February

There's a lot of reasons why February is fantastic.

If you are paid twice a month, you make more money per day in February than any other month ... and that includes leap years! Good for you, for a month you earn a raise.

Did you know that sunset times increase faster in February than any other month? You begin the month in the grips of a polar vortex and you end the month on the precipice of Spring, enjoying nearly twelve hours of daylight.

How many other months include the breathless romance of Valentine's Day? That's a tradition/anniversary that 1-800-Flowers sure appreciates.

The Super Bowl is in February ... an unparalleled annual celebration of capitalism. Heck, that's the only day that people actually pay attention to television commercials., the only day nobody is fast-forwarding through messages from Gillette. Makes one long for the days of the Bud Bowl, don't you think?

On another channel on Super Bowl Sunday you can watch the Puppy Bowl. Happens every February now. Those folks created a tradition off of another tradition.

In a few days, we'll ponder the meteorological musings of a groundhog. Happens every February, right?

Here in Phoenix, they host a PGA Golf Tournament the weekend of the Super Bowl. It's the best attended tournament on the tour. A couple hundred thousand people act like they are behind the basket at a college basketball game. Golfers don't like that. The fans sure seem to like it. This happens every February now. It's a tradition.

Did you know that February is National Bird Feeding Month? And February 9 is National Pizza Day. How can National Pizza Day be a bad thing?

In the Catholic Tradition, February is the month of purification of the Virgin Mary.

An average person might view February as a worthless waste of a month. Another month of cold and misery in what has become a long and miserable winter. The average person would be wrong. February is the best month of the entire year, a unique month filled with tradition, with Anniversary-style events that only happen once a year ... in February.

Why couldn't you have an Anniversary Event in February? Right? Something that you do every February, something your customers simply cannot wait for each and every year. Why not? Why not do something clever? It's February after all!!

P.S.: In my time at Lands' End, we used to stick Platteville Peri in the snow on February 2. If Platteville Peri saw her shadow, it wasn't going to be a good fiscal year. But if she didn't see her shadow, well, my goodness, one could prepare for an absolute sales-oriented bounty leading up to bonus checks at Christmas. Here's your chance to give Omnichannel Owen or Catalog Craig or Retail Ron or Digital Diane a try.

It's Just A Game!

I'm on the phone with a professional, somebody a lot of you know and respect.

He's not happy with my position on discounts and promotions, and he explains why:

• "The discounts and promotions are irrelevant. All that matters is that there is sufficient markup to allow the discounts and promotions to yield a gross margin of 40%. If the brand delivers a 40% gross margin, the profit and loss statement takes care of itself and everybody is happy. It's just a game!!"

It's just a game!!

Is he right?

Of course he is right.

And that's the problem with a subset of business professionals. You chose an alternate path. You decided that business was a game, and you made that choice years ago, and now you are complaining that business isn't good, and it isn't good in part because you decided that business is just a game". You need to deliver a 40% gross margin and the "game" requires that you deliver a 35% gross margin and the p&l hates that and you think somebody else can fix the problem you created. 

It's just a game, you said so. Now you have to go play the game smarter than everybody else. Are you smart enough to do that? I think you are, and I think you know what you need to do. Go do it.

An Alternate Path

I realize the NFC Championship game was 1.5 weeks ago, but the topic of New Orleans being "robbed" keeps coming up. 

Late in the game while driving toward a winning score, referees missed an obvious pass interference call. The clock stopped, the Saints kicked a field goal to lead by 3 points, and then the Rams drove half the field to kick a field goal to tie the game (later winning in overtime).

Most folks "rightly" point out how the referees blew the call, and the blown call set up a sequence of events that caused the Saints to lose.

Or did it cause the Saints to lose?

In the first quarter, the Saints drove deep into Rams territory, stalled, and then kicked a field goal to lead 3-0. Following an interception, the Saints stalled deep in Rams territory and were forced to kick another field goal to take a 6-0 lead.

Now, imagine for a moment that both of those scores were touchdowns. The Saints then lead 14-0 instead of 6-0, and there's no reason for the Saints to pass late in the game (given they're ahead by 8 points instead of tied) and there's no way the pass interference call happens. Heck, just one touchdown instead of a field goal and the Saints are leading by 4 points at that time and they might not pass.

