Zip Code Marketing: Top 10 Most Productive Direct Marketing Customer Regions

Based on the current version of Hillstrom's Zip Code Forensics (read about and buy here), I present you with the top ten most productive direct marketing customer regions --- the places where zip code marketing is likely to be most effective.

Number 10 = Eastern New Jersey.

Number 9 = Wyoming.

Number 8 = Boston / Providence / Cape Cod.

Number 7 = Southwest Colorado.

Number 6 = Southern Maryland.

Number 5 = White Plains & New York City.

Number 4 = New Hampshire.

Number 3 = Northern Virginia.

Number 2 = Connecticut.

Number 1 = Vermont.


Yup, good 'ole Vermont is the most productive area for direct marketing in the United States. In fact, outside of portions of Colorado and Wyoming, the East Central and Northeast United States, and New England are the most productive (demand per household) in the United States.

In fact, these regions spend 2.5 times as much per capita as do any other region in the United States.

Of course, this is actionable at a zip code level, because there are significant differences in spend by zip code and channel preference by zip code.

It does make one wonder about all of this multichannel marketing stuff. It becomes more and more clear that there are customer-specific micro-channel preferences and geographic influences that override multichannel best practices.

Another Day In The Life Of A Multichannel Marketer

7:33am: You open Microsoft Outlook, and are greeted with 64 e-mail messages since you logged off at 10:41pm last night. At 4:06am, your CEO sends an e-mail to the Executive Team, asking all "hands on deck" for the big "Rocktober Magic" campaign that begins October 15. At 4:16am, your EVP of Marketing assigns you the task of coordinating a multichannel marketing effort for this campaign.

7:39am: The next twenty-two e-mail messages deal with variations of the promotion. Everybody has ideas!

9:16am: A meeting of the Multichannel Marketing Task Force has been convened for 2:00pm today.

2:13pm: You call the Multichannel Marketing Task Force meeting to order. This is a room full of heavy-hitters, and you're leading the pack!

2:15pm: Anita in Inventory Control wants to offer up a Halloween Costume for the promotion. Her team accidentally purchased eight hundred Halloween Costumes, and only sixty-five have sold so far. She thinks a BOGO promotion (buy one, get one free) coupled with free next-day shipping would qualify as "Rocktober Magic" and really bail her out of a dilly of a pickle. Anita believes this promotion could be "blasted" to the e-mail marketing list, and thinks marketing could help out by participating on Halloween blogs, generating a groundswell of interest that would make Charlene Li, Mack Collier and Seth Godin proud ... after all, look at what Dell and Southwest Airlines have been able to accomplish?

2:17pm: Besty in Merchandising doesn't think anybody wants to pay $49 for two costumes, much less one costume. She read a Forrester Research report suggesting that multichannel customers are the best customers. Betsy thinks a "marketing blitz", featuring best sellers that provide great value, but the "marketing blitz" should only be targeted to best multichannel customers, and should offer free shipping with a $100 hurdle --- the hurdle would protect profitability while generating volume.

2:18pm: Dale in Business Intelligence asks the team to define what a "best multichannel customer" really is? This stimulates some chatter. Howard in the Web Analytics department says that returning customers visit the website four times a month and have a 3.47% or better conversion rate. Anita in Inventory Management thinks best customers should have at least one purchase in each of the past five years. Dale reminds the team that the new Oracle database only houses three years of purchase history, and in spite of independent research and opinions, best customers truly are 0-3 month dual-channel customers with 5+ orders and an average order value of $100 or more --- fitting nicely into RFM segment #26. Independent Marketing Consultant Vic Montana tells the team that Williams Sonoma might have the best multichannel marketing database in America, and points the team to a recent Pottery Barn e-mail campaign that had a nice call-to-action.

2:22pm: Felicity in E-Mail Marketing wants to blast three campaigns, every-other-day, leading up to the start of the promotion, but wants to surgically target only customers who purchased items similar to the products that Anita wants to clear. Dale in Business Intelligence says that he can only pull product-level purchases that are ten days old or older, because the update cycle of the database is not in real time. Howard in Web Analytics can confidently pull the 1,432 customers who viewed that item in the past month and have a valid e-mail address, but worries that with 62% e-mail address coverage, we might be missing out on a real opportunity with the remaining 38% of the database who viewed the item in question. Dale in Business Intelligence questions this strategy, because customers have multiple e-mail addresses, and the company doesn't have a valid strategy for de-duping records across multiple e-mail addresses. Howard thinks Dale's apartment-level name/address de-duping leaves something to be desired, because his niece, Kayla, received three catalogs in her dorm room last week on the same day.

2:29pm: Celeste in Creative Services volunteers to provide an aspirational presentation strategy that puts the consumer in the middle of "Rocktober Magic". Felicity suggests that the company avoid an aspirational presentation in e-mail marketing, because aspirational presentations violate the tenants of e-mail marketing best practices. Celeste reminds the team of the aspirational presentation strategy used in 1999 to promote the July 4th "America's Birthday" bounceback promotion that worked so well.

2:31pm: Abe in Public Relations asks who owns the Social Media strategy for this campaign? Dale in Business Intelligence and Howard in Web Analytics both agree that without a proven set of KPIs, nobody is going to be able to measure the effectiveness of any Social Media strategy, so maybe it is better for the team to focus on proven ROI-based tactics like postcard marketing? Besides, blogs are so 2006! Celeste in Creative Services volunteers to promote the campaign via Twitter and asks if the company could support a 25% off promotion exclusively for Twitter users? Shannon from the Call Center says that the order entry system can only accept offers ending in a "0" percentage. Betsy in Merchandising reminds the team that Forrester Research recommends that all multichannel campaigns be executed in an integrated manner, so let's all make sure that we use the same percentage off promotion in all cross-channel marketing activities, making sure it is either 10%, 20%, 30%, or 40% off, in accordance with the limitations of the order-entry system.

