Another Reader Question

Here we go:

• "Is there more to what is happening across e-commerce than what you are talking about? In other words, it just seems like marketing is under pressure right now. Would you agree that marketing tactics are under pressure right now?"

Yeah. I would agree.

What's changing, of course, is "how" we communicate with customers.

We've learned three things post-COVID.

1. E-commerce brands are too focused on "bottom-of-the-funnel" tactics. The relationship in-between purchases is quite limited, and needs to be expanded.
2. Expensive "bottom-of-the-funnel" tactics are being ruthlessly eliminated by reduced response in the post-COVID era paired with overwhelming competition from Amazon.
3. We don't know how to communicate at the "top-of-the-funnel", especially now that old-school methods like television (outside of sports) are largely limited to a 50-85 year old customer.

Allow me to use eBay as an example. They are great at communicating with me when I've looked at a headphone or a dac/amp combo. They thrive at the bottom-of-the-funnel. They also have no clue whatsoever at how to keep me interested in-between purchased. They know exactly what I've looked at, they know what I've purchased, and they know what I've sold. They appear to use virtually none of that information in the months in-between purchases ... just a complete failure of top-of-the-funnel activities.

So yes, marketing tactics are under pressure right now. Anything too expensive at the bottom-of-the-funnel is being ruthlessly eliminated (ask Orvis). And too few e-commerce companies know how to keep a customer or prospect interested in-between purchases. Having a million followers on Instagram is easy. Having a compelling story to tell customers between purchases is hard.

The Phoenix Zoo

Another Question:  We plan our entire marketing calendar around the catalog. What do you expect us to do on October 28 when we don't have a catalog in-home that day, or for any day for the rest of the year?

Catalog brands sometimes had weaker-than-average marketers, because historically the catalog "was" the marketing vehicle, with the misguided omnichannel thesis requiring that all other marketing channels support catalog in-home events. The catalog in-home was "the" event. Without a catalog ... you'll need to create reasons for customers to spend money with you. 

You need to create something out of nothing.

How many of you have visited a zoo at night? It's not like you get to spend time looking at a giraffe at 8:35pm ... that's a daylight event. And yet, the zoo is sitting there ... available ... after dark. It "could" be utilized in some way.

The Phoenix Zoo is famous for their ZooLights Program ... especially at Christmas (click here). I realize you don't think a 50 degree evening in December is cold, but in the desert after you've acclimated to 115 degree temperatures, 50 degree evenings in December are VERY cold. And yet, the locals flock to the Zoo, at night, in the cold, to look at the lights.

It's not only at Christmas, by the way. They schedule events in late October as well, like earlier this week.

In my case, it was a group of six of us who went to see the butterfly display, then we spent $$$ on dinner at the restaurant at the Zoo (named Gertrude's, where hundreds were dining, most outside on an 88 degree evening in late October), followed by walking the grounds looking at the light display, called "Light Bloom".

I mean, there's no reason to visit a Zoo at night ... and yet, somehow, the Phoenix Zoo was teeming with people who spent money to be there on a perfect October evening.

They have plenty of events (click here).

They are hustling.

You, too, will be hustling when the catalog no longer exists.

Can you imagine the fun you're going to have creating events from scratch?

P.S.:  This applies to you in the e-commerce world as well. Instead of "60% OFF TODAY ONLY" followed by "60% OFF TODAY ONLY" again next Friday, why not create real events that customers want to be part of?

P.P.S.:  Another question from a reader ... "Is there an industry that does events well?"  I'd volunteer the wine industry. They create events and on-site tastings and video-tastings, the build excitement for their 2021 Pinot Noir release, they have wine clubs (i.e. subscriptions) where they get you to spend $600 a pop, they're quite good at what they do as an industry. Look at what wineries do for events, ok?

Another Question: Merchandise

Thank you for your questions and feedback ... a lot to keep track of in the inbox these days.

Question:  You suggest that catalogs cause different merchandise to sell. We've been taught for two decades to approach our merchandising strategy the same way across all marketing channels. We've been told this is a best practice. Why would you tell us otherwise?

I'm not suggesting catalogs cause different merchandise to sell. I'm tell you that ALL MARKETING CHANNELS align with a portion of your merchandise assortment. ALL CHANNELS have unique customers with unique merchandise preferences.

