Analytics Fail

If you follow me on Twitter, you already know about my mistrust of services like Groupon ... no, not a mistrust of Groupon and their business model, but rather, a mistrust of the marketers who see a one-day spike in promotional sales and feel like they've grown their brand in a healthy manner.

The failure, of course, is the analytics used to measure promotions.

You see, more than 95% of what we analyze surrounds a day, a week, a quarter, a season, a year, an item, a department, a division, or a campaign. Marketers, in particular, want to know how a promotion worked.

"Worked" is a wonky word.

Take the Chicago Bagel Authority (thanks @choltan!).

Most analytics tools measure if we sold a lot of merchandise on any given day. It's easy to find a report that says we sold $x on Monday.

It's not easy to find a report that says we generated $y profit on Monday, is it? Seriously, go ask any person in your company if there is a report that tells how much profit was generated on Monday.

Seriously. Go ask somebody.

Last week, I asked 1,970+ followers on Twitter to tell me if they measure the percentage of customers who purchased last year and then purchase again this year. It turns out that this is one of the most important metrics you can measure.

Not one individual said they measure customers in this way.

Every day, we experience an analytics fail. We measure what is easy. It's easy to measure sales, so we spend our time optimizing sales growth. It's hard to measure profit, so we generally ignore it.

In Web Analytics, we've trained a generation of analysts to look only at what Google tells us to look at. Did you ever stop and think about that, the ramifications of a generation of individuals who look at what Google tells them to look at, a generation of individuals who haven't written a line of code, code that allows them to investigate and answer their own questions?

Back to Twitter. When I expressed my frustration with services like Groupon gouging retailers (like Gap) of all of their gross margin, the analytics and marketing community fired back with every conceivable marketing theory.

• "They will make up the gross margin dollars in repeat business."
• "Not all Groupons are redeemed."
  
• "The promotion increases the number of new customers, and don't you always talk about the importance of new customers?"
  
• "You obviously don't think like a retailer, it's about getting butts in the store."
• "Gap will make money by increasing comp store sales which increases market share which drives up the price of stock which increases shareholder value."

When I asked our community on Twitter to provide the customer metrics that prove their theory, Twitter went silent.

Analytics Fail.

We simply don't measure what matters. We almost never look to see if the customers who purchased via a Groupon promotion ever decide to repurchase. We almost never look to see if we generate profit when we create spiffy marketing promotions ... and if we are one of the rare few who measure short-term profit, we seldom follow-up with measurement of long-term profit.

We act so smart, and so advanced with our trendy, real-time analytics.

And in doing so, we damage the businesses we work for.

Lenser Marketing

Some of my competitors tell folks not to work with me, that I am all about cutting circulation.

Now, honestly, I only want for your business to be more profitable. That's it. Eight times in ten, you'll be more profitable by mailing the majority of your housefile fewer catalogs, reinvesting the cost savings in customer acquisition or online marketing.

But not every time.

One of the firms that competes with me is Lenser Marketing. They recently published a report from Matt Morton that shows, via A/B testing, that contacts at 4 week intervals are better than contacts at 5 week intervals. Click here to read the article.

Any result that is verified via A/B tests and results in your business being more profitable is a good result! You are well served to work with any competitor of mine that validates results via testing.

Summer Segmentation: It's Complicated

By now, you've read a full summer's worth of posts on Segmentation.

Oh, the memories!

On a one-by-one basis, you can segment customers on the basis of the attributes illustrated over the past three months. It's big time fun, and you'll make a bunch of bacon in the process.

But life is more complicated than that, isn't it?

What about the online customer who buys after receiving direct mail that drove the customer to Google to search for the item that the customer purchased, causing you to pay twice for the right to encourage this customer to order merchandise?

What about the online customer who buys from only one merchandise divisions, and the offline customer who buys from that merchandise division and three others? Is there a difference between the customers?

In the real world, there are dozens of dimensions of complexity, dimensions that make it really hard to use a traditional segmentation strategy to understand customer behavior.

This fall, we transition the discussion from Segmentation to Digital Profiles. Digital Profiles are my way of collapsing dozens or even hundreds of dimensions down to a manageable number of segments, segments that contain unique combinations of customer behavior that lead to actionable marketing strategies.

Join me this fall as we explore advanced segmentation strategies ... what I call Digital Profiles!

Dear Catalog CEOs: Matchback Magic

Dear Catalog CEOs:

Here's a tidbit to help you determine if your matchback analytics are failing you.

Have your analysts freeze the customer file as of 8/15/2009. Take some random RFM segment from four years ago (46-48 month, 1x, $100 AOV). Measure online demand generated without catalog mailings, and generated via catalog mailings as identified in your matchback process. Calculate the percentage of demand generated online by catalogs (say 50%).

Now, have your analyst pull the 0-3 month, 2x+, $100 AOV (or any other high-value recent segment). Measure online demand generated without catalog mailings, and generated via catalog mailings as identified in your matchback process. Calculate the percentage of demand generated online by catalogs (say 80%).

The difference in these two metrics (50% for non-recent buyers ... 80% for high-value buyers) is highly correlated with how much your matchback analytics are over-stating the importance of the catalog.

