Playing The Odds

When I read Scarne on Cards, I was thrilled with the discussion of probability/odds.

Studying this data in the 1970s suited me well for what we deal with today.

Take Cyber Monday newbies, for instance. You just acquired a boatload of newbies on Monday. Have you run the probability of a purchase from these customers after Cyber Monday? Do it! Perform the analysis. You're likely to see that you now have four weeks to convert those customers before you begin the long and sluggish process of losing the customer (while losing money trying to convert the customer).

Know the odds of various customer segments converting to a subsequent purchase.

P.S.: I just analyzed a business where 35% of Cyber Monday buyers who will repurchase do so within four weeks, with 42% repurchasing within eight weeks. After that? The customer dies off until the following Black Friday / Cyber Monday window. Know your odds and act appropriately.

The House

The House. In gambling, it's the facility that makes all of the money. They set the rules, and if you choose to play by their rules you'll ultimately lose.

In e-commerce, the house is Amazon, eBay, Etsy, Walmart, Shopify, Google, Facebook, just about anybody who you pay a tax to in order to have access to customers.

In late-stage catalog marketing, you pay a tax to the USPS, to your paper rep, to your printer, to your boutique agency, to the consultant broadcasting on LinkedIn with demands that you keep mailing catalogs even though the house doesn't have enough paper to allow you to play the game you've always played.

Think about how retail is changing ... the folks who were "the house" (malls / landlords) lost a lot of power in the past decade. After lousy malls are razed, the good locations are going to earn a lot of power over the next five years.

Your business has three elements that determine how profitable your merchandising efforts are.

1. Organic Sales ... customer buys from you without the aid of marketing because the customer loves you.
2. Relationship Sales ... customer buys from you because of relationship marketing efforts including catalogs, email marketing, loyalty programs, and events.
3. Transactional Sales ... customer buys from you because the customer has a need at a point in time and third parties connect the customer to you.

"The house" earns the rake from 2/3 above. Most of your profit should come from (1).

You make much of your profit on "1" above.

Where possible, you want to avoid 2/3 and focus on "1". I know, I know, that's really hard to do. But the alternative is to listen to the house. Their advice could help you, but will likely help them more.

Scarne on Cards

I'm not sure why my parents bought me a card book written by a gambling maven with connections to the mob, but the 70s were crazy times.

I still own the book. You can buy a used copy here. The writing style is not terribly different than that of Don Libey, for those of you who remember Mr. Libey. That statement alone should indicate to you what you (the reader) gets by reading the book.

I still vividly remember a key lesson taught in the book. The author spoke of the cut the house gets in poker (and honestly, in any game). The author described a situation (paraphrased here) where five players are sitting at a table with $100 each, and at the end of a hand the house gets a "rake" ... say 4%. In other words, the players bet, and at the end of the hand the pot is $50 so the house gets $50*0.04 = $2.

Pretend you play 100 hands.

100 hands times $2 per hand = $200 that goes to the house.

In other words, the five players start with $500 total ($100 each) and at the end of 100 hands the house gets $200 and the players are left with $300, divided five ways, about $60 each. Each player is down $40 from the start of the game.

The author described that the only way for the player to solve the problem was two-fold.

1. Recruit new talent - bring new money into the game.
2. Recruit talent with lesser skills.

Why am I bringing this topic up?

Well, modern marketing is all about "the house". Somebody controls the market, and for you to play in the market you have to pay the house a "rake".

More on the topic tomorrow.

Make Sure You Measure It

You measure the future value of Black Friday and Cyber Monday customers, right?

Right?

As long as you are going to burn all of these discount/promo dollars, at least measure what you get long-term for your efforts ... and measure it down to profit. Ok? Heck, you might find out that this is the best time to acquire a customer. Or not. But at least you'll know.

More Articles

You start to see a trend, and you wonder if the trend is real, or if the trend is astroturfed.

See if you can identify common themes in these articles, or common quotes from the same people, or the same people being referenced repeatedly.

• Catalogs Fill A Retail Therapy Niche.
• Why Catalogs Are Still Winning Holiday Marketing.
• Direct Marketing For The Direct To Consumer Brand.
• All Hail The Return Of Catalogs.
• Six Essential Strategies To Make Your Catalogs Stand Out.
• Retailers Rethink Holiday Ads Amid Digital Marketing Upheaval.
• Why Catalogs Are Still Winning Christmas Marketing.
• How Retailers Are Re-Thinking This Holiday Marketing Approach.

Read the articles and jot down on a piece of paper the individuals cited in the articles.

You'll quickly be forced to confront the fact that somebody hired a PR firm to spread a message at a time when the catalog industry has never been on more unstable footing (and that is saying something, dear readers).

And the PR firm is really good at getting articles published. This trend is, obviously, astroturfed. And if I worked at an agency responsible for catalog marketing, I'd be working my rear end off to get as much exposure as possible right now - you can't blame folks for hustling.

We are required to be honest. I realize that's not a popular position in 2021, the best practice is to lie and mislead and earn clicks and mindshare and all of that. Look at politics and discussions about a pandemic for a starting point on this topic. 

What has happened in the past fifteen or twenty years?

