March 31, 2011

Gliebers Dresses: Free Shipping

Our favorite group of fictional catalog executives are back to discuss free shipping.  We begin, by vising the boardroom at Gliebers Dresses world headquarters, where Interim CEO Roger Morgan is about to enter.

Faith Kelley (Executive Administrative Assistant):  Friends, I introduce to you, Roger Morgan.

Faith opens the door to the boardroom.  The Executive team stands. Roger enters. 

Roger Morgan (Interim CEO and Chief Operating Officer):  Please, sit everybody.  We've got a big agenda to cover today, so let's get right down to it.  Pepper, what do the numbers look like this week? 

Pepper Morgan (Chief Marketing Officer):  This week, we did $1.1 million in demand, five percent ahead of forecast, flat with last year.  For the month, we did $3.8 million in demand, one percent ahead of forecast, five percent behind last year.  We're behind last year because of the shift in Easter.

Roger Morgan:  It would make it easier for us to understand business trends if Easter fell on the same weekend each year.

Pepper Morgan:  Our first quarter is over.  We did $11.7 million in demand, two percent below forecast, flat with last year.

Lois Gladstone (Chief Financial Officer):  From a profit standpoint, we generated $50,000 profit in the first quarter, flat with last year.  We're generating enough free cash flow to pay the bills.  Of course, our world blew up this week when L.L. Bean announced free shipping 24/7/365, and then our biggest competitor, Anna Carter, announced that they will also offer free shipping 24/7/365.  This is the last thing we need.

Libby Benson (Director of Social Media):  The social media world is buzzing about each announcement.  We've been monitoring this in the listening center all week.  @dressdiva77 said this earlier this week ... "Gliebers wants to charge me $14.95 to ship two dresses.  Even though Anna Carter is more expensive, they're worth it now that they have free shipping."

Meredith Thompson (Chief Merchandising Officer):  You know, we work so hard on having a fashion forward assortment.  We've spent years reinventing the supply chain.  We monitor fashion trends in the blogosphere, and you know how much I hate doing that!  We're making progress.  And then, our progress is stunted by marketing and financial strategy.  What is our answer?

Lois Gladstone:  We need to stay the course.  We have our "buy four dresses, get free shipping for a year" policy.  Obviously, customers see the value, right?

Roger Morgan:  When we run free shipping promotions, what kind of lift do we get?

Pepper Morgan:  When we run free shipping with no hurdle, we get a twenty percent sales lift, but we lose money on the promotion.  When we run free shipping with a $100 hurdle, we get a ten percent sales lift, and we can generate a profit.  When we run free shipping with a $100 hurdle for more than three consecutive months, the lift is reduced to just three percent, and we lose money.

Lois Gladstone:  So, strategically, we're well positioned with our current loyalty strategy of free shipping for a year if the customer buys just four dresses.

Pepper Morgan:  What we've observed, however, is that the loyalty strategy works with best customers.  We really struggle with acquiring new customers.  We expect the new customer to buy two dresses at $160, plus $14.95 shipping and handling.  The customer can simply go to Anna Carter and pay $169, but get free shipping.

Libby Benson:  Our listening center shows that we're generating a lot of negative sentiment.  And our Klout scores are in decline since the announcement.  We can't afford this kind of negative publicity.

Meredith Thompson:  Klout scores?

Libby Benson:  Yes, we can measure, in real time, what people think of us.  Our shipping and handling policy is hurting our reputation.

Roger Morgan:  So let me get this straight.  If we follow suit, we'll generate an unprofitable sales lift.  If we add a hurdle, like $100, we're still not competitive.  If we extend free shipping beyond a few months, we'll be unprofitable.  And if we stay where we are, we're not competitive, and we're barely making money as we speak.  We don't have the money to match free shipping.  And we can't afford not to match free shipping.

Lois Gladstone:  Maybe we can afford to cover free shipping if we mail fewer catalogs.  We'll use the money we save mailing catalogs, and instead use that to fund free shipping on a permanent basis.  We've got to have a ton of waste there, right?

Meredith Thompson:  Wait one minute, Lois.  The catalog is our heritage.  The catalog IS Gliebers Dresses.  Without the catalog, we're just, what, what the heck would we be?

Pepper Morgan:  An e-commerce dress retailer?

Meredith Thompson:  An e-commerce dress retailer who couldn't drive traffic to our website, that's what we'd be.  How does the customer get to our website without a catalog?

Lois Gladstone:  How does the customer get to without a catalog, or to without a catalog?

Meredith Thompson:  Or  It's easy to point out the successes, but we never point out the hundreds of thousands of failures.  You must have a catalog, because the catalog is what is used by the customer to get to the website.  When we eliminate catalog mailings, we reduce demand.  And when we reduce demand, we have to clear overstocked products.  When we clear overstocked products, we lose gross margin dollars, making us even more unprofitable.  And we're not very profitable right now, are we?