Once you know the value of the two metrics, remove the 30% excess (in this example) from your catalog p&l at a segment level, and then calculate subsequent circulation plans based on this analysis.

Then hide your head in your hands and duck, because you won't like it when you see just how much your are over-circulating, benefiting every vendor in the catalog ecosystem, while hurting your shareholders/owner.

Gliebers Dresses: Thank Goodness For Loyalty

From: Lois Gladstone [mailto:lois.gladstone@gliebersdresses.com]

Sent: Wednesday, August 25, 2010 8:03 PM

To: Kevin Hillstrom

Subject: Customer Loyalty

Hi Kevin:

You've probably heard by now that Brandon Templeton is out at CEO at Gliebers Dresses. He went "all-in" as he says with a mobile app strategy that failed miserably from a sales standpoint.

What I am really proud of, however, is the loyalty program that I shepherded last year. You probably remember the program, we offered free shipping for a full year once a customer purchased four items. Well, how the heck do you think we held on to fifty percent of our sales without mailing a single catalog in July? It HAS to be the loyalty program, don't you think?

So here's what I am wondering. How can we prove that the loyalty program was responsible for holding on to fifty percent of our business in July? Roger's team looked at the percentage of orders that had free shipping in July, it was close to something like 40% of the orders. I should get credit for every one of those orders, right? I mean, those orders should be attributed to my loyalty program.

And then we have the remaining 60% of orders, a decent percentage of those had customers with three items and four items, so those orders should be attributed to my loyalty program as well, because my program is pushing customers closer and closer to free shipping on an annual basis.

Anyway, it would be great if you could jot down a few notes about how to demonstrate that our loyalty program saved our bacon in July.

I don't know if you know this or not ... Roger would like to be the next CEO of Gliebers Dresses. I think he'd make a good leader, he has solid knowledge of the business and he is really up to date with all of the latest marketing strategies, I doubt anybody reads research reports as thoroughly as he reads them. It would be amazing to see him put his theories into practice.

Thanks in advance for your help, I don't think we're looking to pay you anything, we just want for you to do a quick analysis of our loyalty program, maybe a day or two of your time, that's all.

Thanks,

Lois Gladstone
Chief Financial Officer
Gliebers Dresses
A Division of Gleason Investments

What The Heck Are We Doing?

By now, you've already read this article about paper prices going up (thanks DMNews) ... couple that with postage increases next year, and one might ask themselves a perfectly reasonable question?

What the heck are we doing?

In the article, one business leader mentioned that 10% of her sales revenue goes to postage expense.

Think about that for a moment.

What could we do with 10% of sales, year after year after year, how might we better reallocate that expense? Or even half of that expense?

This year, my phone has been ringing off the hook with requests for Multichannel Forensics projects, in anticipation of paper and postage increases. Some projects illustrate that, yes, you have to put paper in the mail to generate sales ... in fact, some projects suggest you need to mail more catalogs than ever (that's an interesting message to deliver to a CEO). More than half of the projects indicate that more than half of your sales happen without needing to put paper in the mail.

Take control of your profit and loss statement! Contact me for your own Multichannel Forensics analysis ... I'm taking requests for mid-October and early November projects as we speak. You will get your results in time to take action before the big postage increases happen next year.

Summer Segmentation: New Technology

In your data warehouse, create segmentation variables for any customer using any form of new technology.

Then take an old-school campaign ... like a postcard mailing, and overlay those who, for instance, those who have used an iPad to access your website and buy merchandise. You are likely to see that those who use new technology are less responsive to old technology (like a postcard).

Just like that, you have a suppression variable for subsequent old-school campaigns!


By the way, folks, say you are, oh, I don't know, maybe Gap. And maybe you have some trendy new promotion where you give up all of your gross margin in a way that drives a ton of sales and greatly benefits some new business model that needs you to give up gross margin to benefit their business model.

If you were in that situation, wouldn't it make sense to code the customers that took advantage of the new technology in your database, and then follow them for three months or a year to see if they ever interact with your brand again in a full-price, profitable manner?

Dear Catalog CEOs: New Audiences

Dear Catalog CEOs:

Even the post office is looking for new audiences to promote products and services to, products and services like catalogs.

One of the tragedies of the Great Recession was the dramatic shift away from prospecting.

Here's what I see, over and over again. A business used to retain 40 out of 100 customers, then acquired/reactivated 65 customers, so that next year, the business has 0.40*100 + 65 = 105 customers.

When the recession hit, the business instead retained 37 out of 100 customers, and prospecting efforts became less effective, causing the business to acquire/reactivate 59 customers. Next year, the business has 0.37*100 + 59 = 96 customers.

But prospecting efforts became so unprofitable during the recession that prospecting efforts were cut back, cut WAY back!! Now, the business acquired/reactivated 52 customers. Next year, the business has 0.37*100 + 52 = 89 customers.

It's here that the "struggles" kick in. Next year, the brand will "go halfway" in increasing prospecting, acquiring/reactivating 56 customers. Retention rates improve to 39%. Two years from now, the business has 0.39*89 + 56 = 91 customers. In year three, using the same metrics, the business has 0.39*91 + 56 = 91 customers.

