Email Clicks Impact Other Channels, Too

Yesterday I described the importance of overlaying a QuickScore (click here) against lapsed customers ... culling out the customers who clicked through an email campaign last month.

Recall that response in the next month increased from 1.20% to 3.52% based on this simple overlay. You'd want to know that, right? And if you knew it, you'd act upon it, right?

Each channel is impacted differently by this fact.

• Call Center = 0.26% response to 0.32% response after customer clicks through an email campaign.
• Online Orders Matched To Catalogs = 0.07% response to 0.16% response.
• Email Purchasing = 0.10% response to 2.02% response (oh).
• Search Purchasing = 0.33% response to 0.36% response.
• All Other Online Marketing = 0.03% response to 0.12% response.
• All Other Online Orders = 0.25% response to 0.48% response.
• Retail In-Store Orders = 0.24% to 0.28%.
• Non Email Channel = 1.10% response to 1.50% response.

The email click results in a 35% increase (1.50 vs. 1.10) in response in channels outside of email marketing.

You'd want to know that, right?

Click here for details regarding Hillstrom's QuickScores.

P.S.: This is one way of demonstrating that "engagement" is important. Draw a link between engagement metrics and actual purchases.

Leveraging QuickScores to Trigger Actions

Ok, this one came up in a recent project.

Assume the customer has Recency = 15 Months .. .the customer hasn't bought anything in a long time. Assume historical spend is between $175 and $225 ... equalizing historical spend.

Now we segment the customer based on very simple segmentation variable.

• Yes = Customer clicked through at least one email campaign in the past month.
• No = Customer did not click through one email campaign in the past month.

Simple enough, right? You've got this data in your omnichannel customer data warehouse, right?

Now measure rebuy rates by channel in the next month, as well as overall. Here's an example from a recent analysis, where we look at overall rebuy rates in the next month.

• 15 Months Recency, $175 - $225, Click = Yes:  Next Month Rebuy = 3.52%.
• 15 Months Recency, $175 - $225, Click = No:   Next Month Rebuy = 1.20%.

Oh ... look at that!

All things being equal, the customer who clicked through an email campaign last week was almost 3x as responsive as the customer who didn't, after controlling for recency & historical spend.

Seems like you'd want to know that.

Seems like you'd act upon that if you knew that, right?

Seems like if you were a catalog brand you'd kick out a hotline catalog if the catalog was not previously mailed, right?

You can perform a simple overlay to get this information. You can use Hillstrom's QuickScores (click here) to get this information. You can use your own in-house models to obtain this information. What is most important, of course, is that you do something with the information.

Monday Musings

Life is hard enough ... so on Monday we pursue a different vector:

Grocer H-E-B performed simulations prior to the outbreak, leaving them better prepared for everything that has happened since (click here). Enjoy the oral history style of storytelling.

Dinner with the Gaffigans (click here).

Medical masks are one of Animal Crossing's hottest looks (click here).

Kringle from O&H Danish Bakery in Racine ... perfect for our trying times (click here).

Stay tuned until at least the twenty-nine second mark of the video (click here).

Christmas Clicks

I recently built a QuickScore model (click here) ... in the email portion of the model I predicted who would be most likely to click through an email campaign in the next month.

That's where the fun started:

• Customers who clicked through email campaigns between Thanksgiving and Christmas were less likely to click through a campaign in Spring ... the variable possessed a negative coefficient.

Oh.

There is so darn much good stuff to research in email click-through activity ... and almost all of it has been ignored by an industry lusting over vanity metrics. The secrets to File Power are just lying there, waiting to be discovered. Go discover how your customers actually behave as long as you are trapped at home.

Sales Impact

I ran a Twitter poll to understand how much sales have been impacted in the past few weeks:

• 10% = > 5% Sales Gain.
• 18% = -5% to +5% (i.e. Flat Sales).
• 16% = -5% to -25% (Significant Sales Decline).
• 56% = -25% or Worse Sales Decline (i.e. Catastrophe).

As you can see, about 1 in 4 Twitter readers are not seeing a sales impact, with about 1 in 10 seeing healthy sales gains.

For the 3 in 4 seeing a significant sales decline, this is the time to measure File Power. This is the time to forecast the impact of reduced File Power on the future health of the business.