Libby Benson:  Today's modern customer doesn't care about our plight.  All she wants is a dress at a fair price, coupled with free shipping.  That's her expectation.  We're going to have to absorb the cost.

Lois Gladstone:  We can't afford to absorb the cost.  And even I agree with Meredith, we can't circulate fewer catalogs, we've bought inventory to match the number of catalogs we're going to mail.  The last thing we can afford to do is liquidate product at a loss.  We're going to have to continue moving forward with our free shipping loyalty program, where you get free shipping for a year when you buy four dresses.  We don't have a choice.

Libby Benson:  But we do have a choice.  We can take a risk.  Or we can market why our current program is better than free shipping all day, every day, all year ... and we know that our current program isn't better, it is worse.

Pepper Morgan:  Here's the problem, folks.  We are all going to be forced to offer free shipping.  We aren't going to have a choice.  And when every one of us offers free shipping, the lift associated with free shipping disappears.  In other words, we're going to be forced to offer free shipping, and when we all offer free shipping, the lift disappears, causing us to all be less profitable.

Meredith Thompson:  Good gravy.

Lois Gladstone:  Roger, you've been uncharacteristically quiet.  What do you think?

Roger Morgan:  I recently read a Woodside Research report.  It talked about something they called the "Nimble Touchpoint Trooper".  This is a customer that is all mobile, all social, 24/7/365, using offline marketing and online marketing and websites and hip, modern tools to get the best deals.  This customer will demand that we all offer free shipping.  But in the short term, I agree with Lois, we can't afford to match free shipping 24/7/35. 

Libby Benson:  We'll get stoned in the social media world.

Roger Morgan:  We, as a team, are going to need to find ways to grow revenue.  And if we cannot grow revenue by selling merchandise, we're going to have to sell our marketing platform.

Meredith Thompson:  What?

Roger Morgan:  Next week, I expect to announce that Gliebers Dresses will be sold.

Meredith Thompson:  What?

Roger Morgan:  Yes, Gliebers Dresses will be sold to J.J. Glieber.

Meredith Thompson:  You have GOT to be kidding?  What does he know about selling dresses?  Glenn Glieber WAS Gliebers Dresses.  J.J. benefited from Dad's money, using that money to become one of the greatest snow boarders of all time.  We've all seen him on TV, hawking Nitro-Blitz, the six hour energy drink.

Roger Morgan:  When this transaction closes next week, I will be appointed President and Chief Executive Officer.  J.J. is not likely to be a hands-on owner.  But he does have plans for our business.  He wants a younger customer base.  He told me yesterday that we're not going to be a "Geezer Brand".  He wants to introduce Gliebers Dresses to his demographic.  And he has a lot of marketing money from Nitro-Blitz, marketing money that might help us fund free shipping.

Meredith Thompson:  Oh boy.

Lois Gladstone:  President and Chief Executive Officer, Roger.  You must be very happy.

Roger Morgan:  It is the pinnacle of my career.  And yet, I sit here, in front of you, curiously quiet.  Our private equity overlords nearly killed our business.  I have to rebuild the business, and in doing so, I probably have to offer free shipping on every order, because companies "with scale" decided to put the squeeze on everybody else.  The expenses associated with free shipping are going to reverberate through this organization.  We may need marketing dollars from Nitro-Blitz Six Hour Energy Drink.  We may need to source cheaper fabric.  We may need to reduce salaries, eliminate bonuses, trim benefits, mail fewer catalogs.  The little people are going to be hurt, the folks who work in the contact center or distribution center.  They are going to be hurt because free shipping is going to become a standard offer.

Meredith Thompson:  And you get to be the one who delivers this message.

Roger Morgan:  That's right.

Lois Gladstone:  We're hooped.

March 30, 2011

Lifecycle Marketing and Touchpoints: Weighting

One of the biggest problems facing an analytics or marketing professional is the weighting of data.

Here's an example.  A customer purchases on August 1, 2008, purchasing on the website, spending $100.  Then, on August 1, 2009, the customer purchases via paid search, spending $100.  Finally, on August 1, 2010, the customer purchases via e-mail marketing, spending $100.  Is this customer a loyal website buyer, a search buyer, an e-mail buyer, or a multi-channel buyer?  And how does the customer skew across channels?  Is the customer weighted equally, or do recent transactions carry more weight.

