April 30, 2012

Attribution Week: Catalog Profitability

One secret to marketing success is knowing how customers behave if you stop marketing to them.

When you stop marketing to customers, you are left with brand recognition and merchandising love.

By the way, both of those things are really, really important.

So we execute a four-panel mail/holdout test.  One set of customers is treated "as usual" ... that's the catalogs+email column.  One set of customers is not mailed email campaigns ... for three months.

Yes, three months.

One set of customers is not mailed any catalogs ... for three months.

Yes, three months.

One set of customers is not mailed anything ... no catalogs, no email campaigns ... for three months.

Yes, three months.

You learn an awful lot by doing this.

We know that catalog marketing, when measured via the traditional mail/telephone channels, doesn't look very profitable.

Demand $4.00
Net Sales $3.40
Gross Margin $1.87
Less Book Cost $2.25
Less Pick/Pack/Ship $0.34
Variable Profit ($0.72)

This is the outcome, over the course of a quarter ... it looks like we are losing $0.72 per customer ... and if you have 200,000 customers, well, that's more than $140,000 per quarter, more than $560,000 per year.

Well, that's doesn't work.  So we created the "matchback".  Any online order that happened within "x" days of sending a catalog is credited back to the catalog.  This "changes everything", as they like to say on Twitter!  Look at the table at the start of this post.  If we sum up all demand across all channels, we get $19.70, not a paltry $4.00.  Now look at the profit and loss statement.

Demand $19.70
Net Sales $16.75
Gross Margin $9.21
Less Book Cost $2.25
Less Pick/Pack/Ship $1.67
Variable Profit $5.29

Wow, catalog marketing works!  And that's where we quit.  This all happened back in 2000/2001/2002, our industry realize that we were "multi-channel" and we just stopped in time. We didn't innovate.  We just assumed that all of these online orders were caused by the catalog.

Not true.

Look at the results across catalog mail and catalog holdout groups.

Well, the test tells us something different.

Look at the incremental lift ... the difference between mailed results and holdout results.  We only generated $7.74 of incremental demand per customer.

In other words, if we don't mail any catalogs, the customer continues to generate 57.9% of the demand the customer was going to generate anyway.

I know, you don't want to believe this, you want to believe that customers crave catalogs.  Well, these days, customers are influenced by customers --- demand will still happen, regardless.

What does the profit and loss statement look like?

Demand $7.74
Net Sales $6.58
Gross Margin $3.62
Less Book Cost $2.25
Less Pick/Pack/Ship $0.66
Variable Profit $0.71

Ok, there's nothing wrong with this.  But the outcome is not what matchbacks suggest.  Instead, the results are 58% of what matchbacks suggest.

In this case, your job is to discount your matchback results, multiplying whatever your vendor tells you by 0.58.  Then, you run your profit and loss statement on what remains.

Later this week, we'll dig into the specific channel-based results, showing what happens to other channels when you stop mailing catalogs.

Meanwhile, In Flash Sales News

Click here to read "Flash Sales Sites Get A Makeover".

I just talked about retail and loading up on debt to generate sales.

This is the opposite end of the spectrum.  You get the names for free, of course, so you avoid all of that debt that plagues retail.

But when you get a free name, you get the loyalty of a free name, right?

There are certain laws, laws you really cannot fight.
  • For most e-commerce based businesses, between 25% and 40% of last year's customers purchase again this year.
  • For most retailers, between 30% and 50% of last year's customers purchase again this year (for department stores, this metric is between 60% and 80%).
  • For most catalog based businesses, between 35% and 55% of last year's customers purchase again this year.  The rate is higher than in the e-commerce model because of the impact of catalog advertising on influencing customer purchases.
When your flash sales business is growing by 92% a year, you don't see the impact of loyalty (measured via 12-month repurchase rates) ... all you care about is obtaining names.

But once customer acquisition dries up (and it always dries up, folks), you're stuck with a 25% to 40% annual repurchase rate, and not enough new customers to make up for marginal annual repurchase rates.

Just something to pay attention to ... each business model has strengths and weaknesses ... few people talk about what the inherent strengths and weaknesses truly are.

Betsey Johnson Bankruptcy

By now, you've read the news about Betsey Johnson, right? (click here).

The article says that "... the Betsey Johnson brand is stronger than ever."

If you want to have a fun little exercise, go ahead and pull the interest on your debt from your profit and loss statement.  Are you now generating 10% EBIT, 10% pre-tax profit?  How different is the p&l pre/post interest?  More important, what was the sales increase associated with the debt you took on?

It is my opinion that brand health is best measured in terms of quality profit and cash flow, ask Apple, for instance.

