October 09, 2011

Dear Catalog CEOs: Steve Jobs

Dear Catalog CEOs:

A business leader asked, "What, Kevin, are you going to write about Steve Jobs?"

Originally, I chose to write nothing.  Then, a few thoughts crystallized.

Go back to the late 1990s.  Back then, Apple was in ruins.  Catalog Marketing, however, was on top of the world.

In late 2011 ... Apple is on top of the world.  The status of Catalog Marketing is frequently debated.

Think about the biggest difference in strategy between Apple, and between Catalog Marketers.

Apple bet everything on merchandise/design.  Macs, iPods, iTunes, iPhones, iPads, apps.  Could have been a disaster, could have been spectacular. 

Catalog Marketers frequently bet everything on "marketing channels".

I continually observe a fundamental difference in approach.
  1. Approach #1 = Create/Design innovative merchandise.  You can't guarantee that the strategy will work, but if it does work, productivity improves, allowing you to expand into other marketing channels.  This is a risky strategy, requiring gut instinct, intuition, courage, conviction, confidence.  We admire the winners, we beat the living daylights out of the losers.  We're like the chorus in a Greek Tragedy, commenting from the sidelines while others take risks.
  2. Approach #2 = Expand into other marketing channels.  This strategy is the polar opposite of Approach #1. Here, you believe that by expanding into channels, your existing merchandise offering is exposed to more customers, causing your business to grow and thrive.  This is a safe strategy, low risk, data driven.  This strategy is adored by marketers, analytics experts, consultants, and trade journalists, heck, just about everything you read is rooted in a tactical, safe approach to success.
Approach #2 will provide consistent, albeit tepid results.  You don't go from $75,000,000 to $150,000,000 in a few years by making your email marketing program more relevant, or by capitalizing on the long tail of search, do you?  But you are certainly able to protect your $75,000,000 by focusing on tactics.

Meanwhile, Apple went from being mocked to having more cash on hand than our Federal Government.

What we lost last week, of course, is somebody we can point to, somebody who didn't listen to best practices.  I mean, who would deem development of the iPad to be a best practice, given how other organizations failed in their attempt to create such a device?  And you can theorize that apps sprung the device into the stratosphere, but who determined that apps were the way to go prior to Apple?

The screams of the average plead for us to connect the dots and color within the lines, using primary colored Crayons.  They beg for us to focus on average issues, like privacy, paper prices, USPS viability, merge/purge rules, targeting strategies, the "long-tail" of paid search, free shipping, discounts on Twitter, Facebook Commerce, daily deals on Groupon, Foresquare promotions, email marketing relevance, you get the picture.  Every one of those things are important, of course, but none even remotely close to as important as having merchandise that customers crave.  Every minute we give disproportionate focus on executing tactics, we lose a minute where we could create and sell merchandise.

I remember being in "post mortem" meetings at Lands' End in the early 1990s.  These were spirited meetings about merchandise productivity, with merchants, inventory leaders, creative and copy experts, and marketers all discussing, without prejudice, how to sell more stuff.  No item was spared (feelings weren't spared, either).  We posted every catalog spread on a wall, color-coded based on performance:

  • Gold = 30% profit rate (profit dollars / net sales) or better.
  • Green = 20% to 29% profit rate.
  • Blue = 10% to 19% profit rate.
  • Red = Less than a 10% profit rate.
If an item didn't achieve at least 10% profit, then serious discussions were held about the product.  Is the return rate too high?  Is the gross margin too low?  Is the product "tired", has it been featured too often?  Is the item paired with other items that don't sell well?  Do we need new products?  Did profitability suffer because the fulfillment rate was terrible?  Did returns suffer because of quality issues?  Did marketing contact the right customers with the right strategy, or did marketing activities cannibalize each other?

Ultimately, we succeeded or failed because of the merchandise we offered, the service we provided, and how we communicated to the customer the reasons why s/he should buy it.  We knew that new products were essential to success.  We knew that "winners", certain product that performs well, had to be featured in a certain way, especially to newer customers, in order to maximize success.

When I worked at Eddie Bauer in the late 1990s, this discipline did not exist.  In fact, the difference in culture was amazing to me.  Folks cared about whether the 20% off promotion outperformed a Gift with Purchase promotion, or they cared about whether 10% off plus free shipping outperformed lower prices on items offered to new customers.  Or people cared about what impact credit promotions could provide in increasing sales.  I'm not saying merchandise wasn't important, but merchandise productivity was not embedded in the culture, outside of the merchandising department.

And on a comparable basis, Eddie Bauer sold about 75% as much as Lands' End sold.

It's this DNA, this hard-wiring of love for merchandise/design/creative, that I hope our industry doesn't lose.  Until last week, there was always a marketer that we could point to, an example for how to do things different.  

Who, do you think, picks up the torch and carries it into the future?

1 comment:

  1. Can't say who will pick up the torch. But two comments: Harold Schwartz of Hanover House (in the 70s/80s) was famously unable to predict the winning products in his catalog, and proud of it! His point: hindsight is better than ignorance or indifference. And, it seems to me that in some ways both LLB and EB are both right. Successful catalogs had a "core" customer group of repeat buyers who responded to items that attracted them. You had to identify those items in hindsight, use subjective criteria to find more like them, and be as objective as hell and analytic to find more buyers like them in pockets of profit in segments of rental lists. And test/test/test. Compared to today's technology it was slow and clumsy, but not a "black box." Those were "the good old days," but I think in a few short years we'll see the emergence of something old, something borrowed, and something new that will rock the socks off everyone. I'm an eternal optimist!


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