For those seeing sales gains, thank your lucky stars, for you have been blessed.

Hillstrom's QuickScores

Hillstrom's QuickScores

For the duration of our virus-induced quarantine and likely well into 2021, we will have no choice but to either rebuild businesses or capitalize on a virus-induced bump in sales, with most of us in the former category. Email marketing will be one of the key drivers that restore File Power to our businesses, given the low cost and high relevancy of the channel.

Hillstrom's QuickScores addresses a targeted approach to restoring File Power, Sales, and Profit. Based on a proprietary weighting strategy that evaluates when historical purchases happened and how much was spent (by marketing channel), you will receive the following QuickScores.

• Email QuickScore:  A score that you can use for targeting purposes ... each customer ranked from highest to lowest based on the probability of purchasing via an email campaign. You'll know exactly who to target for loyalty programs, for activation programs, for reactivation programs.
• Catalog QuickScore:  For catalogers, a score that will tell you who is most likely to purchase solely because of catalog mailings. Historical purchases across channels are weighted appropriately so that you are not wasting one penny of the money your brand allocates to marketing purposes.
• Merchandise QuickScore:  Based on weighted historical transactions you will know, by customer, the Primary Merchandise Category and the Secondary Merchandise Category preferred by the customer. Used in combination with the Email QuickScore, you will be able to target the specific merchandise category that causes the customer to be most likely to purchase from an Email Marketing campaign. The scores can also be used to personalize your home page / landing pages.
• Brand QuickScore:  An overall ranking of customers from best to worst based on Brand Loyalty.

Project Cost = $8,000.

Project Turnaround = Approximately One Week.

Project Deliverable = Email QuickScore, Catalog QuickScore (if you are a catalog brand), Merchandise QuickScore, and Brand QuickScore ... you will receive pseudo-code that allows you to score your own file on a weekly / daily / hourly basis. If needed, you can send me transactions once a month and I will score your file for you and send the records back to you. If your company needs that during this challenging time, I'll do it at no cost.

Let's get busy building this infrastructure into your database now ... so that when life returns to normal you are ready to capitalize on myriad opportunities.

Test Panels and Attribution

I recently read an article from a vendor ... the vendor described their multi-touch attribution routine for catalog brands.

If you don't execute four-panel tests between catalog marketing and email marketing, multi-touch attribution routines are hopelessly flawed.

Yes, they're hopelessly flawed.

Your four-panel test gives you all of the information you need to assign weights to transactions.

Look at the email portion of the table.

• 9% of mail/phone/fax demand is attributed to email marketing.
• 98% of email demand is attributed to email marketing / almost all of it is caused by email marketing.
• 12% of search demand is attributed to email marketing.
• 11% of online marketing demand is attributed to email marketing.
• 5% of in-store retail sales are attributed to email marketing.
• 6% of all other online sales are attributed to email marketing.

That's it ... you've got it ... you executed holdout groups, and you know the exact percentage of sales that should be attributed to email. No need for AI or algorithms. You have the facts.

Look at the catalog portion of the table.

• 93% of mail/phone/fax demand is attributed to catalog marketing.
• -23% of email demand is attributed to catalog marketing. Catalogs cannibalize email, and if you take catalogs away email does much better ... so you need to subtract email demand from the catalog total to account for the corrosive impact of catalogs.
• 32% of search demand is attributed to catalog marketing.
• 25% of online marketing demand is attributed to catalog marketing.
• 8% of in-store retail sales are attributed to catalog marketing.
• 53% of all other online sales are attributed to catalog marketing.

You've got it ... you take your matchback algorithm, you apply the percentages by channel, and you know exactly what the contribution of catalogs are to your bottom line. Run a p&l by segment and you are done.

If you execute test panels, you know the truth.

I'm been writing this blog for nearly fifteen years. I've been advocating this style of testing the entire time. Get busy learning the truth about your business.

BREAKING NEWS

Your life is hard enough right now ... so click on this link and watch penguins explore Shedd's Aquarium and enjoy ninety seconds of peace.

P.S.:  This link gets you to the Brown Bear Cam at Brooks Falls in Alaska. Most of the videos now are "best of" videos from last summer ... but come July/September you'll want to watch the action live.