Did the pass interference hurt the Saints? Absolutely!

Do the Saints have some accountability in the outcome? Oh sure.

This brings me to your business.

Five years ago your business made decisions ... some good, some bad. Today you are attributing challenging situations to things that just happened ... "Amazon is killing us, paper costs too much, Google and Facebook are holding our customers hostage". Nonsense. Those things are happening ... but you also made decisions in the past, decisions that sent your company down an alternate path. And because you took an alternate path, you are left to deal with the consequences of the alternate path.

Keep that in mind when you attend the Omnichannel Customer Experience Steering Committee meeting later today ... the decisions you make today send you down an alternate path, a path filled with unique and varied consequences. You might end up like Marty McFly allowing Biff to get his hands on the Sports Almanac, causing everybody to have to live in an alternate world.

Worst Article of 2019

Moving right along, this is one of those cases where digital folks need to think three or four steps ahead. It's been my experience that "some" digital folks struggle to think three or four steps ahead. Please read this (click here) and then think three or four steps ahead and in the words of Don Libey, ask yourself "what if"????

P.S.:  One of the code phrases vendors use when they're about to mulch you is this:

• "We'll focus on your campaigns so you can focus on your business."
• On numerous occasions, when a catalog guru calls me to tell me he's (it's always a "he") about to put me out of business, he uses a variant of this phrase. 

P.P.S.:  Explain to me why so many of you are happy to fully integrate your businesses with Google, Facebook, and Amazon?? Discuss, and while you discuss, think three or four steps ahead and ask yourself "what if"?

Best Article of 2019

Sometimes theories just stop you in your tracks.

This article (click here) is one of those instances. Read it all the way to the end. Tell me what you think about the theory (kevinh@minethatdata.com).

It's Time!!!!!

Yup, it's time for the next run of the MineThatData Elite Program!!!

For just $1,800 (and $1,000 in each subsequent run) you get many of the key components outlined in the Total Package booklet (click here). And in this run, I'm kicking-in a bonus analysis ... I'll tell you if your brand needs a Welcome Program!!

Send me an email (kevinh@minethatdata.com) and I'll outline file formats, payment dates, data arrival dates, and analysis delivery dates.

The Modern Online Buyer

We looked at a Great Catalog buyer (Many More Contacts, Many More Pages).

We looked at a Good Catalog buyer (Tons of Options).

How about a Modern Online buyer?

What is the right strategy for this customer? There are choices, but there is a clear theme. Let's analyze all choices where annual profit > $1.35.

• 1 Contact at 136-200 Pages.
• 2 Contacts at 56-152 Pages.
• 3 Contacts at 32-96 Pages.
• 4 Contacts at 32-64 Pages.
• 5 Contacts at 32-48 Pages.
• 6 Contacts at 32-40 Pages.
• 7 Contacts at 32 Pages.
• 8 Contacts at 32 Pages.

If you want to employ a frequency-based strategy, you mail 7-8 contacts at 32 pages.

If you have an 80 page catalog (on average), profit is maximized/optimized at just 1 contact.

Do you understand the difference in strategy?

• 1 Contact at 80 Pages.
• 7-8 Contacts at 32 Pages.

I'll take the latter strategy every day of the week.

99 out of 100 catalogers do not employ the latter strategy. That's a problem.

What have we learned?

Best Catalog Customers:

• We typically send many mid-sized catalogs.
• We should send a TON of mid-sized to large catalogs.

Good Catalog Customers:

• There are dozens of optimal strategies, from some contacts with many pages to many contacts with few pages.

Typical Online Buyer:

• We should send some contacts with few pages.

All three strategies are different than what the typical catalog brand executes.

What the typical catalog brand executes sub-optimizes profit across all customer segments.

Are you ready to do something different?

Send me an email (kevinh@minethatdata.com) and tell me what you learned from this series, ok? Did you learn something that enables you to be ready to do something different?

