Budget Shortfall? Want To Work Together On A Project? Try This!

Sometimes, I'll hear a comment like "Why won't you discount your products like other vendors ... everybody loves a deal?"

I do the exact opposite.  As a product is being fleshed out, I offer the opportunity to purchase project work at a significantly lower price.  Once every methodology has been verified, programmed, and plugged into my routine, the cost goes up, and for good reason.

That's the case with Merchandise Forensics!

Pretend you're an $80,000,000 business.  Where else in the vendor community are you going to get a Merchandise Forensics project completed for $11,000?  Be honest!

On January 1, 2014, prices will increase ... significantly ... by between 50% and 100%.

So get your Merchandise Forensics project done NOW, while the cost is so inexpensive.  

Contact me (click here) for details.  Or click here for a brief outline (you'll get far more than this, FYI).

Most of the last ten Merchandise Forensics analyses indicate that the vast majority of sales shortfalls have to do with merchandising problems - usually, there is a problem with generating enough "winning" products, a problem with generating enough "new/winning" products, a key category that acts as a halo for the brand that is in decline, or all three!  I can illustrate what impact this has on your business.  Act now!

A Different Perspective - Above The Water Line

Look at this little seal.  99% of the time, s/he is under water, snacking on salmon or an octopus.  But 1% of the time, s/he pops up and surveys the landscape.  

It's a whole different world up here, isn't it Sealio?

It's also a whole different world when you're promoted from Manager to Director, when it comes to thinking about Merchandise Forensics.

Let's go back to 1998, old-school, at Eddie Bauer.  I was promoted to Director of Circulation and Analytical Services.  One of my duties was to prepare all of the information for what were called "QPMs", or "Quarterly Planning Meetings".  Basically, you had about 35 of the highest level Executives in the company, gathered in one setting, to discuss past results and future plans.

Business was awful.

It was my job to share just how awful the performance of the online/catalog division was.

I was not ready for what I experienced.

Like the seal above, I got to peek "above water".

Above water, in that room, marketers were in trouble.

• "What are YOU doing to fix our performance?"
• "Why are you acquiring the WRONG customers?"
• "What kind of PROMOTION will bring the customer back?"
• "How FAST can we implement the promotion?"
• "Don't you think MARKETING is DESTROYING the BRAND?"

As I answered the questions, a thought came to mind:

• "Do not ever come into this meeting again without knowing what merchandise productivity is."

For fifteen consecutive years since, I've run what I call a "comp segment" analysis.  Here's a post from more than a year ago, outlining the general concept (click here).

Three months later, I walked into the next QPM with two facts.

1. Comp Segment performance was down 15%.
2. All employees at an Executive level were spending 20% less than the prior year on our merchandise.

The employee metric was pretty darn important.  You see, you can't blame the marketing department for causing employees to spend less on the very merchandise they are responsible for selling!  Having that metric, coupled with the customer metric, allowed us to shift the focus away from promotions, away from direct marketing, away from the website, and to what matters.

What matters is merchandise.

Are you a marketer?  You probably are, or you wouldn't be reading this post, would you?

Well, if you're a marketer, why do you let the merchandising team get away with beating you up over merchandise-related issues?

Be like the seal at the beginning of this post.  Peek above the murky waters.  Measure comp segment productivity.  Teach your company how merchandise productivity impacts overall business performance.

Or click here to contact me about your own, customized merchandise forensics analysis.

Some Items/Departments Don't Seem To Fit

This is St. Basil's Cathedral, next to the Kremlin in Moscow.  It kind of seems out of place, doesn't it?  And yet, it's amazing!  It's a must see on a trip to Moscow.

That's how great merchandise works.

And great merchandise can't always be measured directly.

Let's go old-school ... during the course of a twenty-five year career, I learned more at Eddie Bauer (1995 - 2000) than I learned at any other company, at any other time in my career.  I'm not saying the experience was fun, because it wasn't.  But I sure learned a lot.  The experience was important.  Important > Fun.

We had a department in our stores, called "Sport Shop".  All sorts of fishing gear.  Outdoor goodies.  Canoes.  You'd watch couples enter the store ... men paralyzed, mesmerized, practically compromised.  They'd just stand there and stare.  Smile.  Daydream.

Meanwhile, the young lady progressed into the store, purchasing $75 of female apparel and a $30 shirt for the hubby.

If I remember correctly, those old Sport Shops didn't sell much of anything.  A hundred or hundred-fifty dollars per square foot, maybe half to a third of the sales generated by the rest of the store.

Management decided to kill the Sport Shop.  Why not use the real estate to sell productive merchandise?  It's a common-sense, data-driven decision, one that might be applauded in 2013.

What do you think happened?