P.P.S.:  This "dog in training" failed.

P.P.P.S.:  This goat had to "shake it off".

The Math Behind Business Coming Back

Let's say that this virus issue causes your business to lose 40% of your top-line volume for two months ... and this is possible, especially if you are retail brand.

While devastating for two months, there is math that offers subsequent hope.

I first saw this working at Lands' End in 1991 - 1992. With business not spectacular, we had huge gluts of customers who did not repurchase when business was bad. When business returned to normal we actually experienced gains in 1993 simply because larger gluts of customers repurchased at the same rate they were expected to repurchase at, causing a modest sales rebound.

In the example above, business is down 40% for months 1-2, when the customer has a recency of 1 month or 2 months. You lose 48 purchasers in the first month. You lose 32 purchasers in the second month ... you are 80 customers behind after two months.

This leaves you with a glut of 792 non-purchasers entering month three under normal conditions ... under crisis conditions, you have 872 non-purchasers. Even with normal repurchase patterns over the next ten months you have more customers in your cohort, causing more repurchasers.

• After Two Months you are down 80 repurchasers.
• After Twelve Months you are down 51 repurchasers.

In other words, you regain 37% of the customers you lost during the two-month catastrophe.

Many customers come back ... as long as merchandise productivity returns to normal.

That's the key to this ... merchandise productivity must return to normal.

Business Does Come Back

Let's roll the clock back to 2001-2002. Here's one example of the hole in demand from September 2001 ... notice that business does rebound. Business does come back.

The challenge we face this time is different.

For many e-commerce businesses, right now it's practically "business as usual". They managed inventory well and some are experiencing sales surges while others are running -10% or -20% ... not great, but manageable.

Retail is a whole 'nuther story. Pretend you are Ann Taylor. Your mall operator shut down your stores. You've got all that inventory sitting there until sometime between mid-May and maybe mid-August. How do you predict how much inventory you need to buy for Fall/Winter? "AI" cannot help you with that one.

When business does come back (and it will), there will be a transition period where stale merchandise has to be sold, typically at fire sale prices. The challenge will be to get through that process with as little damage as possible to an already hobbled p&l before anything else happens.

Our industry is well prepared to handle this transition.

• Baby Boomers have been through numerous challenges and know how manage crisis situations.
• Gen-X leaders survived the dot.com crash and the Great Recession.
• Millennials have operated in an odd business climate for an entire career!

We have the right mix of talent, experience, and modern viewpoints to get through this challenge. Business does come back ... and you are going to be the person who helps bring it back!

For My Catalog Readers

If you are required to cut back on marketing spend (at the very time when you need to maintain marketing spend to keep the wheels on the bus), you need a plan.

For my catalog readers:

• This is not the time to cut back on customer acquisition ... the opposite of what you are being told. You will need the new customers when things return to normal.
• This is EXACTLY the time to cut back on mailings to average/marginal customers. Across my sims it is obvious that nearly every catalog brand is over-mailing average and marginal customers.
• If a customer has clicked through an email campaign in the past month, cut back on catalog mailings and ramp-up on personalized email campaigns.
• If a customer has purchased via email marketing in the past year, cut back on catalog mailings and ramp-up on personalized email campaigns.
• If a customer has purchased via any type of social activity, cut back on catalog mailings as you already have a mostly free channel to "engage" the customer in.
• Most "digital" customers are less likely to purchase in the future ... and their transactions are likely 50% or more "organic" (i.e. not driven by catalog marketing). Have your marketing analyst carefully assess the viability of catalog marketing to this audience.

If you don't have a process to evaluate the bullet points above or don't have the bandwidth to do so, contact me right away and we'll get busy, ok??  (206-853-8278 ... kevinh@minethatdata.com).

Finally ... for catalog readers ... it is really important to measure File Power each week. Every Monday morning you absorb transactions from the week prior, you assess how far response is from normal, you plug in response efforts by week through mid-summer assuming things continue "as-is", and you forecast weekly / monthly sales as a consequence. This is where leadership and a forecast/simulation environment become so darn important.

P.S.:  You were born to be a Leader at this unique time in history ... you've got this!!!!

CUT THE BUDGET - NOW!!!