Remember the ridiculous "multi-channel era", aka 2001 - The Great Recession?  We were taught that we had to pile on debt in order to provide a superior "bricks 'n clicks" experience, right?  How is that working out for anybody but the folks who loaned money?  Sure, there are success stories ... but only when there are consistent and healthy increases in comp store sales (look at Nordstrom sometime ... healthy comp store sales increases but a ton of debt, too).

These days, there are major differences in strategy.

  1. Retail:  Tack on a bunch of debt, open some stores, and cross your fingers.
  2. Catalog:  Pay co-ops for names prior to mailing a catalog.
  3. Online:  Pay Google for clicks prior to selling something.
And then there are all of those new businesses ... the Fab.coms of the world, who build an email list and social following ... for free.  Now, whether they can monetize those lists effectively over time is debatable, but it's sure worth paying attention to, right?

The biggest trend of the past few years seems to be this battle ... pay-to-play vs. giving a customer a reason to pay attention.  Both strategies work, and both have risks.  But if your brand is "stronger than ever", then what purpose did all of that debt serve?

April 29, 2012

Dear Catalog CEOs: Attribution Week

Dear Catalog CEOs:

This week, we're going to tackle a concept known to the catalog industry as the "matchback", or to the rest of the world as "attribution".

As you already know, our industry incorrectly associates many online orders with the mailing of a catalog.  Based on mail/holdout tests, we know that some customers will continue to spend money, half or more of their dollars, when no catalogs are mailed.

This is not something that the vendor community wants for you to know.  The entire vendor ecosystem benefits when we over-attribute online orders to catalogs.

This week, we'll look at examples of mail/holdout tests.  We'll more accurately understand how catalog marketing impacts a business.  You'll be much more profitable if you adhere to the knowledge learned in the series of posts that will be published this week.

Good luck!

April 28, 2012


What the heck is going on out there?

Have you read this article about apps (click here)?  79% of total app time is spent gaming or on social networks.  So you've got a half-billion devices activated since 2007, with forty billion app downloads ... giving every single person with seventy dollars a month the opportunity to consume a lot of information.

Folks like to talk about a term called "engagement", which I'd loosely define as "the amount of time somebody kills in a mobile environment with your brand".

We're frequently presented with "average" customer behavior, aren't we?  When we look at averages, we find that average customers are moving from offline to online to social, now to mobile.

Then we have an Executive who recently said to me ... "who the heck wants to purchase sheets on a two-inch screen"?  This Executive has a customer base with an average age of 55 years old.

I was at an airport last Wednesday.  Sitting on one side of a row were five individuals, 30-39ish in age, all thumbing through virtual keyboards on iOS or Android devices.  On the other side of the row were three individuals, age 50-64ish.  Two were reading newspapers, one was plugging away at an email message on a keyboard on a Blackberry.  On average, six of the eight individuals I mentioned were "engaged" in one way or another with content.  

The generational gulf, however, between "Judy" and "Jasmine", was huge.

If you are looking to market to Jasmine, it is obvious that you are literally operating in a different world from the folks who are marketing to Judy.  Jasmine is post-social.  In so many ways, what was labeled as "Web 2.0" is fading for Jasmine.

And if you are marketing to Judy, then mobile/social simply "doesn't work", does it?  How else could you possibly explain how Kevin Hillstrom has twice as many followers on Twitter compared to Coldwater Creek?  

I frequently analyze three generations of customers (and, yes, you can be a 62 year old Jasmine or a 26 year old Judy).
  • Judy = Traditional Offline Customer, Offline Pushes Judy Online.
  • Jennifer = Classic Online Customer, Google Focused, Facebook Influenced.
  • Jasmine = Post-Social Customer, Mobile Engagement Driven.
It is so completely obvious.  Engagement is the measurement of time use, and is critically important to understanding Jasmine.  

Meanwhile, engagement is completely meaningless to Judy.  

And Jennifer, being caught in the middle, ends up "touching everything" ... offline, online, social, mobile ... but can't possibly give "everything" enough attention for "anything" to stand out.

It's probably time to stop talking about averages.  Customer behavior is varied, and non-consistent, across generations.

April 26, 2012

Who Would You Fire?

Have you ever presented at a major industry conference?

It's an interesting experience.  If you do a bad job, you put people to sleep ... you read slides and basically cause people to think that they just wasted $1,195 of scarce company resources as they check email on a smart phone while you plow through a presentation.

If you do a good job, then something will happen during the presentation that tells you people are paying attention.

For instance, I presented this slide at Internet Retailer, way back in 2009.  My session was about the future of catalog marketing.  Maybe three hundred folks were in the room.  You're wondering if folks are truly paying attention.  And then, you realize they are paying attention!

