May 31, 2011

The Most Effective Booklet I've Written, To Date

The pundits are going to tell you how you should do things.

Or you can blaze your own trail.

In 2011, this booklet, Hillstrom's Catalog Marketing PhD, is responsible for nearly half of the projects I've worked on.

Publishers wouldn't touch this ... it's just 40 pages, but it shows you how to make a $100,000,000 business about $1,000,000 of additional profit, on an annual basis.  That's not too shabby, is it?

More than promoting the booklet, I'd like for you to take the lessons of the booklet with you.
  • Pundits tell me all of the time that publishing books, and especially self-publishing books, is a worthless, pointless activity that doesn't pay for itself.  Well, it does pay for itself, not in book sales, but in consulting projects.
  • Pundits tell you that "print is dead".  Well, more than half of the copies of this book have been sold via print.
  • Pundits tell you to never, ever, give away or cheaply sell all of your proprietary methodology.  Wrong!  Any of my competitors could easily implement my ideas.  They choose not to implement them.  Go figure.
These lessons apply to your business, as well.  Everybody is telling you what you must do.  Don't do it!  Chart your own course to the future.  And be willing to share a bit with others, try to help other people!

Hillstrom's Catalog Marketing PhD:

May 30, 2011

Summer Schedule

On the day after Memorial Day, the blogging world changes.

Maybe you'll find this hard to believe, but readers actually find other things to do during the summer months.  It turns out that keeping up-to-date with industry-leading insights is not the top priority of a marketing/analytics expert when it is sunny and 77 degrees outside.

So, as I have done every year, I will reduce article frequency between Memorial Day and Labor Day.

You can expect the articles you've grown to know and love each Monday, Tuesday, and Thursday.  If there are situations warranting updates, I will add posts as appropriate.

It's time for some balance in your life.  Keep up-to-date with my musings, and spend a little more time enjoying the nice weather!

May 25, 2011

Hillstrom's 2011 Almanac: Still Relevant!

You probably already have your copy of Hillstrom's 2011 Almanac, right?

If you don't, well, here's the good news ... the factoids and comments for the first five months of the year are still relevant!

The Almanac has 365 factoids, comments, tips, or criticisms that can help you navigate the challenges we face in 2011.

Give the Almanac a try!

May 24, 2011

Loyalty Programs

Loyalty programs are popular, aren't they?

Too bad that they are often ineffective.

The key to a good loyalty program isn't the loyalty program.  Rather, it is the inherent customer behavior that is tied to the loyalty program.

Loyalty programs have a chance of working under the following conditions:
  • An annual repurchase rate of 60% or greater.
  • Customer places five or more orders per year.
In these situations, the customer has a need that can be met by a loyalty program.  Maybe the customer wants to feel special.  Maybe I want to sit in Economy Plus on United.  Maybe the customer wants to save 5% or 10% on a purchase.  Maybe I want to pay six cents less on a box of Mac 'n Cheese over the course of one hundred boxes over the course of a year.

In any of the above situations, the benefit is amplified by purchase frequency.

Too often, I witness loyalty programs tied to infrequent customer behavior, as if the reason the customer doesn't buy more often is because there isn't a loyalty program.  Wrong.  If a customer has a 35% annual repurchase rate, and only purchases 1.3 times per year, there's very little incentive for the customer to buy more --- the customer simply doesn't have a need to buy more often.

Loyalty programs have the best chance of working when the customer is already pre-disposed to buy numerous times per year.

May 23, 2011

The Most Popular Topic of 2011, Based on Your Feedback

Through nearly 1,900 blog posts, we've discussed a lot of topics.

Few topics have generated the interest that the topic of age generated over the past three weeks, both positive, and negative.

Here's the image that got it started:

And here is the image that got people thinking:

You offered a lot of feedback, and a lot of questions.  Let's review your questions:

Question:  Obviously, you work with a set of brands that are not representative of all catalogers, correct?
  • Maybe so, maybe not.  Catalogers with a retail presence have a different set of dynamics, as different demographic profiles enter stores.  I'm confident, based on what so many of you have told me, that this is a problem for somewhere between 65% and 85% of catalog brands.
Question:  You can fix this problem with social media and a strong mobile or tablet presence, correct?  Just modernize!
  • Oh boy.  Sometimes, we just don't think about what we're recommending.  Something like 5% of the population owns a tablet.  Only 1 in 3 Americans own a smartphone.  And the folks who own tables or smartphones are not currently in the catalog "wheelhouse", if you will.  In other words, it isn't easy for a catalog brand to attract a scalable audience of 33 year old tablet-toting social media experts.  Conversely, a 59 year old catalog shopper over the telephone isn't likely to squint through the process of ordering via a 2" smartphone screen.
  • In other words, I don't think catalog brands fix this problem with social media and a strong mobile or tablet presence.  That doesn't mean the cataloger doesn't try things, it just means that there is an "audience disconnect" that cannot be easily resolved.
Question:  I know of a company that has a 32 year old customer, and they have a vibrant catalog business.  So is it possible, Kevin, that you're dealing with a biased sample?
  • Yes, it is possible.
  • Now, is it also possible that there are seven catalogers with 55-65 year old customers for every one cataloger with a 32 year old customer?
  • We all suffer from sample bias.  We see what we want to see.  I am confident that there are more catalogers with the 55-65 year old customer problem than there are catalogers with a 32 year old customer base.
Question:  Kevin, this isn't a problem.  It's simply the audience that is attracted to a catalog brand.  Why not go out and acquire as many 55-65 year old customers as possible?  I think this is a good thing.
  • It can be a good thing.  If the average age of your customer has been 59 years old for the past decade, you are about to have the biggest cohort of 59 year-olds move through your sweet spot in history.  Start printing money!
  • But if your customer was 49 years old in 1998, and is 59 years old today, then you have a serious problem brewing.  Look at the productivity in the second image ... productivity declines with age, as your customer moves into the 60-69 age range, productivity falls off of a cliff.
  • You keep telling me that customer acquisition is getting harder and harder ... that only makes sense if you end up attracting a 55-64 year old audience that spends less than other demographic cohorts, while the 35-54 year old demographic tunes out catalogs, right?
Question:  You're always talking about B2C.  This isn't a problem in B2B, is it?
  • I'll grant you this ... B2B issues are different than B2C issues.  I'd rather have a relationship with a 62 year old decision maker in B2B than a 62 year old customer in B2C, no doubt.
Question:  How do I create a catalog that fixes this problem?  In other words, how do I create a catalog that speaks to a 29 year old customer?
  • I get this question a lot.
  • I would not try new creative that speaks to a 29 year old customer, then send it to a 62 year old customer ... I've witnessed that one too much over the past twenty years to care to mention!
  • I'm not convinced that the majority of us can create a catalog that resonates with a younger customer.  Some of us can, you are always quick to point those brands out to me, but by and large, it's hard work folks, it's hard work!
Question:  Let me restate my question.  Should I extend my brand to a younger audience?
  • Your brand and your marketing attract an audience.
  • It is my opinion that if you want to attract a younger audience, you create a brand specifically for a younger audience.
  • It is my opinion that catalogers, through the style of marketing catalogers practice, attract an older audience.  This isn't fixed by going younger, you simply alienate the older audience and you struggle to attract the younger audience.
Question:  Is this my fault, or a simple aging of the population?
  • According to the US Census Bureau, the average age of a person in the United States is 35-39 years old.
  • This means that the average age of a consumer is somewhere between 40-49 years old.
  • In many ways, this is our fault.
Question:  Why is this my fault?
  • By and large, we bought into a concept called "multichannel".  This concept sounded seductive, and given the landscape of the world in 2000-2004, it made sense.  We were told to keep mailing catalogs to customers, because catalogs caused customers to shop on the internet.
  • In the past five years, the world changed.
  • Today, we have a disconnect, a disconnect that is our fault.
  • Customers age 60+ largely respond to catalogs as they always have.
  • Customers age 50-59 are willing to shop online after receiving a catalog (these customers were 40-49 when we were told we must be "multichannel" ... so that makes sense).
  • Customers age 40-49 tend to go in a lot of different directions ... shopping online after receiving catalogs, or being willing to enter the magical world of social commerce, or using Google as a Shopping Sherpa, or buying after receiving a 20% off plus free shipping promo via e-mail marketing.
  • Customers under age 40 do a lot of different things as well, but the catalog-inspired aspect of shopping drops off significantly as the customer ages.
  • Co-Ops, who in many cases contribute 50% or more of the new names to catalog brands, have unconsciously (or consciously) targeted 55+ rural customers.  These customers are the easiest to track, because they shop via keycodes over the telephone.  Our dependence on co-ops provides a feedback loop that results in a skew in our customer base to 55+ rural shoppers, who demand creative and merchandise that works among 55+ rural shoppers.
  • We never addressed the "free shipping problem".  Younger customers have addressed this problem, they found Amazon and Zappos and Social Commerce brands that offer free shipping.  Our way of addressing this was to integrate all channels, charging $14.95 for shipping and handling, alienating a younger audience.
  • Take a look at catalog creative.  A professional recently told me that catalog creative looks like something that "old people" would like.  Just look at your creative.  Which audience do you think your creative will attract?
Question:  I don't append age data.  How do I know if my customer base has aged significantly?
  • If more than 2% of your direct-to-consumer orders come in via the mail, with a check inside the order form, your customer base has aged.
  • If more than 40% of your direct-to-consumer orders are taken over the telephone, your customer base has aged.
  • There are, obviously, exceptions to these guidelines.
Question:  We're multichannel, so this doesn't impact us, right?
  • The vendor community sold us a bill of goods on this multichannel thing.
  • By tethering our online experience to the catalog, we limited our ability to be relevant to younger customers.
  • By limiting our ability to be relevant to younger customers, we found that older customers responded to our marketing activities.
  • This caused the co-ops to optimize their models around older customers who responded to catalog-tethered online activities.
  • As a result, we acquired older customers at a disproportionately fast rate.
  • As our customer base aged, we calibrated our merchandise and creative to appeal to this older audience.
  • Our merchandise and creative did not appeal to younger customers as much.
  • This feedback loop keeps on self-reinforcing upon itself.
  • Get the picture?  This is what multichannel marketing did to us.  We just couldn't have known this in 2001 when we went down the multichannel path with vim and vigor.
Question:  But social media and mobile don't work, so what do we do?
  • Social Media and Mobile are not likely to work among a 55-64 year old customer.
  • So, we have to make a decision.  Here's my opinion:  We ride the Baby Boomer generation into the sunset with our catalog marketing activities.  We craft new brands that resonate with a younger audience, using the profit thrown off by the catalog business to fuel the startup.  Or, just milk the profit generated by a 55-64 year old customer, until that audience is no longer productive, there's nothing wrong with that.
  • Honestly, I don't think we solve this problem by trying to calibrate our brands to be attractive to younger customers.  We either ride one audience into the future, or we attempt a new brand focused on younger customers.
  • This is simply my opinion.  Your mileage will vary.
Time for your thoughts.  As I mentioned, the two charts at the top of this post have stimulated more conversation than almost any other topic I've written about.  How would you address this issue?  Do you believe this isn't an issue?  Tell us what you think.