Your CFO just video conferenced with you from her home ... where her eight year old pup is busy tearing into a t-shirt left on the floor.

Business is down 30%, and she's afraid you'll be out of business if this "virus-paranoia" as she calls it continues into the summer. Your forecast suggests this will continue longer than into the summer.

She's run a profit-and-loss statement, assuming you end the year down 30% on the top line.

Ouch.

She also knows that she can't demand layoffs because nobody will buy from a brand that fires people because customers aren't buying because customers may be dying.

So she's come to you.

She's looking at the Ad Cost line.

She thinks that thing needs to be at $5,000,000 this year, not $10,000,000.

She wants you to cut the living daylights out of your marketing budget.

And she doesn't want sales to disappear.

Good luck!

If your CFO is smart, the last thing she's going to ask you to do is cut the marketing budget. She knows that if you cut the marketing budget, your p&l will change:

So yes, you saved the p&l. But you lost $8,000,000 of FILE POWER on top of the $15,000,000 of File Power that the virus took from you. This means that next year will be lousy.

Yes, you're trapped between a virus, a CFO, and a looming File Power issue. It's up to you to triangulate around the issue. And you can do it!!



P.S.: Somebody is going to tell you to stop your customer acquisition efforts. That "somebody" is 100% wrong. You'll need all the new customers you can get so that when the hounds are released and the world returns to something closer to normal you'll have a business.

As Malls Close

They're closing malls in Pennsylvania.

Brands like Patagonia and Urban Outfitters are shutting down.

All necessary, of course. If you think it is an overreaction, that's your perspective and let's pray that you are proven right.

We'll need to assume that retail essentially shuts down for a couple of months. With luck, some sales migrate over to e-commerce, leaving you with an annual p&l that might have looked ok but will instead look like this:

You might lose almost 90% of annual (ANNUAL) retail profit by being virtually shut down for eight weeks. If you can move 20% of what you lose online (while holding e-commerce sales flat ... which is a big challenge), you double (in this example) e-commerce profit, saving your business for the year.

You were born to be a Leader ... you were born to figure out how to solve really challenging problems.

This is a really challenging problem.

You've got this.

Tomorrow we'll talk about what happens to File Power and Expenses ... given that your CFO is going to DEMAND that you cut that marketing budget in half to "save" your business at the very moment you shouldn't reduce spend a bit.

Quick Mini-Project Offer and a Freebie

Yup, you're dealing with coronavirus issues.

Sales might be down ... might be down significantly.

You're not even in the office.

And you are being asked to figure out what impact two months of bad business will have on 2020, right?

So let's try something. Since we're all working from home, let's do a virtual mini-project.

• Cost = $7,999. I'll measure the impact on File Power, and share with you possibilities for business bouncing back as well as sharing customers who you'll have to keep marketing to in order to keep growth possibilities alive. This is not a typical product offering, and is a product offering that is darn important given what is going on.
• We'll video conference or Skype ... face-to-face virtual meetings.

Send me an email (kevinh@minethatdata.com) or call me at 206-853-8278. We'll try to leverage our virtual office situation as well as is reasonable, given the challenges we're all facing.

And now time for the freebie ... in the spirit of virtual work environments, let's try something. I will offer three free File Power video conferences in half-hour increments on March 17, between 11:00am EDT and 5:00pm EDT. If you'd like to ask me any File Power questions ... as they relate to a business downturn, you may schedule a call (206-853-8278) or you may meet with me via Skype. Hurry - slots will fill immediately.

This Is Your Time To Shine

Well, the wheels started to come off the bus on Wednesday, didn't they?

This is your time to shine.

You are a Leader. A Professional. You have a position of authority for a reason. For times like this.

Nearly twenty years ago we went through a major disruption ... September 11. No NFL games. No MLB games. No flights anywhere. Markets disrupted. Lives taken. War coming. Anthrax. A generation of Leaders and Professionals pushed everybody through that experience.

This experience might be mild compared to that. 

This experience might be horrific compared to that.

Regardless, you don't control what is happening ... you control your response to what is happening.

This is your moment. You are a Leader. It's time to shine. I believe in you!! The people you lead need to believe in you.

What Does My Dog Have To Do With File Power?