• The products that sell via email marketing are usually different (and less expensive).
• The products that sell via PLAs are usually different.
• The products that sell via search are usually different.
• The products that sell via paid social are usually different.
• The products that sell via print/catalogs are usually different.
• The products that sell in stores are often very different than those that sell online.
• The products that sell via direct load are different than the products selling via marketing.

You may not think this is a big deal, and sometimes you'd be right. It becomes a big deal when you want to end something.

Example:  Say you offer your best discounts via email marketing, and now you have a new CEO and the new CEO says "no more 60% off, the biggest discount is 30% off going forward". Well, that might sound good on the surface, but next week you offer 30% off and the 60% off customer who likes $200 items for $120 says "nope, won't buy" ... and later that week your merchandising team notices that $200 items aren't selling well, and two weeks later inventory is starting to pile up only on expensive items and they have no idea why, so they decide that they need to offer discounts on expensive items in all channels. Fun!

Example:  The Google-centric shopper buys inexpensive items. You decide that you are going to focus your remaining print efforts only on best-selling items to protect the productivity of print. This means the items the Google-centric shopper buys aren't featured in your 56 page mini-catalog. The handful of Google-centric shoppers you've acquired who like print won't respond now because you aren't featuring the stuff that the Google-centric customer likes. This makes catalog performance look bad, and causes Management to say "well, smaller page counts don't work".

Most of what you've been taught about channels and merchandise is wrong. Every channel has a unique product assortment ... some items that work great in all channels ... some items that work great in one channel. It's your job to tailor the product to channels based on prior performance and the customers who are likely to shop those channels going forward. If you're having problems with this concept, contact me (kevinh@minethatdata.com) and we'll get busy.

Ending A Catalog: A Simple One-Year Forecast

There are two important metrics that must be satisfied if you want to consider not mailing catalogs anymore.

1. Your organic percentage, via mail/holdout tests, must exceed 50% at minimum.
2. The fraction of new customers you generate (annually) via catalog marketing must be < 20%.

The new customer percentage is really important.

Let's just look one year in advance. Pretend you retain 30% of 100,000 twelve-month buyers, year-over-year, spending $200 each. Pretend you generate 70,000 new/reactivated buyers, spending $120 each.

• Existing Buyers:  100,000 * 0.30 * $200 = $6,000,000.
• New/Reactivated Buyers:  70,000 * $120 = $8,400,000.
• This Year = $14,400,000 Demand.
• Next Year = 100,000 * 0.30 + 70,000 = 100,000 Twelve-Month Buyers.

Ok, let's assume that just 20% of new/reactivated customers come in via print. Let's also assume that your organic percentage among twelve-month buyers is 80%, meaning if you don't mail catalogs, 80% of the volume remains.

• Existing Buyers:  100,000 * (0.30*0.80) * $200 = $4,800,000.
• New/Reactivated Buyers:  70,000*0.80 * $120 = $6,720,000.
• This Year = $11,520,000 Demand.
• Next Year = 100,000 * (0.30*0.80) + 70,000*(0.80) = 80,000 Twelve-Month Buyers.

In other words, about 20% of your business disappears. If you play that out over five years, maybe 30% of the business disappears in total. But you might be much more profitable (or you wouldn't be considering this concept).

Now let's assume that 50% of demand is organic, and let's assume that 50% of new/reactivated customers are generated via catalogs. The math is ... different.

• Existing Buyers:  100,000 * (0.30*0.50) * $200 = $3,000,000.
• New/Reactivated Buyers:  70,000*0.50 * $120 = $4,200,000.
• This Year = $7,200,000 Demand.
• Next Year = 100,000 * (0.30*0.50) + 70,000*(0.50) = 50,000 Twelve-Month Buyers.

To recap:

• Business As-Is = $14,400,000. 
• Good Metrics = $11,520,000.
• Catalog-Dependent Metrics = $7,200,000.

I could play this out for five years, but there's no reason to. Let's assume a 40% flow-through to profit and $3,000,000 in annual catalog expense.

• Business As-Is = $14,400,000*0.40 - $3,000,000 = $2,760,000 variable profit.
• Good Metrics = $11,520,000*0.40 - $0 = $4,608,000 variable profit.
• Catalog-Dependent Metrics = $7,200,000*0.40 - $0 = $2,880,000 variable profit.

