September 01, 2009

Gliebers Dresses: ROI Accountability

The first Executive Meeting in several weeks is about to begin.

Glenn Glieber (Owner): "... this is the amazing thing about listening to customer calls in the call center. This woman wanted a 'Labor Day discount'. Who ever heard of that? The caller says that Anna Carter is offering a 'Labor Day discount'. I didn't realize that we're supposed to make less profit just because Labor Day weekend is coming."

Meredith Thompson (Merchandising): "Kevin, is that you?"

Kevin: "Yup, it's me!"

Glenn Glieber: "I want to use today's meeting to review the role each one of us has played in generating profit for our company this year. Let's start with you, Meredith."

Meredith Thompson: "As you know, our new products are really working well. During an average year, new products generate $220,000 of profit, prior to accounting for fixed costs. This year, new products have been a surprise, generating $825,000 of profit prior to accounting for fixed costs. This yields an incremental $605,000 of profit. Our inventory team has done an amazing job buying just the right amount of merchandise. Gross Margins are predicted to be 2% better than last year, adding another $800,000 of profit. In total, we believe we've added more than $1.4 million in profit during a down economy."

Roger Morgan (IT and Operations): "My contact center and distribution center team have managed expenses in a fantastic manner this year, generating an incremental $275,000 profit compared to our expense structure last year. My IT team is responsible for website programming code that saved $125,000 in expense compared with last year. In total, we a projecting an annualized $400,000 of incremental expense savings, compared with last year."

Lois Gladstone (Chief Financial Officer): "We believe our loyalty program, once annualized, with generate close to a half-million dollars of profit, if not more, due to increased loyalty. Maybe best of all, however, is that we partnered with Candi Layton in HR to move our health care plan to a cheaper plan, one that will save the company $625,000 this year."

Pepper Morgan (Interim Chief Marketing Officer): "Boris Feldman made changes to how we select names for catalog mailings, adding $320,000 of annual profit. Spike Spencer, our Web Analytics guru, tested many combinations of landing pages, increasing conversion rates by a half point, adding $200,000 of annual profit. And our work with Kevin on optimizing the contact strategy will yield close to $1,000,000 of annual profit. All told, marketing is expected to contribute an annualized incremental total of $1,520,000 profit."

Candi Layton (Chief Customer Officer and HR): "Our HR efforts speak for themselves. We helped Sarah Wheldon hire Spike Spencer, so we share in the $200,000 of annual profit that he helped generate. We shared in the hiring of three new buyers in merchandising, buyers that generated more than $600,000 of incremental profit. And we pushed through a new health insurance plan with finance, generating more than $600,000 in incremental profit."

Meredith Thompson: "Candi, how about social media? How much incremental profit are your social media activities expected to generate this year?"

Candi Layton: "Oh goodness. Social media experts out in the blogosphere and on Twitter tell us that you don't measure social media on sales and profit, you measure it by the quality of the conversation."

Meredith Thompson: "Seriously?"

Candi Layton: "Absolutely. You cannot hold this social media stuff to the same lame metrics that other departments are held to."

Lois Gladstone: "You mean sales and profit?"

Candi Layton: "Yes, Lois! Social media cannot be held to metrics like sales and profit. It's about a conversation, it is about relationships, it is about listening. That's why we call our social media efforts 'Gliebers Listens'. We certainly don't call it 'Gliebers Extracts Profit From You'".

Roger Morgan: "Candi, do you understand that the rest of us are held accountable for either generating sales, increasing profit, or reducing expenses? The only way we get to keep our job is if we make incremental improvements, every single year."

Candi Layton: "But social media is different, Roger. We're making an investment in the future. If we don't invest in the future, there is no future. Certainly, you understand that, don't you Roger?"

Pepper Morgan: "We do that in marketing, Candi. We willingly lose money in our pay-per-click efforts. We know that we'll lose $5 per new customer in pay-per-click, and that's ok, because we'll make $20 of profit in the next twelve months. We lose five today to make twenty tomorrow."

Lois Gladstone: "So in your case, Candi, we're paying half of your salary and one full time salary in your department to shepherd our social media efforts. We're investing $200,000 in salary and benefits this year for our social media activities. Show us what we get in return of that investment?"

Candi Layton: "I really think all of you are fundamentally wrong. You don't measure social media by saying that we'll get $300,000 of profit for our $200,000 investment. You listen to customers and react to their requests. We currently have 18,000 followers on Twitter. We're making a difference. If our followers knew that we were hoping to extract profit from them, they wouldn't follow us. Then what would we have?"

Meredith Thompson: "Candi, it is our job to extract profit from customers. If we don't do that, we don't have jobs. You have to be held accountable to the same set of standards that the rest of us are held accountable to."

Candi Layton: "No Meredith, it is our job to build relationships with customers. And if we build quality relationships with customers, deep relationships that show that we listen, then profit will follow.