The room, a room full of catalog professionals mind you, overwhelming voted to boot the Catalog Marketing Director off of the island ... they chose in this example to downsize their own, and by a sizable margin.

This was three years ago.  What would the response be like today?

I didn't ask a follow-up question, one that is probably more important.
  • "What does the catalog marketing director with 24 years of experience do when he is downsized?"
For a decade, the instinct was to "be multi-channel".  You simply said that you were a multi-channel marketer, expecting folks to recognize the importance of this set of skills ... skills where offline marketing are used to grow e-commerce sales.

Of course, multi-channel skills were not rewarded, were they?  We now see online marketing experts, the e-commerce folks who benefited from offline marketing driving their traffic early on in the evolution of e-commerce assuming leadership roles in companies.

And we see the pattern repeating, don't we?  Search and email marketing experts now publish white papers that tell how their crafts interact with social and mobile to create sales among today's savvy shopper.  Sound familiar?  It's happening again.

Our instinct is to build a bridge to the future.  We try to connect what we've done in the past with our version of the future.  And then, a few years later, the future doesn't turn out the way we thought it would turn out, because it was all based our version of the future, not a version that is centered around the customer.

It seems like we have a generation of catalog marketers, multi-channel marketers, email marketers, and search marketers who need to ask a different question.
  • "What do I have to offer the future of marketing?"
Answer this question, and then start positioning yourself for the future.

Impact of a Loyalty Spoiler

When all things are equal, it's important to not focus marketing activities on Loyalty Spoilers.

Here's an example that I ran on a recent dataset:

  • An item sold 400 units last year in Q4, at a price of $49.
  • Customers who purchased comparable items repurchase at a 20% rate.
  • Customers who purchased this item repurchase at a 15% rate, though equal in every other manner to customers buying other products.
  • Each customer who repurchases is worth $150 in the next three months.
So, you earn $49 * 400 = $19,600 by selling the item.

Then the item spoils loyalty, costing you the following:
  • 400 * (.15 - .20) * 150 = $3,000 of future demand.
The net productivity of the item, then, is not $19,600 ... but is $19,600 - $3,000 = $16,600.  You run a profit and loss statement on the current value of the item and the future value you either spoil or build.

Make sense?


Now go out there and run a Loyalty Spoiler analysis (hint --- email marketing is the best place to start, it is so easy and straightforward here).

If you don't have the resources to run your own Loyalty Spoiler analysis, contact me (click here)

April 24, 2012

Loyalty Builders and Loyalty Spoilers

If you can have a Loyalty Spoiler, you can have a Loyalty Builder.

Loyalty Builders are the opposite of Loyalty Spoilers.  Loyalty Builders cause a customer to continue to buy merchandise in the future.

Think about your inkjet printer.  When you buy the item from HP for $125, there's an inherent "Loyalty Builder" aspect built into the item ... you're supposed to come back, over and over and over again, and buy ink cartridges.  The inkjet printer is a Loyalty Builder.

Your iPhone is a Loyalty Builder, a tool that allows Verizon to keep making money on a monthly basis, a tool that allows Apple to sell apps.

Your Lexus Rx400h is a Loyalty Builder, a car that requires oil changes, transmission oil changes, differential trans axle oil changes, new tires, tune ups, wiper blades, you name it.

Conversely, some items are Loyalty Spoilers.  You'll routinely see how a new couch, purchased at Ikea, stymies subsequent purchases, and for good reason!  That couch completes a purchase cycle, the customer is done!

The secret, then, is to identify your Loyalty Builders and your Loyalty Spoilers.  In your email marketing campaigns, in your search marketing campaigns, on key landing pages, you give Loyalty Builders more priority than you give Loyalty Spoilers.

Oh, I know, merchants are going to howl over this one.  "If we don't tell the customer about an item, then the customer won't buy the item, blah blah blah."

But if you're reading this, you're most likely a marketer or an analyst.  This means you have a responsibility to increase loyalty, correct?

So, when all things are equal, advertise the Loyalty Builder.  Make the Loyalty Spoiler available and easy to find, but there's no need to feature an item that kills subsequent performance.

April 23, 2012

Hillstrom's Personas + Hillstrom's Catalog Marketing PhD

Well, the most popular project request right now is a combination of both booklets.

In Hillstrom's Personas, we tackle the task of determining the target audience for catalogs and email marketing campaigns.
Do you remember when I used to talk about "the organic percentage", the percentage of demand that is generated independent of catalog marketing?  Well, that research from 2009 - 2011 became the basis for Judy, Jennifer, and Jasmine, the three ladies we've been talking about for the past three months.

Many CEOs/EVPs are now asking to combine the concepts in Hillstrom's Personas and Hillstrom's Catalog Marketing PhD (Print for $7.95, Kindle for $2.99).

