? Does anybody know the answer to that question?"

Meredith Thompson: "And while we're at it, Roger, why don't we let the Social Media community, the 600 folks who are on the verge of disengaging with us, why don't we let them determine the merchandise we sell?"

Roger Morgan: "Actually, Meredith, that's not a bad idea! Woodside Research recently released a report that ..."

Pepper Morgan: "If we rank-ordered all of the things we, as an Executive team, should be talking about, where does this issue fall on the rank-ordering of issues?"

Roger Morgan: "I'd say it is in the top five."

Libby Benson: "I'd say it is in the top two."

Meredith Thompson: "I'd say it is issue number 2,488,991".

Lois Gladstone: "I'd answer the question if somebody could tell me what the financial impact of changing a logo is on our business?"

Libby Benson: "Meredith, why is your behavior so condescending? Do you not understand the power of Social Media? The world changed, Meredith. You can either get behind the power of Social Media and join the conversation, or you can become a Luddite who is tethered to the world via snail mail and e-mail. Your choice. I'd rather side with our rabid fan base."

Meredith Thompson: "Libby, when is the last time you decided you weren't going to buy from a brand because they changed their logo? And please be honest, offering specific examples! Or did you turn off NBC a few decades ago when they canned their peacock, did you decide that you weren't going to watch St. Elsewhere anymore because the peacock was gone?"

Libby Benson: "And now NBC is in last place. Hmmmmm."

Meredith Thompson: "Would you decide not to watch Fox News or MSNBC if they changed their logo? I mean, come on, people. You're letting 0.3% of the customer base, assuming all of these online trolls are actual customers, dictate what you should do."

Libby Benson: "These aren't trolls, they are engaged users, they are fans."

Roger Morgan: "And Woodside Research said that Facebook fans are worth $1.88 each."

Meredith Thompson: "So if we lost each fan for good, we'd lose $1,128?" We probably spent $100,000 creating the new logo, Roger, and now we're worried about losing $1,128?"

Libby Benson: "$1,128 and we're worried about losing out on a highly engaged user."

Lois Gladstone: "And nobody here can demonstrate for me that a highly engaged Social Media user generates any profit on an annual basis."

Roger Morgan: "Ok, I think we're done here. I've listened to all points of view ..."

Pepper Morgan: "You didn't get Kevin's point of view, Roger."

Roger Morgan: "... and I've decided that we are going back to the old logo, and I've decided that we won't crowdsource the new logo. I think we need to 'join the conversation' and be open to listening to our most loyal fans. A modern digital marketer is willing to incorporate fan feedback into corporate decisions, and I'm clearly a modern digital marketer, so we'll go with this as our strategy going forward. It's a shame this ended up being so negative, because we could have gotten a lot of free marketing out of this."

Pepper Morgan: "Somewhere, Glenn Glieber is smiling, saying 'I Love Free Marketing'!"

Gliebers Dresses: Stupid Marketers and Kewpon

As most of you already know, Gliebers Dresses and Fetzer's Footwear are fictional stories about catalog and online businesses. The stories are created to relate marketing concepts to you via parable. Today, I join an Executive Meeting at Gliebers Dresses.


Roger Morgan (Chief Operating Officer): "Ok, folks, let's get busy, we have a lot to address today. I asked Kevin to Skype-in, just so you know, we're not paying him for this, because budgets are tight, but I wanted an outside opinion as we discuss a couple of concepts today. Ok, first off, let's talk about the possible promotion we want to run with a company called 'Kewpon'. As you know, Kewpon is a fast-growing location-based service that gives their e-mail subscribers opportunities for fantastic discounts at leading retailers. Kewpon is looking to branch-out into national campaigns with online retailers, so I approached Kewpon about the opportunity to run a promotion with Gliebers Dresses."

Meredith Thompson (Chief Merchandising Officer): "Isn't Pepper responsible for Marketing?"

Roger Morgan: "Look, we need to explore bold ideas, and I don't think we should be married to the old-school concept that ideas only come from the folks accountable for Marketing. According to Woodside Research, by 2013, 49% of company employees will be accountable for a portion of the integrated, cross-channel Marketing calendar, so let's not be closed-minded about how we grow our business, ok? I don't want for us to get stuck in old-school thinking anymore."

Lois Gladstone (Chief Financial Officer): "How does a Kewpon promotion work?"

Roger Morgan: "It's really quite innovative, to be honest. We'll take one of our best items, maybe our sheath dress for $49, and we discount the living daylights out of it. Let's say we sell it for $22 as part of a one-day promotion."

Meredith Thompson: "We sell it for what?"

Roger Morgan: "We sell it for $22. Then, we do a rev-share with Kewpon."

Pepper Morgan (Chief Marketing Officer): "Like they get 8% or something similar to what we pay our affiliates when they generate a sale for us? I know most marketing folks hate having affiliates suck 8% out of the demand equation for doing so little actual work."

Roger Morgan: "Oh, no, nothing like that. They get 50%, and we get 50%."

Meredith Thompson: "They get what? Do you realize that the cost of goods on a sheath dress is $19, Roger?"

Roger Morgan: "Of course I understand that, Meredith. Look, I checked out your inventory reports, and we have plenty of sheath dresses to offer as part of this promotion."

Meredith Thompson: "But Roger, think about it for a minute. We get $11. Kewpon gets $11. The item costs us $19. How do we make money on this, Roger? Because, as I understand it, the objective of a business is to turn a handsome profit."

Roger Morgan: "We don't! But that's not why we do this, Meredith. We do this because we get access to Kewpon's subscriber list of 22,000,000 e-mail addresses. They will promote this to every single one of the 22,000,000 e-mail addresses, nation-wide. That's a honkin' boatload of eyeballs that we're about to monetize! Just think about the traffic, the traffic, Meredith!"

Meredith Thompson: "Can we limit the number of items we sell?"

Roger Morgan: "I'll make that a condition of the promotion ... only the first 10,000 buyers get to take advantage of the promotion, given our inventory situation."

Meredith Thompson: "Why do you get to pick the item? I'm responsible for merchandising, Roger."

