Tuesday Mailbag: E-Mail, Attribution, Gap

Remember, these are real questions from fake individuals.

Mary in Modesto asks ... I'm really fascinated by attribution models right now.  These scientists are somehow able to parse an order into pieces, allocating each piece to the advertising channels responsible for causing the order.  It's so neat!  Why don't you talk more about attribution models?

Kevin ... Let's pretend that you visit a restaurant.  At the end of the meal, you're still hungry.  You have three choices, apple pie, hot fudge sundae, and rhubarb cobbler.  So you're going to get something, and you are leaning toward apple pie.  You ask the waiter if he has any specials today, and he says that the rhubarb cobbler is 15% off, and you get free ice cream and he'll heat your apple pie for you.  You decide to order the apple pie.  The waiter walks back to the cash register, and on a piece of paper, he places a "one" (1) next to apple pie ... he is attributing the order of apple pie to his sales technique.  Is he right?  Well, you would want to parse your apple pie order into pieces ... the menu, obviously, should get some credit, because without the menu, you wouldn't have gone down the dessert path in the first place, right?  The waiter deserves credit, because he helped make the sale happen, in theory, right?  And the promotion deserves credit, because 15% off rhubarb vs. no deal on the hot fudge sundae vs. free ice cream and heated apple pie sways customer demand, right?  How you allocate the percentages makes all of the difference ... and then there's one little detail left outstanding ... you were going to order apple pie regardless!!!!  In other words, the waiter and the discount/promo strategy deserve no credit, 0%, because the decision was made prior to the initiation of marketing.  This is what attribution experts struggle with ... the most important part of the attribution process is the determination of "organic demand", demand that would happen anyway, without advertising.  And that's why I don't talk about attribution very often ... the whole endeavor is a big guess.  Personally, I like to leverage mail/holdout tests in email and catalog marketing to influence my attribution activities, when required to do so.  Hint:  If you are an e-commerce or retail brand, the majority of your orders happen organically, without the aid of marketing ... if your attribution vendor claims your orders are largely due to marketing activities, quietly seek bids for a new attribution vendor.


Bill in Ocala asks ... What do you make of this big "relevancy" trend in email marketing?

Kevin ... Let me ask you a question, Bill ... when was the last time that you planned an email marketing campaign that was supposed to be "irrelevant"?  Recently, we talked about "the frightening", a situation where an old-school channel is being buffeted by new channels offering "new rules".  Email marketing is going through "the frightening", courtesy of social media.  Anytime a channel goes through "the frightening", interesting and unusual responses are expected.  Suddenly, email marketing weakness due to social media isn't the fault of the channel, no, weakness is due to you, the silly email marketing director at a big, dumb brand.  You are the reason that email is being cannibalized by social.  If you only produced relevant content coupled with triggers (vs. irrelevant batch and blast programs), your email program would be just fine.  When a channel goes through "the frightening", blame becomes an issue.  The email marketing community wants to blame you for not promoting relevant content.  It's your fault, Bill.



Ross in New York asks ... This name your own price stuff at Gap is really innovative, isn't it?

Kevin ... Sure, it is innovative.  I also wonder why innovation requires price cuts?  Apple innovates by producing products you didn't know that you wanted, at prices that are, on average, greater than the market average.  Listen, retailers are going through "the frightening".  Gap experienced stock prices around $20 to $25 in 2001, stock prices are around $20 to $25 in 2011.  Comp store sales have largely decreased over the past decade.  That's "frightening"!  So you have to do something.  And trust me, somebody thinks that product is the answer.  But product takes a long time (ask J. Crew), so in the mean time, you have to do something.  The question, of course, is what do you do with what you learn?  What do you do when your customers tell you that they only want to pay $35 for a $49 pair of khakis?  If you have a viable strategy for using this information in a way that doesn't damage your full-price business and your use of the information can potentially increase profitability, then have at it!

Tuesday Mailbag: L.L. Bean, J. Jill, and More

Here's our mailbag ... these are questions from fictional readers that real readers should be asking.

Craig in Ephrata asks:  What's up with J. Jill being sold again?

Kevin:  My opinion only ... you don't ever want to work for an apparel retailer that is treated by financial institutions like an equity traded on the open market.  It's hard for a leadership team to have a passion for merchandise and customers when the business is being flipped every couple of years.  It can take a half-decade to reinvent customer passion around the merchandise assortment, ask J. Crew for details, that process is seldom congruent with the incessant sale of a brand to financial institutions.




Ralph in Cannon Beach asks: L.L. Bean will offer free shipping, all day, every day, going forward.  I don't think my business could ever afford to do this.  Will they back away from free shipping in the future?