A Great Catalog Customer

Here is my Catalog Optimizer for a "Great" catalog customer. Tell me the story the data tells you:

The current strategy of 22 catalogs at 80 pages per catalogs generates about $37 of profit per year ... that's a TON of profit ... and that's what BIFURCATION has done to catalog marketing (a small number of customers deserve many contacts and generate a ton of profit).

But what is the "right" strategy? Let's look at any scenario that yields > $45 profit.

• 25 Contacts of 168 to 200 Pages (optimal = 200).
• 30 Contacts of 128 to 200 Pages (optimal = 200).
• 35 Contacts of 104 to 200 Pages (optimal = 200).
• 40 Contacts of   88 to 200 Pages (optimal = 184).
• 45 Contacts of   80 to 200 Pages (optimal = 160).
• 50 Contacts of   72 to 200 Pages (optimal = 140).

Great Catalog customers (and there aren't a lot of them anymore) deserve one of two tactics.

• 25-35 contacts and 200 pages.
• 45-50 contacts and 140-160 pages.

Nobody executed either option these days, correct?

So something needs to change ... there needs to be a "rethinking" of how Great Catalog customers are contacted. The most certainly need more pages, and they most certainly need more contacts.

Tomorrow, we'll explore the other side of BIFURCATION ... we'll see what happens when we evaluate the modern online buyer.

What Is The Right Answer?

Continuing our catalog discussion, I'm going to show you that there isn't a right answer when it comes to "what to do".

Below I illustrate a darn good customer - but an average catalog customer - one generating 50% of demand organically (i.e. without catalogs). This customer receives 22 catalogs a year, at an average of 80 pages each.

But what "should" the customer receive?

Below I feature my "Catalog Optimizer". It determines what the "Right Answer" theoretically is. There's a lot of data in the optimizer. Rows = Average Pages per Contact. Columns = Number of Contacts. The top portion of the table shows catalog-generated demand. The bottom portion of the table shows catalog-generated profit.

Here we go - click on the image so that you can see the profit results:

I want to point out four combinations that generate the same approximate amount of profit.

• 20 Contacts, 32 Pages per Contact.
• 14 Contacts, 48 Pages per Contact.
• 10 Contacts, 64 Pages per Contact.
•   7 Contacts, 88 Pages per Contact.

This company mailed the customer 22 Contacts at 80 Pages per Contact.

The four examples illustrated here tell us that there is no right way to get to the right answer. All we know is that this company is doing the wrong thing.

Here are a whole bunch of combinations that generate optimal profit (> $4.50, annually).

• 6 Contacts between 104-152 Pages.
• 7 Contacts between 64-112 Pages.
• 8 Contacts between 56-96 Pages.
• 9 Contacts between 48-80 Pages.
• 10 Contacts between 40-72 Pages.
• 12 Contacts between 32-56 Pages.
• 14 Contacts between 32-48 Pages.
• 16 Contacts between 32-40 Pages.
• 18 Contacts between 32-40 Pages.
• 20 Contacts of 32 Pages each.

Tell me what you observe?

This is a "good" customer. If you are going to mail this customer, you do one of three things:

1. Few Contacts, Many Pages.
2. Average Contacts, Average Pages.
3. Many Contacts, Few Pages.

What doesn't work?

• The existing strategy of many contacts and average pages.

Tomorrow, we'll look at a great catalog customer ... be ready for a different story.

How Do I Merchandise The Smaller Catalog?

Ok, you say you agree with me and you want to embrace smaller page count catalogs to the non-catalog majority of your customer file. Good for you!!

How do you merchandise the catalogs?

Strong Hint:  Only Winning Merchandise.

In my project work, small catalogs with Winning Merchandise perform exceptionally well.

Say you are merchandising a 32 page catalog, whereas you typically mail an 80 page catalog.

Here's your 80 page scenario for a "below-average" customer.

• Customer Segment Spends $2.00
• Cost = $0.47.
• Profit Factor = 35%.
• Profit = $2.00 * 0.35 - $0.47 = $0.23.

If you cut back to a 32 page catalog, you'll see the following:

• Customer Segment Spends (32/80)^0.5 * $2.00 = $1.26.
• Cost = $0.26.
• Profit Factor = 35%.
• Profit = $1.26 * 0.35 - $0.26 = $0.18.