When I first obtain customer data, I like to run a quick regression model.  Any transaction in the past year represents the dependent variable.  My independent variables represent dollars spent in each prior year.  I'll obtain an equation that looks something like this, using just twelve-month buyers in the equation:
  • 2011 Spend = 30 + 0.65*(2010 Spend) + 0.30*(2009 Spend) + 0.15*(2008 Spend) + 0.08*(2007 Spend) + 0.04*(2006 Spend).
Armed with this equation, I have a weighting scheme I can use to understand the impact of older transactions in the customer lifecycle.
  • 12 Month Purchases = Weight of 1.000.
  • 13-24 Month Purchases = Weight of (0.30 / 0.65) = 0.462.
  • 25-36 Month Purchases = Weight of (0.15 / 0.65) = 0.231.
  • 37-48 Month Purchases = Weight of (0.08 / 0.65) = 0.123.
  • 49-60 Month Purchases = Weight of (0.04 / 0.65) = 0.062.
In my earlier example:
  • August 1, 2008 Website Purchase Weight = $100 * 0.231 = $23.10.
  • August 1, 2009 Search Purchase Weight = $100 * 0.462 = $46.20.
  • August 1, 2010 E-Mail Purchase Weight = $100 * 1.000 = $100.00.
I sum weighted dollars:  $100.00 + $23.10 + $46.20 = $169.30.

Finally, I divide weighted dollars in each channel by total weighted dollars:
  • Website = $23.10 / $169.30 = 13.6%.
  • Search = $46.20 / $169.30 = 27.3%.
  • E-Mail = $100.00 / $169.30 = 59.1%.
Given the timing of the purchases, and the weighting of each purchase, we can categorize this customer.  This customer is about 60% email, about a quarter search, and the remainder represents pure online purchases.

Does the weighting strategy make sense?  Weighting is important, because we do not want older transactions to skew the customer profile, and we do not want to focus only on new transactions.

March 29, 2011

Lifecycle Marketing and Touchpoints

Social and mobile changed things, didn't they?

At minimum, each channel added a level of complexity.  Back in the day, we used to manage catalogs.  Then we added e-commerce, and after that, a ton of e-commerce micro-channels.

So it was bad enough in 2007 ... and then we tossed social and mobile into the mix.

This causes complexity ... we want to optimize our marketing investment, and that's hard to do when you don't know how a chain of events truly contributed to a purchase.  Worse, we don't have a good understanding of how customer activities, managed over the lifecycle of the customer, yield loyalty.

So, our next series will focus on a methodology for plotting, on a map, customer touchpoints.  The map will illustrate the lifecycle the customer follows.  On a simple, two-dimensional plot, you'll get to see how channels fit together.

A few caveats.
  1. There really isn't a true customer lifecycle.  We're doing this because the vendor community pushes us in this direction.  The reality is that the customer orbits areas on the plot, each purchase pushes the customer in a different direction.  The reality is that we need facts to tell us what is actually happening.
  2. I'm using a small number of channels here.  You can do this with hundreds of micro-channels, if you wish.  I'm using a small number of channels so that you can accurately see what is happening.
  3. The methodology isn't easy.  If you don't like statistics, you'll want to hire me to do this for you.
With that in mind, we'll spend a few days showing you how the methodology maps touchpoints, yielding the customer lifecycle.

March 28, 2011

Tuesday Mailbag: L.L. Bean, J. Jill, and More

Here's our mailbag ... these are questions from fictional readers that real readers should be asking.

Craig in Ephrata asks:  What's up with J. Jill being sold again?

Kevin:  My opinion only ... you don't ever want to work for an apparel retailer that is treated by financial institutions like an equity traded on the open market.  It's hard for a leadership team to have a passion for merchandise and customers when the business is being flipped every couple of years.  It can take a half-decade to reinvent customer passion around the merchandise assortment, ask J. Crew for details, that process is seldom congruent with the incessant sale of a brand to financial institutions.

Ralph in Cannon Beach asks: L.L. Bean will offer free shipping, all day, every day, going forward.  I don't think my business could ever afford to do this.  Will they back away from free shipping in the future?

Kevin:  In November and December, almost everybody offers free shipping, and it "works".  It works, of course, because the control group ($14.95 shipping) is so uncompetitive that the lift free shipping provides pays for itself.  The interesting thing, to me, is what happens in the future when nearly everybody has some sort of free shipping strategy outside of the Nov/Dec window.  When everybody offers some version of free shipping, the "lift" associated with free shipping largely disappears.  This means that the profitability of the offer disappears.  Free shipping will have to be funded by "something".  It is my opinion that catalogers, in particular, will fund free shipping with a significant reduction in "mailing waste".  A smart cataloger will mail a customer thirteen times a year instead of twenty-three times a year, funding free shipping with the ad-cost savings while protecting 95% of the sales.  The net-net of this relationship will be a positive.

Amelia in Nashville asks:  Did I see that Groupon is now losing market share?  I thought this was the business model of the future?  What's going on?

