December 31, 2008

Multichannel Madness

Chad outlines a JCPenney e-mail strategy he likes, one where the brand calls out stores and landing pages and e-mail and text messaging.

This works when we have two or three channels to mention.

Back in the 1990s, catalog contact strategy management (horizontal marketing) was all the rage --- planning which of eighteen catalogs any individual customer should receive. Almost nobody could figure that one out, so we just mailed everybody everything!

Now what the heck do we do when we have to communicate a message to customers using two dozen micro channels? Do we communicate the same message via Catalog Marketing, E-Mail Marketing, MySpace, Facebook, Twitter, Plurk, YouTube, Flickr, Outbound Telemarketing, Direct Mail, Blogs, Television, Radio, Newspapers, Newsletters, Billboards, Buses, Paid Search, Affiliates, Shopping Comparison Sites, Press Releases, SMS, Video Marketing, Hologram Marketing?

There are no best practices, and there probably won't ever be, because the minute best practices are established, Facebook and Twitter will become unpopular and Newspapers will be dead, replaced by something new and shiny called "Guppie", changing the rules of the game.

So the question to you, the loyal reader, is this ... how do you propose dealing with Multichannel Madness? Do you bomb your "multichannel customers" with the exact same message across micro-channels? Do you bomb your multichannel customers with different messages across micro-channels? Do you bomb your multichannel customers with personalized messages across micro-channels? Do you use some channels and not others? Do you increase frequency in some channels, decrease in others, and let the customer pick/choose from social media? Do you market to the same folks, or do you try to find new ones?

If you just lost your job, this might be a place to focus your efforts ... folks will pay $$$ to anybody who knows how to manage this micro-channel marketing mess.

December 30, 2008

E-Mail ROI Is Overstated Because Of Search

Sometimes our business intelligence systems and KPIs miss subtleties in customer behavior.

Take e-mail marketing. Pundits frequently tell us that e-mail marketing has the best ROI. And they are right ... only because e-mail marketing is essentially free, from a variable cost standpoint. Take a look at the following profit and loss statement:

Circulation 100,000
Response Rate 0.14%
AOV $125.00
Demand $17,857
Net Sales $14,286
Gross Margin $7,143
Less Marketing Cost $300
Less Pick-Pack-Ship $1,643
Variable Profit $5,200
% of Net Sales 36.4%
ROI: Profit/Cost 17.3

The ROI is spectacular because the campaign only cost an incremental $300 to deliver. Campaign development and staffing costs are largely fixed, as we all know, not appearing in a variable profit statement.

Here's where we overstate e-mail ROI.

E-mail is a demand generation vehicle, correct? In other words, e-mail causes demand to happen that wouldn't happen otherwise. More important, e-mail causes customers to search for merchandise --- the customer uses Google, and visits the site after clicking on a paid search ad (I see this happening in client data all of the time).

Many retailers will "matchback" the Google-based order to the e-mail campaign that drove the Google-based paid search order.

But few retailers take the next step ... matching back all paid search clicks that do not result in an order. And this is where e-mail marketers make a mistake. If e-mail marketing causes customers to use paid search, and those customers do not convert to an order, e-mail marketing must be held accountable for the expenses generated by paid search clicks not resulting in an order. In most cases, the paid search marketer is held accountable for this expense.

How does this change the profit and loss statement? Take a look:

Actual Paid Search Totals
Circulation / Clicks 100,000 3,657

Response Rate 0.14% 1.75%
AOV $125.00
Demand $17,857 $8,000 $25,857
Net Sales $13,393 $6,000 $19,393
Gross Margin $6,696 $3,000 $9,696
Less Marketing Cost $300 $1,829 $2,129
Less Pick-Pack-Ship $1,540 $690 $2,230
Variable Profit $4,856 $481 $5,338
% of Net Sales 36.3% 8.0% 27.5%
ROI: Profit/Cost 16.2 0.3 2.5

There are two important facts to consider.
  1. E-mail marketing is not getting credit for an additional $481 of profit it generated via paid search. If e-mail marketing did not exist, in this case, 3,657 paid search clicks would not have happened, resulting in $8,000 less demand and $481 less profit.
  2. Just as important, real e-mail ROI is in the tank. Because e-mail caused 3,657 paid search clicks to happen, e-mail caused $1,829 of paid search expense to happen that would not have happened otherwise (you can easily verify this via mail/holdout tests). Reported e-mail ROI of 16.2, as stated in the analytics reporting generated by the BI team, is actually 2.5 ... comparable to other marketing activities.
Our analytics systems are giving us a false sense of the cause/effect that actually happens in marketing. E-mail marketing generates demand, consequently, it causes expenses that would not happen otherwise.

And this false sense of the cause/effect may actually hurt our ability to run the business. In this case, e-mail marketing is more profitable than otherwise observed. E-mail ROI, however, is grossly overstated using the typical KPIs generated by the BI team.

It is our job (as business leaders) to accurately portray what customers are actually doing. Most BI and e-mail analytics systems are not set up to detect the phenomenon described above. Most companies do not do the mail/holdout testing required to detect the phenomenon described above.

As a result, some of what we read in the e-mail blogosphere/trade-journal/vendor-whitepaper world is fundamentally flawed.

Whole Foods Merchandise Integration

Here's an interesting article on Whole Foods and social media.

Of course, I'm more interested in multichannel marketing, and there's a tidbit at the end of this article that is worth consideration. From Marla Erwin of Whole Foods:
  • "One thing many people don't understand is that Whole Foods is incredibly decentralized --- each store sets its own policies, decides its own product selection, even uses its own recipes in the deli".
Here's what we need to think about.

Silo-busters and multichannel pundits tell us that we have to integrate our websites with our stores, and that we have to integrate our advertising with our websites and stores. You tell us that we have to offer the same merchandise in all stores/channels at the same price, or we will lose customers and create a terrible customer experience for the few customers who continue shopping with us. You demand that we centralize our merchandising strategy.

And then we have Whole Foods, who does the exact opposite of what our industry leaders tell us to do. Whole Foods is, by most accounts, wildly successful. In fact, Whole Foods is not alone. Many retailers customize stores for the markets they serve, offering unique products and services in Dallas, while offering different ones in Portland (Nordstrom did this, for example).

Each store is a micro-channel, representing a unique opportunity to be different, to serve a niche. Our websites and marketing strategy can still support each store without having to adhere to multichannel best practices.