Meredith Thompson: "Prove it. If each of us are going to lose money on something, we have to demonstrate that the cumulative impact of our activities will be profitable."

Candi Layton: "I don't have to prove it. I can take it on faith. Meredith, you don't know when you introduce a new product that the new product will ever be profitable. We all have to have faith that you will mysteriously identify the products that customers love. We trust you. Why don't you trust social media?"

Meredith Thompson: "I have the metrics to demonstrate that, over the past twenty years, 27% of my new products will be successful, 73% will be failures. I have the metrics to demonstrate that the profit from new products will greatly outpace the money we lose on the failures. Pepper has similar metrics. Roger has similar metrics. Lois has similar metrics. Now what are your metrics, Candi?"

Candi Layton: "You don't measure listening, Meredith. You don't measure relationships, Meredith."

Roger Morgan: "We do put a dollar value on relationships and listening. We measure every call center employee based on average order value. We know that we have six or seven employees who consistently deliver better-than-average order sizes, and we compensate those individuals far better as a result of the contribution they make to the company."

Pepper Morgan: "Kevin, can you help Candi out?"

Kevin: "Certainly! Candi, you told me that you heard ideas for three new products on Twitter, is that right?"

Candi Layton: "Yes, Meredith agreed to develop three new products based on feedback on Twitter."

Kevin: "Good, let's track the performance of the new products next spring. If those products perform better than the average new product, then Candi gets credit for it, because she listened to customer feedback on Twitter."

Pepper Morgan: "What else?"

Kevin: "Take partial credit for every single customer service issue you solve on Twitter. We know that each Gliebers Dresses customer generates $40 profit per year. If you solve a customer problem, take credit for half of that total, until we get better metrics to understand the impact of customer service via Twitter. If you solve a thousand problems a year, you get credit for $20,000."

Lois Gladstone: "Candi, didn't we listen to some customers who didn't want to receive catalogs anymore, and take them off the mailing list?"

Kevin: "You did, you took 800 customers off of the mailing list. Those customers received an average of 12 mailings a year, 9,600 total, saving another $7,000. You see, we just thought of a handful of issues sitting here talking. Now go back to the drawing board, and measure EVERYTHING! Think about how every single interaction you have on Twitter contributes to the sales and profit of your company. Say you find that you're generating $400,000 of profit a year, and you are spending $200,000 to support social media initiatives. This means you are generating $200,000 of incremental profit. Give Glenn half of that money, and then spend another $100,000 hiring another social media expert. Allow your social media efforts to self-fund themselves. But the key to this is to MEASURE EVERYTHING."

Meredith Thompson: "I agree. Every one of us is responsible, is held accountable, to generating incremental profit. It is time for social media to be held accountable, too."

Candi Layton: "To a point, folks. I think if we hold social media to the level of accountability that we hold everybody else to, then we lose a certain amount of authenticity, and our efforts are then destined to fail."

Lois Gladstone: "Or we can choose to not invest in social media at all, if we cannot demonstrate a return on investment."

Candi Layton: "And then our competitors gain an advantage over us. We don't need that, do we? I mean, at what point do we acknowledge that social media is a lot like research and development? R&D folks are held accountable to a different set of standards, aren't they?"

Meredith Thompson: "There is some truth to that. However, it simply cannot be a case where we all work hard, fighting for our jobs, while you and 20,000 followers pontificate about our Luddite attitudes. You get to punch the clock on the profit that we generate for your job, allowing you to tell us how stupid we are."

Glenn Glieber: "Spirited conversation, thanks everybody! Ok, on to the next topic. Telephone sales are down another 10% this month. This is going to require at least a 10% reduction in workforce in the call center. Roger, please prepare a plan for me to reduce call center jobs. I know this will be painful, but we don't have the phone orders necessary to fund these jobs anymore."


  1. Kevin,
    So in one way, social media isn't really subordinate to Marketing as much as it is to customer service. At least that is how I am understanding your measurements.
    But perhaps that is how they are using their twitter/facebook/youtube etc. Other companies use it as a combination--promotion AND customer service. In the former, shouldn't there be a matchback to the effect on marketing?
    Thank you for providing this great thought-provoking series...

  2. If you are Dell, and you can take name/address of the purchaser and match it back to a referring URL or a tweet, then certainly, do the matchback.

  3. Anonymous12:24 PM

    Outstanding post. Really hits the mark. I have been following your blog and tweets for a while, this gold nugget has more then paid for the time investment I have in reading your stuff. Keep it coming.


  4. You're shaping the future of what Direct Marketers/web analytics will have to measure and analyze. Such a clever way of teaching the public through the application of an engaging use case story. Can't wait to see what happens with Meredith and Candi :)

  5. Anonymous8:12 AM

    Candi is lucky that Kevin is in the conversation. I think if she adjusts her approach to evaluation, she'll be a star. I'll be interested to see if she does so. If she does, the rest of the group will learn something and change.

    Love the dynamics. Great way of communicating about the topic(s).


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