Kevin:  A couple of things.  First, never confuse market share and net sales.  If a market triples in size, and you go from owning 100% of the market to 50% of the market, your business grew.  Second, the pundits don't know a whole lot, how could they know a lot?  Three years ago, Groupon didn't exist, so how could a pundit know how the "space" was going to evolve?  Thought leaders offered strongly worded opinions based on a limited dataset that offered virtually no ability to forecast the future accurately.  We have no idea how group buying or "social commerce" will evolve.  Enjoy the ride!

March 27, 2011

Dear Catalog CEOs: How To Measure If You Are Mailing A Segment Too Often

Dear Catalog CEOs:

Your marketing team tells you that you are mailing catalogs profitably.  They'll show you a profit and loss statement, where they decide to mail a segment of customers at just above break-even.

Demand $2.00
Net Sales $1.60
Gross Margin $0.88
Less Ad Cost $0.65
Less Pick/Pack/Ship $0.16
Contribution $0.07

When you look at this segment, on an annual basis, across twenty catalogs, "all is good", right?

Demand $40.00
Net Sales $32.00
Gross Margin $17.60
Less Ad Cost $13.00
Less Pick/Pack/Ship $3.20
Contribution $1.40

Now, let's pretend that you don't believe in the organic percentage stuff that I specialize in --- you 100% believe that your matchback analytics are rock solid.  Ok.

You still have an opportunity for profit improvement.

Mail/Holdout tests clearly indicate that you get maybe 70% of the catalog demand on 50% of the catalog mailings.  This has been known for decades.  Therefore, you can create a relationship that helps you understand how many of twenty catalog mailings yields an optimal level of profitability.  Take a look.

Catalogs  Demand  Ad Cost    Profit
0 $0.00 $0.00 $0.00
1 $4.91 $0.65 $1.12
2 $7.98 $1.30 $1.57
3 $10.60 $1.95 $1.87
4 $12.97 $2.60 $2.07
5 $15.16 $3.25 $2.21
6 $17.22 $3.90 $2.30
7 $19.18 $4.55 $2.36
8 $21.06 $5.20 $2.38
9 $22.87 $5.85 $2.38
10 $24.62 $6.50 $2.36
11 $26.32 $7.15 $2.33
12 $27.97 $7.80 $2.27
13 $29.59 $8.45 $2.20
14 $31.16 $9.10 $2.12
15 $32.70 $9.75 $2.02
16 $34.22 $10.40 $1.92
17 $35.70 $11.05 $1.80
18 $37.16 $11.70 $1.68
19 $38.59 $12.35 $1.54
20 $40.00 $13.00 $1.40

Mailing this customer segment nine times a year yields more profit than mailing this customer segment twenty times a year.  Take all of your ad cost savings, and invest it in customer acquisition, or in online marketing, or in something new and interesting.  I assure you, these profit opportunities exist all across your database.

Now, pretend that you believe the premise that customers generate demand without the need for catalog marketing.  Pretend your organic percentage is 30% --- then 70% of your demand is from catalog mailings.  Here's what your catalog profit and loss statement looks like, after removing organic demand:

Catalogs  Demand  Ad Cost    Profit
0 $0.00 $0.00 $0.00
1 $3.44 $0.65 $0.59
2 $5.59 $1.30 $0.71
3 $7.42 $1.95 $0.72
4 $9.08 $2.60 $0.67
5 $10.61 $3.25 $0.57
6 $12.05 $3.90 $0.44
7 $13.43 $4.55 $0.28
8 $14.74 $5.20 $0.11
9 $16.01 $5.85 ($0.09)
10 $17.24 $6.50 ($0.30)
11 $18.43 $7.15 ($0.52)
12 $19.58 $7.80 ($0.75)
13 $20.71 $8.45 ($0.99)
14 $21.81 $9.10 ($1.25)
15 $22.89 $9.75 ($1.51)
16 $23.95 $10.40 ($1.78)
17 $24.99 $11.05 ($2.05)
18 $26.01 $11.70 ($2.34)
19 $27.01 $12.35 ($2.63)
20 $28.00 $13.00 ($2.92)

We learn that three catalog mailings is optimal.

This is why my Catalog PhD projects are able to yield about $1,000,000 of additional, incremental profit, per year, every year, for a $100,000,000 business.  What's not to like about that?

Hillstrom's Catalog PhD:

March 24, 2011

Forecast Forensics + Digital Profiles: Time To Act!

Well, we've covered a lot of ground, haven't we?

We created a modern segmentation system, called "Digital Profiles", a system that allows us to understand complex customer behavior.  We mapped the results, so that we can understand how customers move through our marketing ecosystem.