Roger Morgan: "Again, that's old-school thinking. We need to think like these modern digital marketing experts think. I recently read a Woodside Research report about digital marketers, and they said ... "

Meredith Thompson: "Lois, let's do a quick profit and loss statement here. We sell 10,000 items, we get $11 per item, we paid $19 per item, so we lose $8, so that's an up-front gross margin loss of $80,000. That kills the annual bonus for the merchant responsible for sheath dresses."

Roger Morgan: "We need to stop thinking about old-school incentives like bonuses, we need to start thinking like modern digital marketing experts. How many times do I have to say this?"

Meredith Thompson: "We lose $80,000 of gross margin. Roger, who pays to pick, pack, and ship the items, Kewpon or us?"

Roger Morgan: "We do. And we'll give the customer free shipping as our way of saying thanks. That should really sweeten the deal."

Meredith Thompson: "Ah. Now we get to lose another $10 of shipping and handling revenue, so thus far, we've lost $180,000 on the promotion. When the customer returns an item, and 20% of our sheath dresses are returned, does Kewpon refund us their share of the transaction?"

Roger Morgan: "No, they keep their money. See, that's not their fault, it's our fault the customer returned the item."

Meredith Thompson: "Oh, they keep their money. But we take the item back, so that means we refund $22 to 2,000 customers, so we lose another $44,000, right?"

Roger Morgan: "But we get the gross margin on those items back, because we get to re-sell them, so we really lose $3 per item, costing us just $6,000. Glass half full, Meredith."

Meredith Thompson: "Fine, we lose just $6,000. In total, we lose $186,000."

Roger Morgan: "Wrong again. Kewpon told us that 20% of the customers will buy an additional item, this item would be at full-price, so for 10,000 customers, we'll get 2,000 additional items at an average gross margin of $30, so we'll make up $60,000 there as well."

Meredith Thompson: "Oh, Kewpon told you that. What, did they access our database and mine the information themselves?"

Roger Morgan: "Meredith, you always want to block new ideas and modern strategies. I just found a way for us to acquire 10,000 new customers, and we'll only lose $126,000. That means we lose $12.60 per new customer. That's well within our new customer acquisition cost limits."

Pepper Morgan: "How do you know that all 10,000 customers are new customers?"

Roger Morgan: "Kewpon told me that the vast majority of customers who take advantage of Kewpon promotions are typically new customers."

Meredith Thompson: "So you want for us to lose $12.60 per new customer?"

Roger Morgan: "The math is really quite optimistic. I asked Kevin to join us today because he did all of that lifetime value work for us. We know that the average newly acquired customer generates $15 profit in the next twelve months, so quite honestly, we'll come out ahead on this one. I'm making us money, something like $20,000 in the next twelve months."

Kevin: "The average customer generates $15 profit ... full price customers generate $25 of future value, discount/promotion buyers generate $5 profit."

Roger Morgan: "And we really have no idea what a Kewpon customer will generate, because we've never tried a promotion like this, so let's assume it is $15. The math works! And Kevin, you're always telling folks on your blog that they have to be willing to test new ideas. Well, here I am, I'm willing to test a new idea, and I've got math to support my numbers. So we're going to do this."

Meredith Thompson: "Your math is based on rogue assumptions."

Roger Morgan: "Look, Meredith, I'm attending Shopper.com's annual conference next week. They invited the CEO of Kewpon to be a keynote speaker. I'm meeting with the CEO after her keynote. Shopper.com wouldn't invite her to be the keynote speaker unless there was something really intriguing about her business model."

Lois Gladstone: "The math is intriguing, Roger."

Meredith Thompson: "Lois, the math is crap. Kewpon gets 10,000 orders at $11 per order. They make $110,000, no risk, no picking, packing, or shipping, no processing of returns ... just money. We lose $126,000 and deal with all of the headaches.. You are the CFO. On any other planet, you'd refute this argument as being complete garbage. Why would we ever give a third-party all of our profit? Intermediaries are sucking the life out of this business. Google, Kewpon, the USPS, it never ends."

Lois Gladstone: "Meredith, have you ever seen our Response Shop bill? We pay co-ops $0.06 per name for one-time use, month-after-month-after month, and only one percent of the customers we rent from Response Shop purchase. That means we technically pay Response Shop $6.00 for every customer who purchases from us. In this case, we're paying Kewpon just $11.00 for every customer who purchases from us."

Pepper Morgan: "Of course, the Response Shop customer is paying full price, plus shipping and handling, so we usually make money on that transaction, and then get $25 of long-term value after making money on the transaction. That's why we work with Response Shop, we get profit on the front-end, and we get profit on the back-end."

Lois Gladstone: "In this new, complex, modern world of digital marketing, especially during challenging economic times, we have to be willing to adapt to new business models. With Response Shop and with any co-op, we violate the rights of the customer by shoving a catalog in her mailbox when she didn't ask to receive the catalog. That's technically a violation of her privacy, and the customer doesn't make any money in the transaction, only Response Shop makes money. With Kewpon, the customer saves $27, the customer decided which Kewpon promotions to accept, and Kewpon gives us access to 22,000,000 e-mail addresses nation-wide. Kewpon makes money, the customer saves money, and Gliebers Dresses has the opportunity to make up the losses on the back-end. Meredith, it's up to you to convert these customers into full-price customers, downstream. Honestly, you're the one who is accountable to make this work, long-term."

Roger Morgan: "That's some sweet action!"

Meredith Thompson: "When did we become stupid marketers, everybody?"

Roger Morgan: "We're not going to be stupid marketers next Friday when we sell 10,000 sheath dresses that we wouldn't have sold otherwise. Imagine the rush folks working in the building will feel when we're 100% over plan? When is the last time we were 100% over plan? It will be like one of those telethons from the 70s, with folks chanting 'light those lights ... light those lights ... light those lights'!"

Meredith Thompson: "No really, when did we become stupid marketers? Do you remember Glenn Glieber's favorite saying about marketing?"

Pepper Morgan: "I love free marketing!"

Meredith Thompson: "Yes, that's what he always said. He loved free marketing. He hated paying for anything. Worse, he hated to lose money."

Roger Morgan: "We're not losing money, we'll make it up on the back-end. You old-school folks really need to start thinking more like us digital marketing experts, you know, the folks that are truly driving the new economy in this post-recessionary environment."