2:34pm: Rick in Catalog Marketing reminds the team that the catalogs have already been printed, and will be delivered to customers next week. Abe in Public Relations questions why catalogs are even sent to customers anymore --- how many customers buy from those things anyway, one in fifty? Abe recommends sharpening up the catalog targeting strategy next time, focusing only on customers who like the product offered in the catalog. Abe recommends cutting half of the circulation for the next catalog, and recommends that he send a press release communicating this new "green" marketing strategy. Abe thinks this will create a lot of buzz, and the buzz will drive the "Rocktober Magic" marketing campaign while protecting hundreds of trees in Northern British Columbia.

2:35pm: Rick in Catalog Marketing leaves the room for a moment. Felicity in e-mail marketing asks the team why Rick "disengaged" from a healthy conversation?

2:37pm: As Rick from Catalog Marketing re-enters the room, Independent Marketing Consultant Vic Montana asks Rick if he could quickly get access to 500,000 names and addresses from the Abacus synergy model, and send them a digest sized catalog that features a couple dozen key items that the company could really get behind? If this could be done in the next ten days, it would get around the fact that the catalog has already been printed. Rick reminds the team that it takes months to produce catalogs. Independent Marketing Consultant Vic Montana suggests that there are print-on-demand solutions that could speed this process up considerably, heck, he just purchased a book from Lulu.com and it arrived in five days. Rick from Catalog Marketing excuses himself from the meeting again.

2:39pm: Adam in the paid search marketing department wants $125,000 to really "blow out" the most important keywords. He believes that stiff competiton from Celebrate Express and Chasing Fireflys will limit the ability of the team to drive online volume without a significant and meaningful investment. He cites past campaign metrics that indicate that his ad-hoc bidding system yielded a cost per new customer of just $4.33, coupled with a lifetime value of over $29.00. He can promise a cost per new customer of under $22.00 with a $125,000 investment, an investment that will pay for itself within just nine months. The room stares at him, confident that he's on to something, but not really sure what he's on to. Besty in Merchandising wants to know if lifetime value information could be integrated with her daily flash sales merchandise selling reports?

2:40pm: Stephen from the CRM / IT team thinks an automated phone messages to best customers would provide an instantaneous bump to the campaign. Howard in Web Analytics reminds the team that Coremetrics will not be able to accurately measure the influence of offline marketing strategies on the website. Dale in Business Intelligence reminds the team that he can measure the effectiveness of the offline marketing strategy, but will not be able to link it to data from Coremetrics due to systems limitations. Stephen from the CRM / IT team says that there is an "SR" (Service Request) that will link offline and online data sources in early 2011. The room groans with disapproval, though Stephen reminds everybody that the members of the room are responsible for assigning priorities for all projects. The room groans even louder! Independent Marketing Consultant Vic Montana tells the team that Williams Sonoma does a nice job of linking together data across brands and channels, that he recently returned a $173 latte machine and received a marketing e-mail within just six days of the return, and he never even had to opt-in to that program! Felicity squirms, realizing this is a clear violation of e-mail marketing best practices. Anita in Inventory Control asks if we could start an e-mail marketing program for customers who return merchandise?

2:46pm: Your CEO stops by for a quick visit on her way to the Supply Chain Efficiency Task Force Meeting. Oh, the marketing ideas are flowing ... the members of the room cannot stop talking over each other as they share what can be done within each channel. Your CEO is so pleased that everybody "has skin in the game", and offers your meeting as a shining example of how Congress could work together in a bipartisan manner to pass bailout legislation. The room applauds as your CEO exits at the same time that Rick from Catalog Marketing re-enters the room.

2:49pm: The room, exhausted from such a productive conversation, looks to you for leadership and resolution.

What would you recommend as an appropriate multichannel marketing strategy, given the feedback you've heard from your team?

Direct Marketing: Money, Money, Money, Mo-ney ... MONEY

Maybe you noticed that the economy is in dire straits, and that Main St. is upset with Wall St. I now start my day at 6:15am on the West Coast by turning on CNBC to listen to the pundits describe seemingly unfathomable financial scenarios.

Here in the humble world of direct marketing, we've participated in an unregulated world, propping up our profit and loss statement using funny money.

Think I'm wrong? Let me offer you a few examples.

An EVP of marketing told me this, paraphrased: "It's all about a value. We surgically offer discounts, promotions, and pricing opportunities to customers in different life states. The prospect gets a cheaper price than the established customer, along with free shipping. The lapsed customer gets 20% off their order of $100 or more. And best customers participate in our loyalty program."

An e-mail I recently received: "What are the best promotions and wording in the subject lines of e-mail campaigns --- we need to boost performance?"

An owner: "Should I use marketing dollars to subsidize free shipping?"

A blog subscriber: "What are the three or four really easy things I could do today that would dramatically improve the performance of my business?"

A business leader: "Who has the best algorithm to improve paid search results?"

Another business leader: "They keep sending me catalogs that say this is the last catalog I'll ever receive. And then they keep sending me catalogs. They just lie to me."

Funny.

You Google "Best-Practices Marketing Promotions", and you get 264,000 results. If you Google "Best-Practices Merchandising Strategy", you're rewarded with 77,000 results.

We, the direct marketing community, may not be much different than Wall St. We sell our customers money, not merchandise, and we use algorithms to do the work for us. We shy away from the fundamentals of our business, which take a lot of time and discipline to master, instead focusing on the packaging of money to drive results this quarter. Would you like a savings of up to 55% on this order? How about free shipping if you use this coupon code? And this month only, take an additional 20% off of your order with your store credit card (next month, you'll take 25% off of your order). Or earn $10 off your next purchase if you buy this week. Buy one, get one free!

We're selling money. We attempt different schemes, all looking for ways to get a customer to fork over hard earned wages so that we hit our short-term sales targets. When we find ones that work, we call them "best practices". Zappos raises prices, then offers free shipping, a new best practice. Amazon offers free shipping at different hurdles, and different annual pre-payment levels --- a new best practice.

Regardless, the marketing of money erodes gross margin. And when gross margins erode, profit becomes a challenge. So we outsource everything we can, in an effort to improve margins. We source merchandise from China. We eliminate jobs in America (but expect those same Americans to keep buying from us). We merge our operations with other brands.

I worked at Lands' End from 1990 to 1995. We never offered promotions. The DNA of the brand didn't allow for free shipping, or %-off offers. We worked hard to clear excess merchandise the old-fashioned way. We were wildly profitable. Now take a look at the e-mail campaigns you receive from Lands' End, fully owned by Sears. You cannot keep up with the discounts and promotions.