Remember the couple who spent $105 ... $75 on female merchandise, and a $30 mens shirt? Well, they kept entering the store for awhile - and then, that couple simply didn't enter the store anymore.  You could tell, because the $30 mens items simply evaporated.  Mens merchandise productivity dropped.  And that's a bad thing if you were a masculine brand like Eddie Bauer was.

Logically, of course, you de-emphasize mens when it isn't performing well, offering more womens merchandise.  It's a data-driven decision, right?  Maximize what is selling well, minimize the stuff that is not selling.

This series of events, of course, were counter productive, further weakening a masculine brand.

So, by the time 1998 rolls around, we're posting -20% comps and the mens business is terrible and decisions are made to "reinvigorate the brand".  A posse of brand marketers were hired to fix the problem.

Just like St. Basil's Cathedral doesn't look like it belongs, the Sport Shop didn't look like it belonged.  Regardless, Sport Shop provided a merchandising halo that benefited the rest of the business.

A simple comp-segment analysis, by merchandising department, will help you understand whether various merchandise departments have a "halo effect" on the rest of the business.

Halos are important, and are poorly understood.  They cannot be measured by traditional key performance indicators.

Click here to discuss your own Merchandise Forensics project with me.  Maybe your business has a key item that doesn't seem to fit, but drives the entire merchandise ecosystem?

Mickey Drexler Sits Down With Bloomberg

Yes, you have twenty minutes to watch/listen to this interview (click here please).

We're getting pummeled with mindless, vapid, senseless information ("brands who fail to embrace omnichannel are destined for the scrapheap of history").  I mean, Amazon is 25% of e-commerce, and 52 companies comprise 75% of all e-commerce sales.  Channels are irrelevant.  Merchandise is everything!

This interview is the opposite of mindless, vapid, senseless information.  You'll hear interesting thoughts about the future of retail and e-commerce, based on experience, success, and failure.  What could be better than that?

Hint - he cares about merchandise.

Merchandise.

Summer Schedule and Topics (Hint - It's About Merchandise)

Yup - summer is here.  Sunsets.  Fun.  Chillaxing.

So posts might be a bit less frequent this summer, as is the tradition on this blog (now in year eight).

And we're going to talk about Merchandise Forensics this summer.

Why?

Well, for one, it's a lost art.  We outsourced so many aspects of marketing to subject matter experts - these folks know their "subject", they don't know the critical role merchandise plays in the success/failure of a business.

If you ask 100 marketing experts if merchandise productivity is up 5% this year, flat, or down 5%, how many do you think could give you an honest answer?  3 of 100?  Maybe.

Merchandise productivity impacts everything you do.  Take a ten percent drop in merchandise productivity, and your search activities become really expensive.  Absorb a ten percent drop in merchandise productivity, and you have to cut catalog circulation by at least ten percent, hurting your ability to reactivate or acquire customers, hurting your business next year as well.  Take a ten percent drop in merchandise productivity - and the marketer gets fired.

Aren't you marketers out there tired of being blamed for stuff that isn't your fault?

It's your fault when you train the customer to expect free shipping and 30% off all day, every day.

It's not your fault when customers buy 10% less merchandise because of issues with your merchandising team.

This summer, we're going to dive in on merchandise productivity, on merchandising issues.  Merchandise is the one constant over time - it's always there - and it is what customers purchase.  Don't you think it's worth understanding how marketing and merchandising interact?

Click here to hire me for your own Merchandise Forensics project.  Or stay tuned for a hot summer of learning how merchandise and marketing interact with each other.

Direct Gardening Association - Agenda

Click here for a tri-fold agenda for the Direct Gardening Association conference in Burlington, VT, in July - I'm speaking on Wednesday morning.  Come join me!

Merchandise Forensics: Top Items

It's the "hip" project right now ... identifying the reason why the business is struggling.

There's usually two reasons.

1. Inability to acquire new customers at an acceptable cost.
2. A decline in merchandise productivity, usually caused by a failure to develop highly productive new items.

Here's a tidbit for you.

• Calculate the average demand you generate, per item (say it is $12,000).
• Multiply this rate by 2.5 ($12,000 * 2.5 = $30,000).
• Let this be your "criteria for success".

In other words, in our example, we want items that generate at least $30,000 of annual demand.

This threshold often accounts for items in the top 10% to top 25% of the merchandise productivity spectrum, so you're looking at really productive items.

Now, for the past five years, identify how many new items ever achieve this level of productivity?  Is the rate increasing, or decreasing over time?  Is the quantity increasing, or decreasing, over time?  How many years does it take an item to hit this threshold?  How many years does it take for an item to fall below this threshold?

The secrets to your business are outlined in the questions above.  Combine this information with your ability to acquire new customers at low costs, and you're well on your way to understanding/fixing the dynamics of your business.