The majority of catalog professionals reading this DO NOT WANT to manage a $7.2 million dollar brand that is more profitable than a $14.4 million dollar brand. I know this to be true, because you tell me you do not want your business to be half the size it is today at the same level of profitability.

The majority of owners, however, DO WANT to manage an $11.5 million dollar brand that is wildly more profitable than a $14.4 million dollar brand with catalogs.

This, quite honestly, is the math you need to perform. As long as you have mail/holdout tests, you can perform this math. It's easy!!

If you want me to take a shot at it, I'll produce a five-year guesstimate of where your brand would go without catalogs for just $9,900. Contact me now (kevinh@minethatdata.com) and I'll produce a forecast for you, ok??!!

More Questions

Lots of feedback these past two weeks.

• "Kevin, how can you defend mailing fewer catalogs or no catalogs at all when each incremental contact has intangible benefits that cannot be easily quantified by response and profit? How can you possibly know how much harm you are doing long-term by cutting out print?"

Yeah, I hear that often ... I've heard it more often in the past week. The question almost always surfaces from 60+ year old professionals and/or paper/agency professionals.

Let's start here. This is a recent Apple commercial on television. Tell me what the intangible benefit of the commercial is ... I'll wait while you watch it.

You've had since 2008 to decide if you are in the iOS camp or if you are in the Android camp. Demonstrating that iOS is good at AI is pointless ... you either are in the iOS camp and you already use Siri or you are in the Android camp. How many Android users see this commercial on linear television (a medium dominated by 50+ year olds at ever-decreasing rates) and say "That's it, that's the thing that causes me to change!" How many?

You can make a strong argument that the commercial series will not increase sales. Which means the commercial falls into the "intangible benefits" category. Professionals use the term "intangible benefits" to defend a craft that appears unprofitable via most metrics.

None of us know if we are doing long-term damage by cutting out a marketing channel. Heck, we could just as easily turn that argument around and ask the following question:

• "How much long-term damage are we doing to a brand by maintaining a marketing channel with poor ROI when we could/should reallocate those funds to modern marketing channels that attract a different audience?"

In other words, what are the long-term intangible benefits of modernizing marketing efforts?

Look, I know it is painful to spend your entire career doing something you love, only to have that craft lose effectiveness at the very time the paper/printing community decides to charge more and constrain supply, accelerating the demise.  

I have a friend who is a sports writer ... not many people want to pay to read sports content anymore. He provides considerable intangible benefits via his experience and perspective, but the customer does not value those benefits ... they'd rather hear a 23 year old offer less-informed opinions on a podcast. Hence, the intangible benefits have no value.

Tomorrow, I'll talk about the long-term perspective of not having catalogs anymore. It's an interesting topic, one many readers will have to grapple with.

Email Marketing Becomes Really, Really Important

E-commerce brands typically generate 25% to 40% of their annual volume via email marketing. That daily relationship they have with the customer is so darn important. They "have" to collect that email address and not abuse the relationship.

The catalog brand considering getting away from catalogs has a reckless relationship with email marketing. Because they can market via name/address, and each of those contacts generates $4.00 per mailing while each email message generates $0.08 per mailing, the relationship skews heavily toward print. So what if the customer opts out of email marketing? As a result, it's not uncommon for the catalog brand to generate 5% or less of annual sales from email marketing.

If you are thinking of closing the books on print, you build an email marketing plan at least one year ahead of the day catalogs end. You need to meet the needs of customers who are used to shopping a large assortment - and you need to figure that out with a format that encourages the shopping of a small number of items.

In other words, if you have five email marketing messages per week, each workday has to offer a different theme. You need to feature new items, you need to feature best sellers / winners, you need to liquidate the stuff that doesn't sell, you need to align with natural sale events and fake holidays (Cyber Monday) and actual holidays.

Making it harder ... you'll need to have different campaigns/cadences for different audiences.

• Welcome Programs for new buyers in the first three months of their experience with you.
• Separate Marketing Programs for Twelve-Month Buyers.
• Elite Buyers (75%+ Annual Rebuy Rate).
• Loyal Buyers (60% - 74% Annual Rebuy Rate).
• Quality Buyers (40% - 59% Annual Rebuy Rate).
• Average Buyers (20% - 39% Annual Rebuy Rate).
• Struggling Buyers (0% - 19% Annual Rebuy Rate).
• Separate Marketing Programs for Lapsed Buyers.
• Those you should spend money on.
• Those you should experiment with.
  