I worked at Eddie Bauer from 1995 to 2000. Everything was a promotion. The brand imploded.

I worked at Nordstrom from 2001 to 2007. Promotions and gimmicks were few and far between. It was all about merchandise and customer service. EBIT averaged around 10% my last four years.

Selling money is a lot like adding cream to coffee. Coffee (merchandise) is black. When you initially pour the cream in, you don't really notice much of a difference. But eventually, the cream blends with the coffee, and you cannot separate the two.

And algorithms are dangerous ... necessary, but dangerous. Ask somebody on Wall St. to explain the financial products they created, and you'll have a hard time getting feedback you can clearly understand. Similarly, ask any direct marketing CEO to explain the bidding algorithm used by a paid search vendor, or ask the CEO to explain the way that Abacus chooses half of their customer acquisition prospects, or ask the CEO to explain the statistical algorithm used to select customers for mailings, and you're likely to get a blank stare.

We've created a layer that goes between the customer and the merchandise. We marketers placed money and algorithms between the customer and the merchandise. By doing so, we gave up so much control.

America is about to begin the process of separating the cream from the coffee. Will we, the direct marketing community, follow suit?

Ann Taylor Credit Card Program: Multichannel Marketing Best Practice?

Ok all of you multichannel best practice mavens, here's one for you to chew on.

Ann Taylor introduces a credit card program, with direct mail and e-mail marketing of the card provided by Alliance Data Systems Corp.

Read the article, then let the audience know if you think it is a best practice to have a third party market a credit card for a brand like Ann Taylor.

Remail Catalogs

Many of you who in the audience who are not catalogers may not realize that catalogers send you the same catalog, over and over and over.

This strategy is called a "remail" strategy.

It is a labor-intensive process to put a catalog together. It may be ten times harder to paginate a catalog than it is to construct a hundred landing pages. In saddle-stitched catalogs, you have to physically coordinate the merchandise on pages 2-3 as well as pages 78-79, since they are technically produced on the same piece of paper.

So catalogers figured out a way to be sneaky. We replaced the cover, back cover, and the inside pages associated with those pages with new creative and merchandise. However, what appears inside the remainder of the catalog is fundamentally the same.

This allows the cataloger to avoid having to pay the costs of producing new pages, often costing between $500 and $5,000 per page.

Of course, loyal customers indirectly realize that catalogers are fooling with them. We can see this, because the productivity of the "remail" catalog isn't as good as in the first release.

The table below illustrates what typically happens when a company sends a pair of remail catalogs to a customer, following new creative.

Catalog Remail Strategy
	Release 1		Release 2		Release 3
	$ per Bk	Profit	$ per Bk	Profit	$ per Bk	Profit
Segment 1	$8.00	$2.05	$5.60	$1.31	$3.92	$0.72
Segment 2	$5.00	$1.00	$3.50	$0.58	$2.45	$0.21
Segment 3	$3.50	$0.48	$2.45	$0.21	$1.72	($0.05)
Segment 4	$2.75	$0.21	$1.93	$0.02	$1.35	($0.18)
Segment 5	$2.50	$0.13	$1.75	($0.04)	$1.23	($0.22)

Notice that each time a catalog is mailed, it performs at 70% the level of the first mailing (in this example, your mileage will vary).

However, the productivity is usually good enough in subsequent releases that it allows the cataloger to mail the second and third release to many customers. In this case, the cataloger would not mail the catalogs to customers who are losing money. So, the best segment (segment 1) and the next best segment (segment 2) receives all three mailings. The third and fourth segments receive releases one and two. The fifth segment only receives the first release.

This strategy worked really well in a pre-Google world. Today, the fixed costs associated with producing new creative can be minimized in a veritable plethora of ways. And if the fixed costs can be minimized, new creative drives up productivity --- and causes customers to not feel like they are being duped. Further, with e-commerce sites changing often and e-mail marketing campaigns featuring fresh merchandise on a weekly basis, it makes less sense to stick to this old-school marketing strategy.

Until the profit and loss statement looks different than what is illustrated above, you'll continue to see catalogers execute this strategy. And it fuels a self-fulfilling prophesy --- customers feel exasperated when they keep getting similar catalogs in the mailbox, so they keep throwing them out.

Multichannel Forensics A to Z: Zendik

A "zendik" is a heretic, one who does not conform to an established attitude, doctrine or principal.

An open mind and Multichannel Forensics may well lead one to become a zendik.

I read an article this week, from an individual representing a vendor selling multichannel products and services. The individual, without providing any facts, stated that "it is now generally accepted that multichannel customers are the best customers". Ugh.

Some catalogers observe the following: Customer was a catalog customer, then customer uses the catalog to purchase online, then customer shops online independent of receiving catalogs, then cataloger wastes $$$ sending catalogs to this customer, compromising profitability. Is the alleged multichannel customer actually multichannel? And is the alleged multichannel customer the most valuable?

Here's another one. Retail customer doesn't find what she wants in a store, so she goes online to place her order. Retailer collects e-mail address, then pummels customer with an endless array of 20% off and free shipping offers that the customer doesn't want. Customer opts out of e-mail marketing program. Retailer simply ticks off the loyal one channel customer, because the retailer perceives the customer is multichannel.

STOP IT!

STOP IT!

STOP IT!

Stop trusting the pundits who are not concerned about the health of your business. Start analyzing your own customers --- actually figure out how customers move from step A to step B to step C, actually calculate the profitability of moving through these steps.

Stay away from the simplistic queries that dominate our industry --- queries like pulling out any customer purchasing from multiple channels, summing sales, then comparing those customers who buy from a single channel.

Be a zendik.

Credit Customers, Lifetime Value, Eddie Bauer

Some of you might have noticed talk in the media recently about our failing financial industry.

So it might be instructive to consider the role of credit within a retail brand.

Back in the day, in the late 1990s, I worked at Eddie Bauer. In the late 1990s, Eddie Bauer was a $1.6 billion dollar multichannel brand that routinely churned out ninety million dollars in pre-tax profit --- not outstanding performance, but not too shabby.