For this "below average" customer, the bigger catalog is a better deal.

However, if the 32 page catalog is stuffed full of winning items (with online mentions for the remaining assortment), productivity will increase by 20%. I've measured the test results, and this is the rule of thumb.

Here's the 32 page "Winners" catalog:

• Customer Segment Spends (32/80)^0.5 * $2.00 * 1.2 = $1.52.
• Cost = $0.26.
• Profit Factor = 35%.
• Profit = $1.52 * 0.35 - $0.26 = $0.27.

The 32 page "Winners" catalog outperforms the 80 page "General Assortment" catalog among "below-average" customers.

When the 32 page catalog outperforms the 80 page catalog, guess what you get to do? You get to INCREASE CIRCULATION. You know who is happy when you profitably INCREASE CIRCULATION?

• Your CEO.
• Your CFO.
• Your Chief Merchandising Officer.
• Your Catalog Marketing Director.
• Your Paper Rep.
• Your Printer.

What's not to like about this scenario?

In fact, here's the rules of thumb I want you to remember:

• Large page counts include lots of new merchandise, and are ONLY mailed to the bifurcated segment of Best Catalog Customers.
• Small page counts are only merchandised with winners, and can be mailed to ANY customer.
• Your Best Catalog Customers can absorb MANY MORE mailings per year.
• The rest of your customer file should only receive 0-4 contacts per year.

Page Counts When Bifurcation Hurts All Other Customers

Yesterday we talked about the fact that best catalog customers (a minority of your file) deserve MANY catalogs that are merchandised with MANY pages.

Earlier this week, we discussed the fact that all other customers (a majority of your file) deserve FEW catalogs.

How many pages do you think these customers deserve?

Look at the optimization table. You run optimization tables, right?

Right??

You make a penny of profit at 120 pages.

You optimize profit at 48 pages.

Do you understand what the bifurcation of your customer file means, dear Catalogers?

1. It means that best catalog buyers are being under-optimized. These customers deserve MANY catalogs that feature MANY pages.
2. It means that all other buyers (the majority of your file) are being under-optimized. These customers deserve FEW catalogs that feature FEW pages.
3. It means that your current catalog contact strategy is ALL MESSED UP!!

It means that the world has changed.

It means that having a static contact strategy with "x" mailings per year is ENTIRELY WRONG for your business.

It means that your paper rep and printer have just become MORE VALUABLE than they've ever been, because they must work in tandem to help you execute a VARIABLE CONTACT STRATEGY where best catalog buyers (the minority of your customer file) deserve a weekly contact with many pages while all other buyers (the majority of your customer file) deserve at best a quarterly catalog with few pages.

Are you ready to move your catalog business into the future?

More on this topic next week.

Page Counts When Bifurcation Helps Best Customers

Yes, your catalog customer file bifurcated ... with a minority of best customers needing more catalogs and a majority of your total file requiring far fewer catalogs. Go measure the dynamic, you're guaranteed to see it in practice.

In our example, we could go from mailing best catalog customers 20 times per year to 50 times per year.

How many pages should these customers receive?

In our example, customers were receiving 120 pages.

Our optimization table tells a different story.

You run page count optimization tables, right?

Right??

Now, the catalog costs in the table are not entirely accurate, nor do they have to be for our example. Your printer and the USPS offer prices that are not linear in nature. However, the point should be "well taken" here.

At 120 pages, an individual catalog generates $1.45 profit.

But at 200 pages, an individual catalog generates $1.71 profit.

In other words, the bifurcation that results in best catalog customers (a minority of your file) needing MORE catalogs per year also results in best catalog customers needing MORE pages per catalog.

Again, your paper rep and your printer should be demanding a presence in your office within 10 minutes of seeing these findings ... if they aren't, ask 'em why they don't want to make more money?

And from your standpoint, this means that your contact strategy is all mucked-up. You need to respond to bifurcation by having a strategy that yields a weekly catalog with many pages, and the pages need to align with the merchandise preferences of the customer. In other words, you feature the stuff at the front of the catalog that is new and your best catalog customers love ... this will likely be different merchandise for different best catalog customers.

What about the bifurcated customers who are no longer interested in catalogs?