Kevin:  In November and December, almost everybody offers free shipping, and it "works".  It works, of course, because the control group ($14.95 shipping) is so uncompetitive that the lift free shipping provides pays for itself.  The interesting thing, to me, is what happens in the future when nearly everybody has some sort of free shipping strategy outside of the Nov/Dec window.  When everybody offers some version of free shipping, the "lift" associated with free shipping largely disappears.  This means that the profitability of the offer disappears.  Free shipping will have to be funded by "something".  It is my opinion that catalogers, in particular, will fund free shipping with a significant reduction in "mailing waste".  A smart cataloger will mail a customer thirteen times a year instead of twenty-three times a year, funding free shipping with the ad-cost savings while protecting 95% of the sales.  The net-net of this relationship will be a positive.




Amelia in Nashville asks:  Did I see that Groupon is now losing market share?  I thought this was the business model of the future?  What's going on?


Kevin:  A couple of things.  First, never confuse market share and net sales.  If a market triples in size, and you go from owning 100% of the market to 50% of the market, your business grew.  Second, the pundits don't know a whole lot, how could they know a lot?  Three years ago, Groupon didn't exist, so how could a pundit know how the "space" was going to evolve?  Thought leaders offered strongly worded opinions based on a limited dataset that offered virtually no ability to forecast the future accurately.  We have no idea how group buying or "social commerce" will evolve.  Enjoy the ride!

Tuesday Mailbag

Remember, these are real questions from fake people.

Elizabeth in Tucson asks ... Is Groupon really worth $25,000,000,000?  I mean, let me get this straight.  Groupon is essentially a geo-targeted email marketing list where Groupon takes on no risk whatsoever and the retail brand gets absolutely railroaded about forty percent of the time, right?  First, will retailers succumb to this business model forever, and second, what in the name of pets.com is up with this new bubble?

Kevin:  Let's answer your question by evaluating the market cap of a series of companies.  Where would you value a geo-targeted email marketing list that is 100% dependent upon retailers craving sales increases sans profit, in comparison to this list?

• Dell = $28,000,000,000.
• Starbucks = $26,000,000,000.
• Time Warner Cable = $24,000,000,000.
• AFLAC = $24,000,000,000.
• General Mills = $24,000,000,000.
• Kellogs = $20,000,000,000.
• Kohls = $16,000,000,000.
• Kroger = $15,000,000,000.

Jasper in Mason City asks ... You have to believe in Social Commerce, right?  It's all the rage these days.  In these challenging economic times, brands are seeking deeper connections with customers who demand the right to join the conversation.  Social Commerce is HOT, don't you think?

Kevin:  Let's level-set things for a moment.  It is fun to see new business models emerge.  We were stuck in e-commerce integration mode from the day that flooz.com failed.  Now, having said that, let us think about a couple of points.  Retail (in-store purchases) represent, what, 90% of total net sales?  Think about that for a moment.  We've been told about the importance of e-commerce for fifteen years, and it can't break through the fifteen percent level?  If e-commerce is so dramatically revolutionary, why isn't it 40% of total net sales?  And then, within e-commerce, what percentage of e-commerce is represented by "social commerce"?  Five percent?  I don't know, but it isn't much.  So 0.10 * 0.05 = nothing.  It's the biggest thing, and yet, it's nothing.  I believe in "social commerce", but let's just be realistic for five minutes.


Katelyn in Omaha asks ... Is there anything more important than integrating mobile and social with e-commerce?  I mean, customers demand a unified experience, right?  I recently read a report that said that savvy marketers are busily integrating all channels, in an effort to create a seamless experience.  Wow, that's cool.

Kevin:  What we're seeing is what I call "the frightening".  When an incumbent channel is "frightened" by new channels (or psuedo-new-channels), two things happen.  First, the incumbent channel demands that new channels are immediately integrated with incumbent channels.  This allows incumbent channels to maintain control.  We'll learn all about the peril of silos, we'll hear that the customer demands a holistic, integrated experience, based on a survey of 823 likely retail buyers.  It's the same line that catalogers and retailers threw at us when they went through "the frightening" in 1999.  Second, new channels offer us the "the rules have changed" argument ... as if everything is now completely different.  We'll learn that the "new rules of social commerce demand that brands establish deep, emotional connections with customers", and we'll learn that this requires savvy brands to immediately modernize, leaving traditional forms of organizational structure for those that are congruent with the social commerce manifesto.  We've been here before, we'll be here again ... history just keeps repeating.

• Old School = "The Frightening" ... integrate all that is new with all that is old, resulting in old-school channels controlling new channels.  E-commerce is now in the "old-school" camp, demanding integration with social, mobile, and social commerce.
• New Channels = "The Rules Have Changed" ... resulting in new channels demanding autonomy in order to allow innovation and to avoid the red-tape associated with old-school channels.  Social, mobile, and social commerce demand autonomy.  You don't read many articles where social commerce advocates argue for deep integration with existing channels, do you?  Hmmmm.

Offer your questions now ... email me here.