Eddie Bauer was owned by Spiegel, the century-old catalog brand out of suburban Chicago. Spiegel owned a bank, FCNB. That bank provided credit to credit-worthy consumers.

Retailers adore proprietary credit. There's no better way for a retail brand to extract an extra ten percent out of a $100 order than to encourage the customer to make $10 payments for a year at 24% interest.

The theory, then, is that after administrative expenses, proprietary credit can be responsible for nearly doubling the profitability of a customer, as long as the customer fails to pay down their debt in a timely manner.

	No Credit	With Credit
Demand	$100.00	$100.00
Net Sales	$70.00	$70.00
Gross Margin	$38.50	$38.50
Less Marketing Expense	$20.00	$20.00
Less Pick/Pack/Ship Expense	$7.70	$7.70
Variable Profit	$12.30	$12.30
Add: Interest Revenue	$0.00	$10.00
Less: Banking Expense	$0.00	$1.50
Net Contribution	$12.30	$20.80

On paper, the profitability of a proprietary credit customer looks too good to be true. The fairy tale drives a brand in a new direction.

If we know that the proprietary credit customer is this profitable, then we want to aggressively market credit to the customer, right? And we especially want to market credit to new customers. If credit customers are worth more, then we can prospect much deeper, increase sales, and on the surface, significantly increase profit. In the short term, this is all good.

At Eddie Bauer, we closely monitored the percentage of sales that were generated via proprietary credit. And we were strongly encouraged by Spiegel to amp that percentage, because a higher percentage of sales on proprietary credit resulted in more interest revenue, and theoretically, more profit.

So we amped-up our credit push. New customers were strongly encouraged to sign up for credit. Existing customers were given in-store, catalog, and e-commerce incentives to sign up for credit. Credit customers were offered promotions to take advantage of credit.

A funny thing happens when you focus on credit. You attract a customer who needs credit.

Not surprisingly, this customer is fundamentally different than bank card customers. The proprietary credit customer buys a slightly different merchandise assortment than does the bank card customer. This causes the merchandising division to chase merchandise preferred by the proprietary credit customer, not to chase merchandise preferred by quality customers.

Within two or three years of a consistent, relentless credit push, the brand has been fundamentally changed. Well, the brand has not been fundamentally changed --- the brand is the brand. But the customer file has been fundamentally changed, and the core of the brand, merchandise and customer service, has taken a back seat to proprietary credit.

Ultimately, the brand reverses direction. Instead of selling merchandise to the customer, the brand uses merchandise as a teaser to sell credit to the customer. Eventually, customers max their credit limits. Our analysis suggested that when a customer got within $100 of their credit limit, the customer stopped purchasing. Some customers failed to pay their debts.

When the credit "channel" begins to fail, the whole house of cards crumbles, bringing down everything.

The lessons are clear. By focusing on merchandise, by focusing on serving the needs of a customer, one can build a healthy business. By focusing on selling money to a customer, we don't sell anything of long-term value. Admittedly, we boost short-term performance. Essentially, we push long-term profit into a short-term window, paying a long-term price for the benefit of goosing short-term numbers.

At Nordstrom, credit was viewed in a different light. During my time at Nordstrom, credit was never the primary mechanism for a customer relationship. Strong credit leadership (Kevin Knight), and strong executive leadership (i.e. the Nordstrom family), prevented the business from going down the path that Eddie Bauer took.

Eddie Bauer is still trying to dig out of this problem, nearly a decade later.

And now our nation will attempt to dig out of a period of time when we gorged ourselves on credit.

The Customer Is In Charge

On a sale from 1 to 5, where a one implies that we are simply feckless consumers bowing at the knees of commerce giants, and a five suggests that commerce giants are at the mercy of a Web 2.0 empowered shopper who gets to call the shots, where do you think the customer stands, here at the end of 2008?

After the events of the past few weeks, my vote is for a "1". And I have an endless array of anecdotes to back up my position.

The Death Of Catalog Customer Acquisition, Coupled With Database Marketing And Best Practices

It's funny. If you read the pages of DMNews, Multichannel Merchant, or Catalog Success, you won't read a word about one of the biggest headaches facing the modern catalog brand (and online pureplays are going to deal with this soon, in a different way, when Google and online growth stall). And you won't find our industry leaders talking about this, either. Why? I don't know.

Folks contact me about this issue all the time. I field a lot of questions that sound like this:

"Hey, what are you seeing out there in terms of customer acquisition performance? Our performance continues to get worse, and we don't know how we'll acquire enough customers, long-term, to grow, or to simply stay in business. Where can I find a scalable source of new customers if catalog customer acquisition no longer works?"

Catalog customer acquisition, as we know it, is dying a slow and painful death ... especially if you are an established catalog brand.

Best practices (a term I despise, as you know) used to require you to rent and exchange names with competing companies. In the early 1990s, this was the primary way to grow a brand, especially for smaller companies, folks who could obtain productive names from larger brands. Larger brands benefited by having deep enough pockets to rent/exchange names with numerous small companies. Customers, not having access to companies they didn't know existed, didn't protest against the sale of their name and address the way a few million customers protest today.

Then Abacus changed the world. By having companies pool names in a database, companies could essentially take advantage of cross-company buying habits. Abacus modeled the names, harvesting those that are most productive across brands. Catalogers initially resisted the co-op model, but eventually learned that these names performed better, and were half as expensive as renting the same name from a competitor.

Abacus did so well that a handful of competitors arrived on the scene. The competition resulted in lower prices. The combination of competition, lower prices, and declining performance severely damaged the list rental/exchange industry. Now, the established best practice is to use co-ops for maybe a third to two-thirds of customer acquisition circulation, a major deferral of business responsibility from the catalog CEO to the co-op statistician.

Over the past three years, the world changed. Social Media and third-party catalog opt-out pundits will tell you that "the customer is in charge". And they are right, to some extent (would you suggest that the customer is in charge of financial products ... nope, the taxpayer will foot the bill), though the issue is far greater in scope that the pap-like structure of that sentence, so great, in fact, that we don't have time to discuss it here today. Maybe we'll address that topic tomorrow.