See that big "crunchable" there? That's what I call those things ... my dog (Dash) loves 'em. He gnaws the hardened chicken off of them, then retires to a hard-earned nap.

Safeway and Walgreens sell them for about $5 a pair. My dog could work through six of those a day if left to his own devices, so that's an expensive hobby.

Safeway and Walgreens keep about four bags of those on hand each week, so I needed a different source. That's where PetSmart enters the picture. They sell the two-packs in large quantities. I'll order 30 2-pack bags. About the same price as Safeway and Walgreens. Delivery in 4-7 days, on average.

Then I noticed that Walmart sells 5-packs for about the price of a 2-pack at PetSmart. Ding! I order eight of the five-pack bags. Dash is happy. I'm happy. Delivery in about 36 hours.

This goes on for about two months.

And then?

Something changes.

The crunchables sent by Walmart are "different" ... packaged the same, priced the same, but the hardened chicken is no longer fused to the rawhide. Dash can peel the chicken off in about ninety seconds. Not only does he pile on the calories, but the whole game that he loves to play, a game that usually takes 10 minutes +/- ... the game is over.

He doesn't like the new formulation that the vendor created for Walmart in an effort to save cost.

And I don't like that PetSmart has price parity with Safeway/Walgreens. If I'm buying such a huge quantity, shouldn't PetSmart be able to save me a couple of dollars?

So I've reverted back to Safeway/Walgreens.

When PetSmart analyzes File Power, they'll see an infrequent customers ... and they'll conclude that I'm not worthy of their attention. They'll say I don't possess File Power.

When Walmart analyzes File Power, they'll see a lapsed customer ... and they'll conclude that I'm not worthy of their attention. They'll say I don't possess File Power.

Safeway/Walgreens will see that I lapsed in a product category and then returned. They'll say I'm worthy of their attention. They'll say that I possess File Power.

All four brands, of course, are "wrong". It's a product/price/quantity issue, and all four brands fail to meet my expectations.

Frequently, File Power is a byproduct of executing your merchandising strategy incorrectly. Get product/price/quantity right, and the customer delivers long-term File Power.

But They Need To See New Merchandise

One of the first things I look at in a File Power analysis is new merchandise.

• Do the best customers prefer new merchandise?
• Do new/marginal customers purchase new merchandise?
• Does the brand push existing merchandise at new/infrequent customers?

Here's the format of the grid system I produce within a File Power analysis.

The best customers (Grade = "A") reside in segment X=5, Y=5. Those customers generate 48% of their sales via New Merchandise.

Marginal customers (Grade = "F") reside on the left side of the table ... typically at X=1 or X=2. They generate between 15% of their sales and 30% of their sales via New Merchandise.

It's common for old-school catalogers to stuff the catalog full of best sellers to maximize prospect performance. In other words, catalogers frequently "cause" this dynamic to happen.

For e-commerce brands, the dynamic still frequently happens. Best customers are bored by the same-old-same-old ... best customers seek out new merchandise.

The e-commerce brand can personalize the experience to serve multiple audiences.

• Feature newness to best customers, maximizing response/conversion.
• Feature best-selling winners to prospects and infrequent buyers, maximizing response/conversion.

Do something different for each audience, and you'll find you have more File Power ... resulting in better short-term sales and better long-term potential.

Personalization = File Power

I've told this story before, but the story is so juicy that one can't help but tell it again.

Years ago, I'm sitting in an Executive Meeting. An analyst ... a little 'ole analyst ... is presenting findings from her personalization work. She's probably making $60,000 a year and yet she personalized emails and the home page and landing pages with the merchandise a customer wants to purchase. Her work "works" ... not like the nonsense pundits tell you to do ... her stuff actually causes customers to respond almost 50% better.

Because of personalization.

She figures that she's impacting 20% of e-commerce transactions by almost 50% ... in other words, she and she alone is causing e-commerce sales to increase by 10%.

Think about her work this way.

• Base Case = $50,000,000 net sales at a 35% profit factor, $7.5 million ad cost, $8,000,000 fixed costs ... Profit = $50,000,000*0.35 - $7,500,000 - $8,000,000 = $2,000,000.
• Personalization = $60,000,000 net sales at a 35% profit factor, $7.5 million ad cost, $500,000 personalization software cost, $8,000,000  fixed costs ... Profit = $60,000,000*0.35 - $7,500,000 - $500,000 - $8,000,000 = $5,000,000.