Meredith Thompson: "How do you know that we'll make it up on the back-end, given we've never tried anything like this before? Yours is a theory, a hypothesis, not a reality. You are assuming that these customers will purchase again, and they will purchase at full price. Kevin just told us that the discount/promotion buyer has $5 of lifetime value, while the full-price customer has $25 of lifetime value. Why do we think we can convert this Kewpon customer into a Gliebers Dresses full-price customer?"

Roger Morgan: "That's your job, Meredith, your merchandising strategy has to be held accountable at some point. Your job is to provide such compelling merchandise that the Kewpon customer cannot help but buy merchandise at full price. That's your job, Meredith. In this case, it is my job to drive traffic. We Digital Marketers are all about driving traffic, it's up to the rest of the employees to turn that traffic into profit. Old-school marketers are afraid of this paradigm shift."

Meredith Thompson: "You don't take a discount/promo customer loyal to another platform and convert them into a loyal, full-price Gliebers Dresses customer."

Roger Morgan: "Figure it out, Meredith, that's your job. You are accountable here."

Lois Gladstone: "I'm willing to make the investment, then let's measure the results and see if it was a worthwhile endeavor."

Roger Morgan: "Woodside Research and Shopper.com seem to suggest this is a worthwhile endeavor. Look at all of the sales that Shopper.com created with their innovative post-Thanksgiving online holiday event? These organizations love to promote the concept of giving the customer a great deal at a low price, and their interests have to be aligned with ours, or they would go out of business. Woodside Research and Shopper.com would not lead us astray."

Meredith Thompson: "Kevin, can you help me here? Have we all become stupid marketers? I think we're just plain stupid. Since when is it a good idea to lose money?"

Roger Morgan: "I didn't ask Kevin to be here for free today just to beat us up, that's not in our best interests. I asked Kevin to be here so that he could provide us with the lifetime value of an average Gliebers Dresses customer, and he did that, so thank you Kevin, you can leave now."

Meredith Thompson: "No, he can't leave. I want to hear his opinion. Kevin, tell us about marketers in general, keep Gliebers Dresses out of this for a moment. Are marketers stupid?"

Kevin: "Keeping Gliebers Dresses out of the equation, I think that Marketers are mis-guided. Look at what happened when Gap did a promotion with Groupon, that promotion was mentioned by the national media, by the trade journals, by just about everybody associated with direct marketing. If you are a Marketer at Gap, you were on top of the world for a few days, weren't you? Within a company, the marketer only gets beat up, beat up by the merchant for not promoting merchandise, beat up by the operations expert for not being a modern, smart marketer, beat up by the CFO for wasting valuable resources, beat up by the CEO for not growing top-line sales fast enough. In fact, it is always about top-line sales, isn't it? When is the last time a Marketer had to provide the CEO with a profit and loss statement of all marketing activities, illustrating both short-term and long-term profit?"

Roger Morgan: "We just went through a profit and loss statement here, so clearly, we're not stupid marketers, are we?"

Kevin: "All of the information technology systems in our industry are designed to illustrate what happened to top-line sales after a catalog was mailed, an e-mail was delivered, a search-term was clicked on, or after a social media follower visited the website. Our web analytics and business intelligence software packages seldom interface with financial information, so we seldom see the short-term profitability of our work, and we almost never get to see the long-term profit impact of our work."

Roger Morgan: "We have a lot of that type of data integration on our book of work, and we're likely to get to it in 2013, so we're moving in the right direction."

Kevin: "So you take a Marketer who isn't respected in her own company ... I mean honestly, how many times did you as a team ask Pepper today what her thoughts were on this Kewpon promotion, and remember, she's the Chief Marketing Officer, right? The Marketer isn't respected in her own company, because every employee thinks that he is a marketer at heart. So the Marketer gets little internal validation. The Marketer is forced to look outside for validation, and there are plenty of places to get external validation ... Twitter followers, Facebook fans, Kewpon promotions, keynote presentations at the Shopper.com conference, you name it. The Marketer doesn't get love internally, the Marketer doesn't have internal reporting to show how much profit the Marketer actually generates on a short-term and long-term basis, so the Marketer goes for the only things that provide love ... external recognition and internal top-line sales growth. Honestly, it's a failure of the entire ecosystem, when it comes right down to it. If the Merchant respected the Marketer, if the Executive team respected the Marketer, if the Operations executive didn't try to be a marketer, if the web analytics / business intelligence team / information technology team actually provided the marketer with the right information, and if the Marketer was motivated by profit and not by top-line sales, then the whole thing could work. In lieu of that, we've trained a generation of Marketers to be stupid, to look for recognition via the wrong metrics, metrics that don't correlate with profit. And we trained a generation of web analysts, business intelligence analysts, and IT professionals to provide the wrong information."

Lois Gladstone: "I agree with Roger, we shouldn't have asked Kevin to pop-off about his opinions of Marketing. If we assume that the Kewpon customer has average long-term value, then this promotion is fine."

Kevin: "But that's exactly the problem. Lois, that's 'truthiness'. You want to believe that the Kewpon customer has average long-term value, because the assumption of average long-term value leads one to a math calculation that enables one to run the promotion. And then you'll never measure the promotion on the back-end, because there will be some other priority that is more important than analyzing something that happened in the past. This is where Marketers are stupid. Marketers always get to manipulate figures in a way that enables the Marketer to do something stupid. We have more facts and figures than we've ever had in history, and yet, we don't have anything resembling actionable insights."

Lois Gladstone: "Roger, maybe it is time to ask Kevin to leave?"

Kevin: "We all know that the Kewpon customer is more likely to generate $5 long-term value, congruent with the discount/promotion customer, than the $15 long-term value of the average customer, or the $25 long-term value of the full-price customer. It is the lie that we tell ourselves that enables us to do stupid things, and then it's the failure to measure on the back-end and learn from our mistakes that makes us stupid. Roger, I can respect a person for wanting to test a promotion. There's nothing wrong with saying that you want to partner with Kewpon, I applaud that. I have zero problem with testing a promotion and losing money in the process."

Roger Morgan: "Keep talking."