Make no mistake, maybe a third of the customers who used to shop via catalogs now look elsewhere when deciding to make a purchase decision for the first time. Oh, they may still purchase from our brands, but are now much less likely to do so because we sent them a catalog when they hadn't purchased previously. The customer uses other tools, and doesn't always welcome the intrusion in their mailbox.

The economics are clear. As performance degrades, the cost to mail so many prospect catalogs becomes prohibitive in comparison with the long-term value generated by a new customer.

The big brands are observing this, and are inventing new best practices. Some companies are aggressively building their own internal co-op style of database. Based on what some of you tell me, some big brands import data from their competitors, use the information to augment their own customer information, then make names/addresses available to the competitor submitting the information.

All of this is semi-futile, as name/address paper-based marketing slowly dies.

At this time, there are several paths companies are going down to address the death of catalog customer acquisition.

1. Partner heavily with co-ops, leveraging their matchback algorithms and results programs to manage both retention and acquisition circulation. This boosts results in the short-term, helping companies make the p&l for this quarter, or this year.
   
2. Big companies are building their own in-house prospect databases, looking to bypass the co-ops altogether, holding more information.
3. Small companies are being gobbled up by private equity firms, allowing the companies to leverage names/addresses from sister brands.
4. Folks are greatly expanding the use of paid search, and are finding that they cannot recoup the losses observed in catalog customer acquisition, and cannot scale paid search to replace paper-based customer acquisition.
   
5. Others are trying numerous social media strategies, finding that these micro-channels do not scale at the level that catalog customer acquisition scales, even when executed exceptionally well.
   

The reality is that the days of a nice, big, mass audience that can be marketed to via catalog customer acquisition strategies are ending. People are going to expend energy and see success in catalog customer acquisition --- but over the next ten years, performance will trend down --- some ups, a lot of downs.

So what? What do we do about this?

Well, I'm not a fan of building an internal prospect database, adding data from other companies to complement my marketing strategies. Put yourself in the seat of the customer. Do you want Big Brand "X" combining your purchase from Little Brand "Y" to their database, then use that information to market to you differently? You don't like the thought of Google knowing everything about your online habits, so I doubt you like the idea of big brands knowing everything about your offline habits.

Over the next three years, we have no choice but to dramatically expand our testing opportunities in every possible micro-channel that exists. We are losing a sure-fire source of most of our new customers. Now we begin the hard work of exploring a hundred or five hundred or a thousand micro-channels that will eventually replace the one big macro-channel we've used for a hundred years.

This won't be easy. It could be fun. If we don't do it, we face a significant downsizing.

Plow & Hearth Tree Planting Campaign

Plow & Hearth sent an e-mail communicating their efforts to plant trees. You can view the e-mail here.

Their e-mail suggests that they plant two seedlings for every tree they cut down to produce catalogs. And at http://plowandhearth.com/trees, you can monitor their efforts to reach a million seedlings in one year --- customers who order at Plow & Hearth automatically get a seedling donated with their purchase.

Sure this represents an expense for Plow & Hearth --- a wise expense, a good use of public relations marketing.

One way to quell those who believe we represent a wasteful industry is to replenish the resources we consume.

CEO Comments: September

Barnes & Noble on in-store music sales, online sales growth, and offering e-commerce exclusive items (weren't we supposed to have the exact same experience across all channels?).

PetSmart profit was down --- and there was a comment about the customer database, at least twice. Notice the comment about using the database to focus on profitable promotions, ugh.

Kenneth Cole takes a bath, will shift focus from fashion items to basics. Isn't this a classic trend that repeats (upswing = fashion, downturn = basics).

Zales drives a 6% comp store increase, but with a margin reduction, sees a huge drop in profitability. Clearance represented 20% of sales. Wow. Direct marketing and catalogs reflect the "brand position", with less density (always an interesting strategy --- less density). E-commerce is +30% for the year.

Long Island: Hillstrom's Zip Code Forensics

The Northeast United States is a direct marketing hotbed unlike any other, as validated by Hillstrom's Zip Code Forensics (read about and purchase here).

As marketers, we need to think about the differences we see in geography. This map shows outstanding performance in Manhattan, marginal performance in Queens and The Bronx.

Then we head out on Long Island, and we find a multichannel hotbed of customers who prefer both e-commerce and catalog marketing.

Finally, we get out to the Hamptons, and we find a veritable plethora of Catalog Crazies and Catalog Fans. We see a similar trend as we move north toward White Plains.

Repeatedly, we see suburban customers who are focused on e-commerce, exurban customers who are potentially appropriately called "multichannel" customers, and rural customers near urban areas who prefer catalog marketing. Our marketing practices can adapt and respond to these realities. Remember, Catalog Crazies and Online Bliss customers spend nearly twice as much as the average customer.

It Never Rains In California: Hillstrom's Zip Code Forensics

Another fascinating geography, illustrated by Hillstrom's Zip Code Forensics (read about and purchase here), is the area between San Francisco and Lake Tahoe / Reno.

There are dramatic differences in customer preference as we move from west to east!

North of wine country, we have a catalog hotbed, with countless Catalog Crazies and Catalog Fans zip codes. In fact, you can follow the coast all the way up through Oregon, you'll find folks who love catalogs and spend $$$!

In the Bay Area, you predominantly find Online Bliss and Online Spend segments. The stereotypes of this geography hold true, these folks enjoy e-commerce.

You'll also notice lower productivity in the inner city zips of Oakland and San Jose, consistent with much of the country.

The valley doesn't have a lot of productive zip codes. But follow I-80 from Sacramento to Reno, and you see an e-commerce hotbed that is surrounded by multichannel zip codes to the north and south. Once again, as we head into mountain areas, we find customers who love direct-to-consumer commerce.

We have opportunities to alter marketing strategies based on customer behavior. Customers north of the Bay Area, along the coast, are not likely to be "multichannel". Why treat them that way? Customers in the Bay Area are likely to be e-commerce fans --- use search and social media to collaborate with these folks. And even our highway system plays a role in customer behavior --- I-80 from Sacramento to Reno spurs development, housing, affluent customers, and e-commerce spend.

Colorado: Mountains In Hillstrom's Zip Code Forensics

Hillstrom's Zip Code Forensics (read about and purchase here) clearly indicate that mountain states are direct marketing hotbeds.