Five Tools - Employees

All week, we've been talking about five tool baseball players.

• Hits for average.
• Hits for power.
• Can run the bases.
• Can field.
• Can throw.

Yesterday, we talked about five tool customers.

Today, we'll chat about five tool employees.

What are the five skills that an employee must possess?

That's a tough question to answer, isn't it?

• Curiosity.
• Integrity.
• Vision.
• Profit-Focused.
• People-Skills.

What would qualify as your five tools that the best employees possess?

Five Tools - Customers

Yesterday, I introduced the concept of a 5-tool baseball player.  Great baseball players:

• Hit for average.
• Hit for power.
• Are good base runners.
• Are good fielders.
• Can throw the baseball well.

The same concept holds for customers.  The best customers possess five tools:

• Purchases Every Year.
• Purchases Multiple Times Per Year.
• Purchases Multiple Items Per Order.
• Purchases High Margin Items.
• Purchases Without The Aid Of Advertising.

I know, you're going to say, "well, the customer buys from multiple channels".  Well, no.  That's a byproduct of purchasing multiple times per year.  You don't care what channels the customer buys from.  You care that the customer possesses each of the five tools listed above.

If you want to create a fun dashboard, why not create one that evaluates customers on the basis of the five tools listed above?

Dear Catalog CEOs: A Five Tool Player

Dear Catalog CEOs:

In baseball, there is a player called a "5 Tool Player":

• Hits for average.
• Hits for power.
• Runs the bases well.
• Throws.
• Fields.

Obviously, these players are hard to find.  Terribly hard to find.  I possessed exactly zero of the skills when I played baseball in high school.

What are the five tools that yield an outstanding business executive, a person who could run your company and chart a viable course into the future?

How many employees in your current pipeline have all five tools?  How many could replace you?  After all, it's your job to make sure that there are a ton of five tool business leaders in your organization, correct?

We keep outsourcing tools, don't we?

And in the process, we're struggling to develop talent.  Something needs to change.  You can make these changes.

Draft and Develop

In 2005, the Green Bay Packers had a quarterback named Brett Favre.  You might remember him.  Three MVP awards, two NFC Championships, one Super Bowl Title.  Future Hall of Famer.  He would play for six more seasons (2005 - 2010).

And yet, Ted Thompson drafted a Quarterback named Aaron Rodgers.  At the time, the decision was kind of a head scratcher.  In retrospect, it was a wise, wise decision.  Via a "draft and develop" philosophy, Mr. Rodgers was groomed to become the starting quarterback.

What does this have to do with talent in e-commerce / retail / cataloging?

You keep telling me you cannot find talent.  Especially at the Manager / Director level.

Well, I've prepared a brief quiz for you.  If the answer to each question is "no", it is time for you to consider a "draft and develop" program for your marketing team.


Question #1:  Are the salaries paid by your company consistently in the top 35% of your industry?

Question #2:  Is your company considered a leader in mobile or social?

Question #3:  If you made an offer to a prospective employee, and Google/Facebook made the same offer to a prospective employee, would the employee choose your brand?

Question #4:  Is your company headquartered in a major metropolitan area that is considered a trendy place to live/work?

Question #5:  When you have a job opening, is the position filled within 2-3 weeks, due to an ample quantity of highly qualified candidates?


If you answered "no" to each question, it is time for a "draft and develop" program.


Key Elements of a "Draft and Develop" Program.

1. Hire talent right out of college.  Unemployment rates among Jasmine's generation are terribly high, and yet, these graduates have unprecedented tech / mobile / social skills.
2. Pay 20% or more above industry average, and use this as part of your advertising/recruiting strategy.
3. Clearly communicate to the prospective employee that they are being trained and developed, and will possess highly marketable skills in twenty-four to thirty-six months.
4. Develop a "plug and play" process ... new employees go through a rapid training process ... make it so that your "program" can be quickly learned and mastered.
5. Hire each candidate on a 90 day conditional basis ... promise to pay six month's of salary/benefits, but give yourself the ability to separate from the employee if skills aren't a good match.
6. Give a significant salary increase at six months, to reward those who make good progress.
7. After eighteen months, create a "Sr. Analyst" tier, and ask those in the "Sr. Tier" train new employees.
8. Identify the rare, gifted employee.  Fast track this individual into Management.

I know, this is the opposite of what you are used to doing.  But everything you've been doing for thirty years is leading you astray!

First, organizations have "flattened out" ... you no longer see 1 VP and 3 Directors and 6 Managers and 14 Analysts ... with a clear and achievable career path.  These days, you get 1 VP and 2 Directors and 4 Analysts ... with remaining skills outsourced to vendors.