May 22, 2011

Dear Catalog CEOs: 10 Non-Problems

Dear Catalog CEOs:

Last week, we talked about ten problem that will make life difficult for catalog brands.  Today, we talk about what people talk about ... perceived problems that aren't really that important.

Number 10 = Privacy:  E-commerce wonks are bent out of shape about "do not track", as if the worst thing that could happen to the world was a law that prevented two-hundred companies from dumping cookies onto your computer when you decide to visit a dictionary website to look up the meaning of the word "delitescent".  Just because you cannot track a customer doesn't mean the customer will not purchase from you.  Ever been to a Dunkin Donuts and paid cash for a cruller?  Dunkin Donuts can't track that purchase back to you without face recognition software (oh boy), and yet, you shopped at Dunkin Donuts and Dunkin Donuts generated profit from your transaction.  Privacy is a non-issue.  Do what is right for the customer.  If the customer doesn't want to be tracked, don't track the customer.  Focus efforts on generating sales and profit though merchandise excellence.

Number 9 = Multi-Channel:  You're told you have to be in all channels and that you have to be all things to all people.  Nonsense.  Now, be honest.  Have your sales increased at a rate that is greater than inflation since 2000, when the multi-channel mantra was beaten into us by vendors who benefit from multi-channel strategies?  Remember, you were told that multi-channel customers were the best customers, you were told you would "reap the rewards" of a loyal customer base if you were all things to all people.  Did you "reap the rewards"?  Not many did.  Going forward, focus your efforts on "anything that works"!  If you cater to a 26 year old customer, then, by all means, dive into social and mobile like your hair was on fire.  If you cater to a 62 year old customer, might it make sense to identify merchandise that a customer nearing retirement without the funds to support a modest lifestyle might appreciate?

Number 8 = Integration:  You are told to integrate all of your campaigns.  Horsefeathers!!  Again, do what is right for your customer.  There are a million failed integration-based campaigns that nobody ever talks about.  There are fifteen successful campaigns that are publicized constantly.  You are being misinformed.  It is really hard to leverage the benefits of each channel if you are required to homogenize each channel.  Use each channel based on the strengths of each channel.

Number 7 = Retail:  Retail destroys catalog brands.  You do not need to open a store.  When you open a store, you load up debt, and you require store traffic to cover your debt load.  Eventually, you'll gut your catalog circulation, or you'll marginalize your creative in order to appeal to a retail customer, destroying catalog/online productivity.  You'll acquire a ton of retail customers who have no intent to ever buy from your website or catalog.  In other words, you're "hooped", you become something other than a cataloger, you become a slave to comp store sales, and you become a slave to debt.

Number 6 = Youth:  So many brands are told that they have to attract a younger customer.  This is a mistake, a non-problem.  If your catalog brand attracts a 67 year old customer, well, you've got a veritable plethora of Baby Boomers about to enter your sweet spot.  There is nothing wrong with cashing out on the Baby Boomer population, then retiring your brand.  You are not going to attract a mass of 26 year old customers to a catalog brand.  If you truly care about catering to the youth market, create a separate, vibrant, youth-oriented brand ... profit from your 67 year old audience via catalogs, craft a separate brand to attract a different audience.  Do not try to make your current catalog brand relevant to a younger market, it's a strategy that is not likely to work.

Number 5 = Mobile:  You are not going to be out of business in six months without a vibrant mobile presence.  I read a quote from a technology expert in November 2010, he mentioned that retailers will be out of business in six months if they don't get on the mobile bandwagon.  Is anybody holding that person accountable?  I don't see companies shutting their doors in May 2011 because they failed to capitalize on mobile, do you?  Mobile is a "needs based channel".  This means that there's a subset of the population that "needs" information immediately.  If you're in a retail store, and an item is sold out, you have a "need" that can be met by a mobile solution.  If you are bidding on an item on eBay, you have a "need" to see if you won the auction, mobile is perfect for that.  If you are Newport News and you are selling a dress, well, does the customer need to know anything about that dress at one specific moment in time while sitting in traffic on I-494 outside of Minneapolis?  What is the need that mobile solves for your business?  If you cannot answer that question, then it is unlikely that mobile is terribly important to your brand, in the short-term.

Number 4 = Integrated Databases:  Now, I'm the exact kind of person who benefits from analyzing integrated databases, chocked full of data across all channels.  But be honest.  Where do you make the most profit in your brand?  That's right, by selling merchandise that customers love!  You can bend yourself into a pretzel trying to link-up online visitation data to your e-commerce order entry system, or you can have your analyst spend a little time figuring out why certain items are more profitable than other items.  In the past decade, we've completely gotten away from what it is that fuels our business ... the thing that fuels our business is merchandise productivity.  Customers must love what we sell, or everything else is pointless.  Sure, integrated databases are important, but they are not a priority!

Number 3 = Social CRM:  Have you heard about this movement?  The vendor community is busy marrying a failed concept (CRM) with a sexy channel that seldom delivers profit (Social Media).  It is not a problem if you do not have a Social CRM solution to manage highly engaged consumers.  If you don't have a solution, go old-school ... pick up a phone and call a customer.

Number 2 = Data Driven Culture:  This is a non-problem for most marketers.  You're constantly being told by the vendor community that you must have dashboards with KPI's (key performance indicators) that determine what your strategy should be. Goodness.  Marketing and Merchandising innovation fuel the success of a business, with dashboards and KPI's tracking the success of Marketing and Merchandising innovation.  Focus your efforts on Marketing and Merchandising innovation!!