Our Digital Profiles can be used to forecast the future.  This allows us to craft a scenario that meets Management expectations.

We end up with an actionable analysis that helps us understand how to grow a business.

I mean, you can do a lot of guesswork analyzing whether marketing campaigns work or do not work, or you can be a leader, helping your company understand what it takes to grow, measuring whether you are making progress against stated growth metrics.

You'll learn that CEOs, CFOs, and CMOs really like this style of analysis, because for once, they get to actually see what needs to be done to truly grow a business.

It's time to act!

Start your own project.  I've given you all of the tools you need to do a project like this.  Get busy!

Or, contact me now and I'll create your own customized project for you.  This project is very popular among CEOs, CFOs, and CMOs.

March 23, 2011

Forecast Forensics + Digital Profiles: Case Study

Let's say that your Management team is being asked to grow the business over the next five years.  The mandate is simple ... the business must be 2.5 times as big in 2015 as it was in 2010.

Oh boy.

Well, somebody might say ... "I'll bet if we can increase customer loyalty by 20%, we'll be able to grow this business.  Let's see what impact that has:

Good gravy, that doesn't get the job done, does it?  Now, be honest, there's nothing wrong with the business being 33% bigger in year five because annual repurchase rates increased from the mid-40s to the mid-50s.  That's a big home run.

But it isn't what Management is asking for, is it?

The answer has to come from new customer acquisition.  Let's try something.  Let's reset loyalty metrics to base levels, and let's double new customer acquisition counts.

Now, be honest, it isn't easy to double customer acquisition counts, is it?  And yet, if you double counts every year, it isn't good enough!  It isn't good enough!

How about a 2.83x increase in new customers?

That does it!

Your job is to make this message easy for everybody to understand.  You are going to have to, essentially, triple the number of new customers, in order to grow the business by a factor of 2.5x.

Dashboard mavens will love this ... you set up dashboards for everybody to see, illustrating the number of new customers vs. the goal of tripling current totals, by source.  Everything gets measured.

Profit should get measured, too.  If it costs you $10 of profit to acquire an incremental new customer today, and it will cost you an incremental $25 of profit to acquire a new customer in this new scenario, well, you know exactly how much money you need to ask for to make this happen, right?!

That's how we use Forecast Forensics in combination with Digital Profiles.  We instantly see what is required to grow the business.  We, as analytical experts, guide our CEO, CFO, and CMO toward tangible, actionable solutions.

This is an analytics system, a Segmentation/Forecasting system, that yields actionable outcomes.

March 22, 2011

Forecast Forensics + Digital Profiles: Impact Of Loyalty

Let's say that, somehow, you find a magical formula that allows you to increase loyalty for just one year, by 10%.

What impact does that effort have?

Well, you get $1.9 million in demand in the year where the improvement happens.

But you also cause more customers to purchase, and those customers act like "compound interest".

In year two, demand is $0.8 million greater.

In year three, demand is $0.6 million greater.

In year four, demand is $0.3 million greater.

In year five, demand is $0.2 million greater.

So you get $1.9 million from a one year, 10% increase in loyalty ... and you get $1.9 million in years two through five ... compound interest!

Now, if you have some magic formula for improving customer loyalty, well, you'd already be implementing the strategy, right?  I mean, you wouldn't hold that in your pocket so that you could use it three years from now!!

But if you stumble across something, rest assured that you get the short-term benefit of the strategy, and you get a "compound interest" effect as well.

March 21, 2011

Tuesday Mailbag

Remember, these are real questions from fake people.

Elizabeth in Tucson asks ... Is Groupon really worth $25,000,000,000?  I mean, let me get this straight.  Groupon is essentially a geo-targeted email marketing list where Groupon takes on no risk whatsoever and the retail brand gets absolutely railroaded about forty percent of the time, right?  First, will retailers succumb to this business model forever, and second, what in the name of is up with this new bubble?

Kevin:  Let's answer your question by evaluating the market cap of a series of companies.  Where would you value a geo-targeted email marketing list that is 100% dependent upon retailers craving sales increases sans profit, in comparison to this list?
  • Dell = $28,000,000,000.
  • Starbucks = $26,000,000,000.
  • Time Warner Cable = $24,000,000,000.
  • AFLAC = $24,000,000,000.
  • General Mills = $24,000,000,000.
  • Kellogs = $20,000,000,000.
  • Kohls = $16,000,000,000.
  • Kroger = $15,000,000,000.

Jasper in Mason City asks ... You have to believe in Social Commerce, right?  It's all the rage these days.  In these challenging economic times, brands are seeking deeper connections with customers who demand the right to join the conversation.  Social Commerce is HOT, don't you think?