Why not evolve to 1 VP and 11 Analysts, with the occasional Director/Manager position reserved for the rare, gifted employee?  You'll spend the same amount on salary/benefits, but you'll keep knowledge in-house (as opposed to outsourcing all of the knowledge of your business to vendors).  You'll be able to identify talent and reward it over time.  You'll be able to remove poorly performing employees quickly.  And you'll tap into a big market of tech / social / mobile savvy employees who can help you evolve into future marketing strategies.

Draft and Develop.

If what you're currently doing is not getting the job done, why not consider Draft and Develop?

Discuss.

40% Off

This is pretty much the limit, as far as pushing the peanut on percentage off promotions.

I suppose you could go to 49% off plus free shipping.

Once you get to 50% off, you're in the realm of clearance, and that sets off a whole different customer mindset.

There are at least four theories, surrounding discounts and markup.

The first theory is that you are able to charge a high markup as a premium for offering highly desired merchandise.  The most successful companies I work with tend to earn gross margin rates that are in the low 60% range.  In other words, the $49.99 item that we purchase costs the business $20.  This business model works really well in fashion, and for proprietary merchandise (i.e. items that others cannot easily replicate/duplicate).

The second theory is that you charge a high markup, so that you can stimulate demand by marking down the item.  The $49.99 item that costs the business $20 is manipulated ... take 40% off ... so that the customer perceives that a $29.99 item that costs the business $20 is a great deal.  This is the JCP model.  Once you go down this path, you cannot reverse-engineer it.  You can't.  You've built a customer file that loves playing the game ... take the game away, and you take the customer away.  For this model to work, you need (in my example) three times as many customers to purchase the item to generate the same amount of profit.  This model can work well when merchandise is a commodity.  This model almost becomes the default when competition is stiff.

The third theory is that you charge a small markup, so that you can stimulate demand by offering everyday low prices.  The $24.99 item that costs the business $20 yields $4.99 profit ... you need to sell six times as many items to generate the profit you generate at $49.99 ... however, you change the marketplace by offering low prices, and this change drives out the businesses that offer comparable items at $49.99.  This is congruent with Wal-Mart, or Amazon.  This model results in what the pundits like to call "scale", and offers significant competitive advantages.  Of course, it's terribly hard to "scale", isn't it?

The fourth theory is desperation.  Business is not meeting expectations, so you simply start discounting.  10% off.  Sales increase.  Wow!  Next year, 10% off doesn't get you anything.  15% off.  Sales increase.  Wow!  Then sales flatten again.  Then it is 20% off.  25% off.  30% off.  35% off plus free shipping.  40% off plus free shipping.  You can pretty much take this model to 49% off plus free shipping before customer perceptions change.

The first three theories are viable business strategies.

The fourth theory aligns with what most of us do, and there are unintended consequences that offset the short-term sales increase you get from discounting.  Just analyze your customer file, and you'll see the unintended consequences, when viewed over time.

Decoupling: The iPad

Here's what I want you to try:

• Select every customer from your database who purchased via an iPad in the past year.
• Measure the percentage that purchase via an iPad on the very next purchase.

If the percentage is greater than 50%, your mobile business is in the process of decoupling from the e-commerce experience.  You've got excitement, and you've got challenges.  Both will make coming to work worthwhile.

If the percentage is less than 20%, your mobile business is not being embraced by your customers ... on a subsequent purchase, the customer migrates away from the iPad.

Or lump the iPad and iPhone and all Android devices and Blackberry devices and Windows Mobile together ... and run the same metrics above.

Increasingly, I am analyzing businesses where the customer is in the process of decoupling from e-commerce.  If this is your business, then you need to stay on top of it.  You need to be all over it!!

Decoupling is interesting - it works opposite of what the experts tell us.  The customer makes a decision, and changes behavior.  When this happens, we sub-optimize the customer experience by forcing the customer to tether herself to old-school channels.

Decoupling: Email Marketing

Leave your desk right now, and have your analytics guru run a query for you:

• From May 14, 2012 to May 13, 2013, calculate the average price point purchased by marketing channel.
• Compare email marketing to every channel.

What do you see?

There's a high probability that the average price point purchased via email marketing is lower, significantly lower, than all other channels.

This happens when you hyper-optimize a marketing channel.

Email marketers hyper-optimized their channel.  20% off.  Free shipping.  Gotta get open rates up, who cares about the profit and loss statement, right?

Over time, the email customer file was built, and it became fundamentally different than the rest of the business.  It's not uncommon to observe an email customer file that purchases items 20% cheaper than those purchased by the rest of the business.  It's not uncommon to observe an email customer file that buys 75% of items via discounts/promotions, whereas 20% of the remainder of the customer file purchases via discounts/promotions.