• Digital Ad Spend continues to grow at a mind-boggling rate (click here). Meanwhile, Catalog Ad Spend is about 1/20th or less (yeah, that's right) of digital ad spend (click here).
• Can I state this again? For every dollar spend mailing a catalog, between $20 and $25 are spent on digital marketing.
• I know, I know, you'll debate that the sources aren't appropriate. Fine. Go get your own sources, and tell me that the ratio isn't $1 in catalog to $20 in digital.
• Mills have been closing for the past fifteen years, greatly constraining paper supply. Mills have not been closing because catalog marketing is making a comeback. Mills close when demand is contracting.
• The pandemic ... not actual merchandising and marketing brilliance ... taught customers to buy online, often out of necessity for a period of time. As a result, catalog-centric brands saw an increase in the number of twelve-month buyers.
• The increase in twelve-month buyers means that catalog brands asked for more paper in 2021 and 2022 ... at the very time when supply had been constrained too much (oops). Less capacity paired with more names to mail created a paper shortage.
• The logical response to a paper shortage is not to let your Widgets sit in a warehouse, but to find a marketing alternative to move the Widgets out of the warehouse. This is where "digital" comes into play. "Digital" terrifies the catalog vendor community. I was in the meetings at Eddie Bauer in 1998 when e-commerce exploded and you could feel the tangible concern for a catalog career path. That was 1998. Those concerns never went away, and for good reason. I experienced how catalog professionals reacted when we shut down a $160,000,000 net sales catalog division in 2005-2006 and instead saw a net sales gain the year after. Even as sales INCREASED, catalog professionals were very uncomfortable. Very uncomfortable. Can't blame them, either.
• Notice that the articles attack Apple and Facebook. It's their fault, and the response is to go back 20 years in history for a solution. Wrong. If a digital marketer is dependent upon Apple, Facebook, and Google ... then the digital marketer is "doing it wrong". The best digital marketers do not depend upon 1-3 platforms. The best digital marketers understand the creative and merchandising processes in the digital realm, regardless of platform.

Notice that the articles really hammer home the retail side of catalog marketing. This is for good reason, because the metrics on the retail side are shoddy. It's easy to convince the Executive Vice President of Global Brand Direction to make a fashion statement with a catalog. It's hard to convince the CFO at a catalog brand that catalogs are making a comeback, because the CFO has evidence that says otherwise. We're coming out of the pandemic and many housefiles are starting to contract. CFOs and CMOs at catalog brands understand what is really happening. Talk to them.

Should you dive into catalogs and help the channel make a comeback? If the metrics say yes, why the heck not??!!

Make sure you are looking at comparable metrics, of course.

Ignore matchbacks - that's pseudo-science designed to lie to you about the real impact of print. Use your mail/holdout test results to understand incrementality - and if you aren't comfortable giving up sales from 25,000 customers for six months via a holdout group, well, then you shouldn't be comfortable with your paper rep & printer canceling your January catalog altogether or shrinking your contracted circ by 100,000, right?

Let's say you mail a catalog to an average twelve-month buyer. During the month the catalog is mailed, customers who received the catalog spend $10.00. Those who are in a holdout group spend $6.00. Your organic percentage is 60%, your catalog drove $4.00 of incremental sales. Not a bad result.

• $10.00 customer spend.
• $6.00 would have happened anyway.
• $4.00 is incremental.
• 35% of sales flow-through to profit.
• Catalog cost is $0.75.
• Profit = $4.00 * 0.35 - $0.75 = $0.65.

Now, you also execute mail/holdout results for email marketing, right? You send five campaigns a week, you generate $0.12 per mailing, and 60% of sales are organic and would have happened anyway.

• $0.12*5*4 = $2.40 customer spend.
• 60% would have happened anyway, meaning $0.96 is incremental.
• 35% of sales flow-through to profit.
• $0.002 is the cost per email delivered, or $0.04 per month.
• Profit = $0.96*0.35-$0.02 = $0.30.

If that's your result, then yes, catalogs are generating a better return ($0.65 vs. $0.30) than email marketing. You are winning - and go ahead and mail some catalogs and have fun. Notice, however, that the math illustrated above is never cited in articles. That should cause consternation on your end. Why won't anybody ever share favorable math with you via mail/holdout results?

Do the real math. Execute the tests ... both for catalogs and for email marketing.

Do not focus on astroturfed trends generated by smart PR firms being paid to get articles published.

Focus on performing an analysis that proves whether something is making a comeback, holds ground, or is in decline.

Does that make sense? Believe your metrics, not what you read.

P.S.: I'm ok with the authors and those who were interviewed and the PR folks promoting the content pushing their agenda. That's fine. I'm focused on you. Do the work. Make good choices based on facts.

Would You Rather Acquire a Customer on October 8 or Cyber Monday?

Obviously you probably want both customers.

But do you know the answer to that question?

In a recent project I was asked to determine, out of 365 days, where Cyber Monday ranked in terms of delivering good customers most likely to repurchase.

The answer?

349th out of 365.

October 8th?

33rd out of 365.

Your mileage will vary. So please, do the work. Answer the question for yourself - it's a 16 line piece of code when the data is formatted properly and you're using SPSS to conduct the analysis.

One of the reasons your customers aren't loyal is because you choose to purposely acquire customers at times when the customers who purchase are not likely to become loyal.

Article

Here's an story for those of you in the catalog audience (click here).

Send me an email (kevinh@minethatdata.com) and tell me what you think of this article. Offer your pros and cons.

P.S.: Here's another article for readers with an affinity for retail. My goodness.