Without personalization = $2,000,000 profit.

With personalization = $5,000,000 profit.

This analyst, at $60,000 per year, is generating $3,000,000 of annual profit ... profit that the Executive Team is going to get to share via bonus payouts of close $200,000 each.

How do you think the Executive Team responded to this finding?

After her presentation, they mocked the analyst.

"She doesn't get it."

"When she personalizes what a customer sees, she destroys the essence of 'the brand'".

"How will the customer see new merchandise if all she ever does is present best sellers to customers to boost conversion rates?"

Even the analyst missed a key point.

• Her work caused an additional $10,000,000 in sales, which resulted in 75,000 additional customers. Those customers would generate $5,000,000 in additional sales / File Power next year, causing another $1,200,000 profit after factoring in incremental ad costs.

This happens EVERY DAY, folks.

Executives babbling about nonsense.

Analysts missing key benefits of their work.

You've got to study File Power if you want to understand how your business truly behaves. If you aren't studying File Power, you are harming your business.

It Is Possible To Create File Power Via Discounts / Promotions - Be Smart

Macy's is always 40% off and is always on sale and as a result they don't stand for anything. They don't generate any File Power from their promotions because EVERYBODY gets a deal. They're just operating a tired business model, one that brought customers into a mall so that all mall tenants could benefit from the traffic.

Your business is more special than that, right?

So here's an example of how you could generate File Power while still executing the discounts and promotions that you love to execute ... getting mileage out of your CRM efforts so that your CFO feels like your investment in "data" was worthwhile.

Here a company called Last Bottle (click here). When somebody is down to a handful of bottles, they can clear 'em through Last Bottle. On Leap Day (several days ago), they had a promotion ...

You've all seen the "Receive $30" promotion ... though it always amazes me that old-school companies reject this effort while embracing paying intermediaries to do the hard work.

But look at the promotion on top.

Tell me how you couldn't make this work for your liquidations efforts? You don't give the promotion to everybody, you only give the promo to the customer taking the LAST item.

And I know, I get it, your systems "can't handle" that kind of promotion.

Doesn't that mean that "your systems" are antiquated and you need to change?

Do things that increase File Power.

It's March, and Those Christmas Buyers are Dormant

I spoke at a conference. One of my slides on File Power criticized customers acquired at Christmas. I made it very clear that when you acquire a customer at Christmas, you make a File Power tradeoff.

• You earn top-line Christmas sales.
• You might earn bottom-line benefit before the end of your year.
• You lose long-term File Power.
• Without long-term File Power you become a transactional brand who is weakened all year and then pays Google/Facebook $$$ to save the year.

If you've ever had a chance to speak in front of an audience, you know as well as I do that somebody in the audience is going to be offended by what you say, and wants to make sure they "correct the speaker". The conversation goes something like this:

Expert:  Do you really believe that Holiday buyers are worth less?

Kevin:  I've analyzed billions of transactions. I have proof.

Expert:  I must say, I don't believe you.

Kevin:  Why?

Expert:  Well, our brand is kind of unique and special. Our value proposition enables us to harvest Holiday demand efficiently.

Kevin:  You don't even know what you just said, do you?

Expert:  I'm just saying we acquire Holiday buyers at or below break-even, and we can convert them efficiently.

Kevin:  What is the rebuy rate of Christmas buyers in the first half of the year?

Expert:  We don't look at data that way.

Kevin:  Do you look at the data at all?

Expert:  I just think it is short-sighted to criticize brands who harvest Holiday buyers at the time of the year when the fish are most likely to bite.

If you measure File Power, you know the Expert is just plain wrong. The time to acquire a customer is in the 1-3 months prior to a "peak season". If you have a Spring Peak in April, you acquire customers in February / March so that they have a chance to buy again in April. Now you have two purchases from the customer, and guess what? You have File Power! You have a customer who is much more valuable than the customer who buys when the "fish are biting".

You're likely experiencing File Power problems here, in early March. You acquired all of those Chirstmas customers and those customers are just sitting there waiting for 40% off and free shipping. You can't budge 'em. And if you think you can budge 'em, perform your File Power analysis and see if what I'm talking about makes sense to you or not.