Once this happens, the email customer file has been decoupled from the rest of the business.  Integration with the rest of the business becomes sub-optimal, and for good reason ... you're dealing with a fundamentally different customer.  It's a lot like JCP abandoning discounts/promos and being thumped over the head with a bag of oranges, to the tune of a -25% to -30% comp store sales performance.

When you decouple the email customer file from the rest of the business, you actually have freedom to make changes, to reverse the process of multichannel/omnichannel integration.  Use email marketing to play to the strengths of customers who buy from email marketing ... those customers receive versions tailored to their interests.

Dear Catalog CEOs: Decoupling of Demand

Dear Catalog CEOs:

It's happening ... and it's happening largely opposite of what you were told.

I remember being at Eddie Bauer, way back in 1998.  Our e-commerce business went from a million in 1996 to something like five million in 1997 to about fifteen million in 1998.  We observed a funny thing about that fifteen million in demand in 1998.

• It was heavily skewed to male-gender merchandise.

In other words, the demand generated online reflected the audience that was using the internet in 1998.  And when demand launched toward sixty million in 1999, well, those thoughts went out the window.  Demand was more reflective of total direct channel demand, and the concept of "multi-channel integration" was born.

That's what folks focused on.  Integrate the business.  Make everything the same, same merchandise, same offers, same creative ... same same same.

This made sense (to some) as the baton was handed from old-school cataloging to modern e-commerce.

But once the baton was formally passed, a funny thing happened.

The trends that we observed at Eddie Bauer, way back in 1998, have reappeared ... in reverse.

E-commerce now dominates the share of demand generated by the vast majority of catalogers.  But go take a look at the items that customers shopping your call center purchase.

You remember your call center, right?  It's the building with old-school corded phones that took in 90% of orders in 1996 ... that same building that now captures 2% to 22% of orders today (unless your customer is June, of course).

Rank-order all items that sell at your contact center ... first to number one hundred.  Then compare those items against the top-selling items from your pay-per-click program, or the top-selling items from your email marketing program.

Yup, they're different.

In other words, we're in the process of decoupling demand.  All of the integration activity of the past ten or fifteen years is becoming much less important, as small tribes of like-minded customers pick and choose the channel that they prefer.

This is our future ... it's opposite of what we were told.  Small tribes of customers, with unique preferences, shopping the way they want to shop, buying the merchandise they want to purchase.  Our job, of course, is to respond to this trend in the most profitable way possible.  

Sameness seldom results in the most profit.

It's time to get busy serving unique cohorts of customers.

Customer Acquisition - Via Gilt

There are many ways to acquire customers.

Many, many ways.

Catalogers are generally locked-in to co-ops.

Online marketers, for the better part of a decade, were generally locked-in to Google.

And, of course, you can use your own customers to do the work for you, like in this example from Gilt.

In this example, you do the work via social media ... and when your friends use you link, you get $25.

I'm not saying this will "scale" like renting 5,000,000 names from your favorite co-op at $0.06 each scales, but it's at least something worth thinking about.  And that's what I'm encouraging here!

Are Customers Moving Into Your Target Demographic?

The topic comes up nearly every week.

• "We're excited, because our core customer is 60 years old, and the last half of the Baby Boomer generation is moving into our target demographic!!"

You know what?  You might be 100% right!

How do you know if you are right?  Follow these three steps:

1. Find out the average age of your 12-month buyer, back in 2008.
2. Find out the average age of your 12-month buyer, today, in 2013.
3. Calculate (2) - (1) = Age Change.

What value do you get for "Age Change"?

An example.

Five years ago, your customer was 57 years old.  Today, your customer is 60 years old.  Age Change, therefore, is calculated as 60 - 57 = 3.  In the past five years, your core customer file aged three years.

When "Age Change" = 0, you are 100% right, demographics are working in your favor.  You serve a need at a point in a customer's life.  On average, this is a good situation to be in.

When "Age Change" = 3, you have a different situation to resolve.  You are not serving the needs of a customer at a point in life.  Instead, you are following a demographic cohort into retirement.  This isn't good or bad, it's just different.

Most catalogers today live in the "Age Change = 3" situation, for two reasons.

1. A strict adherence to a multi-channel philosophy, where the online experience must be driven by the catalog, not grown organically via online marketing tactics.
2. An unquenchable thirst for new names, sourced via catalogs, obtained from the co-ops.

When you tether website traffic to a combination of catalogs mailed to housefile buyers, and catalogs mailed to co-op prospects, you accelerate the age of your average customer.  

I observe this problem every single day.  It's getting tiring!

Don't believe me?  Ask Experian or Epsilon to perform the average age analysis listed above.

I have several clients who manage a business with an "Age Change = 0".  In these cases, the client has a very strong online marketing team, and/or possesses a merchant/creative team that finds (and presents) new products that appeal to customers 1-3 years younger than today's core audience.  The majority of catalogers I've worked with, in comparison to retail/e-commerce brands, have weaker online marketing teams, given the obsession with driving e-commerce through catalogs.