Kevin:  Let's level-set things for a moment.  It is fun to see new business models emerge.  We were stuck in e-commerce integration mode from the day that failed.  Now, having said that, let us think about a couple of points.  Retail (in-store purchases) represent, what, 90% of total net sales?  Think about that for a moment.  We've been told about the importance of e-commerce for fifteen years, and it can't break through the fifteen percent level?  If e-commerce is so dramatically revolutionary, why isn't it 40% of total net sales?  And then, within e-commerce, what percentage of e-commerce is represented by "social commerce"?  Five percent?  I don't know, but it isn't much.  So 0.10 * 0.05 = nothing.  It's the biggest thing, and yet, it's nothing.  I believe in "social commerce", but let's just be realistic for five minutes.

Katelyn in Omaha asks ... Is there anything more important than integrating mobile and social with e-commerce?  I mean, customers demand a unified experience, right?  I recently read a report that said that savvy marketers are busily integrating all channels, in an effort to create a seamless experience.  Wow, that's cool.

Kevin:  What we're seeing is what I call "the frightening".  When an incumbent channel is "frightened" by new channels (or psuedo-new-channels), two things happen.  First, the incumbent channel demands that new channels are immediately integrated with incumbent channels.  This allows incumbent channels to maintain control.  We'll learn all about the peril of silos, we'll hear that the customer demands a holistic, integrated experience, based on a survey of 823 likely retail buyers.  It's the same line that catalogers and retailers threw at us when they went through "the frightening" in 1999.  Second, new channels offer us the "the rules have changed" argument ... as if everything is now completely different.  We'll learn that the "new rules of social commerce demand that brands establish deep, emotional connections with customers", and we'll learn that this requires savvy brands to immediately modernize, leaving traditional forms of organizational structure for those that are congruent with the social commerce manifesto.  We've been here before, we'll be here again ... history just keeps repeating.
  • Old School = "The Frightening" ... integrate all that is new with all that is old, resulting in old-school channels controlling new channels.  E-commerce is now in the "old-school" camp, demanding integration with social, mobile, and social commerce.
  • New Channels = "The Rules Have Changed" ... resulting in new channels demanding autonomy in order to allow innovation and to avoid the red-tape associated with old-school channels.  Social, mobile, and social commerce demand autonomy.  You don't read many articles where social commerce advocates argue for deep integration with existing channels, do you?  Hmmmm.

Offer your questions now ... email me here.

March 20, 2011

Dear Catalog CEOs: Weighting

Dear Catalog CEOs:

Here's one that you hear all of the time:
  • "That customer was acquired via catalog marketing in 1999, so we attribute all orders, regardless of channel, back to the catalog, because without the catalog, we never would have acquired this customer."
Oh boy.

My projects suggest a different outcome.  Orders have a "weight" associated with them.

The weight varies, but in general, orders a year ago carry half the weight of current orders ... orders two years ago carry a quarter the weight of current orders ... orders three years ago carry an eighth of the weight of current orders ... you get the picture.

So if you have a customer with two orders ... a catalog order in 2008, and an e-mail order in 2011, the e-mail order carries eight times the weight of the catalog order.  In other words, the customer is an e-mail buyer.

This allows us to make much better customer management decisions.  We only have to mail this customer four or five catalogs a year ... if we view this customer as a catalog customer, we might have to mail the customer twenty catalogs a year.

My Catalog PhD projects apply a proprietary weighting scheme ... this scheme allows us to make much better mailing decisions than we'd make using traditional methods.  Contact me now for your own customized project.

Analytics Sunday: Top Ten Analytics Staffer Challenges

If you are an analyst, you can relate to the issues listed here.

Top Ten Analytics Staffer Challenges Within Companies

(Not in any particular order):

Number 10 = Information Technology Misalignment.  If you work in an environment where you require support from your information technology team, oh boy, good luck.  When you have a great IT team, you hold on to them like grim death!  Otherwise, you have to fight around these folks.  I've had great IT teams that supported my group so well you wanted to adopt them into your team!  And, I've been in situations where I hired my own IT-clones because I wasn't getting the support I needed.

Number 9 = Being Alone.  Your company hires you, and gives you absolutely no support whatsoever, right?  You are alone.  This is where Twitter is really important --- you have to act like you have co-workers, and build relationships with psuedo-co-workers.  When you're alone, you can't effectively serve your Executive audience, especially if they have a pre-conceived notion of what your job is or how fast you should do your job.