The popular answer to this problem is to "make customers become more loyal", as if you can somehow force a customer to do something that the customer does not have a natural inclination to do ... just "force" the customer to buy two more items!!

The practical answer is to expand prospecting efforts. Most of us don't work at Wal-Mart, where you aren't going to find new customers. Most of us work for businesses that have less than 1% of total market share, so expanding prospecting efforts is a logical and strategic way to grow a business. It is, of course, contrary to most of the advice were given.

Visualization of Multichannel Forensics: Wired Magazine, "The Web Is Dead"

Take a peek at the article from Wired Magazine (The Web is Dead). Look at the image at the top of the chart.

This is what we are seeing with classic catalog and e-mail marketing in the majority of my Multichannel Forensics projects ... the new channels come, but they don't fully replace the old channels, leaving business leaders in a bit of a pickle.

Fortunately, you can make a boatload of profit by cutting back on old-school advertising to customers who have made the transition to newer channels!

And by the way, read each viewpoint in the article ... please, read each viewpoint. An evolution that is going to swamp e-commerce is well articulated on each side of the spectrum in the article.

New Nordstrom Website: The Evolution of E-Commerce

Click here for a preview of the new Nordstrom e-commerce website. Take a look at the difference in the way that merchandise / "the brand" is presented to the customer.

In spite of what the trade journals and conference agendas communicate, e-commerce is under siege.

History has a way of providing us with a forecast for the future. In the 1970s, Catalog Marketers leveraged "big books" ... some of you remember these, Spiegel, Montgomery Wards, Sears, Penney, 600 page monsters that offered the customer "everything". These brands exploited the "long-tail" thirty years before the term became trendy.

In the 1980s, we had "specialty catalogs" ... smaller catalogs from Lands' End / L.L. Bean or tens of thousands of catalogers that were possible because of the magic of database marketing ... science made it possible to send a targeted merchandise assortment to a targeted audience ... clearly, this was a far more profitable proposition than sending every single item to every single customer.

In the 1990s, e-commerce bursted onto the scene. In the embryonic stages of e-commerce, you needed offline advertising to drive traffic online. In other words, you needed small vehicles (catalogs, e-mail) to drive traffic to large vehicles (e-commerce website).

In the 2000s, we learned all about the "long-tail". E-commerce went the way of the 1970s catalog, once again, you had to share everything with the customer. In the last decade, technology fused search (on-site search and Google/Bing) with a "long-tail" based website, so clearly the end result is different than in the 1970s, but the concept holds ... it was again fashionable to aggregate everything under the sun, having 20% of items driving 80% of sales while finding ways to make the remaining 80% of items profitable. Good luck to the inventory manager responsible for managing long-tail inventory!

In the 2010s, the pendulum is swinging back to the 1980s ... this time, Mobile is the vehicle that is driving the change. In the 80s, the computer decided who received a smaller, targeted assortment. In the 10s, the customer and the computer will use Mobile to "go small" once again. Mobile demands that the merchant edit the assortment ... in fact, Mobile is pointless unless the merchant uses Mobile to significantly edit the assortment for the customer. Combine Mobile with localization (Foresquare / Facebook Places), and we're going really small now, aren't we?

E-commerce is the "big book" catalog of the 1970s, and it will be forced to evolve in order to compete with Mobile. You are going to hear the pundits talk about a "multi-channel" solution ... they will tell you that Mobile and E-Commerce are Peanut Butter and Jelly ... just like Catalog Marketers who said that Specialty Catalogs and E-Commerce were like Salsa and Chips back in the 2000s.

Mobile and E-Commerce are not Peanut Butter and Jelly. Mobile is going to cause a fundamental transformation within E-Commerce, one that many E-Commerce experts are not ready to deal with.

I predict (and I clearly have a good chance of being wrong) that E-Commerce will become far more entertainment-based, and far more social ... it has no choice, it has to evolve given the simplicity and personalization offered by Mobile. I sincerely believe that E-Commerce will look more and more like a highly polished cable television program over time ... I believe that E-Commerce will get a layer of frosting that goes on top of a crowded, link-based, sku-intensive website that is explored via search. Without this, the customer will chose the simplicity of the Mobile presentation. The history of Catalog Marketing points us in this direction, doesn't it?

Take a peek at the evolution of the Nordstrom website, and tell me if you think they are headed in that direction, or share your thoughts in the comments section if you think I'm nuts ... and if you think I'm nuts, send links to facts that support your personal hypothesis about what you think will happen in the future!

Gliebers Dresses: They Keep Coming

From: Meredith Thompson [mailto:meredith.thompson@gliebersdresses.com]

Sent: Wednesday, August 18, 2010 10:55 AM

To: Kevin Hillstrom

Subject: How Are You?

Dear Kevin:

Remember me? It's Meredith. Meredith Thompson! How the heck are you doing? I heard that you are working with some footwear company on some random island on the West Coast, what is that like?