More on them tomorrow.

The Math Behind Bifurcated Customers Who Have "Moved On" From Catalogs

Yesterday we talked about a classic, outstanding catalog customer ... and how that customer needed MORE mailings on an annual basis.

Presented today is the exact same quality of customer - expected to spend the same $150 in the next year ... but instead of a 20% organic percentage this customer has a modern 75% organic percentage.

In other words, the old-school catalog-centric buyer will spend 20% of future demand outside of catalogs ... while the modern e-commerce buyer will spend 75% of future demand outside of catalogs.

The 20% organic percentage buyer needed fifty (50) mailings per year (or more).

What does our optimization table say about the modern e-commerce buyer?

• Five (5) mailings per year optimizes total annual profit.

These two customers are IDENTICAL in terms of future value ($150 demand to be spent in the next year).

And yet, one customer deserves fifty (50) mailings per year ... while the other buyer deserves five (5) mailings per year.

This bifurcation is happening at all catalog brands in 2019. This is the biggest story of 2019 ... and you won't hear your vendors talking about it ... and that's absolutely ridiculous because your paper reps and printers should absolutely LOVE the fact that some customers need fifty (50) mailings per year.

Do you understand the ramifications of this issue?

This means you are employing the absolute wrong contact strategy. You need two strategies.

1. A strategy to optimize 50 mailings per year (i.e. your printer can help you dynamically create a weekly mailing for best customers based on what best customers previously purchased ... featuring a ton of new merchandise).
2. A strategy for the 80%+ of your customer file that has maybe four mailings per year ... one featuring winning merchandise that raises catalog productivity to a point where you can circulate deeply.

More on (1) and (2) above tomorrow and Friday, ok?

The Math Behind Best Customers

Those of you involved in Catalog Marketing run optimization tables, right?

Right??

Here's an optimization table for really good catalog customers. This brand mails really good customers 20 times per year, for the obvious reason that the brand has 20 in-home dates per year and they mail the best customer every single in-home date available.

How many catalogs should this brand mail this good catalog customers?

Look at the table.

Profit still increases as we go from 45 annual catalogs to 50 annual catalogs.

Do you understand what this means?

This catalog company is sub-optimizing profit among best catalog customers by a whopping $5 profit per customer.

This is a major trend for 2019 for catalog marketers. Bifurcation is overwhelming the catalog customer file ... with a small minority (i.e. 20% of the twelve-month buyer file) requiring MANY MORE catalog mailings ... and everybody else requiring FEW/NO catalog mailings.

Run the darn optimization table above and see if bifurcation is impacting your business.

Again ... this is a MAJOR TREND for the vast majority of classic catalog marketers. The math strongly suggests that catalogers are undermailing the best catalog-centric buyers.

Bifurcation

A brief detour before heading to Circulation Theory ... the detour is critical to our upcoming discussion about Circulation Theory.

One of the big stories of 2019 is "Bifurcation" ... the point or area where something branches into two different parts. I see it happening all the time in my analytical work.

• In Retail, the customer file split five years ago into commodity/convenience/online buyers and experience/in-store buyers. Folks used to label this "omnichannel" and today they label it as the "customer experience". It's so much more important than that.
• In E-Commerce, the customer file is spitting into old-school desktop/laptop buyers (smaller quantity) and modern phone-centric buyers (larger quantity).
• In Catalog Marketing, the customer file split 15 years ago (catalog vs. online) ... and what is left is now "re-splitting" into high-contact buyers and low-contact buyers.

In all three cases above, the last thing you do is apply an "omnichannel approach" and offer all customers the same merchandise and same treatment in all channels ... that's the fastest way to sub-optimize your total business. You have to do the opposite of what the pundits tell you to do. Remember, pundits get paid by getting you to apply their strategies via vendors, which allows pundits and vendors to get paid. Your job is to maximize sales so that you get paid.

Instead, when your customer file is bifurcating (you measure this stuff, right?), you have to treat customers DIFFERENTLY.

Back to Catalog Theory.

In modern Catalog Marketing, you are dealing with a customer file that has bifurcated. A significant minority of customers deserve MANY/MORE catalogs ... while the vast majority of your customer base deserve FEW/NO catalogs.