The key, folks, is to focus on acquiring customers 1-3 years younger than today's core audience.  Keep that metric in mind.  Not 25 years younger.  1-3 years younger.  You can build a bridge to the future doing this.  Look at the merchandise slightly younger customers purchase, and factor that information into your product development strategy.

Most importantly, do the analysis!  It's simple, it's cheap, and it's critical to the strategic direction of your business.

Direct Gardening Association Summer Conference, Burlington, VT

What are you doing July 22 - 24?

How about attending the Direct Gardening Association Summer Conference in Burlington (click here please)?  I'll be giving a keynote on Wednesday, July 24 at 10:30am titled "How Demographics Are Impacting The Future Of Marketing".

In other words, the talk builds upon the concepts of Judy / Jennifer / Jasmine that are outlined in our Personas book from April 2012 (click here to purchase on Amazon).

Oh, I know.  The popular topics out there are mobile, multi-channel, omni-channel.  But every topic that's trendy right now is fueled by demographics ... mobile doesn't work with Judy ... catalogs don't work with Jasmine ... and Jennifer is tethered to Amazon.  Know your demographics, and you'll know the path to the most profitable future you can achieve.  There's plenty of profit to be had marketing to Judy, or Jennifer, or Jasmine.

Come join us!  What's not to like about Vermont in July?

And by the way ... since I'll be in New England that week ... why not reserve time to meet with me?  In recent years, I've made a pilgrimage to New England ... the slots fill up terribly fast, so please reserve your slot early, ok?  (click here to email me).

Email Marketers - A Different Breed Of Marketer

In the past six months, my best selling booklet is this one ... Hillstrom's Email Marketing Excellence (click here for your copy from Amazon).

The book is selling extremely well.

How many Email Forensics projects do you think I've conducted in the past three months?

Zero.

Catalog PhD and Merchandise Forensics projects are running neck-and-neck in 2013, with Merchandise Forensics projects surging, of late.

Email marketers are just different, aren't they?  Not good or bad, just different.

It's been my experience that email marketers love their own set of metrics ... opens / clicks / conversions.  By and large, email marketers ignore many aspects of the overall business, focusing instead on real-time measurement of email campaigns.

Email marketers, like most disciplines, have their own language, and their own community.  And they deliver a disproportionate amount of profit to the bottom line ... without even knowing just how effective they are!

I can't tell you how many meetings I've been in ... executives from many departments dotting the room ... the email marketers huddled in a tiny corner.  When it's time for the email team to communicate results, the buzzwords fly ... opens/clicks/conversions/heat maps/opt-outs ... speaking a different language than everybody else in the room.  The email marketer has done more to deliver company profit than just about everybody else in the room ... but nobody knows this, because few people ever put the results into a format that the CFO can embrace and evangelize.  If the CFO knew that 20% of her annual bonus happened solely because of the email marketing team, what kind of investments might the CFO be willing to make, on behalf of the email marketing team?

Since the booklet is the best selling booklet of the past six months, I know the concepts resonate with email marketers.

But the lack of project work tells me that there are cultural barriers between email marketers and other folks ... I get to see these cultural barriers in the meetings I attend.  With the significant amount of profit that email marketers deliver to the bottom line, email marketers should be held in higher esteem.

What do we have to do to help this "different breed of marketer" be held in higher esteem?  Discuss.

How Results Of The Catalog PhD Are Changing Over Time

We're nearly three years into running Catalog PhD projects (click here for your own copy of the original text from Amazon).

My, how times have changed.

When the catalog division was shut down at Nordstrom, way back in 2005, customers would distribute along a fairly even axis.

• Grade A (Mail 20+ Times A Year) = 10%.
• Grade B (Mail 10-20 Times A Year) = 15%.
• Grade C (Mail 4-9 Times A Year) = 20%.
• Grade D (Mail 1-3 Times A Year) = 25%.
• Grade F (Mail 0-1 Time A Year) = 30%.

Sure, there were more marginal customers than outstanding customers, but the distribution was somewhat even.

In late 2010, when the Catalog PhD was created, the distribution looked something like this:

• Grade A (Mail 20+ Times A Year) = 5%.
• Grade B (Mail 10-20 Times A Year) = 10%.
• Grade C (Mail 4-9 Times A Year) = 20%.
• Grade D (Mail 1-3 Times A Year) = 30%.
• Grade F (Mail 0-1 Time A Year) = 35%.