Number 8 = Systems.  You don't have an analytics system if you use Google Analytics --- rather, Google has a system where they get to know your business, inside-out, if they choose to look at it.  Analysts really struggle to communicate needs to Executives.  How do you tell your CFO that your PC is too slow to run a 100GB dataset through SAS?  How could the CFO ever understand that?  I recently watched as a SAS analyst printed a document on that green and white tractor paper from the 1980s.  Yes, this happened.  This person was leveraging a mainframe computing environment from the 1990s.  It is terribly hard for an analytics expert to convince anybody that the computing environment stinks.  Honestly --- if you can at all afford to do so, buy your own high-powered desktop PC --- you can get a rocket for under $1,200, and connect a 1.5 terabyte external drive to it.  Create your own data extracts from your own crappy database system, and do the heavy lifting yourself!

Number 7 = Competition.  Somebody in your company believes s/he can do your job.  I ran into this at Nordstrom all the time --- there were folks who actively recruited their own analytics projects, or refuted the work my group did with their own database analysis.  Even if you're the only analyst at your company, somebody in IT strongly believes s/he can do your job, and at times, is asked to do your job without your knowledge.  You combat competition by doing the job faster, more accurately, and in a more unbiased fashion than anybody else at your company.

Number 6 = Accuracy.  One of my best analysts made a ton of mistakes, and was not capable of catching the mistakes before the client caught the mistakes.  This is one of those "three strikes and you're out" scenarios ... you make mistakes that other folks catch three times, and you don't have a lot of credibility.  Try hard to tie your numbers, where possible, to an existing report or financial document.

Number 5 = Career Path.  You may not realize this, but there are business leaders conspiring to hold you down ... not on purpose, mind you.  I once had a business leader tell me that I was not capable of doing one other job in his company because I did not have any relevant experience outside of analyzing numbers.  If I could do it all over again, I wouldn't pursue a VP - Database Marketing job with zeal, I'd try to gain merchandising skills, marketing skills, finance skills, store management skills, creative skills, just about anything possible to broaden my horizons.

Number 4 = Politics.  You are not given complete information when you are assigned a project.  In a meeting at 8:00am, two Executives got into a spat about Facebook, one individual said that Facebook customers are worth $124.00 each, one individual said that the social media team should be fired.  At 9:00am, you're asked to demonstrate what the value of a Facebook user is.  You're not told that somebody wants to fire the social media team if your analysis suggests that there isn't any additional value derived from Facebook use.  When you present your findings ($2.00 incremental value), one VP just keeps beating you up over the results.  Well, this person doesn't want to fire her staff, so you are the problem.  Of course, you're not the problem, but you got caught in the middle of a political battle.  Interview the person giving you an assignment, try to ferret out as much information as you can.

Number 3 = Boss Can Do Your Job.  Oh, this one is terrible.  I've been the boss (my poor staff!), and I've been micro-managed by a person who used to do my job.  When you are in this situation, you often have to do each project twice ... do it the way the previous boss wanted it done, then do it the way you want it done.  Always create an appendix --- if your boss demands that your work has to be done a certain way, then do it that way, but refer others to the appendix for a new way to look at the information.  Never give up, never give in.  Your job is to reflect the behavior of the customer, not the methodology of the boss.  Honestly, you can accomplish both tasks.

Number 2 = Misinformation.  What you read on Twitter is not representative of the actual challenges the average analyst faces in a company.  You have few places to get viable information ... on Twitter, a half-dozen or a dozen individuals control the discussion.  Be careful here!  Try hard to get a neutral, unbiased, reasonable view of what is happening.

Number 1 = Sanity.  Your organization is going to take you down an unpredictable path.  When I worked at Lands' End, everything was about measuring the incremental value of advertising (what is today known as attribution).  At Eddie Bauer, everything was about the 'small stuff', how many customers responded to a promotion.  At Nordstrom, it was generally about customer value in a store environment, or the incremental value of an online customer to our store division.  The company you choose to work for shapes how you develop.  If you want a well-rounded experience, if you want to maintain your sanity, you may need to work for 3-4 companies in the first decade of your career.

March 17, 2011

Get Elastic / Forrester Response

Unfortunately, when folks leave comments on blog posts, almost nobody reads them, life moves on.

If the comments are worth reading, they deserve their own blog post.

Here are responses from Linda Bustos (Get Elastic) and Brian Walker (Forrester), following the Tuesday Mailbag (click here to read the original article).  How about you offer your thoughts as well?  It doesn't matter what I think ... in the end ... heck, I agree with 70% of both what Linda and Brian say, and then differ in several key areas ... and that's fine.  Honestly, it matters what YOU think.  You're a business leader.  What do you think of these issues?

Linda Bustos said...

Hi Kevin, love this format :)

To answer "Dan," the spirit of Brian's report is to be provocative and even controversial - multichannel is still multichannel, it's the mindset about it (and the technology that supports it) that needs to catch up to what the consumer is already doing. The channels aren't going away, but the organization should view the channels in a holistic way rather than in silos, and support the consumer with a seamless experience across them all.