December 29, 2008

Learn Anything In 2008?

What did I learn in 2008?
  • Our industry follows a script. "Buy online, pickup in stores". "Free shipping is the key to holiday success". "Mobile marketing is the next big thing". "E-Mail marketing has the best ROI". "Dell has great social media evangelists". "Multichannel customers are the best customers". "The newspaper industry is dying". "It you're not on Twitter, you're a dinosaur". "Matchbacks indicate that you must keep mailing catalogs". "Lands' End cut back on mailing catalogs in 1999, and look what happened to them", "Eight Easy Steps To Turbocharge Your Brand Via SEO", you get the picture. It is a script that is repeated over and over and over, until you believe it.
  • You don't get invited to speak at conferences if you don't follow the script.
  • The blogosphere is less likely to link to you if you don't follow the script.
  • Subscriber counts are cut in half if you don't follow the script (and that is just fine with me).
  • Analytical minds in our industry are being squelched by the script.
  • Our KPIs are designed to reward the script.
  • Following the script got us in the same -20% sales mess that everybody else is in.
  • E-Mail marketing is being completely mis-measured, in large part because of our desire to follow the script. In some cases, e-mail ROI is 10x of what our KPIs report. In other cases, e-mail ROI is zero. Neither case can be detected by open rates, click-through rates, and conversion rates.
  • Paid search is being penalized, from an ROI perspective. When catalog marketing or e-mail marketing cause a customer to click on a paid search ad, the catalog marketing or e-mail marketing activity should be allocated the expense, not paid search. We do the opposite, we penalize paid search for something that traditional advertising caused to happen. More on this tomorrow.
  • Almost none of us know our Net Google Score. And here's a hint: Larger brands are being killed by a negative Net Google Score, while small brands strongly benefit from the advertising that large brands do, advertising that drives customers to Google, where Google re-directs customers to smaller brands.
  • Smaller brands who depend upon Google are going to suffer in 2009 when larger brands cut back on advertising.
  • Books. I have very mixed feelings about writing books. I'm obviously proud of the three books I've written, and they've been indispensable in the process of starting a consulting practice. Based on what you have told me, you've especially used the Multichannel Forensics text to understand how customers interact with channels. But wow, a ton of effort, and it isn't like you're going to sell 100,000 of the things. Worse, you don't have any metrics to tell you that the books are "working". And the ideas in a book need to be timeless, because the ideas can become slightly outdated in the time it takes a book to be published. Books struggle in a world dominated by Twitter-storms.
  • Blogs. Now this is a totally different thing. The effort that goes into this blog is about 2x the effort that goes into writing a book, with a ton of metrics and feedback that help you improve in real time. This medium isn't for everybody. It is perfect for evangelizing concepts that will never see the light of day (i.e. are not part of the industry script). I doubt there's ever been a better time to introduce new ideas to the world. I'm guessing that we've passed the peak on this blogging thing --- it has become very hard to gain mindshare, and the social media elite have moved away from blogging.
  • Twitter. After ten days of participating in the micro-blogging world, the best part is getting to see the bios of the individuals who decide to follow you ... something that is badly missing from blogs or writing books. You are an amazing and diverse audience of CEOs, Entrepreneurs, Online Marketers, Business Intelligence Experts, Social Media Mavens, Web Analytics Gurus, and Direct Marketers.
  • Combined, books/blog/twitter yield a unique slurry of information. Use only one channel, and you miss out on part of the story.
  • We must test free shipping promotions over the long-term ... one group of customers gets free shipping, one does not. Measure profit over the long-term, not based on a key-code or click-through. Short-term profit does not always equal long-term profit.
  • Almost none of us in the catalog and e-mail marketing industry know our organic percentage, causing us to significantly over-mail our customers and be less profitable than we could be. Hint --- you can easily measure your organic percentage via catalog and e-mail mail/holdout tests.
  • We've messed up multichannel marketing by focusing on channels and not on customers. Urban customers skew toward retail. Suburban and exurban customers skew toward e-commerce. Rural customers skew toward catalog marketing. Using catalog marketing to drive retail sales may not be right for the urban customer, or for the 28 year old customer. Seriously --- we've messed this whole thing up by viewing it as something that everybody participates in. We're better off using these channels to speak to niches of interested customers.
  • Mobile marketing is all messed up, you can't even get a cell phone to work across half the geography in the US (including my home), but we're all supposed to jump on this channel to offer coupons to the customer looking to buy something at Macys? The CEO of Sprint should try to update his Facebook account via their spiffy 3G phone thirty miles south of Moses Lake sometime. It's easy to do everything you want on a 3G phone in Times Square, it is harder to make magic happen on a 3G phone in Western Minnesota.
  • Social Media is a ponzi scheme.
  • Micro-channels matter. We'll figure out how to manage a thousand or a hundred-thousand micro-channels. Well, we'll have no choice, because we're experiencing the death of the mass audience.
  • Best Practices squelch innovation. Best Practices are really important when running a call center or distribution center, when merchandising a catalog, or when trying to figure out how to get an e-mail into an inbox. Best Practices mean almost nothing in emerging media, in the merchandising strategy of an e-mail campaign, in multichannel marketing, or in any facet of marketing requiring innovation to drive sales.
  • As mentioned earlier, traditional advertising fuels the online, social media, and e-commerce ecosystem. Multichannel Forensics clearly illustrate these trends.
  • E-commerce is wonderful, but it comprises well under ten percent of total sales. Until online marketers figure out how to create demand without the power of retail brands or traditional advertising, e-commerce will continue to be a minor channel that grows by cannibalizing sales from physical retail and traditional advertising.
  • I continue to be optimistic about 2009. We don't know where the innovation will come from, but there will be innovation, and it won't be pricing innovation or marketing innovation. I think it will be merchandising innovation --- new ways to merchandise e-mails, new ways to use social media to drive sales instead of followers, new ways to use video to create demand, new ways to use advertising to pay for the cost of a catalog mailing, new products and services that differentiate us from our competition, new online marketing leaders with new ideas for landing pages, new partnerships with non-competing brands. 2009 demands innovation, and I think we'll see it.

December 28, 2008

2009 Multichannel Predictions

Add your predictions in the comments section of this post.