In other words, customers were moving "downstream".  With e-commerce and the myriad channels associated with e-commerce driving sales (hint - Google), catalogs were less important.  By mailing fewer catalogs, profit could easily be generated.  The theme of all of my work was "mail less often".  By and large, catalogers did not like this message - so in spite of the opportunity to be far more profitable, catalogers turned to the co-ops, looking to turbocharge sales.

Now, in mid 2013, the results have evolved again, this time fueled by demographics and mobile.

• Grade A (Mail 20+ Times A Year) = 10%.
• Grade B (Mail 10-20 Times A Year) = 3%.
• Grade C (Mail 4-9 Times A Year) = 15%.
• Grade D (Mail 1-3 Times A Year) = 22%.
• Grade F (Mail 0-1 Time A Year) = 50%.

There are two significant changes.  Can you spot them?

1. The number of customers to mail 0-1 times a year is growing, rapidly.  This is fueled by three unique issues ... first, the economy never recovered, so there are far more marginal customers today than in the past ... second, mobile is changing the world, with mobile customers tied to apps and engaging content, catalogs have less importance ... and third, demographics - with Jasmine having little interest in catalogs.
2. The number of customers to mail 20+ times a year is growing, rapidly.  This is fully fueled by Judy making choices - she is moving to catalog (more than in the past five years), and is not participating in the mobile ecosystem.  Sure, she uses mobile devices, then transacts because of catalogs.

What does this mean for the profitability opportunity identified by Catalog PhD projects?

• In late 2010, more than 70% of the profit opportunity comes from mailing fewer catalogs to the bottom of the file.
• In mid 2013, more than 50% of the profit opportunity comes from mailing more catalogs to the top of the file.

In other words, your customer file is splitting apart.

The majority of the customer file (Jennifer / Jasmine ... ages 18 - 51) needs dramatically fewer catalogs.

A portion of the customer file (Judy ... age 52 - 68) actually needs MORE CATALOGS.  More.  We don't have enough catalogs in the contact strategy stream to meet her needs.

We've been told, for ages, to be multi-channel / omni-channel ... to be all things to all customers across all channels.

The data is telling us something fundamentally different.

The data is telling us that customers are moving in opposite directions ... by appealing to all of them, we potentially satisfy none of them.

The data tells me that we are going to have to become much smarter at managing unique customer segments.

Ready for your own Catalog PhD project?  I'd think so, given the dramatic changes I'm seeing due to demographics, fueled by mobile (and Google).  Click here to contact me, right now!

Dear Catalog CEOs: The Distraction Advantage

Dear Catalog CEOs:

Your competitors are being seriously distracted.  This gives you a major advantage, the first time you've had a significant advantage over the competition since the late 1990s.

Retail:  Retail executives are being told that they must digitize the physical store experience.  Oh boy.  Do you honestly think there is one clear, easy path to accomplishing that?  Vendors/Management Consultants will say "yes, it's called omnichannel!!!"  You could spend a decade trying to do this, with a low probability of success.  Retailers will spend a decade trying to do this.  Channels will trump merchandise for the near future, based on what we are reading.

E-Commerce:  E-commerce executives are being told that mobile will revolutionize their business.  Well, that's partially true.  If your core customer is 45, no, mobile will not revolutionize the business in the short term.  Long-term, mobile will create the same problem for e-commerce that e-commerce caused for catalogers.  It's the way the world works.  Either way, some Vendor/Management Consultant will tell you they have the solution, and e-commerce folks will be distracted/frightened.  eBay mentioned mobile 127 times in the Annual Report (click here), they mentioned omnichannel 0 times.  Mobile is going to obliterate e-commerce (among customers age 18-40) in the way that e-commerce obliterated catalog marketing.  It's going to be interesting to watch, no doubt about it.  It's going to be a distraction.

Any time your competitors are distracted, you have a major advantage.

Catalogers, you have a major advantage today.

You already know that you have to make a choice.

1. Double-down on the Baby Boomer customer, and ride the gravy train into retirement.
2. Make strategic changes to migrate the business model, over the next five years, from Judy (age 60) to Jennifer (age 44).

You get to spend the next five years implementing either choice.

Your competitors get to think about how to "digitize" the omnichannel experience.

Take advantage of this opportunity.

Merchandise Forensics: Styles And Demand

Let's look at my business for a moment.

Three years ago, I offered two products ... Multichannel Forensics and Ad-Hoc Projects.  My income was "x".

Today, I offer eight products ... Online Marketing Simulations, Catalog PhD, Omnichannel Forensics, Merchandise Forensics, Email Forensics, Price Elasticity, Sales Forecasting, and Ad-Hoc Projects.  My income is "2x" what it was three years ago.

In other words, I offer 4x as many styles/skus ... and I get 2x as much, in sales.

Does that relationship make sense to you?

Similarly, if I cut back from 8 project types to 4, I would not expect sales to be cut in half ... they might be cut by 25% or 30%.