I don't know if you heard the news or not. Brandon Templeton was fired as CEO of Gliebers Dresses a few weeks ago. He had this "all-in" strategy, I guess he liked playing Texas Hold 'Em or something, and decided that we had to go "all-in" and completely abandon our catalog marketing strategy. We went "all-in". And now I am "all-in" when it comes to a liquidation strategy because we missed our sales plan by 50% in July.

Was the kid a knucklehead? Absolutely. Was the kid trying to push us into the future? Probably. We fought this kid every step of the way, doing everything possible to make sure that the kid didn't kill our beloved catalog.

You have to understand, Kevin, that we love catalog marketing. I can't think about merchandising a landing page, that's boring, who wants to do that? Now, when it comes to putting together sixteen pages that tell the story about why a sundress is vital to the summertime lifestyle of a 58 year old woman, well, that is something I know about, I have a passion for this style of marketing and merchandising.

This new generation of "digi-dudes" as I call them, well, I'm not certain what they have a passion for. They batter old-school marketers like me, but they seem completely inept when it comes to creating demand. Sure, anybody can do an A/B test on a landing page to determine which style of creative generates orders more efficiently, but can these digi-dudes create the demand that sends a customer to a landing page? I doubt it. I sincerely doubt it. A generation of marketers are losing the battle on demand generation. Our kid-wonder former CEO learned this lesson the hard way. You can have apps for the Android platform, for the iPad, for the iPod, for the iPhone, for Blackberry, for Raspberry for crying out loud. How the heck do you tell customers to go and download the app? I mean, honestly, should we expect a couple hundred thousand twenty-nine year olds to virally share the fact that we have a series of apps with their closest friends?

Brandon didn't have an answer for that.

I'll use the catalog to create demand. Until somebody comes up with a better idea, I'll use the catalog to create demand. There is no such thing as multi-channel marketing without the demand generation provided by catalog marketing. E-mail sure doesn't count, though to be fair, it is better at generating demand than an app for an Android phone. Banner ads? Please. Re-targeting? Who wants to be stalked online? The catalog, now that thing creates demand!

I'll wrap this up, now. I sure wish somebody would bring you in here to spend some time with us. Roger is making a pitch to be interim CEO. The last thing we need is a daily essay on insights from Woodside Research. We need somebody who is practical enough to know that the past is still relevant, while pushing us to test new strategies. Almost everybody we know is good at one or the other, we need somebody good at both old and new. Who might you recommend to be our CEO? Is there anybody out there who might be willing to lead us? Let me know your thoughts.

Best,

Meredith

Summer Segmentation: Primary and Secondary Channels

Sometimes you have too many marketing channels. A customer could receive a postcard in the mail, then visit your website via paid search, then purchase via an affiliate.

You could credit this order to the affiliate (last touch). You could give credit to the postcard for creating demand (matchback). Or you could allocate the order 1/3 - 1/3 - 1/3 to each channel (attribution). Hint: There isn't a right way to do this, there are only wrong ways to do this. You cannot get in the head of the customer and ask her brain to properly allocate the order, can you?

Ok, you've done your best to allocate the order. Now you have to record the order in your database. Is this an offline customer (buys via postcard), or is this an online customer (buys via an affiliate), or is this a search customer?

In your database, you can set up "primary" and "secondary" channels. The "primary" channel might be the affiliate, since that is the actual marketing channel where the customer placed an order. You can also give full credit to the postcard as a "secondary" channel, and to search as a "secondary" channel.

Once a customer purchases for a second time, you begin to get a clear view of the preferred "primary" channel, and you begin to get a clear view of the preferred "secondary" channel.

Among customers who have purchased 2+ times, segment customers based on their favorite "primary" and "secondary" channels. This will give you better insight into what the customer is likely to do in the future, allowing you to better allocate marketing dollars as appropriate.

Dear Catalog CEOs: Modern Catalog Contact Strategy

Dear Catalog CEOs:

Many catalogers are using the same contact strategy that was employed sometime in the late 1980s. We structure our businesses around the contact strategy, staffing to the level of contacts that we pre-authored twenty or more years ago.

And we like "big" contacts, don't we? The printing vendor community provides efficiencies for having bigger page counts. The USPS provides efficiencies for having specific, larger page counts. Our merchants demand larger page counts so that the entire merchandise assortment can be presented to the customer.

All of these activities work against the behavior of the modern customer.

The modern customer (under the age of 55) is going to buy online, regardless whether you mail catalogs or not. We always over-state results by adding orders to catalogs that would happen online anyway, with or without a catalog mailing.

Beyond that, however, we fail to properly analyze page counts.

Here's an example that I run into every day. A company has a 148 page catalog that generates $2.50 when mailed to the average housefile customer.

• Pages = 148.
• Cost = $0.74.
• Demand = $2.50.
• Profit = $2.50*0.35 - $0.74 = $0.14.

In this situation, we'd mail the catalog, heck, it was profitable, right?

Let's try something different. Let's create a 64 page catalog, editing out only the best sellers from the 148 page catalog. The cost of mailing the catalog, on a per-page basis, is 15% more expensive. We'll use the square root rule to estimate demand at (64/148)^0.5 = 66% of the 148 page catalog:

• Pages = 64.
• Cost = $0.37.
• Demand = $2.50 * 0.66 = $1.65.
• Profit = $1.65*0.35 - $0.37 = $0.21.