At least 250,000 trade journal articles and blog posts will start with phrases like "5 Easy Ways To Increase Revenue During These Challenging Economic Times". The articles will tell us to do things like offer "great products and great service".

Employees of a major brand will team up with social media advocates to attack the brand for unfair labor practices, beginning a trend of "online unionization" to fight brands that are cutting back on salaries and benefits. This will be more than a simple "Twitter-Storm" over Motrin.

Catalogers, facing declining response and increased costs, will begin to sell advertising to subsidize mailing costs. Catalogers with average circulation of at least one million will be able to generate $20 per thousand, at least $20,000 per page, in advertising revenue from non-competitive advertising partners. Cataloging, as we know it, is forever changed.

Multichannel retailers will struggle with prioritizing capital to meet the needs of an internet channel that is being torn in three different directions ... e-commerce ... search/information/education/entertainment ... and social media, focusing efforts in one directions, instead of three directions.

A dramatic slowdown in offline advertising will result in a lack of online demand generation.

Google stock will dip below $190 a share, as online marketers begin to realize how much of e-commerce is fueled by offline advertising.

The e-commerce slowdown will cause an upheaval among online marketing executives, with CEOs looking for new talent capable of driving sales increases in a lackluster economy.

Late in 2009, one or two catalog co-ops will consolidate with other marketing entities, given the dramatic falloff in catalog customer acquisition performance.

The economy will technically pull out of the recession in Q3-2009, posting exceptionally tepid gains that do not restore business to pre-2008 levels. We'll feel this downturn for four or five years.

A leading third-party catalog opt-out service will continue to see a dramatic slowdown in new users. This should not be seen as a failure.

The ACMA will partner with the USPS to offer catalog brands a significant one-time mailing discount in November 2009, in response to dramatic reductions in catalog mailings during Q1-Q2 2009.

States desperate to increase tax revenue will turn their focus to e-commerce brands for relief.

At least one new social media platform will rise to prominence, cause pundits to decry the imminent death of Facebook and/or Twitter.

The Carolina Panthers will defeat the Indianapolis Colts, 19-13, in the 2009 Super Bowl.

"Influenced Sales" will become an important part of the multichannel analytical toolkit, as business leaders look to identify channels that do not directly generate sales, but participate in the sales generation process.

By the end of 2009, online brands will embrace business intelligence software from vendors that will ultimately replace long-standing tools like Business Objects and SAS, and rumors of a free Google Analytics enhancement that merges offline and online data will shake up the BI world.

A two-day cyber attack in Q3-2009 will illustrate how fragile cloud computing can be.

One out of eight mall-based stores will close in 2009.

A popular YouTube channel will become a network television program in December.

December 27, 2008

My Ten Favorite MineThatData Articles Of 2008

I think these are the articles that provided you, the loyal reader, the most value during 2008 (in no particular order). You're free to disagree.

December 26, 2008

8 Posts Getting The Most Comments During 2008

The social media punditocracy might suggest that this forum is an epic failure, because this forum does not facilitate interaction.

In other words, most blogs have an active community of individuals who leave comments.

I learned something different.

If I write articles that make you money, you don't comment. These articles are very popular, but are not "interactive".

If I write articles that facilitate conversation, I don't add to your bottom-line.

I'd rather focus on your bottom-line.

Here are the top eight articles that received the most comments during 2008.

An Open Letter To The Web Analytics Community, 14 Comments.
E-Mail Marketing Gurus: Your Thoughts On Williams Sonoma, 11 Comments.
Catalog Choice, You Decide What Gets In, Except When They Market To You, 10 Comments.
E-Mail Marketing, Fixed And Variable Costs, 9 Comments.
Ann Curry And The Today Show Feature The Cute Kids Canceling Catalogs, 9 Comments.
DMA Enhances Product To Compete With Catalog Choice, 9 Comments.
Cost Per New Customer, 8 Comments.
An Open Letter To The Catalog Co-Ops, 8 Comments.

December 25, 2008

Top 15 Articles Of 2008

Here's what you enjoyed the most, during 2008.
  1. Multichannel Forensics, PPC, SEO, and Online Marketing Example. A huge surprise. Online marketers have been least likely to apply Multichannel Forensics to their data (largely because they are tied to Google Analytics), but voraciously consumed this article.
  2. My Keynote Address At The Catalog Conference. Enough said.
  3. The Direct Marketing Customer Continuum. This article led to the development of the Organic / Social / Algorithm / Advertising / Begging model that has become so popular.
  4. Multichannel Customers And Advertising. Another article that led to the popular Organic / Social / Algorithm / Advertising / Begging model.
  5. A Sample Multichannel Results Meeting. You thoroughly enjoyed satire in 2008.
  6. Multichannel Forensics: An E-Mail Example. The e-mail marketing community is unique. It appears to be a modestly populated number of highly passionate quantitative individuals fighting an uphill battle against a social media punditocracy comprised of hundreds of thousands of non-quantitative evangelists. The battle reminds me of direct vs. brand marketing arguments of the 1990s.
  7. The Seattle Sonics are Moving Their Multichannel Brand To Oklahoma City. Popular among Seattlites.
  8. A Day In The Life Of A Multichannel Marketer. More satire.
  9. Micro-Channels: How Dell Arrived At Their Twitter Strategy. Write about social media and Dell, and people are guaranteed to follow along.
  10. 53 Vital Multichannel Website/Online Marketing Tips. Ever notice that marketing trade journals and bloggers often write about "X Tips For Guaranteed Breakthrough Success"? There is a reason. You love these lists!
  11. Multichannel Forensics: How A Cataloger Becomes An Online Brand. The catalog community loves reading these articles. But do you act upon the information?
  12. Retailers Using Social Technology. You enjoy seeing what other folks are doing.
  13. It's Here! Hillstrom's Multichannel Secrets. The dumbest thing I did in 2008 --- giving away free digital preview copies of a book before selling the book. I gave away more copies than I sold. Pundits, pundits, PUNDITS! They tell you what to do, without any accountability for actual results. Here's a hint: Don't give away content you want to sell, no matter what credible people tell you.
  14. Multichannel Forensics: The Building Blocks. The article outlines the basics in a typical Multichannel Forensics project.
  15. Secret Sauce. One of my favorite professional moments.
Notice that most of the articles are from the March - April 2008 timeframe. Things changed once we reached June 1. More and more of you subscribed to the blog, fewer of you interacted with the content. Since November 5, that has changed, with considerable article interaction back in vogue.