Colorado might be the most interesting of the mountain states.

Looking at this map, we see several unique trends. Eastern Colorado has e-commerce potential, especially along I-70. Denver, like many major metropolitan areas, is not an e-commerce or direct marketing hotbed.

Move to the suburbs and exurbs, and you see a bunch of Online Bliss and Online Spend zips, the most productive online zip codes that exist.

And then we head west, into the Rockies, away from Denver. There, we find a ton of Catalog Crazies and Catalog Fans. This is interesting, because marketing best practices tell us to have a full multichannel offering for our customers --- yet the customers in Western Colorado love direct mail and catalogs, and use the telephone to place their orders. This is traditional catalog marketing at its finest.

When we think about catalog marketing, e-mail marketing, and search marketing through the perspective of Hillstrom's Zip Code Forensics, we think about many ways to customize and personalize our marketing to the folks we are communicating with. We don't send an e-mail marketing message offering buy online / pickup in stores to a customer in the Rockies of Colorado, do we? We don't necessarily scale our catalogs down to 48 pages to drive web traffic to a customer who lives in the Rockies of Colorado, do we? And we might think about social shopping when considering customers who live in Boulder.

Multichannel Marketing: A Weekend In Wisconsin

When you spend a morning in rural Wisconsin, you understand how messed-up multichannel marketing has become.

The interstate highway system transformed many small towns. In Wisconsin, I-43 was built along the old US-141.

Think about US-141 as the old school world of catalog marketing.

Think about I-43 as e-commerce.

Today, I drove along the old US-141. Here, we see a dramatically different world than we see along I-43, even though I-43 is just a third of a mile to the east. We see small towns. There are handmade signs for accountants, for bakers, for the Friday Fish Fry at the local tavern, for the farm implement. The buildings are old. Social Media doesn't exist here, though walking through the reception line after church is technically a high-octane version of Social Media!

Every mile or so, there is a blue sign pointing travelers to the Interstate Highway. This is like the best practice of e-mail marketing, or of using the catalog to direct the customer to a larger merchandise assortment online. I think there is irony in that the signs are blue --- blue representing a colder, more efficient form of travel.

Eventually, I-43 replaces the old US-141. Now I'm forced on to the Interstate Highway. This is like e-commerce at its finest. Everything moves fast. If you're not interested in a Friday Fish Fry, don't worry, you won't be pointed to one. There are big blue signs preceding every exit --- offering big brand choices for Gas, Food and Lodging This is a lot like paid search, you buy your way onto these signs, and by doing so, you gain a competitive advantage over the fools that cannot afford to advertise on the big blue signs.

There are few signs of life along I-43 --- the job of I-43 is to quickly transport you between Green Bay and Milwaukee without interruption, sort of like the role Google plays online. If you want to find somebody to bake a cake, you'll need to get off the freeway.

In the past thirty years, these two roads, the old US-141 and the newer I-43, evolved differently.

Along the freeway, commerce congregated near exits, creating a big box version of paradise suitable for any individual who needs to stay at a Super 8 motel, get gas at Shell, and eat lunch at Burger King.

Along the old highway, localized commerce thrives. And as expected, most of the signs point to I-43. Sure, there are signs on the freeway that point to the towns on the old road. But the real purpose of the freeway signs is to point you to the brands that are now between the freeway and the old road.

So here is where multichannel marketing is all messed up. If I-43 and the old US-141 followed multichannel best practices, we'd have a complete mess. All of the businesses along each highway would have to be the same. Travelers would be encouraged to spend equal time on each road, right? And those travelers would be the most valuable travelers. Everybody would want those travelers to spend equal time on each road, buying from local business and the brands along the freeway. Heck, we'd set up roadblocks on the local road (though not on the freeway, we don't do that with e-commerce), forcing travelers on the freeway so that they could support the brands along the exits.

We'd give these travelers incentives, like ten cents off a gallon of gas if the customer simply drove from the local road to the freeway to fill up. We would purposely build a church along an exit, then offer incentives for folks to visit the new church. We'd obsess about measuring the cars migrating from the old road to the new road, questioning each individual about the exact reason they got off the old road, trying to match back the localized activity that drove the traveler to the freeway.

In the real world, it doesn't work like this, does it? Nope, the freeway was built, local businesses died, brands saturated the exits, and a seismic shift in the makeup of the businesses along the local road was needed to allow the old US-141 to survive.

So why do the pundits continually force us into a box on multichannel business models? Why can't we let all of our micro-channel evolve in a manner best suited for each micro-channel --- well, not for each micro-channel, but for the way the customer wishes to use the micro-channel?

Listen to the pundits, because they have valid insights.

But move beyond the insights. Have vision. Consider how each of our micro-channels might best serve a customer. Leverage the strengths of each micro-channel, minimize customer exposure to the weaknesses of each micro-channel.

For catalogers, there are many weaknesses. The catalog is no longer relevant to a third of the audience it used to be relevant to. We keep mailing them, however, hoping for results to improve, and this is killing the profitability of our brands. E-mail is nothing short of a pointless disaster for so many of us --- driving a nickel or dime of revenue per e-mail. This has more to do with template-based best-practice design, redundant offers and promotions, and a scorched-Earth saturation of similar messages within and across brands (Up To 40% Off, LIMITED TIME ONLY) than it has to do with e-mail marketing as a micro-channel.

And then we have Social Media. Social Media micro-channels can be used to warm up the cold, efficient, Google-dominated world of e-commerce. But the pundits are ruining Social Media, too. Blogs are dead, conversations now happen on 140 character micro-blogging applications that have almost no business relevance whatsoever (unless you are a fan of customer service, then micro-blogging platforms are invaluable --- hint hint!). We were told businesses had to go down this path --- and once we became convinced we had to do this, the Social Media pundits all left to have their own tiny little discussions in the world of micro-blogging.

Maybe we should stop listening to all of these pundits, stop trying to prove the effectiveness of Social Media, and simply use Social Media to warm up the cold, lifeless world of e-commerce --- making it more like the old US-141 in Eastern Wisconsin. Maybe that's the best way to serve a customer.

Multichannel Forensics A to Z: YouTube

YouTube is a proxy for video. One day in the not-to-distant future, you'll utilize a lot of video on your website.