A classic catalog brand with 24 in-home dates is completely sub-optimizing the entire enterprise? Why?

• A small number of customers deserve 50 in-home dates.
• Almost everybody else deserve 0-4 in-home dates.

In other words, the classic catalog brand needs to develop concurrent strategies to appeal to each audience.

Tomorrow, I'll share the math behind the theory.

Next Week

Next week I'll spend time discussing old-school catalog circulation theory.

For the majority of you who are not catalog marketers, feel free to breeze by the content ... or just enjoy the content because the math might be fun to follow along with.

Sound good?

Delta Between Price And Cost Of Goods Sold

Marketing Margin is significantly impacted by Cost of Goods Sold.

An Electronics merchant might sell items that have an 80% cost of goods sold. This means that for every $100 sold, there's only $20 of marketing margin available. The Electronics merchant cannot afford expensive catalogs or expensive discounting or expensive loyalty programs, simply because there won't be any profit left.

An Apparel merchant might sell items that have a 35% cost of goods sold. This means that for every $100 sold, there's a whopping $65 of marketing margin available. It is any wonder that marketers want a piece of that?

The delta between price and cost of goods sold determines the marketing strategy used by a brand.

• High COGS brands must employ low-cost marketing strategies, because there isn't money available to be invested in marketing strategy.
• Low COGS brands can generate a TON of profit if the marketer team does not absorb the delta between Price and COGS via marketing spend.

A smart CFO questions every marketing dollar spent ... because if the marketing dollar fails to increase profit dollars, then an investment opportunity has been lost.

Discount Impact on Marketing Margin

Your merchandising team works hard to craft items with healthy gross margins.

Item Price = $60.

Cost of Goods Sold = $20.

Marketing Margin = ($60 - $20) / $60 = 66.7%.

Sometimes the item doesn't sell ... so when the merchant takes 20% off to move the item the resulting hit on marketing margin is the responsibility of the merchant.

• Item Price = $60.
• Promo Amount = 20% off, or $12.
• Cost of Goods Sold = $20.
• Marketing Margin = $60 - $12 - $20 = $28.
• Pre-Discount Marketing Margin = $60 - $20 = $40.

Discounts / Promos conceived by the marketing department play a different role ... when the marketer decides to increase demand/profit by via discounting, three things happen.

1. Best-selling items that did not need to be discounted because they were already priced appropriately are now sub-optimized for profitability.
2. The perception of the brand is tainted ... the brand is no longer a full-price provider but instead is a brand that cheated customers who paid full price.
3. Marketing Margin decreases - meaning that other marketing opportunities cannot be invested in because the marketer decided to spend the delta between price and cost of goods sold on discounting.

Discounting should be a last resort, reserved for specific items that are not selling well. More on that topic tomorrow.

But We Made More Profit!!

There's a reason that discounts, promotions, free shipping, exponential ad cost, and loyalty programs all permeate marketing.

Somebody, no matter how lousy the technique, measured the program and decided that executing the program generated more profit than not executing the program.

Here's the kind of example I run into every day:

• Demand - Returns = $1,000,000.
• Discounts / Promotions = 20%.
• Net Shipping Expense = 5%.
• Marketing Advertising Cost = 25%.
• Net Loyalty Expense = 5%.
• Cost of Goods Sold = 35%.
• Marketing Margin = $100,000 ... or 10%.

The marketer will respond with the time honored line ... "we measured this stuff and we make more profit when we execute our campaigns".

One of my favorite career stories happened at Eddie Bauer in 1998. That company loved discounts and promotions ... and my staff had all of these individual tests that "proved" that the discounts/promotions worked. I worked with one of my analysts - we executed a six-month long test where we didn't give any discount/promotions whatsoever. Sales didn't change. Why? Because in the individual tests, the analytics folks only measured the promo window and didn't measure what happened after a promo ended (i.e. sales went up during the promo and went down after the promo ended).

Now go ahead and pull the promos out of the story and see what happens to marketing margin.

• Demand - Returns = $1,000,000.
• Discounts / Promotions = 0%.
• Net Shipping Expense = 5%.
• Marketing Advertising Cost = 25%.
• Net Loyalty Expense = 5%.
• Cost of Goods Sold = 35%.
• Marketing Margin = $200,000 ... or 20%.