Number 1 = The USPS:  Yes, I said that this is a non-problem.  This is a case of fear ... FEAR FEAR FEAR FEAR!  Sure, it won't be pretty if it costs 35% more to apply postage to a catalog, but it won't be the end of the world.  See, there's this unique thing called "the internet", a magical place where you've spent more than a decade building out the discipline necessary to generate sales.  Sure, it will be hard to find new customers without mailing catalogs with the assistance of Abacus-fueled names.  But you have leverage, folks.  Tell your favorite USPS advocate that you will simply cut them out of the picture if they want to sock it to you.  Show them that you'll go from twenty in-home dates a year to ten, and you'll trim circulation per drop by 30%, resulting in a 65% drop in circulation.  Sure, this will be painful to you, but again, you've worked hard to figure out how to drive e-commerce sales without the aid of a catalog over the past decade, so you can manage this, right?

Ok, your turn ... what are the non-problems you'd like to point out?

May 18, 2011

Age and Productivity

You probably have age data appended to your database, correct?

If you have this data appended to your database, then take a look at annual customer spend by age.

This graph depicts a common relationship.  Customers age 40-49 are the most productive customers.

Catalog brands loved this fact back in 1995, when the average catalog customer was somewhere between 40 and 49 years old.

Today, the average catalog customer is somewhere between 50 and 59 years old, often older.  These customers are 10% less productive than are customers with age between 40 and 49 years old.

For many catalogers, the customer is aging 0.5 to 1.0 years for every year that passes, meaning that in five years, the average customer is going to be 55 to 64 years old, and in ten years, the average customer will be 60 to 69 years old.

Take a look at your merchandise productivity over time ... if productivity is dropping by 2-4% per year, and your customer is in her fifties or sixties, well, you've quite possibly identified the reason why productivity is on the decline.

May 17, 2011

But How Do You Know What The Organic Percentage Will Be?

By analyzing more mail/holdout tests than I care to mention, I have a really good idea how catalog marketing drives demand to (or cannibalizes) other channels.

You might observe, for instance, that 40% of all search purchases were caused by catalog marketing (not matched back, mind you, but caused as measured in a mail/holdout test).

And you might observe that 90% of telephone orders were caused by catalog marketing.

Well, then you have something, don't you?

You can take a segment of customers at the start of 2010, and you can measure the percentage of demand spent during 2010 by channel.  Take 40% of search, 90% of telephone orders, get the picture?  That's your organic demand.  As a percentage of total, you have your organic percentage!

Now, I use more sophisticated methods than that ... I do this stuff at a customer level, with models that combine prior channel preference with Digital Profiles and the like.  I have time-honored and tested tricks that cause the outcome to be more robust.  

But in general, it's that simple!

JCP Q1 - 2011 Sales

I know you don't want to hear this.

Give this article a read --- Penney improves sales and profit in Q1 - 2011.  Here's a few points for you to consider.
  1. Penney will pull $30,000,000 of catalog marketing out of the ecosystem in 2011.
  2. Compared with Q1-2011, JCP total sales increased 0.4%.
  3. Compared with Q1-2011, JCP comp store sales increased 3.4%.  Comps increased, and yet, the big book strategy was killed. 
  4. This means that online + telephone demand had to decrease a bit.
No catalog, and sales increased, debunking the myth that you must have paper in the mail to drive retail sales.

Also note the tasty tidbit about how expenses increased because of free shipping to online customers.

Your future --- catalog circulation reductions will be used to fund online free shipping.  The trick, of course, will be to figure out how to drive traffic to a website without as much catalog marketing.  Retailers do have an advantage, here, a big advantage.

May 16, 2011

Come See Me Speak in Moscow on May 26, and May 27

In the United States, we have leading conferences like or Internet Retailer.  In the UK, we've got ECMOD.  And in Russia, we have the Week of E-Commerce (Russian, English)!  I was invited to give a pair of presentations, this should be a lot of fun!

On May 26, I'll discuss Lifecycle Marketing topics with an Executive-level audience.  

On May 27, I'll give a half-day seminar on the nuts and bolts of Multichannel Forensics.

Here's an English-translated outline of speakers, it's a good roster if you ask me.

I am so looking forward to meeting with all of the folks in Russia who regularly follow the action here on the MineThatData Blog!!!

Follow Up To Dear Catalog CEOs: 10 Problems

If you're a catalog expert, it would be instructive for you to review the comments from Ernie Schell and Don Libey, following yesterday's post about ten problems that challenge our industry.

The goal the article, of course, is to get you to think.

Mr. Schell points out that there are successful catalogers catering to a younger audience.  We don't hear enough about that.  I know of a business that was founded by catalog marketing experts, right in the teeth of the Great Recession ... this business is growing rapidly, catering to a 30-44 year old audience.  It can be done!  Unfortunately, it seems like it is the exception, not the rule.

Mr. Libey points out that catalog success can be found in B2B catalog marketing.  That's true.  85% of my client work is in B2C, where we are facing very different challenges.  B2B catalog marketing is a blend of classic catalog marketing, e-commerce, replenishment needs, unique products not found elsewhere, volume discounts, and human beings.  This results in a very different dynamic than the issues that challenge B2C folks.

Again, the goal of the article is to get you to think.  I'm not about to promote solutions, there's no more certain way to be wrong than to tell everybody what to do and how to do it.  Each situation is different.