Kevin: "But I am 100% against the way that Marketers use truthiness to justify actions. The Marketer will point out that the Kewpon promotion may lead to word of mouth, and that you cannot discount word of mouth, because word of mouth is the modern way that Marketers leverage customer interactions, right?"

Roger Morgan: "Yeah, we didn't factor word of mouth into our profit and loss statement. That alone might make this thing profitable! Think of the social media ramifications. Oh, this whole thing could go viral. You really don't want to stop something that could go viral, right? That's the strength of social media."

Kevin: "Or it might mean nothing. Or there might be negative word of mouth that devastates Gliebers Dresses. That's the problem. We'll use the social media and word of mouth argument if it benefits our objectives, and we'll discount the word of mouth argument if it works against us. We use all of these facts, figures, and metrics to defend truthiness, we don't use them to improve business performance."

Roger Morgan: "Well, folks, that's the end of the hour. I think between what Woodside Research says, what Shopper.com says, and Kevin's average long-term value estimates, this Kewpon promotion is the right thing to do, and Kevin just said that he lauds folks who test new strategies, so we're going to do it! Thanks for helping us flesh through this situation, Kevin, and thank you for spending an hour with us for free ... you know what trying economic times we are faced with, so every little bit helps us achieve our profit objectives."

Gliebers Dresses: Brendan Templeton

As you know, in the next 1-2 months, I will publish the first year of Gliebers Dresses articles. You will be able to read each post, you'll read the farewell address from Glenn Glieber, and you will get to read my thoughts about each of the major characters in the story.

Going forward, I will continue to share with you some of the things that are happening at Gliebers Dresses. As you already know, when a new ownership team takes over, things change.


Setting: As usual, I am about to Skype in to the Gliebers Dresses Executive Meeting. It is April, so this is the first meeting being run by the new CEO, Brendan Templeton, the whiz-kid who built Zeldies into a billion dollar handbag business that delivered questionable profitability. Here we go. I enter the meeting.


Meredith Thompson (Chief Merchandising Officer): "So Kevin, welcome, we're waiting for Brendan to arrive. I was just telling everybody how nice it was to see Glenn yesterday. Ok, here comes Brendan."

Brendan Templeton arrives in the board room. He appears to be the opposite of a presence that is larger than life. He's maybe five foot eight inches tall, he's slender, with thin, dusty brown hair.

Brendan Templeton (Chief Executive Officer): "Dudes, thanks for being here today. I understand you have a weekly meeting, for now, I'd like to honor the weekly meeting. So, why don't we get started."

Pepper Morgan (Chief Marketing Officer): "Let's review the numbers from last week. The catalog business was up eight percent from last year, and was up twelve percent to plan ... "

Brendan Templeton: "So let's see if I understand what happened, your catalog was better than last year, and was even better than your plan. Does that mean you sandbagged your plan so that you'd make your numbers?"

Pepper Morgan: "We were conservative, we didn't want to be aggressive and then be stuck having to liquidate merchandise if we missed plan."

Roger Morgan (Chief Operating Officer): "In catalog marketing, you want to make sure you have too much inventory. Inventory ages, it is like a red pepper, it gets worse every day it sits there."

Brendan Templeton: "You mentioned that catalog performed well. Is that the business the catalog drives to the website?"

Pepper Morgan: "Oh no, catalog refers to the amount of business driven to the telephone. Online, we hit plan, and were flat to last year."

Brendan Templeton: "Something like 75% of the business happens online, right dude?"

Roger Morgan: "Here name is Pepper."

Lois Gladstone (Chief Financial Officer): "Yes, we generate three-fourths of our volume online." But we like to focus on catalog, because catalog drives our business."

Brendan Templeton: "Ok, what was the conversion rate of shoppers who came from your catalog?"

Pepper Morgan: "Gosh, I have no idea. How would we even measure that?"

Brendan Templeton: "Put that on your list. We want to split our online audience into pieces. We want to know the online shoppers who came from catalog, and we want to segment them from search visitors or e-mail visitors or affiliate visitors, right dudes?"

Pepper Morgan: "And we do that, for the most part."

Brendan Templeton: "Good. So from now on, when we report morning numbers, we're not going to focus on the physical channels like telephone and online, we're going to focus on the effectiveness of the advertising channels that drove demand."

Meredith Thompson: "Wow. That's not how we're used to looking at the business. We like to look at phone orders and online orders, so that we can see the evolution of the customer from phone to online."

Brendan Templeton: "Dude, do report on demand from Visa compared with PayPal?"

Meredith Thompson: "Well no, that's not really actionable."

Brendan Templeton: "Right. Going forward, telephone demand is not an actionable metric. It's only 25% of our total volume, and will continue to be less and less of our total over time. And I don't care how the customer shops. If she wants to order over the phone, God love her, dude. If she wants to order online, dandy. If she wants to stop shopping via search, that's something I want to know about, because I can do something about that."

Roger Morgan: "I don't think we've ever talked about search demand in these meetings. We're a multichannel business, and the catalog is the foundation of a solid catalog business. Just ask Woodside Research. Would you like for me to hook you up with those folks? They've done a lot of research on the topic of multichannel marketing, and print is everything, print is what drives a multichannel business. Just ask them."

Brendan Templeton: "Dude, at Zeldies, we grew to a billion dollars without ever sending one single piece of print in the mail. Would you rather have Gliebers Dresses be a billion dollar business without print, or a forty-five million dollar business with catalogs?"

Meredith Thompson: "Do you think we can be a billion dollar business without print?"

Brendan Templeton: "Dude, tell me this. How many customers were delivered your e-mail campaign last Thursday, how many clicked-through to the website, how many ordered something, and how many ordered merchandise not featured in the e-mail campaign?"

Meredith Thompson: "I don't know, I don't have the report in front of me. I'm not even sure I've ever seen the report."

Brendan Templeton: "Ok Dude, now tell me how the merchandise on pages 18-19 performed in the March catalog."

Meredith Thompson: "That's easy, I have the metrics right in front of me, see, the ..."

Brendan Templeton: "Hold it dude, you nailed my point. We can't have a billion dollar business without print if we don't know anything about the non-print portion of our business."