Gift Cards

Do I have this right?
  • You buy me a $50 gift card from "Big Box Brand".
  • I buy you a $50 gift card from "Big Box Brand".
  • On Christmas Day, the tree is littered with mini-plastic-ads for "Big Box Brand".
  • On the day after Christmas, gift cards are redeemed for merchandise sold at 70% off of full price ... whereas the customer, sans gift card, would have paid 40% off of full price just two weeks ago, 25% off of full price on Black Friday, and 15% off of full price on November 1.
  • "Big Box Brand" gets a much-needed cash infusion, but takes huge inventory risk by not selling merchandise prior to Christmas, then not knowing how much merchandise will move in the days after Christmas --- and cannot record the sale until the customer redeems the gift card.
If we, as business leaders, were to invent commerce from scratch, would we draw it up this way?

December 24, 2008

Merry Christmas!

Merry Christmas, folks. Take a break from blogs & Twitter and Multichannel Forensics for a day!

December 23, 2008


In essence, the word "parsimony" means that "less is better".

And in multichannel marketing, we look to incorporate every possible piece of information we can find, don't we?

I recall back in 1991, the "good 'ole days" at Lands' End. You submitted a request to have customer information pulled from the mainframe computer system and written to tapes. Statistical models were built off of programming code written against the mainframe computing system.

My boss, a statistically minded individual who came to Lands' End via the oil industry, built simplistic statistical models that were used to mail catalogs to Lands' End customers. He used probit models (yes, this was before SPSS and SAS had procedures for Logistic Regression ... old school!) to predict response, using recency and frequency. He used ordinary least squares to predict average order value, using historical average order value.

He multiplied his predicted response rate (0.03) by his predicted average order value ($100), yielding a predicted dollar per book ($3.00). He ranked ten million households from most productive to least productive. Our circulation managers decided who to mail based on the predicted values he generated.

He built glorified RFM models, for crying out loud!

Oh, was I excited to get my hands on this model!

At all of 26 years old, I strongly believed that complex models with many variables and many interactions would do so much better.

So I built the models, using every possible level of complexity that a mainframe computing system would tolerate.

After one year of testing (old model vs. new model, actual mail/control tests in every catalog), my models generated exactly 1% more demand than the old models generated.


Now there's nothing to sneeze at when you're talking about 1% of $500,000,000 ... the $5,000,000 of demand and $1,500,000 of profit I contributed to the company on an annual basis were appreciated by shareholders, no doubt.

But 1%?

Parsimony should be a big part of our multichannel world, but it isn't.

We make multichannel marketing so much harder than it needs to be.

In social media, we have a blog, a Facebook presence, a Twitter presence, Plurk, instant messaging, a cell phone, a business phone, multiple e-mail accounts, Friendfeed, video sites, on and on and on. We believe we have to be in twenty different places. And our most loyal followers join us on these channels ... THESE ARE OUR BEST FOLLOWERS!!

But that doesn't mean we need to be in all of these places. What would happen if we only participated in two or three social media channels? I'm not saying we shouldn't experiment ... I am saying we should be strategic marketers. What is the strategic marketing purpose of each social media channel?

Same with old-school multichannel marketing. Who says you have to keep sending out direct mail at a 1% response rate? Who says that every product has to be in every channel at the same price at all times?

And it is the same thing with our BI or Web Analytics or Statistical Modeling groups ... we simply don't need to make things so complicated --- and if we're going to make it complicated, don't tell anybody. Our executive partners have no idea what the complexity we're communicating means ... and that is bad for our career development.


Be parsimonious!

December 22, 2008

Our Promotional Future

Sometimes we do things that cause customers to change behavior. In 2009, we might wonder why our customers don't seem to want to pay full-price for merchandise.

Here's what happens. Based on considerable customer analysis, we have a customer who like to buy full-price merchandise. Here's what this customer is expected to do, next year:

Normal Scenario Full-Price Discounts Grand Totals
Demand $50.00 $10.00 $60.00
Net Sales $40.00 $8.00 $48.00
Gross Margin $20.00 $4.00 $24.00
Less Mkt. Exp. $7.00 $2.50 $9.50
Less Pick/Pack/Ship $4.60 $0.92 $5.52
Variable Profit $8.40 $0.58 $8.98
Profit % of Net Sales 21.0% 7.3% 18.7%

Notice that this customer has a reasonable chance of taking advantage of one of our many discount schemes (lower prices, free shipping, %-off offers). If the customer takes advantage of an offer of this nature, here's what next year's activity looks like:

Transition To Discounts Full-Price Discounts Grand Totals
Demand $25.00 $45.00 $70.00
Net Sales $20.00 $36.00 $56.00
Gross Margin $10.00 $18.00 $28.00
Less Mkt. Exp. $5.00 $11.25 $16.25
Less Pick/Pack/Ship $2.30 $4.14 $6.44
Variable Profit $2.70 $2.61 $5.31
Profit % of Net Sales 13.5% 7.3% 9.5%

The customer is fundamentally different now. She actually spends more, $70 per year instead of $60 per year, but she's going to shop when you tickle her buying bone. And it costs money to tickle the buying bone of a loyal customer.

This style of analysis is essential in 2009. We need to see whether our thirst for clearning merchandise and "maintaining market share" in Fall 2008 have a detrimental impact on customer profitability in 2009.

Multichannel Generational Behavior

Pay attention to this image of CNBC financial hosts Mark Haines and Erin Burnett.

Mark, age 62, has his newspaper in front of him, a paper loaded with information to help him get through the show. You can tell him that newspapers are dying, and it doesn't matter, this is how he consumes information.

Erin, age 32, has a laptop in front of her. You''ll see her Googling topics, or checking the hurdle on a free shipping offer at Macys while speaking to the audience.

As marketers, we repeatedly fail when trying to talk to these two individuals. Mark is probably not going to set up a Twitter account. His generation is the person we speak to when we mail catalogs. Erin uses search as a psuedo-administrative-assistant, in real-time.

Worse, our industry hawks the standard "Multichannel Customers Are The Best Customers" line. We encourage people to read the paper and consume information online. We homogenize the overall user experience by trying to make the look and feel of each medium appear the same --- instead of capitalizing on the unique differences between channels, we try to force people into doing things the way we want for them to do things, causing both channels to fail.