What is so interesting about this is that few folks will actively create the smaller catalog, even though it is more profitable. And among folks who do create the smaller catalog, people will circulate the larger catalog to break-even, and then will transition to the smaller catalog.

Why toss so much profit into the dumpster?

Even better, why not create a targeted version of the smaller catalog? Put in the best product within one merchandise division, and send it only to customers who previously purchased from the merchandise division? When you do this, productivity often increased by 20%.

• Pages = 64.
• Cost = $0.37.
• Demand = $2.50 * 0.66 * 1.20 = $1.98.
• Profit = $1.98*0.35 - $0.37 = $0.32.

This ends up being the most profitable version!

A modern catalog contact strategy will include many small catalogs, with targeted merchandise sent to a targeted audience. The days of a larger catalog mailed to the entire audience are over, it is an unproductive way to generate mediocre levels of profit.

Contact me now to obtain an evaluation of your contact strategy!

Gliebers Dresses: Didn't Expect This E-Mail

From: Roger Morgan [mailto:roger.morgan@gliebersdresses.com]

Sent: Wednesday, August 11, 2010 6:03 AM

To: Kevin Hillstrom

Subject: Robotics

Kevin:

We haven't chatted in a long time, so I thought I would reach out to you. I hope you are doing well.

I understand that you have been working with a company on the west coast that is making good use of robotics in the distribution center. Would you be willing to share with me what this company is doing, how they are doing it, what it costs, and what they perceive the competitive advantages are of their robotics system? Our budgets are tight, so we're not going to pay you anything for this, we just thought maybe you'd be willing to spend a half-day or so jotting down your thoughts, you know, something that doesn't take too much time. Thanks in advance for your help, we appreciate it.

You might have heard that Brandon Templeton is out as CEO of Gliebers Dresses. This certainly isn't a surprise, I mean, this guy violated just about every best practice in the book in his quest to, as he would say, "modernize marketing". Woodside Research recently published a report that suggests that, by 2013, customers will hold up to six mobile devices at one time while leveraging offline marketing and e-mail marketing to make purchase decisions, requiring marketers to be nimble, sophisticated, and savvy at using multiple channels in a synergistic manner. Clearly, Mr. Templeton didn't read the research report, or he wouldn't have decided to obliterate our catalog marketing program in a short-sighted attempt to demonstrate the viability of emerging channels.

I am hoping that you might be able to assist me. Fitz Gleason, the gentleman who owns Gleason Investments, our parent company, is actively searching for our next Chief Executive Officer. As you already know, it sometimes takes a long time to find a viable Chief Executive Officer ... Woodside Research states that the average time it takes for a company to find a CEO is about eight months. I would like the opportunity to showcase my talents to Management. I would like to become the Interim CEO, and with luck, I could demonstrate that I deserve to be the permanent CEO of Gliebers Dresses.

You are already familiar with my strong strategic mindset. Nobody is going to come to the table better prepared than I am. I challenge any operations leader to match my knowledge of multi-channel marketing. You know as well as I do that it is critical to subscribe to and purchase the papers issued by all of the leading research organizations. Though I haven't been given the opportunity to run a marketing program, I possess a thorough knowledge of all multi-channel marketing best practices. Heck, I know why it is important to optimize the number of pixels in an e-mail pre-header. I've read Seth Godin, so I know how the lizard brain fights against making strategic changes to a marketing organization.

Outsiders might suggest that I don't have the merchandising experience necessary to grow a business like Gliebers Dresses, but I disagree with that point of view. Neptune Research suggests that merchandisers that will win in the future source product in a nimble and rapid manner, responding to customer demand in real time. I believe I can move our organization in this direction in a frictionless manner.

Anyway, I am hoping that you would be willing to call Fitz Gleason and put in a good word on my behalf. I know that you are respected in the industry, so I am confident that your thoughts would go a long way toward helping advance my career objectives.

Let me know when you have had a chance to speak with Mr. Gleason. I am heading to Lake Winnipesaukee for the weekend, I will be available next week if you have any questions.

Thanks,
Roger Morgan

The iPad & Mobile

Last week, I purchased an iPad.

This week, I view the world in a different way. I read books via the Kindle App, a better experience than reading a physical book ... heck, I can see areas in the book where other readers highlighted important facts. The Weather Channel App is fantastic. I can search any radio station in America that is playing a certain song using the TuneIn App, hop on, and listen to that song, or I can play my entire music library on the device. I can use the device as a mobile GPS platform with the 3G connection. I can listen to my hometown radio station while traveling. I can watch a streaming movie with the Netflix App.

Of course, it's the user interface that makes the iPad and the coming onslaught of competitors different. As if a page was taken out of the movie Minority Report, your finger becomes the mouse. The "app" fuses a computer program with easy website navigation.

Many of you are reading this and saying "duh" ... you've owned an iPhone for years, you know all about this.

Many of you are reading this and saying "boring ... the iPad is a clumsy laptop, I can do all of that online right now, the iPad is an expensive and functionless toy."

