Three Types of Traffic

On Twitter, there's a lot of experts who "know" how to fix retail. Experiences!! Omnichannel! Digital Transformation.

All could be used to improve sales. But does it matter?

Maybe.

In my projects, it's common to observe three types of traffic.

• Earned.
• Purchased.
• Shared.

Earned:

• Think of a customer who purchased twelve times previously, and loves your brand. This customer visits your website all the time, and is more than happy to drive to your store without the need for advertising. This customer is the very definition of the "organic percentage". If you do your job well, you have a significant minority of traffic that is earned (i.e. you earned this traffic by running your business well) that generates a significant majority of sales.
• Social media falls into the Earned category - your creative team (Instagram in particular) creates imagery and "content" so powerful that your fans share the word for you  ... you "earn" this traffic, and it costs you nothing.

Purchased:

• This is what you read about.
• Pay Google.
• Pay Facebook.
• Pay TV for ads.
• Pay for Retargeting.
• Pay Affiliates.
• You give somebody money, they deliver customers. Hopefully they're the customers you need, customers with long-term value that eventually fall into the Earned category. Hopefully.

Shared:

• Three types of shared traffic come to mind.
• First = Paying for Real Estate in a Mall. This form of Shared Traffic is dying.
• Second = Paying Co-Ops (catalogers) for New Customers. This form of Shared Traffic is dying.
• Third = Amazon. This form of Shared Traffic is growing.

The problem with modern business is that too little traffic is Earned, too much traffic is Purchased, and too much Shared traffic is dying.

Think about it this way. Pretend you are a mall-based retailer.

• Earned Traffic = 40% of Sales.
• Purchased Traffic = 30% of Sales.
• Shared Traffic = 30% of Sales.
• Next year, you forecast Earned Traffic to be flat, Purchased Traffic to be flat, and Shared Traffic to be down 20%.
• Next Year Sales = 0.40*1.00 + 0.30*1.00 + 0.30*0.80 = -6%.

If you are a mall-based retailer, this is the problem you cannot solve with any of the trending topics out on Twitter (Omnichannel, Experiences, Entertainment, Digital). 

Here's an example. Say you grow Purchased Traffic by 10% by working hard to improve Purchased Traffic ... but your mall-based competitors fail miserably (as they frequently are) causing Shared Traffic to drop by 20%.

• Next Year Sales = 0.40*1.00 + 0.30*1.10 + 0.30*0.80 = -3%.

You do everything right, but because you are dependent upon Shared Traffic, your sales decline.

You can't solve the Retail problem until you solve the Shared Traffic problem.

Hint:  You are not going to solve the Shared Traffic problem ... that problem will continue to get worse.

Therefore, you have to solve your Earned Traffic issue and/or you have to profitably solve the Purchased Traffic situation. That's what you have to do if you have stores ... stores can no longer be dependent upon Shared Traffic.

Restoration Hardware Source Books

Let's look at a quote from the 10-K at Restoration Hardware (you read 10-K statements from publicly traded companies ... right ... right?).

Source Books

• We produce a series of catalogs, which we refer to as Source Books, to showcase our merchandise assortment. In fiscal 2018, our mailed Source Books included RH Interiors, RH Outdoor, RH Modern, RH Rugs, RH Teen, RH Baby & Child and RH Holiday. Our Source Books are one of our primary branding and advertising vehicles. We have found that merchandise assortments displayed in our Source Books contribute to increased sales of those products across all of our channels. As in our retail stores, our Source Books present our merchandise in lifestyle settings that reflect our unique design aesthetic. Our Source Books also feature profiles of select artisan vendors and other compelling editorial content regarding home décor. All creative work on our Source Books is coordinated in-house in our RH Center of Innovation & Product Leadership, providing us greater control over the brand image presented to our customers, while also reducing our Source Book production costs.
  Our Source Book mailings serve as a key driver of sales through both our websites and retail stores. Our customers respond to the Source Books across all of our channels, with sales trends closely correlating to the assortments that we emphasize and feature prominently in our Source Books, websites and retail Galleries. We continue to evaluate and optimize our Source Book strategy based on our experience.
  We maintain a database of customer information, including customer information from our RH Members Program, which includes sales patterns, detailed purchasing information, certain demographic information, as well as mailing and email addresses. We mail our Source Books to addresses within this database and to addresses provided to us by third parties. The database supports our ability to analyze our customers’ buying behaviors across sales channels and facilitates the development of targeted marketing strategies, and is maintained in accordance with our privacy policy disclosed on our website. We segment our customer files based on multiple variables, and we tailor our Source Book mailings and emails in response to the purchasing patterns and product needs of our customers. We focus on continually improving the segmentation of customer files and the expansion of our customer database.
  Our Source Books, in concert with our e-commerce channel, are a cost-effective means of testing new products, and allow us to launch categories in a disciplined, expeditious and cost-effective manner.