• Those who are highly unproductive (i.e. don't spend money with these buyers).

This is where a fraction of the audience says "nah, that's too much work".

• Your brand sends fourteen catalogs with 48 spreads per catalog ... creating 672 spreads per year featuring 4-12 items per spread.
• Apply those resources to email marketing.

If you're going to end the catalog, you have to "begin something". Begin anew with old-school email marketing ... you're going to have to begin anew with a lot of marketing disciplines, why not start with one you have aptitude for? Start a year ahead of time, learn, adjust, and then be ready when change comes.

A Question From A Reader About Shutting Down A Catalog Division

I've received a lot of emails and comments in the past week from readers. Most of the feedback follows a handful of themes.

• Service Providers:  Orvis might not understand the intangible, unmeasurable value of print.
• Catalog Professionals:  This day has been coming for a long time. You should see the internal conversations we've been having the past two years.

Here was one particularly pointed paragraph.

• "I'll believe in you if you name one, just one cataloger who successfully pivoted from print to e-commerce. I await your response."

Now, I have several clients where I am under NDA, and those clients successfully pivoted over the past ten years. I can't go into those cases for obvious reasons.

But I can tell you all about 19 years ago when I worked at Nordstrom and we ended a $160,000,000 catalog business (yeah, that business was bigger than almost all of the businesses that catalog professionals reading this text manage).

The debate about the "catalog" was vibrant and active when I arrived at Nordstrom in January 2001. The merchandise offered in the catalog sold via print ... it was not the fashion-centric product that worked well in stores and online. It should surprise nobody that if you try to grow a catalog brand, you pursue what works in catalogs and not what works in an "omnichannel" environment. It's suicide to sell the same stuff in all channels ... each channel has specific customers with specific preferences, you maximize ROI by catering to the customer who prefers a channel.

By 2003, what "worked" in a catalog was fundamentally different than what worked online, and what worked online was a "cousin" to what worked in stores. Online/Stores were more closely aligned, but catalog merchandise was very different, and it was obvious that merchandise served a different customer. If we tried to align the merchandise in print with stores/online, the catalog failed. If we catered to the catalog customer, the product offering was so different that it didn't really reflect "the brand".

It was obvious something had to be done.

In 2003-2004, we studied the profitability of the catalog channel. We ignored the lousy logic of matchback analytics, instead relying upon A/B holdout tests. We already knew that half of the demand would still exist if we didn't mail catalogs, and we already knew that the organic percentage (50%) was increasing over time. We were left with $160,000,000 in sales (approximately) and $36,000,000 in ad cost. With around 35% of sales flowing through to profit and about $15,000,000 in fixed costs, the catalog generated maybe $5,000,000 in incremental profit ... we assumed the catalog was essentially a break-even proposition.

Which meant the catalog didn't need to exist.

Oh, the internal discussions.

Imagine being the VP of Inventory for the catalog/online division. Inventory professionals don't have mail/holdout results, they just know that if the catalog is mailed you sell 10,000 widgets, they don't get to see how many widgets will be sold if you don't mail a catalog, to them the number is zero. The inventory folks were generally frustrated, and for good reason. They didn't believe the math we published, and I can't blame them for not believing in the math in 2004. In 2024? It's a different world.

I had 24 professionals reporting to me. It became obvious I'd only need 12-15 people if the catalog didn't exist. For one full year, I had to develop a plan for moving forward with a smaller team. The same reality hit inventory management, creative, and our merchandising team.

Merchandising changes were particularly painful, because the retail side of the business was going to "win" and the catalog professionals were going to "lose". Those who stayed would lose power, others would lose their jobs. Not surprisingly, some of the retail folks and online gloated at the expense of the catalog professionals. Humans.

Publicly traded companies do not like to see sales declines. We had to come up with a way to protect the top line. We had $36,000,000 of ad cost that could be reallocated. The online marketing executive and I worked together, and realized a decent chunk of that money could be spent digitally (mostly via non-branded paid search). Eighteen million dollars would be reallocated to search. The rest of the money was reallocated to what I'd loosely call "the retail packaging experience". Yeah, bags. Somehow the paper people always get their money.