I will say this. If you perceive the device to be different, then the device is different. And that's all that matters. Folks who view the device as being different create apps for the device that are different, or use apps in a way that is different from the traditional web experience.

As Ben Stiller said in "Night at the Museum", "... there's a storm comin', buddy."

A whole chunk of the e-commerce / online channel is getting ready to break off, sort of like the giant iceberg that broke off of Greenland this week.

There are ramifications.

If you are an e-commerce brand, how do you decide which of your 12,000 skus deserves to be featured in an app? Or does the app even bother focusing on the best 1% of skus, instead seeking to solve a customer problem over selling the customer merchandise?

If you are a publisher that makes money from selling ads, what do you do when you lose 30% of your homepage traffic to an app that does not monetize ads as effectively?

If you are Barnes & Noble, what do you do with debt-ridden stores that house paper books when a third of your former store customer base is using the Kindle or a Kindle app on the iPad? Even if you have your own device or you have your own app, you still have to cover the costs of your debt-ridden stores ... right? How do you do that?

If you are a web analyst, do you try hard to be an expert at analyzing what happens at http://www.weather.com, do you become an expert at a new generation of software that will inevitably appear to analyze mobile transactions, or do you become an expert at analyzing how all online and offline channels fit together? It's a relevant question, one I hope you are spending time pondering.

If you are an e-mail marketer, do you optimize a channel that is in slow decay? Or do you jump into mobile and be the "conduit" between old-school marketing tactics and apps?

If you are a catalog marketer, do you focus on harvesting every last penny out of the 64 year old Upstate New York customer who loves to shop via paper in the mailbox? Do you spend the 15 free minutes you have each day fussing over whether the model on the back cover of the catalog is 'brand appropriate', or do you lead your company into the future by creating the most innovative publishing/magazine app that conveys all of the subtleties of merchandising/creative that are utterly absent from modern e-commerce?

I have no idea how all of this will turn out. I can only see, from my experiences, that I've changed ... and I've had the device for a week. What happens when 40 million households have a similar and far more affordable device?

As Ben Stiller said in "Night at the Museum", "... there's a storm comin', buddy."

Summer Segmentation: E-Mail Response

If you want to have some fun, create two variables in your database.

1. Recency of click-through from an e-mail campaign.
2. Recency of purchase after clicking through an e-mail campaign.

You'll find that those on your e-mail list that don't record activity in either variable in the past twelve months have very little value ... to the e-mail channel.

You'll find that those on your e-mail list that do record activity in either variable in the past twelve months have a different future trajectory than do other customers.

Show of hands ... how many of you have either variable actively coded on your database?

Dear Catalog CEOs: Pages and Contacts

Dear Catalog CEOs:

These days, many of you contact me, hoping that there is a secret to generating more demand with catalog marketing. Can you find better names in our housefile? Can you encourage the co-ops to create better models for us? Is there a list out there that we are missing that would cause our business to grow by 30%?

Sometimes, the answer is right under our nose.

Pretend that you mail a 124 page catalog every month.

Pretend that this catalog, when mailed to an above-average performing customer, generates $5.00 of demand per mailing.

What would happen if you mailed two contacts a month, each contact at 64 pages?

I can already hear folks howling at me. "We don't have the creative resources to mail two catalogs instead of one." "You have to show the entire merchandise assortment or the customer won't buy across the entire merchandise assortment!" "Our customers don't want increased frequency."

Math, believe it or not, can suggest that the strategy might be more productive.

I start with the 124 page catalog at $5.00 per customer. I'll use the friendly "square root function" to estimate what might happen at 64 pages ... (64/124)^0.5 * $5.00 = $3.59.

So, each 64 page catalog will generate $3.59. Now, let's assume that the second contact cannibalizes the first contact by 30%. Therefore, the two contacts will generate $3.59 + $3.59*0.70 = $6.10.

Now, we're getting somewhere! Let's assume that it costs 15% more, per page to mail two 64 page catalogs than it costs to mail one 124 page catalog. Instead of costing, say, $0.60 to mail 124 pages, it will cost (64+64)*1.15*(0.60/124) = $0.71.

Time to run the profit and loss statement. Assume that 35% of demand flows-through to profit:

• 124 Pages = $5.00 * $0.35 - $0.60 = $1.15.
• 64 Pages + 64 Pages= $6.10 * 0.35 - $0.71 = $1.43.

You tell me, which strategy would you rather employ?

Catalog marketing is evolving in very interesting directions. Your best catalog customers, the rural 65 year old woman, for instance, can support more contacts, contacts that are smaller. You marginal customers require fewer contacts --- they are going to shop online now, so a smaller catalog can be used to save expense, increase circulation depth, and still drive customers online.

Contact me now for a contact strategy evaluation. Let's put modern page count changes and contact strategies into practice!!

Netflix: Classic Multichannel Forensics

You have to love Multichannel Forensics when you consider the case of Netflix v Blockbuster, don't you?

Best of all is the fact that DVD rentals are down 25% year-over-year, while streaming of movies is up from 37% of subscribers to 60% of subscribers this year ... and oh, by the way, subscribers are up 50% year-over-year.