Pepper Morgan: "That might be the first profound thing mentioned in this room in the past six months."

Brendan Templeton: "That's a rockin' comment, Pepper. Dudes, here's the 411 ... I may not ask you how a single catalog performed over the next week. I'm going to focus my efforts on what you're doing to drive us to the future. I'm going to focus my efforts on the metrics that allow us to grow our business outside of print. You're all print experts. So, right on, man, you're going to continue to do what you do well, I can't improve on that. But I will make us focus on everything else, the intersection between the past and the future, dudes."

Meredith Thompson: "Interesting."

Brendan Templeton: "So let's start with my first gift to you. In your office, as we speak, my new administrative assistant, Amber, dropped off a brand new iPad on your desk. Here's what I'm looking for. Use the device for a week. Use some apps, given things a try. On May 1, I want to know what our iPad strategy is. I want a project outline that clearly communicates the launch date for our iPad strategy. How do each of you apply your catalog knowledge into the framework of an iPad. It seems to me that flipping through a digital catalog with your index finger on an iPad is a logical extension of the Gliebers Dresses brand. So go make something happen. I'm looking forward to what you come up with, by May 1."

Roger Morgan: "Oh Mr. Templeton, maybe you're not aware of this, but we have a thing called a 'Book of Work' that we use to prioritize our projects. We'll have to evaluate your ideas with the actionable items in this book of work."

Brendan Templeton: "Dude, launch this rocket up to the top of your book of work. Now go make something happen, dudes. I'm outta here!"

Meredith Thompson: "This is going to be interesting. Kevin. do you have anything to say?"

Kevin: "Nope, I think Mr. Templeton is setting a good precedent, thanks everybody."

Gliebers Dresses: The Return

Welcome to the Gliebers Dresses Executive Meeting. I've been invited back this week, in fact, I've been invited to sit in, in person.

Glenn Glieber (Owner): "So that's the year in a nutshell. We lost $800,000, yet another year where we didn't meet expectations. But maybe we weathered the storm. Maybe we have something to look forward to in 2010. We have a new catalog contact strategy that is off to a good start, thanks to Pepper Morgan, in fact, the new strategy is 15% over plan, so that's amazing! And we're going to ride our loyalty program through mid-year, to see if it can deliver the results that were promised."

Roger Morgan (Operations and IT): "I see we have Kevin in the room today. Did we want to ask him questions now, so that he can leave and then we can focus on more important things like company strategy?"

Meredith Thompson (Merchandising): "Hi Kevin, nice to have you back. We heard you worked on a project for Anna Carter during the past month, is that correct?"

Kevin: "Yes, I worked on an Online Marketing Simulations project with their Executive team."

Roger Morgan: "What did you learn? Did they kill their catalog and now they're struggling to stay afloat? I'll be that's what happened, right? They probably wanted you to talk about our catalog strategy secrets. Idiots."

Kevin: "You know I cannot share those findings with anybody."

Lois Gladstone (Finance): "I'll bet they wanted to know all about our loyalty program, didn't they? They are probably having big problems without having a catalog to support their business. I heard their business last Fall was down 30% to last year. HA! Serves them right. I'll tell you what, we sure weren't down 30% last Fall."

Roger Morgan: "But did you learn anything about how they drive sales without a catalog? I heard from our Woodside Research rep that they're doing some really interesting things with landing pages, something about the way they are leveraging their IT staff to create customized employee stores. I'd love to learn about that."

Kevin: "They did share a lot of their strategies and initiatives with me. Of course, you know I cannot share those findings with you."

Pepper Morgan (Marketing): "I'm following the Twitter feed of their Chief Merchandising Officer. She has a daily special on Twitter ... she introduces one new item a day, and her items do not appear anywhere else on the site except via a landing page that you click through via Twitter. When you check out, you have to enter her Twitter ID in order to be able to purchase the item. It's like she's developed her own marketing program for new items, she's created exclusivity. And heck, she has 14,995 followers. I've never seen a strategy like that. Does that work, Kevin?"

Lois Gladstone: "Their CFO also has a Twitter presence, with 82 followers. And she's hawking merchandise, too. You know, I cannot imagine an environment where you'd let your own employees do their own marketing. What do you do, pay them a commission each time they sell something?"

Roger Morgan: "And imagine the IT nightmares you'd have. You have to enter a Twitter ID on the order form in order to purchase the item? What a terrible customer experience! You make things as easy as possible for the customer, you don't ask them to enter a Twitter ID. Heck, we'd have to put something like that on our book of work, and prioritize it with everything else we're doing."

Meredith Thompson: "Honestly, my time is better spent finding great new fashion merchandise than hawking my own wares. I don't have the time to do what they're doing. I think it is the job of marketing to promote my product. And Pepper's new catalog strategy is +15% to plan, so she's clearly doing her job the right way!"

Pepper Morgan: "I counted over 100 employees who have either a Twitter presence or a blog on the company blog page. It seems like it is an organized yet decentralized marketing strategy they are trying to employ."

Roger Morgan: "It sounds like the desperation of a company that killed a catalog program and is now trying to find ways to recoup the 30% sales drop they experienced. Idiots. Our rep at ResponseShop told us they'd be doing desperate things once they didn't have the multichannel marketing support of a catalog, and now, sure enough, they are doing amazingly desperate things."
Lois Gladstone: "I noticed that they have an iPhone app that takes you to a micro-site that has merchandise that is only available on the micro-site. Isn't that nuts? Aren't you supposed to integrate all channels? Why would you only offer special merchandise for iPhone users? That's arrogant. It seems like they are grasping for straws."

Roger Morgan: "Woodside Research says that mobile commerce will outpace e-commerce by 2021. That's way out in the future. So why would you want to be on the bleeding edge of mobile commerce? I'll tell you what, there's still nothing like receiving a catalog in the mail, thumbing through it, and then carefully ordering merchandise on a secure e-commerce website. Who even wants to shop on a 320x240 pixel screen? What a terrible customer experience! Don't these new marketing gurus know anything about how actual customers shop? Did Anna Carter adopt a marketing strategy from the blogosphere? Geez. That's desperate. Those vendors and bloggers don't have any skin in the game. It's easy for them to tell us to do something, they don't have p&l responsibility like we have."

