September 28, 2008

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."


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?

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