So many of us in the catalog industry failed to capitalize on disruptive technology. We were completely misled by a vendor industry pushing a multichannel platform that protected their business, not our business. As a result, we kept mailing catalogs, hoping the catalogs would cause customers to buy online. We failed to resonate with an entire generation of folks, who are now age 40 and younger, representing a huge cohort (especially under the age of 30) that the cataloger simply can't easily reach.

And now, we have a generation of e-commerce experts who are about to make the same mistake with mobile. The analytics folks are saying that you are best off using old-school web analytics software with modifications to analyze how mobile and social yield a customer with "multichannel" characteristics. Does that story sound familiar? The story is percolating everywhere, folks.

You wonder if disruptive technologies are best utilized in an independent manner, not an integrated manner. The catalog generation tried hard to integrate old-school techniques with the web, without success. Retailers tried to integrate the web experience with stores, but didn't factor in how heavy debt loads in retail would cripple the retail experience with a small drop in same store sales. And now, the e-commerce generation gets ready to take on mobile. Will the mistakes be replicated?

ECMOD 2010 London

About 15% of MineThatData Nation joins us each day from Europe. I sincerely appreciate our European followers ... blog posts are purposely published in the evening here in the Pacific Northwest so that our European friends have fresh content first thing in the morning!

Now our European friends can get fresh content live, in person. The kind folks at the ECMOD conference have invited me to share information on two different topics.

• 35 Things Catalogers Can Do To Improve Profitability Tomorrow Morning.
• Effective Matchback / Allocation Strategies And Methodologies.
  

Here's a press release for the conference.

Here's a link, follow it and register for the conference now ... what's better than London in early October?

And follow the good folks at ECMOD on Twitter!

Glibers Dresses: Something In My In-Box

From: Pepper Morgan [mailto:pepper.morgan@gliebersdresses.com]

Sent: Wednesday, August 4, 2010 9:37 AM

To: Kevin Hillstrom

Subject: Any Interest In Helping Us?

Kevin:

It's been a long time since we chatted!

I just wanted to let you know that Brandon Templeton, our CEO, was fired on August 1. We were surprised that he was fired, we were not surprised why he was fired.

He wasn't a big fan of our "catalog" mindset, and he was so confident of the future of marketing that he decided he was going to go "all in" during the month of July. He decided that we would not mail our early July sale catalog, and that we would not mail our late July fall preview catalog, and would instead focus our marketing activities on social media and the new iPad and Android apps that Roger created.

Needless to say, sales tanked, and our parent company freaked out. By the end of July, sales were 50% below plan.

Of course, our team viewed this as a validation of the catalog business model. Meredith was absolutely energized by the results, she crowed in meeting after meeting about the importance of what she calls "spread merchandising", the idea that catalog spreads tell an important brand story.

I viewed this in a different way, and my way of viewing this appears to be a bit unpopular. I told the team yesterday that 50% of our sales did not disappear, and that company profit in July was on plan. Lois claimed that we held on to our sales because of her free shipping based loyalty program, but there is more to it than that, isn't there?

I mean, we basically stopped marketing to the customer, and 50% of the sales still happened. We know that free shipping gives us a 10% bump, so this means that customers kept shopping because of e-mail marketing, because of search, because of our apps, because of our social media strategy, because of our loyalty program, and because of brand loyalty.

Do you have other clients who identified this dynamic, where you stop mailing catalogs and you still keep 50% of your business? And if that is the case, what is their response? Do they increase online marketing spend? Do they spend more money in offline marketing? Do they increase their social media presence? Do their apps actually drive sales increases? How do they staff themselves in order to capitalize on this type of outcome? What happens to the 72 year old female shopper who mails her order in an envelope, with a stamp and a check? Would you be willing to share what you know with us via Skype, I'll pay you for your time out of my budget? Are you available next week?

I hope you are enjoying summer. Sonora is off at summer camp at Lake Winnipesaukee, so I'll see here again around August 15.

Meredith and I were talking the other day that we miss having your thoughts in our Executive meetings. We didn't always agree with what you said, but we agree that you made us think. Roger, on the other hand, well, he probably wouldn't be happy that I'm contacting you. He thinks he can run this place, he's making a bid for the CEO job, and he strongly believes in a multichannel mix of traditional marketing and online marketing, coupled with MBA-style business experience. He's asking the parent company for an opportunity to run the business on a temporary basis, he wants an opportunity to demonstrate his skills.

Thanks,

Pepper

Bricks 'n Clicks: Barnes & Noble

If all of the multichannel bricks 'n clicks strategy of the past decade was so prescient, then Barnes & Noble should have beaten Amazon and Wal-Mart and Apple into submission, right?

That didn't happen, and now B&N is for sale.

A generation of marketers were trained to believe that a theory was reality. I've been in meetings, too many to count, where the Executive shares all of the theories about why a bricks 'n clicks or a multichannel strategy that includes paper will trump new technology. The slides are shared, slides that suggest that customers want to do research online or via paper, and then get in a car and fight traffic for 17 minutes in order to complete the transaction, sales tax included. It's a theory supported with misleading data.