When we talk about micro-channels, video will likely become the most important entertainment micro-channel.

And entertainment micro-channels will become very important to brands that are, in the vernacular of Multichannel Forensics, in Acquisition Mode.

Home retailers are often in Acquisition Mode, with fewer than forty percent of customers purchasing again within the next twelve months. For these brands, what reason could the customer possibly have to come back and visit your website, when she has no need for the merchandise you offer in the short-term? Heck, she just purchased a couch and a rug, she's not likely to buy anything again anytime soon.

Acquisition Mode brands may use entertainment micro-channels like video to keep customers visiting the website in-between purchases. Think of it as the awareness-style advertising automobile companies use to keep their brands top-of-mind in the five years between car purchases --- except that the content is hosted on their own site, or on YouTube, where it serves as a customer acquisition vehicle.

Multichannel Forensics A to Z: XXL

If you are an apparel marketer, then you know all about the importance of extended sizes.

Visit your local retail store, and you're not likely to find a broad assortment of size 14 dresses or XXL coats. Go online, and you can find absolutely anything you want.

The apparel marketer uses Multichannel Forensics to understand the unique behavior of the extended size customer.

From a marketing standpoint, you don't necessarily waste resources pushing the extended size customer into your store ... in many ways, you are limiting the ability of this customer to be a multichannel customer due to your assortment and merchandising strategy.

Extended size customers can be fiercely loyal to a brand when they find something that is fashionable and comfortable. Extended size customers can also be "leading indicators" of problems with your merchandise assortment, if loyalty wanes.

Analysis of extended size customers is easy --- simply identify, by size or sku, the items that are considered extended size items. Track customers who buy these items different than all other customers.

Appalachian Mountains: Hillstrom's Zip Code Forensics

Another interesting outcome of the beta of Hillstrom's Zip Code Forensics (read about and purchase here) occurs in mountain areas.

This map shows trends from Washington, DC to Atlanta.

As we leave Washington, heading southwest, we migrate from Online Bliss to Catalog Fans. In Southwest Virginia and Western North Carolina, there are many productive zip codes in the Catalog Crazies and Catalog Fans segments.

As we approach Atlanta, the focus shifts, with many productive zip codes northeast of Atlanta, mostly in the Online Bliss and Online Spend segments.

Mountain areas tend to be very productive regions for direct marketers. As you get closer to cities, e-commerce is prevalent. As you get farther away from cities, traditional direct marketing and ordering over the telephone becomes important.

Urban, Suburban and Rural: Hillstrom's Zip Code Forensics

One of the unique validations of Hillstrom's Zip Code Forensics (read about and purchase here) is the consistent difference in behavior between Urban, Suburban, and Rural zip codes.

This map features the Chicago, Milwaukee, and Madison markets. Look closely at Chicago and Milwaukee.

The inner city zip codes perform well below average. As you move out from the inner city, into the suburbs, you see e-commerce take over, with many Online Bliss and Online Spend zip codes.

Moving beyond the suburbs, and we begin to see Catalog Fans, and even a few Catalog Crazies.

Repeatedly, across the United States, we observe this behavior. Direct Marketing is a uniquely suburban, exurban, and rural practice --- something the marketing experts who preach multichannel strategies may not have ever had the data to validate. And this makes sense, folks! You go back to the early days of Montgomery Wards and Sears, and you'll see that the catalog was the commerce lifeline to rural folks.

You think differently when you know that many urban areas, retail hotbeds, are not always direct marketing responsive. You think about e-mail marketing differently when you think about targeting a suburban and exurban customer. You think about catalog marketing differently when you think about targeting an exurban or in some cases a rural customer.

Hillstrom's Zip Code Forensics: Download The Paper

The vast majority of the work has been done in the beta version of Hillstrom's Zip Code Forensics!

Hillstrom's Zip Code Forensics classify each zip code in the United States on the propensity for residents of that zip code to shop via traditional direct marketing (catalogs) or via e-commerce. Furthermore, the segmentation strategy classifies zip codes on the basis of overall productivity, illustrating zip codes that are highly productive, and those that are generally unproductive. The segmentation strategy is based on nearly a billion dollars of sales across a dozen leading direct marketers.

There are six segments in Hillstrom's Zip Code Forensics. From Catalog Crazies to Online Bliss, you'll see your business in a whole new light, having the ability to filter out unproductive names from your marginal segments.

If you are interested in participating in and purchasing Hillstrom's Zip Code Forensics and wish to learn more about the six segments, please download a paper on Hillstrom's Zip Code Forensics here.

Feds Set To Bail Out MineThatData

Washington, DC: In an unprecedented move, The Federal Reserve Board announced this evening that it will, for the first time ever, bail out a highly profitable sole proprietorship.

Seattle based MineThatData, a consultancy that helps CEOs understand the complex relationship between customers, advertising, product, brands and channels, will be the recipient of nearly $300,000,000 of free money, courtesy of an unprecedented taxpayer bailout.

"It's only one dollar per person living in the United States" groaned a noticeably exhausted Treasury Secretary Henry Paulson. "We just finished taking ownership of AIG, and now we're faced with having to bail out a highly profitable sole proprietorship. Where does this end?"

The announcement was met with an enthusiastic roar of approval at the Shop.org Annual Summit in Las Vegas. Attendee Maya Pemberton, Sr. Pay-Per-Click Analyst at Dell, told anybody who would listen that the announcement provides much-needed stability in the emerging field of Multichannel Forensics.

"We just realized that our online customers were in hybrid/transfer mode, rapidly migrating to our retail offering at Wal-Mart. We couldn't possibly take our strategy to the next level without assistance from the Feds." mentioned Pemberton, who then ran her badge under the bar code scanner at a social media vendor in the exhibition hall, earning her a free ballpoint pen and a chance to win an iPod shuffle.

Wall St. did not react positively to the announcement, with the Dow Jones Industrial Index plummeting 1.4% in after hours trading. We were unable to solicit a comment from management at MineThatData.

Note: Various, if not all elements of this story, have been fabricated. No taxpayers were harmed in the writing of this story.

Metrics That Matter

How many of you know how many of last year's customers will purchase again this year?