You Don't Integrate Email Marketing, So Why Integrate Other Channels?

Don't believe me?

Run this analysis for me tomorrow.

1. Sum all sales attributed to all channels for the past year.
2. Sum gross margin dollars attributed to all channels for the past year, subtracting all promos and discounts.
3. Divide gross margin dollars by sales ... for each channel.
4. Look at the results for the email marketing channel.

Since I first analyzed this back at Eddie Bauer more than twenty years ago, the results are consistent.

• In email marketing, you are likely to find the worst gross margin percentage, or close to the worst gross margin percentage.

In other words, our industry spent more than twenty years making sure that the best deals are always available via email marketing.

Why do we allow this?

In an industry with unfettered zeal toward making sure that everything is integrated and aligned and synergized ... we allow the best promotions and the lowest prices in email marketing.

You already treat email marketing fundamentally different than all other channels.

Might it be time to treat all channels differently in an effort to drive true File Power and profitability?


P.S.: This is where I get feedback ... folks reach out and say they disagree with me, they'll say that email is fully integrated with the rest of the business. And I'll ask them if they have run my analysis yet and they'll say "NOOOOO". This is the problem we're dealing with. We don't actually analyze issues. We just believe stuff. I'm asking you to analyze stuff.

Adjusting Ad Spend / File Power

Folks are in a froth about the potential for a global pandemic ... both from a health standpoint and from a business standpoint.

We do not know whether "nothing" will happen, or "something" will happen, or "something awful" will happen.

We do know that people will react, regardless.

Pay close attention to your daily sales totals, and compare them to your forecast. In the next few weeks, you might see a downturn in sales.

When a downturn in sales happens, it is common for there to be consequences.

1. Sales disappear, and the do not return.
2. Sales are suppressed for a week/month, and then sales reappear so that in total there is minimal impact on the business.

This issue is directly tied to File Power. If sales reappear, you do not lose File Power. If sales disappear, there is a chain of events that transpire that further impact File Power.

1. Marketers will cut back on marketing budgets to align the expense structure with the downturn in sales. This hurts File Power, making it difficult to grow the business later this year.
2. Marketers incorrectly cut back on marketing spend with new/reactivated buyers, making it difficult to grow the business in subsequent years.

Catalog brands (about 35% of my audience) have a unique advantage ... they can cut back on marketing spend and have minimal impact on top-line volume ... consequently, minimal impact on File Power.

• If your in-house staff can accurately measure your Organic Percentage and then cut back appropriately on catalog ad cost, have them prepare the methodology RIGHT NOW so that you can act when the time is appropriate.
• If your in-house staff cannot accurately measure your Organic Percentage, have me measure it RIGHT NOW (at an individual customer level) so that in a month or three months you can act in a way that doesn't hurt your top-line but aligns business expenses with a potential downturn in sales.

The key, of course, is to act RIGHT NOW so that you are ready to pull the trigger if sales should decline. Make sure you protect future File Power ... you don't want to pile problems on top of each other.

A Quick Investment Quiz

You have a customer segment. If you choose to mail old-school catalogs to this segment for a year, you will gain the following sales outcome.

• Sales Increase This Year by $3.0 million.
• Sales Increase Next Year by $1.8 million.
• Sales Increase in Year 3 by $1.0 million.
• Sales Increase in Year 4 by $0.6 million.
• Sales Increase in Year 5 by $0.4 million.
• Five Year Sales Gain = $6.8 million.

You also gain the following five year profit outcome.

• Profit Decrease This Year is $0.3 million.
• Profit Increase Next Year by $0.3 million.
• Profit Increase in Year 3 by $0.2 million.
• Profit Increase in Year 4 by $0.2 million.
• Profit Increase in Year 5 by $0.1 million.
• Five Year Profit Gain = $0.5 million.

In other words, the act of mailing catalogs results in a nice sales gain, a loss this year, and then downstream profit because customers were reactivated / retained. In total, you lose $300,000 this year but make $800,000 in the future, for a net gain of $500,000 profit.

Do you lose money today to make money long term?

Do you make money today and post better results this year?

Select one outcome or the other, and then discuss why you made the choice you made.

Thanks,

Kevin