Meredith Thompson: "And Pepper's new strategy is up 15% to plan, so the key to catalog marketing is all about finding the secret sauce. I think marketers spend too much time on the shiny new toy, and not enough time optimizing existing marketing channels."

Roger Morgan: "I heard that we're going to be eligible for all sorts of paper discounts this year as well, so if catalog marketing becomes a bit cheaper, we can leverage it to a greater degree."

Lois Gladstone: "Kevin, why would Anna Carter's CFO be on Twitter? It doesn't make sense."

Kevin: "Again, I cannot share their strategies or their reasons for executing different strategies."

Roger Morgan: "Well then why are you even here?"

Kevin: "Let me ask you a couple of questions, Roger. First, you've been here throughout the entire downturn that Gliebers Dresses experienced. What percentage of the downturn would you attribute to your strategies, to company strategies, to the economy, and to the shift from print marketing to digital marketing?"

Roger Morgan: "I doubt my strategies play a role in our sales, I'm only the operations guy. I think our problems are half due to the economy, and half due to the shift from print marketing to digital marketing."

Kevin: "Ok, well, you cannot control the economy, so then the stuff that is within your control is, in your opinion, due to the shift from print marketing to digital marketing, right?"

Roger Morgan: "I guess so."

Kevin: "So let me ask you another question. If the shortfall in business is due to a shift from print marketing to digital marketing, do you not have a responsibility as a Vice President at a major company to try digital marketing strategies, in the hope of finding something that might work? Is it not your job to mitigate the decrease in sales with a new strategy?"

Roger Morgan: "Of course it is. That's why we have a book of work. That's why I prioritize all projects, focusing on those that have the best ROI."

Kevin: "Why don't you tell us what the top three projects are, based on your estimation of ROI?"

Roger Morgan: "Let's see. The top three projects right now are to eliminate invalid free shipping codes found on rogue sites on the internet, then to enable employees to get 15% off of all merchandise purchased in employee orders instead of the standard 20% they've always had due to a new expense control project, and third is to log the number of minutes employees in the contact center spend talking to customers to see if we can trim expenses in some clever way."

Kevin: "If in your words the biggest issue within your control as a business is the shift from print to digital, then why have you prioritized the three projects you mentioned as most important, given that not one of those projects deal with the shift from print to digital?"

Lois Gladstone: "I don't see how this line of questioning benefits any of us. Roger does a good job."

Kevin: "I'm sure he does a good job. But none of the three most important priorities on Roger's book of work have anything to do with selling merchandise in a digital marketing environment. If your company is being hurt by the transition from print to digital, as Roger suggested, shouldn't the top three priorities have something to do with facilitating a digital customer experience?"

... silence ...

Kevin: "What I can tell you is that there are companies out there who are fully embracing this transition. There are companies that use web analytics to measure website performance in real time, and make strategic merchandising changes on the fly. These companies are re-wiring their own neural systems to handle the complexities of modern digital marketing. What they are doing isn't easy, and is fraught with failure. But they are trying. They prioritize digital projects over analog projects, forcing themselves to manage a future they don't yet understand."

Lois Gladstone: "Those are good points, we'll take them under advisement. But I look at what Anna Carter is doing, and I just think they are grasping at straws. I think with Pepper's new catalog strategy, and the 15% increase we're seeing, that we can just double-down and try harder and make 2010 work. Then we'll address 2011, we'll keep making incremental improvements. Customers love catalogs. I was at Applebees last week, and there sat a couple, probably in their early 60s, each reading catalogs while waiting for dinner. The wife wanted a new sofa, the husband said something about buying new shoes. See, that's what we're talking about here. We can grab market share among a receptive audience."

Roger Morgan: "EXACTLY! Kevin, I think we're done with your questions for today. You can leave now. Folks, let's move on to the strategic portion of our meeting. Let's talk about the change from 20% off of company merchandise for employees to 15% off. Lois, how much profit will this generate in 2010, based on your estimates?"

Gliebers Dresses: Anna Carter, The Interview

I have been invited to meet with Anna Carter, President of Anna Carter, the main competitor of Gliebers Dresses.

As you may know, Anna Carter elected to discontinue their catalog in Fall 2009. Ms. Carter's office building is almost space age, in comparison with the office space leased by Gliebers Dresses. Ms. Carter's office is lined with LCD televisions on the walls. One LCD monitor posts a dashboard with call center and live chat information. Another lists daily website metrics, including conversion rates and bounce rates, new/existing visitor information, that kind of stuff. Another LCD monitor scrolls live customer feedback on Twitter. Yet another LCD monitor scrolls through updates from various fashion blogs.

These monitors are posted in every Executive's office, and hang from the walls of every major congregation point in the building. In fact, all aspects of the office building are positively 2010 in nature. On-site daycare, company paid iPhones for all employees, Twitter accounts for all employees that require, as a condition of employment, one tweet per day. There is an amazing cafeteria that is subsidized at a rate of $10 per employee per day, enough money for employees to enjoy breakfast and lunch. A workout room is fully furnished with clean towels and the latest equipment, and is staffed with a Wellness Director. This individual prescribes workout routines and dietary opportunities that can be supplemented in the cafeteria. Employees can pay an annual fee of $2,500, and in kind, receive free health care for the year ... in fact, an on-site nurse practitioner deals with daily issues, referring employees to medical attention as appropriate. Employees who drive Hybrid vehicles, who take public transportation to work, walk to work, or ride their bike to work receive free health care ... their $2,500 annual health care fee is waived.

In other words, Anna Carter has gone to great lengths to create an environment where an employee feels valued. Let's chat with the person behind this company.


Kevin: "Thanks for inviting me to be here today, Ms. Carter."

Anna Carter: "Please, call me Anna."

Kevin: "Let's get right to the question most people would want to know about. Why did you end your catalog marketing program?"

Anna Carter: "Oh, this is a complex issue. Let me start by asking you a series of questions, Kevin. When is the last time you subscribed to a newspaper?"

Kevin: "At least ten years ago."

Anna Carter: "Why do you keep a landline-based phone?"

Kevin: "I need it for my DSL service, and use my cell phone for almost everything else."