All the business intelligence pap about dashboard reports sells software. A few key metrics, metrics that I used to see printed out on green/white tractor paper back in 1991, will give you insight into where your business is heading. Let's review a few simple tables that many direct marketers produce.

This table analyzes existing customers. These were prior customers, acquired more than a year ago. For the 2008 row, these customers were acquired in 2006 or earlier, and placed at least one order during 2006.

Last Year Existing Buyer Performance
	Households	Rebuy Rate	Spend/Rebuy	Volume/HH	Tot. Demand
2008	124,384	53.7%	$274	$147.14	$18,301,613
2007	135,048	56.1%	$283	$158.76	$21,440,626
2006	117,349	52.4%	$249	$130.48	$15,311,228
2005	110,841	51.9%	$208	$107.95	$11,965,508
2004	119,439	50.9%	$203	$103.33	$12,341,274
2003	117,430	54.9%	$201	$110.35	$12,958,283
2002	102,843	55.8%	$200	$111.60	$11,477,279

This is direct marketing's version of "comp store sales". The marketer reviews the volume per household column, to understand if performance is improving over time. In this case, performance is down significantly in 2008, because the repurchase rate and spend levels are down. Also notice what happened back in 2005 --- metrics improved, but total demand decreased, because of a lack of file momentum coming out of 2004.

Direct marketers produce a table of this style for existing customers. A comparable table is produced for customers who were newly acquired in the prior year. This helps the direct marketer understand if newly acquired customers are holding up their end of the bargain.

Another table sums new and reactivated customers. Any customer who did not purchase in 2007, but purchased previously, and purchased during 2008, is included in the table, as are all new customers. The table looks something like this (each row replicating prior years).

New/Reactivated Buyer Performance
	Households	Rebuy Rate	Spend/Rebuy	Volume/HH	Tot. Demand
2008	53,941	100.0%	$188	$188.00	$10,140,908
2007	47,204	100.0%	$215	$215.00	$10,148,860
2006	42,048	100.0%	$203	$203.00	$8,535,744
2005	50,884	100.0%	$189	$189.00	$9,617,076
2004	48,778	100.0%	$185	$185.00	$9,023,930
2003	45,224	100.0%	$183	$183.00	$8,275,992
2002	39,005	100.0%	$180	$180.00	$7,020,900

In this table, we observe that 2008 hasn't been a bad year for new/reactivated buyers. Of course, your analysts will keep close watch on cost per new/reactivated customer, but from a dashboard standpoint, buyers are up, demand is down, yielding about the same amount of demand as last year.

These three tables tell the Executive an awful lot about the health of the brand. You can run the tables by channel or merchandise division if you wish. For many direct marketers, these metrics help diagnose the health of the business.

E-Mail Marketing: Fixed And Variable Costs, And Why They Matter

I'm sometimes criticized by the e-mail marketing community for my belief that e-mail marketing is essentially "free".  This audience points out that it takes human beings to create e-mail marketing campaigns, and those human beings cost money.

This audience is correct --- it does take human beings to create e-mail marketing campaigns, and it costs money to pay those human beings to execute the campaigns.  Please be advised, however, that all forms of marketing have fixed costs, costs proportionate to the effort to produce marketing.

Sometimes, however, we miss the subtle difference between fixed and variable costs.  This subtle difference causes other forms of marketing to be far more productive than e-mail marketing is.

Fixed costs are expenses that do not change, regardless whether you execute one or a hundred or ten million of some activity.  Your $54,000 a year e-mail marketing manager gets paid that sum of money, regardless whether the e-mail marketing list grows by one percent or ten percent.  Your computer, or the chair you sit in in your office, are fixed costs.

Variable costs are expenses that change as you increase or decrease marketing activity.  This is where e-mail marketing is fundamentally different from most forms of marketing.  When you send one catalog, you spend maybe $0.75.  When you send a million catalogs, you spend $750,000.  Now you have e-mail, where it costs maybe $0.003 to send one e-mail message.  When you send a million e-mail messages, you spend $3,000.  See the difference?  There is essentially no variable cost to e-mail marketing.

This is great, because it makes e-mail marketing affordable for anybody.

This is terrible, because it creates a giant disincentive to ever make e-mail a viable sales generation tool.

In 2008, the average cataloger might generate $3,000,000 demand if a million catalogs are mailed.

In 2008, the average e-mail marketer at a catalog brand might generate $400,000 demand if a million e-mail marketing messages are delivered.  Yuk!

When it costs a significant fee to do something, you work very carefully to make sure that you've done everything right (aka "best practices"), so that you get a suitable return on investment.  When something is close to free (aka e-mail marketing, on a variable cost basis), the discipline is different --- not bad, but different.

The best thing that could ever happen to e-mail marketing would be some sort of tax, a fee placed on each e-mail marketing message delivered to a customer.  

Let's say there was a five cent tax placed on every e-mail message sent to a customer, with the tax going to fund prosecution of spammers and for development of inexpensive nationwide high-speed wi-fi access (I know, I'm nuts, but play along).

As marketers, would we not completely re-think every e-mail marketing campaign we execute?  Would we not develop more complex segmentation strategies, or implement statistical ranking models?  Would we not develop numerous versions of each campaign, with targeted merchandise assorted for audiences that buy that merchandise?  Would we not explore trigger-based campaigns more thoroughly?  Would we not carefully study response to every link, or understand the relationship between response and heat maps?  Would we not measure profit, instead of measuring metrics like open rates and click-through rates?  Would we not integrate all of your systems to properly understand the impact of e-mail across channels? Would we not execute mail and holdout tests?

Variable costs completely change how we look at the business.  Until recently, direct marketing was all about variable costs --- the brands that were most profitable executed flawlessly, and knew exactly how to manage variable costs.

Now, direct marketing is a hybrid of fixed and variable costs.  Websites have a fixed component, catalogs are often highly variable in nature.  E-mail marketing is generally a fixed-cost business.  E-mail marketing could be so much better if it had a significant variable component --- variable costs demand discipline.  

And by the way, it is the same lack of a variable cost component that is killing social media.  Without an apparent variable cost for each post, or each comment, or each interaction, the overall quality of the discipline suffers.