In case that is TL:DR for you, here's what I want you to take from this:

• Our Source Books are one of our primary branding and advertising vehicles. 
• No mention of profitability. None. Interesting.
• They have a "RH Center of Innovation & Product Leadership" which most of the companies I work with call "2nd floor" or "Creative".
• They mail the Source Book to "addresses provided to us by third parties" ... a fancy way of saying "we rent names from co-ops".

The future of catalog marketing is a shift away from the classic business model (which began to die the minute Google began to "scale" nearly twenty years ago) into an advertising / branding vehicle. Something very different than a vehicle that maximizes sales per square inch. I can barely believe I just uttered this sentence, since it goes against everything I've historically believed ... but here we are, and we may as well acknowledge it, right?

The Pan Am Experience

Here are two posts that (if you are a true marketer with a passion for product) you should read.

1. The Pan Am Experience.
2. Take The Pan Am Experience Yourself.

One of my favorite Twitter quotes (I wrote it, so of course I like it) is this:

• Discounts and Promotions are taxes placed upon brands for being unremarkable.

The more unique something is, the more you can charge for it.

It's common in project work in the past two years to see companies raise prices (significantly) on new merchandise ... a comparable item that used to sell for $24.99 is reintroduced as a new item (with a new button or zipper) and is sold for $29.99. This yields a nasty dynamic ... customers won't buy the $29.99 item, so the brand deepens the discount (goes from 30% off to 40% off) ... but does so across the board, thereby lowering the price on the item that the customer likes ($24.99) from an effective $17.49 (30% off) to $14.99 (40% off).

See what happened there?

The newer item at a higher price point doesn't sell, causing the lousy marketer to discount EVERYTHING which lowers the effective price of the good-selling item thereby mucking-up the pricing integrity of all items.

I know, I know, you can't create "The Pan Am Experience" for your brand ... you sell widgets "in a highly competitive marketplace".

But you can do SOMETHING, right? You can have elite merchandise at a high price point that nobody else bothers to sell. Right? And you can make those handful of items special, from a marketing standpoint. Right?

Right?

Treasure Hunt

A few weeks ago, a reader said this:

• "Instead of talking about the gloom and doom of the death spiral, why not be optimistic and make the discussion fun ... like in the way a Treasure Hunt is fun??"

Think about the topic this way. The "Death Spiral" generally happens when Management reacts to changes in business performance. In other words, the "Death Spiral" is frequently caused by Management.

In the same fashion, a "Treasure Hunt" can be created by Marketing as a response ... a credible response.

Think about the elements of a Treasure Hunt:

• An entire world must be created - one that the participant wants to be part of.
• There is a problem to be solved - and the clues make solving the problem fun.
• There is competition. The participant is battling somebody else for a treasure.
• There is a TREASURE at the end, and most participants will not share in the treasure.

This brings us back to Marketing. We don't market to prospects as if we even care, do we?

Do we create an entire world around our "brand"? Almost never. Think about it this way ... what is the world that Macy's creates? Creating a world is HARD WORK, and it doesn't always work, does it? The easy half of creating a world is called "brand marketing". It's easy to create imagery that generates feelings, and it's easy to link that to customer service and pricing etc.  It's HARD WORK to create an actual world that the customer wants to be part of.

Problem Solving - what is the problem the customer is trying to solve? Do you give the customer clues to solve their own problem(s)? Think about email marketing ... we tell the customer that we have a "Friends and Family" event and that just about every living person on the planet gets 40% off as a result. That's not much of a treasure. Think about how you could use email marketing to solve problems that lead to a treasure.