Anna Carter: "What is the ratio of CDs you've purchased in the past year to MP3s?"

Kevin: "I think I purchased 124 songs on iTunes, and purchased one CD."

Anna Carter: "When is the last time you purchased a DVD, and when is the last time you got a movie via Netflix?"

Kevin: "I only purchased one DVD last year ... I get three movies a month from Netflix."

Anna Carter: "What is the ratio of time you spend watching network television, vs. watching cable networks?"

Kevin: "I probably only watch 4-5 shows that are on network television. Most of what I watch is on a cable network."

Anna Carter: "When is the last time you purchased something from Amazon.com, and when is the last time you ventured into a department store?"

Kevin: "I bought from Amazon last month, I probably haven't purchased something from a department store in six months."

Anna Carter: "We could do this forever, Kevin. Times change. In 1999, I went to Tower Records, and I browsed a hundred CDs before walking out of the store with a half-dozen CDs. Today, I let iTunes and Genius recommend to me what I would like to listen to, and then wirelessly add the song to my iPod touch. It's magic. How the heck would Tower Records compete with that?"

Kevin: "They couldn't. And now Best Buy and Wal-Mart are shrinking their physical music offerings, too."

Anna Carter: "At some point, you ask yourself a simple question. Are you in business because of the technology that delivers product to a customer, or are you in business because of the merchandise that customers want to buy from you? The catalog is simply a technology. My brand is about connecting customers with fashion. I don't need a catalog to facilitate that connection, do I?"

Kevin: "But what if the technology is still viable? Why kill the catalog altogether? Why not target it to the customers who want catalogs, and let everybody else shop online or via the micro-channels they prefer?"

Anna Carter: "That's an oversimplification of an issue, Kevin. That's a theoretical question raised by folks who have a vested interest in CRM, or in selling paper or printing services, or in hosting a co-op database that pays them whenever somebody rents a name."

Kevin: "Well, no, if it is more profitable to target only those customers who want a catalog, then why not make the more profitable decision?"

Anna Carter: "Profit is a flexible concept, Kevin."

Kevin: "How so? Isn't profit a simple mathematical calculation?"

Anna Carter: "Let me give you an example. Our catalogs averaged 124 pages, and we mailed them about seventeen times a year ... no remails. This means that we had to create 2,108 unique pages each year. You don't do that with a small number of individuals, Kevin. It takes a boatload of talent to put 2,108 pages in the mail. It costs us $1,500 just to produce each page. And we paid $0.67 to put each 124 page catalog in the mail."

Kevin: "And then you received $3.00 per catalog, yielding you $0.25 of profit."

Anna Carter: "The issue, Kevin, is what COULD you do with the $0.67 of catalog marketing expense. Could you do something that generated a better return on investment?"

Kevin: "But why not spend the money on catalog marketing and spend additional dollars on the other activities that generate a better return on investment ... then you win on both fronts, right?"

Anna Carter: "That's not the way marketing works, Kevin, and you know that, you talk about that issue all of the time on your blog. We tested not mailing catalogs in Q1-2009. After two months, the performance of our e-mail marketing campaigns doubled. You mention that marketing is a big game of whack-a-mole on your blog. Well, that's exactly what it is. In our test, we learned that customers age 55 and above are nearly 100% dependent upon catalog marketing. Customers age 40-54 began to migrate to e-mail marketing, paid search, portal advertising, that kind of stuff. Customers age 30-39 were into e-mail marketing and social media. Customers age 20-29 are a whole different ballgame, we haven't learned how to market effectively to them. But in all cases among customers age 20-54, catalogs did not yield the sales that our matchback reporting suggested."

Kevin: "Explain that concept to me, because the co-ops keep telling catalogers that if you don't mail a catalog, you don't get sales in other channels."

Anna Carter: "Of course they tell you that, because if you cut back on catalog mailings, they lose revenue. They don't technically lie to you. They tell you that customers who received the catalog spend $2.20 online in the sixty days after receiving a catalog. Well, technically, that statement is 100% accurate. Of course, it doesn't mean that BECAUSE the customer received a catalog the customer spent money online. Our tests showed us that 50% of the demand matched back to a catalog would happen anyway if a catalog was not mailed.

Kevin: "So in your case, the matchback algorithm grossly overstated how effective the catalogs were?"

Anna Carter: "Exactly. We ran a profit and loss statement on the incremental demand generated by catalogs. We were generating 3% EBIT on our catalog business. I could spend $10,000,000 of marketing expense mailing catalogs to generate $750,000 profit, or I could put $10,000,000 in a CD at 3% interest and earn $300,000 profit, without doing any work whatsoever."

Kevin: "You still make more money doing the catalog marketing, right?"

Anna Carter: "This brings us back to the question of what we could do with $10,000,000 of catalog marketing expense. We used the results of our test to forecast what we could spend in online marketing if a catalog didn't exist. For instance, we learned that we could quadruple our paid search investment if we didn't have a catalog."

Kevin: "How is that possible?"

Anna Carter: "Part of the increase happens because paid search orders were no longer being matched back to catalogs, causing paid search performance to look much better. But here's the really interesting part of the equation. We took our creative staff, folks who used to work on catalog spreads, and gave them a new challenge. We assigned each creative staffer a set of keywords, and told them to design landing pages customized to the keywords assigned to them. Our landing pages were good for crap when we focused all of our efforts on catalog spreads. Our landing pages absolutely blossomed when a creative person designed a page tailored to a family of keywords. Conversion rates for tailored landing pages increased by 125% when catalog creative folks designed the pages. This fact alone allowed us to triple our paid search spend."

Kevin: "But those customers have significantly lower long-term value, compared with a catalog customer, correct?"

Anna Carter: "Yes, that's correct. But so what? If I can acquire 10 customers at break-even with $20 of long-term value, I am better off than acquiring 3 customers at break-even with $40 of long-term value. You simply change your mindset. You ask your people to focus on something different."

Kevin: "Ok, but how do you acquire customers now that you don't have a catalog?"