Good idea!

Remember, in our Catalog Marketing PhD framework, customers are evaluated as follows:

  • Likelihood of Buying, Next 12 Months.
  • Amount Spent, Next 12 Months.
  • % of Total Demand Catalog Driven, Next 12 Months.
By multiplying each of the three metrics above, we arrive at the amount of demand, annually, that is driven by catalog marketing.  Then we run a profit and loss statement at each level of catalog marketing investment, grading customers as follows:
  • A = Mail MORE Often!
  • B = Mail 7 to maximum number of in-home dates, per year.
  • C = Mail 3-7 times per year, on average.
  • D = Mail 1-3 times per year.
  • F = Mail 0-1 times per year.
Many of my larger clients ask me to predict the actual number of catalogs to mail to each individual customer ... and to predict the actual number of email campaigns to deliver to a customer, on an annual basis.  We get some very interesting results when we do this!

The result of these projects is about $1,000,000 of annual profit for a $100,000,000 catalog business ... maybe $500,000 of annual profit for a $50,000,000 catalog business.

Sound good?  Sure it does!

April 22, 2012

Dear Catalog CEOs: Pinterest

Dear Catalog CEOs:

Have you heard about Pinterest?  It's the latest application that "changes everything".

Go take a look at what Nordstrom does on Pinterest (click here).  Remember, Nordstrom has somewhere north of 8,000,000 customers in their database who purchased in the past twelve months.  With 15,000 followers on Pinterest, this means that 1 out of every 533 twelve-month buyers is paying attention.

Not bad.  Not enough to move the sales needle, either.  Have you ever noticed that few of the experts put things into these terms ... 1 in 533 twelve-month buyers?

That, of course, is what Nordstrom thinks about Nordstrom.

Here's what Patti Corley thinks about Nordstrom (click here).

Katie Koster's "My Style" section includes items from Nordstrom, Boden, J. Crew, Zara, Gap, and others.  She has 26 followers, by the way.

In the short period of time that Pinterest has been alive, it ascended to the 220th most visited website in the United States.  Let that one sink in for a moment.  Considering that Judy isn't going to spend a lot of time putting her preferences from Coldwater Creek up on Pinterest (593 followers), that's an amazing achievement ... nearly zero users a year ago, nearly 6,000,000 monthly visitors today.

Now, a lot of people are going to tell you about Pinterest Best Practices, sharing the best ways to leverage the application to sell merchandise ... advice like "make your merchandise shareable" or "lead the customer, merchandise outfits" or "offer discounts and promotions to encourage cross-channel, Pinterest-based commerce".  As if you didn't already know to merchandise outfits, right?

Be honest, folks ... how many people could possibly know what a best practice is for selling on a medium that essentially had zero visitors eighteen months ago?

There's going to be another camp of folks who tell you how the customer is now in control, they'll use Pinterest as an example of how today's savvy shopper re-purposes your content for her own needs.  They'll discuss concepts like "co-creation", and they'll suggest that your lumbering and boring website (and business) is "dead" unless you immediately embrace co-creation.

Here's what is nuts about our current situation.

The pundits are actually right.

And those with the exact opposite point of view are right.

Both sides have to be right ... Pinterest from nothing to the 220th most visited website in no time flat ... Nordstrom for having only 1 in 533 12-month buyers participating ... both sides of the story are right.

At a 30,000 foot level, content is diffusing from controlled websites to Google (algorithms) to Facebook/Twitter (mostly text) to YouTube (video) to Pinterest/Instagram (images) and a thousand varied micro-channels.  At a 30,000 foot level, the change is mind-numbing.

On the ground floor, where you are, almost none of this stuff generates sales (unless your business was started a few years ago with all of this stuff in mind).

You almost have to invest in the future.

And you almost have no chance of generating significant sales increases from all of this stuff.

Your investments have to come at the expense of something.

As time goes by, you'll be forced to trim circulation among your Jennifer/Jasmine audience, in order to fund experimentation, experimentation that has a low probability of success.  At the same time, businesses that don't have your overhead and legacy channels will mysteriously succeed while you experience minimal success doing the exact same thing they do.

I know, it's frustrating.  

But it is reality.  And the longer we stay tethered to our "multi-channel" past, a past that demands that everything we do be linked to the production of a catalog, the harder it becomes to make anything new work, because we keep attracting customers that are opposed to anything new.

P.S.  There's no forecasting what will work, or how it will work, so be careful when taking the advice of the so-called pundits.  I worked for an individual named Mike Smith, way back in 2001-2002 at Nordstrom.  This person created an application called "Life Sketch" ... which, if we must be honest, is not fundamentally different than Pinterest is ... it was just created a decade earlier and the public wasn't ready for it.  We're going to continue to be surprised by the applications that "take off", and there won't be a rhyme or reason for it.