Your marketing margin should be above 25% if your business is healthy ... with the notable exception of when your cost of goods (i..e. Electronics) is very high ... then the rules change.

If your marketing margin is under 15%, you've consumed all of your profit potential with gimmicks. That's a bad thing ... bad for you, good for the vendors who support the gimmicks.

Spendin' Money!!

Marketers love to spend money. And they love to optimize the money they spend, at least in theory.

However, when you look at what marketers do through the eyes of "Marketing Margin", you realize just how toxic the current marketing environment really is.

Here's the definition of Marketing Margin:

Let's think about it this way. Here's what a company did in the month of December.

• $12,000,000 in Total Demand.
• $2,000,000 in Returns.
• Average December Discount Amount = 25%.
• Company Lost $500,000 on Shipping/Handling due to Free Shipping Promotions.
• Company Spent 20% of Total Demand on Advertising.
• Company Spent 3% of Total Demand on Loyalty Points and Rewards.
• Cost of Goods = $3,500,000.

Marketing Margin, according to the definition (above), is calculated as follows:

• ($12,000,000 - $2,000,000) - $2,500,000 - $500,000 - $2,000,000 - $300,000 - $3,500,000.
• Marketing Margin = $1,200,000.
• Marketing Margin Percentage = $1,200,000 / $10,000,000 = 12%.

Hint - when marketing + merchandising consume 88% of every dollar sold, you have a problem.

A healthy brand possesses a very different dynamic.

• $6,000,000 in Total Demand.
• $1,000,000 in Returns.
• Average December Discount Amount = 5%.
• Company Made $200,000 on Shipping/Handling.
• Company Spent 10% of Total Demand on Advertising.
• Company Spent 0% of Total Demand on Loyalty Points and Rewards.
• Cost of Goods = $1,750,000.

Marketing Margin, according to the definition (above), is calculated as follows:

• ($6,000,000 - $1,000,000) - $250,000 + $250,000 - $500,000 - $0 - $1,750,000.
• Marketing Margin = $2,750,000.
• Marketing Margin Percentage = $2,750,000 / $5,000,000 = 55%.

Which business would you rather manage?

Both businesses possess a 65% gross margin / 35% cost of goods sold. Therefore, the difference in the 12% Marketing Margin vs. the 55% Marketing Margin is marketing strategy. One business must spend money ... the other business doesn't need to spend money.

Which business would you rather manage?

Marketing Margin

Next week we're going to discuss something I call "Marketing Margin".

• Marketing Margin = Demand - Discounts/Promotions + Shipping Revenue - Shipping Expense - Marketing Ad Cost - Loyalty Expenses - Cost of Goods Sold.

Why would we measure Marketing Margin?

Well, the issue isn't so much that we're measuring Marketing Margin (we measure Profit, and Profit is more important than Marketing Margin) ... the issue is that we do not have a full understanding of how we allocate scarce resources.

In other words, we have limited resources, and as marketers we seem to want to spend every single dollar we're given. This limits the company from doing other smart things.

So next week, we'll look at Marketing Margin, ok?

Blake Nordstrom

Click Here.

Here's a story for you. It's late 2005 and Nordstrom has shut down the catalog division. The online President job opens up. I call Blake and tell him I'd like to be considered for the job. His response? "I don't think you have the skill necessary to do that job. I think you need retail management skills, given where the online division is trending. Here's what I am willing to do for you. You keep your salary, and I'll make you a store manager. You work in a store for a few years and get the hands-on experience you need, and if you do a good job we can talk about where you can take your career."

Now, I wasn't interested in doing that. But Mr. Nordstrom was willing to invest in my career. Having been in the retail industry for three decades, you can count on one hand how many Leaders are willing to do that for a geeky analytical guy like myself.