That being said, there are themes that I stand behind.
  • Brilliant merchandising usually wins.
  • Great customer service usually wins.
  • Reducing catalog marketing expense to customers who don't want as many catalogs results in increased profit.
  • B2C customer files are aging rapidly, and our industry won't talk about the implications of this problem.
  • Matchbacks and Attribution benefit our vendor community more than they benefit us.
  • We are letting our vendors push us away from innovation, especially in customer acquisition and print production.
  • We need smart people.
It's good that smart people like Ernie Schell and Don Libey commented ... now our industry needs your feedback.  What's working, what's not working, what are the problems, what are your suggested solutions?  If you work at Abacus, or Experian, or Donnelley, or Quad, or any of a veritable plethora of catalog vendors, you likely disagree with my comments ... hop on and share your thoughts about where you disagree with me.  We don't have to agree.  We do, however, have to help catalogers achieve improved productivity.  I thoroughly welcome disagreement on this blog, as long as the disagreement is well-thought out, rational, and data driven.  Share your thoughts!

May 15, 2011

Dear Catalog CEOs: 10 Problems

Dear Catalog CEOs:

Let's review ten problems that are slowly burying the catalog industry.  How many of these problems plague your business?

Problem #10 = Brain Drain:  You see it across the board.  The best and brightest are determining the sentiment of a user on Twitter.  Clearly, that's important, but it isn't as important as measuring the appropriate mix of new and existing product.  Smart, young individuals are not choosing to work at catalog brands.  And the exodus of experienced, seasoned Executives is making matters worse.  Finally, Gen-X is too small a generation to provide a veritable plethora of talent.  All in all, it's not a good situation.  Be honest, when is the last time you heard your twenty-two year old dream about getting a merge/purge job at J. Jill?

Problem #9 = Matchbacks and Attribution:  We butchered this one.  We listened to vendors who have a vested interest in making sure we continue to put as much paper in the mail as possible.  Matchbacks are fundamentally flawed.  Execute mail/holdout tests as soon as possible, and learn your organic percentage.  Most of the folks I speak with learn that between 30% and 70% of online demand is organic, and is not driven by catalogs as believed to be via matchback analytics.

Problem #8 = Paper and Printers:  It's happened twice this week to me ... an Executive tells me that they will not be experimenting with page counts because their printer has pinned them into an efficient boundary.  Since when do you let a third party dictate your strategy?  Printers are not going to save the world by forcing you to mail 64 page catalogs without experimentation, coupled with QR-code coupons for 15% off!  We need to tell our vendors what they are going to do.  For too many years, our vendors sold us solutions that benefited the vendor.  Enough.  Be a leader!

Problem #7 = Social Media:  You're probably expecting me to say that you need to get knee-deep in social media, or you're history.  Wrong.  For most catalogers, it is the opposite.  Social media is a drain on resources that threatens to erode profit.  Now, let me be clear here.  I think social media fits perfect in your contact center.  Let the real customer relationship experts, your call center staff, find the right path to social media success.  Every minute that a marketer spends trying to develop deep, emotional relationships with customers is a minute that is taken away from optimizing e-mail campaigns, understanding what motivates a customer to buy merchandise off of a catalog spread, or takes away from calculating the profitability of search marketing activities.  Finally, social media is not a sales generator among customers age 55 and up.  Ironically, catalog customers are, by and large, age 55 and up.  Do not listen to the social media mudheads who want social media to succeed so that they generate page views and followers that validate their perceived popularity.  Do what is right for your business.

Problem #6 = Inflation:  You analyze profit and loss statements, and you see that catalogers survived the past decade by optimizing margins and minimizing variable costs.  Well, margins are about to be gutted, and variable costs are headed north.  Our industry does not have an answer to this problem.  We rely on paper, on fuel, on coal (website), and on cheap outsourcing of resources (China, Indonesia).  The cost of all those things will increase.

Problem #5 = Free Shipping:  We will be forced to offer free shipping, or cheap shipping.  With inflation gutting our profit and loss statement, we'll have no choice but to mail far fewer catalogs in order to fund free shipping.  And once most of us are offering some form of free shipping, we'll see the lift associated with free shipping disappear.  Oh boy.

Problem #4 = Algorithms:  We simply have no control over anything anymore.  Abacus decides which 64 year old rural prospect receives your catalogs.  Obtuse retargeting software determines which 46 year old discount-based shopper buys online.  Heck, I use geeky math to determine the optimal number of catalogs to mail to a customer.  Tell me exactly what it is that you truly control anymore?

Problem #3 = Relevance:  How relevant is a catalog brand in the era of social shopping, group discount websites, Target, Wal-Mart, Home Depot, eBay generating billions via mobile, you name it?  You want to have some fun at lunch?  Go recruit twenty of your brightest analyst and manager level staffers, treat them to sandwiches, then go around the table and ask them where they shop and why they shop there.  At the end of your discussion, count on one hand the number of catalog brands they mention.  Ask your staff how they learn about brands ... I doubt it is through a rented name from Abacus!  Relevance is a big issue ... nobody wants to talk about it because there aren't any easy answers.  I'm to a point now where I advocate creating a separate brand to address the under-40 audience, you're simply not going to woo them with ninety-six pages of home-spun stories delivered seventeen times a year via the USPS.

Problem #2 = Customer Productivity:  Demand that your marketing staff overlay age information on your buyer file.  Then get ready to cringe.  Look at demand per customer by age ... demand per customer usually peaks somewhere in the early 40s.  After age 50, customers spend less and less per year, until the customer hits age 65, where annual spend sinks into oblivion.  In many cases, your productivity isn't declining, but instead, you are dealing with Problem #1 ...