Brian's argument is that it has already come to fruition - the customer IS engaging across touchpoints and there is a real problem with siloed management of these channel/touchpoints.

Multichannel attribution is very important, but extremely difficult. A shift to "agile" ways of managing these channel/touchpoints can help this problem, but not completely erradicate it. I don't believe any vendor or thought leader will emerge the winner here (Charlie Sheen excluded), as there will always be a large market of point solutions and commerce platforms that can support this shift. If anything, that playing field will grow as the market demands more such solutions, there can't be a vendor winner. Also, technology is only half of the pie, the other is how the business organizes itself, and the co-operation between touchpoint "owners."
Always appreciate your commentary,

 Linda Bustos

Hey Kevin, Life has a way of coming full circle doesn’t it? This is Brian Walker, formerly of Eddie Bauer where we worked together years ago, and now with Forrester and author of the idea in question. BTW - Here is the actual post where this idea can be found ( After reading the comments and your thoughts I think we are in more synch than you may think. Linda does an excellent job of describing the issue above, but I want to be sure to state that I (and my colleagues at Forrester) thought long and hard about the name of the phenomenon. The reason we determined “multichannel” no longer described the ways businesses are working is because that is what clients told us. Through surveys and many, many conversations we heard this over and over. Organizational models that are organized against channels no longer work – they are monolithic and unresponsive to the gaps in the customer experience. Operating in silos does not make sense as customers expectations long ago moved beyond channels – and your work at EB long ago proved this – and yet companies do not really address it. And eCommerce technology is being pushed and pulled everywhere – mobile, in-store, call center, etc.. Calling for companies to embrace “multichannel” was falling on deaf ears, and it is actually not accurate – it is no longer multiple channels in the customers’ eyes. Time for a wake-up call, I say. I actually tried to connect with you as this idea was developing to get your input, but our schedules conspired against us. I look forward to doing that soon, as I would enjoy hearing that feedback. Thanks, and glad to see you are doing so well,

Brian Walker, Forrester, @bkwalker

March 16, 2011

Forecast Forensics + Digital Profiles: The Importance Of New Customers

Ever read these quotes about keeping your best customers?
  • "Customer loyalty is the most important factor in the success of a business."
  • "Brands that lead the loyalty game lead the market share game".
  • "It costs eight times as much to recruit a new customer as it costs to keep an existing customer."
  • "You, too, can turn your best customers into faithful brand evangelists."
  • "Fourteen quick tips to launch your brand into loyalty heaven."
There are two things you learn when you use Forecast Forensics to understand your business.
  1. You don't improve customer loyalty, on a long-term basis, by "running a campaign".  In fact, loyalty seldom changes significantly, from year-to-year, and when it does improve for a few years, it is met with a one or two year decrease that resets loyalty back to historical levels.  Seriously, this is true.  Measure it sometime!
  2. We dramatically underestimate the importance of acquiring new customers.
Look at the image above.  This is the business we've been analyzing for the past month.  In this scenario, I decided to cut off new customer acquisition.  In other words, for the next five years in this simulation, I did not allow the business to acquire one single new customer.

Annual demand drops from $26 million to $18 million in just one year.  And it keeps getting worse, by year five, demand is just $4 million.

I'm not saying you shouldn't worry about customer loyalty.  You should!

I am saying that, proportionately, customer loyalty is a three on a scale from one to ten, while new customer acquisition is an eight on a scale from one to ten.

And because nobody talks about new customer acquisition, there is a business opportunity awaiting you ... your competition doesn't understand just how important this topic is. Take advantage of the opportunity that is in front of you.

March 15, 2011

Forecast Forensics + Digital Profiles: Triple E-Mail Frequency

With the impact of advertising built into the spreadsheet, we can simulate a veritable plethora of scenarios.

For instance, we can experiment with a tripling of the e-mail marketing frequency.  Click on the image below to see what happens to the growth rates of each Digital Profile, when the e-mail marketing frequency is tripled.

Look at the Digital Profiles associated with e-mail marketing ... those profiles grow at a very healthy rate, don't they? E-mail Loyalists grow by 132% over five years, E-mail Plus Search grows by 98% over five years, Adores E-mail grows by 108% over five years.

Notice that other segments grow, some a lot (Mobile Mavens), some not so much (Pricey Website Preference).  In other words, the type of marketing you choose to employ can play a role in how your business evolves over time (hint --- discounts and promotions).

Take a look at what happens to sales, over the course of the next five years.

Retention rates are clearly increased, causing the business to grow significantly over time.  Notice the compound impact that happens, sales grow additionally each year, because more customers are retained, causing more customers to exist.

If you'd like to have these scenarios run for your business, give me a holler, I'd be happy to help.

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