In this case, a picture is worth a thousand words.

December 21, 2008

Kevin Hillstrom / MineThatData Is On Twitter

We're going to try a micro-channel marketing experiment, folks. I set up an account on Twitter. Completely ignoring all of the advice given by the social media punditocracy, here's how I am going to use this micro-channel.

The content on this blog will not change. This blog is still all about Multichannel Forensics, about analyzing how customers interact with advertising, products, brands, and channels. I'll continue to write essays about what I observe in retailing, cataloging, online marketing, business intelligence, web analytics, e-mail marketing ... you get the picture.

On Twitter, I will point you to well-written, thoughtful, thought-provoking, or vapid marketing articles and links, stuff written by others.

In other words, my blog will focus on my perspective on the multichannel retail industry. On Twitter, I'll point you to others who are thinking about our industry.

I will not be using Twitter to discuss how my dog threw up on the deck this morning, or for any other personal issues. I'll be using Twitter to continue our discussion about multichannel marketing.

I'll keep you updated on what I learn about using two different channels (blogging and micro-blogging) in different ways. The theme will always the same --- a discussion about multichannel marketing. You get to pick and choose how you digest the information.

Your thoughts?

December 20, 2008

Prove It: Matchback Attribution

One of our loyal readers is trying to goad me into ripping a recent article on Multichannel Merchant. I won't link to the specific article, because 95% of the content the author writes about will increase your profits, and I don't want for this to be a criticism of the author, who is simply trying to give advice that will help you.

But I do want for us to consider one of the quotes, the exact quote sent to me by a loyal reader.
  • "Correlation analysis suggests that as much as 90% of the unallocated orders that come to the Web for the multichannel marketer are directly related to catalog mailings".
We need to consider three phrases in the sentence.
  1. Correlation analysis suggests (this means we cannot prove the findings that follow).
  2. As much as (this means the real number is always lower than what we will be quoted).
  3. Directly related (this means we cannot prove causation).
Based on the linkage of three phrases, an entire industry moves forward with an agenda, an agenda based on a linkage of assumptions that may or may not be correct.

Do you realize the leap of faith required to believe in this sentence?

We listen to quotes like this because we want to believe the sentence.

Now it is entirely possible that those who adhere to the tenants of the sentence quoted above are right, and will experience unbridled success. I grant you this point.

But are you willing to grant me my point ... what if one, two, or three components of the sentence are wrong? What does that mean to the success of the businesses we manage?

Matchback attribution. Prove it!!

December 19, 2008

Prove It: Multichannel Creative

Review the content offered by bloggers, trade journals or industry experts, and you'll find that creative integration of multichannel marketing is essential. We're told that prices should be the same, and that the merchandise offering should be consistent. E-mail, landing pages, catalog/direct-mail all should have the same theme and fonts and colors.

Has this theory been tested? In other words, is there a library of results somewhere that prove this hypothesis? Or, is this simply VCB (vendor, consultant, blogger) speak.

Your thoughts?

December 18, 2008

Day Of Week

In recent Multichannel Forensics projects, there has been a increased focus on understanding the days that online buyers purchase merchandise.

Here's what you might want to pay attention to.
  1. Customers who order over the telephone in the first two weeks following a catalog in-home date (or first two days following an e-mail in-home date) are dependent upon advertising.
  2. Customers who order online, and order in the first two weeks following a catalog in-home date (or first two days following an e-mail in-home date) are probably dependent upon advertising.
  3. Customers who order online, and order during "dead periods", when no catalog or e-mail campaign is active, are "organic" customers, customers likely to purchase in the future without the aid of advertising.
Pay really close attention to scenario #3, folks, as you can save a lot of expense here without compromising sales levels.

These days, I code every day of the year, based on whether that day is a "traditional direct marketing day" or whether it is an "organic day". Customers ordering on "organic days" are less likely to need advertising to fuel future purchases than are all other customers.

Demand that your matchback vendor provide you with visibility into this phenomenon.

December 17, 2008

Five Customer Types: Migration

Obviously, I cannot share actual customer data with you.

But I can give you a few hints about how to look at these relationships.

Organic Customers: One sure way to ruin the organic customer relationship is to run free shipping promotions. The customer was going to buy anyway, and then we willingly throw away gross margin dollars. I'm not saying free shipping is bad --- it is the putting it on / pulling it off deal that is bad. Also, organic customers are willing to use algorithms --- this is why calculation of the Net Google Score is so important.

Algorithm Customers: Pay careful attention to these customers. If the customer does not use a key code on a future order, don't assume that any catalog drove the order. This is one of the places where matchback programs can be wrong, costing you profit.

Social Customers: In the limited amount of data I've been able to play with here, these customers are fundamentally different than all other customers we manage.

Advertising Customers: These customers may not migrate to organic or algorithm status ... and that, my friends, is a bad thing. Catalogers say this all the time --- they say they don't get business if they don't mail catalogs. For these brands, the advertising-based customer won't become an organic or algorithmic customer. Hint --- for these brands, developing algorithmic and organic customers needs to be a top priority in 2009.

Begging Customers: Migration analysis is critical here. Does the incentive/promotion customer respond to advertising, or to incentives/promotions? We make so many mistakes here --- sending expensive advertising to these customers, when the customer doesn't care about the advertising --- the customer cares about the incentive attached to the advertising. Find a way to dramatically reduce advertising expense if these customers will not migrate to advertising response.

December 16, 2008

Best Buy Voluntary Separation

This is a ten page transcript of the Best Buy investor conference call.

The company announced that it is offering voluntary separation to 4,000 salaried employees, nearly every salaried individual. The company says it may not get enough volunteers, requiring involuntary separation. The company also makes the brazen statement (multiple times) that it is "employee-centric", in the midst of communicating the need to fire employees.

And from page three to page ten, the investment community are given the chance to ask any question they wish.

They ask about capex, about inventory management, about gift cards, Rewards Zone, Geek Squad, vendors, gross margins. They ask multiple questions about Circuit City, for goodness sake.

They do not ask one single question about employees, about voluntary separation, or about involuntary separation. And you'd think they would care about how much money would be saved, wouldn't you?

Our system of business harvests people, uses people, exploits people, manipulates people, over-works people, under-pays people, scams people, and demands revenue from people. The system praises those who shed "headcount", then grumbles when "headcount" has no money to spend to fuel capitalism.