Problem #1 = Age:  Fifteen years ago, you managed a vibrant, 45 year old customer.  Today, you manage a 55-60 year old customer.  In other words, customers are aging about 0.7 years for every year that passes.  This is a huge problem.  First of all, customer productivity declines after a customer passes her early 40s, so your customer base is capable of spending less and less as time goes by.  Secondly, when a customer base ages, it means that your brand lacks relevance among younger customers.  In large part, we caused this ... we listened to the pundits who told us that print was required to drive traffic to a website?  The pundits didn't go a step further ... they should have analyzed the age of the customer who used print to shop online.  Had the pundits done their due diligence, they would have realized that they were inadvertently asking you to target an older, rural audience.  We listened to the pundits.  Now we have a problem.  I do not see any way that catalogers fix this problem ... we will ride the Baby Boomer generation into retirement, struggling to manage expenses and maintain productivity as we ask this generation for yet another incremental dollar of demand.

Time for your thoughts ... what do you believe are the biggest problems that catalog marketers face?

May 10, 2011

That Organic Percentage Better Be Right, Right?

My critics lampoon me about the "organic percentage".
  • "We provide our clients with the best matchback technology in the world.  That customer would never order without having first received a catalog.  Why did the customer even visit the website in the first place?  It was because the client mailed the customer a catalog.  Your methodology is just plain wrong."
  • "You said that the organic percentage is 44%.  How can you even know that?  What if it is 39%?  Then everything you say is wrong.  Unless you nail this thing within one point, I can't possibly support your guess.  Come one, this is too important to be guessing!"
  • "You want me to mail my best customers less and reinvest money in customer acquisition?  Are you crazy?  It costs seven times more to acquire a customer than it costs to retain a customer."
The comments are defensive, of course.  I get it.

Some folks think that if the organic percentage is off by a few points, then the whole methodology fails.  That's not the case, and that's a good thing.

Here's an example.  We assume that we mail this customer ten catalogs a year, we predict the customer to spend $40 next year, and we predict the organic percentage to be 44%.  Here's a profit and loss statement, by catalog.

Catalog Organic Total Total
Catalogs  Demand  Demand  Demand  Profit
0 $0.00 $17.60 $17.60 $6.16
1 $4.47 $17.60 $22.07 $6.97
2 $7.26 $17.60 $24.86 $7.20
3 $9.64 $17.60 $27.24 $7.29
4 $11.79 $17.60 $29.39 $7.29
5 $13.79 $17.60 $31.39 $7.24
6 $15.67 $17.60 $33.27 $7.14
7 $17.45 $17.60 $35.05 $7.02
8 $19.16 $17.60 $36.76 $6.87
9 $20.81 $17.60 $38.41 $6.69
10 $22.40 $17.60 $40.00 $6.50
11 $23.95 $17.60 $41.55 $6.29
12 $25.45 $17.60 $43.05 $6.07

You're currently mailing ten catalogs ... this methodology says that four catalogs is optimal.

Now, let's pretend that I was way off on the organic percentage, and it really is 34%.  Here's what the table looks like:

Catalog Organic Total Total
Catalogs  Demand  Demand  Demand  Profit
0 $0.00 $13.60 $13.60 $4.76
1 $5.27 $13.60 $18.87 $5.85
2 $8.56 $13.60 $22.16 $6.25
3 $11.37 $13.60 $24.97 $6.49
4 $13.90 $13.60 $27.50 $6.63
5 $16.25 $13.60 $29.85 $6.70
6 $18.46 $13.60 $32.06 $6.72
7 $20.57 $13.60 $34.17 $6.71
8 $22.58 $13.60 $36.18 $6.66
9 $24.52 $13.60 $38.12 $6.59
10 $26.40 $13.60 $40.00 $6.50
11 $28.22 $13.60 $41.82 $6.39
12 $29.99 $13.60 $43.59 $6.26

Let's review the findings.
  • You're using matchback technology to mail ten catalogs a year.
  • My methodology says you should go down to four mailings a year, and reinvest the money somewhere else (or pocket it, your choice).
  • Even if my estimate is off by somewhere around 30%, you should mail six catalogs a year ... and mailing four catalogs, in this scenario, is more profitable than mailing ten catalogs.
I get that some of you in the audience will say "my file will be less strong if I follow your advice, so I won't follow your advice."  That's ok.  But you can reinvest the ad cost in new customers, and even if you lose money on the new customers, you frequently still come out ahead from a profit standpoint.

Most of the time, I underestimate the organic percentage.  That's when fun stuff starts happening!

I understand that you get frustrated by and concerned about this methodology.  It's a methodology that few in the catalog industry endorse.  It works.  And you can be wrong about the prediction of the organic percentage, and you still come out ahead vs. doing nothing.

Questions?  Contact me for assistance.

May 09, 2011

Inflation and the Organic Percentage

Let's describe what some of your phone calls sound like, over the past sixty days.

Kevin:  Good morning, this is Kevin.

You:  Hi Kevin.  What are you hearing about inflation?

Kevin:  What are you observing?

You:  The cost of everything is going up.  Gas costs more.  Paper costs more.  Sourcing merchandise from China costs more.  L.L. Bean is forcing us to do free shipping, but our tests show that we cannot offset the costs of free shipping via increased sales, so that's another hit to the expense line.  How do we deal with this?  Sales aren't increasing, expenses are increasing so fast, our profitability is being obliterated!

Indeed.  How do we deal with inflation?

I've been harping on the "Organic Percentage" for the past two years, because you are going to have to know this metric in an inflationary environment.