The same thing happens in your business.

Here's what I have observed.  The explosion in channels over the past decade distracted us from being able to understand how merchandise strategy impacts our businesses.

When I offered the Catalog PhD project late in 2010, business exploded.  Without product innovation, my salary would have stalled.  Last year, without a breakthrough new product, sales didn't explode.  This year, with Merchandise Forensics becoming more and more popular, sales are moving along nicely.

The same thing happens in your business.

Look at Apple.  You watched the product line grow from iPod to iPhone to iPad, and the business exploded.  With no new products (realistically) for the past two years, we're seeing the business plateau.  Granted, any of us would like to sit on $155,000,000,000 in cash, but regardless, without new product innovation, we're seeing a change in the trajectory of the business.

Our obsession with channels blinded us to what really matters.

What really matters is how we manage merchandise.  New products.  Existing products.  Growing skus profitably.  Managing inventory appropriately.  This is where business success largely happens.  For the most part, we've ignored this dynamic.

In the next five years, retailers and e-commerce brands are going to obsess about mobile ... they're going to throw a disproportionate amount of resources at the digitization of the business.  This is your opportunity to take advantage of a focus on omnichannel, by focusing on merchandise strategy.

Why Must The Marketer Measure The Merchant?

I want to expand upon a comment I received yesterday.  I don't get many comments ... social media experts would blame me in some way for not meeting their expectations ... but some of the comments end up provoking subsequent thought.

Here's the comment:

"As a marketer, why do we owe it to our merchandising team to tell them, in a changing environment, how items are performing?  Shouldn't it be their job?"

There are so many thoughts that come to mind.  Let's address the thoughts.  Leave a comment at the end of the post, and offer your thoughts.

Aptitude:  This concept is so poorly understood that it deserves a blog post.  Marketers who analyze must pick up a broom, and analyze issues for others.  What is a merchant good at?  Merchandise!  This means that the merchant is unlikely to possess the talent to analyze issues properly.  And because the merchant is unlikely to possess the talent to analyze issues properly, the systems that support the merchant are likely to be poorly designed.  And when systems are poorly designed, the quality of analysis is likely to suffer.  Those who have aptitude must pick up a broom, and clean up messes created by those who do not possess aptitude.

Leadership:  I learned this early in my career.  Those who analyze marketing issues have influence in the marketing department.  Those who analyze business issues have influence across the company.  We have a responsibility to "connect the dots" ... there is an interplay between marketing, creative, and merchandising that is simply not well understood.  By only focusing on marketing, we miss 2/3 of the reason why success/failure happens.  We need to lead, to help all of our co-workers understand how all the pieces of the puzzle fit together.

Accountability:  This happens, all the time.  Business stinks.  Fingers are pointed.  And they're pointed right at you ... the marketer!  It's your fault!  Your pay-per-click campaign is attracting the wrong kind of buyer.  Accountability is shared, of course.  Business stinks because nobody wants to buy merchandise the way we are creatively presenting it, via the marketing channels currently utilized.  By analyzing merchandise productivity and creative strategy, we help foster an environment of shared accountability.

Finance:  If you don't measure something, Finance will.  You don't want to let Finance measure things.  Not because Finance folks measure things poorly, but because their worldview leads to Finance-centric conclusions.  When you work in partnership with Finance, Merchandise, Marketing, and Creative, you move toward customer-centric solutions.

Perspective:  When you are measuring merchandising issues, you learn about different perspectives.  This is important.  Not everything in life is about optimization or advertising.  You learn why a merchant introduced new items.  You learn why outstanding inventory management is directly linked to company profitability.  You learn why the creative team is moving away from proven creative treatments.  In other words, you learn how to run a business.

Performance:  So often, marketing fails because of merchandise productivity.  When customers like merchandise at 90% of the rate of the prior year, marketing activities will perform 10% worse.  Our instinct is to dive in and measure marketing performance.  This is opposite of what we should do.  We should dive in and measure merchandise productivity.

Career Advancement:  There's a reason why so few marketers and analytics experts run companies.  When you gain the perspective earned by analyzing merchandising issues, you become a well rounded individual.  Eventually, you'll get career opportunities outside of marketing/analytics.  Those career opportunities are invaluable, if you want to lead a company or a division of a company.

Change:  It's really hard to enact change if all you do is count the number of visitors from affiliate websites.  Change happens when a marketer, creative expert, and a merchant forge a shared vision.

Merchandise Forensics (click here please) now comprise nearly half of my projects.  Clearly, we're on to something ... it is becoming obvious that we can't enable change simply by adding channels and hoping that an omnichannel future leads to riches.  Obviously, the merchandise we sell, presented creatively, makes a big difference.

Time for your thoughts.  Please leave a comment.