June 21, 2015

Create This Table Immediately!!!!!

We are dealing with three mega-trends:
  1. Merchandise Appropriateness.
  2. How Will We Find New Customers In 2020?
  3. How Will We Avoid Paying The Tolls The Mobile / Social / Digital / Offline Parasites Wish To Impose Upon Our Business?
If you want to see the impact of tolls on your business, have your finance team create this table, immediately:

This is a profit and loss statement, all the way down to Earnings Before Taxes, by marketing channel. We published this table at Nordstrom in the months leading up to the end of the traditional catalog marketing channel. Hint - it led to the end of the traditional catalog marketing program. You probably run a comparable table (right ... right?) ... if you don't, then have your finance team create this table, immediately.

After analyzing mail/holdout tests, we learn that half of demand at this brand comes from catalog marketing. The attribution gurus assign 8% of demand to paid search, 8% to email marketing, 4% to other online marketing channels, and 30% is deemed organic ... demand that will happen without any marketing whatsoever. Your attribution vendor calculates the organic percentage for you ... right ... RIGHT?

Ok, now to the goodies.

Look at variable profit / contribution per order:
  • Organic Orders = $43.99.
  • Email Marketing = $40.01.
  • Company Average = $24.64.
  • Catalog Marketing = $12.30.
  • Paid Search = $11.29.
Here's Tolls Paid Per Order (TPPO):
  • Organic Orders = $0.00.
  • Email Marketing = $2.06.
  • Company Average = $19.61.
  • Paid Search = $28.88.
  • Catalog Marketing = $33.60.
The catalog number is a whopper, don't you think? Your company works hard to generate +/- $44 profit per order ... and in the world of catalog marketing, 75% of the profit is handed over to catalog vendors.
  • Paper Reps.
  • Printers.
  • Postage.
  • Co-Ops.
  • Merge/Purge Houses.
  • Additional Assorted Vendors.
Those folks get 75% of the profit per order ... your entire company, your merchants, your creative team, your IT team, your inventory management team, your HR team that keeps people from killing each other, and countless other employees all divide up 25% of the profit. The vendors get 75%. #Omnichannel!!

Do you understand what's going on? Again, to spell this out for y'all:
  • Catalog vendors divide up 75% of the profit you generate, per order.
  • You and all of your co-workers divide up 25% of the profit generated.
  • Without you, the catalog vendors get nothing. With you, they get 3/4th of all your profit, you get 1/4th.
Is it any wonder that everything you read is a broad encouragement for you to spend money to generate profit? Folks want you to pay more tolls. Of course they do!!

Look at the paid search number. Is it any wonder Google wants to include offline results in their toll-based structure? Is it any wonder the omnichannel community wants you to spend money in all digital channels? They want all of your profit!

Look at organic orders, and look at email marketing.
  • 99% of Company EBT comes from organic orders and email marketing.
  • 1% of Company EBT comes from catalog marketing, paid search, and all other online marketing activities.
Do you understand what this means?

It means that your employees and your email marketing team generate all of the profit ... and then, all of the other marketing activities roughly operate at break-even EBT levels ... the profit from those activities flows out of your company, into the coffers of the vendor community.

Tolls, my friends, TOLLS are such a critical mega-trend. Tolls are like leeches conducting a thorough and vigorous blood-letting.

Where is this mega-trend heading?
  1. The industry is going to demand that you pay more (not fewer) tolls. Remember, the industry gets 75% of your profit when you pay the tolls. This is why they want you to pay the tolls. Heck, I've seen cases where Google and Co-Ops get 125% or more of your profit, I see it all the time. Think about that one.
  2. The industry is going to tell you that, without their tolls, your top-line net sales will greatly decline, and they're going to tell you that you cannot have a top-line net sales decline. This line of argument is seductive, one that will keep you paying tolls out of fear.
  3. Your CFO is going to eventually wake up from a deep, unfettered slumber, run the table above, and then demand that you refocus your efforts on things that benefit your co-workers. It's coming. It's unavoidable.
  4. We, as marketers, are going to re-focus our efforts on generating organic demand, and on maximizing our email marketing program.
Allow me to end this post with a thought ... my metrics tell me you are gobbling up this line of reasoning. You are eagerly reading the toll-based posts (and I received my first vendor complaint on Twitter yesterday). But do you understand what I am advocating? Will you do something with what you have learned? Does your opinion differ? Send me an email (kevinh@minethatdata.com), and offer your thoughts.

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