If you don't already know what the Organic Percentage is, here's a definition:
  • The organic percentage represents the percentage of sales a customer generates, on an annual basis, that is not caused by marketing activities.
Why is it important to know this percentage?

Well, if your customer is happy to generate 72% of her demand without the aid of marketing, you have a significant opportunity to save yourself a ton of marketing expense when speaking with this individual customer.

Maybe half of the projects I'm being asked to work on this spring have something to do with inflation ... I'm being asked to find customers who are highly organic in nature, so that companies can reduce marketing expense among that audience.

May 08, 2011

Dear Catalog CEOs: Mailing 48 Month Buyers

Dear Catalog CEOs:

This one comes up a lot.  I'm analyzing customers who last purchased forty-eight months ago.  On an annual basis, you'll mail these customers six times a year.  On an annual basis, I'll measure that you're losing $2 of profit (per customer) mailing these customers.  On an annual basis, I'll find other customers (those who last purchased 33 months ago or 42 months ago or 61 months ago) where you are losing a boatload of money.

On an annual basis, I'll calculate that 50% of the demand generated by this audience is "organic", generated without the aid of catalog marketing.

On an annual basis, I'll find you a half-million or a million dollars of profit, by cutting way back on the number of catalogs you send to this audience.

And that's when you start to howl at me about my recommendation!
  • "It's foolish to get a little more profit.  We need to mail these folks, or maybe they won't ever come back" (ignoring that I just said that half of their demand happens anyway if you don't ever mail those customers again).
  • "We like losing money here because it is cheaper to lose money here than to acquire a new customer by renting names from Abacus" (we like losing money?).
  • "If we don't mail these customers, we'll have a weaker housefile three years from now" (remember, half of these customers buy without mailing catalogs, take your savings, and go find a new customer ... now your file is growing, not shrinking).
  • "Online customers aren't very profitable, we need to keep mailing these loyal catalog buyers" (remember, this customer hasn't purchased in four years, just exactly how loyal is this customer?).
There are a lot of days when I wish it was 1991 all over again.  Back then, you could mail a 48 month customer, because the customer had no other way to purchase from you.

In 2011, the world is very different.

After excluding the 65+ rural customer, your customer base always has the opportunity to visit your website and purchase something.  Why do you view this as being a bad thing?  

Instead of mailing 148 pages six times a year to a customer that has almost no chance of buying, why not craft a strategy that saves 75% of the ad cost, maintains 85% of the purchases, and increases profit?
  • Eliminate 148 page contacts.
  • Add 48-64 page contacts.
  • Properly account for the "organic percentage" ... ignore flawed matchback results by executing proper mail/holdout tests.
  • Increase profit.
We don't need to apply rules from 1991 when evaluating 48 month buyers in 2011.  Modernize the process!

Or hire me, and I'll help you modernize the process, increasing profit as well!

May 04, 2011

Passed Over For A Promotion

I'm willing to bet that all of you have, at one time or another, been passed over for a promotion, right?

This is a situation that the CEO deals with in Gliebers Dresses: Catalogs on Trial (Amazon Kindle, B/N Nook, $0.99).  An obviously qualified candidate is compared to outside talent.  Who will be promoted?  Will internal staff be passed over for a promotion?

Corporate America is one big tournament, a pyramid scheme of sorts.  At one point in my tenure at Nordstrom, I was responsible for twenty-four individuals.  I was a VP, I had three Directors, with twenty folks of varying experience and titles reporting into the three Directors.

Twenty individuals fighting for three Director positions.

Three Directors fighting for one VP position.

Life isn't fair.

I came into Nordstrom from the outside.  And I was ultimately finished at Nordstrom by somebody who was hired from outside the company.

In other words, many deserving folks were passed over for a promotion when I was hired, and may folks were passed over for a promotion when it was my time to move on.

And when I got to Nordstrom, I brought with me a significant amount of outside talent.  When I was given broader responsibilities two years later, I did the opposite --- I took advantage of internal skills that I felt were sufficient to do the job.  Each situation is unique.

In an effort to boost "engagement", why not use the comments section of this post to discuss how you make decisions to promote people?  And if you've been passed over for a promotion, how did you deal with the pain associated with the decision?  Discuss!

May 03, 2011

Printers, Paper Reps, Print Production, and Innovation

A couple of times a month, I get into the topic of small catalogs with potential clients.  I'll get a call from a CEO or EVP who is fed up with rising paper costs, and is terrified about what will happen to the USPS.  The caller asks me what to expect from a demand standpoint if pages were reduced, from 96 to 88, for example?

That's the point where I mention that the caller could get 80% of the demand on 35% of the pages ... in other words, the caller could mail a 36 page catalog of best products, harvest the majority of demand, and be much more profitable, allowing the cataloger to mail twice as deep into the file or into prospect lists, growing total demand and orders vs. a 96 page catalog.  

I only bring this up because I've seen it happen, many times, successfully ... 12 pages, 24 pages, 36 pages, all sorts of different page counts.

I would not recommend smaller, quirky page counts unless I've measured an increase in sales and profit that exceeded a typical 64 page, 96 page, 128 page, or 192 page catalog.

After asking the question, I brace myself for the response ...

... "but our printer tells us there are efficiencies that make a thirty-six page catalog too expensive to mail.  And our paper rep can get us into other products that reduce costs.  So I would never do that.  Let's keep this real, Kevin.  Please tell me what happens if I go from 96 to 92 pages, or 96 to 88 pages?"

In a rational world, would operational considerations dictate the best marketing strategy for a customer? In a rational world, wouldn't you be willing to eschew best practices in favor of testing a different strategy?