April 19, 2012

Loyalty Spoilers: Merchanics

Here's one approach to running a Loyalty Spoiler analysis.

Step 1:  Identify all items sold in 4th quarter of 2011.

Step 2:  Identify all customers who purchased merchandise in the 4th quarter of 2011.

Step 3:  At the end of the 4th quarter of 2011, calculate the future value of all customers who purchased in the 4th quarter.  Many folks will predict future value as the demand you expect this customer to generate in the 1st quarter of 2012.

Step 4:  Measure the repurchase rate (you can measure $/customer as well, it's just noisier) of all customers who purchased in the 4th quarter of 2011, measuring repurchase rate during the 1st quarter of 2012.

Step 5:  Create a spreadsheet, one row per customer/item combination, containing the following fields.

Step 6:  Aggregate the dataset to one row per item number.  Calculate the mean value of predicted customer future value.  Calculate the mean value of Q1 - 2012 repurchase rate.

Step 7:  Select all items that sold at least 50 units in Q4 - 2011.

Step 8:  Run a weighted least squares regression analysis.
  • Independent Variable = Average Predicted Customer Value.
  • Dependent Variable = Q1 - 2012 Average Repurchase Rate.
  • Save the Predicted Value = Predicted Average Repurchase Rate.
Step 9:  Create an index (this step is important):
  • Index = (Predicted Average Repurchase Rate) / (Average Repurchase Rate) - 1.
This index is a percentage.  It tells us how much an item spoils future customer loyalty.

For example, an item that has customers with an average predicted future value of $100 should yield an average repurchase rate of, say, 20%.

Now, let's say that an item instead yields customers with an average repurchase rate of 15%.  The index, then, is (15% / 20%) - 1 = -25%.  This item spoils future customer loyalty by 25%.

In the next post in this series, we'll address a practical outcome of the methodology.

April 17, 2012

Vibrant Conferences

You probably already know that The Forum for Cross-Channel Merchants (click here) was recently cancelled.

I'm going to go old-school on you, for a moment.

Lands' End ... 1993.  Our marketing management team (not me) attended the Catalog Conference.  This was a big deal, back in 1993.  Meetings.  Parties.  All the leading ideas ... stuff like alternative delivery (i.e. somebody other than the USPS delivering catalogs to your front door), neural networks designed to optimize name selection for catalogs, best practices for negotiating great rates on list exchanges.  More Parties.  Drinks.  Stories of industry leaders consuming several drinks.  Food.

Cataloging wasn't just at a local maxima, it was at an absolute peak of industry power!  And the place you went to partake in catalog marketing was the Catalog Conference.  Heck, it was at a point where you didn't even go to learn anything, you just went there because it was fun and all the other people you worked with in the industry were there, too.

The Catalog Conference was eclipsed by Shop.org, Shop.org was eclipsed by Internet Retailer, and Internet Retailer will be eclipsed by something that skews mobile.

Humans want to be entertained.  They will go to any conference where they are entertained and are with like-minded colleagues.


OneKingsLane, for instance (a Jasmine-based business with a Judy-based subset demographic, click here to learn more), has buzz ... how many businesses in our industry went from $0 to a projected $200,000,000 in 2012 net sales in just three years?  We want to learn just how the heck they did that?!  One can hear those stories at vendor-based conferences (see hashtag here).  Heck, this example is from a vendor claiming to be "multi-channel", and they created buzz!  It can be done.

When I talk about entertainment, I'm not talking about getting Conan or Colbert to speak at a conference.  No, attendees seem to want, as one conference attendee recently told me, "the next big idea".  And they don't want to be put to sleep while being told what the next big idea is.

I know, it's not easy to run a conference.  I ran a series of failed conferences in 2001 and 2002. They were the most boring, information-filled conferences in history.  I know what it takes to put on a conference that is poorly attended.

The catalog industry can put on good shows ... just ask the folks at NEMOA.  But the format, the content, the buzz, and the entertainment factor must be different, must be relevant for modern times.  We need to create vibrant conferences, ones that speak to the concepts of being "cross-channel" without ever mentioning the phrase "cross-channel".  We need to market ourselves to our own industry.  Why can't we do that?

Maybe, in our quest to build a bridge from the past to the future, we've forgotten how to market ourselves to ourselves?

Hillstrom's Personas: Available in Print!!!

Courtesy of the folks at Amazon.com, you can now get Hillstrom's Personas in print or via Kindle!

Click here to purchase via print, Amazon.com, $14.95 for the color text.