Anna Carter: "That one is harder to solve, Kevin. Starting in February 2010, we will offer $3 shipping on all orders, and free returns on all orders. We can do this because we know that our conversion rate will increase by 20% with this strategy, offsetting some of the lost shipping and handling revenue. And then we acquire new customers, because first time visitors to the site bail on us when they get to shipping and handling expense. We will use catalog marketing dollars to subsidize $3 shipping and free returns."

Kevin: "That still doesn't solve your new customer acquisition problem."

Anna Carter: "Nope, it doesn't. And honestly, I don't care. Traditional customer acquisition through list rental was wiped out by the co-ops. And now the co-ops are being wiped out by Google. In five years, the co-op business model will not work anymore for catalogers. I'd rather get a five year head start experimenting with new strategies than wait for co-op customer acquisition to completely implode."

Kevin: "This has to have a brutal impact on top-line sales, right?"

Anna Carter: "Sarah Wheldon thinks sales will drop by 35%. I am forecasting a 40% drop in sales in 2010. But we will be more profitable in 2010 without a catalog than we were in 2009 with a catalog."

Kevin: "So you had to fire a bunch of staffers, right?"

Anna Carter: "Yes, in the call center and distribution center, it wasn't pretty. But we kept about ten of our best sellers in the call center, and gave them a new title --- Social Media Store Manager."

Kevin: "Describe that job title to me."

Anna Carter: "Their job is to use blogs and Twitter to solve customer service problems, to build an audience, and to sell to customers. It's a $400,000 investment that we'll try for one year."

Kevin: "How does one sell on Twitter?"

Anna Carter: "Here's the thing, Kevin. We gave every employee, not just merchants or Social Media Store Managers, but every employee a new level of accountability. We told them that SPREADS = LANDING PAGES. In other words, everybody used to work hard to merchandise a spread in a catalog. Now, our merchants and creative staff focus entirely on creating landing pages. They get to see the performance of their landing pages, in real time, via our web analytics tool. Employees who design the best performing landing pages earn a weekly bonus. Employees who refer customers to the best performing landing pages via their blogs and Twitter accounts receive a weekly bonus. We froze salaries for 2010, and told employees that they can earn that money back via bonuses. The average employee would have received a $1,500 salary increase. As long as the employee has a social media presence and updates their social media presence at least twice a week, they get $500. Then, the best performing employees all earn bigger bonuses based on what they sell via their social media presence --- I mean honestly, we pay affiliates a percentage of every order they generate, so why not do the same for every employee? I mean, who has more passion for selling, an affiliate, or one of our employees?"

Kevin: "That's interesting."

Anna Carter: "It sure is. There is an insane amount of competition to create highly performing landing pages. Landing pages that don't work are killed, quickly. You have merchants doing de-centralized marketing on their own Twitter pages, driving customers to the their own landing pages. You have creative staff doing de-centralized marketing on their own Twitter pages, driving customers to their own landing pages. You have employees competing against each other, trying their hardest to outperform each other, creating a Darwinistic style of landing page evolution that we could never have learned on our own when we have a catalog. In fact, conversion rates on our landing pages have improved by 80% since we terminated the catalog and developed this style of competition."

Kevin: "Have you had any problems on Twitter, using this strategy?"

Anna Carter: "We have three rules. Don't lie. Always reflect the brand favorably. And you're not allowed to offer discounts or promotions. Everything else is fair game. If you want to see innovation on Twitter, you'll see it using this strategy. We have employees offering merchandise deals of the day. We have employees who offer social media links to anybody who promotes our merchandise on their blogs. In fact, we now see that 17% of our website traffic comes from social media. The important thing is to allow each employee to be their own "store manager". They get to pick and choose the landing pages that they like best, and then they are rewarded when customers buy from their landing pages or via their social media presence. I've seen merchants who earn bonuses by selling the merchandise offered by a co-worker ... if that merchandise is working better than what the merchant is selling, you'll see merchants promote other merchandise over their own. You won't see that happen in a traditional catalog business."

Kevin: "All of this happens because employees aren't focusing on catalog spreads anymore?"

Anna Carter: "And it happens in real-time, Kevin. If a landing page isn't working, it gets pulled down, and fast. If a catalog spread doesn't work, it sits there in homes for sixty days, and we don't fix the problem for maybe six months. We optimize our business on the fly. Do you have any idea what we've learned about customer behavior since disbanding the catalog, stuff that we never had the resources to learn previously?"

Kevin: "Sounds like you need web analytics and information technology alignment to pull this off."

Anna Carter: "You have no idea. It's nice to have an information technology executive who is incented to provide a framework for dynamic landing pages that can be modified by any creative staff member. And you should see the merchandising, creative, and information technology integration that happens ... they all realize that they need each other to make the business work. And you should see how merchants all of a sudden are spending time in the contact center, encouraging employees to use live chat or Twitter to promote their landing pages. All of a sudden, employees are working together in ways we never imagined."

Kevin: "So this is how you make more profit than by running a traditional catalog business?"

Anna Carter: "Yes, this is how you do it. But you cannot do it if you are passionate about catalog marketing. You can only do it if your are passionate about selling merchandise. This is the mistake that old-school marketers make. They are passionate about the form of distribution. The music industry wanted to sell you music via a CD, they didn't want to sell you music. The newspaper industry wanted to sell you news via paper, they didn't want to sell you news. I want to connect a woman with a dress, and I'll go door-to-door to do that if I have to. I do not care one bit about the way I connect a woman with a dress. I care deeply about having passionate employees who want to sell!"

Kevin: "Based on the benefits employees have, it looks like you re-invested catalog dollars in a lot of employee programs."

Anna Carter: We sure did. We built the workout center, the cafeteria, we hired a Wellness Director, we added the daycare center, we did all of that with the money we used to spend on catalog marketing. Our employees, in kind, spend more time here, they are healthier, happier, and work harder at merchandising and marketing our website."

Kevin: "Thanks for taking the time to chat with me today, Ms. Carter."

Anna Carter: "And thank you for spending time working with Sarah Wheldon on a five year forecast for where our business will be in 2015 without catalog marketing. I appreciate the Online Marketing Simulation work you did for us. If Gliebers Dresses invites you back, be sure to pass along my best wishes to Glenn. I'm sure that our decision to kill the catalog is absolutely knawing at him."