Mind you, printer/paper reps aren't forcing you to do anything.  They are simply offering incentives for you to do what is best for them.  These aren't mean people, they're kind people, they're trying to help you save a few bucks.

But it's not about them, it's about what is best for your customer, and your shareholders, right?

Over and over again, I watch print production teams at leading catalog brands hold back innovation, while genuinely doing what they think is best for the business.  It's not really their fault, it is their job to save money, so they are going to side with vendors, who are also doing their job, by trying to save you money.

It is time for us to demonstrate some leadership.  Paper and postage are going to kill us, next week, or next decade ... the day of reckoning is unavoidable.  We won't acknowledge this, but we know it to be true.  

Might it be a good idea to identify ways to bridge current business to future business?  You're willing to test a dot-whack, why not test something more progressive?

May 02, 2011

A 1974 Chevy Nova

In Gliebers Dresses: Catalogs on Trial (Amazon Kindle, B/N Nook, $0.99), we deal with the concept of a "1974 Chevy Nova".

My first car was a 1974 Chevy Nova.  I paid $800 for her in the Spring of 1988.

In the Spring of 1989, it was time for a new car.  

You'd shut the car off, and pull the keys out of the ignition.  You'd close the door, and you'd walk into your local Perkins Restaurant.  Thirty seconds after entering the restaurant, the car would still be running.  Eventually, she'd shut herself off ... making a "PIRRRRRRRROOOOOWWWWW" sound, followed by a "BANG", and a puff of dark blue smoke.

Now, I could have rebuilt the car, from scratch.  She was rusty.  The front grill was damaged after hitting a deer at 50mph on a freeway.  She needed new tires.  The carburetor was ruined from an incident where I accidentally put unleaded gasoline in the car.  Or, I could have gone out and purchased a new car.  In other words, I could have continued to invest in what was old, or I could have invested in something new.

If I were to rebuild her in 2011, I'd have two choices:
  • I could restore her to her original condition, as she was back in 1974, and then buy a modern, 2011 SUV or mini-van or sedan, loaded with all of the modern conveniences offered by modern cars.  I could park two cars in my driveway.
  • Or, I could modernize the 1974 Chevy Nova, with all of the latest gadgets and gizmos.  I could add a navigational system, I could toss in a subwoofer and iPod connectivity.  I could install a moon roof ... you get the picture!  But she'd still be a 1974 Chevy Nova, an odd one at that.
This is the decision that we face, as shepherds of brands.  Do we add social media to a brand embraced by a 62 year old customer?  Do we add mobile to a brand embraced by a 58 year old customer unlikely to ever own an iPad?  Or do we "park two brands in our driveway", one that is authentic and relevant to the 1974 Chevy Nova audience, and one that is appropriate and relevant to a twenty-eight year old Mom needing a mini-van?

This is an important issue that the Management Team at Gliebers Dresses face.  Best practices suggest that you modernize your 1974 Chevy Nova, making it a "multi-channel" vehicle.  

You could also consider parking two cars (brands) in your driveway, each one suited for different purposes.  You could let the 63 year old feel nostalgic about driving the '74 Chevy Nova, and you could allow the 36 year old to drive a functional vehicle tailored to the needs of a 36 year old.

You do not have to force "multi-channel" upon every customer in the same way, do you?  There's nothing wrong with building a "social" or "mobile" brand, from scratch, letting a classic catalog brand do what it does best, while making a bet on the future.

May 01, 2011

Dear Catalog CEOs: Customer Demographics And Multichannel Issues

Have you taken a look at the channels that customers in various age bands use?

It's an enlightening exercise.

You have one whole group of Social Media pundits telling you that you are dead if you don't get serious about engaging the modern consumer.

You have one whole group of Multi-Channel pundits telling you to execute integrated campaigns across multiple touchpoints, because best customers "do everything", so you'll improve response if you saturate every channel with the same merchandise at the same price with the same presentation (analyzed out of an integrated database).

You have new media pundits telling you that if you don't have an industry-leading mobile app by October, you will be out of business.

And then we have you.

You live in the real world.  You work at a real company that has to make quarterly numbers.  You don't write clever headlines to maximize page views or re-tweets.  You have to sell something, or you lose your job.

In the real world, customers do multiple things, however, those "multiples" are defined by the age band the customer resides in.

And, yes, I willingly admit that there are 72 year olds that love using an iPad.  I willingly admit that there are 27 year olds who thumb through catalogs, then write checks and use the post office to mail orders to catalog brands.

Look at your own data.  It is likely that your own data looks a lot like the image above.

In other words, there are Social Media experts that are 100% right about Social Media being a vehicle for driving sales, because these folks cater to a customer demographic that craves Social Commerce.

And there are New Media experts that are 100% right about the fact that you need an iPad app tomorrow or the world is coming to an end ... because in the crowd that the New Media expert runs in, the New Media expert sees the tidal wave coming.

And there are Catalog Marketing experts that are 100% right about the fact that customers still lick stamps and mail orders in envelopes ... they fully know that their customer will never, every, use an iPad app to bond with others in a Social Commerce nirvana.

Know your customer.

You don't have to be everything to everybody.

But if your current customer is on the right-hand side of this chart, you might want to think about building a new brand, one that capitalizes on the tactics on the left-hand side of this chart.  That's a marketing strategy that has a better chance of success than trying to ram a catalog down the throat of a 24 year old, or trying to force a 64 year old to use an app to shop.


Summer Schedule / Document Your Progress This Summer, Ok?

Most summers, I cut back on how often I publish. This summer will be no different ... and you may be subjected to a few videos instead of bl...