We worked for about a year to determine the viability of the catalog - we then spent a year communicating our change in strategy to employees while working to align resources (i.e. downsizing) with the business that remained.

I've had better years, professionally.

I recall one particularly pointed phone call with a trade journalist ... an individual who began the phone call with the phrase "are you the dumbest person in the industry"? The person didn't publish any of my defense ... the trade journalist just ran with the "fact" we were stupid people and didn't understand the value of catalog marketing in an omnichannel world.

We mailed our last catalog two years after initiating discussions about the viability of the catalog.

We had an online + catalog business that generated maybe $400,000,000 in sales. Pull $160,000,000 in catalog sales out, and the online business should have contracted to $240,000,000, then grown by 25% +/- as was the case back in the day, headed back to $300,000,000. The numbers here (outside of the $160,000,000 for catalog) are marginally fuzzy due to memory, but are in the ballpark. I do remember that we ended the year after discontinuing the catalog with a 4% direct-channel sales decrease, meaning we were around $385,000,000 in sales.

In other words, killing the catalog while reallocating money to digital and aligning the merchandise with the retail channel was a very good decision. The online channel began to grow in an unfettered manner, albeit via a different merchandise assortment. This is why you hear me harp about understanding merchandise if you operate with multiple channels generating a significant minority of sales. It's why you hear me plead with you to understand what PLAs do to your business over time, or to understand what Amazon does to your business over time.

The merchandise assortment: About two months after our final catalog mailing, I started receiving phone calls from 60-74 year old women in the Dakotas, in Minnesota, in Michigan, in Vermont, in New Hampshire, in Maine, in Upstate New York, in Idaho. Rural areas. Angry calls. Frustrated calls. These people wanted to know why they were no longer receiving catalogs? They wanted to know what happened to the merchandise they loved, given the merchandise was no longer available on the website. I politely explained over and over and over again that we were no longer mailing catalogs and the products they loved were discontinued. This customer angrily explained over and over and over again why it was a disgrace that we were no longer serving her.

I recall sharing those conversations with my boss. My boss would listen politely, then say "I don't care". I'd respond "How can you not care?". She'd reply "That customer is not our core customer. Our core customer is a 30-50 year old shopper who lives within 25 miles of a store. That's the customer I care about."

Culturally, the composition of the work force changed. Brain drain. The operations executive left. The inventory executive left. The online executive was passed over for promotion to President and left. The President left, replaced by a member of the Nordstrom family. Merchants left. Creative professionals left, some starting their own businesses. My list manager left. My circulation manager left. My forecast manager moved over to the online division. My circulation director moved over to the online division. I didn't have to downsize many people because most saw the writing on the wall and left in advance of the decision.

The brain drain was interesting, because the "brains" that left repeatedly talked about how the business would suffer without their insights and brilliance.

A year later, I walked into the President's office, and told a member of the Nordstrom family that I was proud of him and his team for handling the transition so gracefully. Sales were increasing by 25% per month, profit was at an all-time high, and the people managing the new digital/retail online channel were doing great work. Nobody is as important to a company as they think they are.

Me included.

Eighteen months after the catalog was terminated, my job was greatly "reduced" in scope, in a decision that was clearly made to get me to move on with my life without having to pay severance. I was no longer needed, for obvious reasons. The business was healthy, the people running it were excellent, the job was done.

Since I knew what was coming, I spent my last two years at Nordstrom writing two books, published by the late Don Libey. He showed me how to run a consulting business, and by publishing the books I generated the "community" I needed when I started my business. In early 2006, I began writing this blog ... by March 2007 I had a thousand subscribers. When I announced to readers that I was starting my own business, I had immediate inquiries, and within five days I booked a $40,000 project.

You shouldn't shut down a catalog division without spending about two years preparing the business for the shock that comes without having print. Meeting structures change ... you don't meet because of the August Remail Catalog ... aligning digital activities to support the remail ... you meet because you have to find a way to grow sales in August ... what is the event you'll create to generate sales in August? You prepare ahead of time for the day when your Inventory Executive leaves, or your Chief Merchant leaves, or your CRM Director leaves. Professionally, you prepare ahead of time for what your next job will look like.

I could go on and on, but that wouldn't be a good use of your time.

But yes, I know a little something about somebody who shut down a catalog division successfully. Send me an email (kevinh@minethatdata.com) with your questions, I'll be happy to answer them.