Click here to purchase via Kindle, $4.95, and begin reading immediately.

You want a copy of the print version.  It's important to have something in your hand to take to a meeting.  It's important to have a response when the CEO says to you "I think we need a Twitter strategy" or "I think Direct Mail is the answer to our problems".

April 16, 2012


In Hillstrom's Personas, we talk a lot about Judy, Jennifer, and Jasmine, right?
Well, each persona is aligned with various business models.

Give Sevenly.org a visit ... go ahead, I'll wait while you take a look at the website.

Justin Palmer mentioned on Twitter that 70% of new customers are sourced from Facebook.  Justin is the Marketing Director at Sevenly, so he is probably a reliable source for this metric.  He also tweeted the following sentence to me ... "Facebook can be used to drive sales, most brands just don't know how."

Now, pretend that you are Chicos.  Take a look at their online demographic profile (click here).  Does anybody honestly believe that Chicos could drive even one or two percent of total online sales via Facebook?  Why would a 61 year old woman go to Facebook first, then make a decision to purchase something online at Chicos?

Judy is not going to buy something because of Facebook.

Jennifer is going to hunt for the best products and the best prices and the best promotions.  If Facebook is part of that equation, she'll use it.  If Facebook is not part of that equation, Jennifer will still accomplish her mission, she won't be stopped.

Jasmine fully expects social and mobile to be built into her experience.  If you target Jasmine, it should not be a surprise that 70% of new customers come in via Facebook.

Marketing channels are not the issue, the issue is the target customer.  If you target Judy, don't expect Facebook to make a dent.  If you target Jasmine, don't expect old-school methods to work as well as they work when marketing to Judy.

Vice President of Digital Marketing, Lands' End

I'm confident that many of you already subscribe to Harry Joiner's E-Commerce Job of the Day (click here to subscribe), so it is likely that you already read the blurb about Lands' End, a company looking to hire a Vice President of Digital Marketing.

There is one sentence in particular that I want for you to focus on ... it is in red below.

  • This is about so much more than just being able to push the buttons. Profitable growth is about having the right mindset -- and helping others embrace it. It will involve helping Lands' End become less catalog dependent. You must be an agent for positive change. Lands’ End has millions of customers in its database, and its goal is to get all of its customers digitally engaged across all digital platforms: tablets, smart phones, desktops, and more.
There is a fundamental, mind-boggling change happening ... finally.

Catalog Marketing isn't dead, as the pundits like to say.  Instead, it is evolving, finding a place in the future of marketing.  That place isn't in the mainstream.  Rather, it is a viable, healthy, profitable place, among customers who love interacting with this form of marketing.

When Lands' End, one of the Founding Fathers of Specialty Catalog Marketing, is publicly stating the new reality of Catalog Marketing, pay attention.

And when you are ready for your own Hillstrom's Catalog Marketing PhD project, when you are ready to generate a million incremental dollars of profit per $100,000,000 in annual net sales, by mailing fewer catalogs to customers who don't want to receive catalogs anymore, please contact me (click here).

Buy Hillstrom's Catalog Marketing PhD.

April 15, 2012

Dear Catalog CEOs: Placing Bets

Dear Catalog CEOs:

Last week, you read about a CEO transition at Best Buy.  Regardless of why the CEO transition is happening, Best Buy has been struggling to find ways to combat mobile and Amazon.

Last week, you also read that Instagram was purchased by Facebook for just a billion dollars.

I was in a retail store last week.  A manager and an employee were standing next to me.  The manager was explaining that his company was being beaten silly by Amazon.  He told the employee that there was a new plan to combat Amazon.  The plan was to cross-sell services to the customer.  The manager explained how the program would work, how the employee would explain to the customer that the company offered services, valuable services, services that Amazon could never hope to match.  The employee would attempt to cross-sell services, even if the customer had not yet purchased an item!

The employee had that "how fast can I get a job at Jiffy Lube?" look.  You could just see the dread on his face ... the dread of having to try to sell a service that the customer didn't ask for and probably doesn't want to purchase.

We're all placing bets these days, aren't we?

Take my former employer, Nordstrom.

Now, honestly, I couldn't care less whether you agree or disagree with the investments, that's irrelevant.

What is relevant is that folks are placing bets.  People are betting as to what they think the future of commerce is.

Earlier, I told you about the discussion between a manager and employee at a retail brand ... the manager was explaining that his management team was betting that service would trump online price and convenience.  Again, it is irrelevant whether you agree or disagree with the thesis, it's simply a bet.

This brings me to you.

What are you betting on?

Are you betting that Judy will continue to spend money well beyond retirement?

Are you betting that you can seamlessly pivot your business to Jennifer?

Are you betting that you can find a business model that relates to Jasmine?