Our system of business does not care about people
. If it did, would we be knee-deep in The Great Implosion?

Dell And Twitter Revenue: Keeping Perspective

There's no doubt that Dell's $1,000,000 of Twitter revenue is good ... something that points to Twitter as a possible sales channel (from Venturebeat via SmartBrief).

Now for the bad news. Dell generated $63,000,000,000 last year. This means that Twitter sales represent 0.0016% of annual revenue.

Let's say you are as successful as Dell is, but you manage a $50,000,000 business. 0.0016% of $50,000,000 is $794.

Somebody might blast me for this analysis, suggesting that something like 80% of volume is B2B, therefore excluded from Twitter. Let's go with your assumption. Now the comparison results in $4,000 for your average $50,000,000 business.

I am not criticizing marketing via Twitter, nor am I criticizing Dell, who is clearly innovating. About twenty percent of recent visitors to this blog come from Twitter, so I understand how the micro-channel can be used in a beneficial way.

I am simply asking you to carefully study the magnitude of the numbers the media share with us. Be willing to consider any bias in the information, and how that bias benefits those who write the articles.

December 15, 2008

At Least 30 Multichannel Questions For 2009

Below I list a series of questions that we might consider answering during 2009. Obviously, these aren't the most important questions, they're just questions I'd like for our industry to answer.

If you couldn't send a catalog to an individual who doesn't have a prior relationship with your brand, how would you acquire new customers?

How do traditional off-line marketing strategies interact with paid search, and do we give enough credit to the off-line strategy that caused paid search to happen?

Do we lose something when we try to merge the skills of retail, online, and catalog inventory managers?

Do we lose innovation and creativity when we centralize functions and eliminate silos?

Is the rest of the company able to perform the "ask and answer" function of business intelligence tools, or is this a skill that should remain with specialized individuals?

If you couldn't mail catalogs anymore, what would happen to the soul of your marketing organization?

Does Twitter matter as a marketing tool if the world-wide audience is only 10,000,000 individuals?

If you had the systems to create any KPI/metric you wanted, would you have the political clout to cause change to happen based on what the KPI's/metrics are telling you?

Does Google steer more sales away from your business than you pay Google to generate for you?

If you are a mobile marketer, what is your mobile marketing solution for the individual living in rural Kansas, a person who does not have access to a 3G network, or may not even have cell phone coverage?

When marketers send unsolicited campaigns to you, do you feel like the marketer is having a conversation with you?

When you send unsolicited marketing campaigns to customers, do you feel like you are having a conversation with the customer?

Have you calculated a profit and loss statement for your relationship with your favorite co-op vendor? In other words, have you compared the profit you generate from your relationship with your co-op with the amount you spend pulling names from the co-op, and if so, is the relationship favorable?

How much, in terms of sales per e-mail, would we have to generate before we felt that e-mail marketing was "effective"?

If we don't believe our own test results when we have just 1,000 customers in a test/holdout group, why do we trust a report from "Neptune Research" about multichannel best practices, based on 1,000 respondents who are generally not our customers?

If we stopped executing traditional marketing campaigns (catalog, direct mail, newspaper, television, radio), and we maximized our paid/natural search capabilities, how would we grow our online business?

Will your boss change her mind when you present facts to her that run contrary to her base of knowledge?

If you are a business intelligence, web analytics, or statistical analyst, do you speak a business language your executive team understands?

If you are an executive, do you give your business intelligence, web analytics, or statistical analyst enough information to answer your questions?

Can you identify one individual who you consider to be a multichannel marketing expert? What does this person know that you don't know?

Should you borrow money to take advantage of marketing programs that produce short-term losses that are more than offset by long-term gains?

If customers only buy from us in Fall 2008 when we discount the living daylights out of our merchandise, why do we believe they will be willing to buy from us at full-price in 2009?

When a vendor writes an article that says "leading brands are reaping financial gains by using 'product x'", should the vendor have to provide evidence to back their claim?

When newspapers die, who will you turn to for credible information?

How do you calculate the profitability of each static/dynamic page on your website?

Do online sales increases matter at a multichannel retailer where customers use the website as an information vehicle for driving retail comp store sales increases?

Have you explored some of the amazing technologies that printers are capable of putting into practice?

Have you put together a task force to predict what catalog marketing looks like in 2015, and if so, what does it look like?

Have you put together a task force to predict what e-commerce looks like in 2015, and if so, what does it look like?

Why are retail customers so unlikely to shop via e-commerce?

Why are e-commerce customers so likely to shop retail stores?

Why doesn't anybody in our industry talk about these very real challenges?

Should retail stores do a better job of promoting the e-commerce and website information channel?

Newspaper Home Delivery

Catalogers ... pay close attention to "breaking news" about Detroit newspapers ceasing delivery of newspapers except for Thursday, Friday, and Sunday.

You keep telling me that you won't have a business if you cannot put catalogs in the mail. Well, we're going to get to observe an actual case study soon. Pick an online analytics service (i.e. Quantcast or your personal favorite) and pay close attention to traffic trends, pre/post delivery decision, comparing these businesses with newspapers that continue home delivery. Does home delivery inspire online readership? We're going to find out.

December 14, 2008

The Great Implosion

Worse than a recession, better than the Great Depression, I coin our current economic situation "The Great Implosion".

I'm not sure when you first thought something was amiss. For me, it was the Spring of 2005. Nordstrom would announce spectacular annual profit levels, driven by robust comp store sales growth. Our stock price, languishing in the $8 to $13 range for years, surged past $30 in the Spring of 2005 (and would peak in the upper $50 range in early 2007).

All was good!

Well, good unless you were a garden variety analyst in the Database Marketing department, where we were handing out salary increases that, on average, were on par with inflation. I recall that my team howled at the injustice. They worked long hours to simply keep up with inflation, then went online and read the insider trading summaries, observing the ways we in management supplemented our compensation. My team felt that one of the one hundred greatest companies to work for might be able to offer them more than inflationary salary increases.

Of course, Nordstrom wasn't acting out of the norm, and wasn't trying to be nasty to employees, not in the least bit. The sole responsibility of a publicly traded company is to increase shareholder value, not to offer a database marketing staffer a higher-than-average wage.