We'd have annual meetings - all Executives and several key Directors would gather for a day of strategy. Blake would call me and ask for a series of customer metrics that explained why business was good or not-so-good. My team would provide 'em. And then at the meeting Blake would tell the audience ... "Where's Kevin?" ... and I'd stand up and he'd say something nice and then he'd share customer metrics ... real stuff ... like "did you know that when we acquire a customer online the customer has a 70% chance of placing a second order in a store?" ... or "did you know that when a customer buys in a Nordstrom Rack that our Full-Line Store Sales are not negatively impacted?" And those facts were the lead-ins to the strategic direction for the upcoming year.

Before a quarterly investor conference call, Blake would call and get data from my team, and then we'd listen in on the conference call and he'd share something we authored and that was big time fun fifteen years ago when customer data was largely meaningless in a retail setting.

My favorite Blake Nordstrom story? I wanted fancy software for my team ... and Blake just looked at me and says "Now how many pairs of shoes do my employees have to sell so that you and your team get to have some fun at work?"

My wife and I were eating dinner outside on an island northwest of Seattle - I was taking a week-long vacation ... and I can see this figure with a big smile hustling down the pier toward our table. It was Blake. He spent five minutes with us, and he didn't have to do that, he had fifty-thousand people who wanted a piece of his time, but he spent time with people anyway. I recall working at the Northgate Store (north Seattle) during the Anniversary Sale, and there was Blake smiling at me watching me sweat as I hustled returns off the sales floor. He'd stop and chat with every employee who wanted his time. And he'd quiz the store managers, holy cow! But not in a mean way or in a condescending way.

A final story. Neiman Marcus used to tease Nordstrom publicly - stating that they were going to open a store in a mall and crush us. Blake asked my Real Estate analyst to quantify what happened when Neiman Marcus entered a market where Nordstrom had an existing store. She (our analyst) did the work, and it showed that our sales increased when Neiman Marcus would enter a market we already had a store in. Blake quickly and confidently shared that information publicly. And not surprisingly, the comments from Neiman Marcus quietly ended.

We frequently read about various leaders and their shortcomings, their nastiness, their incoherent obliviousness to what is really going on. You won't read comments like that about Blake Nordstrom, and for good reason. He was a regular person, and he did a lot of good for a lot of people. And from an analytics standpoint, he was a good five years ahead of the competition when it came to using customer information. I feel blessed I got a chance to work for him and his family.

MORE!!

Those who still adore catalog marketing are in for some GOOD NEWS!!

In the past five years, two things have happened (this dynamic is called "bifurcation").

1. Classic 65 year old catalog shoppers love catalog marketing even more.
2. Everybody else appears to shop less and less because catalogs are mailed.

It turns out that (1) is a really important finding. Why? Because the math shows that these customers deserve even MORE catalogs than the 30 a year you're sending out.

Yes. Seriously.

Here's a company that sends a stunning 30 catalogs a year to best customers. And they could send MORE to the best catalog buyers. Yes. MORE.

You'd think your paper rep or your printer or your favorite boutique agency would be telling you this ... right?

In the 30% of my work that is contact-strategy-centric, this is the emerging theme of 2019. And it's been this way for years!!!!

• 85% of your customers need significantly fewer mailings.
• 15% of your customers need significantly more mailings.
• Virtually nobody should be contacted the way you are contacting them.

Contact me (kevinh@minethatdata.com) if you want to find out if your best customers deserve MORE mailings. I'll run a quick scenario for you, for free, to determine if the opportunity exists.

Pages

Say you have an 80 page catalog. Say you sent the 80 page catalog to 1,000,000 customers. Say you generated $5,000,000 in demand. Say the 80 page catalog cost $0.50, and say that 35% of sales flow-through to profit.

Got all that?

If you know these facts, you can guesstimate demand at any circ depth and any page count. Here's a grid that represents our scenario.

And if we know ad cost and we know the profit factor, we can convert the table to profit ... and therefore determine the optimal profit / page count scenario.

At each page count the "optimal" circulation depth is colored red. In our example, the company seriously under-circulated, didn't it?

And in our example, more pages is better, isn't it?

But that's just one example. Frequently, fewer pages ... far fewer pages is better.

The most important thing is that you create these tables for each of your in-home dates.

You do this, right?

Right??

Contact me if you don't do this (kevinh@minethatdata.com), and I'll help you set up a scenario so that you know the optimal page count and circulation depth.