Are you betting on free shipping as a way to compete with Amazon?

Are you betting on proprietary merchandise as a key differentiator?

Are you betting on selling the same merchandise readily available online, but with better customer service?

April 12, 2012


Did you know that Refinery29 is the 2,163rd most visited website in the United States, with more than 2,000,000 unique US-based visitors and about 10,000,000 US-based unique page views per month?

Yes, this is a fully "Jasmine Centric Experience", folks ... see Quantcast for details.

I'm going to guess that if there are 1,500 Catalog Executives reading this today, fewer than 150 have even heard about Refinery29, right?

I found Refinery29 on Twitter, where a modest 317,000 folks are following (and more than 100,000 are fans on Facebook).

Go visit Refinery29, I'll wait while you take a peek.

Ok, welcome back.  Do you see how fundamentally different this experience is than what we sell to Judy?  Or Jennifer?  The experience for Jennifer looks something like this ... click here to visit Levi's ... a comparable experience for Judy might be found at Chicos (click here).

Why do I share this stuff?

Well, we need to grow.  And it is obvious that our multi-channel strategy to extend catalog marketing through Jennifer and Jasmine hasn't worked, or that audience would be shopping with us.  So, from time to time, I'll provide examples designed to educate all of us about how Judy, Jennifer, and Jasmine are different.

Purchase Hillstrom's Personas via Kindle, $4.95 click here!

April 11, 2012

Saks and Robotics: A 21% Sales Increase?

You probably read the article in the NRF SmartBrief about how robotics helped Saks achieve a huge sales increase via robotics.

Click here for the article.

There is one sentence in the article where a link between sales and robotics is made:
  • It seemed to make a difference: Saks Direct reported a 21 percent increase in fourth quarter sales from the same period in 2010.
What fraction of the 21% increase in e-commerce sales would you attribute to a warehouse robotics system?

Well, you might look back to Q4 of the prior year to see what happened.  In this article, we learn that Saks e-commerce division posted a 36% increase in Q4 of 2010.

So this tells us that e-commerce was on a major updraft in 2010, and the rate of improvement slowed in 2011.  Regardless, there is momentum, momentum we cannot attribute to warehouse improvements.

On Twitter, @richardfergie suggests that customers who know they can order up to December 23 will spend more than customers who lack confidence that their order may not arrive in time for Christmas.  Ok, this is a good hypothesis!  How would we test it?
  • We could have offered up a messaging test ... 80% of the audience is told that they can order up to 12/23, 20% of the audience is told that they can order up to 12/18 or whatever the old date was ... then measure the incremental lift between the two groups.  This would tell us what impact the robotics system was likely to have.
  • Analyze the distribution of orders in 2010 and 2011, to see how many orders were pushed late (i.e. after 12/18), then give credit for those orders to the robotics system, assuming that these orders would not have happened otherwise.  In other words, if a customer was going to order on 12/12, then orders on 12/19 because of a promise of delivery by 12/23, the net financial impact is $0.  If a customer was not going to order, then orders on 12/19 because of a promise of delivery by 12/23, then the robotics system (and marketing messaging) get credit.  If the customer was going to spend $100, then elects to spend $200 because of a promise of delivery by 12/23, then the robotics system (and marketing messaging) get credit.
Now, via analytics and testing, we might prove that a robotics system more than pays for itself. I'll bet somebody in Finance / Operations would love to have an estimate (and it would be an estimate).  That would be a good thing!

We can also measure how much more accurate pick/pack/ship activities are when using a robotics system.  Knowing the improvement in accuracy, we can calculate a cost savings per order, multiplied by annual orders, yielding annual cost improvements.

We have the tools and techniques (you probably have more ideas for how to analyze this than I have, offer them up in the comments section) to measure the impact of a robotics system on the profit and loss statement.  Let's go measure it!

April 10, 2012

Loyalty Spoiler

You are probably running your own Loyalty Spoiler analysis, right?

A Loyalty Spoiler is an item that sells well, but hurts the downstream loyalty of a customer.

You'll see this analysis in email marketing.  You want to prop-up the performance of an email marketing campaign, so you feature a half-dozen items that will sell well.

You read the results, you generate sales, and then you move on.

In a Loyalty Spoiler analysis, we measure the downstream loyalty of customers who purchased specific items.  If, after controlling for the quality of the customer purchasing an item, we find that equal customers perform worse after buying a certain item, then the item is a Loyalty Spoiler.

We'll talk about this topic in upcoming posts.

The Rise and Fall of Multi-Channel: In One Stock Chart

Here is the price of Best Buy stock ... from the start of the multi-channel era (2001) through the day that Facebook became so big it could pay a billion dollars for a few warehouses of servers that store pictures on hard drives in the cloud.