It could have been worse for Nordstrom database marketing employees. Take AT&T, for instance. AT&T gave thousands of employees walking papers, then increased the dividend to shareholders. Gotta love capitalism!

Floyd Norris of the NYTimes shows us that from Q4-2004 to Q3-2008, S&P 500 companies generated $2.4 trillion in profit. They converted the profit into $1.7 trillion in stock buyback programs and $0.9 trillion in dividends. Shareholders made $2.6 trillion from the $2.4 trillion in profit generated by S&P 500 brands.

The data imply that S&P 500 brands had to borrow, in order to hand profits to shareholders while growing sales. This author of this article suggests that Nordstrom took on $1.5 billion in debt during the past few years, while buying back stock during the bubble, and is now on the hook for a hundred million dollars in interest payments each year, while absorbing huge comp store sales decreases and credit challenges.

Nobody should have been surprised that employees used their homes as a giant piggy bank, especially when the hopes of getting ahead in corporate America were/are slim. Borrowing against a home increasing in value became a vehicle to perceived affluence.

And when the piggy bank finally broke, the entire economic system collapsed --- The Great Implosion began.

TechCrunch keeps track of layoffs ... the numbers continue to grow. Worse, employees who get to keep their job will spend the next decade paying taxes for funds that bailed out the financial sector, a group of companies that largely benefited from the profit generated by S&P 500 brands.

The past eight years amounted to a gigantic redistribution of wealth. It was like a giant roulette wheel, where companies and employees made bets, periodically winning and losing, until a 00 turned up. The house collected while everybody wondered "what just happened?"

Now we have no choice but to dig out of The Great Implosion. Long-term, we won't do this by offering customers up to 60% off and free shipping. And we probably won't do this by ever trusting financial institutions again ... or by trusting big brands. We'll have to dig out of this by being crafty.

I get to work with companies in different geographic areas. Out West, I often work with startups, folks who exhibit very little fear --- they are hiring, finding funding, moving forward, creating products that will meet the needs of a future customer.

Elsewhere, I pay close attention to brands that have been around for a long time. Fall 2008 results are not optimistic ... these folks are hit hard by a spending slowdown.

They are also being hit by the redistribution machine known as Google. These companies work hard to generate demand, only to see Google take a penny here or there (on a massive scale) while re-directing demand to those who are best at playing the search and online marketing game. In the Fall of 2008, companies don't know how to fight back ... we simply race to the bottom, moving inventory at any cost. None of us can know what the long-term impact of an extended period of "up to 60% off and free shipping" will do to e-commerce. One might surmise that the impact won't be positive.

Most interesting to me is what will happen online in 2009. Assuming that customers continue to cut back on spending, leading to cuts in advertising by brands, it is reasonable to assume that Google will suffer. When Google stops fueling the growth of the online ecosystem, really interesting things start to happen.

The next generation of great online marketing leaders will come from this pressure-cooker. This new generation of leaders are, in my opinion, going to be different individuals than the ones that rode the updraft of e-commerce.

An entirely different skillset is required to acquire and retain customers when times are really bad. The e-commerce leaders of the next decade will create merchandising strategies that get customers to spend once again. Today, e-commerce is capable of taking orders ... it is not good at creating orders (as Alan Rimm-Kaufman says). This is one of the business tragedies of The Great Implosion ... we learned how to capture, intercept, and re-direct demand (often cannibalized from other channels), but we didn't learn how to create it.

I am actually filled with optimism about 2010 and beyond. I truly think this will be a period of tremendous innovation and creativity.

This brings us back to the employee, the individual hosed by The Great Implosion. We have a responsibility to bring something to the table. We have a responsibility to innovate, and to be creative --- and if our employer won't recognize our innovation and creativity, we need to find another job, or start a business of our own. We need to compete! Or as Scott Adams of "Dilbert" fame recently suggested, maybe we need to have a diversity of bosses. Working for one bad one isn't great, working for numerous bosses allows us to pick and choose.

Time for your thoughts about The Great Implosion. What do you think will happen over the next few years?

December 13, 2008

Neiman Marcus Results

Looking for a some light weekend reading? Why not plow through ten or more pages of the Q3 Neiman Marcus earnings transcript!

You'll see that online sales declined last quarter --- though so many VCBs (vendors, consultants, bloggers) keep telling us that all is good in e-commerce (maybe not for Google next spring ... what happens to your business when people slow their searches for merchandise), we can dig through results and find that the days of unfettered e-commerce growth are ending.

Leadership mentioned that the online business has a much more diverse customer base than stores have. This is one of the mysteries of multichannel marketing that almost nobody talks about. We're told we have to serve that same magical multichannel customer across channels, only to find out that there are hardly any multichannel customers out there. Then we're left dealing with managing diverse audiences with limited tools, which is pretty much where all of us are.

All of the magic happens when we serve diverse customers who use channels in unique and different ways.

December 12, 2008

Alaska: An Online Marketing Hotbed

There are nice catalog marketing zip codes in Alaska as well.

Buy online / pickup in stores doesn't work so well in Alaska. This is one state that would benefit from a bit of customer understanding and personalization!

Hillstrom's Zip Code Forensics is free for all direct marketers contributing anonymous, annual sales totals by physical channel (mail, phone, online, retail) at a zip code level.

To-date, participants are seeing an improvement in direct marketing activities against the six segments of between 5% and 20%, based on actual tests and backtests.

I'm also looking for a few more B2B volunteers --- I am creating a separate model for businesses selling to businesses --- the dynamics are simply different than the B2C model that has been created. Please contact me if you want to participate, for free.

December 11, 2008


When was the last time you received a catalog in the mail that was irresistible?

When was the last time you received an e-mail marketing message that was irresistible?

When was the last time you clicked-through a paid search term, and found yourself on a landing page that was simply irresistible?

Finally, when did somebody outside of the industry tell you that they found catalog marketing, e-mail marketing, or an online landing page to be irresistible?

These things need to change by 1/1/2010 for us to have success.

Rule Of Thumb For Marketing ROI / Profit

You've been through this drill before, haven't you? Your CMO or CEO or CFO wants to know "what would happen if we cut twenty percent from the marketing budget?".

This is where you use the square root rule to your advantage, allowing you to give a "back of the envelope" answer to questions that require a lot of time and energy.

Assume you spent $1,000,000 on marketing last year, generating $3,000,000 sales. Your profit factor is 35%, yielding profit of $3,000,000 * 0.35 - $1,000,000 = $50,000 .