Competition - this is what the Fast Fashion folks figured out ... they sold limited quantities of merchandise, creating a "competition" that resulted in urgency. What sense of urgency exists when you can buy the same pair of Dockers in any channel at any time? There's no urgency, is there? None! The marketer must create urgency.

Treasure!!  Apple understands the treasure (or at least they used to understand it). Think about customers waiting to buy a new iPhone. There needs to be a Treasure at the end of the Hunt, and the Treasure should be something that conveys status. What do you sell that represents the Treasure at the end of the hunt?

This brings us back to the concept of a seamless / frictionless omichannel shopping experience. Boring!!! It's comparatively easy to sell the same products in all channels at the same price and to integrate everything together ... it just takes software and money. In the Treasure Hunt mindset, the omnichannel solution is a small part of the treasure. If you want a customer to earn a treasure, you might require the customer to buy in an omnichannel manner (i.e. buy online pickup in store).

This transitions us to the concept of a Treasure Hunt within the structure of a Loyalty Program. Instead of giving the customer points when the customer buys something, why not create a Treasure Hunt???? Why not given the customer 10 points when the customer buys in store and 2 points when the customer buys online? That'll push a customer into your store, I can guarantee you that much!! Make your points structure flexible so that if you are having a hard time selling Widgets then you give more points for Widgets purchases. Give five times as many points to the customer when the customer buys new items ... thereby growing new merchandise sales (which means you'll sell more existing merchandise in the future). Use email to give clues that allows the customer to find the items that earn the most loyalty (treasure) points. DO SOMETHING!!!!!! Use email marketing to offer quadruple point events on specific items that are important to the Treasure Hunt. And then tell a compelling story around the items that support the Treasure Hunt.

Give the customer something the customer will actually treasure. If the customer earns 60 Treasure points the customer gets an actual ... wait for it ... wait for it ... an actual TREASURE!!!  Something nobody else gets. Put your product people / merchants to work to come up with something amazing that only those who win the treasure hunt earn.

What am I trying to say here?

I'm trying to say that the Marketer pulls a company out of the Death Spiral. Yes, merchandise is most important ... but the Marketer has a key responsibility to generate interest ... the marketer creates a Treasure Hunt that causes the customer to want to buy something.

Go do that, ok?

Example of an Old-School Anniversary Program

Here you go. Doesn't take any effort whatsoever.

P.S.:  When I share stuff like this at conferences, there are groans and eye rolls and heads shaking "nooooooo". That's ok, that's the right of the conference attendee. But as a speaker, I marvel at the ability of an audience to reject ideas and then grumble that "business is bad".

P.P.S.:  It's Nordstrom, 2001. My boss, the President of the Online Division, blows his top (in his way) because I correlate business struggles with S&P 500 declines. His quote lives with me:

• "It's not your job to correlate business struggles with the S&P 500. It's your job to fix business problems. Do your job."

So before you just reject the concept above, think about the quote, and then go fix a few problems, ok??!!

Join Me on June 27 at 12:00pm EDT!!!

I'll be doing a virtual event for Catalog University on June 27 at Noon EDT ... titled WHAT CATALOG MARKETING WILL LOOK LIKE IN 2025.

Yes, we'll talk about the future ... about Bifurcation ... and about how we'll all need to employ the Great Eight if we want to survive.

How much will this cost you?  NOTHING!!!

Click here to register - it's not like you have anything better to do a week before July 4 and you'll learn a ton in the process:  https://www.cataloguniversity.com/pubtalk/the-great-eight-what-catalog-marketing-will-look-like-in-2025/

What Merchandise Goes Into A 22 Page Catalog?

The future of catalog marketing skews in two directions.

1. 30+ contacts to a small fraction of long-term catalog-centric customers.
2. A handful of 22ish page contacts to non-catalog customers in an effort to generate awareness.

When the latter is a goal (and yes, it's going to be a goal in the future), you cannot afford to mess around with merchandise that doesn't sell well.

Period.

You will stuff that 22 page catalog with the absolute best merchandise you have. It's the only way you are going to generate positive return on investment.

This is coming ... we're not going to stop it, it's the future. Best be prepared now ... test the living daylights out of formats and ideas so that you are ready to embrace the future.

Right?