Notice the clear peak of the multi-channel era (2006), when the stock price appreciated from about $20 to almost $60.

And now, six years of consistent declines, sending the stock price from almost $60 to about $20.

April 09, 2012

Hillstrom's Personas!!!!

Judy, Jennifer, and Jasmine have made a difference!

For three months, we've talked about how our wonderful ladies define the future of marketing.  We have Judy, a traditional shopper who still adores catalogs.  We have Jennifer, an online maven trained to adore free shipping.  And we have Jasmine, the future of marketing, a social/mobile/local shopper with limited funds.

Now, our thoughts are captured in a fifty-eight page booklet titled "Hillstrom's Personas"!!

There are three ways to learn about Hillstrom's Personas.
  1. Purchase a color booklet on Amazon, $14.95 (to be available in the next few days).
  2. Purchase the Kindle version, $4.95 (available right now).
  3. Read older blog posts for free.
Of course, you'll want the souvenir, right?

This has been the most popular series ever written on this blog.  In some ways, it represents a unifying theory ... there's room for catalog marketing to matter (Judy), there's room for online marketing to matter (Jennifer), and there's room for social/mobile/local to matter (Jasmine).  We reinforce the concept of segmenting an audience.  We reinforce the concept of applying a relevant strategy to a target audience.  We reinforce the notion that product matters.

If you're walking in to an Executive meeting and you want ammunition for explaining why your direct mail program doesn't work, or why your Twitter presence only has 339 followers, bring a copy of "Hillstrom's Personas" to the meeting ... heck, have a copy ready for everybody in the room!

April 08, 2012

Dear Catalog CEOs: One-To-One CRM and Chicos

Dear Catalog CEOs:

Here's the deal ... on Saturday, I was researching apparel brands.  I typed Chicos.com into Quantcast ... I DID NOT PHYSICALLY VISIT CHICOS, nor have I visited Chicos.com in 2012, according to my web history.

You'd almost think that an advertiser cookied my computer, because in a few hours, I was receiving "view through opportunities" to purchase from Chicos.

I'm not sure how relevant the ads are, given that the website where the ads appeared contained an article about the death of journalism (see the ads and article in the image above).

And, oh, by the way, I am male ... not quite in the target market Chicos goes after.

If you hover over the ad, you realize that an agency called Turn may be accountable for the placement of this ad (click here to visit Turn.com).  Here is Turn's Twitter Page (click here)

Now, guess what happens when you page down a little bit further?

Right below the ad I showed you at the top of the page is another ad ... ALSO FROM CHICOS!

However, this ad appears to be served-up by a different ad agency ... m6d (click here to learn more about them).

The article I was reading was three pages long.  Look at what happens on page two.

Look ... only five additional Chicos ads on the second page.  Fortunately, there were no additional ads from Chicos on the third page.

Seven "view throughs" from seven ads from Chicos, served by two agencies, to a male who was interrupted while reading an article about the death of journalism, a male who will never buy womens apparel from Chicos, a male who simply typed the Chicos URL into Quantcast.

This is the enlightened, data-driven age we live in.

I know, I know, the agencies will say that my website activities cause me to fall into segments of customers that are similar to women age 55-74, the target demographic who shop at Chicos (click here for Quantcast data about Chicos).

Never mind that somebody is scraping my surfing data from websites that have nothing to do with Chicos in order to serve up relevant and timely ads that aren't so relevant or timely.

We all know that the online marketing manager at Chicos has no idea that this is happening.  Imagine how mortified s/he will be on Monday morning when reading this?

We all know that both ad agencies would find it surprising, even funny, that they both served a comparable ad to me on the same page at the same time.  They may even use this as evidence that they are doing the right job, in aggregate, given that each approach yielded the same outcome.

And we all know that maybe it is time to pay more attention to what is happening with our scarce advertising dollars.

We have a measurement/marketing community that talks about accountability, about data-driven strategies, about one-to-one communications, about relevancy.  This community creates the outcome that we read about here, today, an outcome that few of us would say, "yup, that's about right!"

Dear Catalog CEOs --- let's pay attention to what our marketing teams, our vendors, and our analytics partners are doing.  From time to time, perfectly good intentions wind up yielding an experience similar to this one, and that doesn't help us sell merchandise, does it?

P.S.:  In no way am I unaccountable here, either.  I classify customers into Judy / Jennifer / Jasmine segments, making the same mistakes that are outlined in this article.  This is a call to action for all of us ... Executives, Marketers, Analytics Experts ... to all be more accountable.

Your Low-Cost Items

In most of my projects in the past nine months, the importance of having "something" at a low price repeats ... a recurring theme ...