What would happen if you cut 20% from your marketing budget.

Step 1: Sales = (($800,000 / $1,000,000) ^ 0.5) * $3,000,000 = (0.894 * $3,000,000) = $2,683,282. The "0.5" number is the square root ... you are taking the square root of the ratio in change of marketing spend. In this case, a 20% reduction in spend yields a 10.5% reduction in sales.

Step 2: Profit = $2,683,282 * 0.35 - $800,000 = $139,149.

In other words, you'd lose a little over $300,000 in sales, but profit would increase by nearly $90,000.

The square root rule allows you to play these "what if" scenarios ... and the scenarios are important. Sr. Management needs to get directional answers quickly. You don't want to do a ton of work, only to have the CFO tell you to run a new scenario where you cut marketing expense by 33%.

Is the square root rule 100% accurate? Absolutely not. In fact, there are times when it is blatantly inaccurate (affiliate marketing, shopping comparison sites, e-mail marketing).

When your leadership team needs an immediate answer, at an aggregate level, this rule of thumb works well.

The Best Catalog Zip Codes

Modern cataloging disproportionately skews to various rural areas in New England.

This map illustrates a hyper-responsive cluster of zip codes in New York, Vermont, and New Hampshire.

Urban areas (Boston) love e-commerce. Rural areas shop via catalogs, and shop disproportionately over the telephone.

Our job is to recognize the fundamental differences in customer behavior represented by geography. Mobile marketing and social media and a "Twitter-storm" are not as relevant in New Hampshire as a well-merchandised 124 page catalog that drives the customer to a call center, where a pleasant voiced sales associate walks a customer through an order.

The fact that almost nobody in our industry talks about this stuff is a bit surprising, isn't it? After all, you can improve the profitability of marginal segments by between 5% and 20% by applying Zip Code Forensics, based on actual tests and backtests.

December 10, 2008

Analog Dollars, Digital Pennies, Micro-Channels, Catalog Marketing

Many folks have talked about the evolution of analog media to digital media. The key topic is the transition from "analog dollars to digital pennies", where the brand slowly gives up big revenue streams for a bunch of tiny online revenue streams.

Nowhere has the transition from analog dollars to digital pennies been resisted more than in catalog marketing.

Our catalogs, which used to generate $5 per mailing, now generate maybe $2 to $4 per mailing, even after factoring in the results of matchback analytics.

But the $3 catalog mailing is still a big deal, when compared with the $0.15 we get when sending an e-mail marketing campaign into the digital marketplace. We need twenty-one e-mail subscribers to equal the sales impact we get when sending just one catalog into the analog marketplace (though the $0.15 e-mail may be more profitable than the $2 catalog mailing).

And a catalog mailing is a big deal, compared with paid search, where you work your tail off spending $500 to get 1,000 folks to click on a keyword, resulting in maybe twenty orders.

You keep telling me that paid search "doesn't scale", that there simply aren't enough people searching for "Ugg Boots" to replace all of the business you're slowly losing in catalog marketing.

We just can't force people to search for "Ugg Boots" in the same way we can force a catalog in the mailbox!

Catalog marketing scales. You can always visit your favorite co-op or list broker and pay $250,000 for one-time mailing access to 5,000,000 names willingly contributed by your most feared competitors if your catalogs are productive enough and you have deep pockets. A few catalog businesses appear to be absolutely thriving as they push themselves toward critical mass, offering desired merchandise and capitalizing on customers nurtured by competitors.

So catalog marketing, like the music industry and the newspaper industry and television and radio, is inevitably evolving, increasingly trading analog dollars for digital pennies.

And this is where we resist change.

We resist the transition to online marketing, just like the music industry resists the $0.99 digital song, and the eventual transition to a subscription-based music service. Just like the newspaper industry, we want the customer to keep using paper. We want to stay focused on a small number of activities that generate large amounts of revenue, activities that scale.

But online, the cataloger who wants to "scale" has to be in a thousand, or ten-thousand different places, all at the same time, without appearing to "force" itself into those places. These places are called "micro-channels", representing all of the ways a cataloger can interact with small communities.

Force is a key part of the analog equation. Catalog marketing via the mailbox/co-op/list-broker/printer defines force. E-mail marketing, after the opt-in opportunity, is largely an issue of force.

Paid search is not about force. The customer decides to click on your keyword. Natural/organic search is not about force (it is, however, about Google controlling your business). Affiliate marketing, shopping comparison sites, social media, they are not about force. In each case, the cataloger puts herself in a position to be successful, but the customer makes the final decision.

Nowhere is this more apparent than on this blog. Vendors hire PR firms, and those PR firms try to force a message upon you, the loyal reader, thinking they are taking advantage of this micro-channel. "Kevin, love your blog (though I review my web stats and observed that they just did a Google search for 'database marketing blog'). We think your readers would love to learn more about our products and services. Could we pay to place an article on your site, or would you be willing to volunteer your time to write about our products and services? Thanks, looking forward to our relationship!!" This is a traditional approach to micro-channels, trying to force a message.

Micro-channels are not about force, they are about influence. What might have happened if the firm I mentioned above had their own blog, and had mentioned my articles a half dozen times? Might I have voluntarily mentioned their business without their firm ever having to ask? In this example, they are using a micro-channel to get my micro-channel to talk about their overall business.

Take Eddie Bauer. Instead of spending $250,000 renting catalog names, why not give the first 5,000 Cute Overload subscribers this Holiday Labrador Ornament for free, no strings attached? And don't do that on the big, popular blogs, but go give this opportunity to the good folks at The Lab Brats Blog, too! Go out and interact with folks, build relationships, give people something, test things, see what works. Or better yet, host your own blog and plant some seeds now.

It is easy to rent 5,000,000 names from a co-op. 5,000 names or 5,000,000 names, the work largely scales, one person asking the co-op for names, one accounting department paying the bill, one postal service delivering the catalogs.

It is hard work managing five thousand micro-channels.

List rental and co-op marketing represent analog dollars. Micro-channels represent digital pennies.

The transition is being made for us, so why not embrace it?

Your thoughts?

Alex Morgan (Yes, This Will Be About Merchandise)

When the USWNT Olympics Team was announced, all-time great Alex Morgan wasn't on the team. Nor was she on the four player alternate list...