Always trust customer response over vendor/consultant theory. Most important, do your own Multichannel Forensics analysis, and teach yourself how your customers prefer to shop!

Testing: Half-Life

It might be the most asked question I get, and for good reason ...

Question: "Kevin, what the heck are you talking about when you say that you shouldn't test something that has a short half-life?"

First, let's define half-life ... go to Wikipedia for your answer!

Now let's view this from a testing standpoint. Maybe you want to test a big green "sign up now" button instead of a small blue "click here for more information" button. You run a test, and you learn that the big green button improves conversion rate by 34%.

Do you assume that the big green button will outperform the control by 34% forever?

If you are measuring "half-life", you are measuring the amount of time that it takes for the 34% lift to become a 17% ... or worse, to become a 0% lift.

So often, we test concepts that either have minimal half-life, or are only valid for the time/audience when they were tested. In other words, the concepts we are testing are fleeting in nature, they have no staying power.

There are concepts that have significant staying power. In apparel merchandising, you know that women buy merchandise for men, so you can improve conversion (online) or reduce expense (offline) by exclusively advertising womens merchandise. This has a half-life just shy of infinity, you'll be more profitable for the duration of your career by testing strategies that capitalize on this well-known fact. We don't read about these strategies and test findings, because the strategies are so profitable that they yield a significant competitive advantage to the folks who possess the knowledge.

Many concepts have minimal staying power, and, by definition, minimal half-life. We read about these strategies and test findings all of the time, because these strategies have a short half-life, rendering their competitive advantage only to the audience that saw the message during the timeframe when the test happened.

This is the phenomenon I refer to when I mention "half-life" in my writing. The best way to determine if you have a half-life issue is to re-test your strategy three months, six months, or twelve months later, observing if you still have a meaningful lift over your control group.

Summer Segmentation: Employee Orders

If your database allows you to do this, I'm begging you to do this ... create a segmentation variable for employee orders.

Then, sum employee demand for the past twelve months. Compare that sum to the sum of employee demand from 13-24 months ago, 25-36 months ago, 37-48 months ago, etc.

Go to your human resources department, and ask how many employees you had during each time period. Then calculate demand per employee.

Trend demand per employee by year. What does the productivity of your employee base look like? Is it correlated with the number of twelve month buyers you have? If sales are in decline among your employee base and among your customer base, then ask your employees why they won't buy the merchandise??!!

I did this experiment once ... my marketing department was being pummeled by management for not "promoting the brand". So I summed employee demand among all employees Director and above, showed that demand was in decline, then asked this employee set in a meeting why they were choosing to not spend as much with our brand, after all, marketing should be irrelevant to them, they live and create the brand.

Yes, the room got really, really quiet.

Employee orders are the analyst/marketer's best friend. You can cut through a lot of garbage and get down to the core issues associated with merchandise productivity by demonstrating that the Leadership team is / is not buying the merchandise.

Dear Catalog CEOs: The Secret of Page Counts

Dear Catalog CEOs:

I, too, remember a day when a 600 page catalog represented a welcome arrival in the mailbox.

Today, the 600 page catalog is called "your website". The catalog, for those under the age of 55, represents a vehicle that "creates demand".

So if the job of the modern catalog is to "create demand", then one might think that we should try to optimize the size of the catalog, so that we can reach the largest audience as possible at the lowest possible cost.

I know, this flies in the face of everything we've been taught. The printing community and the USPS push us toward optimal page counts, and discourage small catalogs. We're enticed to add four or eight pages to achieve "efficiencies".

Why isn't our goal to achieve "the most profit"?

Every company can identify the relationship between page counts and demand, heck, I do this for clients every week.

Take this example, for instance. A business has a 124 page catalog, and is looking to mail the catalog to outside lists. Last year, the catalog $1.4 million in demand and generated 13,987 responses.

If you assume that 70% of the demand can be achieved on 50% of the pages (these days, you can often achieve 80% of the demand on 40% of the pages or you can do even better), then we can estimate what might happen with 56 pages.

We can simulate the outcome of the 56 page catalog, and in most cases, the smaller catalog is going to outperform the bulky, bigger catalog, regardless of how the smaller catalog is merchandised.

Here, we increase reach, from 600,000 customers to 1,650,000 customers. What's not to like about that, folks?

Here, we increase demand from $1.4 million to $1.9 million. What's not to like about that?

Here, we increase total responses from 13,987 to 19,878 ... isn't that the goal of acquisition marketing?

Here, we increase profit from $62,000 to $78,000. You just paid for a portion of your annual salary!

Oh, I can hear folks howling already ... "if you don't advertise the item, the customer won't buy the item, so I need to present everything in my catalog."

Horsefeathers!

Why not advertise the best-selling items, and then direct the customer online for your full merchandise assortment?

The secret of page counts is that "smaller is better". Your printer and the USPS will encourage you to go bigger. I can profitably demonstrate that you can "go smaller", and I can help you grow your business in the process while going smaller. Your list vendor and your co-op will sincerely appreciate your new strategy.

If you want help running the simulations, I am available and ready to assist you ... the whole exercise takes an hour, or less!